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Approximate date of commencement of proposed sale to the public: As soon as practicable after the Registration Statement becomes effective.

If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933 check the following box: o

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o

If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. o


(1)	Includes offering price of shares of common stock that may be purchased by the underwriters to cover over-allotments.

(2)	Estimated solely for the purpose of calculating the amount of the registration fee pursuant to Rule 457(o) under the Securities Act.

The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with section 8(a) of the Securities Act of 1933 or until the registration statement shall become effective on such date as the Commission, acting pursuant to said section 8(a), may determine.

The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted.

We are selling shares of our common stock and the selling stockholders named in this prospectus are selling shares. We will not receive any proceeds from the sale of the shares by the selling stockholders. The selling stockholders have granted the underwriters an option to purchase up to additional shares of common stock to cover over-allotments.

This is the initial public offering of our common stock. We currently expect the initial public offering price to be between $ and $ per share. We will apply to have the common stock included for quotation on the Nasdaq National Market under the symbol “RHEO.”

Investing in our common stock involves risks. See “Risk Factors” beginning on page 8.

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

You should rely only on the information contained in this prospectus. Neither we nor the selling stockholders have authorized anyone to provide you with different information. We and the selling stockholders are offering to sell, and seeking offers to buy, shares of our common stock only in jurisdictions where offers and sales are permitted. The information in this prospectus is accurate only as of the date of this prospectus, regardless of the time of delivery of this prospectus or of any sale of shares of our common stock.

In the United States, until , 2004 (25 days after the commencement of this offering), all dealers that buy, sell or trade our common stock, whether or not participating in this offering may be required to deliver a prospectus. This requirement is in addition to the obligation of dealers to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions.

You should read the following summary together with the entire prospectus, including the more detailed information in our audited consolidated financial statements and related notes included elsewhere in this prospectus. You should consider carefully, among other matters, the matters we discuss in “Risk Factors.”

We are an ophthalmic therapeutic company founded to commercialize innovative treatments for eye diseases, including age-related macular degeneration, or AMD. AMD is the leading cause of visual impairment and legal blindness in people over the age of 50 in the United States and other Western industrialized societies. Our RHEO System contains a pump that circulates blood through two filters and is used to perform Rheopheresis, a form of apheresis, which we refer to under our trade name RHEO Therapy, which is designed to treat Dry AMD. We believe that Dry AMD afflicts approximately 13.0 to 13.5 million people in the United States, representing approximately 85% to 90% of all AMD cases. Although the exact cause of AMD is not known, researchers have identified several factors that are associated with AMD, including poor microcirculation and the gradual build-up of cellular waste material in the retina. The identification of these factors has led us to believe that a treatment that improves microcirculation in the retina can help to enhance the metabolic efficiency of the retina and the removal of waste material and thereby aid in the treatment of Dry AMD. We believe there is a significant market opportunity for such a treatment.

Our RHEO System is designed to improve microcirculation in the eye by filtering high molecular weight proteins and other macromolecules from the patient’s plasma. We believe that our RHEO System is the only Dry AMD treatment to target what we believe to be the underlying cause of AMD rather than its symptoms. We began limited commercialization of our RHEO System at two clinics in Canada in 2003. We are currently conducting a pivotal clinical trial, called MIRA-1, which, if successful, is expected to support our application with the U.S. Food and Drug Administration, or FDA, to obtain approval to market our RHEO System in the United States. MIRA-1 follows ten years of successful clinical trials and studies on Rheopheresis conducted outside the United States. We believe that RHEO Therapy is currently the only Dry AMD therapy that, based on preliminary data, appears to demonstrate improved vision in some patients. Fifty-eight percent of patients in the MIRA-1 interim analysis entering the clinical trial with worse than legal driving vision improved to meet or exceed the requirements to regain a driver’s license. We plan to complete enrollment in MIRA-1 and submit to the FDA the non-clinical portion of our Pre-market Approval Application, or PMA, before the end of 2004. In addition, we currently plan to submit the clinical portions of our PMA following the completion of six-month and 12-month post-treatment data sets.

In anticipation of commercialization in the United States, we are establishing a plan to educate members of the eye care community about RHEO Therapy. We are currently identifying multi-facility health care service providers including hospitals, dialysis clinics and ambulatory surgery centers, as well as private practices, which may be future users of our RHEO System if and when we receive FDA approval. We believe that one of these potential providers may be TLC Vision Corporation, an eye care services company, which we believe has relationships with a large number of optometrists and ophthalmologists in the United States and which, after this offering, will own approximately % of our outstanding common stock. We believe that multi-facility health care providers and private eye care professional practices will be interested in providing RHEO Therapy in their facilities. We are also seeking to establish Medicare reimbursement for RHEO Therapy. We believe that an insurance billing code established by the American Medical Association in January 2003 accurately characterizes the RHEO Therapy procedure. If our RHEO System receives FDA approval, we plan on seeking a Medicare National Coverage Determination for RHEO Therapy for specified patients with Dry AMD, with the goal of securing Medicare coverage under the existing procedure code for use in the treatment of Dry AMD.

AMD is a chronic, progressive disease of the macula, or the central part of the retina, that results in the loss of central vision, and cannot be corrected by refractive means, such as glasses, contact lenses or laser eye surgery. Dry AMD is characterized by a gradual decrease of visual acuity, pigment abnormalities on the macula and the build-up of protein and lipid deposits, called drusen. This build-up of drusen affects the microcirculation in the eye. Research suggests that the retinal cells, overwhelmed by the lack of oxygen and nutrients and the build-up of debris, enter into a dysfunctional state. Without treatment, the retinal cells ultimately die and do not regenerate, leading to irreversible vision loss either through the progression of Dry AMD or conversion into Wet AMD, the other form of the disease.

There is currently no cure for Wet AMD. Retinal specialists may treat the symptoms of Wet AMD using one of very few approved therapies currently available, including thermal laser treatment or photodynamic therapy. In addition, there are currently more than 30 therapies being evaluated in U.S. clinical studies for the treatment of Wet AMD. These treatments may slow the progression of the disease, but do not prevent the reoccurrence of abnormal blood vessel growth and do not restore lost vision. The only currently accepted treatment option for persons with advanced cases of Dry AMD is to take over-the-counter vitamin, antioxidant and zinc supplements which can reduce, but do not eliminate, the risk of conversion to Wet AMD. According to the Age Related Eye Disease Report, or AREDS Report, No. 11, vitamins, antioxidants and zinc supplements only reduce the five-year risk of conversion into Wet AMD by up to 25% for Category 3 and Category 4 Dry AMD cases. Regardless of the supplement treatments, Dry AMD may ultimately lead to irreversible vision loss, whether or not it converts into Wet AMD.

We believe that approximately 15 million people in the United States suffer from AMD. According to a ten-year study published in Ophthalmology in October 2002, the prevalence of AMD increases sharply with age, from 18% among people 65 to 74 years of age to 47% among people 85 years and older. A study by Duke University published in 2003 reported that the prevalence of AMD among a selected sample of U.S. residents aged 65 and older was 27% in 1999. According to the U.S. Census Bureau, the number of people in the United States aged 50 or older is approximately 80 million and is expected to increase by approximately 40% over the next two decades. We expect that this increase in the number of elderly people will result in a significant increase in the number of cases of AMD in the United States.

Our RHEO System, which contains a pump and two filters, is designed to filter high molecular weight proteins and other macromolecules from the patient’s plasma and improve microcirculatory function. We believe that blood filtered with our RHEO System is able to flow more easily through the tiny capillaries of the eye and that the resulting improved microcirculation more effectively supplies the macular cells with oxygen and nutrients, facilitating removal of cellular waste materials. We believe our RHEO System offers the following potential benefits:


	•	Addresses a large AMD patient population with limited current treatment options. Current Wet AMD treatments are effective only on patients who are newly-diagnosed with Wet AMD, of which there are approximately 200,000 in the United States each year. RHEO Therapy, however, is a treatment for patients in the Category 3 and the Category 4 Dry AMD population, which, according to the AREDS Report, represents approximately 54% of the total U.S. Dry AMD patients, or currently approximately 8 million people.

	•	Preserves or improves vision of Dry AMD patients. Success in treating AMD is generally measured by the ability to slow or halt progression of the disease. We believe that RHEO Therapy is currently the only Dry AMD therapy that, based on preliminary data, appears to improve vision in some patients. Fifty-eight percent of patients in the MIRA-1 interim analysis who entered the study with worse than legal driving vision improved to meet or exceed the requirements to regain a driver’s license.


	•	Provides a patient-friendly procedure. RHEO Therapy is a form of therapeutic apheresis, a procedure that selectively removes molecules from the plasma. Apheresis has been used safely for more than twenty years in the United States and Europe to treat various diseases including leukemia, rheumatoid arthritis, sickle cell disease and several other medical conditions.

	•	Presents limited barriers to adoption for eye care professionals and health care service providers. We believe that our RHEO System requires lower capital expenditures and less physical space than equipment used in many other procedures performed by eye care professionals, including laser vision correction and cataract surgery. Our RHEO System requires no special installation and minimal maintenance expenditures. We believe that RHEO Therapy, which can be administered by a nurse, can be easily integrated into our customers’ workflow and offers an attractive source of additional revenues for facilities and providers.

	•	Offers a cost-effective procedure. An initial course of RHEO Therapy is initially expected to cost approximately $16,000. We believe that Medicare and third-party payors will determine that the benefits of RHEO Therapy will justify the cost of reimbursement. We also believe that to the extent that RHEO Therapy is not reimbursed by the government or private third-party payors, some patients with the economic means to do so will be willing to pay for RHEO Therapy themselves in order to avoid the consequences of uncorrectable impaired vision, including, but not limited to, the inability to drive.

Our goal is to establish RHEO Therapy as the leading treatment for Dry AMD in North America. Key elements of our strategy include:


	•	Creating a plan to develop market awareness of RHEO Therapy by educating eye care professionals and patients. If RHEO Therapy is approved by the FDA, we intend to increase market awareness of RHEO Therapy by identifying and developing relationships with key opinion leaders in each of the eye care disciplines, including ophthalmologists and optometrists. We believe that these opinion leaders, some of whom are investigators in MIRA-1, will help establish acceptance for RHEO Therapy. If and when we receive FDA approval, we intend to launch a public relations campaign targeted directly at patients and advocacy groups to alert them to our treatment. Members of our management team were leaders in creating market awareness of laser vision correction when it was introduced to the North American market in the 1990s, and, in doing so, they were effective in creating relationships with a large number of optometrists and ophthalmologists in the United States.

	•	Establishing third-party reimbursement for RHEO Therapy. We believe that an insurance billing code established by the American Medical Association in January 2003 accurately characterizes the RHEO Therapy procedure. This code identifies therapeutic apheresis with extracorporeal selective adsorption or selective filtration and plasma reinfusion. If and when the FDA grants approval for our RHEO System, we plan on seeking a Medicare National Coverage Determination for RHEO Therapy for specified patients with Dry AMD, with the goal of securing Medicare coverage under the existing procedure code for use in treatment of Dry AMD. Currently, Medicare covers and pays for other FDA-licensed services billed with this code only when performed in a hospital outpatient setting. A proposed payment rate for FDA-licensed services billed with this code when performed in a physician office-based setting has been published by the Centers for Medicare and Medicaid Services, or CMS, for public comment. We expect that this new physician office-based reimbursement policy will go into effect on January 1, 2005 and will apply to services performed on that date and thereafter. Private insurers already commonly provide reimbursement for treatments performed in physician offices and physician-directed clinics for FDA-licensed services. We also plan to assist our customers in securing coverage and appropriate reimbursement for RHEO Therapy from Medicare and private insurers through a dedicated reimbursement group and the provision of detailed supporting documentation.


	•	Securing relationships with key multi-facility health care service providers. To facilitate a rapid rollout of our RHEO System, if and when we receive FDA approval, we are identifying key groups of multi-facility health care service providers, including hospitals, dialysis clinics and ambulatory surgery centers, as well as private practices, which may be future treatment centers for our RHEO System. In advance of commercialization in the United States, we intend to develop a plan to ensure that there is an adequate supply of trained nurses to support our service provider partners. We intend to leverage the experience of clinics in Canada currently using our RHEO System to assist in training nurses and our service provider partners in advance of FDA approval. We believe that our experience in Canada and the experience of one of our principal stockholders in Germany will allow us to develop best practice guidelines for integrating RHEO Therapy into a clinic setting.

	•	Ensuring sufficient manufacturing capacity and inventory to support our commercialization plan. We intend to work with our manufacturing and supplier partners to ensure that there is sufficient capacity and inventory to support our commercialization plans. In advance of FDA approval, we intend to accumulate an inventory of filters and pumps to support a rapid product launch. We have a distribution agreement with Asahi Medical Co., Ltd., a subsidiary of Asahi Kasei Corporation, which has appointed us as exclusive distributor of the filters used in our RHEO System for use in treating AMD in the United States, Canada, Mexico and certain other countries. We recently signed a purchase order with Asahi Medical for 9,600 Rheofilters. We anticipate that we will begin ordering 4,000 filters per quarter starting in late 2004. We intend to continue to order 4,000 filters per quarter in 2005 and 2006 in order to accumulate inventory in excess of our current requirements until we receive FDA approval. We will be working closely with Asahi Medical to develop and conduct clinical tests on a next generation polysulfone Rheofilter with similar characteristics to the current cellulose acetate Rheofilter. We believe that the proposed polysulfone Rheofilter will be able to be manufactured at significantly higher volumes and lower costs than the current filter technology.

	•	Maintaining our intellectual property portfolio and other barriers to entry. We believe that our intellectual property position may assist us in maintaining our competitive position. We also believe that the manufacturing process expertise relating to the production by Asahi Medical of the Rheofilter is protected by Asahi Medical as a trade secret. We believe that the exclusive nature of our supplier relationship with Asahi Medical provides us with a competitive advantage. We intend to continue to strengthen our relationship with our exclusive supplier and to strengthen our current patents and seek additional patent protection.

We were originally incorporated in Florida in 1996 as RheoLogix Corporation and we were reincorporated in Delaware in 2002 as Vascular Sciences Corporation. We changed our name to OccuLogix, Inc. on July 29, 2004. Prior to this offering, we carried on our business directly and indirectly through OccuLogix, L.P., a Delaware limited partnership, beneficially owned 50% by us and 50% by TLC Vision. Prior to this offering we will acquire TLC Vision’s 50% interest in OccuLogix, L.P. in exchange for which we will issue shares of our common stock to TLC Vision.

Our principal executive office is located at 5280 Solar Drive, Suite 100, Mississauga, Ontario L4W 5M8, and our telephone number is (905) 238-3910. The information contained on our website or on the website of any of the selling stockholders is not part of this prospectus and is not incorporated in this prospectus by reference.

OccuLogix, Our Vision is Your Vision RHEO Therapy and RheoLogix are trademarks of OccuLogix, Inc. All other trademarks, trade names or service marks appearing in this prospectus are the property of their respective owners.

The number of shares of our common stock referred to above to be outstanding after this offering, and, unless otherwise indicated, the other information contained in this prospectus reflects consummation of the following transactions, which we refer to collectively as the “Reorganization”:


	•	the issuance of 4,622,668 shares of common stock to be issued upon the automatic conversion of all our outstanding shares of Series A and Series B convertible preferred stock upon the closing of this offering;

	•	the issuance of 7,106,455 shares of common stock to TLC Vision and Diamed Medizintechnik GmbH upon conversion of $7 million aggregate principal amount of convertible debentures to be held by them immediately prior to this offering. The conversion price is $0.98502 per share; and

	•	the issuance of 19,105,426 shares of common stock to TLC Vision in connection with the purchase by us of TLC Vision’s 50% interest in OccuLogix, L.P. immediately prior to this offering. This amount includes shares of common stock which will be issuable upon the exchange of shares of OccuLogix ExchangeCo Inc., one of our Canadian subsidiaries, issued for tax purposes to TLC Vision in connection with the purchase of OccuLogix, L.P.

This information also assumes no exercise of the underwriters’ over-allotment option.


	•	1,955,899 shares of common stock issuable upon the exercise of options outstanding as of July 30, 2004 granted under our 2002 stock option plan, our 1997 stock option plan or outside our stock option plan at a weighted average exercise price of $1.44 per share;

	•	561,895 shares of common stock reserved for future issuance under our 2002 stock option plan; and

	•	37,500 shares of common stock issuable upon the exercise of outstanding warrants held by certain of our stockholders, or 25,826 shares of common stock assuming the cashless exercise of all such warrants (if such warrants were exercised on July 30, 2004).

The following table provides our summary historical and pro forma consolidated financial data for the periods and as of the dates indicated. We derived the summary historical consolidated financial data for the years ended December 31, 2001, 2002 and 2003 from our audited consolidated financial statements included elsewhere in this prospectus. We derived the summary historical consolidated financial data as of March 31, 2004 and for the three months ended March 31, 2003 and 2004 from our unaudited consolidated financial statements, included elsewhere in this prospectus, which include all adjustments, consisting of normal recurring adjustments, which, in our opinion, are necessary for a fair presentation of the financial position and results of operations for these periods. Historical results are not necessarily indicative of the results of operations to be expected for future periods, and interim results may not be indicative of results for the remainder of the year.

The information in the table below is only a summary and should be read together with our audited consolidated financial statements as of December 31, 2002 and 2003 and for the years ended December 31, 2001, 2002 and 2003 and the related notes, our unaudited consolidated financial statements as of March 31, 2004 and for the three months ended March 31, 2003 and 2004 and the related notes, “Selected Consolidated Financial Data” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” all as included elsewhere in this prospectus.

The summary historical consolidated financial data reflect our 50% interest in OccuLogix, L.P. Prior to this offering, we will own 100% of OccuLogix, L.P. The summary pro forma consolidated statements of operations data for the year ended December 31, 2003 and the three months ended March 31, 2004 below give effect to the Reorganization as if it had occurred on January 1, 2003. The summary pro forma as adjusted consolidated balance sheet data gives effect to the Reorganization and our receipt of net proceeds of $ million from this offering at an assumed initial offering price of $ , the midpoint of the range set forth on the cover of this prospectus, after deducting underwriting discounts and commissions and estimated offering expenses, as if these events had occurred on March 31, 2004. The summary pro forma consolidated financial data should be read together with “Unaudited Pro Forma Condensed Consolidated Financial Data” and with the historical financial statements for OccuLogix, L.P. and the pro forma consolidated financial statements included elsewhere in this prospectus.

Investing in our common stock involves a high degree of risk. You should consider carefully the following risk factors, as well as the other information in this prospectus, before deciding to invest in our common stock. Our business, financial condition or results of operations could be affected adversely by any of these risks. The trading price of our common stock could decline due to any of these risks and you might lose all or part of your investment in our common stock.

We were founded in 1996 but the focus of our operations in recent years has shifted towards our ongoing pivotal trial, MIRA-1, for our RHEO System. We generated revenues of approximately $900,200 and $1,277,800 for the years ended June 30, 1999 and 1998, respectively, all of which were earned in the United States. For the year ended December 31, 2003, we had revenues of $390,479, all of which were derived from sales of our RHEO System in Canada. Our ability to increase our revenues and to earn revenues in the United States is dependent on a number of factors, including:


	•	successfully completing MIRA-1 for our RHEO System;

	•	obtaining FDA approval to market our RHEO System in the United States;

	•	successfully building the infrastructure and manufacturing capacity to market and sell our RHEO System;

	•	achieving widespread acceptance of RHEO Therapy among physicians and patients; and

	•	agreement of governmental and third-party payors to reimburse for RHEO Therapy.

We do not anticipate that we will materially increase our revenues in Canada or generate revenues in the United States until late 2006, at the earliest. If we do not obtain FDA approval and are required to focus our efforts on marketing the RHEO System to clinics in Canada, or if we are unable to generate significant revenues in the United States, we may not become profitable, and we may be unable to continue our operations.

We are required to obtain FDA approval to market our RHEO System in the United States. To support an application for FDA approval, we are conducting, at our own expense, MIRA-1 to evaluate the safety and efficacy of RHEO Therapy in humans. Clinical testing is expensive, can take many years and has an uncertain outcome. Although we have submitted an interim analysis to the FDA, these results may not be indicative of the final results for MIRA-1. Failure can occur at any stage of the testing. We may encounter numerous factors during, or as a result of, MIRA-1 that could delay or prevent us from completing MIRA-1 and receiving FDA approval for a number of reasons, including:


	•	enrollment may be slower than we currently anticipate, or we may be unable to obtain the complete number of data sets required by the protocol filed with the FDA if patients do not fulfill the requirement to have a 12-month follow-up visit, or otherwise;

	•	costs of MIRA-1 may be greater than we currently anticipate;

	•	we, or the regulators, may suspend or terminate MIRA-1 if the participating patients are being exposed to unacceptable health risks; and

	•	MIRA-1 may produce negative or inconclusive results, and we may decide, or regulators may require us, to conduct additional clinical and/or preclinical testing.

MIRA-1 is currently being conducted at seven treatment centers in the United States and Canada. We are working with contract research organizations to conduct our MIRA-1 trial. If our relationship with any of

these contract research organizations terminates, we believe that we would be able to enter into arrangements with alternative third parties, however, such a change may delay the completion of MIRA-1. If our contract research organizations or any replacements do not successfully carry out their contractual duties or obligations, do not meet expected deadlines or need to be replaced, or if the quality or accuracy of the clinical data they obtain is compromised due to their failure to adhere to our clinical protocols or for other reasons, our clinical trial may be extended, delayed or terminated, and we may not be able to obtain regulatory approval for our RHEO System.

Even if we complete MIRA-1 successfully, we may not receive FDA approval to market the RHEO System in the United States. Obtaining FDA approval is a lengthy and expensive process, and approval is uncertain. We do not expect to receive FDA approval for our RHEO System until mid-2006 at the earliest, and may never receive approval. Delays in obtaining or failure to obtain FDA approval would delay or prevent the successful commercialization of our RHEO System, diminish our competitive advantage and/or defer or decrease our receipt of revenues. Even if we obtain FDA approval, this approval may only be for a limited or narrow class of Dry AMD patients, thereby diminishing the size of the class of prospective patients for whose use the RHEO System can be promoted.

In addition, changes to our RHEO System can require additional FDA approvals. The RHEO System currently uses a cellulose acetate Rheofilter which is manufactured by Asahi Medical. We have been informed by Asahi Medical that it intends to discontinue manufacturing the cellulose acetate filter in 2008 and replace it with a newer polysulfone Rheofilter currently being developed. We will require FDA approval to replace the cellulose acetate Rheofilter with the new polysulfone Rheofilter. If we do not receive FDA approval for the new polysulfone Rheofilter, we may be unable to market our RHEO System.

We, our suppliers and our products are subject to numerous FDA requirements covering the design of our RHEO System, testing, manufacturing, quality control, labeling, advertising, promotion and export of our RHEO System and other matters. Failure to comply with statutes and regulations administered by the FDA could result in, among other things, any of the following actions:


	•	warning letters;

	•	fines and other civil penalties;

	•	unanticipated expenditures;

	•	withdrawal of FDA approval;

	•	delays in approving or refusal to approve our RHEO System;

	•	product recall or seizure;

	•	interruption of production;

	•	operating restrictions;

	•	injunctions; and

	•	criminal prosecution.

We and our suppliers are subject to numerous federal, state and local laws relating to such matters as safe working conditions, manufacturing practices, environmental protection, fire hazard control and disposal of hazardous or potentially hazardous substances. In addition, advertising and promotional materials relating to medical devices are, in certain instances, subject to regulation by the Federal Trade Commission. We and

our suppliers may be required to incur significant costs to comply with such laws and regulations in the future, and such laws and regulations may materially harm our business. Unanticipated changes in existing regulatory requirements, the failure of us or our manufacturers to comply with such requirements or the adoption of new requirements could materially harm our business.

Even if we successfully complete MIRA-1 and obtain FDA approval for our RHEO System, our success depends on our ability to market and sell our RHEO System. Successful commercialization of our RHEO System depends on a number of factors, including:


	•	achieving widespread acceptance of RHEO Therapy among physicians and patients;

	•	agreement of governmental and third-party payors to provide reimbursement for RHEO Therapy;

	•	maintaining our relationships with our single source suppliers;

	•	obtaining sufficient quantities of components for our RHEO System;

	•	establishing adequate sales and marketing capabilities;

	•	obtaining sufficient facility space;

	•	our ability to identify and sell our RHEO System to key multi-facility health care providers as well as to private eye care professional practices;

	•	whether there are adverse side effects or unfavorable publicity concerning our RHEO System; and

	•	whether there is competition for our RHEO System from new or existing products, which may prove to be safer, more efficacious or more cost-effective than our RHEO System.

AMD is not a well-understood disease and its underlying cause is not known. RHEO Therapy is based on a disease model that has not achieved widespread acceptance with eye care professionals. Unlike traditional therapeutic treatments for eye diseases, RHEO Therapy is a systemic approach for the treatment of Dry AMD, rather than a localized approach. Our success is dependent upon achieving widespread acceptance of RHEO Therapy among ophthalmologists and optometrists. Eye care professionals and health care service providers may not be willing to integrate RHEO Therapy into their workflow. In addition, because RHEO Therapy can be performed by health care providers other than eye care professionals, eye care professionals may be reluctant to endorse RHEO Therapy.

Even if we are successful in achieving widespread acceptance of RHEO Therapy among physicians, we may be unable to achieve widespread acceptance among potential patients. An initial course of RHEO Therapy is time consuming, requiring eight procedures over a 10- to 12-week period, with each procedure lasting between two and four hours. Some patients may be reluctant to undergo RHEO Therapy because of the time commitment. In addition, RHEO Therapy providers may not be easily accessible to all patients and some patients may be unwilling or unable to travel to receive RHEO Therapy. If we are unable to achieve widespread acceptance, our financial condition and results of operations will be adversely affected.

In August 1997, our predecessor opened its sole client facility, the Rheotherapy Center, in Tampa, Florida to perform therapeutic apheresis commercially. In 1999, the FDA’s Office of Compliance issued a directive notifying our predecessor that further conducting of therapeutic apheresis would need to be conducted under the authority of an Investigational Device Exemption filed with the FDA. One of our founders, Dr. Richard C. Davis, was also fined by the Florida Board of Medicine for unauthorized advertising of new medical therapies. Our predecessor closed the Rheotherapy Center in 1999 and we have since received an Investigational Device Exemption and focused our resources on completing MIRA-1 in order to obtain

FDA approval of the RHEO System. We believe that the activities of the Rheotherapy Center engendered opposition in certain segments of the eye care community to RHEO Therapy and if this opposition continues, acceptance of RHEO Therapy among eye care professionals and patients may be difficult to achieve.

RHEO Therapy is expensive, with an initial course of treatment expected to initially cost approximately $16,000 in the United States. Continuing efforts of governmental and third-party payors to contain or reduce the costs of health care could negatively affect the sale of our RHEO System. Our ability to commercialize our RHEO System successfully will depend in substantial part on favorable determinations by governmental payors, most prominently Medicare, private health insurers and state-funded health care coverage programs. Without the establishment of timely, favorable coverage and reimbursement policies, we may be unable to set or maintain price levels sufficient to realize an appropriate return on our investment in product development. Other significant insurance coverage limitations, such as narrow restrictions on patient coverage criteria and restrictions on treatment settings in which RHEO Therapy is covered, may also limit our potential revenues.

Our owned and licensed patents may not be valid and we may not be able to obtain and enforce patents and to maintain trade secret protection for our technology. The extent to which we are unable to do so could materially harm our business.

We have applied for and will continue to apply for patents for certain processes used in our RHEO System. Such applications may not result in the issuance of any patents, and any patents now held or that may be issued may not provide us with adequate protection from competition. In addition, we expect that we will seek to have the patent licensed to us re-examined in the next 12 months at the U.S. Patent and Trademark Office, and we believe that a more detailed claim set will be issued. The re-examination of this patent may result in the patent being rejected or no claims of commercial value being issued or it may result in competitors acquiring intervening rights. Furthermore, it is possible that patents issued or licensed to us may be challenged successfully. In that event, if we have a preferred competitive position because of such patents, any preferred position held by us would be lost. If we are unable to secure or to continue to maintain a preferred position, our RHEO System could become subject to competition from the sale of generic products.

Patents issued or licensed to us may be infringed by the products or processes of others. The cost of enforcing our patent rights against infringers, if such enforcement is required, could be significant, and the time demands could interfere with our normal operations. There has been substantial litigation and other proceedings regarding patent and other intellectual property rights in the pharmaceutical, biotechnology and medical technology industries. We may become a party to patent litigation and other proceedings. The cost to us of any patent litigation, even if resolved in our favor, could be substantial. Some of our competitors may be able to sustain the costs of such litigation more effectively than we can because of their substantially greater financial resources. Litigation may also absorb significant management time.

Unpatented trade secrets, improvements, confidential know-how and continuing technological innovation are important to our scientific and commercial success. Although we attempt to and will continue to attempt to protect our proprietary information through reliance on trade secret laws and the use of confidentiality agreements with our corporate partners, collaborators, employees and consultants and other appropriate means, these measures may not effectively prevent disclosure of our proprietary information, and, in any event, others may develop independently, or obtain access to, the same or similar information.

Certain of our patent rights are licensed to us by third parties. If we fail to comply with the terms of these license agreements, our rights to those patents may be terminated, and we will be unable to conduct our business.

It is possible that a court may find us to be infringing upon validly issued patents of third parties. In that event, in addition to the cost of defending the underlying suit for infringement, we may have to pay license fees and/or damages and we may be enjoined from conducting certain activities. Obtaining licenses under third-party patents can be costly, and such licenses may not be available at all. Under such circumstances, we may need to materially alter our products or processes and we may be unable to do so successfully.

We currently depend on single sources for the filters and the OctoNova pump used in our RHEO System. We have entered into a supply agreement for our filters with Asahi Medical and for the OctoNova pump with Diamed, which designed the OctoNova pump, and MeSys GmbH, which manufactures the pumps for Diamed. If any of these suppliers ceases to supply components to us or does not supply an adequate number of components, our sales and growth could be restricted, potentially materially. If we do not achieve FDA approval and other necessary approvals in the territories for which we have distribution rights by the end of December 2006, Asahi Medical can terminate the supply agreement for our filters. Our current agreement with Diamed expires January 1, 2005. We have begun discussions with Diamed to extend this agreement but we may not be able to reach agreement with Diamed on terms acceptable to us, if at all. If we are unable to extend the agreement with Diamed we may lose our rights to purchase the OctoNova pump. If we reach an agreement on terms less favorable to us than our current agreement, our results could be adversely affected. We believe that establishing additional or replacement suppliers for these components may not be possible as these suppliers have trade secrets, patents and other intellectual property that may prevent a third party from manufacturing a suitable replacement product. Even if we switch to replacement suppliers and the supplier can manufacture the necessary components without violating any third-party intellectual property rights, we may face additional regulatory delays and the distribution of our RHEO System could be interrupted for an extended period of time, which may delay or slow the commercialization of RHEO Therapy and adversely impact our financial condition and results of operations.

While our management team has some experience in marketing medical technology, we do not have a sales organization and have limited experience as a company in the sales, marketing and distribution of ophthalmic therapy products. In order to commercialize RHEO Therapy, we must develop our sales, marketing and distribution capabilities or make arrangements with a third party to perform these functions. If and when marketing of the RHEO System is approved by the FDA, we currently plan to establish our own sales force to market our RHEO System in the United States. Developing a sales force is expensive and time consuming and we may not be able to develop this capacity. If we are unable to establish adequate sales, marketing and distribution capabilities, independently or with others, we may not be able to generate significant revenue and may not become profitable.

Our success requires that our suppliers have adequate manufacturing capacity and inventory in order to facilitate a rapid rollout of our RHEO System. We have been informed by Asahi Medical that the current Rheofilter being used in our RHEO System will be discontinued in 2008 and that, even if it is not discontinued, Asahi Medical would not be able to produce enough of the current cellulose acetate Rheofilter to meet our anticipated demand. Although we are working with Asahi Medical to develop a new polysulfone filter that we believe Asahi Medical will be able to manufacture in larger quantities and at a lower cost to us, there can be no assurance that we and Asahi Medical will be successful in these efforts. Even if we are able to develop a new filter, we may not be able to obtain FDA approval for the new filter and the new filter may

not be manufactured at a lower cost to us. If we are unable to obtain FDA approval for, or the necessary quantities of, this new filter, we may not be able to generate product revenue and may not become profitable.

Our ability to conduct MIRA-1 and commercialize our RHEO System, depends, in large part, on our ability to have components manufactured at a competitive cost and in accordance with FDA and other regulatory requirements. We do not control the manufacturing processes of our suppliers. If current manufacturing processes are modified, or the source or location of our product supply is changed, voluntarily or involuntarily, the FDA will require us to demonstrate that the material produced from the modified or new process or facility is equivalent to the material used in the clinical trials or products previously approved. Any such modifications to the manufacturing process or supply may not achieve or maintain compliance with the applicable regulatory requirements. In many cases, prior approval by regulatory authorities may be required before any changes can be made, which may adversely affect our business.

In order to facilitate a rapid rollout of our RHEO System if and when we receive FDA approval, we will need to establish relationships with key organized groups of multi-facility health care service providers, including hospitals, dialysis clinics and ambulatory surgery centers, as well as private practices. We may be unsuccessful in establishing these relationships, which could limit our ability to commercialize our RHEO System.

We anticipate that RHEO Therapy will be prescribed by physicians and administered by nurses, and therefore our service provider customers will need the support of an adequate supply of trained nurses. Training nurses to administer RHEO Therapy may be costly, and our customers may experience shortages of nurses from time to time. If there is a shortage of trained nurses to work in our customers’ facilities, our commercialization of RHEO Therapy may be unsuccessful.

RHEO Therapy may produce unexpected side effects not previously observed during clinical trials. These undesirable and unintended side effects in patients may prevent or limit its commercial adoption and use. Even after approval by the FDA and other regulatory authorities, our RHEO System may later be found to produce adverse side effects that prevent widespread use or necessitate withdrawal from the market. The manifestation of such side effects could cause our business to suffer. In some cases, regulatory authorities may require additional disclosure to patients that could add warnings or restrict usage based on unexpected side effects seen after marketing a medical treatment.

The testing, manufacturing, marketing and sale of therapeutic products entails significant inherent risks of allegations of product liability. Our use of such products in clinical trials and our sale of our RHEO System may expose us to liability claims. These claims might be made directly by patients, health care providers or others selling our RHEO System. We carry clinical trials and product liability insurance to cover certain claims that could arise during MIRA-1 or during the commercial use of RHEO Therapy. Such coverage, and any coverage obtained in the future, may be inadequate to protect us in the event of a successful product liability claim, and we may not be able to increase the amount of such insurance coverage or even renew it. A successful product liability claim could materially harm our business. In addition, substantial, complex or extended litigation could cause us to incur large expenditures and divert significant resources.

We have incurred losses in each year since our inception in 1996. Our net loss for the three months ended March 31, 2004 was $2.3 million, and for the fiscal years ended December 31, 2003, 2002 and 2001 was $2.5 million, $2.9 million and $4.1 million, respectively. As of March 31, 2004, we had an accumulated deficit of $28.5 million. These losses, among other things, have had and will continue to have an adverse effect on our stockholders’ equity and working capital. We expect our clinical and regulatory expenses to increase in connection with MIRA-1 and any other clinical trials that we may initiate. In addition, subject to FDA approval of our RHEO System, we expect to incur significant sales, marketing and procurement expenses. As a result, we expect to continue to incur significant and increasing operating losses for the next several years. Because of the numerous risks and uncertainties associated with developing new medical therapies, we are unable to predict the extent of any future losses or when we will become profitable, if ever.

In order to commercialize our RHEO System, we will need to expand our employee base for management of operational, sales and marketing, financial and other resources. We do not expect to be able to commercially launch our RHEO System until late 2006, at the earliest. Future growth will impose significant additional responsibilities on members of management, including the need to identify, recruit, maintain and integrate additional employees. Our future financial performance and our ability to commercialize our RHEO System and to compete effectively will depend, in part, on our ability to manage any future growth effectively. To that end, we must be able to:


	•	manage MIRA-1 effectively;

	•	integrate additional management, administrative, distribution and sales and marketing personnel;

	•	develop our administrative, accounting and management information systems and controls; and

	•	hire and train additional qualified personnel.

We may not be able to accomplish these tasks, and our failure to accomplish any of them could prevent us from achieving or maintaining profitability.

The pharmaceutical, biotechnology and medical technology industries are characterized by rapidly changing technology and intense competition. AMD is not a well-understood disease and researchers are continuing to investigate different theories of the cause of AMD. If the cause of AMD is determined, competitors could potentially develop a treatment for Dry AMD that would replace RHEO Therapy. In addition, competitors may develop alternative treatments for Dry AMD that prove to be superior to, or more cost-effective than, RHEO Therapy. Some of these competitors may include companies which have access to financial, technical and marketing resources significantly greater than ours and substantially greater experience in developing, manufacturing and distributing products, conducting preclinical and clinical testing and obtaining regulatory approvals.

We are aware of a number of companies which have developed or are in the process of developing treatments for Wet AMD, including Eyetech Pharmaceuticals, Inc./ Pfizer Inc., Genentech, Inc./ Novartis Ophthalmics, Alcon Laboratories, Inc., Iridex Corporation, Genaera Corporation, QLT, Inc. and GenVec, Inc. Some of these treatments are in late-stage clinical development or have been approved by the FDA. Some of these companies may choose to develop treatments for Dry AMD or may discover that their treatments for Wet AMD may be effective for Dry AMD as well. In addition, other companies also may be involved in competitive activities of which we are not aware.

Our success depends on the continued contributions of our executive officers and scientific personnel. Many of our key responsibilities have been assigned to a relatively small number of individuals. We will be required to hire eyecare specialists as well as personnel with skill sets in apheresis, nursing, training, equipment maintenance, finance, distribution, logistics, warehousing, sales and service to meet our personnel needs. There is competition for qualified personnel, and the failure to secure the services of key personnel or loss of services of key personnel could adversely affect our business.

Since inception, we have funded our operations through private placements of our equity and debt securities and early stage revenues. Prior to this offering, our current cash resources were limited. We may need additional capital in the future, and our prospects for obtaining it are uncertain. We expect that the funding requirements for our operating activities will continue to increase substantially in the future, primarily due to the commercialization of our RHEO System. We will need to seek additional funds in the future from a combination of sources, including product licensing, joint development and other financing arrangements. In addition, we may issue debt or equity securities if we determine that additional cash resources could be obtained under favorable conditions or if future funding requirements cannot be satisfied with available cash resources. Additional capital may not be available on terms favorable to us, or at all. If adequate capital is unavailable, and if our operations do not generate cash, our commercialization of the RHEO System will be delayed and we may be unable to continue our operations. Accordingly, our audited financial statements included elsewhere in this prospectus include a going concern note.

Upon completion of this offering, TLC Vision will own approximately % of the shares of our common stock. Accordingly, TLC Vision on its own could possess a controlling vote on matters submitted to a vote of the holders of our common stock.

While it owns a majority of our common stock, TLC Vision will control decisions with respect to:


	•	our business direction and policies, including the election and removal of our directors;

	•	mergers or other business combinations involving us;

	•	the acquisition or disposition of assets by us;

	•	our financing; and

	•	amendments to our certificate of incorporation and bylaws.

Furthermore, TLC Vision may be able to cause or prevent a change of control of our company, and this concentration of ownership may have the effect of discouraging others from pursuing transactions involving a potential change of control of our company, in either case regardless of whether a premium is offered over then-current market prices.

Upon completion of this offering, TLC Vision will beneficially own approximately % of the outstanding shares of our common stock. Messrs. Vamvakas and Davidson and Dr. Lindstrom, who will be

members of our board of directors, are also directors of TLC Vision. Because they are directors of TLC Vision, a conflict of interest could arise. Conflicts may arise between TLC Vision and us as a result of our ongoing agreements. We may not be able to resolve all potential conflicts with TLC Vision, and even if we do, the resolution may be less favorable to us than if we were dealing with an unaffiliated third party.

In addition, our Chairman and Chief Executive Officer, Mr. Vamvakas, will also serve as Chairman of TLC Vision and, therefore, will devote a portion of his time to matters other than our business and operations. We believe that Mr. Vamvakas will devote approximately 20% of his time, on average, to TLC’s operations, which may divert his attention from our business operations and which may adversely affect our business. Stephen Kilmer, our Vice President, Corporate Affairs, will also serve as Vice President, Investor Relations of TLC Vision.

The initial public offering price for our common stock will be determined through negotiations with the underwriters and may not bear any relationship to the market price at which it will be traded after this offering. Prior to this offering there has been no public market for our common stock. We cannot predict the extent to which investor interest will lead to the development of an active trading market in our common stock or whether that market will be sustained. Moreover, we cannot assure you that any securities analysts will initiate or maintain research coverage of our company and our common stock. Additionally, the trading prices of the securities of medical technology companies have been highly volatile. Accordingly, the trading price of our common stock is likely to be subject to wide fluctuations. Factors that could affect the trading price of our common stock include, among other things:


	•	results of MIRA-1 and whether we receive FDA approval to market our RHEO System in the United States;

	•	results of ongoing research into the underlying causes of AMD;

	•	whether we will receive FDA approval to use the new polysulfone filter with our RHEO System;

	•	developments relating to patents, proprietary rights and potential infringement;

	•	announcements by us or our competitors of technological innovations or new commercial products;

	•	reimbursement policies of various governmental and third-party payors;

	•	public concern over the safety and efficacy of our RHEO System;

	•	changes in estimates of our revenue and operating results;

	•	variances in our revenue or operating results from forecasts or projections;

	•	recommendations of securities analysts regarding investment in our stock; and

	•	market conditions in our industry and the economy as a whole.

If our future quarterly or annual operating results are below the expectations of securities analysts or investors, the price of our common stock will likely decline. In addition, share price fluctuations may be exaggerated if the trading volume of our common stock is too low.

From time to time, we estimate the timing of the accomplishment of various scientific, clinical, regulatory and other product development goals, or milestones. These milestones may include the commencement or completion of scientific studies and clinical trials, such as MIRA-1, and the submission of regulatory filings. From time to time, we expect that we will publicly announce the anticipated timing of some of these milestones. All of these milestones are based on a variety of assumptions. The actual timing of these milestones can vary dramatically compared to our estimates, in some cases for reasons beyond our

The assumed initial public offering price will be substantially higher than the pro forma net tangible book value per share of our outstanding common stock. As a result, purchasers of our common stock will experience immediate dilution of $ per share, based on an assumed initial public offering price of $ per share, the midpoint of the range set forth on the cover of this prospectus. This dilution is due in large part to the fact that our earlier investors paid substantially less than the assumed initial public offering price when they purchased their shares. Investors purchasing shares in this offering will pay a price per share that substantially exceeds the book value of our assets after subtracting our liabilities. In addition, the exercise of outstanding warrants and options will, and future equity issuances may, result in further dilution to investors. As a result of this dilution, investors purchasing shares from us in this offering will have contributed % of the total amount of our net funding to date, on a fully diluted basis, but will own only % of our equity, on a fully diluted basis, without giving effect to any shares that the investors will purchase directly from the selling stockholders.

We have granted to a number of our stockholders and option holders, who after the Reorganization will together own a total of 19,105,426 shares of common stock on a fully-diluted basis, registration rights with respect to their shares. Sales by stockholders of substantial amounts of our shares, or the perception that these sales may occur in the future, could affect materially and adversely the market price of our common stock. The shares we and the selling stockholders are offering for sale in this offering will be freely tradeable immediately following this offering. Our officers and directors and the selling stockholders have agreed not to sell their shares for a period of 180 days after the date of the underwriting agreement. As these restrictions on resale end, the market price of our common stock could drop significantly if the holders of these restricted shares sell them or are perceived by the market as intending to sell them.

We intend to use the net proceeds of this offering to fund MIRA-1 and related clinical trials and to purchase and accumulate inventory and build infrastructure for our commercialization of the RHEO System in the United States if and when we receive FDA approval. We expect to use the remainder of the net proceeds for general corporate purposes. Accordingly, we will have significant discretion in the use of a substantial portion of the net proceeds of this offering received by us, and it is possible that we may allocate the proceeds differently than investors in this offering desire, or that we will fail to maximize our return on these proceeds.

We have never declared or paid any cash dividends on shares of our common stock. We intend to retain all available earnings to fund the operation and expansion of our business. Any determination related to payments of future dividends will be at the discretion of our board of directors after taking into account various factors that our board of directors deems relevant, including our financial condition, operating results, current and anticipated cash needs, plans for expansion and debt restrictions.

As a public company, we will incur significant legal, accounting and other expenses that we did not incur as a private company. We will incur costs associated with our public company reporting requirements, costs associated with recently adopted corporate governance requirements, including requirements under the Sarbanes-Oxley Act of 2002, as well as new rules implemented by the Securities and Exchange Commission

and the Nasdaq National Market. We expect these rules and regulations to increase our legal and financial compliance costs and to make some activities more time-consuming and costly. We also expect these new rules and regulations may make it more difficult and more expensive for us to obtain director and officer liability insurance and we may be required to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage. As a result, it may be more difficult for us to attract and retain qualified individuals to serve on our board of directors or as executive officers. We are currently evaluating and monitoring developments with respect to these new rules, and we cannot predict or estimate the amount of additional costs we may incur or the timing of such costs.

This prospectus contains forward-looking statements that are based on our management’s beliefs and assumptions and on information currently available to our management. The forward looking statements are contained principally in the sections entitled “Summary”, “Risk Factors”, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Business.” Forward-looking statements include, but are not limited to, statements about:


	•	our successful completion of MIRA-1;

	•	our obtaining FDA approval to market our RHEO System in the United States;

	•	our successful building of the infrastructure and manufacturing capacity to market and sell our RHEO System;

	•	our obtaining the agreement of governmental and third-party payors to reimburse patients for RHEO Therapy;

	•	our estimates of future revenue, costs and expenses, cash flow and profitability; and

	•	our estimates regarding our capital requirements and our need for additional financing.

In some cases, you can identify forward-looking statements by terms such as “may”, “will”, “should”, “could”, “would”, “expects”, “plans”, “intends”, “anticipates”, “believes”, “estimates”, “projects”, “predicts”, “potential” and similar expressions intended to identify forward-looking statements. These statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performances, time frames or achievements expressed or implied by the forward-looking statements. We believe that these factors include the following:


	•	our ability to generate significant revenues;

	•	our ability to complete MIRA-1;

	•	our ability to obtain FDA approval;

	•	our ability to commercialize and achieve acceptance of the RHEO System in the United States;

	•	RHEO Therapy achieving governmental and third party reimbursement;

	•	risk of invalidity of our patents;

	•	the supply of the filters and pump used in our RHEO System;

	•	risk of side effects of RHEO Therapy preventing adoption or causing withdrawal from the market;

	•	risk of product liability claims against us;

	•	difficulties managing the growth of our business;


	•	increased competition; and

	•	potential inability to attract and retain key personnel.

We discuss many of these risks, uncertainties and other factors in this prospectus in greater detail under the heading “Risk Factors”. Given these risks, uncertainties and other factors, you should not place undue reliance on these forward-looking statements. Also, these forward-looking statements represent our estimates and assumptions only as of the date of this prospectus. You should read this prospectus and the documents that we reference in this prospectus and have filed as exhibits to the registration statement, of which this prospectus is a part, completely and with the understanding that our actual future results may be materially different from what we expect. We hereby qualify all of our forward-looking statements by these cautionary statements. The forward-looking statements contained in this prospectus are excluded from the safe harbor protection provided by the Private Securities Litigation Reform Act of 1995 and Section 27A of the Securities Act of 1933, as amended.

Information regarding market and industry statistics contained in the “Summary” and “Business” sections of this prospectus is included based on information available to us that we believe is accurate. It is generally based on academic and other publications that are not produced for purposes of securities offerings or economic analysis. We have not reviewed or included data from all sources and cannot assure you of the accuracy of the market and industry data we have included.

Except as required by law, we assume no obligation to update these forward-looking statements publicly, or to update the reasons actual results could differ materially from those anticipated in these forward-looking statements, even if new information becomes available in the future.

We estimate that the net proceeds we will receive from this offering will be approximately $ million, at an assumed public offering price of $ per share, the midpoint of the range set forth on the cover of this prospectus, after deducting estimated underwriting discounts and commissions payable by us and estimated offering costs. We will not receive any proceeds from the sale of shares by the selling stockholders in this offering.

We estimate we will use approximately $9.5 million to $10.5 million of the net proceeds of this offering received by us to complete our MIRA-1 trial and related clinical trials and complete the FDA approval process.

We estimate we will use approximately $20.4 million to $21.4 million of the net proceeds of this offering received by us to build our infrastructure, including distribution, sales and marketing, and to facilitate the commercialization of our RHEO System if and when we receive FDA approval.

We estimate we will use approximately $12.5 million to $13.5 million of the net proceeds of this offering received by us to purchase and accumulate inventory of components of our RHEO System to facilitate rapid commercialization in the United States if and when we receive FDA approval.

We expect to use the remainder of the net proceeds of this offering received by us for general corporate purposes.

The amount and timing of what we actually spend for these purposes may vary significantly and will depend on a number of factors, including our future sales and cash generated by operations and the other factors we describe in “Risk Factors”. Therefore, we will have broad discretion in the way we use the net proceeds from this offering received by us.

We have never declared or paid any cash dividends on shares of our capital stock. We currently intend to retain all available funds to support operations and to finance the growth and development of our business. Any determination related to payments of future dividends will be at the discretion of our board of directors after taking into account various factors that our board of directors deems relevant, including our financial condition, operating results, current and anticipated cash needs, plans for expansion and debt restrictions.


	•	on an actual basis;

	•	on a pro forma basis to give effect to the Reorganization; and

	•	on a pro forma as adjusted basis, to give effect to (1) the Reorganization; and (2) the sale by us of shares of common stock at an assumed initial public offering price of $ per share, the midpoint of the range set forth on the cover of this prospectus, resulting in the receipt of the estimated $ in net proceeds from this offering, after deducting underwriting discounts and commissions and estimated offering expenses payable by us of $ .

You should read this table together with our consolidated financial statements and related notes, “Management’s Discussion and Analysis of Financial Condition and Results of Operations”, “Unaudited Pro Forma Condensed Consolidated Financial Data”, the historical financial statements for OccuLogix, L.P. and the pro forma consolidated financial statements included elsewhere in this prospectus.

If you invest in our common stock in this offering, your ownership interest will be diluted to the extent of the difference between the initial public offering price per share and the pro forma as adjusted net tangible book value per share of our common stock after this offering. Net tangible book value per share is determined by dividing the number of outstanding shares of our common stock into our total tangible assets (total assets less intangible assets) less total liabilities. Our pro forma net tangible book value as of March 31, 2004 was approximately $ million, or approximately $ per share, based on the number of shares outstanding as of March 31, 2004, after giving effect to the Reorganization.

After giving effect to the sale of shares of common stock by us in this offering at an assumed public offering price of $ per share, the midpoint of the range set forth on the cover page of this prospectus, and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us, our pro forma as adjusted net tangible book value as of March 31, 2004 would have been approximately $ million, or approximately $ per share, based on shares outstanding upon the completion of this offering. This represents an immediate increase in pro forma as adjusted net tangible book value of $ per share to existing stockholders and an immediate dilution of $ per share to new investors participating in this offering. The following table illustrates this per share dilution:

The following table presents, on a pro forma as adjusted basis, as of March 31, 2004, the differences between the number of shares of common stock purchased from us, the total consideration paid to us and the average price per share paid by existing stockholders and by new investors:

Sales by the selling stockholders in this offering will cause the number of shares of our common stock held by existing stockholders to be reduced to , or % of the total number of shares of our common stock outstanding after this offering, and will increase the total number of shares held by new investors to , or % of the total number of shares of our common stock outstanding after this offering. If the underwriters’ over-allotment option is exercised in full, the number of shares held by existing stockholders after this offering would be reduced to , or % of the total number of shares of our common stock outstanding after this offering, and the number of shares held by new investors would increase to , or % of the total number of shares of our common stock outstanding after this offering. If all options and warrants outstanding on March 31, 2004 were exercised, pro forma net tangible book value per share would be $ and dilution to new investors would be $ .

The following unaudited pro forma condensed consolidated financial data gives effect to the Reorganization. The unaudited pro forma condensed consolidated balance sheet data reflects the Reorganization as if it had occurred on March 31, 2004 and the unaudited pro forma condensed consolidated statement of operations data for the year ended December 31, 2003 and the three months ended March 31, 2004 reflect the Reorganization as if it had occurred on January 1, 2003.

The acquisition of TLC Vision’s interest in OccuLogix, L.P. will be accounted for using the purchase method of accounting in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 141, “Business Combinations,” or SFAS No. 141. The excess of the purchase price, excluding certain acquisition and closing costs, over the net identifiable assets acquired will primarily be allocated to intangible assets. Intangible assets are subject to the provisions of SFAS No. 142, “Goodwill and Other Intangible Assets”. The allocation of the purchase price to assets and liabilities of the acquired businesses has been estimated by management but will be based on studies and valuations performed by independent companies. The unaudited pro forma condensed consolidated financial data presented below include pro forma adjustments made based on these allocations.

We have prepared the unaudited pro forma condensed consolidated financial data based on available information, using assumptions that our management believes are reasonable. The unaudited pro forma condensed consolidated financial data is being provided for informational purposes only. It does not purport to represent our actual financial position or results of operations had the Reorganization occurred on the dates specified nor does it project our results of operations or financial position for any future period or date. See “Reorganization”.

The unaudited pro forma condensed consolidated financial data does not reflect any adjustments for non-recurring items or changes in operating strategies arising as a result of the Reorganization.

The unaudited pro forma condensed consolidated financial data should be read in conjunction with our audited and unaudited historical and pro forma financial statements and related notes and the audited and unaudited historical financial statements and related notes of OccuLogix, L.P., included elsewhere in this prospectus, as well as “Management’s Discussion and Analysis of Financial Condition and Results of Operations”.

You should read the selected consolidated financial data below together with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and the related notes included elsewhere in this prospectus. The following table sets forth our consolidated balance sheet data as of December 31, 1999, 2000, 2001, 2002 and 2003 and as of March 31, 2004, and our consolidated statements of operations data for the years ended December 31, 1999, 2000, 2001, 2002 and 2003 and the three months ended March 31, 2003 and 2004. We derived the selected consolidated financial data as of December 31, 2002 and 2003 and for the years ended December 31, 2001, 2002 and 2003 from our audited consolidated financial statements included elsewhere in this prospectus. In the opinion of management, the information as of December 31, 1999, 2000 and 2001 and for the years ended December 31, 1999 and 2000 has been prepared on the same basis as the audited consolidated financial statements as of December 31, 2002 and 2003 and for the years ended December 31, 2001, 2002 and 2003, appearing elsewhere in the prospectus, and all necessary adjustments, consisting only of normal recurring adjustments, have been included in the amounts stated below to present fairly the results when read in conjunction with our audited consolidated financial statements and the notes to those statements. The selected consolidated financial data as of March 31, 2004 and for the three months ended March 31, 2003 and 2004 have been derived from our unaudited consolidated financial statements included elsewhere in this prospectus and include all normal recurring adjustments, which, in our opinion, are necessary for a fair presentation of our financial position and results of operations at such date and our results of operations for such periods. Historical results are not necessarily indicative of the results of operations to be expected for future periods, and interim results may not be indicative of results for the remainder of the year.

Our selected consolidated financial data reflects our 50% interest in OccuLogix, L.P. Prior to this offering, we will own 100% of OccuLogix, L.P. The selected consolidated financial data should be read together with “Unaudited Pro Forma Condensed Consolidated Financial Data”, with the historical financial

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with “Selected Consolidated Financial Data” and our consolidated financial statements and related notes, included elsewhere in this prospectus. In addition to historical consolidated financial information, the following discussion and analysis contains forward looking statements that involve risks, uncertainties and assumptions. The forward looking statements contained in this prospectus are excluded from the safe harbor protection provided by the Private Securities Litigation Reform Act of 1995 and Section 27A of the Securities Act of 1933, as amended. Our financial condition and results of operations may change as a result of many factors, including those we discuss in “Risk Factors” and elsewhere in this prospectus.

We are an ophthalmic therapeutic company founded to commercialize innovative treatments for eye diseases, including AMD. Our RHEO System is used to perform Rheopheresis, which is designed to treat Dry AMD, the most common form of the disease. Shortly after our inception, we focused on commercializing therapeutic apheresis, including the opening and operation of the Rheotherapy Center, which generated revenues of $900,200 and $1,277,800 for the fiscal years ended June 30, 1999 and 1998 respectively. In 1999, the FDA’s Office of Compliance issued a directive notifying the Rheotherapy Center that any further conducting of therapeutic apheresis would need to be conducted under the authority of an Investigational Device Exemption filed with the FDA which resulted in the closure of the Rheotherapy Center. Subsequent to the closure of the Rheotherapy Center, our focus changed primarily to conducting clinical trials and seeking regulatory approval for our RHEO System. In September 1999, we received an Investigational Device Exemption from the FDA to begin a pivotal clinical trial, MIRA-1, for our RHEO System. Between early 2000 and August 2001, we enrolled 98 patients in MIRA-1. In August 2001, due to financial constraints, we downsized and temporarily suspended the enrollment of new patients. However, we continued to follow-up with the existing patients enrolled in MIRA-1. In late 2001, with permission of the FDA, we submitted for independent third party analysis data for the 43 enrolled patients for whom we had collected complete 12-month post-treatment data sets. The results of this data analysis were used to support our efforts to secure additional financing.

In 2002 and 2003, we received a net aggregate of $6,651,870 of additional financing from Diamed, TLC Vision and other investors. As a result of this incremental funding, in October 2003, we hired new management and began screening additional patients for enrollment in MIRA-1. In addition, in 2003, we began limited commercialization of our RHEO System in two clinics in Canada.

As of July 2, 2004, we have enrolled a total of 125 patients in MIRA-1. We have collected complete 12-month post-treatment data sets for 85 of these patients. Of the remaining 40 patients, 27 are in the process of treatment and the treatment of 13 patients did not result in complete data sets. We are seeking to enroll an additional 55 patients in MIRA-1 with the goal of enrolling a total of 180 patients, from which we intend to derive the required 150 complete 12-month post-treatment data sets. We are seeking to complete enrollment for MIRA-1 by the end of 2004. We intend to submit to the FDA the first three of four modules of our PMA, the non-clinical portion, before the end of 2004. We intend to submit the fourth module, which consists of the follow-up clinical data, in two components. We expect that we will submit the first component following completion of our six-month data on all 150 data sets; and that we will submit the second component following completion of our 12-month data on all 150 data sets.

To date, we have derived the majority of our revenues from sales of the OctoNova pump and disposable treatment sets, which include two disposable filters and tubing, to OccuLogix, L.P., which then sells the pumps and treatment sets to a related party. Historically, we set sales prices at a level which would reimburse our cost of sales excluding the effects of ongoing minimum royalty commitment costs. Following the Reorganization, we expect that we will derive our revenues from sales of the OctoNova pump and disposable

treatment sets directly to a related party. We believe that, in the future, sales of disposable treatment sets will provide a recurring source of revenue and that the percentage of our revenues that we derive from disposable treatment sets will increase over time as our installed base of OctoNova pumps increases. We also expect to derive additional revenues from miscellaneous services for calibration, maintenance and training, which are not already included in the initial sale and service of the RHEO System.

Cost of sales includes costs of goods sold and royalty costs. Our cost of goods sold consists primarily of costs for the manufacture of our RHEO System, including the costs we incur for the purchase of component parts from our suppliers, applicable freight and shipping costs, fees related to warehousing, logistics inventory management and recurring regulatory costs associated with conducting business in Canada and ISO certification. We currently have a contract with a related party which performs warehousing, shipping and inventory management for us in exchange for a fee. This contract permits us to terminate the contract upon notice at any time. We expect that we will terminate this contract once we have the necessary infrastructure to perform such functions internally.

To acquire the necessary licensing and distribution rights for the components of our RHEO System, we have entered into agreements with Mr. Hans Stock and Dr. Richard Brunner, the owners of a patent that we license, that require us to pay them an aggregate of 2% of sales of the products we sell, with minimum required payments to Mr. Stock and Dr. Brunner in the aggregate amount of $25,000 during each calendar quarter. To date, the minimum required quarterly payments have exceeded the amounts that would have been payable absent the requirement of a minimum payment, and we are entitled to apply this excess in future periods if and when our revenue increases sufficiently to generate royalty payments in excess of the minimum payments. We treat these minimum royalty payments as an expense. We intend to use a portion of the net proceeds of this offering to accumulate inventory levels to help ensure our ability to meet forecasted sales levels if and when we obtain FDA approval. As a result of the expected increase in sales, we expect royalty payments to increase in the future.

We have entered into an agreement with Mr. Stock in consideration for assisting us in procuring a distribution agreement with Asahi Medical relating to the filters used in our RHEO System and for his commitment to assist in the procurement of distribution rights for new product lines. This agreement with Mr. Stock requires us to pay royalties of 5% of the price we pay to Asahi Medical for all products it supplies to us. We record these royalties as an expense when we sell the products.

Our operating expenses consist primarily of clinical and regulatory expenses and general and administrative expenses. Clinical and regulatory expenses consist primarily of those expenses related to MIRA-1. These expenses include payments to clinical trial sites for conducting the trial, costs of contract research organizations and other non-employee consultants and experts and compensation and overhead for those of our employees who are primarily involved in clinical trial activities. We expect clinical and regulatory expenses to remain relatively constant until MIRA-1 and the related clinical trials are complete.

General and administrative expenses consist primarily of the costs of corporate operations and personnel, rent and legal and accounting expenses. We expect that general and administrative expenses will increase in the future as we incur additional costs related to the growth of our business, as well as the costs associated with becoming a public company, including the costs of annual and periodic reporting and investor relations programs.

Historically, we have not incurred any sales and marketing expense because we have had limited commercialization and because recent sales have been to OccuLogix, L.P. We expect to begin incurring sales and marketing expenses following the Reorganization and we expect these expenses to increase substantially in the future.

Other (expenses) income consists primarily of interest, foreign exchange and a 50% share of equity earnings from OccuLogix, L.P.’s activities. Interest expense includes interest on convertible debentures and promissory notes, interest on amounts due to stockholders and the accretion of the value we assign to our outstanding warrants.

Following the Reorganization, we expect revenues to increase to reflect direct sales to clinics using our RHEO System, while cost of sales is expected to remain materially unchanged. Clinical and regulatory expenses will not be impacted by the Reorganization but general and administrative expenses will increase, reflecting the creation of the organizational structure necessary for the commercialization process. We will also begin to incur sales and marketing expenses related to establishing sales and marketing efforts to promote the use of our RHEO System in North America.

Revenues. Revenues decreased by 73% to $54,720 for the three months ended March 31, 2004 from $203,807 for the three months ended March 31, 2003. This decrease was due to lower patient volumes which we principally attribute to the impact of the SARS outbreak in Toronto in 2003. As a result of the outbreak we believe our customers’ Toronto-based clinics experienced a decline in patient volumes and accumulated excess inventory in the second half of 2003 and therefore reduced their orders in early 2004.

Cost of Sales. Cost of sales decreased by 61% to $84,030 for the three months ended March 31, 2004 from $217,905 for the three months ended March 31, 2003, as a result of the decrease in sales from the prior period.

General and Administrative Expenses. General and administrative expenses increased by 663% to $1,804,687 for the three months ended March 31, 2004 from $236,392 for the three months ended March 31, 2003. This increase resulted primarily from the requirement to expense during the quarter part of the cost of stock options granted to employees and directors in December 2003 as well as from higher staff, audit and director costs.

Clinical and Regulatory Expenses. Clinical and regulatory expenses increased by 116% to $455,369 for the three months ended March 31, 2004 from $211,168 for the three months ended March 31, 2003, as a result of increased activities associated with MIRA-1. We increased our activities as a result of additional funding we received from TLC Vision and Diamed in June 2003.

Other (Expenses) Income. Other (expenses) income totaled an expense of $4,978 for the three months ended March 31, 2004, compared to income of $33,769 for the three months ended March 31, 2003. This change was due primarily to the net reduction in the equity income from our investment in OccuLogix, L.P. due to reduced sales by OccuLogix, L.P. during the three months ended March 31, 2004, which was partially offset by a reduction in both the principal amount and interest rate attributable to a component of our outstanding debt.

Revenues. Revenues increased by 315% to $390,479 for the year ended December 31, 2003 from $94,100 for the year ended December 31, 2002 reflecting the first full year of our commercial sales subsequent to the closure of the Rheotherapy Center in the United States in 1999.

Cost of Sales. Cost of sales increased by 204% to $482,780 for the year ended December 31, 2003 from $158,694 for the year ended December 31, 2002. This increase was due to an increase in the number of treatment sets sold and a resulting increase in the amount of royalty payments paid.

General and Administrative Expenses. General and administrative expenses increased by 249% to $1,564,362 for the year ended December 31, 2003 from $448,856 for the year ended December 31, 2002.

This increase resulted primarily from the requirement to expense during the year ended December 31, 2003 part of the cost of stock options granted to employees and directors in December 2003, as well as from increased costs for legal, executive and finance activities.

Clinical and Regulatory Expenses. Clinical and regulatory expenses decreased by 49% to $731,166 in the year ended December 31, 2003 from $1,446,662 for the year ended December 31, 2002. This reflects a decrease in clinical trial activity as a result of reduced available funding for MIRA-1.

Other (Expenses) Income. Other (expenses) income, decreased by 91% to an expense of $82,059 for the year ended December 31, 2003 from an expense of $921,485 for the year ended December 31, 2002. This decrease was primarily due to lower interest expense as a result of the conversion of certain convertible debentures into convertible preferred stock.

Revenues. Revenues increased to $94,100 for the year ended December 31, 2002 from $0 for the year ended December 31, 2001, due to the commencement of commercial activities in July 2002.

Cost of Sales. Cost of sales increased to $158,694 for the year ended December 31, 2002 from $0 for the year ended December 31, 2001, due to the commencement of sales activities in July 2002 and the resulting related royalty payments.

General and Administrative Expenses. General and administrative expenses decreased by 51% to $448,856 for the year ended December 31, 2002 from $911,100 for the year ended December 31, 2001, due to a reduction in the number of staff as a result of reduced available funding during the first half of 2002.

Clinical and Regulatory Expenses. Clinical and regulatory expenses decreased by 23% to $1,446,662 in the year ended December 31, 2002 from $1,873,223 for the year ended December 31, 2001. This was caused by a decrease in clinical trial activity as a result of reduced available funding during the first half of 2002.

Other (Expenses) Income. Other (expenses) income decreased by 31% to an expense of $921,485 for the year ended December 31, 2002 from an expense of $1,342,303 for the year ended December 31, 2001, due to lower interest expense as a result of the conversion of certain convertible debentures into convertible preferred stock.

Since inception, we have funded our operations through private placements of our equity securities and through borrowings from financial institutions and others.

Cash at March 31, 2004 was $1.1 million. To date we have used the largest portion of our cash to finance the ongoing costs of the MIRA-1 clinical trial, as well as losses generated by our operations. In the future, we expect that we will continue to use our cash resources to fund losses generated by our operations, to conduct the MIRA-1 clinical trial, to accumulate inventory, to undertake other commercialization activities and to treat placebo patients from the MIRA-1 clinical trial.

We have incurred losses since inception and have had a working capital deficiency in each of the last three years. As a result, we require additional funding to continue our operations. Management believes that the estimated net proceeds of $ to be received by us from this offering will be sufficient to fund our operations and other demands and commitments until late 2006.

Our forecast of the period of time through which our financial resources will be adequate to support our operations is a forward-looking statement and involves risks and uncertainties. Actual results could vary as a result of a number of factors, including the factors discussed in the “Risk Factors” section of this prospectus. We have based this estimate on assumptions that may prove to be wrong, and we could utilize our available


	•	the rate of progress, cost and results of MIRA-1;

	•	our ability to obtain FDA approval to market and sell our RHEO System and the timing of such approval;

	•	whether government and third-party payors agree to reimburse RHEO Therapy;

	•	the cost and timing of building the infrastructure and manufacturing capacity to market and sell the RHEO System;

	•	the costs of filing, prosecuting, defending and enforcing any patent claims and other intellectual property rights;

	•	the costs of establishing sales, marketing and distribution capabilities; and

	•	the effect of competing technological and market developments.

Even if we receive regulatory approval for our RHEO System, we will not have significant product revenue until late 2006, at the earliest. Until we can generate a sufficient amount of product revenue, we expect to finance future cash needs through public or private equity offerings, debt financings, corporate collaboration or licensing arrangements or other arrangements, as well as through interest income earned on cash balances. We cannot be certain that additional funding will be available on acceptable terms, or at all. To the extent that we raise additional funds by issuing equity securities, our stockholders may experience dilution, and debt financing, if available, may involve restrictive covenants. To the extent that we raise additional funds through collaboration and licensing arrangements, it may be necessary to relinquish some rights to our technologies, or grant licenses on terms that are not favorable to us. If adequate funds are not available, we may be required to delay, reduce the scope of or eliminate some of our commercialization efforts.

The following table summarizes our contractual commitments as of March 31, 2004 and the effect those commitments are expected to have on liquidity and cash flow in future periods.

Pursuant to the terms of our distribution agreement with MeSys GmbH, dated January 1, 2002, we undertook a minimum purchase commitment of 25 OctoNova pumps per year beginning after FDA approval of the RHEO System, representing an annual commitment after FDA approval of approximately $538,000.

In July 2004, we placed a purchase order with Asahi Medical for 9,600 Rheofilters representing a total commitment of $1,920,000.

Pursuant to the terms of the distribution agreement with Asahi Medical, dated January 1, 2002, the Company undertook a commitment to purchase a minimum of 9,000, 15,000, and 22,500 each of Plasmaflo and Rheofilters in years 1, 2 and 3 respectively beginning six months after FDA approval of the RHEO System. Minimum purchase orders for the fourth year shall be determined immediately after the term of the first year by mutual consent but shall not be less than that of the previous year. This same method shall be used in subsequent years to determine future minimum purchase quantities such that minimum purchase

In July 2004, we amended our Distribution Services Agreement with Apheresis Technologies, Inc. such that we would have the sole discretion as to when the agreement would terminate. In consideration of this amendment, we agreed to pay Apheresis Technologies $100,000 on the successful completion of our initial public offering.

Cash used in operating activities for the three months ended March 31, 2004 was $797,277. Changes in net cash provided by operating activities reflect net loss and other non-cash items netted against changes in working capital. Changes in working capital in 2001 reflected increased liabilities due to reduced funding and in 2002 and 2003 reflect the reduction of these liabilities due to the receipt of additional funding. Cash used in operating activities was $2,374,820, $2,125,533 and $1,461,439 for the years ended December 31, 2003, 2002 and 2001, respectively.

Cash used in investing activities was $16,855 for the three months ended March 31, 2004 and $175,780, $31,045 and $69,589 for the years ended December 31, 2003, 2002 and 2001, respectively. The primary use of the funds was the purchase of fixed assets of $16,855 for the three months ended March 31, 2004 and $164,716, $24,151 and $39,430 for the years ended December 31, 2003, 2002 and 2001, respectively. Fixed asset expenditures were for medical equipment and OctoNova pumps to be used in clinical trials.

Cash provided by financing activities was $723,217 for the three months ended March 31, 2004 and $3,185,311, $2,766,559 and $1,519,386 for years ended December 31, 2003, 2002 and 2001, respectively.

Cash provided by financing activities primarily reflects issuances of convertible debentures, as well as the issuance of common stock in 2003 and the issuance of convertible preferred stock in 2002.

Our discussion and analysis of financial condition and results of operations is based upon our audited consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amount of assets, liabilities, sales and expenses, and related disclosure of contingent assets and liabilities. On an ongoing basis, we evaluate our estimates, including those related to uncollectible receivables, inventories, income taxes, financial income, warranty obligations, excess component and order cancellation costs, and contingencies and litigation. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Because this can vary in each situation, actual results may differ from these estimates under different assumptions or conditions.

We believe the following critical accounting policies affect our more significant judgments and estimates used in the preparation of our audited consolidated financial statements.

We recognize revenue from the sale of products when persuasive evidence of an arrangement exists, delivery has occurred, the selling price is fixed or determinable, and collectibility is reasonably assured. Since July 2002, our only customer has been OccuLogix, L.P. We have appointed OccuLogix, L.P. the sole distributor of the RHEO System and its component parts in North America, the Caribbean and Israel for commercial purposes. Pricing is reviewed quarterly and adjusted as required for futures sales. To date, OccuLogix, L.P.’s primary customer has been a subsidiary of TLC Vision.

Inventory is recorded at the lower of cost and net realizable value and consists of finished goods. Cost is accounted for on a first-in, first-out basis.

The currency of the primary economic environment in which we operate is the U.S. dollar. Substantially all of our sales are derived in U.S. dollars or in other currencies linked to the U.S. dollar. Purchases of substantially all of our materials and components are carried out in U.S. dollars or are linked to the U.S. dollar. As a result, we have determined that our functional currency is the U.S. dollar.

Monetary balances in non-U.S. dollar currencies are translated into U.S. dollars using current exchange rates. Non-monetary balances in non-U.S. dollar currencies are translated into U.S. dollars using historic exchange rates. For non-U.S. dollar transactions reflected in our statements of operations, we use the exchange rates as of the transaction dates. Depreciation, amortization and changes in inventories and other changes deriving from non-monetary items are based on historical exchange rates. We record the resulting translation gains or losses as financial income or expenses, as appropriate.

We follow Statement of Financial Accounting Standard (“SFAS”) No. 123 “Accounting for Stock-Based Compensation,” (“SFAS No. 123”). The provisions of SFAS No. 123 allow companies to either expense the estimated fair value of stock options or to continue to follow the intrinsic value method set forth in Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees” (“APB 25”) but disclose the pro forma effects on net income (loss) had the fair value of the options been expensed. We have elected to continue to apply APB 25 in accounting for stock-based compensation.

During the year ended December 31, 2003, we issued stock options on a date that, on such date, we expected would be within twelve months of the filing of the registration statement to which this prospectus relates. Accordingly, we estimated the fair value of these stock options based on the estimated offering price of our common stock in this offering, which we are expensing over the vesting period of these options. These options will become fully vested upon the closing of this offering. Therefore, we will record the remaining unamortized stock compensation expense immediately during the period in which this offering occurs.

Pursuant to SFAS No. 123, the weighted-average fair values of employee options granted during the years ended December 31, 2003, 2002 and 2001 (other than the stock options described immediately above) were $0.56, $0.77 and $0.17, respectively. The estimated fair value was determined using the following assumptions:


	•	Volatility: 2003 — 75%, 2002 — 83%, 2001 — 83%

	•	Expected life of option: 2003 — 4.1 years, 2002 — 8.9 years, 2001 — 10.0 years

	•	Risk-free interest rate: 2003 — 2.15%, 2002 — 4.95%, 2001 — 4.88%

Compensation expense associated with non-employee stock options was $31,752 and $35,854 for the three months ended March 31, 2004 and 2003, respectively, and $196,686, $134,948 and $190,351 for the years ended December 31, 2003, 2002 and 2001, respectively. The fair value of these options was determined

using the Black-Scholes fair value options model using the same assumptions above and is included in general and administrative expenses within the consolidated statement of operations.

As of December 31, 2003, we had net operating loss carryforwards for federal income taxes of $25.6 million. Our utilization of the net operating loss and tax credit carryforwards may be subject to annual limitations pursuant to Section 382 of the Internal Revenue Code, and similar state provisions, as a result of changes in our ownership structure. The annual limitations may result in the expiration of net operating losses and credits prior to utilization.

At December 31, 2003, we had deferred tax assets representing the benefit of net operating loss carryforwards and certain stock issuance costs capitalized for tax purposes. We did not record a benefit for the deferred tax asset because realization of the benefit was uncertain and, accordingly, a valuation allowance is provided to offset the deferred tax asset.

All of our sales are in U.S. dollars or are linked to the U.S. dollar, while a portion of our expenses are in Canadian dollars and euros. We cannot predict any future trends in the exchange rate of the Canadian dollar or euro against the U.S. dollar. Any strengthening of the Canadian dollar or euro in relation to the U.S. dollar would increase the U.S. dollar cost of our operations, and affect our U.S. dollar measured results of operations. We do not engage in any hedging or other transactions intended to manage these risks. In the future, we may undertake hedging or other similar transactions or invest in market risk sensitive instruments if we determine that is advisable to offset these risks.

The primary objective of our investment activity is to preserve principal while maximizing interest income we receive from our investments, without increasing risk. We believe this will minimize our market risk.

In November 2002, the FASB issued FASB Interpretation (“FIN”) No. 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others” (“FIN No. 45”). FIN No. 45 clarifies and expands on existing disclosure requirements for a guarantor regarding its obligations under certain guarantees it has issued. FIN No. 45 also requires that the guarantor must recognize a liability for the fair value of its obligations under certain guarantees. The provisions of FIN No. 45 are effective for guarantees entered into after December 31, 2002. At December 31, 2003 and March 31, 2004, the Company had no outstanding guarantees.

In January 2003 (as amended in December 2003), the FASB issued FIN No. 46, “Consolidation of Variable Interest Entities” (“FIN No. 46”). FIN No. 46 requires consolidation of a variable interest entity (“VIE”) by the primary beneficiary of the entity’s expected results of operations. FIN No. 46 also requires certain disclosures by all holders of a significant variable interest in a VIE that are not the primary beneficiary. FIN No. 46 is effective immediately for VIEs created or acquired after January 31, 2003. For VIEs created or acquired prior to February 1, 2003, FIN No. 46 is effective in the first reporting period ending after December 31, 2003 for those VIEs that are considered to be special purpose entities, and after March 15, 2004 for those VIEs that are not considered to be special purpose entities. The adoption of FIN No. 46 had no effect on our financial position or results of operations.

In March 2003, the FASB reached a consensus on EITF Issue No. 00-21, “Accounting for Revenue Arrangements with Multiple Deliverables” (“Issue 00-21”). Issue 00-21 sets out criteria for whether revenue can be recognized separately from other deliverables in a multiple deliverable arrangement. The criteria consider whether the delivered item has stand-alone value to the customer, whether the fair value of the delivered item can be reliably determined and the rights of return for the delivered item. Adoption of Issue 00-21 is required for fiscal years beginning after June 15, 2003 and has not had an effect on the Company’s financial position or results of operations.

In May 2003, the Financial Accounting Standards Board issued SFAS No. 150, “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity,” (“SFAS No. 150”). SFAS No. 150 establishes standards for how to classify and measure financial instruments with characteristics of both liabilities and equity. SFAS No. 150 requires that an issuer classify a financial instrument that is within its scope as a liability, or an asset in some circumstances. SFAS No. 150 is effective for financial instruments entered into or modified after May 31, 2003, and other is effective at the beginning of the first interim period beginning after June 15, 2003. On August 27, 2003, the FASB issued a deferral of SFAS No. 150 for mandatorily redeemable shares of non-public companies and non-public companies will not be required to apply the provisions of SFAS No. 150 to mandatorily redeemable financial instruments until periods beginning after December 15, 2004. Based on securities outstanding as at March 31, 2004 the adoption of this standard is not expected to have an effect on our financial position or results of operations.

We are an ophthalmic therapeutic company founded to commercialize innovative treatments for eye diseases, including age-related macular degeneration, or AMD. AMD is the leading cause of late onset visual impairment and legal blindness in people over the age of 50 in the United States and other Western industrialized societies. Our RHEO System contains a pump that circulates blood through two filters and is used to perform Rheopheresis, which we refer to under our trade name RHEO Therapy, which is designed to treat Dry AMD. We believe that Dry AMD represents approximately 85% to 90% of all AMD cases in the United States. Although the exact cause of AMD is not known, researchers have identified several factors that are associated with AMD, including poor microcirculation and the gradual build-up of cellular waste material in the retina. Our RHEO System is designed to improve microcirculation in the eye by filtering high molecular weight proteins and other macromolecules from the patient’s plasma. We believe that improved microcirculation increases the supply of oxygen and nutrients to the compromised retina and facilitates the removal of cellular waste material from the retina.

We believe that our RHEO System is the only Dry AMD treatment to target what we believe to be the underlying cause of AMD rather than its symptoms. The only currently accepted treatment option for persons with advanced cases of Dry AMD are over-the-counter vitamin/antioxidant dietary supplements that can reduce the five-year risk of conversion to Wet AMD, the other form of the disease, by approximately 25%. We believe that RHEO Therapy is currently the only Dry AMD therapy that, based on preliminary data, appears to demonstrate improved vision in some patients. Shortly after our inception, we began commercialization of therapeutic apheresis by opening a therapeutic apheresis center in Florida. This site generated revenues of $900,200 and $1,277,800 for the years ended June 30, 1999 and 1998, respectively. The therapeutic apheresis center was closed in 1999 pursuant to a directive issued by the FDA. After obtaining an FDA investigational device exemption, we initiated a pivotal clinical trial called MIRA-1 to support an application to FDA for approval to market our RHEO System, and have conducted this trial since 1999. We began limited commercialization of our RHEO System at two clinics in Canada in 2003. MIRA-1, which, if successful, is expected to support our application with the U.S. Food and Drug Administration, or FDA, to obtain approval to market our RHEO System in the United States. MIRA-1 follows ten years of successful clinical trials and studies on Rheopheresis conducted outside the United States.

The MIRA-1 protocols require us to obtain a minimum of 150 complete clinical data sets. To that end, we intend to enroll a maximum of 180 patients in MIRA-1. We have enrolled 125 patients in MIRA-1 as of July 2, 2004. We plan to complete enrollment for MIRA-1 of the remaining 55 patients and submit the first three of four modules of our PMA filing to the FDA before the end of 2004. In late 2001, with the permission of the FDA, we submitted to the FDA data for the 43 enrolled patients for whom we had complete 12-month post-treatment data sets. Fifty-eight percent of patients in the MIRA-1 interim analysis entering the clinical trial with worse than legal driving vision improved to meet or exceed the requirements to regain a driver’s license.

In anticipation of commercialization in the United States, we are establishing a plan to educate the eye care community about RHEO Therapy. We are currently identifying multi-facility health care service providers including hospitals, dialysis clinics and ambulatory surgery centers, as well as private practices, which may be future users of our RHEO System if we receive FDA approval. We believe that one of these potential providers may be TLC Vision, an eye care services company, which we believe has relationships with a large number of optometrists and ophthalmologists in the United States and, after this offering, will own approximately % of our outstanding common stock. We believe that both the multi-facility providers as well as private eye care professional practices will be interested in providing RHEO Therapy in their facilities. We also intend to seek Medicare reimbursement for RHEO Therapy. We believe that an insurance billing code established by the American Medical Association in January 2003 accurately describes the RHEO Therapy procedure. If RHEO Therapy receives FDA approval, we plan on seeking a Medicare National Coverage Determination for RHEO Therapy for specified patients with Dry AMD, with the goal of securing Medicare coverage under the existing procedural code for use in the treatment of Dry AMD.

The human eye is composed of focusing elements in the front, the cornea and lens, and a light-sensing element in the back, the retina. Light falls on the photoreceptors that are part of the retina and is converted into electrical energy, which travels via the optic nerve to the brain. The brain processes the complex signals sent from the retina into vision. The central 5% of the area of the retina is the macula, the region responsible for seeing color and for the central vision necessary for activities including reading, face recognition, watching television and driving. Due to its extremely small size, any damage to the macula can result in significant visual impairment, including legal blindness. In the Western World, the major diseases that usually result in blindness in adults are those affecting the retina, including AMD.

AMD is a chronic, progressive disease of the macula that results in the loss of central vision. The most common symptoms include central distortion, loss of contrast sensitivity and loss of color vision, none of which can be corrected by refractive means, including glasses, contact lenses or laser eye surgery. Peripheral vision usually remains unaffected so that patients are often forced to look to the side of objects to see them, but are still unable to see detail. AMD typically affects people initially in one eye, with a high probability of occurrence in the second eye over time. People with AMD often have difficulty living independently and performing routine daily activities.

AMD occurs in two forms — a non-exudative “dry” form and an exudative “wet” form.

Dry AMD. Dry AMD is the most common form of the disease. We believe that Dry AMD affects approximately 13.0 to 13.5 million people in the United States, or approximately 85% to 90% of all AMD cases. Dry AMD is characterized by a gradual decrease of visual acuity, by pigment abnormalities on the macula and by the build-up of protein and lipid deposits, called drusen. This build-up of macromolecules affects the microcirculation in the eye. Research suggests that the retinal cells, overwhelmed by the lack of oxygen and nutrients and the build-up of debris, enter into a dysfunctional state of dormancy. Without treatment, the retinal cells ultimately die and do not regenerate, leading to irreversible vision loss either through the progression of Dry AMD or conversion to Wet AMD. Patients with Dry AMD are classified at the time of diagnosis into four categories of worsening severity. The higher the category, the greater the risk of progression, or conversion, to Wet AMD within five years.

The following table contains the principal characteristics of each category as described by the AREDS Report No. 8:


(1)	BCVA means best corrected visual acuity.

(2)	Categories 3 and 4 are commonly referred to as “Advanced Dry AMD”.

Wet AMD. We believe that Wet AMD affects approximately 1.5 to 2.0 million people in the United States, representing approximately 10% to 15% of all cases of AMD in the United States. Wet AMD occurs when new blood vessels grow into the macular tissues of the eye. This abnormal blood vessel growth generally is known as neovascularization. These new blood vessels tend to be fragile and often bleed, leaking fluid into the macula, resulting in loss of vision. Untreated, this blood vessel growth and leakage can lead to scarring, atrophy and, eventually, macular cell death. Wet AMD patients experience vision loss more rapidly than Dry AMD patients, usually within months of diagnosis. If treatment is not received in this small window of time, the damage is usually irreversible. As a result, the number of people who have Wet AMD that are considered “potentially treatable”, or hoping for significant, positive visual outcomes, will stay relatively small each year as opposed to the number of people who have Dry AMD.

There is currently no cure for Wet AMD. However, retinal specialists may treat the symptoms in an attempt to reduce blood vessel growth and leakage, using one of very few approved therapies currently

available — thermal laser treatment, photodynamic therapy and drug therapies. In addition, there are currently more than 30 therapies being evaluated in U.S. clinical studies for the treatment of Wet AMD. These treatments may slow the progression of the disease, but do not prevent the reoccurrence of abnormal blood vessel growth and do not restore lost vision.


	•	*Thermal Laser Treatment and Photodynamic Therapy.* Thermal laser treatment of Wet AMD entails the use of a high-energy laser to destroy the abnormal blood vessels that are growing and leaking in the macula. This is a surgical procedure involving a medical device that was approved more than two decades ago by the FDA. Because the laser-treated portions of the retina are irreversibly destroyed due to collateral damage from intense heat, thermal laser treatment generally is now used only for the minority of Wet AMD patients whose abnormal blood vessel growth and vessel leakage occur away from the center of the macula. A more targeted approach, photodynamic therapy, involves the use of a light-activated drug named Visudyne, which was developed by QLT, Inc. This therapy involves a two-step process in which the drug is administered systemically by intravenous infusion, after which a dose of low energy light is delivered to the target site to activate the drug and destroy the newly-grown abnormal blood vessels.

	•	*Drug Therapies.* Rather than attempting to destroy abnormal blood vessels, many drug therapies are designed to slow or stop the proliferation of abnormal blood vessels before they can further damage the retina. Current ongoing drug therapies in clinical trials for Wet AMD, which have been developed by Eyetech Pharmaceuticals, Inc., Genentech, Inc. and Genaera Corporation, are believed to block the effect of vascular endothelial growth factor, a natural protein that stimulates the production and growth of blood vessels, using different mechanisms of action. Alcon Laboratories, Inc.’s Retaane is a modified steroid targeting enzymes produced by stimulated blood vessels by blocking the effects of multiple growth factors.

Dry AMD is not a well-understood disease and there is no medical consensus regarding its underlying cause. As a result, there have been few resources devoted to developing a therapy for Dry AMD. However, there is some research that suggests a vascular component to the disease. This “vascular model” suggests that Dry AMD results from a disorder of the vascular microcirculation in the retina which leads to a reduction in the amount of oxygen and nutrients that reach the retina. This disorder also results in the accumulation of debris between the cellular layers of the retina and the subsequent formation of drusen. In addition, new studies have shown that AMD progression may be related to the presence of elevated blood levels of certain macromolecules. Current research has identified a number of high molecular weight blood components that may have a detrimental effect on normal cellular functions and microcirculation.

There is currently no FDA-approved therapy for Dry AMD. Dry AMD is diagnosed and monitored by a primary eye care doctor, such as an optometrist or ophthalmologist, through a routine retinal exam. The AREDS Report provides evidence that vitamin, antioxidant and zinc supplements only reduce the five-year risk of conversion into Wet AMD by up to 25% for Category 3 and Category 4 Dry AMD cases. Regardless of the supplement treatments, Dry AMD may ultimately lead to irreversible vision loss, whether or not it converts into Wet AMD.

The precise cause of AMD is not known. However, researchers have identified certain factors that are associated with AMD:


	•	*Reduced Metabolic Efficiency of Retina.* The macula must be able to function at an extremely high rate of metabolic efficiency to provide sharp vision. The macula, therefore, has an unusually high nutrient and oxygen requirement. Intact cell transport mechanisms are required to supply the necessary nutrients and oxygen. In addition to blood vessels in the retina, the macula receives its blood supply from a tiny meshwork of blood vessels, called the choroid, which lies underneath the retina. The blood supply in this network decreases in older people but even more so in some AMD


		patients. It has been proposed that the decreased blood flow in the retina of AMD patients reduces the metabolism in the retina resulting in significant degradation of visual function.

	•	*Poor Waste Material Disposal.* Conversion of light in the retina into electrical energy is a photochemical process which produces a large quantity of cellular waste materials. Some researchers believe that life-long environmental, oxidative and chemical stresses progressively injure eye tissues, making it more difficult to clear away the waste material generated by the vision-producing cells. This may explain why waste products like drusen are often seen in the retinas of AMD patients and why their presence is associated with an increased risk of progressive vision loss.

The identification of these factors has led us to believe that a treatment that improves microcirculation in the retina can help to enhance the metabolic efficiency of the retina and the removal of waste material and thereby aid in the treatment of Dry AMD. We believe there is a significant market opportunity for such a treatment.

Our RHEO System, which contains a pump and two filters, is designed to filter high molecular weight proteins and macromolecules from the patient’s plasma, leading to improved microcirculatory function. Researchers believe that blood filtered with our RHEO System is able to flow more easily through the tiny capillaries of the eye and that the resulting improved microcirculation more effectively supplies the macular cells with oxygen and nutrients which facilitates removal of cellular waste materials. RHEO Therapy represents a fundamentally new approach to treatment of Dry AMD and offers the following potential benefits:


	•	*Addresses a large AMD patient population with limited current treatment options.* Current Wet AMD treatments are effective only on patients who are newly-diagnosed with Wet AMD, of which there are approximately 200,000 in the United States each year. RHEO Therapy, however, is a treatment for patients in the Category 3 and the Category 4 Dry AMD populations, which, according to the AREDS Report, represents approximately 54% of the total U.S. AMD patients, or currently approximately 8 million people.

	•	*Preserves or improves vision of Dry AMD patients.* Success in treating AMD is generally measured by the ability to slow or halt progression of the disease. We believe that RHEO Therapy is currently the only Dry AMD therapy that, based on preliminary data, appears to demonstrate improved vision in some patients. Furthermore, 58% of patients in the MIRA-1 interim analysis entering the clinical trial with worse than legal driving vision improved to meet or exceed the requirements to regain a driver’s license.

	•	*Patient-friendly procedure.* RHEO Therapy is a form of therapeutic apheresis, a procedure that selectively removes molecules from the plasma. Apheresis has been used safely for more than twenty years in the United States and Europe to treat various diseases including leukemia, rheumatoid arthritis, sickle cell disease and several other medical conditions. The initial course of RHEO Therapy requires eight procedures over a 10- to 12-week period, with each procedure lasting between two and four hours depending on patient weight and height. Patients recline in a comfortable chair and typically listen to music or otherwise relax during the procedure. As with any medical procedure, there are potential side effects associated with RHEO Therapy, including hypotension (drop in blood pressure), cardiac dysrhythmia (abnormal heart rate), nausea, dizziness, fainting, bruising and bleeding at the intravenous sites.

	•	*Limited barriers to adoption for eye care professionals and health care service providers.* We believe that our RHEO System requires lower capital expenditures and less physical space than equipment used in many other procedures performed by eye care professionals, including laser vision correction and cataract surgery. Our RHEO System requires no special installation and minimal maintenance costs. We believe that RHEO Therapy, which can be administered by a nurse, can be


		easily integrated into our customers’ workflow and offers an attractive source of additional revenues for both facilities and providers.

	•	*Cost-effective procedure.* The initial course of RHEO Therapy is initially expected to cost approximately $16,000. We believe that Medicare and third-party payors will determine that the benefits of RHEO Therapy will justify the cost of reimbursement. We also believe that to the extent that RHEO Therapy is not reimbursed by the government or private third-party payors, some patients with the economic means to do so will be willing to pay for RHEO Therapy themselves in order to avoid the consequences of uncorrectable impaired vision, including, but not limited to, the inability to drive.

Our goal is to establish RHEO Therapy as the leading treatment for Dry AMD in North America. Key elements of our strategy include:


	•	*Creating a plan to develop market awareness of RHEO Therapy by educating eye care professionals and patients.* If RHEO Therapy is approved by the FDA, we intend to increase market awareness of RHEO Therapy by identifying and developing relationships with key opinion leaders in each of the eye care disciplines, including ophthalmologists and optometrists. We believe that these opinion leaders, some of whom are investigators in MIRA-1, will help establish acceptance for RHEO Therapy. If and when we receive FDA approval, we intend to launch a public relations campaign targeted directly at patients and advocacy groups to alert them of our treatment. Members of our management team were leaders in creating market awareness of laser vision correction when it was introduced to the North American market in the 1990s and in doing so they were effective in creating relationships with a large number of optometrists and ophthalmologists in the United States.

	•	*Establishing third-party reimbursement for RHEO Therapy.* We believe that an insurance billing code established by the American Medical Association in January 2003 accurately characterizes the RHEO Therapy procedure. This code identifies therapeutic apheresis with extracorporeal selective adsorption or selective filtration and plasma reinfusion. If and when the FDA grants marketing clearance for our RHEO System, we plan on seeking a Medicare National Coverage Determination for RHEO Therapy for specified patients with Dry AMD, with the goal of securing Medicare coverage under the existing procedure code for use in treatment of Dry AMD. Currently, Medicare covers and pays for other FDA-licensed services billed with this code only when performed in a hospital outpatient setting. A proposed payment rate for FDA-licensed services billed with this code when performed in a physician office-based setting has been published by CMS for public comment. We expect that this new physician office-based reimbursement policy will go into effect on January 1, 2005, and will apply to services performed on that date and thereafter. Private insurers already commonly provide reimbursement for treatments performed in physician offices and physician-directed clinics for FDA-licensed services. We also plan to assist our customers in securing coverage and appropriate reimbursement for RHEO Therapy from Medicare and private insurers through a dedicated reimbursement group and the provision of detailed supporting documentation.

	•	*Securing relationships with key multi-facility health care service providers.* To facilitate a rapid rollout of our RHEO System if and when we receive FDA approval, we are identifying key groups of multi-facility health care service providers, including hospitals, dialysis clinics and ambulatory surgery centers, as well as private practices, which may be future treatment centers for our RHEO System. In advance of commercialization in the United States, we intend to develop a plan to ensure that there is an adequate supply of trained nurses to support our service provider partners. We intend to leverage the experience of clinics in Canada currently using our RHEO System to assist in training nurses and our service provider partners in advance of FDA approval. We believe that our experience in Canada and the experience of one of our principal stockholders in Germany will allow us to develop best practice guidelines for integrating RHEO Therapy into a clinic setting.


	•	*Ensuring sufficient manufacturing capacity and inventory to support our commercialization plan.* We intend to work with our manufacturing and supplier partners to ensure that there is sufficient capacity and inventory to support our commercialization plans. In advance of FDA approval, we intend to accumulate an inventory of filters and pumps to support a rapid product launch. We have a distribution agreement with Asahi Medical which appoints us as Asahi Medical’s exclusive distributor of filters in the United States, Canada, Mexico and certain other countries. We recently signed a purchase order with Asahi Medical for 9,600 Rheofilters. We anticipate that we will begin ordering 4,000 filters per quarter starting in late 2004. We intend to continue to order 4,000 filters per quarter in 2005 and 2006 in order to accumulate inventory in excess of our current requirements until we receive FDA approval. We will be working closely with Asahi Medical to develop and conduct clinical tests on a next generation polysulfone Rheofilter with similar characteristics to the current cellulose acetate Rheofilter. We believe that the proposed polysulfone Rheofilter will be able to be manufactured at significantly higher volumes and lower costs than the current filter technology.

	•	*Maintaining our intellectual property portfolio and other barriers to entry.* We believe that our intellectual property position may assist us in maintaining our competitive position. We also believe that the manufacturing process expertise relating to the production by Asahi Medical of the Rheofilter is protected by Asahi Medical as a trade secret. We believe that the exclusive nature of our supplier relationship with Asahi Medical gives us a competitive advantage. We intend to continue to strengthen our relationships with our exclusive suppliers and to strengthen our current patents and seek additional patent protection.

Our RHEO System employs a double filtration apheresis process, whereby a pair of single use blood and plasma filters sequentially separate and partially remove the targeted plasma components. The system removes macromolecules greater than a specified size from the plasma. Our RHEO System consists of two primary components:


	•	*OctoNova Pump.* The OctoNova pump is a microprocessor controlled device used to circulate blood and plasma from the patient through the filters, and back to the patient. The OctoNova pump is complemented by single-use sterilized tubing which creates a closed-loop system. Blood is pumped through the tubing with small gear-like sprockets that create a peristaltic action in the tube similar to that which occurs in our intestines. The smooth-edged teeth of the sprockets press against the outside surface of the tube pushing the blood along the length of the tube as the wheels turn all at the same rate and direction. No blood ever leaves the closed-loop system. The OctoNova pump was developed in the 1990s by Diamed and licensed to us in 2002. We are seeking FDA approval of the OctoNova pump as part of our RHEO System PMA.

	•	*Disposable Treatment Sets.* Disposable treatment sets consist of the tubing and two filters, the Plasmaflo filter and the Rheofilter. The Plasmaflo filter performs the initial function of separating the blood cells from the plasma. The Rheofilter is a single-use, hollow-fiber nanopore membrane, which is used to filter specific high molecular weight proteins and other macromolecules from the plasma. Following this, the filtered plasma is reconstituted with the blood cells and returned into the patient. The tubing and the filters are easily disposed after each patient procedure by the administering nurse, providing us with a recurring source of revenue. The Rheofilter was developed in the early 1980s by Asahi Medical. We are seeking FDA approval of the tubing and two filters as part of our RHEO System PMA. The Rheofilter is currently made of a cellulose acetate filter material. We are working with Asahi Medical to develop a new filter made of polysulfone to replace the current filter. Once developed, we intend to apply for FDA approval for this new filter to be used in our RHEO System.

The disposable treatment sets received Health Protection Branch regulatory approval in Canada in late 2002 for certain diseases, including AMD. The OctoNova pump received Health Protection Branch approval in 2003. The Rheopheresis system components have also been granted a CE Mark in Europe, where the

commercialization rights for Rheopheresis are exclusively held by Diamed, one of our stockholders and suppliers. We are currently conducting clinical studies with the goal of obtaining FDA approval and widespread physician acceptance of RHEO Therapy.

Each RHEO Therapy procedure typically takes between two and four hours to complete and begins by placing one intravenous line in each forearm of the patient. Blood is pumped from a large vein in one arm and circulated through the filtration system where the whole blood is separated from the plasma by the Plasmaflo filter. The plasma is filtered through the Rheofilter, which filters high molecular weight proteins and other macromolecules from the patient’s plasma. The plasma is then remixed with the blood and is returned to the patient intravenously. Only approximately 1.25 pints of blood are outside the patient’s body and at all times blood remains in a sterile closed circuit. Throughout the RHEO Therapy procedure, the attending nurse monitors the blood pressure, heart rate, oxygen saturation, cardiac rhythm and activated clotting time of the patient. The attending nurse also gauges the flow rates, temperature and pressures of the filters. No blood products or medications are added, other than a small amount of heparin to prevent clotting in the tubing system. We believe the initial course of eight procedures of RHEO Therapy given over a 10- to 12-week period provides the best results for patients with Dry AMD. Typically, one or two booster procedures are given each 12 to 18 months thereafter to maintain the clinical benefits derived from the initial course of RHEO Therapy. The referring physician monitors post-procedure follow-up. The following graphic shows the RHEO Therapy process:

Researchers discovered Rheopheresis for AMD during the search for a blood treatment for elevated cholesterol levels in the mid-1980s. Asahi Medical developed a filter aimed at selectively removing the low-density lipid, or LDL, macromolecules known as the “bad” cholesterol in an apheresis procedure. Although the filter successfully removed LDL, it also removed several other large molecules, including von Willebrand’s factor, fibrinogen, lipoprotein A and C reactive protein. At approximately the same time, the statin drug was proven to be effective in lowering LDL levels in the blood, thereby eliminating the need for an apheresis procedure to remove LDL. Shortly thereafter, Asahi Medical ceased its efforts to develop and commercialize apheresis treatment for elevated LDL levels.

In the late 1980s, researchers at the University of Cologne in Germany were searching for a treatment for a small group of patients referred to the university with a condition known as refractory uveitis, a chronic inflammatory eye condition that was not responding to conventional therapy. Having learned that the Asahi

Medical filters had the ability to remove large molecules from the blood and that the eye condition was related to significant levels of many of the same molecules, the researchers performed a small pilot study. The filtration procedure was effective for uveitis but also showed preliminary success in improving the vision of two patients in the study that also had AMD. This led the researchers to conduct several years of clinical research to develop apheresis for AMD in Germany. The research suggested that eight procedures over a 10- to 12-week period was the optimal treatment regime.

We are currently conducting our FDA clinical trial, MIRA-1. Two other clinical trials have been conducted by third parties: MAC-1, which was conducted in Germany from 1995 to 1998; and the Rheopheresis pilot study which was conducted by the University of Utah from 1997 to 1998. While the protocols of these three clinical trials were not identical, the results of each of them to date have been generally consistent.

MIRA-1, or Multicenter Investigation of Rheopheresis for AMD, is a randomized, placebo-controlled trial designed to evaluate the safety and efficacy of RHEO Therapy in patients with late stage Dry AMD.

In September 1999, we received an Investigational Device Exemption from the FDA to begin MIRA-1. Between early 2000 and August 2001, we enrolled 98 patients in MIRA-1. In August 2001, due to financial constraints, we temporarily suspended the new enrollment of patients but continued to pursue follow-up with the remaining patients in MIRA-1. In late 2001, with permission of the FDA, we submitted the data sets of the 43 patients who had reached their full 12-month follow-up in MIRA-1 for independent third-party analysis. Over the course of the next several months, the FDA addressed a number of matters relating to MIRA-1. First, the FDA allowed us to submit our PMA in modules. Second, the FDA acknowledged that MIRA-1 is intended to be the pivotal trial for obtaining FDA approval for RHEO Therapy. Third, the FDA allowed us to treat the patients in the placebo group with RHEO Therapy free of charge once their full 12-month follow up data had been obtained. Fourth, the FDA confirmed that we would be required to submit at least 150 full data sets from the 180 patients that were to be enrolled in the trial. Following disclosure of the interim results of MIRA-1 and these changes to the MIRA-1 protocol, we were able to obtain new financing. As a result of the new financing, in October 2003, we began screening additional patients for enrollment in MIRA-1 and since then we have opened five additional MIRA-1 sites and are now currently operating seven MIRA-1 sites.

As of July 2, 2004, we have enrolled a total of 125 patients, of which 85 have reached the full 12-month follow-up, 27 are in the process of treatment, and the treatment of 13 patients resulted in incomplete data sets. We are seeking to enroll an additional 55 patients with the goal of enrolling 180 patients from which we need to obtain at least 150 full data sets. We are seeking to complete enrollment for MIRA-1 by the end of 2004. We intend to submit to the FDA the first three of four modules of our PMA filing before the end of 2004. These first three modules contain non-clinical results of bench tests and quality assurance, and document manufacturing processes on the components of our RHEO System. The FDA has allowed us to submit the fourth module containing the clinical results in two parts, referred to as modules 4A and 4B. Module 4A will be submitted following completion of our six-month data on all 150 data sets. Module 4B will be submitted following completion of our 12-month data on all 150 data sets.

To be included in MIRA-1, a patient’s eyes must demonstrate intermediate-to-late stage Dry AMD, corresponding to Category 3 and Category 4, with ten or more intermediate or large drusen. Additionally, patients must show elevated serum levels of at least two out of three macromolecules associated in previous studies that suggested the best positive treatment outcomes. Primary eyes in the study must show no signs of Wet AMD, and must demonstrate best corrected visual acuity, or BCVA, between 20/32 and 20/125, inclusive.

Two out of every three patients are treated in the trial, while the third is a placebo or control patient. Patients receive eye exams prior to treatment and at three-, six-, nine-, and 12-month follow-up intervals.

Each patient receives either eight RHEO Therapy procedures or eight placebo procedures over ten weeks. Patients in the placebo-control group are made to believe that they are receiving RHEO Therapy. All subjects including those randomized to the placebo group are shrouded from the neck down to prevent them from observing their treatment and receive actual needle sticks in both arms. Additionally, a partition is positioned in front of the OctoNova pump so that the patient cannot see the system. The machine is activated so that the patients can hear the background noise of the machine, but those patients in the placebo group are not connected to the tubing circuit. In addition, all subjects, including those randomized in the placebo group, are required to take the same dose of antioxidant vitamins that are commonly recommended for Dry AMD patients as a possible inhibitor of conversion into Wet AMD.

The study’s primary endpoint is the mean change in BCVA. In this trial, visual acuity is measured as the number of letters that the patient can read on the Early Treatment Diabetic Retinopathy Study, or ETDRS, eye chart. This is the standard eye chart used in these types of trials. Five letters on the ETDRS eye chart equates to one line of visual acuity. Secondary and tertiary endpoints include:


	•	the ability to pass a vision test in order to regain a driver’s license;

	•	vision improvement;

	•	vision loss;

	•	drusen reduction;

	•	the Pepper Visual Skills for Reading Test, which is a measure of reading ability;

	•	the National Eye Institute visual functioning questionnaire; and

	•	progression to legal blindness.

The following chart presents the interim 12-month results of the first 43 patients in the MIRA-1 study. Of these 43 patients, we only obtained 12-month results from 36 patients because three treated patients and four patients in the placebo group did not complete all of the required follow up.

We do not know whether the completed MIRA-1 results will be consistent with the interim results, which are based on a very small number of subjects, or whether, if the results are consistent, the FDA would consider them sufficient to support our approval.

The MAC-1 trial was a 40-patient study conducted in Germany by the University of Cologne from 1995 to 1998 and resulted in Rheopheresis for Dry AMD achieving the CE Mark. The patients were randomized into two groups, a treatment group and a placebo-control group. The treatment group was treated ten times over a period of 21 weeks.

Unlike MIRA-1, the investigators and each patient knew whether that patient was in the treatment group or the control group because the 20 patients in the control group did not receive placebo treatments but were simply examined at the designated follow-up intervals. The MAC-1 study also included patients with signs of Wet AMD and included patients with significant soft drusen. Eighteen of the patients in the study had signs of Wet AMD and would have been excluded from MIRA-1 under the MIRA-1 protocol.

The main parameter of the study was BCVA. Electrical activity in the eye was also recorded. Plasma and whole-blood speed and volume in the macular region were also measured. The results of MAC-1 were similar to the interim results that have been seen in MIRA-1: statistically significant relative improvement of 1.6 lines of BCVA immediately following the course of treatment, with the same level of benefit seen at 12-months. For patients with soft drusen, the average difference was 2.3 lines (p<0.01); for patients without soft drusen, the difference was only 0.64 lines (p=0.43). In the treated group, improvement in electrical activity was statistically significant, indicating that the cells of the retina were functioning more efficiently. The speed and volume of blood flow in the choridial arteries which supply blood to the retina were found to be decreased by 37% and 33%, respectively, in patients with AMD. Following treatment of those patients, blood flow increased by 22%. There were no serious adverse events noted.

The study was conducted by physicians at the University of Utah Health Sciences Center in Salt Lake City, Utah under an Investigational Device Exemption from the FDA. The University of Utah’s Institutional Review Board also provided approval for human experimentation prior to enrollment. The study involved 30 patients. The trial measured electrical activity in the cells of the macula before and after treatment. The results of this study were used to support the application for the Investigational Device Exemption to conduct MIRA-1.

In April 2004, RHEO Clinic Inc., a wholly-owned subsidiary of TLC Vision, received Institutional Review Board approval for and launched a new study called the Prospective Evaluation of Rheopheresis in Canada, or PERC.

PERC is a single center study in Canada designed to examine the effect of RHEO Therapy on the outcome variables for 60 patients to gain a greater understanding of the treatment’s method of action. As of July 23, 2004, 16 patients were enrolled in PERC. Each patient will receive a series of eight RHEO Therapy procedures over a 10- to 12-week period. Clinical data will be collected at three-month intervals for one year following the initial treatments.

One objective of the study is to develop a complete description of the physiological changes produced by RHEO Therapy. This will be done using structural and functional objective tests and subjective measures of vision in its broad context. This includes retinal morphometry, retinal electrophysiological and vascular function as well as general visual performance using standard measurements of acuity, reading speed, and color and contrast sensitivity. Subjective vision assessments using the National Eye Institute Visual Functioning Questionnaire 25 will also be evaluated to gain understanding about general quality of life and AMD-specific visual symptoms.

David T. Wong, MD, FRCSC, is the principal investigator of the PERC study. Dr. Wong has been our Medical Director since July 2004. Dr. Wong is an Assistant Professor of Ophthalmology at the University of Toronto, Active Staff Ophthalmologist at St. Michael’s Hospital and Director of Fellowship Training in Ophthalmology at the University of Toronto. Dr. Wong is a sub-specialist surgical ophthalmologist in the areas of the vitreous and retina of the eye. Dr. Wong is a member of numerous organizations including the Canadian Ophthalmology Society, American Academy of Ophthalmology, the American Society of Retina Specialists and the Association for Research in Vision and Ophthalmology. Dr. Wong is a frequently invited lecturer in North America, Asia and Europe, has authored numerous scientific papers and publications and is an investigator in numerous FDA clinical trials, including trials for QLT’s Visudyne, Eyetech’s Macugen and Alcon’s Retaane.

The RHEONET Registry is a collaborative effort between the Apheresis Research Institute in Cologne, Germany and us. The registry contains a database of Rheopheresis procedures from centers and clinics performing the Rheopheresis commercially in Germany, using systems sold by Diamed, and in Canada, using systems sold by us. In March 2004, a total of 3,314 Rheopheresis procedures on 529 patients were registered, including 365 patients with AMD. Ophthalmological data of 149 eyes of 108 patients with Dry AMD could be analyzed from the registry as of March 2004.

We have three key supplier arrangements — with Asahi Medical, who manufacturers the treatment sets, including the Rheofilter and the Plasmaflo filter, and with Diamed and MeSys, the designer and the manufacturer, respectively, of the OctoNova pump. The Rheofilter, the Plasmaflo filter and the OctoNova pump are all key components in our RHEO System.

Rheofilter and Plasmaflo Filter. We purchase the Rheofilter and Plasmaflo filter from Asahi Medical. We make these purchases pursuant to a distribution agreement which appoints us as Asahi Medical’s exclusive distributor of the Rheofilter and the Plasmaflo filter for use in treating AMD in the United States, Canada, Mexico and certain Caribbean countries, subject to us obtaining necessary regulatory approvals in those agreed countries where we choose to sell the filters. Under this agreement:


	•	we may not market or sell any product that is similar to or competitive with the filters;

	•	we must use our best efforts to obtain medical reimbursements for patients that use the filters to treat AMD from public and private medical insurance in the United States; and


	•	we must purchase a minimum annual quantity of filters following FDA approval.

Under the agreement, Asahi Medical can cease to supply Rheofilters and Plasmaflo filters to us, after a notice period, in the event that: (1) Asahi Medical cannot economically supply the product; (2) due to special circumstances, such as patent infringement liability or product liability issues, Asahi Medical cannot supply the product; or (3) Asahi Medical develops an improved product, in which case, we have a right of first refusal to become the exclusive distributor of that new product in the same territories where we are the exclusive distributor of the Rheofilter on terms and conditions satisfactory to Asahi Medical and to us. Although we have an obligation to purchase a minimum annual quantity of filters, Asahi Medical has the right to reject any order but may not unreasonably reject any order placed by us in order to satisfy our minimum purchase requirements.

Asahi Medical has indicated that they intend to discontinue manufacturing the cellulose acetate Rheofilter in 2008 and replace it with a newer polysulfone Rheofilter which is currently in the early stages of production and testing. We expect to obtain distribution rights to this new filter on terms substantially equivalent to the terms for the existing filter. We intend to apply for FDA approval to use this new filter in our RHEO System prior to 2008.

This agreement expires on the tenth anniversary of our obtaining FDA approval to use the filters to treat AMD. In addition, Asahi Medical may terminate our agreement in certain circumstances, including:


	•	if we become insolvent or are petitioned into bankruptcy;

	•	if we transfer all or an important part of our business to a third party;

	•	if we are unable to obtain FDA approval and other necessary approvals in the territories for which we have distribution rights by the end of December 2006;

	•	if we breach the agreement and do not remedy the default within 30 days of Asahi Medical notifying us that we are in default; or

	•	if any essential changes in our management or ownership of our shares would adversely affect the sale of filters in the territories in which we have exclusive distribution rights.

OctoNova Pump. We purchase the OctoNova pump pursuant to a marketing and distribution agreement with Diamed, the developer of the OctoNova pump, and a distribution agreement with MeSys GmbH, the company that manufactures the pumps for Diamed.

Under the agreement with Diamed we have been appointed Diamed’s exclusive distributor of the OctoNova pump in the United States, Canada and Mexico. Under this agreement:


	•	we have committed to undertake all possible and tolerable efforts to market and distribute the product optimally; and

	•	we are obligated to promote the product in our exclusive territory.

This agreement expires on January 1, 2005. In addition, either party may terminate this agreement in certain circumstances, including:


	•	if the other party becomes insolvent or is petitioned into bankruptcy;

	•	if the other party breaches the agreement and does not remedy the default within 60 days of the non-breaching party notifying the breaching party that they are in default;

	•	if Diamed’s manufacturing agreement with MeSys is terminated; or

	•	if our distribution agreement with MeSys is terminated.

Under our agreement with MeSys, MeSys agrees to manufacture and sell to us the OctoNova pump. Under our agreement with MeSys, we have an obligation to purchase a minimum annual quantity of OctoNova pumps.

This agreement expires on the third anniversary of our obtaining FDA approval to use the OctoNova pump to treat AMD. In addition, MeSys may terminate our agreement in certain circumstances, including:


	•	if we become insolvent or are petitioned into bankruptcy;

	•	if we breach the agreement and do not remedy the default within 60 days of MeSys notifying us that we are in default;

	•	if Diamed’s manufacturing agreement with MeSys is terminated; or

	•	if our marketing agreement with Diamed is terminated.

We currently have limited sales and marketing capabilities and no distribution capabilities. We will seek to develop our own sales and marketing infrastructure to commercialize our RHEO System. We have recruited a chief operating officer with significant sales, marketing and distribution experience. We intend to recruit our domestic ophthalmic sales force in the near future in order to have an established sales and marketing capability if and when we receive FDA approval to market our RHEO System in the United States.

We expect to focus our sales and marketing efforts on multi-facility healthcare service providers, including hospitals, dialysis clinics and ambulatory surgery centers, as well as private eye care professionals, including optometrists and ophthalmologists. Each of these two groups would be serviced by separate dedicated sales forces, with knowledge of the particular needs and concerns of each group.

In order to make our RHEO System more attractive to multi-facility healthcare service providers and private eye care professionals, prior to commercialization in the United States, we will seek to create a training program for nurses, leveraging existing clinics in Canada and potential partners who already have experience in apheresis treatments, such as dialysis clinics, to ensure an adequate supply of trained nurses for our service provider partners.

If our RHEO System is approved for commercialization by the FDA, we also intend to increase market awareness of RHEO Therapy by identifying and developing relationships with key opinion leaders in each of the eye care disciplines, including ophthalmologists and optometrists. We believe that these opinion leaders, some of whom are investigators in MIRA-1, will help establish credibility for RHEO Therapy. If and when we obtain FDA approval, we intend to launch a public relations campaign targeted directly at patients and advocacy groups to alert them to this new treatment. Members of our management team were leaders in creating market awareness of laser vision correction when it was introduced to the North American market in the 1990s and in doing so they were effective in creating relationships with a large number of optometrists and ophthalmologists in the United States.

We currently have an exclusive agreement with Apheresis Technologies to provide warehousing, order fulfillment, shipping, billing services and customer service related to shipping and billing for our RHEO System. Under this agreement, we pay Apheresis Technologies a basic service fee of 5% of the cost to us of the RHEO System. The agreement expires 10 years subsequent to approval by the FDA of our RHEO System unless otherwise terminated by us.

In Canada, we are currently marketing and selling our RHEO System through a small, dedicated Canadian sales force.

Our success depends in part on our ability to develop a competitive intellectual property advantage over potential competitors for the treatment of Dry AMD. There is currently no FDA approved therapy for Dry AMD and, to date, we are not aware of any other treatment in clinical development in North America. We

own or have licenses to certain patents and we have exclusive arrangements with certain suppliers that we believe will help us develop this competitive advantage. We also rely on know-how, continuing technological innovation and in-licensing opportunities to further develop our proprietary position. Our ability and the ability of our licensors to obtain intellectual property protection for the RHEO System and related processes, and our ability to operate without infringing the intellectual property rights of others and to prevent others from infringing our intellectual property rights will be an important factor to our success. Our strategy is to seek to protect our proprietary position by, among other methods, filing U.S. patent applications related to our technology, inventions and improvements that are important to the development of our business.

One aspect of our RHEO System is a treatment method described in an issued U.S. patent which expires in 2017. This patent, issued under U.S. patent number 6,245,038 and entitled “Method of Treatment of Opthalmological Diseases,” is directed to a process for treating ocular diseases using plasmapherisis. We expect that we will seek to have the patent licensed to us re-examined in the next 12 months at the U.S. Patent and Trademark Office and we believe that a more detailed claim set will be issued. We license this patent from the two co-owners of the patent under a separate license agreement with each owner. Under the license agreements, we have the exclusive right to use the claimed treatment method in the U.S. during the term of the patent. As part of those agreements we are required to make royalty payments in the aggregate of 2% of the sales for the OctoNova pumps and filters, subject to minimum required payments in the aggregate amount of $25,000 during each calendar quarter. In addition, we own one issued patent in the United States, which expires in 2019. This patent, issued under U.S. patent number 6,551,266 and entitled “Rheological Treatment Methods,” is directed to methods of screening and identifying patient candidates for RHEO Therapy. We also have three additional pending patent applications in the United States, Europe and Japan relating to the 6,551,266 patent.

The patent position of companies like ours is generally uncertain and involves complex legal and factual questions. Our ability to maintain and solidify a proprietary position for our technology will depend on our success in obtaining effective claims and enforcing those claims once granted. We do not know whether any part of our patent applications will result in the issuance of any patents. Our issued patents and those that may issue in the future, or those licensed to us, may be challenged, invalidated or circumvented, which could limit our ability to stop competitors from marketing our related products or the length of term of patent protection that we may have for our processes. The reexamination of patent 6,245,038 may result in the patent being rejected and no claims of commercial value being issued or it may result in competitors acquiring intervening rights. In addition, the rights granted under any issued patents may not provide us with proprietary protection or competitive advantages against competitors with similar technology. Because of the extensive time required for development, testing and regulatory review of a potential product, it is possible that, before any of our products can be commercialized, any related patent may expire or remain in force for only a short period following commercialization, thereby reducing any advantage of the patent.

In addition to patent protection, we have registered the following U.S. trademarks:


	•	OccuLogix;

	•	Our Vision is Your Vision;

	•	RheoTherapy; and

	•	RheoLogix;

We also have the right to use the following trademarks from Asahi Medical: Rheofilter, Rheopheresis and Plasmaflo.

We may rely, in some circumstances, on trade secrets to protect our technology. However, trade secrets are difficult to protect. We seek to protect our proprietary technology and processes, in part, by confidentiality agreements with our employees, consultants, scientific advisors and other contractors. These agreements may be breached, and we may not have adequate remedies for any breach. In addition, our trade secrets may otherwise become known or be independently discovered by competitors. To the extent that our employees,

Government authorities in the United States and other countries extensively regulate, among other things, the research, development, testing, manufacture, labeling, promotion, advertising, distribution and marketing of our RHEO System, which is a medical device. In the United States, the FDA regulates medical devices under the Federal Food, Drug, and Cosmetic Act and implementing regulations. Failure to comply with the applicable FDA requirements, both before and after approval, may subject us to administrative and judicial sanctions, such as a delay in approving or refusal by the FDA to approve pending applications, warning letters, product recalls, product seizures, total or partial suspension of production or distribution, injunctions, and/or criminal prosecution.

Unless exempted by regulation, medical devices may not be commercially distributed in the United States unless they have been cleared or approved by the FDA. Medical devices are classified into one of the three classes, class I, II or III, on the basis of the controls necessary to reasonably assure their safety and effectiveness. Class I devices are subject to general controls, such as labeling, premarket notification, and adherence to good manufacturing practices. Class II devices are subject to general and specific controls, such as performance standards, patient registries and FDA guidelines. Generally, class III devices are those which must receive approval of a PMA by the FDA to provide reasonable assurance of their safety and effectiveness. For example, life-sustaining, life-supporting, and implantable devices, or new devices which have not been found substantially equivalent to legally marketed devices, generally require approval of a PMA by the FDA.

There are two review procedures by which medical devices can receive clearance or approval. Some products may qualify for clearance under a Section 510(k) procedure, in which the manufacturer provides a premarket notification that it intends to begin marketing the product, and shows that the product is substantially equivalent to another legally marketed product, that is that it has the same intended use and is as safe and effective as a legally marketed device and does not raise different questions of safety and effectiveness than does a legally marketed device. In some cases, the submission must include data from human clinical studies. Marketing may commence when the FDA issues a clearance letter finding substantial equivalence.

If the medical device does not qualify for the 510(k) procedure, either because it is not substantially equivalent to a legally marketed device or because it is a class III device required to have an approved PMA, then the FDA must approve a submitted PMA before marketing can begin. A PMA must demonstrate, among other matters, that the medical device is safe and effective. A PMA is typically a complex submission, usually including the results of preclinical and clinical studies, and preparing an application is a detailed and time-consuming process. The PMA must be accompanied by the payment of user fees which currently exceed $200,000 for most submissions. When modular submissions are used, the entire fee is due when the first module is submitted to the FDA. Once a PMA has been submitted, the FDA’s review may be lengthy and may include requests for additional data. The FDA usually inspects device manufacturers before approval of a PMA, and the FDA will not approve the PMA unless the manufacturer’s compliance with the quality systems regulation is satisfactory.

Our RHEO System is a class III device and will require approval of a PMA. We cannot be sure that the FDA will approve a PMA for our product in a timely fashion, or at all. FDA requests for additional studies during the review period are not uncommon and can significantly delay approvals. Even if we were able to obtain approval of a PMA of a product for one indication, changes to the product, its indication or its labeling can require additional clearances or approvals.

To obtain approval of a PMA, clinical studies demonstrating the safety and effectiveness of the medical device must be conducted. Prior to beginning such studies, an Investigational Device Exemption, or IDE, for the study must become effective. The IDE will automatically become effective 30 days after its receipt by the FDA, unless the FDA raises concerns or questions about the conduct of the study. In that case, the concerns

and questions must be resolved before the study can begin. Even after an IDE becomes effective, the FDA may suspend it at any time on various grounds, including a finding that patients are being exposed to an unacceptable health risk. Our RHEO System is the subject of an effective IDE, but we cannot be sure that the FDA will not suspend it, which would prevent us from completing the MIRA-1 and other studies.

Regardless of whether a medical device requires FDA clearance or approval, a number of other FDA requirements apply to the device, its manufacturer and those who distribute it. Device manufacturers must be registered and their products listed with the FDA, and certain adverse events and product malfunctions must be reported to the FDA. The FDA also regulates the product labeling, promotion, and in some cases, advertising, of medical devices. In addition, manufacturers and their suppliers must comply with the FDA’s quality system regulation which establishes extensive requirements for quality and manufacturing procedures. Thus, suppliers, manufacturers and distributors must continue to spend time, money and effort to maintain compliance, and failure to comply can lead to enforcement action. The FDA periodically inspects facilities to ascertain compliance with these and other requirements.

As of July 30, 2004, we had seven full-time employees. Of our full-time workforce, four employees are engaged in clinical trial activities and three are engaged in business development, finance and administration. We also retain outside consultants. None of our employees are covered by collective bargaining arrangements, and our management considers its relationships with our employees to be good. To date, our strategy has been to limit the size of our full-time workforce and to outsource several of our key operating functions, including the management of the MIRA-1 clinical trial. We have also relied significantly on the resources of two of our major stockholders, TLC Vision and Diamed, to assist us in the planning and execution of our business plan to date.

We sublease our headquarters in Mississauga from TLC Vision. The facility consists of 210 square feet of office space and our arrangement is on a month-to-month sublease. Our current monthly lease obligation for rent for this facility is Cdn. $460. We believe this lease contains arm’s length commercial terms.

We also have a facility in Palm Harbor, Florida consisting of 5,020 square feet of space. Our lease on this property expires in December 31, 2005. Our current monthly lease obligation for rent for this facility is approximately $2,745.

We believe that if our existing facilities are not adequate to meet our business requirements for the near-term, additional space will be available on commercially reasonable terms.

We are not aware of any litigation involving us that is outstanding, threatened or pending.

The information contained in this prospectus reflects consummation of the following transactions, which we refer to collectively as the “Reorganization”:


	•	the issuance of 4,622,668 shares of common stock to be issued upon the automatic conversion of all our outstanding shares of Series A and Series B convertible preferred stock upon the closing of this offering;

	•	the issuance of 7,106,455 shares of common stock to TLC Vision and Diamed upon conversion of $7,000,000 aggregate principal amount of convertible debentures to be held by them immediately prior to this offering. The conversion price is $0.98502 per share; and

	•	the issuance of 19,105,426 shares of common stock to TLC Vision in connection with the purchase by us of TLC Vision’s 50% interest in OccuLogix, L.P. immediately prior to this offering. This amount includes shares of common stock which will be issuable upon the exchange of shares of OccuLogix ExchangeCo Inc., one of our Canadian subsidiaries, issued for tax purposes to TLC Vision in connection with the purchase of OccuLogix, L.P.

Following the Reorganization, Occulogix, L.P.’s U.S. business will be carried on by a Delaware limited liability company that is our wholly-owned subsidiary. Occulogix, L.P.’s Canadian business will be either carried on by it or by a subsidiary of ours incorporated in a Canadian jurisdiction.

The following table sets forth information about who our directors and executive officers will be as of the closing of this offering:

Elias Vamvakas, together with Dr. Jeffery J. Machat, co-founded TLC Vision, where he has been the Chairman and CEO since 1994. He has been our Chairman since September 2003 and our Chief Executive Officer since July 2004. Prior to co-founding TLC Vision in 1993, Mr. Vamvakas was the President of the Creative Planning Financial Group of Companies. Mr. Vamvakas was named to “Canada’s Top Forty Under Forty” in 1996. In 1999 he was named Ernst & Young’s Entrepreneur of the Year for Ontario in the Emerging Category and Canadian Entrepreneur of the Year for Innovative Partnering. In 2000, Mr. Vamvakas was recognized by Profit Magazine for managing Canada’s fastest growing company.

Thomas P. Reeves will become our President and Chief Operating Officer effective September 2004. Mr. Reeves is currently President and Chief Executive Officer of Borderfree and of the Canada Post Borderfree Partnership and has been in those positions since March 2001 and January 2003, respectively. From 1998 until 2000, Mr. Reeves was President of Beamscope Canada Inc., a retail distributor of micro-computer products. While Mr. Reeves was President of Beamscope, the company instituted proceedings under the Companies’ Creditors Arrangement Act (Canada) and a receiver was appointed after his departure. From 1994 to 1998, Mr. Reeves was President of Merisel Canada, a subsidiary of one of the largest distributors of micro-computer products. From 1992 until 1994, Mr. Reeves was Managing Director of Merisel Europe where he was responsible for all strategic, financial and operational aspects of subsidiaries in the UK, France, Germany, Switzerland, Austria and Russia. From 1989 until 1992, Mr. Reeves was Managing Director of Merisel Ltd. and from 1987 to 1989 he was Vice President of European Business Development based in Paris, France. From 1985 until 1987, Mr. Reeves was a consultant with the Boston Consulting Group in its San Francisco office. Mr. Reeves holds a Master of Arts in International Relations from the Australian National University and graduated magna cum laude with a Bachelor of Arts in Economics from Harvard University.

William G. Dumencu, CA, has served as our Chief Financial Officer and Treasurer since August 2003. From January 2003 to August 2003, Mr. Dumencu was a consultant for us and TLC Vision and from 1998 until 2002, Mr. Dumencu served in a variety of financial leadership positions at TLC Vision including Controller. Mr. Dumencu was employed in various financial management positions by Hawker Siddeley Canada, Inc. from 1978 to 1998. Mr. Dumencu is a Chartered Accountant.

Irving Siegel, MD, has been our President since August 2003. Effective September 2004, Dr. Siegel will become our Vice President, Clinical Affairs. From January 2003 until August, 2003, Dr. Siegel was Medical Director at TLC Vision’s RHEO Clinic subsidiary. Dr. Siegel has been a general medicine practitioner with extensive emergency medicine experience since 1984. Dr. Siegel founded Quest Clinical Trials in 1996 and served as its Director of Clinical Research from 1996 to 2003. While employed by Quest, Dr. Siegel

David Eldridge, OD, FAAO, became our Vice President, Science and Technology in October 2002. Prior to joining OccuLogix, Dr. Eldridge was the Executive Vice President, Clinical Affairs of TLC Vision from 1997 to 2002. Prior to joining TLC Vision, Dr. Eldridge was an optometrist in private practice from 1978 to 1997. He has served as President of the Oklahoma Chapter of the American Academy of Optometry, President of the Oklahoma American Optometric Academy, member of the OAOA Board of Directors, Chairman of the OAOA Education Committee, Oklahoma “Optometrist of the Year” in 1993 and is a charter member of the OAOA Contact Lens Section. Dr. Eldridge is a Fellow of the American Academy of Optometry.

Stephen J. Kilmer became our Vice President, Corporate Affairs in July 2004. Mr. Kilmer has been Vice President, Investor Relations of TLC Vision since December 2003. From October 2000 until December 2003, he was Director of Corporate Communications for TLC Vision and from October 1998 until October 2000, he was Director of Investor Relations for TLC Vision. From September 1997 until October 1998, Mr. Kilmer was Manager of Investor Relations for TLC Vision.

Julie A. Fotheringham will become our Vice President, Marketing effective September 2004. Ms. Fotheringham is currently Senior Brand Manager at Cadbury Adams and she has been in that position since September 2002. From January 2000 until September 2002, she was Brand Manager at Adams (a division of Warner-Lambert and then Pfizer Canada Inc.). From November 1996 until November 1997, she was Client Manager for the Sales & Merchandising Group. From December 1993 to September 1996, Ms. Fotheringham was Territory Manager for Warner-Lambert Canada’s Parke-Davis Pharmaceutical Division. Ms. Fotheringham has a Bachelor of Science degree in Biology from Queen’s University in Kingston, Canada.

Joseph Zwaideh will become our Vice President, Sales effective September 2004. Mr. Zwaideh is currently Director of H.E.L.P., the apheresis business unit of B. Braun Medical, Inc., a healthcare products and services provider, and has been in that position since February 2003. From March 2002 to January 2003, he was Marketing Manager of Innercool Therapies, Inc., a medical device company providing endovascular therapeutics for cardiology and neurosurgery. Mr. Zwaideh co-founded and was Vice President, Business Development of Viewtap, Inc. from January 2001 to February 2002. He was Marketing Manager for B. Braun Medical, Inc. from May 1998 to December 2000. From April 1993 to July 1996, Mr. Zwaideh was a Research and Development Engineer for River Medical, Inc. Mr. Zwaideh has a Bachelor of Science degree in Bioengineering from the University of California San Diego and a Master of Business Administration from the University of Southern California.

Thomas N. Davidson will be appointed to our board prior to the closing of this offering and has been on the board of TLC Vision since 2002. Mr. Davidson has been Chairman of NuTech Precision Metals Inc. and Chairman of Quarry Hill Group, a private investment holding company, since 1986. NuTech Precision Metals Inc. is a manufacturer of high performance metal fabrications for the health care, aerospace, high technology and chemical industries. Mr. Davidson is past Chairman of Hanson Chemical Inc., a supplier of specialty chemical products, and General Trust PCL Packaging Inc., a supplier of plastic packaging. Mr. Davidson is the non-executive Chairman of Azure Dynamics Corporation. He is on the board of CMA Holdings, Inc. and MDC Partners, Inc. and was recognized by the Financial Post as the Canadian Entrepreneur of the year in 1979.

Jay T. Holmes will be appointed to our board prior to the closing of this offering and has been self-employed as an attorney and business consultant since mid-1996. From 1981 until mid-1996, Mr. Holmes held several senior management positions at Bausch & Lomb Incorporated, the most recent being Executive Vice President and Chief Administrative Officer from 1995 to 1996 and Senior Vice President and Chief Administrative Officer from 1993 to 1995. From 1983 to 1993, Mr. Holmes was Senior Vice President, Corporate Affairs, and from 1981 to 1983 Vice President and General Counsel at Bausch & Lomb. Mr. Holmes was a member of the Board of Directors of Bausch & Lomb from 1986 until 1996. Mr. Holmes

Richard L. Lindstrom, MD, will be appointed to our board prior to the closing of this offering and has served as a director of TLC Vision since May 2002 and, prior to that, as a director of LaserVision since November 1995. Since 1979, Dr. Lindstrom has been engaged in the private practice of ophthalmology and has been the President of Minnesota Eye Consultants P.A., a provider of eye care services, or its predecessor since 1989. In 1989, Dr. Lindstrom founded the Phillips Eye Institute Center for Teaching & Research, an ophthalmic research and surgical skill education facility, and he currently serves as the Center’s Medical Director. Dr. Lindstrom has served as an Associate Director of the Minnesota Lions Eye Bank since 1987. He is a medical advisor for several medical device and pharmaceutical manufacturers. From 1980 to 1989, he served as a Professor of Ophthalmology at the University of Minnesota. Dr. Lindstrom received his Doctor of Medicine, Bachelor of Arts and Bachelor of Sciences degrees from the University of Minnesota.

Georges Noël has been a member of our board since July 2003. Mr. Noël has been involved in the private equity and venture capital industry for over 14 years and between 2002 and 2003, was the Secretary General of the Belgian Venturing Association. Mr. Noël has recently been appointed as Director of Research, Public Affairs and Development of the European Private Equity & Venture Capital Associations. Mr. Noël’s professional experience in private equity has encompassed a range of roles and responsibilities at various private equity houses, including: CAM Private Equity, the Cologne-based fund of funds; Ostbelgieninvest AG; Eupen; and Fortis Private Equity NV. Prior to his involvement in private equity, Mr. Noël was Chief Financial Officer and Member of the Executive Committee of the industrial group NMC sa in Eupen between 1982 and 1993. He held various positions in corporate banking at Génerale de Banque, now Fortis Bank, and was Managing Director of its German subsidiary, Belgische Bank, between 1971 and 1981. Mr. Noël serves on the boards of several investee or family-owned companies, is past president of the Belgium Venturing Association and of the IMD Alumni Club of Belgium. Mr. Noël was a member of the EVCA National Venture Capital Associations Committee from 2000 to 2003.

As of the closing of this offering, we will have five directors. Currently, in accordance with our amended and restated by-laws, the number of directors comprising our board of directors will be determined from time to time by our board of directors. Each director is to hold office until his or her successor is duly elected and qualified. Directors will be elected for a term that will expire at the annual meeting of stockholders immediately succeeding their election.

Directors may be removed from office with or without cause by the affirmative vote of the holders of at least a majority of the voting power of all then-outstanding shares of our capital stock that are entitled to vote generally in the election of our directors. Our amended and restated by-laws provide that in the case of any vacancies among the directors such vacancy will be filled with a candidate approved by the vote of a majority of the remaining directors.

The ability of the remaining directors to fill vacancies could have the effect of making it more difficult for a third party to acquire, or of discouraging a third party from attempting to acquire, control of us.

At any meeting of our board of directors, a majority of the total number of directors then in office will constitute a quorum for all purposes.

The standing committees of our board of directors will consist of an audit committee, a compensation committee and a corporate governance and nominating committee. Messrs. Davidson, Holmes, Noël and Dr. Lindstrom are “independent” as defined in the rules of the SEC and the Nasdaq National Market as such term relates to the relevant board of directors committees. Further, the board of directors has determined that Mr. Noël is an “audit committee financial expert” as defined by the rules of the SEC and the Nasdaq National Market.

Our audit committee will consist of three independent directors. The principal duties and responsibilities of our audit committee will be as follows:


	•	to monitor our financial reporting process and internal control system;

	•	to appoint and replace our independent outside auditors from time to time, determine their compensation and other terms of engagement and oversee their work;

	•	to oversee the performance of our internal audit function; and

	•	to oversee our compliance with legal, ethical and regulatory matters.

The audit committee will have the power to investigate any matter brought to its attention within the scope of its duties. It will also have the authority to retain counsel and advisors to fulfill its responsibilities and duties. On closing, all members of this committee will be directors who are independent of management.

Our compensation committee will consist of three independent directors. The principal duties and responsibilities of the compensation committee will be as follows:


	•	to provide oversight on the development and implementation of the compensation policies, strategies, plans and programs for our key employees and outside directors and disclosure relating to these matters;

	•	to make recommendations regarding the operation of and/or implementation of any employee bonus plans;

	•	to review and approve the compensation of our chief executive officer and the other executive officers of us and our subsidiaries and the remuneration of our board of directors; and

	•	to provide oversight concerning selection of officers, management succession planning, performance of individual executives and related matters.

On closing, all members of this committee will be directors who are independent of management.

Our corporate governance and nominating committee will consist of three independent directors. The principal duties and responsibilities of the corporate governance and nominating committee will be as follows:


	•	to establish criteria for board and committee membership and recommend to our board of directors proposed nominees for election to the board of directors and for membership on committees of the board of directors;

	•	to make recommendations regarding proposals submitted by our stockholders; and

	•	to make recommendations to our board of directors regarding corporate governance matters and practices.

On closing, all members of this committee will be directors who are independent of management.

No member of our compensation committee has ever been an officer or employee of ours. None of our executive officers currently serves, or has served during the last completed fiscal year, on the compensation committee or board of directors of any other entity that has one or more executive officers serving as a member of our board of directors or compensation committee. Prior to establishing the compensation committee, our full board of directors made decisions relating to compensation of our executive officers.

Directors who are not our executive officers are entitled to receive an attendance fee of $2,500 in respect of each board meeting attended in person, $1,000 in respect of each committee meeting attended in person and $500 in respect of each meeting attended by phone. Directors also receive an annual fee of $15,000. Non-executive directors are reimbursed for out-of-pocket expenses incurred in connection with attending meetings of the board of directors. In addition, outside directors are entitled to receive options to acquire shares of our common stock under OccuLogix’s stock option plan based on our performance. The chair of each of the Audit, Compensation and Corporate Governance Committees also receives an annual fee of $5,000. In the year ended December 31, 2003, our Chairman (currently also our Chief Executive Officer) received options to acquire an aggregate of 500,000 shares of our common stock at an exercise price of $0.99 per share for his services as Chairman. In addition, four outside directors as of December 31, 2003, including Mr. Noël, who will be our director after completion of this offering, each received options to acquire 25,000 shares of our common stock at an exercise price of $0.99 per share.

The following table sets forth information with respect to the compensation of our chief executive officer and each of the other four most highly compensated executive officers earning greater than $100,000 during the fiscal year ended December 31, 2003.


(1)	Mr. Davis was Chief Executive Officer from January to June, 2003, and Chief Science Officer from July to December, 2003, earning a salary of $100,000 and $75,000, respectively.

(2)	Reflects salary earned from August 1 to December 31, 2003.

(3)	Reflects compensation earned as a consultant from January 1 to July 31, 2003.

The following table sets forth certain information concerning option grants to the named executive officers during the fiscal year ended December 31, 2003.

The following table sets forth certain information with respect to option exercises and the total value of options held by each named executive officer as of December 31, 2003. The value realized upon the exercise of options and the value of the unexercised in-the-money options at year-end have been calculated based on an assumed initial public offering price of $ per share, the midpoint of the range set forth on the cover of this prospectus, less the applicable exercise price per share, multiplied by the number of shares underlying such options.

As of the date of this prospectus, except as set out below, we do not have a written employment agreement with our Chief Executive Officer or any of our other named executive officers.

We entered into an employment agreement with Mr. William G. Dumencu, who is our Chief Financial Officer and Treasurer, on August 1, 2003. Mr. Dumencu’s primary responsibility is to us, however, he does spend approximately 25% of his work efforts on behalf of Occulogix, L.P. His base salary including the services rendered to Occulogix, L.P. is $110,000. At our discretion, based on specific measurable objectives, he is entitled to an annual bonus of 20% of his annual base salary. Mr. Dumencu is entitled to receive stock options pursuant to the 2002 stock option plan.

Mr. Dumencu’s employment may be terminated for cause (as defined in the agreement) or without cause upon sixty days notice.

The agreement also contains non-compete and confidentiality covenants for our benefit. If Mr. Dumencu’s employment is terminated without cause (as defined in the agreement) he is entitled to receive severance equal to twelve months salary, payable in equal monthly instalments or a lump sum, at Mr. Dumencu’s option.

We entered into an employment agreement with Dr. Irving Siegel, who will be our Vice President, Clinical Affairs, on August 1, 2003. Dr. Siegel receives an annual base salary of Cdn. $150,000. At the discretion of the board of directors, Dr. Siegel is entitled to an annual bonus of up to 100% of his annual base salary. Dr. Siegel is entitled to receive stock options pursuant to the 2002 stock option plan.

Dr. Siegel’s employment may be terminated for cause (as defined in the agreement) or without cause upon sixty days notice. If Dr. Siegel’s employment is terminated without cause (as defined in the agreement), he is entitled to severance pay equal to 24 months salary, if termination is prior to August 1, 2005, and no change of control has occurred in the prior six months; 30 months salary if termination is prior to August 1, 2005, and change of control has occurred within six months preceding termination; 36 months salary if termination is between July 31, 2005, and August 1, 2008, and 48 months salary if termination occurs after July 31, 2008.

The agreement also contains non-competition and confidentiality covenants for our benefit.

We adopted our 2002 stock option plan, or 2002 plan, in June 2002 and our stockholders approved such plan in June 2002. Prior to the offering, we intend to adopt an amendment to the 2002 plan to increase the shares of our common stock reserved for issuance under the plan. Options under the 2002 plan shall be granted, if at all, within ten (10) years from June 13, 2002. The 2002 plan provides for the grant of the following:


	•	incentive stock options, as defined under the Internal Revenue Code, which may be granted solely to our employees, including officers, and

	•	nonstatutory stock options, which may be granted to our directors, consultants or employees, including officers.

OccuLogix Corporation, a predecessor company, adopted a 1997 stock option plan, or 1997 plan. When the 2002 plan was adopted, the 1997 plan was terminated and the number of shares reserved for issuance under the 2002 plan was reduced by the number of shares issuable under options granted under the 1997 plan.

An aggregate of 2,678,997 shares of our common stock are reserved for issuance under the 2002 plan and the 1997 plan.

Shares subject to stock options that expire, terminate, are repurchased, or are forfeited under the 2002 plan or 1997 plan will again become available for the grant of options under the 2002 plan. Shares issued under the 2002 plan may be previously unissued shares or reacquired shares bought on the market or otherwise. If any shares subject to a stock option are not delivered to a participant because such shares are withheld for the payment of taxes or the stock option is exercised through a “net exercise”, the number of shares that are not delivered to the participant shall remain available for the grant of options under the 2002 plan. If the exercise price of any stock option is satisfied by tendering shares of common stock held by the participant, the number of shares tendered shall remain available for the grant of options under the 2002 plan.

The 2002 plan will be administered by our Compensation Committee. Subject to the terms of the 2002 plan, our Compensation Committee determines recipients, the numbers and types of stock options to be granted and the terms and conditions of the stock options, including the period of their exercisability and vesting. Subject to the limitations set forth below, our Compensation Committee will also determine the exercise price of options granted under the 2002 plan and may reprice such options, which includes reducing the exercise price of any outstanding option, canceling an option in exchange for cash or another equity option or any other action that is treated as a repricing under generally accepted accounting principles.

Stock options are granted pursuant to stock option agreements. Generally, the exercise price for an incentive stock option cannot be less than 100% of the fair market value of the common stock on the date of grant. The exercise price for a nonstatutory stock option shall be determined by our compensation committee and generally cannot be less than 85% of the fair market value on the date of grant. Options granted under the 2002 plan vest at the rate specified in the option agreement.

In general, the term of stock options granted under the 2002 plan may not exceed ten years and in certain circumstances may be shorter. Unless the terms of an optionee’s stock option agreement provide for earlier or later termination, if an optionee’s service relationship with us, or any affiliate of ours, ceases due to disability or death, the optionee, or his or her beneficiary, may exercise any vested options for up to 12 months from cessation of service or such longer period as the board in its discretion determines. If an optionee’s service relationship with us, or any affiliate of ours, ceases for any reason other than disability or

Acceptable consideration for the purchase of common stock issued under the 2002 plan will be determined by our board of directors and may include cash, common stock previously owned by the optionee, the net exercise of the option, consideration received in a “cashless” broker-assisted sale and other legal consideration approved by our board of directors.

Generally, an optionee may not transfer a stock option other than by will or the laws of descent and distribution unless the optionee holds a nonstatutory stock option that provides otherwise. However, an optionee may designate a beneficiary who may exercise the option following the optionee’s death.

Incentive stock options may be granted only to our employees. The aggregate fair market value, determined at the time of grant, of shares of our common stock with respect to incentive stock options that are exercisable for the first time by an optionee during any calendar year under all of our stock plans may not exceed $100,000. The options or portions of options that exceed this limit are treated as nonstatutory stock options. No incentive stock option may be granted to any person who, at the time of the grant, owns or is deemed to own stock possessing more than 10% of our total combined voting power or any affiliate unless the following conditions are satisfied:


	•	the option exercise price must be at least 110% of the fair market value of the stock subject to the option on the date of grant; and

	•	the term of any incentive stock option award must not exceed five years from the date of grant.

In the event of certain corporate transactions, all outstanding stock options under the 2002 plan may be assumed, continued or substituted for by any surviving entity. If the surviving entity elects not to assume, continue or substitute for such options, such stock options will be terminated if not exercised prior to the effective date of the corporate transaction.

Our board of directors will have authority to amend or terminate the 2002 plan. No amendment or termination of the 2002 plan shall adversely affect any rights under options already granted to a participant unless agreed to by the affected participant or required to comply with applicable law. To the extent necessary to comply with applicable provisions of federal securities laws, state corporate and securities laws, the Internal Revenue Code, the rules of any applicable stock exchange or national market system, and the rules of any non-United States jurisdiction applicable to options granted to residents therein, we shall obtain stockholder approval of any such amendment to the 2002 plan in such a manner and to such a degree as required and will obtain stockholder approval to any increase in the maximum number of shares of common stock reserved for issuance under the 2002 plan.

In addition to the options referred to above, at August 9, 2004, nonstatutory options to acquire an additional 356,583 shares of our common stock have been granted outside our stock option plans.

Prior to the Reorganization, OccuLogix, L.P., was our primary customer. Prior to this offering, we and TLC Vision each owned a 50% interest in OccuLogix, L.P. OccuLogix, L.P.’s only customer to date has been a subsidiary of TLC Vision.

On June 25, 2003, TLC Vision and Diamed agreed to invest up to an aggregate of $12,000,000 in us, an aggregate of $7,000,000 of which was to be invested under debentures convertible into our common stock on an equal basis in connection with the funding of our MIRA-1 and related clinical trials. To date, TLC Vision and Diamed have advanced $4,400,000 under the convertible debentures. Prior to this offering, as part of the Reorganization, TLC Vision and Diamed have agreed to advance the remaining $2,600,000 and convert the convertible debentures into an aggregate of 7,106,455 shares of our common stock at a price of $0.98502 per share. The $5,000,000 portion of the $12,000,000 commitment which is not convertible into our common stock will not be advanced and the commitment will be terminated before this offering is completed.

As part of the Reorganization we will also acquire TLC Vision’s interest in OccuLogix, L.P. in exchange for shares of our common stock. Upon completion of this offering, TLC Vision will own approximately % of our common stock.

Elias Vamvakas, the CEO and Chairman of TLC Vision, became our Chairman in September 2003 and is now also our CEO. Two other directors of TLC Vision will also be our directors.

We purchase the OctoNova pump pursuant to a marketing and distribution agreement with Diamed, the developer of the OctoNova pump, and a distribution agreement with MeSys, the company that manufactures the pump for Diamed. Upon completion of this offering, Diamed will own approximately % of our common stock. Mr. Stock, who is the controlling stockholder of Diamed, is also our stockholder and is a party to two agreements with us:


	•	a patent license and royalty agreement that requires us to make royalty payments of 1.5% based on our sales of the products we sell, with a minimum required payment of $12,500 during each calendar quarter. To date, the minimum required quarterly payments under the patent and license and royalty agreement have exceeded the amounts that would have been payable absent the requirement of a minimum payment thereunder, and we are entitled to apply this excess in future periods if and when our revenue increases sufficiently to generate royalty payments in excess of the minimum payments. Due to the uncertainty of future royalty payment requirements, all required payments to date have been expensed; and

	•	an agreement in consideration for his assistance in procuring for us a distribution agreement with Asahi Medical and for his commitment to assist in the procurement of distribution rights for new product lines. The agreement requires us to pay royalties of 5% of the purchase price that we pay to Asahi Medical for all products it supplies us.

On May 1, 2002, we entered into an exclusive distribution services agreement with Apheresis Technologies, pursuant to which we pay Apheresis Technologies 5% of our costs of components of the RHEO System. Under the distribution services agreement, Apheresis Technologies is our exclusive provider of warehousing, order fulfillment, shipping, billing services and customer service related to our shipping and billing. Apheresis Technologies is controlled by John Cornish, who is also one of our stockholders and a director. In July 2004, we amended our distribution services agreement with Apheresis Technologies to provide that such that we would have sole discretion as to when the agreement would terminate. In consideration of this amendment, we agreed to pay Apheresis Technologies $100,000 on the successful completion of our initial public offering.

The following table shows information regarding the beneficial ownership of our common stock as of the date of this prospectus, after giving effect to the Reorganization, and as adjusted to reflect the sale of common stock in this offering:


	•	each person who is known by us to own beneficially more than 5% of our common stock;

	•	each selling stockholder participating in this offering;

	•	each person who will be a member of our board of directors;

	•	each person who is or will be one of our named executive officers; and

	•	all persons who will be members of our board of directors and our executive officers as a group.

Beneficial ownership of shares is determined in accordance with SEC rules and generally includes any shares over which a person exercises sole or shared voting or investment power. The information set forth below gives effect to the issuance of 30,834,549 shares of common stock pursuant to the Reorganization. Common stock underlying warrants or stock options that are presently exercisable or exercisable within 60 days of the date of this prospectus are deemed to be outstanding and beneficially owned by the person holding the warrants or stock options for the purpose of computing the ownership percentage of that person, but are not considered outstanding for the purpose of computing the percentage ownership of any other person. With the exception of TLC Vision, Diamed and Mr. Davis, all share numbers represented in the table below are stock options that are presently exercisable or exercisable within 60 days of this prospectus.

Except as indicated in the footnotes to this table, to our knowledge, each stockholder in the table will have sole voting and investment power for the shares shown as beneficially owned by such stockholder subsequent to our initial public offering. Percentages are based on 36,217,454 shares outstanding as of July 30, 2004, and shares outstanding after the closing of the offering, both with and without exercise of the underwriters’ overallotment option. Except as otherwise noted, each stockholder’s address is c/o OccuLogix, Inc. 5280 Solar Drive, Suite 100, Mississauga, Ontario L4W 5M8.


(1)	Of such shares, are owned directly by TLC Vision and will be owned by TLC Vision (USA) Corporation, a wholly-owned subsidiary of TLC Vision. Includes shares issuable in exchange for shares of OccuLogix ExchangeCo Inc. owned by TLC Vision.

(2)	Of such shares, will be owned directly by TLC Vision and shares will be owned by TLC Vision (USA) Corporation, a wholly-owned subsidiary of TLC Vision.

(3)	Of such shares, will be owned directly by TLC Vision and shares will be owned by TLC Vision (USA) Corporation, a wholly-owned subsidiary of TLC Vision.

(4)	Dr. Davis was Chief Executive Officer from January to June 2003 and Chief Science Officer from July to December 2003.

(5)	This includes 208,542 shares of common stock related to stock options.

(6)	This includes 1,255,049 shares of common stock related to stock options.

Our authorized capital stock consists of 25 million shares of common stock, par value $0.001 per share, and 6 million shares of preferred stock, of which 2.5 million are designated as Series A convertible preferred stock, par value $0.001 per share and 2 million are designated as Series B convertible preferred stock, par value $0.001 per share. Prior to the closing of this offering we will amend our certificate of incorporation to increase the number of authorized shares of common stock from 25 million to 50 million and to add a class of “blank check” preferred stock, consisting of 10,000 authorized shares, par value $0.001 per share.

Outstanding Shares. Upon completion of this offering, there will be shares of common stock outstanding assuming completion of the Reorganization and assuming no exercise of options or warrants to purchase an aggregate of 1,993,399 shares of our common stock.

Voting Rights. The holders of our common stock are entitled to one vote per share on all matters submitted to a vote of stockholders, including the election of directors. Under our amended and restated certificate of incorporation, our stockholders will not have cumulative voting rights, and thus, the holders of a majority of the shares of common stock entitled to vote in any election of directors can elect all of the directors standing for election.

Rights to Dividends and on Liquidation, Dissolution or Winding Up. The holders of our common stock will be entitled to receive dividends ratably as they may be lawfully declared from time to time by our board of directors, subject to any preferential rights of holders of any outstanding shares of preferred stock. In the event of any liquidation, dissolution or winding up of our company, common stockholders will be entitled to share ratably in our assets available for distribution to the stockholders, subject to the prior rights of holders of any outstanding preferred stock.

Additional Issuances of Common Stock. Additional shares of our authorized common stock will be issued, as determined by our board of directors from time to time, without approval of holders of our common stock, except as may be required by applicable law or the rules of any stock exchange or automated quotation system on which our securities may be listed or traded.

Pursuant to our amended and restated certificate of incorporation, our board of directors will be authorized to issue “blank check” preferred stock, which may be issued from time to time in one or more series upon authorization by our board of directors. The board of directors, without further approval of the stockholders, will be authorized to fix the dividend rights and terms, conversion rights, voting rights, redemption rights and terms, liquidation preferences and any other rights, preferences, privileges and restrictions applicable to each series of the preferred stock. The issuance of preferred stock, whole providing flexibility in connection with possible acquisitions and other corporate purposes, could, among other things, adversely affect the voting power of the holders of our common stock and, under certain circumstances, make it more difficult for a third party to gain control of us, discourage bids for our common stock at a premium or otherwise adversely affect the market price of our common stock.

As of July 30, 2004, we had issued and outstanding 2,147,024 shares of Series A convertible preferred stock and 620,112 shares of Series B convertible preferred stock. Immediately prior to the closing of this offering, all such shares of preferred stock will be converted into shares of common stock and the Series A convertible preferred stock and Series B convertible preferred stock will be deleted from our certificate of incorporation.

In connection with TLC Vision’s original investment in us, we entered into an investor rights agreement dated July 25, 2002, and amended and restated on June 25, 2003, or the IRA, which gives certain of our stockholders, among other things, piggy-back registration rights that would be applicable in connection with the offering.

Under the IRA, we must give holders of Series A convertible preferred stock and Series B convertible preferred stock notice in writing not less than 30 days prior to filing a registration statement. Each holder must within 20 days of receiving such written notice, notify us of the amount of stock it wishes to include in the registration statement. The IRA contains procedures for the underwriters to reduce the number of securities in the offering.

The IRA contains typical requirements, requiring the selling securityholders be a party to the underwriting agreement, sign lock-up agreements (in the case of the offering, for up to 180 days) and various contribution and indemnity procedures.

In addition, expenses of the offering (excluding underwriting commissions for the selling stockholders) are to be borne by us, including reasonable fees and disbursements for one counsel for all of the selling stockholders.

Upon completion of this offering, all of our current stockholders will continue to have piggy-back registration rights which would be applicable in connection with future offerings.

Our 2002 stock option plan was established effective as of the date of the merger and reincorporation of Vascular Sciences Corporation, our predecessor. The stock option plan was adopted to replace the previous stock option plan for employees, directors and consultants. In no event, except as described below, shall more than 2,678,997 of authorized but unissued or reacquired share of stock or any combination thereof be granted. In the event of any stock dividend, stock split, reverse stock split, recapitalization, combination, reclassification or similar change our capital structure, appropriate adjustments shall be made in the number and class of shares subject to the stock option plan and to any outstanding options.

Options granted under the stock option plan may be either incentive stock options or non-qualified stock options. Under the terms of the stock option plan, the exercise price per share for an incentive stock option shall not be less than the fair market value of a share of common stock on the effective date of grant of the option and for a non-statutory common stock option the exercise price per share shall not be less than 85% of the fair market value of a share of common stock on the effective date of grant of the option. No option granted to a 10% owner optionee shall have an exercise price per share of less than 110% of the fair market value of a share of common stock on the effective date of grant of the option.

Options shall not be exercisable after the expiration of 10 years after the effective date of grant of such option, provided that (i) no incentive stock option granted to a ten percent owner optionee shall be exercisable after the expiration of five years after the effective date of grant of such option, (ii) no option granted to a prospective employee, prospective consultant or prospective director may become exercisable prior to the date on which such person commences service, and (iii) with the exception of an option granted to an officer, director or a consultant, no option shall become exercisable at a rate less than 20% per year

We also issued options outside of the plan. These options were issued before the establishment of the stock option plan or when the authorized limit of the stock option plan was exceeded. In addition, options issued to companies for purposes of settling amounts owing were issued outside of the stock option plan, as the stock option plan prohibits the granting of options to companies. The issuance of such options were approved by the board of directors and were on terms and conditions similar to those options issued within the stock option plan.

Included in the total options outstanding as of December 31, 2003 of 2,389,961, are 1,352,000 options issued to employees, directors and certain executives which were issued into a voting trust. Our board of directors controls the voting privileges associated with the common stock underlying these options. Upon the completion of this initial public offering, the voting trust is to be dissolved with all options returning to each respective individual.

Purchasers of Series A convertible preferred stock received warrants to purchase shares of voting common stock at $1.00 per share. The warrants were exercisable for the purchase of one share of voting common stock for each share of Series A convertible preferred stock owned. In February 1998, an additional warrant was granted to each holder of Series A convertible preferred stock to purchase an equal number of shares of voting common stock at $2.00 per share. Additionally, warrants to purchase 50,000 shares of voting common stock at $1.00 per share were granted to an officer, and certain directors and stockholders, in exchange for providing certain private credit guarantees.

All warrants to purchase shares of common stock and Series A convertible preferred stock at exercise prices between $3.31 per share and $4.67 per share expired on July 17, 2004, other than warrants to purchase 379,284 shares of Series A convertible preferred stock and 77,370 warrants to purchase shares of common stock which were exercised prior to expiration and warrants to purchase 37,500 shares of common stock at an exercise price of $4.00 per share which expire on November 10, 2004.

Our amended and restated certificate of incorporation will provide that stockholders may act by written consent, without a meeting and without notice of a vote. This provision enables stockholders to act on matters subject to a stockholder vote without waiting until the next annual or special meeting of stockholders.

Our amended and restated certificate of incorporation will provide that special meetings of the stockholders may be called by the chairman of the board of directors or by a majority of the board of directors or the holders of at least two-thirds of our outstanding voting stock.

Our amended and restated certificate of incorporation will provide that we have opted out of the provisions of Section 203 of the Delaware General Corporation Law, or the DGCL. Section 203 of the DGCL prohibits a publicly held Delaware corporation from engaging in a “business combination” with an “interested stockholder” for a period of three years after the time the person became an interested stockholder, unless the business combination, or the transaction in which the stockholder became an interested stockholder, is approved in a prescribed manner. Since we will have opted out in the manner permitted under the DGCL, these restrictions will not apply to us.

Other Anti-Takeover Provisions of Our Amended and Restated Certificate of Incorporation and Amended and Restated By-laws

Our amended and restated certificate of incorporation and amended and restated by-laws will contain several provisions, in addition to those pertaining to the issuance of additional shares of our authorized common stock and preferred stock without the approval of the holders of our common stock, that could delay or make more difficult the acquisition of our company through a hostile tender offer, open market purchases, proxy contest, merger or other takeover attempt that a stockholder might consider to be in such holder’s best interest, including those attempts that might result in a premium over the market price of our common stock.

Our amended and restated certificate of incorporation will provide that the affirmative vote of the holders of at least a majority of the voting power of all then-outstanding shares of our capital stock that are entitled to vote generally in the election of our directors, voting together as a single class, is required to amend, alter, change or repeal its provisions.

Our amended and restated certificate of incorporation will provide that our amended and restated by-laws can be amended only by either our board of directors or the affirmative vote of the holders of at least a majority of the voting power of all then-outstanding shares of our capital stock that are entitled to vote generally in the election of our directors, voting together as a single class.

Our amended and restated certificate of incorporation will provide that, to the fullest extent from time to time permitted by law, no directors shall be personally liable for monetary damages for breach of any duty as a director. As required under current Delaware law, our amended and restated certificate of incorporation will provide that this waiver may not apply to liability:


	•	for any breach of the director’s duty of loyalty to us or our stockholders;

	•	for acts or omissions not in good faith or that involve intentional misconduct or a knowing violation of law;

	•	under Section 174 of the DGCL (governing distributions to stockholders); or

	•	for any transaction from which the director derived any improper personal benefit.

However, in the event the DGCL is amended to authorize corporate action further eliminating or limiting the personal liability of directors, then the liability of our directors will be eliminated or limited to the fullest extent permitted by the DGCL, as so amended. Neither the amendment or repeal of this provision of our amended and restated certificate of incorporation, nor the adoption of any provision of our amended and restated certificate of incorporation which is inconsistent with this provision, shall eliminate or reduce the protection afforded by this provision with respect to any matter which occurred, or any suit or claim which, but for this provision would have accrued or arisen, prior to such amendment, repeal or adoption.

Our amended and restated certificate of incorporation will also provide that we shall, to the fullest extent from time to time permitted by law, indemnify our directors and officers against all liabilities and expenses in any suit or proceeding, arising out of their status as an officer or director or their activities in these capacities. We shall also indemnify any person who, at our request, is or was serving as a director, officer or trustee of another corporation, joint venture, employee benefit plan trust or other enterprise.

The right to be indemnified shall include the right of an officer or a director to be paid expenses in advance of the final disposition of any proceeding, if we receive an undertaking to repay such amount if it shall be determined that he or she is not entitled to be indemnified.

Our board of directors may take such action as it deems necessary to carry out these indemnification provisions, including adopting procedures for determining and enforcing indemnification rights and purchasing insurance policies. Our board of directors may also adopt by-laws, resolutions or contracts implementing indemnification arrangements as may be permitted by law. Neither the amendment or repeal of these indemnification provisions, nor the adoption of any provision of our amended and restated certificate of incorporation inconsistent with these indemnification provisions, shall eliminate or reduce any rights to indemnification relating to their status or any activities prior to such amendment, repeal or adoption.

We believe these provisions will assist in attracting and retaining qualified individuals to serve as directors.

We will apply to have our common stock included for quotation on the Nasdaq National Market under the symbol “RHEO”.

Mellon Investor Services LLC is the transfer agent and registrar for our common stock.

Prior to this offering, there has been no public market for our common stock. We cannot predict the effect, if any, that sales of common stock or the availability of common stock for sale will have on the market price of our common stock prevailing from time to time. As we describe below, only a limited number of shares will be available for sale shortly after this offering due to contractual and legal restrictions on resale. Nevertheless, after such restrictions lapse, the market price of our common stock could decline because of the sale of a large number of shares of our common stock or the perception that such sales could occur. These factors could also make it more difficult to raise funds through future offerings of common stock.

Upon the completion of this offering, we will have shares of our common stock outstanding. Of these shares, the shares of our common stock sold in this offering will be freely tradable without restriction under the Securities Act, except that any shares of our common stock purchased by our affiliates, as that term is defined in Rule 144 under the Securities Act, may generally only be sold in compliance with the limitations of Rule 144 described below.

The remaining shares of our common stock outstanding upon completion of this offering are deemed “restricted shares” under Rule 144 under the Securities Act. Restricted shares may be sold in the public market only if registered or if they are exempt from the registration requirements under the rules of the Securities Act, which rules are summarized below. Subject to the lock-up agreements described below and the provisions of Rule 144, such shares will be available for sale in the public market as follows:


	•	no restricted shares will be eligible for immediate sale upon the completion of this offering;

	•	restricted shares plus approximately shares of common stock issuable upon exercise of vested stock options, will be eligible for sale upon expiration of lock-up agreements 180 days after the date of the underwriting agreement relating to this offering; and

	•	the remainder of the restricted shares will be eligible for sale from time to time thereafter upon expiration of their respective one-year holding periods, but could be sold earlier if the holders exercise any available registration rights.

Rule 144. In general, under Rule 144 under the Securities Act, a person, or persons whose shares are aggregated, who owns shares that were acquired from us or an affiliate at least one year ago would be entitled to sell within any three-month period a number of shares that does not exceed the greater of:


	•	one percent of the number of shares of common stock then outstanding, which will equal approximately shares immediately after this offering; or

	•	the average weekly trading volume of our common stock on the Nasdaq National Market during the four calendar weeks preceding the date of filing of a notice on Form 144 with respect to the sale.

Sales under Rule 144 are also generally subject to certain manner of sale provisions and notice requirements and to the availability of current public information about us.

Rule 144(k). Under Rule 144(k) under the Securities Act, a person, or persons whose shares are aggregated, who is not deemed to have been one of our affiliates at any time during the 90 days preceding a sale and who owns shares that were acquired from us or an affiliate at least two years ago is entitled to sell the shares without complying with the manner of sale, public information, volume limitation or notice of sale provisions of Rule 144. Therefore, unless subject to a lockup agreement or otherwise restricted, shares eligible for sale under Rule 144(k) may be sold immediately upon the completion of this offering.

Rule 701. Rule 701 under the Securities Act generally allows a stockholder who purchased shares of our common stock pursuant to a written compensatory plan or contract and who is not deemed to have been an affiliate of our company to sell these shares in reliance upon Rule 144, but without being required to comply with the public information, holding period, volume limitation or notice provisions of Rule 144. Rule 701 also permits our affiliates to sell their Rule 701 shares under Rule 144 without complying with the holding period requirements of Rule 144. As a result, most of our employees, officers, directors or

consultants who purchased shares under a written compensatory plan or contract may be entitled to rely on the resale provisions of Rule 701, but all holders of Rule 701 shares are required to wait until 90 days after the date of this prospectus before selling their shares pursuant to the Rule.

Lock-Up Agreements. We, along with our directors, officers and selling stockholders, have agreed with the underwriters that for a period of 180 days following the date of the underwriting agreement relating to this offering, we or they will not offer, sell, assign, transfer, pledge, contract to sell or otherwise dispose of or hedge any shares of our common stock or any securities convertible into or exchangeable for shares of our common stock, subject to specified exceptions. Citigroup Global Markets Inc. may, in its sole discretion, at any time without prior notice, release all or any portion of the shares from the restrictions in any such agreement. There are no agreements among Citigroup Global Markets Inc. and any parties to lock-up agreements releasing them from these lock-up agreements prior to the expiration of the 180-day period.

Registration Rights. Following this offering, under specified circumstances and subject to customary conditions, holders of approximately shares of our common stock will be entitled to rights with respect to the registration of their shares under the Securities Act. Sales of these shares pursuant to such registration would result in the shares becoming freely tradable without restriction under the Securities Act, except for shares purchased by affiliates. Any sales of securities by these stockholders could have a material adverse effect on the trading price of our common stock. See “Description of Capital Stock — Registration Rights Agreement”.

Stock Options. Following this offering, we intend to file with the Securities and Exchange Commission registration statements under the Securities Act covering the shares of common stock reserved for issuance under our stock option plans. The registration statements are expected to become effective as soon as practicable after the closing of this offering. Accordingly, shares registered under these registration statements subject to Rule 144 volume limitations applicable to affiliates and the lock-up agreements described above will be available for sale in the open market.

Citigroup Global Markets Inc., is acting as sole book-runner of the offering, and together with SG Cowen & Co., LLC and ThinkEquity Partners LLC, are acting as representatives of the underwriters named below. Subject to the terms and conditions stated in the underwriting agreement dated the date of this prospectus, each underwriter named below has agreed to purchase, and we and the selling stockholders have agreed to sell to that underwriter, the number of shares set forth opposite the underwriter’s name.

The underwriting agreement provides that the obligations of the underwriters to purchase the shares included in this offering are subject to approval of legal matters by counsel and to other conditions. The underwriters are obligated to purchase all the shares (other than those covered by the over-allotment option described below) if they purchase any of the shares.

The underwriters propose to offer some of the shares directly to the public at the public offering price set forth on the cover page of this prospectus and some of the shares to dealers at the public offering price less a concession not to exceed $ per share. The underwriters may allow, and dealers may re-allow, a concession not to exceed $ per share on sales to other dealers. If all of the shares are not sold at the initial offering price, the representatives may change the public offering price and the other selling terms. The representatives have advised us and the selling stockholders that the underwriters do not intend sales to discretionary accounts to exceed five percent of the total number of shares of our common stock offered by them.

The selling stockholders have granted to the underwriters an option, exercisable for 30 days from the date of this prospectus, to purchase up to additional shares of common stock at the public offering price less the underwriting discount. The underwriters may exercise the option solely for the purpose of covering over-allotments, if any, in connection with this offering. To the extent the option is exercised, each underwriter must purchase a number of additional shares approximately proportionate to that underwriter’s initial purchase commitment.

We, our officers and directors and the selling stockholders have agreed that, for a period of 180 days from the date of the underwriting agreement relating to this offering, we and they will not, without the prior written consent of Citigroup, dispose of or hedge any of our common stock or any securities convertible or exchangeable for our common stock. Citigroup, in its sole discretion, may release any of the securities subject to these lock-up agreements at any time without notice.


	•	it has not offered or sold and, prior to the expiry of a period of six months from the closing date, will not offer or sell any shares included in this offering to persons in the United Kingdom except to persons whose common activities involve them in acquiring, holding, managing or disposing of investments (as principal or agent) for the purposes of their businesses or otherwise in circumstances which have not resulted and will not result in an offer to the public in the United Kingdom within the meaning of the Public Offers of Securities Regulations 1995;

	•	it has only communicated and caused to be communicated and will only communicate or cause to be communicated any invitation or inducement to engage in investment activity (within the meaning of section 21 of the Financial Services and Markets Act 2000, or FSMA) received by it in connection


		with the issue or sale of any shares included in this offering in circumstances in which section 21(1) of the FSMA does not apply to us;

	•	it has complied and will comply with all applicable provisions of the FSMA with respect to anything done by it in relation to the shares included in this offering in, from or otherwise involving the United Kingdom; and

	•	the offer in The Netherlands of the shares included in this offering is exclusively limited to persons who trade or invest in securities in the conduct of a profession or business (which include banks, stockbrokers, insurance companies, pension funds, other institutional investors and finance companies and treasury departments of large enterprises).

Prior to this offering, there has been no public market for our common stock. Consequently, the initial public offering price for the shares was determined by negotiations among us, the selling stockholders and the representatives. Among the factors considered in determining the initial public offering price were our record of operations, our current financial condition, our future prospects, our markets, the economic conditions in and future prospects for the industry in which we compete, our management, and currently prevailing general conditions in the equity securities markets, including current market valuations of publicly traded companies considered comparable to our company. We cannot assure you, however, that the prices at which the shares will sell in the public market after this offering will not be lower than the initial public offering price or that an active trading market in our common stock will develop and continue after this offering.

We will apply to have our common stock included for quotation on the Nasdaq National Market under the symbol “RHEO”.

The following table shows the underwriting discounts and commissions that we and the selling stockholders are to pay to the underwriters in connection with this offering. These amounts are shown assuming both no exercise and full exercise of the underwriters’ option to purchase additional shares of common stock.

In connection with the offering, Citigroup on behalf of the underwriters may purchase and sell shares of common stock in the open market. These transactions may include short sales, syndicate covering transactions and stabilizing transactions. Short sales involve syndicate sales of common stock in excess of the number of shares to be purchased by the underwriters in the offering, which creates a syndicate short position. “Covered” short sales are sales of shares made in an amount up to the number of shares represented by the underwriters’ over-allotment option. In determining the source of shares to close out the covered syndicate short position, the underwriters will consider, among other things, the price of shares available for purchase in the open market as compared to the price at which they may purchase shares through the over-allotment option. Transactions to close out the covered syndicate short involve either purchases of the common stock in the open market after the distribution has been completed or the exercise of the over-allotment option. The underwriters may also make “naked” short sales of shares in excess of the over-allotment option. The underwriters must close out any naked short position by purchasing shares of common stock in the open market. A naked short position is more likely to be created if the underwriters are concerned that there may be downward pressure on the price of the shares in the open market after pricing that could adversely affect investors who purchase in the offering. Stabilizing transactions consist of bids for or purchases of shares in the open market while the offering is in progress.

The underwriters also may impose a penalty bid. Penalty bids permit the underwriters to reclaim a selling concession from a syndicate member when Citigroup repurchases shares originally sold by that syndicate member in order to cover syndicate short positions or make stabilizing purchases.

Any of these activities may have the effect of preventing or retarding a decline in the market price of the common stock. They may also cause the price of the common stock to be higher than the price that would otherwise exist in the open market in the absence of these transactions. The underwriters may conduct these transactions on the Nasdaq National Market or in the over-the-counter market, or otherwise. If the underwriters commence any of these transactions, they may discontinue them at any time.

Other than in connection with this offering, the underwriters have not performed investment banking or advisory services for us.

A prospectus in electronic format may be made available on the websites maintained by one or more of the underwriters. The representatives may agree to allocate a number of shares to underwriters for sale to their online brokerage account holders. The representatives will allocate shares to underwriters that may make Internet distributions on the same basis as other allocations. In addition, shares may be sold by the underwriters to securities dealers who resell shares to online brokerage account holders.

We and the selling stockholders have agreed to indemnify the underwriters against certain liabilities, including liabilities under the Securities Act, or to contribute to payments the underwriters may be required to make because of any of those liabilities.

The validity of the issuance of the shares of common stock offered by this prospectus and other legal matters will be passed upon for us by Torys LLP, New York, New York. Certain legal matters relating to this offering will be passed upon for the underwriters by Piper Rudnick LLP, New York, New York.

Our consolidated financial statements as of December 31, 2002 and 2003 and for each of the three years in the period ended December 31, 2003 included in this prospectus have been audited by Ernst & Young LLP, an independent registered public accounting firm, as stated in their report appearing herein and have been so included in reliance upon the report of such firm given upon their authority as experts in accounting and auditing.

We have filed a registration statement on Form S-1 with the SEC regarding this offering. This prospectus, which is part of the registration statement, does not contain all of the information included in the registration statement, and you should refer to the registration statement and its exhibits to read that information. Statements contained in this prospectus regarding the contents of any contract or other documents are only summaries. With respect to any contract of other document filed as an exhibit to the registration statement, you should refer to the exhibit for a copy of the contract or document, and each statement in this prospectus regarding that contract or document is qualified by reference to the exhibit. Upon completion of this offering, we will be subject to the informational reporting requirements of the Exchange Act of 1934 and, under that Act, we will file reports, proxy statements and other information with the Commission. You may read and copy the registration statement, the related exhibits and the reports, proxy statements and other information we file with the SEC at the SEC’s public reference facilities maintained by the SEC at 450 Fifth Street, N.W., Washington, D.C. 20549. You can also request copies of those documents, at prescribed rates, by writing to the SEC. Please call the SEC at 1-800-SEC-0330 for further information on the operation of the public reference rooms. The SEC also maintains an Internet site that contains reports, proxy and information statements and other information regarding issuers that file with the SEC. The site’s Internet address is www.sec.gov.

We have audited the accompanying consolidated balance sheets of OccuLogix, Inc. (formerly Vascular Sciences Corporation) as of December 31, 2003 and 2002 and the related consolidated statements of operations, changes in stockholders’ deficiency and cash flows for each of the three years in the period ended December 31, 2003. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform an audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of OccuLogix, Inc. (formerly Vascular Sciences Corporation) at December 31, 2003 and 2002 and the consolidated results of its operations, changes in stockholders’ deficiency and its cash flows for each of the three years in the period ended December 31, 2003, in conformity with U.S. generally accepted accounting principles.

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the consolidated financial statements, the Company has sustained substantial losses for each of the years ended December 31, 2003, 2002, and 2001, has a working capital deficiency at December 31, 2003 and lacks long-term financing, which raises substantial doubt about the Company’s ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 1 to the accompanying consolidated financial statements. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

(expressed in U.S. dollars)



	Voting				Non-voting						Series A convertible				Series B convertible
	common stock				common stock						preferred stock				preferred stock
	at par value				at par value						at par value				at par value

	Number of				Number of						Number of				Number of
	shares issued		Value		shares issued			Value			shares issued		Value		shares issued		Value
	#		$		#			$			#		$		#		$

Balance, December 31, 2000 [note 13(b)]		3,603,361		3,604		207,058			207			581,325		582		—		—
Adjustment to deficit under continuity of interest method [note 10]		—		—		—			—			—		—		—		—
Value ascribed to Series B warrants [note 7(i)]		—		—		—			—			—		—		—		—
Stock based compensation [note 2]		—		—		—			—			—		—		—		—
Stock issued pursuant to exercise of options		—		—		81,892			82			—		—		—		—
Contribution of inventory from related party [note 8]		—		—		—			—			—		—		—		—
Net loss for the period		—		—		—			—			—		—		—		—

Balance, December 31, 2001		3,603,361		3,604		288,950			289			581,325		582		—		—
Discontinued operations		—		—		—			—			—		—		—		—
Stock issued in lieu of consulting fees		2,333		2		—			—			—		—		—		—
Stock based compensation [note 2]		—		—		—			—			—		—		—		—
Conversion of non-voting common stock to voting common stock upon merger of companies [note 13(b)]		288,950		289		(288,950	)		(289	)		—		—		—		—
Conversion of Series A convertible debentures into Series A convertible preferred stock [note 7(i)]		—		—		—			—			1,089,172		1,089		—		—
Shares issued pursuant to anti-dilution provisions [note 13(d)(i)]		—		—		—			—			97,243		97		—		—
Shares issued pursuant to private offering memorandum, net of share issue cost [note 13(d)(ii)]		—		—		—			—			—		—		345,843		346
Conversion of Series B convertible debentures into Series B convertible preferred stock [note 13(d)(ii)]		—		—		—			—			—		—		178,227		178
Conversion of subordinated convertible debentures into Series B convertible preferred stock [note 13(d)(ii)]		—		—		—			—			—		—		96,042		96
Contribution of inventory from related party [note 8]		—		—		—			—			—		—		—		—
Value ascribed to warrants issued [note 13(g)]		—		—		—			—			—		—		—		—
Net loss for the period		—		—		—			—			—		—		—		—

Balance, December 31, 2002		3,894,644		3,895		—			—			1,767,740		1,768		620,112		620
Conversion of debt into common stock [notes 6 and 13(c)]		507,604		508		—			—			—		—		—		—
Stock issued in lieu of consulting fees [note 13[e]]		17,375		17		—			—			—		—		—		—
Stock issued pursuant to private offering memorandum [note 13(e)]		613,292		613		—			—			—		—		—		—
Contribution of inventory from related party [note 8]		—		—		—			—			—		—		—		—
Stock based compensation [note 2]		—		—		—			—			—		—		—		—
Net loss for the period		—		—		—			—			—		—		—		—

Balance, December 31, 2003		5,032,915		5,033		—			—			1,767,740		1,768		620,112		620
Stock based compensation [note 2] [unaudited]		—		—		—			—			—		—		—		—
Stock issued on exercise of options [note 13(f)] [unaudited]		49,750		50		—			—			—		—		—		—
Contribution of inventory from related party [note 8] [unaudited]		—		—		—			—			—		—		—		—
Net loss for the period [unaudited]		—		—		—			—			—		—		—		—

Balance, March 31, 2004 [unaudited]		5,082,665		5,083		—			—			1,767,740		1,768		620,112		620

[Continued from above table, first column(s) repeated]


	Additional						Net
	paid-in			Accumulated			stockholders’
	capital			deficit			deficit
	$			$			$

Balance, December 31, 2000 [note 13(b)]		11,415,427			(16,605,857	)		(5,186,037	)
Adjustment to deficit under continuity of interest method [note 10]		—			62,455			62,455
Value ascribed to Series B warrants [note 7(i)]		223,058			—			223,058
Stock based compensation [note 2]		190,351			—			190,351
Stock issued pursuant to exercise of options		8,829			—			8,911
Contribution of inventory from related party [note 8]		1,530			—			1,530
Net loss for the period		—			(4,058,921	)		(4,058,921	)

Balance, December 31, 2001		11,839,195			(20,602,323	)		(8,758,653	)
Discontinued operations		(66,000	)		(234,438	)		(300,438	)
Stock issued in lieu of consulting fees		2,798			—			2,800
Stock based compensation [note 2]		134,948			—			134,948
Conversion of non-voting common stock to voting common stock upon merger of companies [note 13(b)]		—			—			—
Conversion of Series A convertible debentures into Series A convertible preferred stock [note 7(i)]		7,118,022			—			7,119,111
Shares issued pursuant to anti-dilution provisions [note 13(d)(i)]		(97	)		—			—
Shares issued pursuant to private offering memorandum, net of share issue cost [note 13(d)(ii)]		1,273,800			—			1,274,146
Conversion of Series B convertible debentures into Series B convertible preferred stock [note 13(d)(ii)]		1,030,506			—			1,030,684
Conversion of subordinated convertible debentures into Series B convertible preferred stock [note 13(d)(ii)]		499,825			—			499,921
Contribution of inventory from related party [note 8]		155,141			—			155,141
Value ascribed to warrants issued [note 13(g)]		69,138			—			69,138
Net loss for the period		—			(2,881,597	)		(2,881,597	)

Balance, December 31, 2002		22,057,276			(23,718,358	)		(1,654,799	)
Conversion of debt into common stock [notes 6 and 13(c)]		480,507			—			481,015
Stock issued in lieu of consulting fees [note 13[e]]		22,571			—			22,588
Stock issued pursuant to private offering memorandum [note 13(e)]		578,683			—			579,296
Contribution of inventory from related party [note 8]		66,300			—			66,300
Stock based compensation [note 2]		709,762			—			709,762
Net loss for the period		—			(2,469,888	)		(2,469,888	)

Balance, December 31, 2003		23,915,099			(26,188,246	)		(2,265,726	)
Stock based compensation [note 2] [unaudited]		1,570,984			—			1,570,984
Stock issued on exercise of options [note 13(f)] [unaudited]		23,167			—			23,217
Contribution of inventory from related party [note 8] [unaudited]		85,500			—			85,500
Net loss for the period [unaudited]		—			(2,294,344	)		(2,294,344	)

Balance, March 31, 2004 [unaudited]		25,594,750			(28,482,590	)		(2,880,369	)

1. Nature of Operations, Basis of Presentation and Going Concern Uncertainty

OccuLogix, Inc. (the “Company”), formerly Vascular Sciences Corporation [note 18[d]], is an ophthalmic therapeutic company founded to commercialize innovative treatments for eye diseases, including age-related macular degeneration, or AMD. The Company’s RHEO System contains a pump that circulates blood through two filters and is used to perform Rheopheresis, a form of apheresis, which the Company refers to under the trade name RHEO Therapy, which is designed to treat Dry AMD. The RHEO System is designed to improve microcirculation in the eye by filtering high molecular weight proteins and other macromolecules from the patient’s plasma.

The Company owns and/or has licensed certain patents relating to the RHEO System and has the exclusive right to develop and sell the equipment which comprises the RHEO System in the North American markets. The Company has licensed its right to develop and sell the RHEO System to Occulogix, L.P. (the “Partnership”) in exchange for a 50% interest in the Partnership [note 5]. The other 50% interest in the Partnership is owned by TLC Vision Corporation (“TLC Vision”), who is a significant stockholder of the Company.

The Company began limited commercialization of the RHEO System at two clinics in Canada in 2003. The Company is currently conducting a pivotal clinical trial, called MIRA-1, which, if successful, is expected to support its application with the U.S. Food and Drug Administration (“FDA”), to obtain approval to market the RHEO System in the United States.

On July 18, 2002, Occulogix Corporation (“Old OccuLogix”) merged into the Company, which was then a wholly-owned subsidiary of Old OccuLogix. Pursuant to the merger, the Company effected a reverse split of its capital stock on a one-for-four basis and made a corresponding adjustment to its other equity securities [note 13[b]].

The consolidated financial statements include the results of Old OccuLogix and the Company on a continuity of interest basis for all periods presented whereby, the Company is considered the parent company.

Share and share related data for all periods prior to July 18, 2002 are presented giving effect to the reverse stock split of the capital stock and the merger [note 13[b]].

The consolidated financial statements have been prepared on the basis that the Company will continue as a going concern. The Company has sustained substantial losses for each of the years ended December 31, 2003, 2002 and 2001. The Company’s cash position at its current level of operating activity is insufficient to cover operating costs for the foreseeable future. The Company’s working capital deficiency at December 31, 2003 was approximately $2,500,000, which increased from the working capital deficiency at December 31, 2002. Historically, the Company has obtained financing from certain of its significant stockholders. As a result, there is substantial doubt about its ability to continue as a going concern.

Management believes that the receipt of the remaining $3,650,000 as at March 31, 2004 of the aggregate $7,000,000 available for borrowing under the Convertible Debentures and the exercise of outstanding options

and warrants will generate sufficient funds to pay for its operations and other demands and commitments for the foreseeable future.

The consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might be necessary should the Company be unable to continue in existence.

The consolidated financial statements have been prepared by management in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”), which conforms in all material respects with Canadian generally accepted accounting principles (“Canadian GAAP”), except as disclosed in note 17.

The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary, Occulogix Holdings, Inc. (“OHI”). All significant intercompany transactions and balances have been eliminated on consolidation.

The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expenses during the reporting periods. Actual results could differ from those estimates.

The Company recognizes revenue from the sale of products when persuasive evidence of an arrangement exists, delivery has occurred, the selling price is fixed or determinable, and collectibility is reasonably assured. The Company’s only customer is the Partnership. To date, the Partnership’s primary customer has been a subsidiary of TLC Vision.

Cost of goods sold consists primarily of costs for the purchase of the Company’s products, including direct costs incurred for the purchase of component parts from its suppliers, applicable freight and shipping costs and fees related to warehousing.

Inventory is recorded at the lower of cost and net realizable value and consists of finished goods. Cost is accounted for on a first-in, first-out basis.

Fair value of a financial instrument is defined as the amount at which the instrument could be exchanged in a current transaction between willing parties. The estimated fair values of cash, due from related parties, amount receivable, accounts payable, accrued liabilities, due to stockholders and convertible debentures due to stockholders approximate their carrying values due to the short-term maturities of these instruments.

Fixed assets are reported at cost less accumulated amortization. Amortization is calculated using the straight-line method, commencing when the assets become available for productive use, based on the following estimated useful lives:

The Company reviews its long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset might not be recoverable. When such an event occurs, management estimates the future undiscounted cash flows expected to result from the use of the asset and its eventual disposition. In the event the undiscounted cash flows are less than the carrying amount of the asset, an impairment loss equal to the excess of the carrying amount over the fair value is charged to income.

Investments are accounted for using the equity method if the Company has significant influence, but not control, over an investee. Accordingly, the Company, through its wholly-owned subsidiary OHI which owns a 50% interest in the Partnership, records its share of earnings (loss) from the Partnership using the equity method.

Patents and trademarks have been recorded at historical cost and are amortized using the straight-line method over their estimated lives, not to exceed 15 years.

The Company’s functional and reporting currency is the U.S. dollar. The assets and liabilities of the Company’s Canadian operations are maintained in U.S. dollars. Monetary assets and liabilities denominated in foreign currencies are translated at exchange rates in effect at the balance sheet date and non-monetary

assets and liabilities denominated in foreign currencies are translated at exchange rates in effect on the date of the transaction. Revenue and expenses are translated into U.S. dollars at average exchange rates prevailing during the period. Resulting exchange gains and losses are included in net loss for the period and are not material in any of the periods presented.

Clinical and regulatory costs attributable to the performance of contract services are recognized as the services are performed. Non-refundable, up-front fees paid in connection with these contracted services are deferred and recognized as an expense on a straight-line basis over the estimated term of the related contract.

The Company uses the asset and liability method of accounting for income taxes. Deferred tax assets and liabilities are recorded based on the difference between the income tax bases of assets and liabilities and their carrying amounts for financial reporting purposes at the applicable enacted statutory tax rates. Deferred tax assets are reduced by a valuation allowance if, based on the weight of available evidence, it is more likely than not that some portion or all of the deferred tax assets will not be realized.

The Company follows Statement of Financial Accounting Standard (“SFAS”) No. 123 “Accounting for Stock-Based Compensation,” (“SFAS No. 123”). The provisions of SFAS No. 123 allow companies to either expense the estimated fair value of employee stock options or to continue to follow the intrinsic value method set forth in Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees” (“APB 25”) but disclose the pro forma effects on net income (loss) had the fair value of the options been expensed. The Company has elected to apply APB 25 in accounting for employee stock option incentive plans [note 13]. Expense is amortized over the vesting period.

The following table illustrates the pro forma net loss and net loss per share of common stock as if the fair value method had been applied to all awards:

Pursuant to SFAS No. 123, the weighted-average fair values of employee stock options granted during the years ended December 31, 2003, 2002 and 2001 were $11.91, $0.77 and $0.17, respectively. The estimated fair value was determined using the following assumptions:

Compensation expense associated with non-employee stock options was $31,752 and $35,854 for the three months ended March 31, 2004 and 2003, respectively and $196,685, $134,948 and $190,351 for the years ended December 31, 2003, 2002 and 2001, respectively. The fair value of these options was determined using the Black-Scholes fair value options model using the same assumptions described above and is included in general and administrative expenses within the consolidated statements of operations.

The Company follows SFAS No. 128, “Earnings Per Share” (“SFAS 128”). In accordance with SFAS 128, companies that are publicly held or have complex capital structures are required to present basic and diluted earnings per share (“EPS”) on the face of the income statement. Basic EPS excludes dilution and is computed by dividing income (loss) available to common stockholders by the weighted average number of shares of common stock outstanding for the period. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted and the resulting additional shares are dilutive because their inclusion decreases the amount of EPS.

The following table presents the potentially dilutive effects of outstanding securities:

Potentially dilutive shares have not been used in the calculation of earnings per share as they are anti-dilutive.

In November 2002, the Financial Accounting Standards Board (“FASB”) issued FASB Interpretation (“FIN”) No. 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others” (“FIN No. 45”). FIN No. 45 clarifies and expands on existing disclosure requirements for a guarantor regarding its obligations under certain guarantees it has issued. FIN No. 45 also requires that the guarantor must recognize a liability for the fair value of its obligations under certain guarantees. The provisions of FIN No. 45 are effective for guarantees entered into after December 31, 2002. At December 31, 2003 and March 31, 2004, the Company had no outstanding guarantees.

In May 2003, the FASB issued SFAS No. 150, “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity” (“SFAS No. 150”) which establishes rules for the accounting for certain financial instruments with characteristics of liabilities, equity or both. These types of financial instruments have been reported as liabilities, as part of equity, or within the mezzanine section of the consolidated balance sheets and include mandatorily redeemable instruments, certain instruments with an obligation to repurchase an issuer’s own equity shares and instruments with obligations for an issuer to settle in a variable number of its own equity shares. The FASB intends to provide further accounting guidance on conditional redeemable instruments at a later date. On August 27, 2003, the FASB issued a deferral of SFAS No. 150 for mandatorily redeemable shares of non-public companies and non-public companies will not be required to apply the provisions of SFAS No. 150 to mandatorily redeemable financial instruments until periods beginning after December 15, 2004. Based on securities outstanding as at March 31, 2004, the adoption of this standard is not expected to have an effect on the Company’s financial position or results of operations.

The Company has recorded a reduction of the carrying value of fixed assets for the year ended December 31, 2003 of $46,128 [2002 — $131,240; 2001 — nil], of this amount, $26,840 [2002 — $131,240; 2001 — nil] reflects a write down of certain of the Company’s medical equipment to a value at December 31, 2003 of nil each. The assets written down do not represent the most current technology available and are no longer being used in the MIRA-1 clinical trials and the Company has made the decision to write down these assets to their fair value and intends to evaluate the best disposal option. In addition to the write down of medical equipment, the carrying values of certain furniture and office equipment were reduced in 2003 to current value. This was in addition to a reduction in the carrying values of these same assets in prior years.

Estimated amortization expense for patents and trademarks for each of the next five years are as follows:

On July 25, 2002, the Partnership was formed by an agreement between OHI, TLC Apheresis, L.P. (“Apheresis L.P.”), a wholly-owned subsidiary of TLC Vision, and Occulogix Management, Inc. (“General Partner”) for the purpose of pursuing commercial applications of technologies owned or licensed by the Company applicable to the evaluation, diagnosis, monitoring and treatment of Dry AMD. The Company has an agreement with the Partnership appointing the Partnership the sole distributor of the RHEO System and its component parts in North America, the Caribbean and Israel. Pricing is reviewed quarterly and adjusted as

required for future sales. Each of OHI and Apheresis L.P. directly or indirectly own a 50% interest in the Partnership and the General Partner, in exchange for the 50% interest each of the partners contributed certain assets which were recorded at fair value which were nominal.

The amount reported represents the Company’s proportionate share of the Partnership’s cumulative earnings to date on an equity basis.

The Company did not recognize in its consolidated statements of operations its 50% interest in the net loss of the Partnership for the three-month period ended March 31, 2004 and the years ended December 31, 2003 and 2002 as the net loss of the Partnership exceeded the net investment of the Company. As a result the Company recognized its equity interest in the Partnership commencing with the three-month period ended March 31, 2003. For all other periods, the Company did not recognize its equity interest because the Company’s proportionate net cumulative loss exceeded the carrying value of its investment in the Partnership.

The Company’s sole customer is the Partnership. During the three months ended March 31, 2004 and the years ended December 31, 2003 and 2002, the Company sold components of the RHEO System to the Partnership. The Company also provides management assistance to the Partnership for which the Company bills on a monthly basis.

On February 28, 2001, the Company issued a secured promissory note to Asahi Medical in the principal amount of $1,000,000 (the “Asahi Medical Note”). The Asahi Medical Note bears interest at 8.5%. The Asahi Medical Note was originally due on November 30, 2001. The terms of the Asahi Medical Note were amended twice in each of the subsequent years to extend the maturity date to November 30, 2003 and 2002, respectively. On November 30, 2003 the Company and Asahi Medical agreed to convert $500,000 of the principal of the Asahi Medical Note to 507,604 shares of common stock at a price of $0.98502 per share [note 13[c]]. All accrued interest was paid. The remaining $500,000 matures on November 30, 2004 and bears interest at 5.0% per annum, which is payable in arrears on maturity; provided that if any principal or interest is not be paid when due, interest shall be payable on demand on all such overdue amounts at a rate of 10.5% per annum. The balance includes accrued interest.

On February 11, 1997, Apheresis Technologies, Inc. (“Old ATI”) entered into an agreement with an entity controlled by a stockholder to pay that entity $1,000,000 for the purposes of supporting the conduct of research and gathering of clinical data in Germany by that entity. This amount has been expensed in previous years. On May 20, 1998, the Company agreed to assume the obligation to make this payment. Payments of $250,000 were made in each of December 1997 and June 1999. The balance of $500,000 remained unpaid as at March 31, 2004 and December 31, 2003. The balance is unsecured, due on demand and no interest is payable on the outstanding balance.


	In 2001, 2000 and 1999, the Company issued $510,475, $3,303,104 and $2,200,000 (totalling $6,013,579) in Series B convertible debentures, respectively. The Series B convertible debentures were convertible into shares of Series B preferred stock at $2.00 per share at any time at the holder’s option and automatically convertible upon an initial public offering of the Company’s securities. The Series B convertible debentures had a five-year term from the date of issuance with an interest rate of 10%, which was payable quarterly in cash or through the issuance of additional Series B convertible debentures at the Company’s option.

	In connection with the issuance of Series B convertible debentures, the Company also issued 204,190, 1,421,242 and 880,000 Series A preferred stock purchase warrants in 2001, 2000 and 1999, respectively. In 2000, the Company also issued an additional 20,000 warrants in exchange for Series B convertible debentures in the principal amount of $50,000, which were issued in exchange for cash and then subsequently acquired by another investor. These warrants were exercisable over a period of three


	years from the date of issuance at an exercise price of $2.00. The exercise price for 1,916,000 of the Series A preferred stock purchase warrants was subsequently amended to $7.83, after giving effect to anti-dilution provisions and the reverse stock split as described in note 13(b). The exercise price for the remaining 609,432 Series A preferred stock purchase warrants was subsequently amended to $5.55, after giving effect to anti-dilution provisions. Of the proceeds received from the issuance of the Series B convertible debentures, $1,676,286 was allocated to the Series A preferred stock purchase warrants based on their estimated fair value, as determined using the Black-Scholes fair valuation option-pricing model, using the following weighted average assumptions: volatility of 83%, a risk-free interest rate of approximately 5.0%, expected remaining contractual life of three years and an expected dividend yield of nil.

	The Series B convertible debentures were recorded at $4,185,568 representing a discount to maturity value of $223,058, $1,452,241 and $152,712 for the years ended December 31, 2001, 2000 and 1999, respectively. The discount was as a result of the value ascribed to the Series A preferred stock purchase warrants. This resulted in additional interest accretion expense of nil, $451,018 and $609,308 for the years ended December 31, 2003, 2002 and 2001, respectively.

	In 2002, the holders of the Series B convertible debentures exercised their option to convert their Series B convertible debentures, with a carrying value of $7,119,111 comprised of principal and interest, into 1,089,172 shares of Series A convertible preferred stock, before giving effect to anti-dilution provision [note 13[d](i)]. As at December 31, 2002, Series B convertible debentures and accrued interest of $32,190 had not been converted but were settled in full during 2003 through the issuance of stock [note 13(d)(i)].


	On April 4, 2002, the Company issued a $1,000,000 subordinated convertible promissory note, bearing interest at 10% per annum, due and payable at the demand of the holder on or after April 4, 2004.

	On July 25, 2002, this subordinated convertible promissory note, together with accrued interest, was converted into 178,227 shares of Series B convertible preferred stock at $5.78 per share [note 13[d](ii)].

In May 2002, the Company authorized the issuance of $10,000,000 Series B convertible debentures and reserved for issuance upon the conversion of the Series B convertible debentures up to 5,000,000 shares of Series B convertible preferred stock, which were convertible into 5,000,000 shares of the Company’s common stock. The Company issued Series B convertible debentures in the aggregate principal amount of $450,000. The principal amount of the Series B convertible debentures and accrued interest was converted into 96,042 shares of Series B convertible preferred stock at $5.20 per share on July 25, 2002 [note 13(d)(ii)].


	On June 25, 2003 the Company entered into agreements with TLC Vision and Diamed to issue grid debentures in the maximum aggregate principal amount of $12,000,000. $7,000,000 of the aggregate principal amount is convertible into shares of common stock of the Company at a price of $0.98502 per share, and $5,000,000 of the aggregate principal amount is non-convertible.

	Advances, which are at the option of TLC Vision and Diamed, under the convertible portion of the grid debentures are non-interest bearing and are due six months following demand notice by the debenture holder.

	Advances under the non-convertible portion of the grid debentures bear interest at 10% per annum, with interest payments due monthly in arrears. Advances under the non-convertible portion of the grid debentures are due at the earlier of: [a] six months following demand notice by the debenture holder; [b] 60 days following the date the Company has received FDA approval of the technology described in note 1; and [c] two business days following the date of closing of any debt financing of at least $5,000,000. No advances under the non-convertible portion of the grid debentures will be made until the maximum amount of advances under the convertible portion of grid debentures has been received.

	During the first quarter of 2004 and the year ended December 31, 2003, the Company issued an aggregate of $700,000 and $2,650,000, respectively, under the convertible portion of the grid debentures.

The following are the Company’s related party transactions in addition to those disclosed in notes 1, 5, 6, 7 and 12.

As discussed in note 7[iv], on June 25, 2003, TLC Vision and Diamed agreed to invest a total of $12,000,000 in the Company on an equal basis in connection with the funding of the Company’s MIRA-1 and related clinical trials. Collectively, the two companies control at least a combined 50.1% of the equity interest in the Company on a fully diluted basis which assumes the full draw down of the convertible component of the secured convertible grid debentures.

The Company is economically dependent on Diamed to control the supply of the OctoNova pumps used in the RHEO System. The Company believes that the OctoNova pump is a critical component in the RHEO System.

The Company is party to a distributorship agreement with Asahi Medical pursuant to which Asahi Medical supplies the filter products used in the RHEO System.

The Company is economically dependent on Asahi Medical to continuously provide filters and believes that the filter products provided by Asahi Medical are a critical component in the RHEO System. In the event the Company is not able to obtain regulatory approval for the RHEO System from the FDA and other necessary approvals in the territories for which the Company has distribution rights by the end of December 2006, Asahi Medical can terminate the distributorship agreement.

On February 28, 2001, the Company issued to Asahi Medical the Asahi Medical Note in the amount of $1,000,000 [note 6].

The Company receives free inventory from Asahi Medical for purpose of the MIRA-1 and related clinical studies. The Company has accounted for this inventory at a value equivalent to the cost the Company pays for the same filters for commercial sales to the Partnership. The value of the free inventory received was $85,500 and nil for the three months ended March 31, 2004 and 2003, respectively, and $66,300, $155,141 and $1,530 for the years ended December 31, 2003, 2002 and 2001, respectively.

On September 11, 2000, Vasculogix Corporation, Nephrologix Corporation, Cytologix Corporation, and Rheologix, LLC were merged into the Company. Each of these entities was under common control, and accordingly, the merger has been recorded at the historical cost of each of the entities.

On September 13, 2000, the Company acquired 100% of the issued and outstanding shares of Old ATI for consideration of $100 cash. Old ATI was a distributor of Plasmaflo filters and related products in North America. Prior to and at the time of the acquisition, the Company and Old ATI were related parties as a result of the significant influence exercisable by officers and directors common to both companies. Accordingly, the acquisition has been recorded at the historical cost of Old ATI, under the continuity of interest basis of accounting. Subsequent to the acquisition, the Company and Old ATI merged. In 2002, the Company reorganized its assets, such that the net assets of Old ATI were spun-out into a new separate corporation, Apheresis Technologies, Inc. (“New ATI”).

On February 21, 2002, the Company entered into an agreement with Mr. Stock as a result of his assistance in procuring a distributor agreement for the filter products used in the RHEO System from Asahi Medical. Mr. Stock agreed to further assist the Company in procuring new product lines from Asahi Medical for marketing and distribution by the Company. The agreement will remain effective for a term consistent

with the term of the distributorship agreement with Asahi Medical and Mr. Stock will receive a 5% royalty payment on the purchase of the filters from Asahi Medical.

On June 25, 2002, the Company entered into a consulting agreement with Mr. Stock for the purposes of procuring a patent license for the extracorporeal applications in ophthalmic diseases for that period of time in which the patent was effective. Mr. Stock is entitled to 1.0% of total net revenues from the Company’s commercial sales of products sold in reliance and dependence upon the validity of the patent’s claims and rights in the United States. The Company agreed to make advance consulting payments to Mr. Stock of $50,000 per year, payable on a quarterly basis, to be credited against any and all future consulting payments payable in accordance with this agreement. Due to the uncertainty of future royalty payment requirements, all required payments to date have been expensed.

On May 1, 2002, the Company entered into an exclusive distribution services agreement with New ATI, a company controlled by certain stockholders of the Company pursuant to which the Company pays New ATI 5% of the Company’s cost of components of the RHEO System. Under this agreement, New ATI is the exclusive provider of warehousing, order fulfillment, shipping, billing services and customer service related to shipping and billing to the Company.

As discussed in notes 1 and 5, the Company’s only customer is the Partnership.

On June 25, 2003, the Company entered into a reimbursement agreement with New ATI, pursuant to which employees of New ATI provide services to the Company and New ATI is reimbursed for the applicable percentage of time the employees spend working for the Company. These employees of New ATI participate in the Company’s bonus plan. During the three months ended March 31, 2004 and during the period between June 25, 2003 and December 31, 2003, the Company paid New ATI $43,358 and $78,695, respectively. Included in accounts payable as of March 31, 2004 and December 31, 2003 are $0 and $3,961, respectively, due to New ATI.

During the three months ended March 31, 2004 and during the period between November 1, 2003 and December 31, 2003, the Company paid $1,038 and $692 to a subsidiary of TLC Vision for office space for each respective period. These amounts are expensed in the period incurred and paid monthly.

Effective January 1, 2004, the Company entered into a rental agreement with a related party whereby the Company will lease space from New ATI at $2,745 per month. The term of the lease extends to December 31, 2005 [note 12]. In the three months ended March 31, 2004 and the four months ended December 31, 2003, the Company paid the related party $8,235 and $5,600, respectively. Amounts are paid monthly.

Effective June 25, 2003, Elias Vamvakas, the Chairman of TLC Vision, became the Chairman and Secretary of both the Company and the General Partner of the Partnership. 500,000 options issued to

Mr. Vamvakas in December 2003 were accounted in accordance with APB 25. The impact of this stock compensation expense for the three months ended March 31, 2004 and year ended December 31, 2003 was $189,677 and $569,032 respectively.

During the three months ended March 31, 2004 and the period from August 1, 2003 to December 31, 2003, the Company charged $9,897 and $8,019, respectively, to the Partnership for clinical and management services. Included in due from related parties as at March 31, 2004 and December 31, 2003 are $17,916 and $9,897, respectively, due from the Partnership.

In addition, the Company entered into a consultancy and non-competition agreement on July 1, 2003 with a related party, which requires the Company to pay a fee of $5,000 per month. This resulted in a consulting expense for the three months ended March 31, 2004 and the six months ended December 31, 2004 of $15,000 and $30,000, respectively. In the year ended December 31, 2003, the related party agreed to forego the payment of $75,250 due to him in exchange for options to purchase 20,926 shares of common stock of the Company at an exercise price of $0.13. The related party also agreed to the repayment of $150,500 due to him at $7,500 per month. Included in accounts payable as at March 31, 2004 and December 31, 2003 are $8,300 and $10,500, respectively, due to the related party.

Significant components of the Company’s deferred tax assets and liabilities are as follows:

The following is a reconciliation of the recovery of income taxes between those that are expected, based on substantively enacted tax rates and laws, to those currently reported:

The Company and its subsidiary have current and prior year losses available to reduce taxable income and taxes payable in future years, and, if not utilized, will expire as follows:

On January 1, 2002, the Company transferred the net assets relating to the distribution of Plasmaflo filters, previously acquired on September 13, 2000 [note 8], into a newly incorporated subsidiary, New ATI. Concurrent with the transfer of the assets to the subsidiary, the share capital of the subsidiary was reorganized such that the stockholders of the Company became the direct stockholders of New ATI. The spin-off of these net assets was recorded at the carrying amounts and accordingly, no gain or loss was recognized on disposal.

The amount of net assets spun-out to existing stockholders has been recorded as a distribution to the Company’s stockholders’ deficiency.

The revenue and net income for the periods that were previously included in the determination of net income for the Company are as follows:

The Company leases office space from a related party [note 8] under a lease agreement expiring December 31, 2005. The Company may terminate the lease with three months’ notice and may also renew the lease for one additional year. Future minimum obligations under the lease are $32,940 for each of 2004 and 2005.

Rent paid amounted to $8,235 and $0 for the three months ended March 31, 2004 and March 31, 2003, respectively. Rent paid amounted to $5,580, $0, $0 for the years ended December 31, 2003, 2002 and 2001 respectively.

In May and June 2002, the Company entered into two separate agreements with Dr. Richard Brunner (“Brunner”) and Mr. Stock to obtain the exclusive license to U.S. Patent No. 6,245,038. The Company is required to make royalty payments totaling 1.5% of product sales. The Company is required to make minimum advance quarterly royalty payments of $25,000 and amounts credited against future royalty payments to be made in accordance with the agreements. These agreements may be terminated by the Company upon the first of:


	a)	all patents of the patent rights expire, which is June 2017;

	b)	all patents claims of the patent rights are invalidated; or


	c)	the introduction of a similar competing technology deployed in the United States which could not be deterred by enforcement of the patent.

Future minimum royalty payments under the agreements as at December 31, 2003 are as approximately follows:

In addition, the Company entered into a consultancy and non-competition agreement on July 1, 2003 with a related party [note 8], which requires the Company to pay a monthly fee of $5,000 per month. The agreement expires on December 31, 2005. The monthly fee is fixed regardless of actual time incurred by the consultant in performance of the services rendered to the Company. The agreement allows either party to convert the payment arrangement to a daily fee of $2,500 per day. In the event of such conversion, the consultant shall provide services on a daily basis as required by the Company, and will invoice the Company for the total number of days of services provided in that month.

Future minimum obligations under the consultancy and non-competition agreement for each of 2004 and 2005 are $60,000 respectively.

On July 22, 2004, the Company placed a purchase order with Asahi Medical for 9,600 Rheofilters representing a total commitment of $1,920,000.

During the ordinary course of business activities, the Company may be contingently liable for litigation and a party to claims. Management believes that adequate provisions have been made in the accounts where required. Although it is not possible to estimate the extent of potential costs and losses, if any, management believes that the ultimate resolution of any such contingencies will not have a material adverse effect on the financial position, results of operations and cash flows of the Company.

Pursuant to the terms of the distribution agreement with Mesys GmbH, dated January 1, 2002, the Company undertook a commitment to purchase a minimum of 25 OctoNova pumps per year beginning after FDA approval of the RHEO System, representing an annual commitment after FDA approval of $538,000.

In July 2004, the Company placed a purchase order with Asahi Medical for 9,600 Rheofilters, representing a total commitment of $1,920,000.

Minimum purchase orders for the fourth year shall be determined immediately after the term of the first year by mutual consent but shall not be less than that of the previous year. This same method shall be used in subsequent years to determine future minimum purchase quantities such that minimum purchase quantities are always fixed for three years. Future minimum annual commitments after FDA approval are approximately as follows:

The total number of authorized shares of common stock is 25,000,000. Each share of common stock has a par value of $0.001 per share. The total number of authorized shares of preferred stock is 6,000,000, of which 2,500,000 are designated as Series A preferred stock, 2,000,000 are designated as Series B preferred stock and 1,500,000 are undesignated preferred stock. Each share of preferred stock has a par value of $0.001 per share.

On July 18, 2002, Old OccuLogix merged with the Company, which was then a wholly owned subsidiary of Old OccuLogix. Pursuant to the merger the Company effected a one for four stock split of its common and preferred stock pursuant to which each share of Old OccuLogix common stock outstanding immediately prior to the merger was converted into one-fourth [ 1/4] of one fully paid and non-assessable share of Company common stock. Each outstanding share of Old OccuLogix Series A preferred stock was converted into one-fourth [ 1/4] of one fully paid and non-assessable share of Company Series A convertible preferred stock.

At the effective time of the merger, each outstanding warrant and option to purchase common stock of Old OccuLogix was assumed by the Company and converted into a warrant or option to purchase common stock of the Company, with appropriate adjustments to the exercise price and number of shares for which such warrants or options were exercisable.

On November 30, 2003, $500,000 of principal amount of the Asahi Medical Note (less issuance cost of $18,985) was converted into 507,604 shares of common stock at a conversion price of $0.98502 per share [note 6].

Convertible preferred stockholders are entitled to one vote per share, on an as-converted to common stock basis. Each share of Series A and Series B convertible preferred stock is entitled to receive a non-cumulative dividend of $0.411216 and $0.34698 respectively, prior to the payment of any dividend on

common stock. Each share of Series A and Series B convertible preferred stock is entitled to a liquidation preference of $4.836 and $3.5183, respectively, plus any declared but unpaid dividend before any payment may be made to holders of common stock.

After giving effect to the anti-dilution adjustment resulting from the issuance of the June 25, 2003 related party secured grid debenture [note 7(iv)], each share of Series A and B convertible preferred stock is convertible into 1.678323 and 1.643683 shares of common stock, respectively, at the option of the holder. Each share of Series A and B convertible preferred stock shall automatically convert into shares of common stock at the conversion rate previously described if the Company obtains a firm underwriting commitment for an initial public offering. The conversion rate will be adjusted for stock dividends, stock splits and other dilutive events. Shares of Series A and B convertible preferred stock automatically convert in the event of sale of all or substantially all of the assets or capital stock of the Company.

On July 19, 2002, the Company and the holders of its Series A convertible debentures, with a carrying value of $7,119,111 [note 7], agreed to convert such Series A convertible debentures into 1,089,172 shares of Series A convertible preferred stock immediately following the consummation of the merger as described in note 13[b]. As a result of this conversion an additional 97,243 shares of Series A convertible preferred stock were issued to the holders of the Series A convertible preferred stock in conjunction with anti-dilution provisions included in the terms of the respective debentures.


	On July 25, 2002, the Company issued 345,843 shares of Series B convertible preferred stock for gross cash proceeds of $2,000,000 (less issuance costs of $725,854).

	Simultaneously Series B convertible debentures [note 7(ii)] and accrued interest with a carrying value of $1,030,684 were converted into 178,227 shares of Series B convertible preferred stock.

In addition, a previously issued subordinated convertible promissory note [note 7(iii)] and accrued interest with a carrying value of $499,921 was converted into 96,042 shares of Series B convertible preferred stock.

On April 17, 2003, the Company issued 17,375 shares of common stock to two consultants in exchange for services valued at $22,588. The common stock was issued at what management believed to be the fair value of the services received.

In connection with conversion of a portion of the Asahi Medical Note described in note 6 and pursuant to the June 25, 2003 Amended and Restated Investors’ Rights Agreement, the existing common stockholders were allowed to exercise pre-emptive rights to purchase additional common stock prior to the conversion of half the Asahi Medical Note discussed in note 6. In connection therewith, the Company issued 613,292 shares of common stock at $0.98502 per share for gross cash proceeds of $604,092 before issuance costs of $24,796.

As at December 31, 2003 and March 31, 2004, the number of shares common stock of the Company reserved for issuance as follows:


[i]	These warrants have been adjusted to reflect the anti-dilutive effect of the June 25, 2003 related party secured convertible grid debenture [note 7[iv]].

Under the 2002 Stock option Plan (the “Stock Option Plan”) up to 2,678,997 options are available for grants to employees, directors and consultants.

Options granted under the Stock Option Plan may be either incentive stock options or non-qualified stock options. Under the terms of the Stock Option Plan, the exercise price per share for an incentive stock option shall not be less than the fair market value of a share of stock on the effective date of grant and the exercise price per share for non-statutory stock options shall not be less than 85% of the fair market value of a share of stock on the date of grant. No option granted to a holder of 10% or more of the Company’s common stock shall have an exercise price per share less than 110% of the fair market value of a share of stock on the effective date of grant.

Non-Statutory Stock Options expire 10 years after the grant. No incentive stock options granted to a 10% owner optionee shall be exercisable after the expiration of five years after the effective date of grant of such option, no option granted to a prospective employee, prospective consultant or prospective director may become exercisable prior to the date on which such person commences service, and with the exception of an

option granted to an officer, director or a consultant, no option shall become exercisable at a rate less than 20% per year over a period of five years from the effective date of grant of such option unless otherwise approved by the Board of Directors.

The Company has also issued options outside of the Stock Option Plan. These options were issued before the establishment of the Stock Option Plan or when the authorized limit of the Stock Option Plan was exceeded. In addition, options issued to companies for purpose of settling amounts owing were issued outside of the Stock Option Plan, as the Stock Option Plan prohibited the granting of options to companies. The issuance of such options were approved by the Board of Directors and were granted on terms and conditions similar to those options issued under the Stock Option Plan.

A summary of the options issued under the Stock Option Plan and outside of the Stock Option Plan outstanding at March 31, 2004 and the changes since December 31, 2000 is as follows:


[i]	During the year ended December 31, 2002, the Company converted 476,729 non-voting common stock options into voting common stock options.

Included in the total options outstanding as at March 31, 2004 and December 31, 2003 are 405,425 and 481,925 options issued outside of the Stock Option Plan, respectively.

Included in the total options outstanding as at March 31, 2004 of 2,313,461 and December 31, 2003 of 2,389,961 are 1,352,000 options at March 31, 2004 and December 31, 2003, issued to employees, directors and certain executives which were issued into a voting trust. Upon the exercise of these options, the board of directors controls the voting privileges associated with the common stock underlying these options. Upon the completion of an initial public offering, the voting trust is to be dissolved with all options returning to each respective individual.

The Company estimated the intrinsic value of stock options granted in December 2003 to be $15,905,400 of which $513,077 and $1,539,232 has been expensed for the year ended December 31, 2003 and the three month period ended March 31, 2004, respectively. Management estimated the fair value of these options based on a range of then expected offering prices of the Company’s initial public offering [note 18[g]].

The following table summarizes information relating to stock options outstanding at March 31, 2004:

The following table summarizes information relating to stock options outstanding at December 31, 2003:

Purchasers of Series A convertible preferred stock received warrants to purchase shares of common stock at an exercise price of $1.00 per share. The warrants are exercisable for the purchase of one share of common stock for each share of Series A convertible preferred stock owned. In February 1998, an additional “voluntary” warrant was granted to each Series A convertible preferred stockholder to purchase an equal number of voting common stock at an exercise price of $2.00 per share. Additionally, warrants to purchase

50,000 shares of voting common stock at an exercise price of $1.00 per share were granted to an officer and certain directors and stockholders of the Company in exchange for providing certain private credit guarantees.

[i]

As a result of the issuance of Series B convertible preferred stock on July 25, 2002 at a price lower than the exercise price of the Series A convertible preferred stock warrants, anti-dilution adjustments were applied to reduce the exercise price of the Series A convertible preferred stock warrants and to increase the number of shares issuable upon the exercise of the Series A convertible preferred stock warrants.

As a result of the TLC Vision and Diamed convertible grid note debenture agreements entered into on June 25, 2003 at a conversion price lower than the exercise price of the Series A convertible preferred stock warrants, further anti-dilution adjustments were applied to reduce the exercise price of the Series A convertible preferred stock warrants and to increase the number of shares issuable upon the exercise of the Series A convertible preferred stock warrants.

The following table summarizes information relating to the warrants outstanding at March 31, 2004 and December 31, 2003:

All common stock and Series A convertible preferred stock warrants expire on July 17, 2004, except for 37,500 which expire on November 10, 2004. The value ascribed to the 62,500 warrants was $69,138. The remaining 87,500 warrants were issued prior to 1999 and had been previously valued.

The net change in working capital balances related to operations consists of the following:

The following table lists those items that have been excluded from the consolidated statement of cash flows as they relate to non-cash transactions and additional cash flow information:

The Company’s activities which result in exposure to fluctuations in foreign currency exchange rates consist of the purchase of equipment from suppliers billing in foreign currencies. The Company does not use derivative financial instruments to reduce its currency risk.

The Company’s financial instruments that are exposed to concentration of credit risk consist primarily of cash and cash equivalents and amount receivable. The Company maintains its accounts for cash with large low credit risk financial institutions in United States and Canada in order to reduce its exposure.

The Company derives all of its revenues from one customer, the Partnership, and the Partnership primarily derives its revenues from a subsidiary of TLC Vision.

The Company operates in a single reportable segment, the ophthalmic therapeutic industry, focused on the treatments of eye diseases, including Dry AMD.

Although the Company has generated all of its revenue in Canada, the Company’s fixed assets and patents and trademarks are primarily located in the United States.

These consolidated financial statements have been prepared in accordance with U.S. GAAP, which differ in some respects to Canadian GAAP.

The following table presents net loss for the period that would have been reported had the Company’s consolidated financial statements been prepared on the basis of Canadian GAAP:

The following tables present the differences between the consolidated balance sheets of the Company had the Company’s financial information been prepared on the basis of Canadian GAAP:

During the year ended December 31, 2002, the Company invested in Occulogix, L.P., the Partnership, which is considered to be a joint venture. The Company, through its subsidiaries, controls 50% of this Partnership [note 5].

For U.S. GAAP purposes, the Company has accounted for this investment in accordance with Accounting Principles Bulletin No. 18, The Equity Method of Accounting for Investments in Common Stock (“APB 18”). APB 18 requires companies to account for investments applying the equity method of accounting for investments where they lack the ability to control but have the ability to exercise significant influence in the investees operating, financing and investing activities.

For Canadian GAAP purposes, investments that are considered to be a joint venture are accounted for in accordance with Canadian Institute of Chartered Accountants’ (“CICA”) Handbook Section 3055, Interest in Joint Ventures (“CICA 3055”). CICA 3055 requires companies to account for their interest in joint ventures using the proportionate consolidation method.

Proportionate consolidation is a method of accounting and reporting whereby a venturer’s pro rata share of each of the assets, liabilities, revenues and expenses that are subject to joint control is combined on a line-by-line basis with similar items in the venturer’s financial statements. This method of accounting differs from full consolidation in that only the venturer’s portion of all assets, liabilities, revenues and expenses is taken up rather than the full amount, offset by non-controlling interests.

For U.S. GAAP purposes, the Company did not recognize in its consolidated statements of operation its 50% interest in the net loss of the Partnership for the years ended December 31, 2003 and 2002 as the net loss of the Partnership exceeded the net investment of the Company. As a result the Company recognized its equity interest in the Partnership commencing with the three-month period ended March 31, 2003. For all other periods, for purposes of U.S. GAAP, the Company did not recognize its equity interest because the Company’s proportionate net cumulative loss exceeded the carrying value of its investment in the Partnership.

For Canadian GAAP purposes, the Company consolidated its 50% proportionate interest on a line by line basis for both the consolidated balance sheet and statement of operations.

As previously discussed in note 13[f], the Company has an option plan whereby options are granted to employees, directors and consultants.

For U.S. GAAP purposes, the Company has adopted the disclosure requirements of SFAS No. 123 and as permitted under SFAS No. 123, applies APB 25 and related interpretations in accounting for its stock option plans. SFAS No. 123 requires disclosure of pro forma amounts to reflect the impact if the Company had elected to adopt the optional recognition provisions of SFAS No. 123 for its stock option plans and employee stock purchase plans.

For Canadian GAAP purposes, the Company accounts for its stock options in accordance with the provisions of CICA Section 3870, Stock-Based Compensation and Other Stock-Based Payments, (“CICA 3870”). CICA 3870, issued in December 2001, established standards for the recognition,

measurement and disclosure of stock-based compensation, and other stock-based payments. Under the provisions of CICA 3870, prior to January 1, 2004, companies could either measure the compensation cost of equity instruments issued under employee compensation plans using a fair value-based method or could recognize compensation cost using another method, such as the intrinsic value-based method. However, if another method was applied, pro forma disclosure of net income or loss and earnings or loss per share was required in the financial statements as if the fair value-based method had been applied. Effective January 1, 2004, CICA 3870 requires that all stock-based compensation be measured and expensed using a fair value-based methodology.

Prior to January 1, 2004, the Company recognized employee stock-based compensation under the intrinsic value-based method and provided pro forma disclosure of net income or loss and earnings or loss per share as if the fair value-based method had been applied. Effective January 1, 2004, the Company adopted the fair value based method for recognizing employee stock-based compensation on a retroactive basis to January 1, 1996, without restatement of prior periods for purposes of Canadian GAAP. At January 1, 2004, the cumulative effect of the change in accounting policy on prior periods resulted in a charge to accumulated deficit of $1,203,528 which represents the sum of the previously disclosed pro forma fair value adjustments with a corresponding increase to contributed surplus.

For the three months ended March 31, 2004, the Company did not record any stock-based compensation as no options were granted since January 1, 2004, the date of transition. No compensation expense for stock options granted to employees at fair market value was included in the determination of net income for the three months ended March 31, 2003. For the three months ended March 31, 2003, the following table presents the Company’s pro forma net income and earnings per share as if the fair value-based method of CICA 3870 had been applied for all stock options granted:

For all periods presented, the Company had convertible debt which is described in note 7.

For U.S. GAAP purposes, all of the proceeds received from the issuance of convertible debt generally would be recorded as a liability on the balance sheet and no portion of the proceeds from the issuance of the convertible debt instruments would be attributed to the conversion feature. In addition, APB 14 requires that a portion of the proceeds of debt securities issued with detachable stock purchase warrants which is allocable to the warrants should be accounted for as additional paid-in capital. The allocation should be based on the

17. Reconciliation to Accounting Principles Generally Accepted in Canada (continued)

relative fair values of the underlying securities at the time of issuance. Any resulting discount or premium on the debt securities should be recorded as an adjustment to the carrying value of the debt.

For Canadian GAAP purposes, financial instruments are accounted for in accordance with CICA 3860 Section 3860, Financial Instrument — Presentation and Disclosure (“CICA 3860”). CICA 3860 requires financial instruments that consist of both elements of debt and equity be accounted for in accordance with the substance of the contractual arrangement on initial recognition. Therefore, as a result of the conversion feature of the debentures, for purpose of Canadian GAAP, the net proceeds received in connection with the Company’s convertible debentures instruments have been bifurcated between debt and equity based on the relative fair value of each component. The difference between the estimated fair value of the convertible debenture and the face amount is then amortized as interest expense over the life of the debenture. This accreted interest expense was $1,883,892 for the year ended December 31, 2003 (2002 — $2,676,657).

[a] On May 12, 2004, the Company was informed that Rheogenx BioSciences Corporation (“RBC”), a new separate entity created with the same investor group as the Company immediately prior to the joint investment by TLC Vision and Diamed [note 1], had raised at least $3,000,000 in funding. The achievement of this level of funding by RBC triggered an obligation of RBC to pay the Company $106,785 for one-half of the compensation of an executive of the Company instrumental to the creation, development and success of RBC. At the same time, this same executive’s employment agreement with the Company was terminated and replaced with a one year consulting agreement with the Company in which the former executive would provide consulting services at an annual rate equal to one-half his compensation level while employed by the Company. As at June 30, 2004, RBC owed the Company $106,785, which was not recognized as the amount represented in a contingency.

[b] On July 30, 2004, certain holders of warrants for shares of Series A convertible preferred stock of the Company and certain holders of warrants for shares of common stock of the Company exercised these warrants for a total of 379,284 shares of Series A convertible preferred stock and 77,370 shares of common stock.

[c] Subsequent to the year ended December 31, 2003, the Company received a total of $1,750,000 during the period from January 1, 2004 to July 31, 2004 (April 1, 2004 to July 31, 2004 — $1,050,000) pursuant to the grid convertible debentures discussed in note 7[iv]. As a result of this additional funding, as at July 31, 2004, the Company had drawn down $4,400,000 of the total $12,000,000 available under the grid debentures, $7,000,000 of which are convertible into common stock.

[d] On July 28, 2004, the Company changed its name from Vascular Sciences Corporation to OccuLogix, Inc.

[e] On July 30, 2004, the Company amended its distribution services agreement with New ATI such that the Company would have the sole discretion as to when the agreement would terminate. In consideration of this amendment, the Company agreed to pay New ATI $100,000 on the successful completion of its initial public offering.

[f] On August 6, 2004, the Company entered into a patent license and royalty agreement with Mr. Stock to obtain an exclusive license to U.S. Patent No. 6,245,038. The Company is required to make royalty payments totaling 1.5% of product sales, subject to minimum advance royalty payments of $12, 500 per quarter. The advance payments are credited against future royalty payments to be made in accordance with the agreement. This agreement replaces the June 25, 2002 consulting agreement with Mr. Stock, which provided for a royalty payment of 1% of product sales. This agreement effectively increases the total royalty payments required to be made in respect of U.S. Patent No. 6,245,038 to 2% of product sales, [See notes 8 and 12.]

[g] On August 13, 2004, the Company filed a registration statement on Form S-1 with the Securities and Exchange Commission with the intent of pursuing an initial public offering of its common stock.

We have audited the accompanying balance sheets of Occulogix, L.P. as of December 31, 2003 and 2002 and the related statements of operations, partners’ deficiency and cash flows for the year ended December 31, 2003 and for the period from July 25, 2002 to December 31, 2002. These financial statements are the responsibility of the Partnership’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the Standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Partnership as at December 31, 2003 and 2002 and the results of its operations, partners’ deficiency and its cash flows for each of the year ended December 31, 2003 and the period from July 25, 2002 to December 31, 2002, in conformity with U.S. generally accepted accounting principles.

The accompanying financial statements have been prepared assuming that the Partnership will continue as a going concern. As discussed in Note 1 to the financial statements, the Partnership has sustained losses for the year ended December 31, 2003 and period from July 25, 2002 to December 31, 2002, has a working capital deficiency at December 31, 2003 and lacks long-term financing, which raises substantial doubt about the Partnership’s ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 1 to the accompanying financial statements. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

OccuLogix, L.P. (the “Partnership”) is a limited partnership formed on July 25, 2002 under the laws of the State of Delaware, among OccuLogix Holdings, Inc. (“Holdings”) a Delaware corporation, TLC Apheresis, L.P., a Delaware limited partnership and OccuLogix Management, Inc., a Delaware corporation (the “General Partner”). Pursuant to a sales and distribution agreement between the Partnership and OccuLogix, Inc. (“OccuLogix”), the parent of Holdings, which in turn has a 50% interest in the General Partner, the Partnership serves as OccuLogix’s exclusive sales representative for OccuLogix’s RHEO System. The RHEO System contains a pump that circulates blood through two filters and is used to perform Rheopheresis, a form of apheresis, which is designed to treat dry age-related macular degeneration. To facilitate the sale and distribution agreement, the Partnership and OccuLogix entered into a license agreement and a software agreement, whereby OccuLogix licenses patent, know-how, trademark rights and software to the Partnership. TLC Vision Corporation (“TLC Vision”), the parent of TLC Apheresis L.P. is a party to a license agreement with the Partnership pursuant to which TLC Vision licenses certain software to the Partnership.

The accompanying financial statements have been prepared on the basis the Partnership will continue as a going concern. The Partnership has sustained losses for all of the periods since its formation. The Partnership’s cash position at the current rate of operating activity is insufficient to cover operating costs for the foreseeable future. The Partnership’s working capital deficiency at December 31, 2003 was approximately $53,000 which has worsened since December 31, 2002. Historically, the Partnership has sought financing from its major stockholders and its principal customer. As a result, there is substantial doubt about its ability to continue as going concern. Management believes that the initial public offering of OccuLogix, subsequent to a reorganization, in which the Partnership will be wound up into OccuLogix, currently a 50% joint venture partner, will provide sufficient funds to pursue OccuLogix’s commercial activities in Canada and implement of commercialization of the RHEO System in the United States, pending FDA approval, to the end of 2006.

The financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might be necessary should the company be unable to continue in existence.

The financial statements have been prepared by management in conformity with accounting principles generally accepted in the United States (“U.S. GAAP”), which conforms in all material respects with Canadian generally accepted accounting principles.

The preparation of these financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting periods. By their nature,

these estimates are subject to measurement uncertainty and are reviewed periodically and adjustments, if necessary, are made in the period in which they are identified. Actual results may differ from these estimates.

The Partnership recognizes revenue from the sale of products when persuasive evidence of an arrangement exists, delivery has occurred, the selling price is fixed or determinable, and collectibility is reasonably assured.

Revenue consists of the sale of the RHEO System which is comprised of OctoNova pumps and the related treatment sets. Revenue is not recognized on the sale of an OctoNova pump until the pump has been installed and calibrated at the customer’s premises. If required, training is provided as a separate service and revenue is recognized as the service is performed.

Revenue on the sale of treatment sets is recognized when the treatment set is shipped.

Inventory is recorded at the lower of cost and net realizable value. Cost is determined on a first-in, first-out basis.

Fixed assets are reported at cost, less accumulated depreciation. Depreciation is computed using the straight-line method based on the following estimated useful lives:

The Partnership’s functional and reporting currency is the United States dollar. The assets and liabilities of the Partnership’s Canadian operations are maintained in U.S. dollars. Monetary assets and liabilities denominated in foreign currency are translated at exchange rates in effect at the balance sheet date and non-monetary assets and liabilities denominated in foreign currency are translated at exchange rates in effect on the date of the transaction. Revenue and expenses are translated into U.S. dollars at average exchange rates prevailing during the period and include amortization. Resulting exchange gains and losses are included in net income (loss) for the period and are not material in any of the periods presented.

The Partnership’s net income constitutes income of the individual partners and is subject to income taxes in their hands. Accordingly, no income taxes have been provided in the accompanying financial statements.

disclosure requirements for a guarantor regarding its obligations under certain guarantees it has issued. FIN No. 45 also requires that the guarantor must recognize a liability for the fair value of its obligations under certain guarantees. The provisions of FIN No. 45 are effective for guarantees entered into after December 31, 2002. At December 31, 2003 and March 31, 2004, the Partnership had no outstanding guarantees.

In January 2003 (as amended in December 2003), the FASB issued FIN No. 46, “Consolidation of Variable Interest Entities” (“FIN No. 46”). FIN No. 46 requires consolidation of a variable interest entity (“VIE”) by the primary beneficiary of the entity’s expected results of operations. FIN No. 46 also requires certain disclosures by all holders of a significant variable interest in a VIE that are not the primary beneficiary. FIN No. 46 is effective immediately for VIEs created or acquired after January 31, 2003. For VIEs created or acquired prior to February 1, 2003, FIN No. 46 is effective in the first reporting period ending after December 31, 2003 for those VIEs that are considered to be special purpose entities, and after March 15, 2004 for those VIEs that are not considered to be special purpose entities. The FIN No. 46 had no effect on the Partnership’s financial position or results of operations.

In March 2003, the FASB reached a consensus on EITF Issue No. 00-21, “Accounting for Revenue Arrangements with Multiple Deliverables” (“Issue 00-21”). Issue 00-21 sets out criteria for whether revenue can be recognized separately from other deliverables in a multiple deliverable arrangement. The criteria consider whether the delivered item has stand-alone value to the customer, whether the fair value of the delivered item can be reliably determined and the rights of return for the delivered item. Adoption of Issue 00-21 is required for fiscal years beginning after June 15, 2003 and has not had an effect on the Partnership’s financial position or results of operations.

In May 2003, the FASB issued SFAS No. 150, “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity” (“SFAS No. 150”) which establishes rules for the accounting for certain financial instruments with characteristics of liabilities, equity or both. These types of financial instruments have been reported as liabilities, as part of equity, or within the mezzanine section of the consolidated balance sheets and include mandatorily redeemable instruments, certain instruments with an obligation to repurchase an issuer’s own equity shares and instruments with obligations for an issuer to settle in a variable number of its own equity shares. The FASB intends to provide further accounting guidance on conditional redeemable instruments at a later date. On August 27, 2003, the FASB issued a deferral of SFAS No. 150 for mandatorily redeemable shares of non-public companies and non-public companies will not be required to apply the provisions of SFAS 150 to mandatorily redeemable financial instruments until periods beginning after December 15, 2004. Based on securities outstanding as at March 31, 2004, the adoption of this standard is not expected to have an effect on the Partnership’s financial position or results of operations.

The Partnership is economically dependent on Asahi Medical Co., Ltd. (“Asahi Medical”) and Diamed Medizintechnik GmbH (“Diamed”) to continuously provide filter products and pumps used in the RHEO System which are sold to the Partnership through OccuLogix [note 1]. The Partnership believes the filter products and pumps produced by Asahi Medical and Diamed are a critical component in the RHEO System.

The Partnership purchases all products from OccuLogix at OccuLogix’s cost pursuant to the sales agreement. The term of the agreement commenced July 25, 2002 and is effective as long as the Distribution Agreement between OccuLogix and Asahi Medical, dated December 31, 2001, is in effect.

To date, the Partnership’s primary customer has been Rheo Clinic Inc. (“Rheo”), a subsidiary of TLC Vision.

From time to time, the Partnership obtained non-interest cash advances from Rheo to finance the day-to-day working capital requirements. These advances are settled through the purchases of product by Rheo from the Partnership which are then netted against amounts outstanding.

OccuLogix, Inc. (formerly Vascular Sciences Corporation) (“OccuLogix”) is an ophthalmic therapeutic company founded to commercialize innovative treatments for eye diseases, including age-related macular degeneration (“AMD”). The RHEO System contains a pump that circulates blood through two filters and is used to perform Rheopheresis, which OccuLogix refers to under the trade name RHEO Therapy, which is designed to treat Dry AMD. OccuLogix’s goal is to establish RHEO Therapy as the leading treatment for Dry AMD.

The accompanying unaudited pro forma consolidated balance sheet and the unaudited pro forma consolidated statements of operations of OccuLogix have been prepared by the management of OccuLogix in accordance with United States generally accepted accounting principles. The accompanying pro forma consolidated financial statements give effect to the proposed transactions described below.

The underlying assumptions for the pro forma consolidated financial statements provide a reasonable basis for presenting the significant financial effects directly attributable to such transactions; however, the unaudited pro forma consolidated financial statements may not be indicative of the financial position and results of operations that would have occurred if the transactions had been completed on the dates indicated or of the financial position and results of operations that may be obtained in the future. In the opinion of the management of OccuLogix, these unaudited pro forma consolidated financial statements include all adjustments necessary for fair presentation.

The unaudited pro forma consolidated balance sheet of OccuLogix as at March 31, 2004 has been prepared using the unaudited consolidated balance sheet of OccuLogix as at March 31, 2004 and the unaudited balance sheet of OccuLogix, L.P. (the “L.P.”) as at March 31, 2004, together with the adjustments and assumptions outlined below. The pro forma unaudited consolidated statements of operations have been prepared using the results of operations of OccuLogix for the three months ended March 31, 2004 and the unaudited results of operations of the L.P. for the three months ended March 31, 2004, the audited consolidated statements of operations of OccuLogix for the year ended December 31, 2003, the audited statements of operations of the L.P. for the year ended December 31, 2003 and the adjustments and assumptions outlined below.

The unaudited pro forma consolidated balance sheet of OccuLogix as at March 31, 2004 has been prepared as if the proposed transactions described below had been completed as of March 31, 2004. The unaudited pro forma consolidated statements of operations for the three month period ended March 31, 2004 and for the year ended December 31, 2003 have been prepared as if the proposed transactions described below had been completed as of January 1, 2003.

The accompanying unaudited pro forma consolidated financial statements of OccuLogix have been prepared to reflect the following reorganization transactions:


	a)	The acquisition by OccuLogix of TLC Vision Corporation’s (“TLC Vision”) 50% interest in the L.P. in exchange for the issuance to TLC Vision of 19,105,426 shares of common stock. The Company expects to account for the acquisition of TLC Vision’s interest in the L.P. by allocating the total purchase price to the tangible and intangible assets and liabilities of the L.P. based upon preliminary valuations and other studies not yet finalized. The actual allocation of purchase price and the related useful life of the assets acquired and the resulting effect on income from operations may differ significantly from the pro forma amounts included herein;


	b)	OccuLogix will borrow the remaining $3,650,000 aggregate amount, as of March 31, 2004, available for borrowing under two convertible debentures that were issued to TLC Vision and another one of its stockholders, Diamed Medizintechnik GmbH (the “Convertible Debentures”). The total principal amount of $7,000,000 due under the Convertible Debenture will then be converted into 7,106,455 shares of common stock at a conversion price of $0.98502 per share;

	c)	All shares of Series A convertible preferred stock will be converted into shares of common stock of OccuLogix at the conversion rate of 1.678323 shares of common stock for each share of Series A convertible preferred stock, or an aggregate amount of 3,603,400 shares of common stock;


	d)	All shares of Series B convertible preferred stock will be converted into shares of common stock of OccuLogix at the conversion rate of 1.643683 shares of common stock for each share of Series B convertible preferred stock, or an aggregate amount of 1,019,268 shares of common stock;

	e)	The L.P. will be dissolved and its assets distributed to OccuLogix; and


	f)	The remaining unamortized fair value of certain stock options granted by OccuLogix to certain employees, officers and directors in December 2003 with an estimated intrinsic value of $15,392,323 will be expensed in the pro forma financial statements for the year ended December 31, 2003.

The unaudited pro forma consolidated financial statements have also been prepared to reflect the following initial public offering transactions:


	g)	OccuLogix will issue shares of common stock for net cash proceeds of $ (the “Offering”), after deducting estimated expenses of the Offering and the underwriting commission

The pro forma consolidated balance sheet of OccuLogix as at March 31, 2004 is based on the initial balance sheet of OccuLogix as at March 31, 2004 and the balance sheet of the L.P. as at March 31, 2004 and has been prepared as if the transactions described in note 2 had occurred on March 31, 2004.

Pro forma adjustments relating to the pro forma consolidated balance sheet of OccuLogix as at March 31, 2004 include the following:


	a)	OccuLogix will issue shares of common stock for net cash proceeds of $ in connection with the Offering, after deducting estimated expenses of the Offering and underwriting commission;

	b)	The acquisition by OccuLogix of TLC Vision’s 50% interest in the L.P. in exchange for the issuance to TLC Vision of 19,105,426 shares of its common stock;

	c)	The pro forma intangible assets of $ from OccuLogix’s proposed acquisition of TLC Vision’s 50% interest in the L.P. represents the excess of the estimated purchase price of $ payable by OccuLogix above the fair value of $(23,872) of the net tangible assets to be acquired. The fair value of net assets to be acquired is based on estimates by management of OccuLogix and includes the fair value of intangible assets estimated at $ . The purchase price consists of 19,105,426 shares of common stock of OccuLogix, valued at $ . The


		estimated amounts reflect minimum values estimated by management and may vary as the final purchase price and allocation of the net assets acquired are subject to completion of the valuation;

	d)	OccuLogix will borrow the remainder of the aggregate $7,000,000 available for borrowing under the Convertible Debentures agreement. The total principal amount of $7,000,000 due under the Convertible Debenture will then be converted into shares of common stock at a conversion price of $0.98502 per share, or an aggregate amount of 7,106,455 shares of common stock;

	e)	Holders of warrants to purchase 379,284 shares of Series A convertible preferred stock of OccuLogix will exercise their warrants for cash in the amount of $764,239;

	f)	Holders of warrants to purchase 77,370 shares of common stock of OccuLogix will exercise their warrants for cash in the amount of $134,480;

	g)	All shares of Series A convertible preferred stock will be converted into shares of common stock of OccuLogix at the conversion rate of 1.678323 shares of common stock for each share of Series A convertible preferred stock, or an aggregate amount of 3,603,400 shares of common stock;

	h)	All shares of Series B convertible preferred stock will be converted into shares of common stock of OccuLogix at the conversion rate of 1.643683 shares of common stock for each share of Series B convertible preferred stock, or an aggregate amount of 1,019,268 shares of common stock;


	i)	The intercompany profit in the amount of $5,013 as at March 31, 2004 included in the L.P. inventory has been eliminated; and


	j)	In the preparation of the pro forma consolidated balance sheet of OccuLogix, the elimination of all intercompany balances between OccuLogix and the L.P. has been reflected.

Pro forma adjustments relating to the consolidated statements of operations of OccuLogix for the three months ended March 31, 2004 and the year ended December 31, 2003 include the following:


	a)	Elimination of revenue in the amount of $54,720 and $387,447 for the three months ended March 31, 2004 and for the year ended December 31, 2003, respectively, relating to the sale of OctoNova pumps and treatment sets by OccuLogix to the L.P.;


	b)	Elimination of cost of goods sold in the amount of $53,997 and $383,024 for the three months ended March 31, 2004 and for the year ended December 31, 2003, respectively, relating to inventory still being held by the L.P. and cost of goods sold by the L.P. to third parties which is already included in the cost of goods sold by OccuLogix to the L.P.;


	c)	Included in the amortization of intangibles expense in the pro forma statement of operations is an amortization expense of $ for the three months ended March 31, 2004 and $ for the year ended December 31, 2003 of the intangible assets acquired on the acquisition of TLC Vision’s 50% interest in the L.P. The estimated amounts reflect minimum values estimated by management and vary as the final purchase allocation and related useful life of the assets required are subject to completion of the valuation. and;


	d)	Included in general and administrative expense in the pro forma statement of operations are stock-based compensation charges of $1,539,232 and $513,077 for the three months ended March 31, 2004 and the year ended December 31, 2003. These charges result from the grant of employee stock options in December 2003 on a date which management believed would be within 12 months of the Company’s initial public offering.

The Company has been recording stock-based compensation charges over the vesting period of the options. All of these options will become fully vested upon completion of this offering. The remaining $15,392,323 of stock-based charges will be recorded during the period in which this offering occurs and is therefore reflected in the pro forma statement of operations of OccuLogix for the year ended December 31, 2003. This pro forma financial information is as of January 1, 2003, accordingly the stock-based compensation charged for the three months ended March 31, 2004 of $1,539,232 has been reversed.

These pro forma consolidated financial statements have been prepared in accordance with U.S. GAAP, which differ in certain respects to Canadian GAAP. This reconciliation between Canadian and U.S. GAAP should be read in conjunction with the pro forma consolidated financial statements at March 31, 2004 and for the three months ended March 31, 2004 and for the year ended December 31, 2003 and related management’s discussion and analysis prepared in accordance with U.S. GAAP included in this prospectus.

The following table presents the pro forma net loss for the period that would have been reported had OccuLogix’s pro forma consolidated financial statements been prepared on the basis of Canadian GAAP:


5.	Reconciliation to Accounting Principles Generally Accepted in Canada (continued)

The following tables present the differences between the pro forma as adjusted consolidated balance sheets of OccuLogix had OccuLogix’s pro forma financial information been prepared on the basis of Canadian GAAP:

OccuLogix has an option plan whereby options are granted to employees, directors and consultants.

For U.S. GAAP purposes, OccuLogix has adopted the disclosure requirements of SFAS No. 123 and as permitted under SFAS 123, applies APB 25 and related interpretations in accounting for its stock option plans. SFAS 123 requires disclosure of pro forma amounts to reflect the impact if OccuLogix had elected to adopt the optional recognition provisions of SFAS 123 for its stock option plans and employee stock purchase plans.

For Canadian GAAP purposes, OccuLogix accounts for its stock options in accordance with the provisions of CICA Section 3870, Stock-Based Compensation and Other Stock-Based Payments, (“CICA 3870”). CICA 3870, issued in December 2001, established standards for the recognition, measurement and disclosure of stock-based compensation, and other stock-based payments. Under the provisions of CICA 3870, prior to January 1, 2004, companies could either measure the compensation cost of equity instruments issued under employee compensation plans using a fair value-based method or could recognize compensation cost using another method, such as the intrinsic value-based method. However, if another method was applied, pro forma disclosure of net income or loss and earnings or loss per share was

5. Reconciliation to Accounting Principles Generally Accepted in Canada (continued)

required in the financial statements as if the fair value-based method had been applied. Effective January 1, 2004, CICA 3870 requires that all stock-based compensation be measured and expensed using a fair value-based methodology. Prior to January 1, 2004, OccuLogix recognized employee stock-based compensation under the intrinsic value-based method.

For Canadian GAAP purposes, $24,700, which represents the difference between the intrinsic value method and the fair-value based method, has been adjusted for.

OccuLogix had convertible debentures which were convertible into shares of common stock of the Company. Some of these debentures were also issued with warrants. Since these debentures have been presented as converted in these pro forma financial statements, no adjustment to Canadian GAAP is required.

The following table sets forth the costs and expenses, other than underwriting discounts and commissions, payable by us in connection with the offer and sale of the securities being registered. All amounts are estimates except the SEC registration fee and NASD filing fee.

The General Corporation Law of the State of Delaware (“DGCL”) authorizes corporations to limit or eliminate the personal liability of directors to corporations and their stockholders for monetary damages for breaches of directors’ fiduciary duties. Our amended and restated certificate of incorporation will include a provision that eliminates the personal liability of directors for monetary damages for actions taken as a director, except for liability for breach of the duty of loyalty; for acts or omissions not in good faith or involving intentional misconduct or knowing violation of law; under Section 174 of the DGCL (unlawful dividends and stock repurchases); or for transactions from which the director derived improper personal benefit.

Our amended and restated certificate of incorporation will also provide that the registrant must indemnify our directors and officers to the fullest extent authorized by the DGCL and must also pay expenses incurred in defending any such proceeding in advance of its final disposition upon delivery of an undertaking, by or on behalf of an indemnified person, to repay all amounts so advanced if it should be determined ultimately that such person is not entitled to be so indemnified.

The indemnification rights set forth above shall not be exclusive of any other right which an indemnified person may have or hereafter acquire under any statute, provision of our amended and restated certificate of incorporation, our amended and restated by-laws, agreement, vote of stockholders or disinterested directors or otherwise.

Set forth below is information regarding shares of common stock and preferred stock issued, and options and warrants granted, by us, within the past three years. Also included is the consideration, if any, received by us for such shares, options and warrants and information relating to the section of the Securities Act or rule of the Securities Exchange Commission, under which exemption from registration was claimed.

On July 17, 2002, we issued an aggregate of 2,333 shares of common stock to Magnum Group at a price per share of $0.30 in consideration of consulting services provided.

On July 19, 2002, we issued an aggregate of 783,364 shares of Series A convertible preferred stock to Akers, Brown, Eaton, Feldman, Flaherty, Jacobson, Jones, Katz, Levin, Martin, Mikolon, Mincey, Retzlaff, Sanders, Santaromita, Sher and Wise at a price per share of $7.83 in consideration of conversion of debt.

On July 19, 2002 we issued an aggregate of 305,808 shares of Series A convertible preferred stock to Bermuda Bay Ltd., Capital Paradigms, Inc., David Israel, Richard Davis, Jr., Diamed Medizintechnik GmbH, Dominion Financial Group Management, Inc. Burt Dubow, Dave Fancher, First Oneida (1995) L.P., Jerre Freeman, M.D., Wayne Fritzschem, Gills James, M.D., JTB VisionQuest, Northlea Partners, R.D. Irrevocable Trust, A.H. Rodriquez, Safe Harbor Fund I, L.P., Safe Harbor Managed Account 101-A, Ltd., Sanders Children’s Trust, Paul Scharfer and Lacy Shaw, at a price per share of $5.50 in consideration of the conversion of debt.

On July 25, 2002 we issued an aggregate of 524,070 shares of Series B convertible preferred stock to TLC Vision Corporation at a purchase price per share of $5.78 in consideration for cash and the conversion of debt.

On July 25, 2002 we issued an aggregate of 96,042 shares of Series B convertible preferred stock to Bridge Note holders at a purchase price per share of $5.20 in consideration for the conversion of debt.

On April 17, 2003 we issued an aggregate of 17,375 shares of common stock to Bruce Riddell and Bob Schulz at a purchase price per share of $1.30 in consideration for consulting services provided.

On November 30, 2003 we issued an aggregate of 507,604 shares of common stock to Asahi Medical Co. Ltd. at a purchase price per share of $0.098502 in consideration for conversion of debt.

On December 31, 2003 we issued an aggregate of 613,292 shares of common stock to Diamed Medizintechnik GmbH, Rapheal Drehsen, Dan Drone, Richard Hairston, Howard Howell, Dan Johnson Irrevocable Trust, Harvey Kahn, Mikolon, Santaromita, David Shapiro, Patrick Sheppard, Hans Stock, Elizabeth Strapp, Alan Szucs, TLC Vision Corporation and S.M. Weinstock at a purchase price per share of $0.098502 in consideration for cash.

On January 27, 2004 we issued an aggregate of 24,750 shares of common stock to John Abeles at a purchase price per share of $0.80 in consideration for cash.

On March 22, 2004 we issued an aggregate of 25,000 shares of common stock to Shirley McGarvey at a purchase price per share of $0.13 in consideration for cash.

On July 17, 2004 we issued an aggregate of 77,370 shares of common stock to Carolina Eye Associates and the daughters of Rick Davis at a purchase price per share of $1.20 and $4.00, respectively, in consideration for cash.

On July 17, 2004 we issued an aggregate of 40,871 shares of Series A convertible preferred stock to Eaton, Feldman, Jacobsen, Jones, Kahn, Katz, Levin, Mikolon, Mincey, Santaromita and Sher at a purchase price per share of $4.67 in consideration for cash.

On July 17, 2004 we issued an aggregate of 173,224 shares of Series A convertible preferred stock to Capital Paradigms, Inc., David Israel, Richard Davis, Jr., Diamed Medizintechnik GmbH, Dominion Financial Group Management, Inc., Burt Dubow, Dave Fancher, First Oneida (1995) L.P., Jerre Freeman, M.D., Gills James, M.D., JTB VisionQuest, Northlea Partners, A.H. Rodriquez, Safe Harbor Fund I, L.P., Safe Harbor Managed Account 101-A, Ltd., and Paul Scharfer at a purchase price per share of $3.31 in consideration for cash.

On July 17, 2004 we issued an aggregate of 165,189 shares of Series A convertible preferred stock to Akers, Martin, Retzlaff, Sanders, Sanders Children’s Trust and Wise in exchange for the cashless exercise of warrants.

On July 28, 2004 we issued an aggregate of 152,500 shares of common stock to Deupree, Gills, JTB VisionQuest, Krusen and Rodriguez at a purchase price per share of $0.40 in consideration for cash.

On July 28, 2004 we issued an aggregate of 32,250 shares of common stock to Dubow, Minero and Rodriquez at a purchase price per share of $2.00 in consideration for cash.

On July 28, 2004 we issued an aggregate of 3,000 shares of common stock to Dubow, at a purchase price per share of $4.00 in consideration for cash.

The foregoing sales of securities were made in reliance upon the exemption from the registration requirements of the Securities Act, as set forth in Section 4(2) under the Securities Act and Rule 506 of Regulation D promulgated thereunder relative to the sales by an issuer not involving any public offering, to the extent an exemption from registration was required.

As of July 30, 2004, we have issued to employees, directors and consultants 2,313,461 shares of common stock upon the exercise of stock options at a weighted average exercise price of $ per share. In addition, options to purchase 1,955,899 shares of common stock were outstanding under our Stock Option Plan or outside of the Stock Option Plan. All of these grants were made to our employees, officers, directors or consultants under written compensatory benefit plans within the limits on the amount of securities that can be issued under Rule 701. Accordingly, these grants and sales were made in reliance on Rule 701 of the Securities Act.


	(a)	Exhibits. The following exhibits are filed as part of this Registration Statement:


	1.	The undersigned registrant hereby undertakes to provide to the underwriters at the closing specified in the underwriting agreement, certificates in such denominations and registered in such names as required by the underwriters to permit prompt delivery to each purchaser.

	2.	Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers, and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the SEC such indemnification is against public policy as expressed in the Securities Act of 1933 and is therefore unenforceable. In the event that a claim for indemnification by the registrant against such liabilities, other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding, is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue.


	(1)	For purposes of determining any liability under the Securities Act of 1933, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act of 1933 shall be deemed to be part of this registration statement as of the time it was declared effective.


	(2)	For the purpose of determining any liability under the Securities Act of 1933, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.

Pursuant to the requirements of the Securities Act of 1933, as amended, the registrants have duly caused this registration statement to be signed on their behalf by the undersigned, thereunto duly authorized in the City of Mississauga, Province of Ontario, on August 13, 2004.

KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below hereby constitutes and appoints Elias Vamvakas and William Dumencu, or any one of them, his true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him and in his name, place, and stead, in any and all capacities, to sign any and all amendments to the Registration Statement, including post-effective amendments, and registration statements filed pursuant to Rule 462 under the Securities Act of 1933, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the SEC, and does hereby grant unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or any of them, or their or his substitutes, may lawfully do or cause to be done by virtue hereof

Pursuant to the requirements of the Securities Act of 1933, as amended, this Registration Statement has been signed below by the following persons in the capacities indicated on the 11th day of August, 2004.

II-8 EX-3.1 2 t13715exv3w1.txt EX-3.1 EXHIBIT 3.1 DELAWARE PAGE 1 The First State I, HARRIET SMITH WINDSOR, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO HEREBY CERTIFY THE ATTACHED ARE TRUE AND CORRECT COPIES OF ALL DOCUMENTS ON FILE OF "VASCULAR SCIENCES CORPORATION" AS RECEIVED AND FILED IN THIS OFFICE. THE FOLLOWING DOCUMENTS HAVE BEEN CERTIFIED: CERTIFICATE OF INCORPORATION, FILED THE FIFTH DAY OF JUNE, A.D. 2002, AT 9 O'CLOCK A.M. RESTATED CERTIFICATE, FILED THE SIXTEENTH DAY OF JULY, A.D. 2002, AT 4:30 O'CLOCK P.M. CERTIFICATE OF AGREEMENT OF MERGER, FILED THE SEVENTEENTH DAY OF JULY, A.D. 2002, AT 9 O'CLOCK A.M. RESTATED CERTIFICATE, FILED THE TWENTY-FIFTH DAY OF JULY, A.D. 2002, AT 12 O'CLOCK P.M. CERTIFICATE OF AMENDMENT, FILED THE TWENTY-NINTH DAY OF AUGUST, A.D. 2003, AT 12:54 O'CLOCK P.M. AND I DO HEREBY FURTHER CERTIFY THAT THE AFORESAID CERTIFICATES ARE THE ONLY CERTIFICATES ON RECORD OF THE AFORESAID CORPORATION. "Harriet Smith Windsor" Harriet Smith Windsor, Secretary of State 3520855 8100H [SEAL OF DELAWARE] AUTHENTICATION: 3255191 040544757 DATE: 07-26-04 CERTIFICATE OF INCORPORATION OF VASCULAR SCIENCES CORPORATION FIRST: The name of the corporation is Vascular Sciences Corporation (the "Corporation"). SECOND: The address of its registered office in the State of Delaware is 9 East Loockerman Street in the City of Dover, County of Kent. The name of its registered agent at such address is National Registered Agent, Inc. THIRD: The nature of the business or purposes to be conducted or promoted is to engage in any lawful act or activity for which Corporations may be organized under the General Corporation Law of Delaware. FOURTH: The Corporation is authorized to issue one class of stock, to be designated "Common Stock" with a par value of $0.001 per share. The total number of shares of Common Stock that the Corporation shall have authority to issue is One Hundred (100). FIFTH: The business and affairs of the Corporation shall be managed by or under the direction of the Board of Directors of the Corporation (the "Board of Directors"). In addition to the powers and authority expressly conferred upon them by statute or by this Certificate of Incorporation or the Bylaws of the Corporation (the "Bylaws"), the directors are hereby empowered to exercise all such powers and do all such acts and things as may be exercised or done by the Corporation. Election of directors need not be by written ballot, unless the Bylaws so provide. SIXTH: The Board of Directors is authorized to make, adopt, amend, alter or repeal the Bylaws. The stockholders shall also have power to make, adopt, amend, alter or repeal the Bylaws. SEVENTH: The name and mailing address of the incorporator is: Randy L. Socol, Esq. Gray Cary Ware & Freidenrich LLP 4365 Executive Drive, Suite 1100, San Diego, CA 92121-2133 EIGHTH: To the fullest extent permitted by the Delaware General Corporation Law, as the same exists or may hereafter be amended, a director of the Corporation shall not be personally liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a director. Any repeal or modification of the foregoing provisions of this Article EIGHTH by the stockholders of the Corporation shall not adversely affect any right or protection of a director of the Corporation existing at the time of, or increase the liability of any director of the Corporation with respect to any acts or omissions occurring prior to, such repeal or modification. THE UNDERSIGNED, being the incorporator hereinbefore named, for the purpose of forming a Corporation pursuant to the General Corporation Law of Delaware, does 1 make this certificate, hereby declaring and certifying that this is my act and deed and the facts herein stated are true, and accordingly have hereunto set my hand this 5th day of June, 2002. "Randy Socol" Randy L. Socol, Incorporator 2 AMENDED AND RESTATED CERTIFICATE OF INCORPORATION OF VASCULAR SCIENCES CORPORATION Vascular Sciences Corporation, a corporation organized and existing under the laws of the State of Delaware (the "Corporation"), hereby certifies as follows: FIRST: The name of the Corporation is Vascular Sciences Corporation. The Corporation was originally incorporated under the same name and the original Certificate of Incorporation of the Corporation was filed with the Delaware Secretary of State on June 5, 2002. SECOND: Pursuant to Sections 242 and 245 of the General Corporation Law of the State of Delaware, this Amended and Restated Certificate of Incorporation restates and amends the provisions of the original Certificate of Incorporation of this Corporation. THIRD: The text of the original Certificate of Incorporation is hereby amended and restated in its entirety to read as follows: ARTICLE I The name of this corporation is Vascular Sciences Corporation (hereinafter sometimes referred to as the "Corporation"). ARTICLE II The address of the Corporation's registered office in the State of Delaware is 9 East Loockerman Street, Dover, Delaware, 19901, County of Kent. The name of its registered agent at such address is National Registered Agents, Inc. ARTICLE III The purpose of the Corporation is to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of Delaware. ARTICLE IV The Corporation is authorized to issue two classes of stock to be designated, respectively, "Common Stock" and "Preferred Stock." The total number of shares of capital stock authorized to be issued is Twenty-Three Million (23,000,000) shares. Fifteen Million (15,000,000) shares shall be Common Stock, par value $0.001 per share, and Eight Million (8,000,000) shares shall be Preferred Stock, par value $0.001 per share. Three Million (3,000,000) shares of the Preferred Stock are designated as Series A Preferred Stock ("Series A Stock"). The Board of Directors of the Corporation (the "Board of Directors") is hereby authorized to fix or alter the rights, preferences, privileges and restrictions granted to or imposed upon additional series of Preferred Stock, and the number of shares constituting any such series and the designation thereof, or of any of them. Subject to compliance with applicable protective voting rights which have been or may be granted to the Preferred Stock or series thereof in Certificates of Designation or the Corporation's Certificate of Incorporation, as hereafter may be amended ("Protective Provisions"), but notwithstanding any other rights of the Preferred Stock or any series thereof, the rights, privileges, preferences and restrictions of any such additional series may be subordinated to, pari passu with (including, without limitation, inclusion in provisions with respect to liquidation and acquisition preferences, redemption and/or approval of matters by vote or written consent), or senior to any of those of any present or future class or series of Preferred Stock or Common Stock. Subject to compliance with applicable protective provisions, the Board of Directors is also authorized to increase or decrease the number of shares of any series of Preferred Stock (other than the Series A Stock), prior or subsequent to the issue of that series, but not below the number of shares of such series then outstanding or then reserved for issuance. In case the number of shares of any series shall be so decreased, the shares constituting such decrease shall resume the status that 2 they had prior to the adoption of the resolution originally fixing the number of shares of such series. A. COMMON STOCK. 1. Dividend Rights. Subject to the provisions of Section IV.B.1, the holders of the Common Stock shall be entitled to receive, when and as declared by the Board of Directors, out of any assets of the Corporation legally available therefor, such dividends as may be declared from time to time by the Board of Directors. 2. Liquidation Rights. Upon the liquidation, dissolution or winding up of the Corporation, the assets of the Corporation shall be distributed as provided in Section IV.B.2. 3. Redemption. The Common Stock is not redeemable: 4. Voting Rights. The holder of each share of Common Stock shall have the right to one vote, and shall be entitled to notice of any stockholders meeting in accordance with the Bylaws of the Corporation, and shall be entitled to vote upon such matters and in such manner as may be provided by law. B. PREFERRED STOCK. 1. Dividend Provisions. (a) The holders of shares of Series A Stock shall be entitled to receive dividends, out of any assets legally available therefor, prior to and in preference to any declaration or payment of any dividend (payable other than in Common Stock or other securities and rights convertible into or entitling the holder thereof to receive, directly or indirectly, additional shares of Common Stock of the Corporation) on the Common Stock of the Corporation, in an annual amount equal to six percent (6%) of the Original Series A Issue Price (as defined in Section IV.B.2(a)), payable when, as and if declared by the Board of Directors. Such dividends shall not be cumulative. (b) So long as any shares of Series A Stock are issued and outstanding, the Corporation shall not declare and distribute any dividends among the holders of Common Stock, nor shall the Corporation purchase, redeem or acquire any shares of Common Stock or pay funds into or set aside or make available a sinking fund for the purchase, redemption or acquisition of shares of Common Stock, unless, in each case, the dividend provided in Section IV.B.1(a) is declared and paid to the holders of Series A Stock prior and in preference to any payment of dividends to the holders of Common Stock. After payment in full of such preferred dividend, dividends shall be paid pro rata to the holders of Common Stock and Series A Stock (determined on an as-converted basis with respect to outstanding shares of Series A Stock). The foregoing restriction shall not apply to dividends of shares of Common Stock payable to holders of the outstanding shares of Common Stock or to the repurchase of shares of Common Stock held by employees, officers, directors, consultants or other persons performing 3 services for the Corporation or any wholly owned subsidiary of the Corporation (including, but not by way of limitation, distributors and sales representatives) that are subject to restrictive stock purchase agreements under which the Corporation has the option to repurchase such shares at cost or below cost (or other fixed price intended to be representative of not more than the cost of such shares of Common Stock) upon the occurrence of certain events including, but not limited to, the termination of employment. (c) Any dividend or distribution which is declared by the Corporation and payable with assets of the Corporation other than cash shall be valued in accordance with the provisions of Section IV.B.2(b)(ii). 2. Liquidation Preference (a) In the event of any liquidation, dissolution or winding up of the Corporation, either voluntary or involuntary, the remaining assets of the Corporation legally available for distribution shall be distributed to the holders of capital stock of the Corporation in the following order and priority: (i) to each holder of Series A Stock, prior and in preference to any distribution of any of the remaining assets of the Corporation to the holders of Common Stock by reason of their ownership thereof, an amount per share equal to (A) $8.00 for each outstanding share of Series A Stock (the "Original Series A Issue Price") held by each such holder and (B) an amount equal to all declared but unpaid dividends on the shares of Series A Stock held by each such holder (if the assets and funds available for distribution pursuant to this clause (i) shall be insufficient to permit the payment to the holders of Series A Stock of such full preferential amounts, then the entire remaining assets of the Corporation legally available for distribution shall be distributed ratably among the holders of Series A Stock in proportion to the number of shares of Series A Stock then owned by each such holder); and (ii) after all distributions pursuant to clause (i) above have been fully paid, to the holders of Common Stock and the holders of Series A Stock pro rata based on the number of shares of Common Stock held by each (determined on an as-converted basis with respect to the outstanding shares of Series A Stock). (b) Deemed Liquidation. (i) For purposes of this Section IV.B.2, a liquidation, dissolution or winding up of the Corporation shall be deemed to be occasioned by, or to include, (A) the acquisition of the Corporation by another entity by mesas of any transaction or series of related transactions (including, without limitation, any reorganization, merger or consolidation), or (B) a sale of all or substantially all of the assets of the Corporation; unless the Corporation's stockholders of record as constituted immediately prior to such acquisition or sale will, immediately after such acquisition yr sale (by virtue of securities issued as consideration for the Corporation's acquisition or sale or otherwise) hold at least 50% of the voting power of the surviving or acquiring entity. (ii) In any of the events described in Section IV.B.2(b)(i), if the consideration received by the Corporation is other than cash, 4 its value will be deemed its fair market value. Any securities to be delivered to the holders of Series A Stock or Common Stock, as the case may be, shall be valued as follows: (A) If traded on a securities exchange or through the Nasdaq National Market System, the value shall be deemed to be the average of the closing prices of the securities on such exchange over the thirty (30) trading days ending three (3) trading days prior to the closing; (B) If actively traded over the counter, the value shall be deemed to be the average of the closing bid or sale prices (whichever is applicable) over the thirty (30) trading days ending three (3) trading days prior to the closing; and (C) If there is no active public market, the value shall be the fair market value thereof, determined in good faith by the Board of Directors. (iii) In the event the requirements of this Section IV.B.2(b) are not complied with, the Corporation shall either: (A) cause such closing to be postponed until such time as the requirements of this Section IV.B.2 have been complied with; or (B) cancel such transaction, in which event the respective rights, preferences and privileges of the holders of Series A Stock shall revert to and be the same as such rights, preferences and privileges existing immediately prior to the date of the first notice referred to in Section IV.B.2(b)(iv) hereof. (iv) The Corporation shall give each holder of record of Series A Stock written notice of such impending transaction described in Section IV.B.2(b)(i) not later than twenty (20) calendar days prior to the stockholders meeting called to approve such transaction, or twenty (20) calendar days prior to the closing of such transaction, whichever is earlier, and shall also notify such holders in writing of the final approval of such transaction. The first of such notices shall describe the material terms and conditions of the impending transaction and the provisions of this Section IV.B.2, and the Corporation shall thereafter give such holders prompt notice of any material changes. The transaction shall in no event take place sooner than twenty (20) calendar days after the Corporation has given the first notice provided for in this Section IV.B.2(b)(iv) or sooner than ten (10) calendar days after the Corporation has given notice of any material changes provided for herein; provided , however. that such periods may be shortened upon the Corporation's receipt of written consent of the holders of at least a majority of the Series A Stock. 3. Redemption. The Series A Stock shall not be redeemable. 5 4. Conversion. The holders of Series A Stock shall have conversion rights as follows (the "Conversion Rights"): (a) Right to Convert. Each share of Series A Stock shall be convertible, at the option of the holder thereof, at any time after the date of issuance of such share, at the office of the Corporation or any transfer agent for such stock, into such number of fully paid and nonassessable shares of Common Stock as is determined by dividing the Original Series A Issue Price by the Conversion Price as is in effect on the date the certificate is surrendered for conversion. As used herein, the "Conversion Price" shall be defined as follows: the initial Conversion Price per share of Series A Stock shall be the Original Series A Issue Price; provided, however, that such Conversion Price shall be subject to adjustment as set forth in Section IV.B.4(d). (b) Automatic Conversion. Each share of Series A Stock shall automatically be converted into shares of Common Stock at the Conversion Price in effect on the date of and immediately prior to the earlier to occur of (i) except as provided below in Section IV.B.4(c), the Corporation's sale of its Common Stock in a firm commitment underwritten public offering pursuant to a registration statement under the Securities Act of 1933, as amended (the "Securities Act"), the public offering price of which is not less than $5.60 per share (subject to adjustment for any stock split, stock dividend, recapitalization, combination of shares, exchange of shares or other change affecting the outstanding Common Stock as a class without the Corporation's receipt of consideration after the first date any shares of Series A Stock are issued (the "Purchase Date")) and with gross proceeds to the Corporation and any stockholders selling shares in such offering of at least $50 million, or (ii) the date specified by the vote, written consent or agreement of the holders of at least two thirds (2/3) of the then outstanding shares of Series A Stock. (c) Mechanics of Conversion. (i) Before any holder of Series A Stock shall be entitled to convert such shares into shares of Common Stock, such holder shall surrender the certificate or certificates therefor, duly endorsed, at the office of the Corporation or of any transfer agent for such stock, and shall give written notice to the Corporation at such office that such holder elects to convert the same and shall state therein the name or names in which such holder wishes the certificate or certificates for shares of Common Stock to be issued. The Corporation shall, as soon as practicable thereafter, issue and deliver at such office to such holder of Series A Stock a certificate or certificates for the number of shares of Common Stock to which such holder shall be entitled under this Section IV.B.4(c). Such conversion shall be deemed to have been made immediately prior to the close of business on the date of surrender of the shares of Series A Stock to be converted, and the person or persons entitled to receive the shares of Common Stock issuable upon such conversion shall be treated for all purposes as the record holder or holders of such shares of Common Stock on such date. (ii) If the conversion is in connection with an underwritten offering of securities pursuant to the Securities Act, the conversion may, at 6 the option of any holder tendering shares of Series A Stock for conversion, be conditioned upon the closing with the underwriters of the sale of securities pursuant to such offering, in which event the person(s) entitled to receive the Common Stock upon conversion of Series A Stock shall not be deemed to have converted such Series A Stock until immediately prior to the closing of such sale of securities. (d) Adjustments to Conversion Price for Certain Dilutive Issuances. (i) Special Definitions. For purposes of this Section IV.B.4(d), the following definitions apply: (1) "Options" shall mean rights, options, or warrants to subscribe for, purchase or otherwise acquire either Common Stock or Convertible Securities (defined below); (2) "Convertible Securities" shall mean any evidences of indebtedness, shares (other than Common Stock and Series A Stock) or other securities convertible into or exchangeable for Common Stock; and (3) "Additional, Shares of Common Stock" shall mean all shares of Common Stock issued (or, pursuant to Section IV.B.4(d)(xiii), deemed to be issued) by the Corporation after the Purchase Date, other than shares of Common Stock issued or issuable: (A) to officers, directors or employees of, or consultants to, the Corporation pursuant to stock option or stock purchase plans or agreements on terms approved by the majority vote or written consent of the Board of Directors; (B) upon conversion of shares of Series A Stock; (C) to persons or entities with whom the Corporation has business relationships, including under equipment leasing arrangements, bank or other institutional loans, acquisitions of companies or product lines or any other arrangements, issuances or transactions wherein the principal purpose of the issuance of such shares (or warrants or options) is for non equity financing purposes; provided that such arrangements are approved by the majority vote or written consent of the Board of Directors; (D) shares issued upon exercise or conversion of any options, warrants, convertible notes or other rights to acquire the securities of the Corporation that are outstanding as of the date of this Amended and Restated Certificate of Incorporation; (E) shares issued in connection with the acquisition by the Corporation of voting control or all or substantially all of the assets of 7 another business entity in a transaction approved by the majority vote or written consent of the Board of Directors; (F) shares issued or issuable as a result of any stock split, combination, dividend, distribution, reclassification, exchange or substitution for which an adjustment is provided in Sections IV.B.4(e) or (f) below; (G) shares of Common Stock issued or issuable (i) in a public offering before or in connection with which all outstanding shares of Preferred Stock will be converted to Common Stock or (ii) upon exercise of warrants or rights granted to underwriters in connection with such a public offering; or (H) for which adjustment of the Conversion Price is made pursuant to Section IV.B.4(e). (ii) No Adjustment of Conversion Price. Any provision herein to the contrary notwithstanding, no adjustment in the Conversion Price shall be made in respect of the issuance of Additional Shares of Common Stock unless the consideration per share (determined pursuant to Section IV.B.4(d)(v) hereof) for an Additional Share of Common Stock issued or deemed to be issued by the Corporation is less than the Conversion Price in effect on the date of, and immediately prior to, such issuance. (iii) Deemed Issue of Additional Shares of Common Stock. In the event the Corporation at any time or from time to time after the Purchase Date shall issue any Options or Convertible Securities, or shall fix a record date for the determination of holders of any class of securities then entitled to receive any such Options or Convertible Securities, then the maximum number of shares (as set forth in the instrument relating thereto without regard to any provisions .contained therein designed to protect against dilution) of Common Stock issuable upon the exercise of such Options or, in the case of Convertible Securities and Options therefor, the conversion or exchange of such Convertible Securities, shall be deemed to be Additional Shares of Common Stock (subject to any applicable exception set forth in Section IV.B.4(d)(3)) issued as of the time of such issue or, in case such a record date shall have been fixed, as of the close of business on such record date provided, further, that in any such case in which Additional Shares of Common Stock are deemed to be issued: (1) no further adjustment in the Conversion Price shall be made upon the subsequent issue of Convertible Securities or shares of Common Stock upon the exercise of such Options or conversion or exchange of such Convertible Securities; (2) if such Options or Convertible Securities by their terms provide, with the passage of time or otherwise, for any increase in the consideration payable to the Corporation, or decrease in the number of shares of Common Stock issuable, upon the exercise, conversion or exchange thereof, the Conversion Price computed upon the original issue thereof (or upon the occurrence of a 8 record date with respect thereto), and any subsequent adjustments based thereon, shall, upon any such increase or decrease becoming effective, be recomputed to reflect such increase or decrease insofar as it affects such Options or the rights of conversion or exchange under such Convertible Securities (provided, however, that no such adjustment of the Conversion Price shall effect Common Stock previously issued upon conversion of the Series A Stock); (3) no readjustment pursuant to clause (2) above shall have the effect of increasing the .Conversion Price to an amount which exceeds the lower of (a) the Conversion Price on the original adjustment date, or (b) the Conversion Price that would have resulted from any issuance of Additional Shares of Common Stock between the original adjustment date and such readjustment date; (4) upon the expiration or termination of any unexercised Option or Convertible Security, the Conversion Price shall not be readjusted but the Additional Shares of Common Stock deemed issued as the result of the original issue of such Option or Convertible Security shall not be deemed issued for the purposes of any subsequent adjustment of such Conversion Price; and (5) in the event of any increase in the number of shares of Common Stock issuable upon the exercise, conversion or exchange of any Option or Convertible Security, including, but not limited to, an increase resulting from the anti dilution provisions thereof the Conversion Price then in effect shall forthwith be readjusted to such Conversion Price as would have been obtained had the adjustment which was made upon the issuance of such Option or Convertible Security not exercised or converted prior to such increase been made upon the basis of such increase, but no further adjustment shall be made for the actual issuance of Common Stock upon the exercise or conversion of any such Option or Convertible Security. (iv) Adjustment of Conversion Price for Preferred Stock upon Issuance of Additional Shares of Common Stock. In the event the Corporation, at any time after the Purchase Date, shall issue Additional Shares of Common Stock (including Additional Shares of Common Stock deemed to be issued pursuant to Section IV.B.4(d)(iii)) without consideration, or for a consideration per share less than the applicable Conversion Price in effect on the date of and immediately prior to such issue, then, and in such event, the Conversion Price shall be reduced, concurrently with such issue, to a price (calculated to the nearest cent) determined by multiplying the Conversion Price by a fraction, (A) the numerator of which shall be (1) the number of shares of Common Stock outstanding immediately prior to such issue plus (2) the number of shares of Common Stock which the aggregate consideration received by the Corporation for the total number of Additional Shares of Common Stock so issued would purchase at the Conversion Price in effect immediately prior to such issuance; and (B) the denominator of which shall be the number of shares of Common Stock outstanding immediately prior to such issue plus the number of such Additional Shares of Common Stock so issued. For the purpose of the above calculation, the number of shares of Common Stock outstanding immediately prior to such issue shall be calculated on a fully diluted basis, as if all shares of Series A Stock and all other Convertible Securities of the 9 Corporation had been fully converted into shares of Common Stock and any outstanding Options or other rights for the purchase of shares of stock or Convertible Securities had been fully exercised (and the resulting securities fully converted into shares of Common Stock, if so convertible) as of such date. Notwithstanding the foregoing, the applicable Conversion Price shall not be so reduced at such time if the amount of such reduction would be an amount less than One Cent ($0.01), but any such amount shall be carried forward and any reduction with respect thereto made at the time of and together with any subsequent reduction which, together with such amount and any other amounts so carried forward, shall aggregate One Cent 00.01) or more. (v) Determination of Consideration. For purposes of this Section IV.B.4(d), the consideration received by the Corporation for the issue of any Additional Shares of Common Stock shall be computed as follows: (1) Cash and Property. Such consideration shall: (A) insofar as it consists of cash, be computed at the aggregate amount of cash received by the Corporation, excluding amounts paid or payable for accrued interest or accrued dividends; (B) insofar as it consists of property other than cash, be computed at the fair value thereof at the time of such issue, as determined in good faith by the Board of Directors; and (C) in the event Additional Shares of Common Stock are issued together with other shares or securities or other assets of the Corporation for consideration which covers both, be the proportion of such consideration so received, computed as provided in clauses (A) and (B) above, as determined in good faith by the Board of Directors. (2) Options and Convertible Securities. The consideration per share received by the Corporation for Additional Shares of Common Stock deemed to have been issued pursuant to Section IV.B.4(d)(iii), relating to Options and Convertible Securities shall be determined by dividing (A) the total amount, if any, received or receivable by the Corporation as consideration for the issue of such Options or Convertible Securities, plus the minimum aggregate amount of additional consideration (as set forth in the instruments relating thereto, without regard to any provision contained therein designed to protect against dilution) payable to the Corporation upon the exercise of such Options or the conversion or exchange of such Convertible Securities, or in the case of Options for Convertible Securities, the exercise of such Options for Convertible Securities and the conversion or exchange of such Convertible Securities by 10 (B) the maximum number of shares of Common Stock (as set forth in the instruments relating thereto, without regard to any provision contained therein designed to protect against the dilution) issuable upon the exercise of such Options or conversion or exchange of such Convertible Securities. (e) Adjustments to Conversion Prices for Stock Dividends and for Combinations or Subdivisions of Common Stock. In the event that the Corporation at any time or from time to time after the Purchase Date shall declare or pay, without consideration, any dividend on the Common Stock payable in Common Stock or in any right to acquire Common Stock for no consideration, or shall effect a subdivision of the outstanding shares of Common Stock into a greater number of shares of Common Stock (by stock split, reclassification or otherwise than by payment of a dividend in Common Stock or in any right to acquire Common Stock), or in the event the outstanding shares of Common Stock shall be combined or consolidated, by reclassification or otherwise, into a lesser number of shares of Common Stock, then the Conversion Price in effect immediately prior to such event shall, concurrently with the effectiveness of such event, be proportionately decreased or increased, as appropriate. In the event that the Corporation shall declare or pay, without consideration, any dividend on the Common Stock payable in any right to acquire Common Stock for no consideration, then the Corporation shall be deemed to have made a dividend payable in Common Stock in an amount of shares equal to the maximum number of shares issuable upon exercise of such rights to acquire Common Stock. (f) Adjustments for Reclassification and Reorganization. If the Common Stock issuable upon conversion of Series A Stock shall be changed into the same or a different number of shares of any other class or classes of stock, whether by capital reorganization, reclassification or otherwise (other than a subdivision or combination of shares provided for in Section IV.B.4(e) above or a merger or other reorganization which is treated as a liquidation pursuant to Section IV.B.2(b) above), the Conversion Price then in effect shall, concurrently with the effectiveness of such reorganization or reclassification, be proportionately adjusted so that Series A Stock shall be convertible into, in lieu of the number of shares of Common Stock which the holders would otherwise have been entitled to receive, a number of shares of such other class or classes of stock equivalent to the number of shares of Common Stock that would have been subject to receipt by the holders of Series A Stock upon conversion of their shares immediately before that change. (g) No Impairment. The Corporation will not, by amendment of its Certificate of incorporation or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, intentionally avoid or seek to avoid the observance or performance of any of the terms to be observed or performed hereunder by the Corporation, but will at all times in good faith assist in the carrying out of all the provisions of this Section MBA and in the taking of all such action as may be necessary or appropriate in order to protect the Conversion Rights of the holders of Series A Stock against impairment. 11 (h) Certificates as to Adjustments. Upon the occurrence of each adjustment or readjustment of the Conversion Price pursuant to this Section IV.B.4, the Corporation, at its expense, shall promptly compute such adjustment or readjustment in accordance with the terms hereof and prepare and furnish to each holder of Series A Stock a certificate executed by the Corporation's President or Chief Financial Officer setting forth such adjustment or readjustment and showing in reasonable detail the facts upon which such adjustment or readjustment is based. The Corporation shall, upon the written request at any time of any holder of Series A Stock, furnish or cause to be furnished to such holder a like certificate setting forth (i) such adjustments and readjustments, (ii) the Conversion Price at the time in effect, and (iii) the number of shares of Common Stock and the amount, if any, of other property which at the time would be received upon the conversion of Series A Stock. (i) Notices of Record Date. In the event that the Corporation shall propose at any time: (i) to declare any dividend or distribution upon its Common Stock, whether in cash, property, stock or other securities; (ii) to offer for subscription pro rata to the holders of any class or series of its stock any additional shares of stock of any class or series or other rights; (iii) to effect any reclassification or recapitalization of its Common Stock outstanding involving a change in the Common Stock; or (iv) to merge or consolidate with or into any other corporation, or sell, lease or convey all or substantially all of its assets, or to liquidate, dissolve or wind up; Then, in connection with each such event, the Corporation shall send to the holders of Series A Stock: (1) at least ten (10) calendar days prior written notice of the date on which a record shall be taken for such dividend, distribution or subscription rights (and specifying the date on which the holders of Common Stock shall be entitled thereto) or for determining rights to vote, if any, in respect of the matters referred to in (iii) and (iv) above; and (2) in the case of the matters referred to in (iii) and (iv) above, at least twenty (20) calendar days prior written notice of the date when the same shall take place (and specifying the date on which the holders of Common Stock shall be entitled to exchange their Common Stock for securities or other property deliverable upon the occurrence of such event). (j) Reservation of Stock Issuable Upon Conversion. The Corporation shall at all times reserve and keep available out of its authorized but unissued shares of Common Stock, solely for the purpose of effecting the conversion of the shares of Series A Stock, such number of its shares of Common Stock as shall from time to time be sufficient to effect the conversion of all outstanding shares of Series A Stock; and if at any time the number of authorized but unissued shares of Common Stock shall not be sufficient to effect the conversion of all then outstanding shares of Series A Stock, the Corporation will take such corporate action as tray, in the judgment of the Board of Directors, with the concurrence of its counsel, be necessary to increase its authorized but unissued shares of Common Stock to such number of shares as shall be sufficient for such purpose, including, without limitation, engaging in best efforts to obtain the requisite stockholder approval of any necessary amendment to the Certificate of Incorporation of the Corporation. 12 (k) Fractional Shares. No fractional shares shall be issued upon the conversion of any share or shares of Series A Stock. All shares of Common Stock (including fractions thereof) issuable upon conversion of more than one share of Series A Stock by a holder thereof shall be aggregated for purposes of determining whether the conversion would result in the issuance of any fractional share. If; after such aggregation, the conversion would result in the issuance of a fraction of a share of Common Stock, the Corporation shall, in lieu of issuing any factional share, pay the holder otherwise entitled to such fraction a sum in cash equal to the fair market value of such fraction on the date of conversion (as determined in the judgment of the Board of Directors). (1) Notices. Any notice required by the provisions of this Section IV.B.4 to be given to the holders of shares of Series A Stock shall be deemed given if deposited in the United States mail, postage prepaid, and addressed to each holder of record at such holder's address appearing on the books of the Corporation. 5. Voting Rights. (a) General. The holder of each share of Series A Stock shall have the right to one (1) vote for each share of Common Stock into which such holder's shares of Series A Stock could then be converted (with any fractional share determined on an aggregate conversion basis being rounded to the nearest whole share, with 0.5 being rounded up) and, with respect to such vote, such holder shall have full voting rights and powers equal to the voting rights and powers of the holders of Common Stock, except as required by law or as expressly provided herein, and shall be entitled, notwithstanding any provision hereof; to notice of any stockholders meeting in accordance with the Bylaws of the Corporation, and shall be further entitled to vote, together with holders of Common Stock, with respect to any question upon which holders of Common Stock have the right to vote. (b) Board of Directors. The members of the Board of Directors shall be elected by the holders of all of the Corporation's Outstanding Preferred Stock and Common Stock voting together in the manner provided in Section IV.B.5(a) above. 6. Status of Converted Stock. In the event any shares of Series A Stock shall be converted pursuant to Section IV.B.4 hereof, the shares so converted shall be canceled and shall not be issuable by the Corporation. The Certificate of Incorporation of the Corporation shall be appropriately amended to effect the corresponding reduction in the Corporation's authorized capital stock. ARTICLE V Unless and to the extent that the Certificate of Incorporation or the Bylaws of the Corporation shall so require, the election of directors of the Corporation need not be by written ballot. 13 ARTICLE VI The Board of Directors is expressly authorized to make, adopt, amend, alter or repeal the Bylaws of the Corporation, but the stockholders may make or adopt additional Bylaws and may amend, alter or repeal the Bylaws of the Corporation, and any bylaw whether adopted by them or otherwise. ARTICLE VII Each person who was or is made a party or is threatened to be made a party to or is involved in any action, suit or proceeding, whether civil, criminal, administrative or investigative (hereinafter, a `proceeding"), by reason of the fact that he or she, or a person of whom he or she is the legal representative, is or was a director, officer, employee or agent of another corporation or of a partnership, joint venture, trust or other enterprise, including service with respect to employee benefit plans, whether the basis of such proceeding is alleged action in an official capacity as a director, officer, employee or agent or in any other capacity while serving as a director, officer, employee or agent, shall be indemnified and held harmless by the Corporation to the fullest extent authorized by the Delaware General Corporation Law, as the same exists or may hereafter by amended (but, in the case of any such amendment, only to the extent that such amendment permits the Corporation to provide broader indemnification rights than said law permitted the Corporation to provide prior to such amendment) against all expense, liability, loss (including attorney's fees, judgments, fines, ERISA excise taxes or penalties and amounts paid or to be paid in settlement) reasonably incurred or suffered by such person in connection therewith and such indemnification shall continue as to a person who had ceased to be a director, officer, employee or agent and shall inure to the benefit of his or her heirs, executors and administrators; provided, however, that, except as provided in the following paragraphs of this Article VII, the Corporation shall indemnify any such person seeking indemnification in connection with a proceeding (or part thereof) initiated by such person only if such proceeding (or part thereof) was authorized by the Board Directors of the Corporation. The right to indemnification conferred in the Article VII shall be a contract right and shall include the right to be paid by the Corporation the expenses incurred in defending any such proceeding in advance of its final disposition; provided, however, that, if the Delaware General Corporation Law requires, the payment of such expenses incurred by a director or officer in his or her capacity as a director or officer (and not in any other capacity in which service was or is rendered by such person while a director or officer, including, without limitation, service to an employee benefit plan) in advance of the final disposition of a proceeding, shall be made only upon delivery to the Corporation of an undertaking, by or on behalf of such director or officer, to repay all amounts so advanced if it shall ultimately be determined that such director or officer is not entitled to be indemnified under this Article VII or otherwise. The Corporation may, by action of its Board of Directors, provide indemnification to employees and agents of the Corporation with the same scope and effect as the foregoing indemnification of directors and officers. If a claim under the preceding paragraph of this Article VII is not paid in full by the Corporation within thirty (30) calendar days after a written claim has been. received 14 by the Corporation, the claimant may at any time thereafter bring suit against the Corporation to recover the unpaid amount of the claim, and, if successful in whole or in part, the claimant shall be entitled to be paid also the expense of prosecuting such claim. It shall be a defense to any such action (other than an action brought to enforce a claim for expenses incurred in defending any proceeding in advance of its final disposition where the required undertaking, if any is required, has teen tendered to the Corporation) that the claimant has not met the standards of conduct which make it permissible under the Delaware General Corporation Law for the Corporation to indemnify the claimant for the amount claimed, but the burden of proving such defense shall be on the Corporation. Neither the failure of the Corporation (including its Board of Directors, independent legal counsel or stockholders) to have made a determination prior to the commencement of such action that indemnification of the claimant is proper in the circumstances because he or she has met the applicable standard of conduct set forth in the Delaware General Corporation Law, nor an actual determination by the Corporation (including its Board of Directors, independent legal counsel or stockholders) that the claimant has not met such applicable standard of conduct, shall be a defense to the action or create a presumption that the claimant has not met the applicable standard of conduct. The right to indemnification and the payment of expenses incurred in defending a proceeding in advance of its final disposition conferred in this Article VII shall not be exclusive of any other right which any person may have or hereafter acquire under any statute, provision of the Certificate of Incorporation, bylaw, agreement, vote of stockholders or disinterested directors or otherwise. The Corporation may maintain insurance, at its expense, to protect itself and any director, officer, employee or agent of the Corporation or another corporation, partnership, joint venture, trust or other enterprise against any such expense, liability or loss, whether or not the Corporation would have the power to indemnify such person against such expense, liability or loss under the Delaware General Corporation Law. ARTICLE VIII A director of the Corporation shall not be personally liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a director, except for liability (i) for any breach of the director's duty of loyalty to the Corporation or its stockholders; (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law; (iii) under Section 174 of the Delaware General Corporation Law; or (iv) for any transaction from which the director derived an improper personal benefit. Any repeal or modification of the foregoing sentence by the stockholders of the Corporation shall not adversely affect arty right or protection of a director of the Corporation existing at the time of such repeal or modification with respect to acts or omissions occurring prior to such repeal or modification. [THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK] 15 IN WITNESS WHEREOF, the Corporation, has caused this Amended and Restated Certificate of Incorporation to be signed by Richard C. Davis, Jr. M.D., its President and Chief Executive Officer, as of July 16, 2002. ___________________________________ Richard C. Davis, Jr., M.D. President & Chief Executive Officer AGREEMENT AND PLAN OF MERGER THIS AGREEMENT AND PLAN OF MERGER (the "Merger Agreement") is entered into as of July 17, 2002, by and between OccuLogix Corporation, a Florida corporation ("OccuLogix"), and Vascular Sciences Corporation, a Delaware corporation ("Vascular Sciences"). WITNESSETH: WHEREAS, OccuLogix is a corporation duly organized and existing under the laws of the State of Florida; WHEREAS, Vascular Sciences is a corporation duly organized and existing under the laws of the State of Delaware and is a wholly owned subsidiary of OccuLogix; WHEREAS, on the date of this Merger Agreement, OccuLogix is authorized to issue 30,000,000 shares of voting Common Stock (the "OccuLogix Voting Common Stock"), of which 14,413,442 shares are issued and outstanding, 5,000,000 shares of non-voting Common Stock (the "OccuLogix Non-Voting Common Stock"), of which 1,155,,801 shares are issued and outstanding, and 19,000,000 shares of Preferred Stock (the "OccuLogix Preferred Stock"), 2,325,300 of which have been designated Series A Preferred Stock, all of which are issued and outstanding, and 10,000,000 of which have been designated Series B Preferred Stock, none of which are issued and outstanding; WHEREAS, on the date of this Merger Agreement, Vascular Sciences has authority to issue 15,000,000 shares of Common Stock, par value $0.001 per share (the "Vascular Sciences Common Stock"), of which 100 shares are issued and outstanding and owned by OccuLogix, and 8,000,000 shares of Preferred Stock, par value $0.001 per share (the "Vascular Sciences Preferred Stock"), 3,000,000 of which have been designated Series A Preferred Stock, none of which are issued and outstanding; WHEREAS, the Board of Directors of OccuLogix and the Sole Director of Vascular Sciences have determined that, for the purpose of effecting the reincorporation of OccuLogix in the State of Delaware, it is advisable and to the advantage of said two corporations and their respective shareholders that OccuLogix merge with and into Vascular Sciences upon the terms and subject to the conditions herein provided; and WHEREAS, the respective Boards of Directors of OccuLogix and Vascular Sciences, the shareholders of OccuLogix, and the sole stockholder of Vascular Sciences have adopted and approved this Merger Agreement. NOW, THEREFORE, in consideration of the mutual agreements and covenants set forth herein, OccuLogix and Vascular Sciences hereby agree to merge as follows: 1. Merger. OccuLogix shall be merged with and into Vascular Sciences, and Vascular Sciences shall survive the merger (the "Merger"), effective upon the date when this Merger Agreement is made effective in accordance with applicable law (the "Effective Date"). 2. Governing Documents. a. The Certificate of Incorporation of Vascular Sciences, in effect on the Effective Date, shall continue to be the Certificate of Incorporation of Vascular Sciences as the surviving corporation without change or amendment until further amended in accordance with the provisions thereof and applicable laws. b. The Bylaws of Vascular Sciences, in effect on the Effective Date, shall continue to be the Bylaws of Vascular Sciences as the surviving corporation without change or amendment until further amended in accordance with the provisions thereof and applicable laws. 3. Directors and Officers. The directors and officers of OccuLogix shall become the directors and officers of Vascular Sciences upon the Effective Date, and the members of any committee of the Board of Directors of OccuLogix shall become members of such committees for Vascular Sciences. 4. Succession. On the Effective Date, Vascular Sciences shall succeed to OccuLogix in the manner of and as more fully set forth in Section 259 of the General Corporation Law of the State of Delaware. 5. Further Assurances. From time to time, as and when required by Vascular Sciences or by its successors and assigns, there shall be executed and delivered on behalf of OccuLogix such deeds and other instruments, and there shall be taken or caused to be taken by it such further and other actions, as shall be appropriate or necessary in order to vest, perfect or confirm, of record or otherwise, in Vascular Sciences, the title to and possession of all the property, interest, assets, rights, privileges, immunities, powers, franchises and authority of OccuLogix, and otherwise to carry out the purposes of this Merger Agreement, and the officers and directors of Vascular Sciences are fully authorized in the name and on behalf of OccuLogix or otherwise to take any and all such action and to execute and deliver any and all such deeds and other instruments. 6. Stock of OccuLogix. a. Common Stock. Upon the Effective Date, by virtue of the Merger and without any action on the part of the holder thereof (i) each share of OccuLogix Voting Common Stock outstanding immediately prior thereto shall be changed and converted into one-fourth (1/4) of a fully paid and nonassessable share of Vascular Sciences Common Stock and (ii) each share of Non-Voting Common Stock outstanding immediately prior thereto shall be changed and converted into one-fourth (1/4) of a fully paid and nonassessable share of Vascular Sciences Common Stock (the "Common Stock Conversion Ratio"). b. Preferred Stock. Upon the Effective Date, by virtue of the Merger and without any action on the part of the holder thereof, each share of the OccuLogix Series A Preferred Stock outstanding immediately prior thereto shall be changed and converted into -2- one-fourth (1/4) of a fully paid and nonassessable share of Vascular Sciences Preferred Stock (the "Preferred Stock Conversion Ratio"). c. Fractional Shares. No fractional shares shall be issued to a holder with respect to the conversion of any shares of Common Stock or Preferred Stock pursuant to this Section 6. All shares of stock issuable to a holder pursuant to this Section 6 shall be aggregated for purposes of determining whether the conversion set forth herein would result in the issuance of a fractional share, Vascular Sciences shall, in lieu of issuing any fractional shares, pay the holder otherwise entitled to such fraction a sum in cash equal to the fair market value of such fraction on the Effective Date (as determined in good faith by the Board of Directors of Vascular Sciences). 7. Stock Certificates. On and after the Effective Date, all of the outstanding certificates that prior to that time represented shares of OccuLogix capital stock shall be deemed for all purposes to evidence ownership of and to represent the shares of Vascular Sciences capital stock into which the shares of OccuLogix capital stock represented by such certificates have been converted as herein provided. The registered owner on the books and records of OccuLogix or its transfer agent of any such outstanding stock certificate shall, until such certificate shall have been surrendered for transfer or otherwise accounted for to Vascular Sciences or its transfer agent, have and be entitled to exercise any voting and other rights with respect to and to receive any dividend and other distributions upon the shares of Vascular Sciences capital stock evidenced by such outstanding certificate as provided above. 8. Options, Warrants and All Other Rights to Purchase Stock. Upon the Effective Date, each outstanding warrant to purchase shares of OccuLogix capital stock shall be converted into and become a warrant to purchase the number of shares of Vascular Sciences capital stock determined in accordance with the Common Stock Conversion Ratio or the Preferred Stock Conversion Ratio, as applicable, upon the same terms and subject to the same conditions as set forth in the agreements entered into by OccuLogix pertaining to such warrants. Upon the Effective Date, each outstanding option or other right to purchase shares of OccuLogix capital stock, including those options granted under the OccuLogix 1997 Stock Option Plan (the "1997 Plan") and any other options or rights to purchase shares of the capital stock of OccuLogix shall be converted into and become an option or right to purchase the number of shares of Vascular Sciences capital stock determined in accordance with the Common Stock Conversion Ratio upon the same terms and subject to the same conditions as set forth in the 1997 Plan and any other agreements entered into by OccuLogix pertaining to such options or rights. A number of Vascular Sciences capital stock shall be reserved for issuance upon the exercise of such options, warrants and rights equal to the number of shares of Vascular Sciences capital stock issuable upon the exercise of such options, warrants and rights. As of the Effective Date, Vascular Sciences shall assume all obligations of OccuLogix under agreements pertaining to such options, warrants or rights, including the 1997 Plan, and the outstanding options, warrant or rights, or portions thereof, granted pursuant thereto. 9. Employee Benefit Plans. As of the Effective Date, Vascular Sciences hereby assumes all obligations of OccuLogix under any and all employee benefit plans in effect as of said sate or with respect to which employee rights or accrued benefits are outstanding as of said date, including the OccuLogix 1997 Stock Option Plan. As of the Effective Date, Vascular Sciences shall assume all obligations of OccuLogix under agreements pertaining to such plans and the outstanding rights granted pursuant thereto. 10. Outstanding Common Stock of Vascular Sciences. Upon the Effective Date, the one hundred (100) shares of Vascular Sciences Common Stock currently issued and outstanding in the name of OccuLogix shall be canceled and retired and resume the status of authorized and unissued shares of Vascular -3- Sciences Common Stock, and no shares of Vascular Sciences Common Stock or other securities of Vascular Sciences shall be issued in respect thereof. 11. Covenants of Vascular Sciences. Vascular Sciences covenants and agrees that it will, on or before the Effective Date: a. Qualify to do business as a foreign corporation in the State of Florida, and in all other states in which OccuLogix is so qualified and in which the failure to so qualify would have a material adverse impact on the business or financial condition of Vascular Sciences. In connection therewith, Vascular Sciences shall irrevocably appoint an agent for service of process in the State of Florida and under applicable provisions of state law in other states in which qualification is required. b. File any and all documents with the Florida Department of Revenue necessary to the assumption by Vascular Sciences of all of the franchise tax liabilities of OccuLogix. 12. Amendment. At any time before or after approval and adoption by the shareholders of OccuLogix, this Merger Agreement may be amended in any manner as may be determined in the judgment of the Sole Director of Vascular Sciences and Board of Directors of OccuLogix to be necessary, desirable or expedient in order to clarify the intention of the parties hereto or to effect of facilitate the purposes and intent of this Merger Agreement, except that any amendment of the principal terms of this Merger Agreement shall require shareholder approval. 13. Abandonment. At any time before the Effective Date, this Merger Agreement may be terminated and the Merger may be abandoned by the Board of Directors of OccuLogix or the Sole Director of Vascular Sciences or both, notwithstanding approval of this Merger Agreement by the shareholders of OccuLogix and the sole stockholder of Vascular Sciences. 14. Counterparts. In order to facilitate the filing and recording of this Merger Agreement, the same may be executed in any number of counterparts, each of which shall be deemed to be an original. [THE REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK] -4- IN WITNESS WHEREOF, this Merger Agreement, having first been duly approved by resolution of the Boards of Directors of OccuLogix and Vascular Sciences, respectively is hereby executed on behalf of each of said two corporations by their respective officers thereunto duly authorized. OCCULOGIX CORPORATION, A FLORIDA CORPORATION By: "Richard C. Davis Jr., M.D." --------------------------------------- President and Chief Executive Officer By: "Ray Gonzalez" --------------------------------------- Treasurer VASCULAR SCIENCES CORPORATION, A DELAWARE CORPORATION By: "Richard C. Davis Jr., M.D." --------------------------------------- President and Chief Executive Officer By: "Ray Gonzalez" --------------------------------------- Chief Financial Officer CERTIFICATE OF APPROVAL OF AGREEMENT AND PLAN OF MERGER OF VASCULAR SCIENCES CORPORATION (A DELAWARE CORPORATION) Richard C. Davis, Jr., M.D., and Ray Gonzalez certify that: 1. They are the duly elected and acting Chief Executive Officer and Chief Financial Officer, respectively, of Vascular Sciences Corporation, a Delaware corporation (the "Corporation"). 2. This Certificate is attached to the Agreement and Plan of Merger, dated as of July 17, 2002 (the "Merger Agreement"), providing for the merger of OccuLogix Corporation, a Florida Corporation, with and into the Corporation (the "Merger"). 3. The principal terms of the Merger Agreement in the form attached and the Merger were duly approved by the sole director pursuant to an action by written consent dated June 12, 2002. 4. The total number of outstanding shares of the Corporation entitled to vote on the Merger was one hundred (100) shares of Common Stock. 5. The principal terms of the Merger Agreement in the form attached and the Merger were duly approved by the holder of 100% of the outstanding shares of the Corporation. The stockholder vote required is the affirmative vote of a majority of the outstanding shares of Common Stock. On the date set forth below, each of the undersigned does hereby further declare under penalty of perjury under the laws of the State of Florida that he signed this Certificate in the official capacity set forth beneath his signature and that the statements set forth in this Certificate are true and correct of his own knowledge. Executed in Palm Harbor, Florida on July 17, 2002. "Richard C. Davis, Jr., M.D." -------------------------------- Chief Executive Officer "Ray Gonzalez" -------------------------------- Chief Financial Officer CERTIFICATE OF APPROVAL OF AGREEMENT AND PLAN OF MERGER OF OCCULOGIX CORPORATION (A FLORIDA CORPORATION) Richard C. Davis, Jr., M.D., and Ray Gonzalez certify that: 1. They are the duly elected and acting Chief Executive Officer and Treasurer , respectively, of OccuLogix Corporation, a Florida corporation (the "Corporation"). 2. This Certificate is attached to the Agreement and Plan of Merger, dated as of July 17, 2002 (the "Merger Agreement"), providing for the merger of the Corporation with and into the Vascular Sciences Corporation, a Delaware corporation (the "Merger"). 3. The principal terms of the Merger Agreement in the form attached and the Merger were duly approved by the Corporation's Board of Directors pursuant to an action by written consent dated June 13, 2002. 4. The total number of outstanding shares of the Corporation entitled to vote on the Merger was 14,413,442 shares of Common Stock, 1,155,801 shares of non-voting Common Stock and 2,325,300 shares of Series A Preferred Stock. 5. The principal terms of the Merger Agreement in the form attached and the Merger were duly approved by an affirmative vote of the shareholders which exceeded the vote required, such vote being (i) the affirmative vote of at least a majority of the outstanding shares of the Corporation's voting Common Stock, at least a majority of the outstanding shares of the Corporation's non-voting Common Stock, and at least a majority of the outstanding shares of the Corporation's Series A Preferred Stock, each voting as separate classes, and (ii) the affirmative vote of at least two-thirds of the outstanding shares of the Corporation's voting Common Stock and the Corporation's Series A Preferred Stock, voting together as a single class. On the date set forth below, each of the undersigned does hereby further declare under penalty of perjury under the laws of the State of Florida that he signed this Certificate in the official capacity set forth beneath his signature and that the statements set forth in this Certificate are true and correct of his own knowledge. Executed in Palm Harbor, Florida on July 17, 2002. "Richard C. Davis, Jr., M.D." -------------------------------- Chief Executive Officer "Ray Gonzalez" -------------------------------- Treasurer AMENDED AND RESTATED CERTIFICATE OF INCORPORATION OF VASCULAR SCIENCES CORPORATION Vascular Sciences Corporation, a corporation organized and existing under the laws of the State of Delaware (the "Corporation"), hereby certifies as follows: FIRST: The name of the Corporation is Vascular Sciences Corporation. The Corporation was originally incorporated under the same name and the original Certificate of Incorporation of the Corporation was filed with the Delaware Secretary of State on June 5, 2002. An Amended and Restated Certificate of Incorporation of the Corporation was filed in the office of the Secretary of State of the State of Delaware on July 16, 2002. SECOND: Pursuant to Sections 242 and 245 of the General Corporation Law of the State of Delaware, this Amended and Restated Certificate of Incorporation restates and amends the provisions of the original Certificate of Incorporation of this Corporation. THIRD: The text of the original Certificate of Incorporation is hereby amended and restated in its entirety to read as follows: ARTICLE I The name of this corporation is Vascular Sciences Corporation (hereinafter sometimes referred to as the "Corporation"). ARTICLE II The address of the Corporation's registered office in the State of Delaware is 9 East Loockerman Street, Dover, Delaware, 19901, County of Kent. The name of its registered agent at such address is National Registered Agents, Inc. ARTICLE III The purpose of the Corporation is to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of Delaware. ARTICLE IV The Corporation is authorized to issue two classes of stock to be designated, respectively, "Common Stock" and "Preferred Stock." The total number of shares of capital stock authorized to be issued is Eighteen Million (18,000,000) shares. Twelve Million (12,000,000) shares shall be Common Stock, par value $0.001 per share, and Six Million (6,000,000) shares shall be Preferred Stock, par value $0.001 per share. The Preferred Stock shall be divided into series. The first series shall consist of Two Million Five Hundred Thousand (2,500,000) shares and is designated "Series A Preferred Stock", $0.001 par value per share. The second series shall consist of Two Million (2,000,000) shares and is designated "Series B Preferred Stock", $0.001 par value per share. The remaining shares of Preferred Stock may be issued from time to time in one or more additional series. Subject to the limitations contained in the Certificate of Designation or the Corporation's Certificate of Incorporation, as hereafter may be amended or restated ("Protective Provisions"), the Board of Directors of the Corporation (the "Board of Directors") is hereby authorized to provide for the issue of all or any of the remaining shares of the Preferred Stock in one or more additional series and to fix or to determine or alter the rights, preferences, privileges and restrictions granted to or imposed upon such additional series of Preferred Stock, and the number of shares constituting any such series and the designation thereof, or of any of them. Subject to the Protective Provisions, the rights, privileges, preferences and restrictions of any such additional series may be subordinated to, pari passu with (including, without limitation, inclusion in provisions with respect to liquidation and acquisition preferences, redemption and/or approval of matters by vote or written consent), or senior to any of those of any present or future class or series of Preferred Stock or Common Stock. Subject to the Protective Provisions, the Board of Directors is also authorized to increase or decrease the number of shares of any series (other than the Series A Preferred Stock or the Series B Preferred Stock), subsequent to the issue of that series, but not below the number of shares of such series then outstanding or then reserved for issuance. In case the number of shares of any series shall be so decreased, the shares constituting such decrease shall resume the status that they had prior to the adoption of the resolution originally fixing the number of shares of such series. A. COMMON STOCK. 1. Dividend Rights. Subject to the provisions of Section B.1 of this Article IV, the holders of the Common Stock shall be entitled to receive, when and as declared by the Board of Directors, out of any assets of the Corporation legally available therefor, such dividends as may be declared from time to time by the Board of Directors. 2. Liquidation Rights. Upon the liquidation, dissolution or winding up of the Corporation, either voluntary or involuntary, the holders of Common Stock will be entitled to receive the assets of the Corporation in accordance with the provisions of Section B.2 of this Article 1Y. 3. Redemption. The Common Stock is not redeemable. 4. Voting Rights. The holder of each share of Common Stock shall have the right to one vote, and shall be entitled to notice of any stockholders meeting in accordance with the Bylaws of the Corporation, and shall be entitled to vote -2- upon such matters and in such manner as may be provided by law. There shall be no cumulative voting. B. PREFERRED STOCK. 1. Dividend Provisions. (a) The holders of shares of Series A Preferred Stock and Series B Preferred Stock shall be entitled to receive, when and as declared by the Board of Directors, out of any assets legally available therefor, dividends at the rate of $0.411216 and $0.34698 per share (as appropriately adjusted for stock splits, stock dividends, recapitalizations and similar events), respectively, prior to and in preference to any declaration or payment of any cash dividend an the Common Stock of the Corporation. Any such dividend shall be declared and distributed among the holders of Series A Preferred Stock and Series B Preferred Stock pro rata based on the number of shares of Series A Preferred Stock or Series B Preferred Stock, as the case may be, held by each holder. Such dividends shall not be cumulative. (b) So long as any shares of Series A Preferred Stock or Series B Preferred Stock are issued and outstanding, the Corporation shall not declare and distribute any dividends among the holders of Common Stock or any other class or series of shares (such Common Stock and other stock being collectively referred to as "Junior Stock', nor shall the Corporation purchase, redeem or acquire any shares of Junior Stock or pay funds into or set aside or make available a sinking fund for the purchase, redemption or acquisition of shares of Junior Stock, unless, in each case, the dividend provided in Section B.1(a) of this Article IV is declared and paid to the holders of Series A Preferred Stock and Series B Preferred Stock prior and in preference to any payment of dividends to the holders of Junior Stock. After payment in full of such preferred dividend, dividends shall be paid pro rata to the holders of Common Stock, Series A Preferred Stock and Series B Preferred Stock (determined on an as converted basis with respect to outstanding shares of Series A Preferred Stock and Series B Preferred Stock). The foregoing restriction shall not apply to the repurchase of shares of Common Stock held by employees, officers, directors, consultants or other persons performing services for the Corporation or any wholly owned subsidiary of the Corporation (including, but not by way of limitation, distributors and sales representatives) that are subject to restrictive stock purchase agreements under which the Corporation has the option to repurchase such shares at cost or below cost (or other fixed price intended to be representative of not more than the cost of such shares of Common Stock) upon the occurrence of certain events including, but not limited to, the termination of employment, the exercise by the Company of aright of first refusal or a vested share repurchase option, provided that all such repurchases are approved by the Board of Directors. (c) Any dividend or distribution which is declared by the Corporation and payable in assets of the Corporation other than cash shall be valued in accordance with the provisions of Section B.2(b)(ii) of this Article IV and shall be allocated pursuant to Section B.4(m) of this Article IV. -3- 2. Liquidation Preference. (a) In the event of any liquidation, dissolution or winding up of the Corporation, either voluntary or involuntary, (a "Liquidation Event's the remaining assets of the Corporation legally available for distribution shall be distributed to the holders of Corporation stock in the following order and priority: (i) to each holder of Series B Preferred Stock, prior and in preference to any distribution of any of the assets of the Corporation to the holders of any other class or series of stock of the Corporation by reason of their ownership thereof, an amount per share equal to: (A) $5.78297 for each outstanding share (as appropriately adjusted for stock splits, stock dividends, recapitalizations and similar events) of Series B Preferred Stock (the "Original Series B Issue Price") held by each such holder, and (B) an amount equal to all declared but unpaid dividends on the shares of Series B Preferred Stock held by each such holder (if the assets and funds available for distribution pursuant to this clause (i) shall be insufficient to permit the payment to the holders of Series B Preferred Stock of such full preferential amounts, then the entire remaining assets of the Corporation legally available for distribution shall be distributed ratably among the holders of Series B Preferred Stock in proportion to the number of shares of Series B Preferred Stock then owned by each such holder); (ii) to each holder of Series A Preferred Stock, prior and in preference to any distribution of any of the remaining assets of the Corporation to the holders of Junior Stock by reason of their ownership thereof, an amount per share equal to: (A) $6.8536 for each outstanding share (as appropriately adjusted for stock splits, stock dividends, recapitalizations and similar events) of Series A Preferred Stock (the "Original Series A Issue Price") held by each such holder and (B) an amount equal to all declared but unpaid dividends on the shares of Series A Preferred Stock held by each such holder (if the assets and funds available for distribution pursuant to this clause (ii) shall be insufficient to permit the payment to the holders of Series A Preferred Stock of such full preferential amounts, then the entire remaining assets of the Corporation legally available for distribution shall be distributed ratably among the holders of Series A Preferred Stock in proportion to the number of shares of Series A Preferred Stock then owned by each such holder); and (iii) after all distributions pursuant to clauses (i) and (ii) above have been fully paid, to the holders of the Preferred Stock (on an as converted to Common Stock basis at the then applicable conversion rates) and the holders of the Common Stock, pro rata, based on the number of shares of Common Stock held by each. (b) Deemed Liquidation. (i) For purposes of Section B.2 of this Article IV, the holders of not less than two thirds (2/3) of the then outstanding Series B Preferred Stock may elect to have treated as a Liquidation Event: (A) the exclusive license of all or substantially all of the intellectual property assets of the Corporation in a single transaction or series of related transactions, (B) the acquisition of the Corporation by another entity by means of any transaction or series of related transactions (including, without limitation, any reorganization, merger or consolidation), or (C) a sale of all or substantially all of the shares or assets of the Corporation by a means of any transaction or series of related transactions (including, without limitation, any reorganization, merger or consolidation); unless in the case of (B) and (C), the Corporation's stockholders of -4- record as constituted immediately prior to such transaction will, immediately after such transaction (by virtue of securities issued as consideration for the transaction) hold at least 50% of the voting power of the surviving or acquiring entity. (ii) In the event of an election made pursuant to Section B.2(b)(i) of this Article IV, the value of any non cash consideration received by the Corporation will be deemed to be its fair market value. Any securities to be delivered to the holders of Series A Preferred Stock, Series B Preferred Stock or Common Stock, as the case may be, shall be valued as follows: (A) Securities not subject to investment letter or other similar restrictions on free marketability: (1) If traded on a securities exchange or through the Nasdaq National Market System, the value shall be deemed to be the average of the closing prices of the securities on such exchange over the thirty (30) trading days ending three (3) trading days prior to the closing; (2) If actively traded over the counter, the value shall be deemed to be the average of the closing bid or sale prices (whichever is applicable) over the thirty (30) trading days ending three (3) trading days prior to the closing; and (3) If there is no active public market, the value shall be the fair market value thereof, determined in good faith by the Board of Directors and the holders of at least two thirds (2 l3) of the Series B Preferred Stock then outstanding. (B) The method of valuation of securities subject to investment letter or other restrictions on free marketability (other than restrictions arising solely by virtue of a stockholder's status as an affiliate or former affiliate) shall be to make an appropriate discount from the market value determined as above in A(1), (2) or (3) to reflect the approximate fair market value thereof, as mutually determined in good faith by the Board of Directors and the holders of at least two thirds (2 /3) of the Series B Preferred Stock then outstanding; provided that if the Board of Directors and the holders of at least two thirds (2/3) of the Series B Preferred Stock then outstanding are unable to reach agreement, then by independent appraisal by a mutually agreed to investment banker, the fees of which shall be paid by the Corporation. (iii) In the event the requirements of Section B.2 of this Article IV are not complied with, the Corporation shall either: (A) cause such closing to be postponed until such time as the requirements of Section B.2 of this Article IV have been complied with; or (B) cancel such transaction, in which event the respective rights, preferences and privileges of the holders of Series A Preferred -5- Stock and the holders of Series B Preferred Stock shall revert to and be the same as such rights, preferences and privileges existing immediately prior to the date of the first notice referred to in Section B.2(b)(iv) of this Article IV hereof. (iv) The Corporation shall give each holder of record of Series A Preferred Stock and each holder of record of Series B Preferred Stock written notice of such impending transaction described in Section B.2(b)(i) of this Article IV not later than twenty (20) calendar days prior to the stockholders meeting called to approve such transaction, or twenty (20) calendar days prior to the closing of such transaction, whichever is earlier, and shall also notify such holders in writing of the final approval of such transaction. The first of such notices shall describe the material terms and conditions of the impending transaction and the provisions of Section B.2 of this Article IV, and the Corporation shall thereafter give such holders prompt notice of any material changes. The transaction shall in no event take place sooner than twenty (20) calendar days after the Corporation has given the first notice provided for in Section B.2(b)(iv) of this Article IV or sooner than ten (10) calendar days after the Corporation has given notice of any material changes provided for herein; provided, however, that such periods may be shortened upon the Corporation's receipt of written consent of the holders of at least a majority of the Series A Preferred Stock then outstanding and at least two thirds (2/3) of the Series B Preferred Stock then outstanding. 3. Redemption. (a) The Series A Preferred Stock is not redeemable. (b) At any time after July 25, 2007, the holders of at least two thirds (2/3) of the Corporation's Series B Preferred Stock may, by written notice to the Corporation ("Redemption Request") but no more than once per calendar year, request that the Corporation redeem all or any portion of the Series B Preferred Stock held by such holders. Within 3 business days of receipt of a Redemption Request, the Corporation shall give notice of the Redemption Request to all other holders of Series B Preferred Stock and such other holders shall have 10 business days from the date of receipt of such notice from the Corporation to advise the Corporation if they intend to participate in the redemption. Within 20 business days of the date of receipt of the Redemption Request, the Corporation shall, to the extent that it has legally available funds, complete such redemption by payment to each holder named in the Redemption Request and any other holder who notified the Corporation within the 10 day period specified above, of the Redemption Price (as defined below) in cash or by check, against delivery by each holder of a share certificate or certificates representing the shares to be redeemed. If such certificate or certificates represents more than the number of shares being redeemed, the Corporation shall in exchange for such certificate deliver to the holder a certificate representing the number of shares not subject to the Redemption Request. If the Corporation does not have legally available funds to pay the entire Redemption Price, the Corporation shall complete the redemption by payment in cash or by check of the amount of funds legally available to it (to be divided pro rata among the participating holders) and delivery to each participating holder of an unsecured promissory note (a "Promissory Note") in an amount equal to the balance of the -6- Redemption Price bearing interest at the rate of 6% per annum, compounded quarterly. Each Promissory Note shall be payable in three equal annual installments commencing on the first anniversary of the date of issuance of the Promissory Note. The Redemption Price shall be equal to two times the Original Series B Issue Price (as appropriately adjusted for stock splits, stock dividends, recapitalizations, and similar events) plus all declared or accumulated but unpaid dividends on the shares. 4. Conversion. The holders of Series A Preferred Stock and the Series B Preferred Stock shall have conversion rights as follows (the "Conversion Rights"): (a) Right to Convert. Each share of Series A Preferred Stock and Series B Preferred Stock shall be convertible, without the payment of additional consideration, at the option of the holder thereof, at any time after the date of issuance of such share, at the office of the Corporation or any transfer agent for such stock, into such number of fully paid and nonassessable shares of Common Stock as is determined, (i) with respect to each share of Series A Preferred Stock, by dividing the Original Series A Issue Price by the Conversion Price applicable to such share, determined as hereafter provided, in effect on the date the certificate is surrendered for conversion; and, (ii) with respect to each share of Series B Preferred Stock, by dividing the Original Series B Issue Price by the Conversion Price applicable to such share, determined as hereafter provided, in effect on the date the certificate is surrendered for conversion. As used herein, the "Conversion Price" shall be defined as follows: the initial Conversion Price per share of Series A Preferred Stock and Series B Preferred Stock shall be the Original Series A Issue Price and the Original Series B Issue Price, respectively; provided, however, that such Conversion Prices shall be subject to adjustment as set forth in Section B.4(d) of this Article IV. (b) Automatic Conversion. Each share of Series A Preferred Stock and Series B Preferred Stock shall automatically be converted, without the payment of additional consideration, into shares of Common Stock at the Conversion Price, as applicable, in effect on the date of and immediately prior to the earlier to occur of (i) except as provided below in Section B.4(c) of this Article IV, the Corporation's sale of its Common Stock in a firm commitment underwritten public offering pursuant to a registration statement under the Securities Act of 1933, as amended (the "Securities Act"), the public offering price of which is not less than $11.56594 per share (as appropriately adjusted for stock splits, stock dividends, recapitalizations and similar events) and with net proceeds to the Corporation of at least $50 million after deduction of underwriters commissions and expenses and provided that such shares of Common Stock are listed for trading on the NASDAQ National Market, the New York Stock Exchange or such other United States or Canadian stock exchange as is approved by the Board of Directors (ii) with respect to the Series A Preferred Stock only, the date specified by the vote, written consent or agreement of the holders of at least two thirds (2/3) of the then outstanding shares of Series A Preferred Stock or (iii) with respect to the Series B Preferred shares only, the date specified by written consent or agreement by holders of at -7- least two thirds (2/3) of the then outstanding shares of Series B Preferred Stock. (c) Mechanics of Conversion. (i) Before any holder of Series A Preferred Stock or Series B Preferred Stock shall be entitled to convert such shares into shares of Common Stock, such holder shall surrender the certificate or certificates therefor, duly endorsed, at the office of the Corporation or of any transfer agent for such stock, and shall give written notice to the Corporation at such office that such holder elects to convert the same and shall state therein the name or names in which such holder wishes the certificate or certificates for shares of Common Stock to be issued. The Corporation shall, as soon as practicable thereafter, issue and deliver at such office to such holder of Series A Preferred Stock or Series B Preferred Stock, or to the nominees of such holder, as the case may be, a certificate or certificates for the number of shares of Common Stock to which such holder shall be entitled under Section B.4(c) of this Article IV. Such conversion shall be deemed to have been made immediately prior to the close of business on the date of surrender of the shares of Series A Preferred Stock or Series B Preferred Stock to be converted, and the person or persons entitled to receive the shares of Common Stock. issuable upon such conversion shall be treated for all purposes as the record holder or holders of such shares of Common Stock on such date. (ii) If the conversion is in connection with an underwritten offering of securities pursuant to the Securities Act, the conversion may, at the option of any holder tendering shares of Series A Preferred Stock or Series B Preferred Stock for conversion, be conditioned upon the closing with the underwriters of the sale of securities pursuant to such offering, in which event the person(s) entitled to receive the Common Stock upon conversion of Series A Preferred Stock or Series B Preferred Stock shall not be deemed to have converted such Series A Preferred Stock or Series B Preferred Stock until immediately prior to the closing of such sale of securities, (iii) Any dividends that are declared but unpaid on the Series B Preferred Stock, immediately prior to conversion into Common Stock, shall be paid upon such conversion. Such payment shall be made, at the Corporation's option, either (a) in cash out of assets of the Corporation legally available therefor or (b) in shares of Common Stock having an aggregate fair market value equal to the amount of such declared and unpaid dividends. (d) Adjustments to Conversion Price for Certain Dilutive Issuances. (i) Special Definitions. For purposes of Section B.4(d) of this Article IV, the following definitions apply: (A) "Options" shall mean rights, options, or warrants to subscribe for, purchase or otherwise acquire either Common Stock or Convertible Securities (defined below); -8- (B) "Convertible Securities" shall mean any evidences of indebtedness, shares (other than Common Stock, Series A Preferred Stock and Series B Preferred Stock) or other securities convertible into or exchangeable for Common Stock, but excluding Options; and (C) "Additional Shares of Common Stock" shall mean all shares of Common Stock issued (or, pursuant to Section B.4(d)(iii) of this Article IV, deemed to be issued) by the Corporation after July 25, 2002 (the "Purchase Date"), other than shares of Common Stock issued or issuable: (1) to officers, directors or employees of, or consultants to, the Corporation for the primary purpose of soliciting or retaining their services pursuant to stock option or stock purchase plans or agreements on terms approved by the majority vote or written consent of the Board of Directors (including all nominees of the Series B Preferred Stock to the Board of Directors); (2) upon conversion of shares of Series A Preferred Stock or Series B Preferred Stock; (3) to persons or entities with whom the Corporation has business relationships, in connection with bona fide arm's length equipment leasing arrangements, bank or other institutional loans, or other bona fide arm's length transactions wherein the principal purpose of the issuance of such shares (or warrants or options) is for non equity financing purposes; provided, that all such arrangements and transactions are approved by the majority vote or written consent of the Board of Directors; (4) upon exercise or conversion of any options, warrants, convertible notes or other rights outstanding as of the Purchase Date to acquire the securities of the Corporation; (5) in connection with the bona fide arm's length acquisition by the Corporation of voting control or all or substantially all of the assets of another business entity in a transaction approved by the majority vote or written consent of the Board of Directors; (6) as a result of any stock split, combination, dividend, distribution, reclassification, exchange or substitution for which an adjustment is provided in Sections B.4(e) or (f) of this Article IV below; or (7) in an underwritten public offering before or in connection with which all outstanding shares of Preferred Stock will be converted to Common Stock pursuant to Section B.4(b) of this Article IV. (ii) No Adjustment of Conversion Price. No adjustment in the Conversion Price shall be made in respect of the issuance of Additional Shares of Common Stock unless the consideration per share (determined pursuant to Section B.4(d)(iv) of this Article IV hereof) for an Additional Share of Common Stock -9- issued or deemed to be issued by the Corporation is less than the Conversion Price in effect on the date of, and immediately prior to, such issuance. (iii) Deemed Issue of Additional Shares of Common Stock. In the event the Corporation at any time or from time to time after the Purchase Date shall issue any Options or Convertible Securities, or shall fix a record date for the determination of holders of any class of securities then entitled to receive any such Options or Convertible Securities, then the maximum number of shares of Common Stock (as set forth in the instrument relating thereto without regard to any provisions contained therein designed to protect against dilution) issuable upon the exercise of such Options or, in the case of Convertible Securities and Options therefor, the conversion or exchange of such Convertible Securities, shall be deemed to be Additional Shares of Common Stock issued as of the time of such issue or, in case such a record date shall have been fixed, as of the close of business on such record date; provided, further, that in any such case in which Additional Shares of Common Stock are deemed to be issued: (A) no further adjustment in the Conversion Price shall be made upon the subsequent issue of Convertible Securities or shares of Common Stock upon the exercise of such Options or conversion or exchange of such Convertible Securities; (B) if such Options or Convertible Securities by their terms provide, with the passage of time or otherwise, for any increase in the consideration payable to the Corporation, or decrease in the number of shares of Common Stock issuable, upon the exercise, conversion or exchange thereof, the Conversion Price computed upon the original issue thereof (or upon the occurrence of a record date with respect thereto), and any subsequent adjustments based thereon, shall, upon any such increase or decrease becoming effective, be recomputed to reflect such increase or decrease insofar as it affects such Options or the rights of conversion or exchange under such Convertible Securities (provided, however, that no such adjustment of the Conversion Price shall effect Common Stock previously issued upon conversion of the Series A Preferred Stock or Series B Preferred Stock); (C) no readjustment pursuant to clause (B) above shall have the effect of increasing the Conversion Price to an amount which exceeds the lower of (a) the Conversion Price on the original adjustment date, or (b) the Conversion Price that would have resulted from any issuance of Additional Shares of Common Stock between the original adjustment date and such readjustment date; (D) Upon the expiration or termination of any unexercised Option or Convertible Security, the Conversion Price shall not be readjusted but the Additional Shares of Common Stock deemed issued as the result of the original issue of such Option or Convertible Security shall not be deemed issued for the purposes of any subsequent adjustment of such Conversion Price; and (E) In the event of any increase in the number of shares of Common Stock issuable upon the exercise, conversion or exchange -10- of any Option or Convertible Security, including, but not limited to, an increase resulting from the anti dilution provisions thereof, the Conversion Price then in effect shall forthwith be readjusted to such Conversion Price as would have been obtained had the adjustment which was made upon the issuance of such Option Or Convertible Security not exercised or converted prior to such increase been made upon the basis of such increase, but no further adjustment shall be made for the actual issuance of Common Stock upon the exercise or conversion of any such Option or Convertible Security. In the event the Corporation, after the Purchase Date, amends the terms of any such Options or Convertible Securities (whether such Options or Convertible Securities were outstanding on the Purchase Date or were issued after the Purchase Date), then such Options or Convertible Securities, as so amended, shall be deemed to have been issued after the Purchase Date and the provisions of Section B.4(d)(iii) of this Article IV shall apply. (F) Adjustment of Conversion Price for Preferred Stock upon Issuance of Additional Shares of Common Stock. In the event the Corporation, at any time after the Purchase Date, shall issue Additional Shares of Common Stock (including Additional Shares of Common Stock deemed to be issued pursuant to Section IV.B.4(d)(iii)) without consideration, or for a consideration per share less than the applicable Conversion Price with respect to such series of Preferred Stock in effect on the date of and immediately prior to such issue (and expressly excluding the Series A Preferred Stock with respect to the issuance of any shares of Series B Preferred Stock), then, and in such event, the Conversion Price for such series of Preferred Stock shall be reduced, concurrently with such issue, to a price (calculated to the nearest cent) determined by multiplying such Conversion Price by a fraction, (A) the numerator of which shall be (1) the number of shares of Common Stock outstanding immediately prior to such issue plus (2) the number of shares of Common Stock which the aggregate consideration received by the Corporation for the total number of Additional Shares of Common Stock so issued would purchase at such Conversion Price in effect immediately prior to such issuance; and (B) the denominator of which shall be the number of shares of Common Stock outstanding immediately prior to such issue plus the number of such Additional Shares of Common Stock so issued. For the purpose of the above calculation, the number of shares of Common Stock outstanding immediately prior to such issue shall be calculated on a fully diluted basis, as if all shares of Series A Preferred Stock, Series B Preferred Stock and all other Convertible Securities of the Corporation had been fully converted into shares of Common Stock and any outstanding Options or other rights for the purchase of shares of stock or Convertible Securities had been fully exercised (and the resulting securities fully converted into shares of Common Stock, if so convertible) as of such date. (iv) Determination of Consideration. For purposes of Section B.4(d) of this Article N, the consideration received by the Corporation for the issue of any Additional Shares of Common Stock shall be computed as follows: -11- (A) Cash and Property. Such consideration shall: (1) insofar as it consists of cash, be computed at the aggregate amount of cash received by the Corporation, excluding amounts paid or payable for accrued interest or accrued dividends; (2) insofar as it consists of property other than cash, be computed at the fair value thereof at the time of such issue, as determined in good faith by the Board of Directors; and (3) in the event Additional Shares of Common Stock are issued together with other shares or securities or other assets of the Corporation for consideration which covers both, be the proportion of such consideration so received, computed as provided in clauses (A) and (B) above, as determined in good faith by the Board of Directors. (B) Options and Convertible Securities. The consideration per share received by the Corporation for Additional Shares of Common Stock deemed to have been issued pursuant to Section BA(d)(iii) of this Article IV, relating to Options and Convertible Securities shall be determined by dividing (1) the total amount, if any, received or receivable by the Corporation as consideration for the issue of such Options or Convertible Securities, plus the minimum aggregate amount of additional consideration (as set forth in the instruments relating thereto, without regard to any provision contained therein designed to protect against dilution) payable to the Corporation upon the exercise of such Options or the conversion or exchange of such Convertible Securities, or in the case of Options for Convertible Securities, the exercise of such Options for Convertible Securities and the conversion or exchange of such Convertible Securities by (2) the maximum number of shares of Common Stock (as set forth in the instruments relating thereto, without regard to any provision contained therein designed to protect against the dilution) issuable upon the exercise of such Options or conversion or exchange of such Convertible Securities. (e) Adjustments to Conversion Prices for Stock Dividends and for Combinations or Subdivisions of Common Stock. In the event that the Corporation at any time or from time to time after the Purchase Date shall declare or pay, without consideration, any dividend on the Common Stock payable in Common Stock or in any right to acquire Common Stock for no consideration, or shall effect a subdivision of the outstanding shares of Common Stock into a greater number of shares of Common Stock (by stock split, reclassification or otherwise than by payment of a dividend in Common Stock or in any right to acquire Common Stock), or in the event the outstanding shares of Common Stock shall be combined or consolidated, by reclassification or otherwise, into a lesser number of shares of Common Stock, then the Conversion Price in -12- effect immediately prior to such event shall, concurrently with the effectiveness of such event, be proportionately decreased or increased, as appropriate. In the event that the Corporation shall declare or pay, without consideration, any dividend on the Common Stock payable in any right to acquire Common Stock for no consideration, then the Corporation shall be deemed to have made a dividend payable in Common Stock in an amount of shares equal to the maximum number of shares issuable upon exercise of such rights to acquire Common Stock. (f) Adjustments for Reclassification and Reorganization. If the Common Stock issuable upon conversion of Series A Preferred Stock or Series B Preferred Stock shall be changed into the same or a different number of shares of any other class or classes of stock, whether by capital reorganization, reclassification or otherwise (other than a subdivision or combination of shares provided for in Section BA(e) of this Article IV or a merger or other reorganization which is treated as a Liquidation Event pursuant to Section B.2(b) of this Article 1V), the Conversion Price then in effect shall, concurrently with the effectiveness of such reorganization or reclassification, be proportionately adjusted so that Series A Preferred Stock and Series B Preferred Stock shall be convertible into, in lieu of the number of shares of Common Stock which the holders would otherwise have been entitled to receive, a number of shares of such other class or classes of stock equivalent to the number of shares of Common Stock that would have been subject to receipt by the holders of Series A Preferred Stock and the holders of Series B Preferred Stock upon conversion of their respective shares immediately before that change. (g) No Impairment. The Corporation will not, by amendment of its Certificate of incorporation or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed hereunder by the Corporation, but will at all times in good faith assist in the carrying out of all the provisions of Section B.4 of this Article IV and in the taking of all such action as may be necessary or appropriate in order to protect the Conversion Rights of the holders of Series A Preferred Stock and Series B Preferred Stock against impairment. (h) Certificates as to Adjustments. Upon the occurrence of each adjustment or readjustment of the Conversion Price pursuant to Section B.4 of this Article 1V, the Corporation, at its expense, shall promptly compute such adjustment or readjustment in accordance with the terms hereof and prepare and furnish to each holder of Series A Preferred Stock and each holder of Series B Preferred Stock a certificate executed by the Corporation's Chief Executive Officer or Chief Financial Officer setting forth such adjustment or readjustment and showing in reasonable detail the facts upon which such adjustment or readjustment is based. The Corporation shall, upon the written request at any time of any holder of Series A Preferred Stock or Series B Preferred Stock, furnish or cause to be furnished to such holder a like certificate setting forth (i) such adjustments and readjustments, (ii) the Conversion Price at the time in effect, and (iii) the number of shares of Common Stock and the amount, if any, of other -13- property which at the time would be received upon the conversion of Series A Preferred Stock or Series B Preferred Stock. (i) Notices of Record Date. In the event that the Corporation shall propose at any time: (i) to declare any dividend or distribution upon its Common Stock, whether in cash, property, stock or other securities; (ii) to offer for subscription pro rata to the holders of any class or series of its stock any additional shares of stock of any class or series or other rights; (iii) to effect any reclassification or recapitalization of its Common Stock outstanding involving a change in the Common Stock; or (iv) to merge or consolidate with or into any other corporation, or sell, lease or convey all or substantially all of its assets, or to liquidate, dissolve or wind up; Then, in connection with each such event, the Corporation shall send to the holders of Series A Preferred Stock and Series B Preferred Stock: (1) at least ten (10) calendar days prior written notice of the date on which a record shall be taken for such dividend, distribution or subscription rights (and specifying the date on which the holders of Common Stock shall be entitled thereto) or for determining rights to vote, if any, in respect of the matters referred to in (iii) and (iv) above; and (2) in the case of the matters referred to in (iii) and (iv) above, at least twenty (20) calendar days prior written notice of the date when the same shall take place (and specifying the date on which the holders of Common Stock shall be entitled to exchange their Common Stock for securities or other property deliverable upon the occurrence of such event). (j) Reservation of Stock Issuable Upon Conversion. The Corporation shall at all times reserve and keep available out of its authorized but unissued shares of Common Stock, solely for the purpose of effecting the conversion of the shares of Series A Preferred Stock and Series B Preferred Stock, such number of its shares of Common Stock as shall from time to time be sufficient to effect the conversion of all outstanding shares of Series A Preferred Stock and Series B Preferred Stock; and if at any time the number of authorized but unissued shares of Common Stock shall not be sufficient to effect the conversion of all then outstanding shares of Series A Preferred Stock and Series B Preferred Stock, in addition to such other remedies as shall be available to the holder of such Series A Preferred Stock or Series B Preferred Stock, the Corporation will take such corporate action as may, in the judgment of the Board of Directors, with the concurrence of its counsel, be necessary to increase its authorized but unissued shares of Common Stock to such number of shares as shall be sufficient for such purpose, including, without limitation, engaging in best efforts to obtain the requisite stockholder approval of any necessary amendment to the Certificate of Incorporation of the Corporation. (k) Fractional Shares. No fractional shares shall be issued upon the conversion of any share or shares of Series A Preferred Stock or Series B Preferred Stock. All shares of Common Stock (including fractions thereof) issuable upon conversion of more than one share of Series A Preferred Stock or Series B Preferred Stock by a holder thereof shall be aggregated for purposes of determining whether the conversion would result in the issuance of any fractional share. If, after such aggregation, the conversion would result in the issuance of a fraction of a share of Common Stock, the -14- Corporation shall, in lieu of issuing any fractional share, pay the holder otherwise entitled to such fraction a sum in cash equal to the fair market value of such fraction on the date of conversion (as determined in the judgment of the Board of Directors). (l) Notices. Any notice required by the provisions of Section B.4 of this Article IV to be given to the holders of shares of Series A Preferred Stock or Series B Preferred Stock shall be given in writing and shall be deemed to be effectively given five days after having been sent by registered or certified mail, return receipt requested, postage prepaid and addressed to each holder of record at his address appearing on the books of the Corporation. (m) Other Distributions. In the event the Corporation shall declare a distribution payable in securities of other persons, evidences of indebtedness issued by this Corporation or other persons, assets (excluding cash dividends) or options or rights not referred to in Section B.4 of this Article IV, then, in each such case for the purpose of Section B.4 of this Article IV, the holders of the Series A Preferred Stock and Series B Preferred Stock shall be entitled to a proportionate share of any such distribution as though they were the holders of the number of shares of Common Stock into which their shares of Series A Preferred Stock and Series B Preferred Stock are convertible as of the record date fixed for the determination of the holders of Common Stock entitled to receive such distribution. 5. Voting Rights. (a) General. The holder of each share of Series A Preferred Stock or Series B Preferred Stock shall have the right to one (1) vote for each share of Common Stock into which such holder's shares of Series A Preferred Stock or Series B Preferred Stock could then be converted (with any fractional share determined on an aggregate conversion basis being rounded to the nearest whole share, with 0.5 being rounded up) and, with respect to such vote, such holder shall have full voting rights and powers equal to the voting rights and powers of the holders of Common Stock, except as required by law or as expressly provided herein, and shall be entitled, notwithstanding any provision hereof, to notice of any stockholders meeting in accordance with the Bylaws of the Corporation, and shall be further entitled to vote, together with holders of Common Stock, with respect to any question upon which holders of Common Stock have the right to vote, other than in the election of directors. (b) Series B Directors. The holders of Series B Preferred Stock shall be entitled to elect the number of directors to the Board of Directors as set forth in the Investors' Rights Agreement dated as of July 25, 2002 between the Corporation, the holders of Series A Preferred Stock, the holders of Series B Preferred Stock and the holders of Common Stock (the "Investors' Rights Agreement"), as may be amended from time to time. (c) Common Directors. The holders of Common Stock shall be entitled to elect the number of directors to the Board of Directors as set forth in the Investors' Rights Agreement, as may be amended from time to time. -15- 6. Protective Provisions. (a) In addition to any other rights provided by law, so long as at least 524,070 shares of Series B Preferred Stock are outstanding (as adjusted for any stock split, stock dividend or recapitalization with respect to the Series B Preferred Stock), the Corporation shall not, without first obtaining the prior approval (by vote or written consent, as provided by law) of the holders of at least two thirds (2 l3) of the then outstanding shares of Series B Preferred Stock: (i) alter or change the rights, preferences or privileges of the Series B Preferred Stock; (ii) amend or waive any provision of the Corporation's constating documents, By Laws or any Certificate of Designation; (iii) authorize or issue, or authorize or effect any reclassification of, or obligate itself to issue, any equity security, including any other security convertible into or exercisable for any equity security, having a preference over or being on a parity with, Series B Preferred Stock with respect to voting, dividend rights, redemption rights, liquidation preferences or otherwise; (iv) sell, convey or otherwise dispose of or encumber all or substantially all of its property or business; merge into or consolidate with any other entity (other than a wholly owned subsidiary corporation); or effect any transaction or series of related transactions in which more than fifty percent (50%) of the voting power of the Corporation is disposed of or transferred; provided, however. that consent of the outstanding shares of Series B Preferred Stock shall not be specifically required for any transaction contemplated by Section B.6(a)(iii) of this Article IV unless such transaction would yield a return to such holders of less than two times the aggregate amount that such holders have invested in the Series B Preferred Stock; (v) liquidate, dissolve or wind up the Corporation's business in any form of transaction or effect any Liquidation Event (including a deemed Liquidation Event pursuant to Section B.2(b) of this Article IV); (vi) redeem any Junior Shares or Series A Preferred Stock; (vii) take any action which results in all or substantially all of the intellectual property assets of the Corporation being licensed or sold in a single transaction or a series of related transactions; (viii) increase or decrease the size of the Board of Directors; (ix) declare or pay any dividends (other than dividends on the Series B Preferred Stock in accordance with the Certificate of -16- Incorporation) or make any other distribution, directly or indirectly, on account of any shares of equity securities now or hereafter outstanding; (x) change the Corporation's current line or lines of business; or (xi) enter into any agreement to do any of the foregoing without first obtaining the approval of the holders of at least two thirds (2 /3) of the then outstanding shares of Series B Preferred Stock. 7. Status of Converted Stock. In the event any shares of Series A Preferred Stock or Series B Preferred Stock shall be converted pursuant to Section B.4 of this Article IV hereof, the shares so converted shall be canceled and shall not be issuable by the Corporation. The Certificate of Incorporation of the Corporation shall be appropriately amended to effect the corresponding reduction in the Corporation's authorized capital stock. ARTICLE V Unless and to the extent that the Certificate of Incorporation or the Bylaws of the Corporation shall so require, the election of directors of the Corporation need not be by written ballot. ARTICLE VI The Board of Directors of the Corporation is expressly authorized, subject to the Protective Provisions in Article TV, to make, adopt, amend, alter or repeal the Bylaws of the Corporation, but the stockholders may make or adopt additional Bylaws and may amend, alter or repeal the Bylaws of the Corporation, and any bylaw whether adopted by them or otherwise. ARTICLE VII Each person who was or is made a party or is threatened to be made a party to or is involved in any action, suit or proceeding, whether civil, criminal, administrative or investigative (hereinafter, a "proceeding"), by reason of the fact that he or she, or a person of whom he or she is the legal representative, is or was a director, officer, employee or agent of another corporation or of a partnership, joint venture, trust or other enterprise, including service with respect to employee benefit plans, whether the basis of such proceeding is alleged action in an official capacity as a director, officer, employee or agent or in any other capacity while serving as a director, officer, employee or agent, shall be indemnified and held harmless by the Corporation to the fullest extent authorized by the Delaware General Corporation Law, as the same exists or may hereafter by amended (but, in the case of any such amendment, only to the extent that such amendment permits the Corporation to provide broader indemnification rights than said law permitted the Corporation to provide prior to such amendment) against all expense, liability, loss (including attorney's fees, judgments, fines, ERISA excise taxes or penalties and amounts paid or to be paid in settlement) reasonably incurred or suffered by -17- such person in connection therewith and such indemnification shall continue as to a person who had ceased to be a director, officer, employee or agent and shall inure to the benefit of his or her heirs, executors and administrators; provided, however, that, except as provided in the second paragraph of this Article VII, the Corporation shall indemnify any such person seeking indemnification in connection with a proceeding (or part thereof) initiated by such person only if such proceeding (or part thereof) was authorized by the Board Directors of the Corporation. The right to indemnification conferred in the Article VII shall be a contract right and shall include the right to be paid by the Corporation the expenses incurred in defending any such proceeding in advance of its final disposition; provide , however, that, if the Delaware General Corporation Law requires, the payment of such expenses incurred by a director or officer in his or her capacity as a director or officer (and not in any other capacity in which service was or is rendered by such person while a director or officer, including, without limitation, service to an employee benefit plan) in advance of the final disposition of a proceeding, shall be made only upon delivery to the Corporation of an undertaking, by or on behalf of such director or officer, to repay all amounts so advanced if it shall ultimately be determined that such director or officer is not entitled to be indemnified under this Article VII or otherwise. The Corporation may, by action of its Board of Directors, provide indemnification to employees and agents of the Corporation with the same scope and effect as the foregoing indemnification of directors and officers. If a claim under the preceding paragraph of this Article VII is not paid in full by the Corporation within thirty (30) calendar days after a written claim has been received by the Corporation, the claimant may at any time thereafter bring suit against the Corporation to recover the unpaid amount of the claim, and, if successful in whole or in part, the claimant shall be entitled to be paid also the expense of prosecuting such claim. It shall be a defense to any such action (other than an action brought to enforce a claim for expenses incurred in defending any proceeding in advance of its final disposition where the required undertaking, if any is required, has been tendered to the Corporation) that the claimant has not met the standards of conduct which make it permissible under the Delaware General Corporation Law for the Corporation to indemnify the claimant for the amount claimed, but the burden of proving such defense shall be on the Corporation. Neither the failure of the Corporation (including its Board of Directors, independent legal counsel or stockholders) to have made a determination prior to the commencement of such action that indemnification of the claimant is proper in the circumstances because he or she has met the applicable standard of conduct set forth in the Delaware General Corporation Law, nor an actual determination by the Corporation (including its Board of Directors, independent legal counsel or stockholders) that the claimant has not met such applicable standard of conduct, shall be a defense to the action or create a presumption that the claimant has not met the applicable standard of conduct. The right to indemnification and the payment of expenses incurred in defending a proceeding in advance of its final disposition conferred in this Article VII shall not be exclusive of any other right which any person may have or hereafter acquire under any statute, provision of the Certificate of Incorporation, bylaw, agreement, vote of stockholders or disinterested directors or otherwise. -18- The Corporation may maintain insurance, at its expense, to protect itself and any director, officer, employee or agent of the Corporation or another corporation, partnership, joint venture, trust or other enterprise against any such expense, liability or loss, whether or not the Corporation would have the power to indemnify such person against such expense, liability or loss under the Delaware General Corporation Law. ARTICLE VIII A director of the Corporation shall not be personally liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a director, except for liability (i) for any breach of the director's duty of loyalty to the Corporation or its stockholders; (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law; (iii) under Section 174 of the Delaware General Corporation Law; or (iv) for any transaction from which the director derived an improper personal benefit. If the Delaware General Corporation Law is amended after approval by the stockholders of this Article to authorize corporate action further eliminating or limiting the personal liability of directors then the liability of a director of the Corporation shall be eliminated or limited to the fullest extent permitted by the Delaware General Corporation Law as so amended. Any repeal or modification of the foregoing provisions by the stockholders of the Corporation shall not adversely affect any right or protection of a director of the Corporation existing at the time of such repeal or modification with respect to acts or omissions occurring prior to such repeal or modification. ARTICLE IX Meetings of stockholders may be held within or without the State of Delaware, as the Bylaws may provide. The books of the Corporation maybe kept (subject to any provision contained in the statutes) outside of Delaware at such place or places as may be designated from time to time by the Board of Directors or in the Bylaws of the Corporation. IN WITNESS WHEREOF, the Corporation has caused this Certificate to be signed by Richard C. Davis, Jr., M.D., its President and Chief Executive Officer, as of July 25, 2002. /s/ Richard C. Davis, Jr. M.D. ------------------------------------------ Richard C. Davis, Jr., M.D. -19- CERTIFICATE OF AMENDMENT TO CERTIFICATE OF INCORPORATION OF VASCULAR SCIENCES CORPORATION VASCULAR SCIENCES CORPORATION, a corporation organized and existing under the laws of the State of Delaware (the "Corporation"), hereby certifies as follows: FIRST: that the following resolutions were duly adopted by unanimous written consent of the Board of Directors of the Corporation, setting forth a proposed amendment to the Certificate of Incorporation of the Corporation, and declaring such amendment to be advisable and declaring that such amendment be submitted to the stockholders of the Corporation for their approval. The resolutions are as follows: RESOLVED that there is hereby adopted an amendment to the corporation's Certificate of Incorporation pursuant to which the authorized capital stock of the Corporation shall be changed from 12,000,000 shares of Common Stock, $.001 par value to 25,000,000 shares of Common Stock, $.001 par value; and, in connection with such change, the first paragraph of Article IV of the Certificate of Incorporation of the Corporation shall be amended to read as follows: The Corporation is authorized to issue two classes of stock to be designated, respectively, "Common Stock" and "Preferred Stock." The total number of shares of capital stock authorized to be issued is Thirty-One Million (31,000,000) shares. Twenty-Five Million (25,000,000) shares shall be Common Stock, par value $0.001 per share, and Six Million (6,000,000) shares shall be Preferred Stock, par value $0.001 per share. RESOLVED that the Board of Directors determines that the capital stock of the Corporation will not be decreased on account of the foregoing amendment, declares the foregoing amendment to the Corporation's Certificate of Incorporation to be advisable, and directs that the amendment be submitted to the stockholders of the Corporation for their approval pursuant to Section 242(b) of the General Corporation Law of the State of Delaware. SECOND: that the Amendment of the Certificate of Incorporation effected by this Certificate was duly authorized by the stockholders of the Corporation at a meeting duly called, noticed and held, after having been declared advisable by the Board of Directors of the Corporation, all in accordance with the provisions of Section 242 of the General Corporation Law of the State of Delaware. THIRD: that the capital stock of the Corporation will not be reduced under, or by reason of, the foregoing amendment to the Certificate of Incorporation of the Corporation. 1 IN WITNESS WHEREOF, VASCULAR SCIENCES CORPORATION has caused this certificate to be signed by Richard C. Davis, Jr., its President, who hereby acknowledges under penalties of perjury that the facts herein stated are true and that this certificate is his act and deed, this "27th" day of August, 2003. VASCULAR SCIENCES CORPORATION By: "Richard C. Davis" ---------------------------------- Richard C. Davis, Jr., President 2 CERTIFICATE OF AMENDMENT OF AMENDED AND RESTATED CERTIFICATE OF INCORPORATION OF VASCULAR SCIENCES CORPORATION Vascular Sciences Corporation, a corporation organized and existing under the Delaware General Corporation Law (the "Corporation"), hereby certifies: FIRST: The amendment set forth below to the Corporation's Amended and Restated Certificate of Incorporation has been duly adopted by its Board of Directors and stockholders in accordance with the provisions of Section 242 of the Delaware General Corporation Law: RESOLVED: To amend the Amended and Restated Certificate of Incorporation of the Corporation to delete Article 1, in its entirety, and to replace the same with the following: 1. The name of the corporation is OccuLogix, Inc. SECOND: That this Certificate of Amendment of the Amended and Restated Certificate of Incorporation shall be effective on July __, 2004. * * * IN WITNESS WHEREOF, the Corporation has caused this Certificate of Amendment to be executed by its duly authorized officer as of the __ day of July, 2004. VASCULAR SCIENCES CORPORATION By: ________________________________ Name: Elias Vamvakas Title: Chairman of the Board EX-3.2 3 t13715exv3w2.txt EX-3.2 EXHIBIT 3.2 AMENDED AND RESTATED BYLAWS OF VASCULAR SCIENCES CORPORATION . . . TABLE OF CONTENTS

-i- TABLE OF CONTENTS (CONTINUED)

-ii- AMENDED AND RESTATED BYLAWS OF VASCULAR SCIENCES CORPORATION ARTICLE I STOCKHOLDERS Section 1.1 Annual Meeting. An annual meeting of the stockholders of Vascular Sciences Corporation (the "Corporation" ), for the election of directors and for the transaction of such other business as may properly come before the meeting, shall be held at such place (either within or without the State of Delaware), on such date, and at such time as the Board of Directors of the Corporation (the "Board of Directors" ) shall each year fix, which date shall be within thirteen months subsequent to the later of the date of incorporation or the last annual meeting of stockholders. Section 1.2 Special Meetings. Special meetings of the stockholders, for any purpose or purposes prescribed in the notice of the meeting, may be called by (i) the Board of Directors pursuant to a resolution adopted by a majority of the total number of authorized directors (whether or not there exist any vacancies in previously authorized directorships at the time any such resolution is presented to the Board of Directors for adoption), (ii) the Chief Executive Officer, (iii) the holders of shares entitled to cast not less than ten percent (10%) of the votes at the meeting, and shall be held at such place (either within or without the State of Delaware),, on such date, and at such time as they shall fix or (iv) the holders of at least two thirds (2/3) of he then outstanding Series B Preferred Stock. Business transacted at special meetings shall be confined to the purpose or purposes stated in the notice. Section 1.3 Notice of Meetings. Written notice of the place, date, and time of all meetings of the stockholders and, in case of a special meeting, the purpose or purposes for which the meeting is called, shall be given not less than ten (10) nor more than sixty (60) days before the date on which the meeting is to be held, to each stockholder entitled to vote at such meeting, except as otherwise provided herein or required by law (meaning, here and hereinafter, as required from time to time by the Delaware General Corporation Law or the Certificate of Incorporation of the Corporation). Section 1.4 Adjournments. When a meeting is adjourned to another place, date or time, written notice need not be given of the adjourned meeting if the place, date and time thereof are announced at the meeting at which the adjournment is taken; provided, however, that if the date of any adjourned meeting is more than thirty (30) days after the date for which the meeting was originally noticed, or if a new record date is fixed for the adjourned meeting, written notice of the place, date, and time of the adjourned meeting shall be given in conformity herewith. At any adjourned meeting, any business may be transacted which might have been transacted at the original meeting. Section 1.5 Quorum. At any meeting of the stockholders, the holders of a majority of all of the shares of the stock entitled to vote at the meeting, present in person or by proxy, shall constitute a quorum for all purposes, unless or except to the extent that the presence of a larger - 2 - number may be required by law or by the Certificate of Incorporation or Bylaws of this Corporation. If a quorum shall fail to attend any meeting, the chairman of the meeting or the holders of a majority of the shares of stock entitled to vote who are present, in person or by proxy, may adjourn the meeting to another place, date, or time. Section 1.6 Organization. Such person as the Board of Directors may have designated or, in the absence `of such a person, the chief executive officer of the Corporation or, in his absence, such person as may be chosen by the holders of a majority of the shares entitled to vote who are present, in person or by proxy, shall call to order any meeting of the stockholders and act as chairman of the meeting. In the absence of the Secretary of the Corporation, the secretary of the meeting shall be such person as the chairman appoints. Section 1.7 Conduct of Business. The chairman of any meeting of stockholders shall determine the order of business and the procedure at the meeting, including such regulation of the manner of voting and the conduct of discussion as seem to him in order. Section 1.8 Proxies and Voting. At any meeting of the stockholders,, every stockholder entitled to vote may vote in person or by proxy authorized by an instrument in writing filed in accordance with the procedure established for the meeting. A proxy shall be irrevocable if it states that it is irrevocable and if, and only as long as, it is coupled with an interest sufficient in law to support an irrevocable power. A stockholder may revoke any proxy which is not irrevocable by attending the meeting and voting in person or by filing an instrument in writing revoking the proxy or by delivering a proxy in accordance with applicable lave bearing a later date to the Secretary of the Corporation. Each stockholder shall have one vote for every share of stock entitled to vote which is registered in his name on the record date for the meeting, except as otherwise provided herein or required by law. All voting, except where otherwise required by law, may be by a voice vote; provided, however, that upon demand therefor by a stockholder entitled to vote or by his or her proxy, a stock vote shall be taken. Every stock vote shall be taken by ballots, each of which shall state the name of the stockholder or proxy voting and such other information as may be required under the procedure established for the meeting. Every vote taken by ballots shall be counted by an inspector or inspectors appointed by the chairman of the meeting. All elections shall be determined by a plurality of the votes cast, and except as otherwise required by law or these Bylaws, all other matters shall be determined by a majority of the votes cast. Section 1.9 Stock List. A complete list of stockholders entitled to vote at any meeting of stockholders, arranged in alphabetical order for each class of stock and showing the address of each such stockholder and the number of shares registered in his or her name, shall be open to the examination of any such stockholder, for any purpose germane to the meeting, during ordinary business hours for a period of at least ten (10) days prior to the meeting, either at a place - 3 - within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or if not so specified, at the place where the meeting is to be held. The stock list shall also be kept at the place of the meeting during the whole time thereof and shall be open to the examination of any, such stockholder who is present. Except as otherwise provided by law, this list shall presumptively determine the identity of the stockholders entitled to vote in person or by proxy at any meeting and the number of shares held by each of them. Section 1.10 Stockholder Action by Written Consent. Any action which maybe taken at any annual or special meeting of stockholders may be taken without a meeting end without prior notice, if a consent or consents in writing, setting forth the actions so taken, is signed by the holders of outstanding shares having not less than the minimum number of votes which would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted. All such consents shall be filed with the secretary of the Corporation and shall be maintained in the corporate records. Prompt notice of the taking of a corporate action without a meeting by less than unanimous written consent shall be given to those stockholders who have not consented in writing. ARTICLE II BOARD OF DIRECTORS Section 2.1 Number and Term of Office. The authorized number of directors shall not be less than five (S) nor more than nine (9) and the exact number of directors shall initially be set at nine (9), and, thereafter, the minimum and/or maximum number of directors shall be fixed from time to time exclusively by the Board of Directors pursuant to a resolution adopted by a majority of the total number of authorized directors (whether or not there exist any vacancies in previously authorized directorships at the time any such resolution is presented to the Board of Directors for adoption). Each director shall hold office until his successor is elected and qualified or until his earlier death, resignation, retirement, disqualification or removal. Section 2.2 Vacancies and Newly Created Directorships. Newly created directorships resulting from any increase in the authorized number of directors or any vacancies in the Board of Directors resulting from death, resignation, retirement, disqualification, or other cause (other than removal from office by a vote of the stockholders) may be filled only by a majority vote of the directors then in office, though less than a quorum, or by a plurality of the votes cast at a meeting of stockholders of and directors so chosen shall hold office for a term expiring at the next annual meeting of stockholders. No decrease in the number of directors constituting the Board of Directors shall shorten the term of any incumbent director. Section 2.3 Removal. Subject to the limitations stated in the Certificate of Incorporation, any director, or the entire Board of Directors, may be removed from office at any time, with or without cause, but only by the affirmative vote of the holders of at least a majority of the voting power of all, of the then outstanding shares of stock of the Corporation entitled to vote generally in the election of directors, voting together as a single class. Vacancies in the Board of Directors resulting from such removal may be filled by (i) a majority of the directors then in office, though less than a quorum, or (ii) the stockholders at a special meeting of the - 4 - stockholders properly called for that purpose, by the vote of the holders of a majority of the shares entitled to vote at ,such special meeting. Directors so chosen shall hold office until the next annual meeting of stockholders. Section 2.4 Regular Meetings. Regular meetings of the Board of Directors shall be held at such place or places, within or without the State of Delaware, on such date or dates, and at such time or times as shall have been established by the Board of Directors and publicized among all directors: A notice of each regular meeting shall not be required: Section 2.5 Special Meetings. Special meetings of the Board of Directors may be called by any member of the directors then in office, by the Chairman of the Board, or by the Chief Executive Officer and shall be held at such place, within or without the State of Delaware, on such date, and at such time as they or he shall fix. Notice of the place, date, and time of each such special meeting shall be given to each director by whom it is not waived by mailing written notice not less than five (5) days before the meeting (one (1) day before the meeting if delivered by an overnight courier service and two (2) days before the meeting if by overseas courier service) or by telephoning, telecopying, telegraphing or personally delivering the same not less than twenty four (24) hours before the meeting. Unless otherwise indicated in the notice thereof, any and all business may be transacted at a special meeting. Section 2.6 Quorum. At any meeting of the Board of Directors, a majority of the total number of authorized directors shall constitute a quorum for all purposes. If a quorum shall fail to attend any meeting, a majority of those present may adjourn the meeting to another place, date, or time, without further notice or waiver thereof. Section 2.7 Participation in Meetings by Conference Telephone. Members of the Board of Directors, or of any committee of the Board of Directors, may participate in a meeting of such Board or committee by means of conference ..telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other and such participation shall constitute presence in person at such meeting. Section 2.8 Conduct of Business. At any meeting of the Board of Directors, business shall be transacted in such order and manner as the Board may from time to time determine, and all matters shall be determined by the vote of a majority of the directors present, except as otherwise provided herein or required by law. Action may be taken by the Board of Directors without a meeting if all members thereof consent thereto in writing, and the writing or writings are filed with the minutes of proceedings of the Board of Directors. Section 2.9 Powers. The Board of Directors may, except as otherwise restricted by the Certificate of Incorporation of the Corporation or required by law, exercise all such powers and do all such acts and things as may be exercised or done by the Corporation, including, without limiting the generality of the foregoing, the unqualified power: (i) To declare dividends from time to time in accordance with law; (ii) To purchase or otherwise acquire any property, rights or privileges on such terms as it shall determine; - 5 - (iii) To authorize the creation, making and issuance, in such form as it may determine, of written obligations of every kind, negotiable or non negotiable, secured or unsecured, and to do all things necessary in connection therewith; (iv) To remove any officer of the Corporation with or without cause, and from time to time to pass on the powers and duties of any officer upon any other person for the time being; (v) To confer upon any officer of the Corporation the power to appoint, remove and suspend subordinate officers, employees and agents; (vi) To adopt from time to time such stock option, stock purchase, bonus or other compensation plans for directors, officers, employees, consultants and agents of the Corporation and its subsidiaries as it may determine; (vii) To adopt from time to time such insurance, retirement, and other benefit plans for directors, officers, employees, consultants and agents of the Corporation and its subsidiaries as it may determine; and (viii) To adopt from time to time regulations, not inconsistent with these Bylaws and the Certificate of Incorporation of the Corporation, for the management of the Corporation's business and affairs. Section 2.10 Compensation of Directors. Directors, as such, may receive, pursuant to resolution of the Board of Directors, fixed fees and other compensation for their services as directors, including; without limitation, their services as members of committees of the Board of Directors. Section 2.11 Nomination of Director Candidates. Nominations for the election of directors may be made by the Board of Directors or a proxy committee appointed by the Board of Directors or by any stockholder entitled to vote in the election of directors. ARTICLE III COMMITTEES Section 3.1 Committees of the Board of Directors. The Board of Directors; by a vote of a majority of the whole Board, may from time to time designate committees of the Board, with such lawfully delegable powers and duties as it thereby confers, to serve at the pleasure of the Board and shall, for those committees and any others provided for herein, elect a director or directors to serve as the member or members, designating, if it desires, other directors as alternate members who may replace any absent or disqualified member at any meeting of the committee. Any committee so designated may exercise the power and authority of the Board of Directors to declare a dividend, to authorize the issuance of stock or to adopt an agreement of merger or consolidation if the resolution which designates the committee or a, supplemental resolution of the Board of Directors shall so provide. In the absence or disqualification of any member of any committee and any alternate member in his place, the member or members of the committee present at the meeting and not disqualified from voting, whether or not he or she or - 6 - they constitute a quorum, may by unanimous vote appoint another member of the Board of Directors to act at the meeting in the place of the absent or disqualified member. Section 3.2 Conduct of Business. Each committee may determine the procedural rules for meeting and conducting its business and shall act in accordance therewith, except as otherwise provided herein or required by law. Adequate provision shall be made for notice to members of all meetings; one third of the authorized members shall constitute a quorum unless the committee shall consist of one or two members, in which event one member shall constitute a quorum; and all matters shall be determined by a majority vote of the members present. Action may be taken by any committee without a meeting if all members thereof consent thereto in writing, and the writing or writings are filed with the minutes of the proceedings of such committee. ARTICLE IV OFFICERS Section 4.1 Generally. The officers of the Corporation shall consist of a Chief Executive Officer, a Secretary and a Chief Financial Officer. The Corporation may also have, at the discretion of the Board of Directors, a Chairman of the Board and a Vice Chairman of the Board from among its members. The Board of Directors may also choose one or more Vice Presidents, one or more Assistant Secretaries, one or more Assistant Treasurers and such other officers as may from time to time be appointed by the Board of Directors. Officers shall be elected by the Board of Directors, which shall consider that subject at its first meeting after every annual meeting of stockholders. Each officer shall hold office until his or her successor is elected and qualified or until his or her earlier resignation or removal. Any number of offices may be held by the same person. Section 4.2 Chairman of the Board. The Chairman of the Board, if there shall be such an officer, shall, if present, preside at all meetings of the Board of Directors, and exercise and perform such other powers and duties as may be from time to time assigned to him by the Board of Directors or as provided by these Bylaws. Section 4.3 Chief Executive Officer. Unless otherwise designated by the Board of Directors or another individual is appointed or elected to such office, the Chief Executive Officer of the Corporation shall be the President. Subject to such supervisory powers, if any, as may be given by the Board of Directors to the Chairman of the Board, if there be such an officer, the Chief Executive Officer shall be the general manager and chief operating officer of the Corporation and shall, subject to the control of the Board of Directors, have general supervision, direction, and control of the business and officers of the Corporation. He shall preside at all meetings of the stockholders. He shall have the general powers and duties of management usually vested in the office of chief executive officer or President of a Corporation, and shall have such other powers and duties as may be prescribed by the Board of Directors or by these Bylaws. Section 4.4 Vice President. In the absence or, disability of the Chief Executive Officer, the Vice Presidents in order of their rank, as fixed by the Board of Directors, or if not ranked, the Vice President designated by the Board of Director, shall perform the duties of the - 7 - Chief Executive Officer, and when so acting shall have all the powers of, and be subject to all the restrictions upon, the Chief Executive Officer. The Vice Presidents shall have such other powers and perform such other duties as from time to time may be prescribed for them respectively by the Board of Directors or these Bylaws. Section 4.5 Chief Financial Officer. Unless otherwise designated by the Board of Directors, the Chief Financial Officer shall be the Treasurer. The Chief Financial Officer shall keep and maintain or cause to be kept and maintained, adequate and correct books and records of account in written form or any other form capable of being converted into written form. The Chief Financial Officer shall deposit all monies and other valuables in the name and to the credit of the Corporation with such depositaries as may be designated by the Board of Directors. He shall disburse all funds of the Corporation as may be ordered by the Board of Directors, shall render to the Chief Executive Officer and directors, whenever they request it, an account of all of his transactions as Chief Financial Officer and of the financial condition of the Corporation, and shall have such other powers and perform such other duties as may be prescribed by the Board of Directors or by these Bylaws. Section 4.6 Secretary. The Secretary shall keep, or cause to be kept, a book of minutes in written form of the proceedings of the Board of Directors, committees of the Board, and stockholders. Such minutes shall include all waivers of notice, consents to the holding of meetings, or approvals of the minutes of meetings executed pursuant to these Bylaws or the Delaware General Corporation Law. The Secretary shall keep, or cause to be kept at the principal executive office or at the office of the Corporation's transfer agent or registrar, a record of its stockholders, giving the names and addresses of all stockholders and the number and class of shares held by each. The Secretary shall give or cause to be given, notice of all meetings of the stockholders and of the Board of Directors required by these Bylaws or by law to be given, and shall keep the seal of the Corporation in safe custody, and shall have such other powers and perform such other duties as may be prescribed by the Board of Directors or these Bylaws. Section 4.7 Delegation of Authority. The Board of Directors may from time to time delegate the powers or duties of any officer to any other officers or agents, notwithstanding any provision hereof. Section 4.8 Removal. Any officer of the Corporation elected by the Board of Directors may be removed at any time, with or without cause, by the Board of Directors. Section 4.9 Action With Respect to Securities of Other Corporations. Unless otherwise directed by the Board of Directors, the Chief Executive Officer or any officer of the Corporation authorized by the Chief Executive Officer shall have power to vote and otherwise act on behalf of the Corporation, in person or by proxy, at any meeting of stockholders of or with respect to any action of stockholders of any other corporation in which this Corporation may hold securities and otherwise to exercise any and all rights and powers which this Corporation may possess by reason of its ownership of securities in such other corporation. - 8 - ARTICLE V STOCK Section 5.1 Certificates of Stock. Each stockholder shall be entitled `to a certificate signed by, or in the name of the Corporation by, the Chairman or Vice Chairman, if any, of the Board of Directors,; or the Chief Executive Officer or a Vice President, and by the Secretary or an Assistant Secretary, or the, Treasurer or an Assistant Treasurer, certifying the number of shares owned by him or her. Any of or all the signatures on the certificate may be facsimile. Section 5.2 Transfers of Stock. Transfers of stock shall be made only upon the transfer books of the Corporation kept at an office of the Corporation or by transfer agents designated to transfer shares of the stock of the Corporation. Except where a certificate is issued in accordance with Section 5.4 of these Bylaws, an outstanding certificate for the number of shares involved shall be surrendered for cancellation before a new certificate is issued therefor. Section 5.3 Record Date. The Board of Directors may fix a record date, which shall not be more than sixty (60) nor fewer than ten (10) days before the date of any meeting of stockholders, nor more than sixty (60) days prior to the time for the other action hereinafter described, as of which there shall be determined the stockholders who are entitled: to notice of or to vote at any meeting of stockholders or any adjournment thereof; to receive payment of any dividend or other distribution or allotment of any rights; or to exercise any rights with respect to any change, conversion or exchange of stock or with respect to any other lawful action. Section 5.4 Lost, Stolen or Destroyed Certificates. In the event of the loss, theft or destruction of any certificate of stock, another may be issued in its place pursuant to such regulations as the Board of Directors may establish concerning proof of such loss, theft or destruction and concerning the giving of a satisfactory bond or bonds of indemnity. Section 5.5 Regulations. The issue, transfer, conversion and registration of certificates of stock shall be governed by such other regulations as the Board of Directors may establish. ARTICLE VI NOTICES Section 6.1 Notices. Except as otherwise specifically provided herein or required by law, all notices required to be given to any stockholder, director, officer, employee or agent shall be in writing and may in every instance be effectively given by hand delivery to the recipient thereof, by depositing such notice in the mails, postage paid, or by sending such notice by prepaid telegram, mailgram, telecopy or commercial courier service. Any such notice shall be addressed to such stockholder, director, officer, employee or agent at his or her last known address as the same appears on the books of the Corporation. The time when such notice shall be deemed to be given shall be the time such notice is received by such stockholder, director, officer, employee or agent, or by any person accepting such notice on behalf of such person, if hand delivered, or the time such notice is dispatched, if delivered through the mails or by telegram, courier or mailgram. Section 6.2 Waivers. A written waiver of any notice, signed by the person entitled to notice whether before or after the time of the event for which notice is to be given, shall be - 9 - deemed equivalent to the notice required to be given to such person. Neither the business nor the purpose of any meeting need be specified in such a waiver. Attendance of a person at a meeting shall constitute a waiver of notice for such meeting, except when the person attends a meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. ARTICLE VII MISCELLANEOUS Section 7.1 Facsimile Signatures. In addition to the provisions for use of facsimile signatures elsewhere specifically authorized in these Bylaws, facsimile signatures of any officer or officers of the Corporation may be used whenever and as authorized by the Board of Directors or a committee thereof. Section 7.2 Corporate Seal. The Board of Directors may provide a suitable seal, containing the name of the Corporation, which seal shall be in the charge of the Secretary. If and when so directed by the Board of Directors or a committee thereof, duplicates of the seal may be kept and used by the Chief Financial Officer or by an Assistant Secretary or other officer designated by the Board of Directors. Section 7.3 Reliance Upon Books, Reports and Records. Each director, each member of any committee designated by the Board of Directors, and each officer of the Corporation shall, in the performance of his duties, be fully protected in relying in good faith upon the books of account or other records of the Corporation, including reports made to the Corporation by any of its officers, by an independent certified public accountant, or by an appraiser. Section 7.4 Fiscal Year. The fiscal year of the Corporation shall be as fixed by the Board of Directors. Section 7.5 Time Periods. In applying any provision of these Bylaws which require that an act be done or not done a specified number of days prior to an event or that an act be done during a period of a specified number of days prior to an event, calendar days shall be used, the day of the doing of the act shall be excluded, and the day of the event shall be included. Section 7.6 Related Party Transactions. The Corporation shall not enter into any agreement with any stockholder, officer or director of the Corporation, or any " affiliate" or " associate" of such persons (as such terms are defined in the rules and regulations promulgated under the Securities Act of 1933, as amended), including without limitation any agreement or other arrangement providing for the furnishing of services by, rental of real or personal property form, or otherwise requiring payments to, any such person or entity, without the consent of at least a majority of the members of the Board of Directors having no interest in such agreement or arrangement. ARTICLE VIII INDEMNIFICATION OF DIRECTORS AND OFFICERS Section 8.1 Right to Indemnification. Each person who was or is made a party or is threatened to be made a party to or is' involved in any action, suit or proceeding, whether civil, - 10 - criminal, administrative or investigative ("proceeding"), by reason of the fact that he or she or a person of whom he or she is the legal representative, is or was a director or officer of the Corporation or is or was serving at the request of the Corporation as a director or officer of another corporation; or as a controlling person of a partnership, joint venture, trust or other enterprise, including service with respect to employee benefit plans, whether the basis of such proceeding is alleged action in an official capacity as a director, officer or employee or in any other capacity while serving as a director or officer, shall be indemnified and held harmless by the Corporation to the fullest extent authorized by the Delaware General Corporation Law, as the same exists or may hereafter be amended (but, in the case of any such amendment, only to the extent that such amendment permits the Corporation to provide broader indemnification rights than said Law permitted the Corporation to provide prior to such amendment) against all expenses, liability and loss reasonably incurred or suffered by such person in connection therewith and such indemnification shall continue as to a person who has ceased to be a director or officer and shall inure to the benefit of his or her heirs, executors and administrators; provided, however, that, except as provided in Section 8.2, the Corporation shall indemnify any such person seeking indemnity in connection with an action, suit or proceeding (or part thereof) initiated by such person only if (i) such indemnification is expressly required to be made by law, (ii) the action, suit or proceeding (or part thereof) was authorized by the Board of Directors of the Corporation, (iii) such indemnification is provided by the Corporation, in its sole discretion, pursuant to the powers vested in the Corporation under the Delaware General Corporation Law, or (iv) the action, suit or proceeding (or part thereof) is brought to establish or enforce a right to indemnification under an indemnity agreement or any other statute or law or otherwise as required under Section 145 of the Delaware General Corporation Law. The rights hereunder shall be contract rights and shall include the right to be paid by the Corporation expenses incurred in defending any such proceeding in advance of its final disposition; provided, however, that, if the Delaware General Corporation Law then so requires, the payment of such expenses incurred by a director or officer of the Corporation in his or her capacity as a director or officer (and not in any other capacity in which service was or is rendered by such person while a director or officer, including, without limitation, service to an employee benefit plan) in advance of the final disposition of such proceeding, shall be made only upon delivery to the Corporation of an undertaking, by or on behalf of such director or officer, to repay all amounts so advanced if it should be determined ultimately that such director or officer is not entitled to be indemnified under this Section or otherwise. Section 8.2 Right of Claimant to Bring Suit. If a claim under Section 8.1 is not paid in full by the Corporation within ninety (90) days after a written claim has been received by the Corporation, the claimant may at any time thereafter bring suit against the Corporation to recover the unpaid amount of the claim and, if such suit is not frivolous or brought in bad faith, the claimant shall be entitled to be paid also the expense of prosecuting such claim. It shall be a defense to any such action (other than an action brought to enforce a claim for expenses incurred in defending any proceeding in advance of its final disposition where the required undertaking, if any, has been tendered to this Corporation) that the claimant has not met the standards of conduct which make it permissible under the Delaware General Corporation Law for the Corporation to indemnify the claimant for the amount claimed, but the burden of proving such defense shall be on the Corporation. Neither the failure of the Corporation (including its Board of Directors, independent legal counsel, or its stockholders) to have made a determination prior to the commencement of such action that indemnification of the claimant is proper in the - 11 - circumstances because he or she has met the applicable standard of conduct set forth in the Delaware General Corporation Law, nor an actual determination by the Corporation (including its Board of Directors, independent legal counsel, or its stockholders) that the claimant has not met such applicable standard of conduct, shall be a defense to the action or create a presumption that a claimant has not met such applicable standard of conduct. Section 8.3 Non Exclusivity of Rights. The rights conferred on any person by Sections 8.1 and 8.2 shall not be exclusive of any other right which such persons may have or hereafter acquire under any statute, provision of the Certificate of Incorporation, bylaw, agreement, vote of stockholders or disinterested directors or otherwise. Section 8.4 Indemnification Contracts. The Board of Directors is authorized to enter into a contract with any director, officer, employee or agent of the Corporation, or any person serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, including employee benefit plans, providing for indemnification rights equivalent to or, if the Board of Directors so determines, greater than, those provided for in this Article VIII. Section 8.5 Insurance. The Corporation may maintain insurance to the extent reasonably available, at its expense, to protect itself and any such director, officer, employee or agent of the Corporation or another corporation, partnership, joint venture, trust or other enterprise against any such expense, liability or loss, whether or not the Corporation would have the power to indemnify such person against such expense, liability or loss under Delaware General Corporation Law. Section 8.6 Effect of Amendment. Any amendment, repeal or modification of any provision of this Article VIII by the stockholders or the directors of the Corporation shall not adversely affect any right or protection of a director or officer of the Corporation existing at the time of such amendment, repeal or modification. ARTICLE IX AMENDMENTS Except as expressly restricted in the Certificate of Incorporation of the Corporation, the Board of Directors is expressly empowered to adopt, amend or repeal Bylaws of the Corporation, subject to the right of the stockholders to adopt, amend, alter or repeal the Bylaws of the Corporation. Except as expressly restricted in the Certificate of Incorporation of the Corporation, any adoption, amendment or repeal of Bylaws of the Corporation by the Board of Directors shall require the approval of a majority of the total number of authorized directors (whether or not there exist any vacancies in previously authorized directorships at the time any resolution providing for adoption, amendment or repeal is presented to the Board). Except as expressly restricted in the Certificate of Incorporation of the :Corporation, the stockholders shall also have power to adopt, ,amend or repeal the Bylaws of the Corporation. EX-4.1 4 t13715exv4w1.txt EX-4.1 EXHIBIT 4.1 ------------------------------- VASCULAR SCIENCES CORPORATION ------------------------------- AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT ---------------- June 25, 2003 ---------------- VASCULAR SCIENCES CORPORATION AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT This Amended and Restated Investors' Rights Agreement (the "Agreement") is made as of the 25TH day of June, 2003, by and among Vascular Sciences Corporation, a Delaware corporation (the "Company"), the individuals and entities listed on Schedule A attached hereto (each an "Investor," and collectively, the "Investors"), and certain holders of the Company's Common Stock listed on Schedule B attached hereto (the "Prior Holders"). This Agreement shall become effective on the execution of that certain Secured Convertible Grid Debenture Subscription Agreement dated as of June 25, 2003 (the "Debenture Subscription Agreement"), by and among the Company, TLC Vision Corporation, a New Brunswick corporation ("TLC") and Diamed Medizintechnik GMBH, a corporation incorporated under the laws of Germany ("Diamed" and, together with TLC, the "Debentureholders") and certain of the Prior Holders. RECITALS WHEREAS, concurrently herewith, the Company, the Debentureholders and certain of the Prior Holders are entering into the Debenture Subscription Agreement pursuant to which the Debentureholders will acquire secured convertible grid debentures (the "Convertible Debentures") of the Company; WHEREAS, certain of the Investors hold shares of Series A Preferred Stock (the "Series A Preferred Stock") of the Company and certain of the Investors hold shares of Series B Preferred Stock (the "Series B Preferred Stock") of the Company; WHEREAS, the Investors, the Prior Holders and the Company are parties to an Investors' Rights Agreement dated as of July 25, 2002 ( the "Original Investors' Rights Agreement") providing for certain registration rights, rights of first refusal, board representation rights, rights to financial information and certain other rights; WHEREAS, as a condition of entering into the Debenture Subscription Agreement, the Debentureholders have requested that the Original Investors' Rights Agreement be amended and restated on the terms set out herein to extend certain rights and obligations to them in their capacities as Debentureholders and Investors. NOW, THEREFORE, in consideration of the mutual promises and covenants and agreements set forth herein, the Company and the Investors hereby agree as follows: AGREEMENT 1. Interpretation. 1.1 Definitions. "ADDITIONAL SECURITIES" has the meaning attributed to it in Section 4.1(c) or Section 4.2(c), as the case may be. "ADDITIONAL SUBSCRIBERS" has the meaning attributed to it in Section 4.1(c) or Section 4.2(c), as the case may be. "AGREEMENT" has the meaning attributed to it in the first paragraph of this amended and restated investors' rights agreement. "ASAHI NOTE" means the Secured Fixed Rate Note dated as of February 28, 2001 by and between OccuLogix Corporation and Asahi Medical Co., Ltd., as amended as of November 10, 2001 and November 30, 2002 and as assigned by OccuLogix Corporation to the Company; "BOARD DESIGNEE" has the meaning attributed to it in Section 6.3. "CHANGE OF CONTROL" means the occurrence of a transaction or a series of transactions as a result of which the Company becomes controlled by a Person or Persons other than the Debentureholders; for the purpose of the foregoing, the Company is controlled by a Person or Persons other than the Debentureholders if the Debentureholders, or either of them, no longer own Securities carrying more than 50% of the voting rights, on a fully-diluted basis, ordinarily exercisable at meetings of shareholders of the Company, such rights being sufficient to elect a majority of the directors of the Company. "CERTIFICATE OF INCORPORATION" means the amended and restated certificate of incorporation of the Company dated July 25, 2002 as may be further amended and restated from time to time. "COMPANY" has the meaning attributed to it in the first paragraph of this Agreement. "CONVERTIBLE DEBENTURES" has the meaning attributed to it in the recitals to this Agreement. "CONVERTIBLE SECURITIES" means securities convertible into, exchangeable for or otherwise carrying the right or obligation to acquire Common Stock, including the Convertible Debentures (and including the Share Purchase Option contained therein), the Series A Preferred Stock, the Series B Preferred Stock and any other rights, options or warrants to acquire Common Stock. "COMMON STOCK" means the Company's common stock as set forth in its Certificate of Incorporation and includes any shares of stock or securities into which Common Stock may be converted or changed or which result from a consolidation, subdivision, reclassification or redesignation of Common Stock. "DEBENTUREHOLDERS" has the meaning attributed to it in the first paragraph of this Agreement. "DEBENTURE REGISTRABLE SECURITIES" means (i) the Common Stock issuable or issued upon conversion of the Convertible Debentures and (ii) the Common Stock issuable or issued upon exercise of the Share Purchase Option, (iii) Common Stock issued as (or issuable upon the conversion or exercise of any warrant, right or other security which is issued as) a dividend or other distribution with respect - -2- to, or in exchange for or in replacement of the shares referenced in (i) and (ii) above, excluding in all cases, however, any Debenture Registrable Securities sold or transferred by a Person in a transaction in which such Person's rights under Section 2 are not assigned or sold pursuant to Rule 144 promulgated under the Securities Act. "DEBENTURE REGISTRABLE SECURITIES THEN OUTSTANDING" means the sum of (i) the number of shares of Common Stock outstanding which are Debenture Registrable Securities and (ii) the number of shares of Common Stock which are issuable pursuant to then convertible or exercisable securities (including Convertible Debentures) and which are Debenture Registrable Securities. "DEBENTURE SUBSCRIPTION AGREEMENT" has the meaning attributed to it in the first paragraph of this Agreement. "DEMAND NOTICE" has the meaning attributed to it in Section 2.1(a)(i). "DEMAND REQUEST" has the meaning attributed to it in Section 2.1(a). "DESIGNATOR" or "DESIGNATORS" has the meaning attributed to it in Section 6.3. "DIAMED" has the meaning attributed to it in the first paragraph of this Agreement. "DRAG-ALONG NOTICE" has the meaning attributed to it in Section 4.5(a). "EXCHANGE ACT" has the meaning attributed to it in Section 2.8(a). "FIRST REFUSAL SHARES" has the meaning attributed to it in Section 4.3(a). "FORM S-3" means such form under the Securities Act as is in effect on the date of this Agreement or any successor or similar registration form under the Securities Act subsequently adopted by the SEC which permits inclusion or incorporation of substantial information by reference to other documents filed by the Company with the SEC. "HOLDER" or "HOLDERS" means, for purposes of Section 2 and Section 3 of this Agreement, any Investor owning of record Registrable Securities that have not been sold to the public or pursuant to Rule 144 promulgated under the Securities Act or any assignee of record of such Registrable Securities to whom rights under Section 2 have been duly assigned in accordance with this Agreement; provided, however, that for purposes of this Agreement, a record holder of Series A Preferred Stock, Series B Preferred Stock or Convertible Debentures convertible into or exercisable for, as the case may be, such Registrable Securities shall be deemed to be the Holder of such Registrable Securities. "INITIAL ALLOTMENT" has the meaning attributed to it in Section 4.1(a) or Section 4.2(a), as the case may be. - -3- "INITIATING HOLDERS" has the meaning attributed to it in Section 2.1(a). "INITIAL PUBLIC OFFERING" has the meaning attributed to it in Section 2.9. "INVESTOR" or "INVESTORS" has the meaning attributed to it in the first paragraph of this Agreement. "ISSUED SECURITIES" has the meaning attributed to it in Section 4.2(a). "LISTED" means listed for trading on the NASDAQ National Market, the New York Stock Exchange or such other United States or Canadian stock exchange as is approved by the Board of Directors. "NET INCOME" has the meaning attributed to it in Section 6.4(b). "OFFERED SECURITIES" has the meaning attributed to it in Section 4.1(a) or Section 4.2(a), as the case may be. "ORIGINAL INVESTORS' RIGHTS AGREEMENT" has the meaning attributed to it in the recitals to this Agreement. "PERSON" means any individual, corporation, partnership, limited liability company, limited liability partnership, firm, joint venture, association, joint-stock company, unincorporated organization, trust, trustee, executor, administrator or other legal personal representative, regulatory body or agency, government or governmental agency, authority or other entity howsoever designated or constituted. "PRIOR HOLDERS" has the meaning attributed to it in the first paragraph of this Agreement. "PROPORTIONATE INTEREST" of any Investor or Prior Holder means the percentage of the outstanding Common Stock then held by that Investor or Prior Holder, as the case may be, in relation to all Common Stock held by all Investors and Prior Holders, with all such holdings being calculated on a fully-diluted basis. "PROPOSED SELLER" has the meaning attributed to it in Section 4.3(a). "PURCHASED SECURITIES" has the meaning attributed to it in Section 5.1. "PURCHASE PRICE" has the meaning attributed to it in Section 5.3(a). "PURCHASER" has the meaning attributed to it in Section 5.1. "QUALIFIED IPO" means the first firmly committed underwritten public offering of the Company's Common Stock yielding net proceeds to the Company of at least $50,000,000, after deduction of underwriters commissions and expenses and a per share price of least $11.56594 (as appropriately adjusted for stock splits, stock - -4- dividends and recapitalizations and similar events) and provided that such shares of Common Stock are Listed. "REGISTER", "REGISTERED" and "REGISTRATION" refer to a registration effected by preparing and filing a registration statement or similar document in compliance with the Securities Act and the declaration or ordering of effectiveness of such registration statement or document. "REGISTRABLE SECURITIES" means the Series A Registrable Securities, the Series B Registrable Securities and the Debenture Registrable Securities. "REGISTRABLE SECURITIES THEN OUTSTANDING" shall mean the sum of (i) the number of Series A Registrable Securities then outstanding; (ii) the number of Series B Registrable Securities then outstanding; and (iii) the number of Debenture Registrable Securities then outstanding. "S-3 DEMAND REQUEST" has the meaning attributed to it in Section 2.3(a). "SALE PRICE" has the meaning attributed to it in Section 4.3(a). "SEC" means the United States Securities and Exchange Commission. "SECURITIES" means Common Stock and Convertible Securities. "SECURITIES ACT" means the Securities Act of 1933, as amended. "SELLER" has the meaning attributed to it in Section 4.4. "SELLERS" has the meaning attributed to it in Section 4.5(a). "SELLER'S NOTICE" has the meaning attributed to it in Section 4.3(a). "SERIES A PREFERRED STOCK" has the meaning attributed to it in the recitals to this Agreement. "SERIES A REGISTRABLE SECURITIES" means (i) the Common Stock issuable or issued upon conversion of the Series A Preferred Stock and (ii) any Common Stock issued as (or issuable upon the conversion or exercise of any warrant, right or other security which is issued as) a dividend or other distribution with respect to, or in exchange for or in replacement of the shares referenced in (i) above, excluding in all cases, however, any Series A Registrable Securities sold or transferred by a Person in a transaction in which such Person's rights under Section 2 are not assigned or sold pursuant to Rule 144 promulgated under the Securities Act. "SERIES A REGISTRABLE SECURITIES THEN OUTSTANDING" means the sum of (i) the number of shares of Common Stock outstanding which are Series A Registrable Securities and (ii) the number of shares of Common Stock which are issuable - -5- pursuant to then convertible or exercisable securities (including Class A Preferred Stock) and which are Series A Registrable Securities. "SERIES B PREFERRED STOCK" has the meaning attributed to it in the recitals to this Agreement. "SERIES B PURCHASE AGREEMENT" means the Series B Preferred Stock Purchase Agreement dated as of July 25, 2002 by and among the Company, TLC and certain of the Prior Holders, as amended on June 23, 2003, and as may be further amended and restated from time to time. "SERIES B REGISTRABLE SECURITIES" means (i) the Common Stock issuable or issued upon conversion of the Series B Preferred Stock and (ii) any Common Stock issued as (or issuable upon the conversion or exercise of any warrant, right or other security which is issued as) a dividend or other distribution with respect to, or in exchange for or in replacement of the shares referenced in (i) above, excluding in all cases, however, any Series B Registrable Securities sold or transferred by a Person in a transaction in which such Person's rights under Section 2 are not assigned or sold pursuant to Rule 144 promulgated under the Securities Act. "SERIES B REGISTRABLE SECURITIES THEN OUTSTANDING" means the sum of (i) the number of shares of Common Stock outstanding which are Series B Registrable Securities and (ii) the number of shares of Common Stock which are issuable pursuant to then convertible or exercisable securities (including Series B Preferred Stock) and which are Series B Registrable Securities. "SHARE PURCHASE OPTION" has the meaning attributed to it in the Convertible Debentures. "SPECIAL MEETING" has the meaning attributed to it in Section 6.2(h). "SUBSCRIPTION NOTICE" has the meaning attributed to it in Section 4.1(b). "SUBSCRIPTION OFFER" has the meaning attributed to it in Section 4.1(a) or Section 4.2(a), as the case may be. "TAG-ALONG NOTICE" has the meaning attributed to it in Section 4.4. "TAG-ALONG SALE" has the meaning attributed to it in Section 4.4. "THIRD PARTY" has the meaning attributed to it in Section 4.3(b)(ii). "THIRD PARTY PURCHASER" means, in relation to any Investor or Prior Holder, a person with whom such Investor or Prior Holder deals at arm's length. "TIME OF CLOSING" has the meaning attributed to it in Section 5.2. - -6- "TLC" has the meaning attributed to it in the first paragraph of this Agreement. "UNSUBSCRIBED SECURITIES" has the meaning attributed to it in Section 4.1(c) or Section 4.2(c), as the case may be. "VENDOR" has the meaning attributed to it in Section 5.1. "VIOLATION" has the meaning attributed to it in Section 2.8(a). 1.2 AMENDMENT AND RESTATEMENT OF PRIOR REGISTRATION AND STOCKHOLDERS' RIGHTS. The Company and each undersigned Prior Holder and Investor agrees and acknowledges that this Agreement hereby amends, restates, supercedes and replaces any prior agreements, including, without limitation, the Original Investors' Rights Agreement, between such Prior Holder or Investor, as the case may be, and the Company (or any predecessor corporation of the Company) relating to registration rights, rights of first refusal, board representation rights, rights to financial information or any other rights described in this Agreement. 1.3 CHANGE TO COMMON STOCK. The provisions of this Agreement relating to Common Stock shall apply, mutatis mutandis, to any securities into which such Common Stock may be converted, reclassified, redesignated, subdivided, consolidated or otherwise changed from time to time and to any securities of any successor or continuing corporation to the Company that may be received in respect of any Common Stock on a reorganization, amalgamation, consolidation or merger, statutory or otherwise. 1.4 ADDITIONAL SECURITIES. Each party hereby agrees that all Securities hereafter acquired by such party shall be subject in all respects to the provisions of this Agreement. 1.5 FULLY-DILUTED. For the purposes of this Agreement, wherever a calculation is to be made on a "fully-diluted basis", the relevant calculation shall be made on a pro forma basis after giving effect to or assuming the prior conversion or exchange of, or the prior exercise of any right, option or obligation to purchase or acquire any Common Stock attaching to, any Convertible Securities, including, without limitation, the Share Purchase Option, then outstanding by each holder of such Convertible Securities, regardless of whether such conversion, exchange or exercise has in fact occurred. 1.6 DEBENTUREHOLDERS DEEMED TO BE STOCKHOLDERS. Notwithstanding anything to the contrary in the Company's constating documents or otherwise, where the consent, approval or any process requiring a vote by the stockholders of the Company is required, whether under this Agreement, at law or otherwise, the Debentureholders shall be entitled to and shall vote on the basis that the Debentureholders are holders of that number of shares of Common Stock to which such Debentureholder would be entitled upon the full conversion and exercise of its Convertible Debenture and Share Purchase Option, respectively. For greater certainty, in addition to any other consent, approval or vote which may be required by stockholders of the Company, the Company shall not take any action with respect to any matter submitted for such consent, approval or vote, unless the required threshold of consent, approval or vote is achieved taking into account the Debentureholders' participation in such consent, approval or vote. - -7- 2. Registration Rights. The Company covenants and agrees as follows: 2.1 Request for Registration. (a) If the Company shall receive a written request (the "Demand Request") from the Debentureholders (the "Initiating Holders") that the Company file a registration statement under the Securities Act covering the registration of Registrable Securities with an aggregate expected offering price of at least $10,000,000, then the Company shall: (i) within ten (10) calendar days of the receipt of the Demand Request, give written notice of such request (the "Demand Notice") to all Holders; (ii) prepare and file as soon as practicable, and in any event within forty-five (45) calendar days after the receipt of the Demand Request, a registration statement under the Securities Act covering all Registrable Securities which the Holders request to be registered (subject to the limitations of subsection 2.1(b)) by written notice to the Company given within twenty (20) calendar days after the giving of the Demand Notice; and (iii) use its best efforts to cause the registration statement to become effective as soon as practicable. (b) If the Initiating Holders intend to distribute the Registrable Securities covered by their request by means of an underwriting, they shall so advise the Company as a part of their Demand Request and the Company shall include such information in the Demand Notice. The underwriter will be selected by the Company and shall be reasonably acceptable to the Initiating Holders. In such event, the right of any Holder to include its Registrable Securities in such registration shall be conditioned upon such Holder's participation in such underwriting and the inclusion of such Holder's Registrable Securities in the underwriting (unless otherwise mutually agreed by the Initiating Holders and such Holder) to the extent provided herein. All Holders proposing to distribute their securities through such underwriting shall (together with the Company as provided in subsection 2.4(f)) enter into an underwriting agreement in customary form with the underwriter or underwriters selected for such underwriting. Notwithstanding any other provision of this Section 2.1, if the underwriter advises the Initiating Holders in writing that marketing factors require a limitation of the number of shares to be underwritten, then the Initiating Holders shall so advise all Holders of Registrable Securities which would otherwise be underwritten pursuant hereto, and the number of shares of such Registrable Securities that may be included in the underwriting shall be allocated in the following order: (i) first, the Debenture Registrable Securities (pro rata as between the Holders thereof based upon the number of Debenture Registrable Securities owned by each such Holder, on a fully-diluted basis); (ii) second, the Series B Registrable Shares (pro rata as between the Holders thereof based upon the number of Series B Registrable Shares owned by each such Holder, on a fully-diluted basis); and - -8- (iii) third, the Series A Registrable Shares (pro rata as between the Holders thereof based upon the number of Series A Registrable Shares owned by each such Holder, on a fully-diluted basis), provided, however, that the number of shares of Registrable Securities to be included in such underwriting shall not be reduced unless all other securities are first entirely excluded from the underwriting. (c) Notwithstanding the foregoing, if the Company shall furnish to Holders requesting a registration statement pursuant to this Section 2.1 a certificate signed by the Chief Executive Officer of the Company stating that, in the good faith judgment of the Board of Directors of the Company, it would be seriously detrimental to the Company and its stockholders for such registration statement to be filed and it is therefore essential to defer the filing of such registration statement, the Company shall have the right to defer taking action with respect to such filing for a period of not more than sixty (60) calendar days after receipt of the Demand Request; provided, however, that the Company may not utilize this right more than once in any 12-month period. 2.2 Piggyback Registrations. (a) The Company shall promptly notify all Holders of Registrable Securities in writing at least thirty (30) calendar days prior to filing any registration statement under the Securities Act for purposes of effecting a public offering of securities of the Company (including, but not limited to, registration statements relating to secondary offerings of securities of the Company, but excluding registration statements on Forms S-4 and S-8 and any similar successor forms) and will afford each such Holder an opportunity to include in such registration statement all or any part of the Registrable Securities then held by such Holder. Each Holder desiring to include in any such registration statement all or any part of the Registrable Securities held by such Holder shall, within twenty (20) calendar days after receipt of the above-described notice from the Company, so notify the Company in writing, and in such notice shall inform the Company of the number of Registrable Securities such Holder wishes to include in such registration statement. If a Holder decides not to include all of its Registrable Securities in any registration statement thereafter filed by the Company, such Holder shall nevertheless continue to have the right to include any Registrable Securities in any subsequent registration statement or registration statements as may be filed by the Company with respect to offerings of its securities, all upon the terms and conditions set forth herein. (b) If a registration statement under which the Company gives notice under this Section 2.2 is for an underwritten offering, then the Company shall so advise the Holders of Registrable Securities. In such event, the right of any such Holder's Registrable Securities to be included in a registration pursuant to this Section 2.2 shall be conditioned upon such Holder's participation in such underwriting and the inclusion of such Holder's Registrable Securities in the underwriting to the extent provided herein. All Holders proposing to distribute their Registrable Securities through such underwriting shall enter into an underwriting agreement in customary form with the managing underwriter or underwriter(s) selected for such underwriting. Notwithstanding any other provision of this Agreement, if the managing underwriter(s) determine(s) in good faith that marketing factors require a limitation of the - -9- number of shares to be underwritten, then the managing underwriter(s) may exclude shares (including Registrable Securities) from the registration and the underwriting, and the number of shares that may be included in the registration and the underwriting shall be allocated, (i) first, to the Company, (ii) second, to each of the Holders of Debenture Registrable Securities requesting inclusion of their Debenture Registrable Securities in such registration statement on a pro rata basis based on the total number of Debenture Registrable Securities then held by each such Holder on a fully-diluted basis, (iii) third, to each of the Holders of Series B Registrable Securities requesting inclusion of their Series B Registrable Securities in such registration statement on a pro rata basis based on the total number of Series B Registrable Securities then held by each such Holder on a fully-diluted basis, (iv) fourth, to each of the Holders of Series A Registrable Securities requesting inclusion of their Series A Registrable Securities in such registration statement on a pro rata basis based on the total number of Series A Registrable Securities then held by each such Holder on a fully-diluted basis, and (v) fifth, to any stockholder (other than a Holder) invoking contractual rights to have their securities registered, if any, on a pro rata basis, but in no event shall the amount of securities of the selling Holders of Convertible Debentures included in the offering be reduced below 30% of the total amount of securities included in such offering, unless such offering is the initial public offering of the Company's securities. If any Holder disapproves of the terms of any such underwriting, such Holder may elect to withdraw therefrom by written notice to the Company and the underwriter. Any Registrable Securities excluded or withdrawn from such underwriting shall be excluded and withdrawn from the registration and those Registrable Securities will continue to be subject to the terms of this Agreement. For any Holder which is a partnership or corporation, the partners, retired partners and shareholders of such Holder, or the estates and family members of any such partners and retired partners and any trusts for the benefit of any of the foregoing persons shall be deemed to be a single "Holder," and any pro rata reduction with respect to such "Holder" shall be based upon the aggregate amount of shares carrying registration rights owned by all entities and individuals included in such "Holder," as defined in this sentence. 2.3 S-3 Registration. (a) In case the Company shall receive, at any time and from time to time after the Company is eligible to use Form S-3, from any Holder or Holders a written request or requests (the "S-3 Demand Request") that the Company effect a registration on Form S-3 and any related qualification or compliance with respect to all or a part of the Registrable Securities owned by such Holder or Holders, the Company shall: - -10- (i) promptly give written notice of the proposed registration, and any related qualification or compliance, to all other Holders; and (ii) prepare and file as soon as practicable, and in any event within thirty (30) calendar days after the receipt of the S-3 Demand Request, a registration statement on Form S-3 and use its best efforts to, as soon as practicable, effect such registration and all such qualifications and compliances as may be so requested and as would permit or facilitate the sale and distribution of all or such portion of such Holder's or Holders' Registrable Securities as are specified in such request, together with all or such portion of the Registrable Securities of any other Holder or Holders joining in such request as are specified in a written request given within twenty (20) calendar days after receipt of such written notice from the Company; provided, however, that the Company shall not be obligated to effect any such registration, qualification or compliance, pursuant to this Section 2.3: (i) if Form S-3 is not available for such offering by the Holders; (ii) if the Holders, together with the holders of any other securities of the Company entitled to inclusion and electing to be included in such registration, propose to sell Registrable Securities and such other securities (if any) at an aggregate price to the public (net of any underwriters' discounts or commissions) of less than $1,000,000; or (iii) if the Company shall furnish to the Holders a certificate signed by the Chief Executive Officer of the Company stating that, in the good faith judgment of the Board of Directors of the Company, it would be seriously detrimental to the Company and its stockholders for such Form S-3 registration to be effected at such time, in which event the Company shall have the right to defer the filing of the Form S-3 registration statement for a period of not more than sixty (60) calendar days after receipt of the request of the Holder or Holders under this Section 2.3 (provided, however, that the Company shall not utilize this right more than once in any 12-month period). 2.4 OBLIGATIONS OF THE COMPANY. Whenever required to effect the registration of any Registrable Securities under this Agreement, the Company shall, as expeditiously as reasonably possible: (a) prior to filing a registration statement with the SEC, provide each selling Holder with a draft of the registration statement for its review and comment; (b) prepare and file with the SEC a registration statement with respect to such Registrable Securities and use its best efforts to cause such registration statement to become effective, and keep such registration statement effective for up to one hundred eighty (180) calendar days; provided, however, that such 180-day period shall be extended for a period of time equal to the period the Holder refrains from selling any securities included in such registration at the request of an underwriter of Common Stock (or other securities of the Company); (c) prepare and file with the SEC such amendments and supplements to such registration statement and the prospectus used in connection with such registration statement as may be necessary to comply with the provisions of the Securities Act with respect to the disposition of all securities covered by such registration statement; (d) furnish to the Holders such number of copies of a prospectus, including a preliminary prospectus, in conformity with the requirements of the Securities Act, - -11- and such other documents as they may reasonably request in order to facilitate the disposition of the Registrable Securities owned by them that are included in such registration; (e) use its best efforts to (i) register and qualify the securities covered by such registration statement under such other securities or "blue sky" laws of such jurisdictions as shall be reasonably requested by the Holders, (ii) prepare and file in those jurisdictions such amendments (including post-effective amendments) and supplements, and take such other actions, as may be necessary to maintain such registration and qualification in effect at all times for the period of distribution contemplated thereby and (iii) take such further action as may be necessary or advisable to enable the disposition of the Registrable Securities in such jurisdictions provided that the Company shall not be required in connection therewith or as a condition thereto to qualify generally to do business where it is not so qualified or to file a general consent to service of process in any such states or jurisdictions; (f) in the event of any underwritten public offering, enter into and perform its obligations under an underwriting agreement, in usual and customary form, with the managing underwriter(s) of such offering (it being understood and agreed that, as a condition to the Company's obligations under this clause (f), each Holder participating in such underwriting shall also enter into and perform its obligations under such an agreement); (g) immediately notify each Holder of Registrable Securities covered by such registration statement at any time when a prospectus relating thereto is required to be delivered under the Securities Act of the happening of any event as a result of which the prospectus included in such registration statement, as then in effect, includes an untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances then existing and promptly file such amendments and supplements which may be required on account of such event and use its best efforts to cause each such amendment and supplement to become effective; (h) immediately notify each seller of Registrable Securities of the issuance by the SEC of any stop order suspending the effectiveness of the registration statement or the initiation of any proceedings for that purpose and make every reasonable effort to prevent the issuance of any stop order and, if any stop order is issued, to obtain the lifting thereof at the earliest possible time; (i) furnish, at the request of any Holder requesting registration of Registrable Securities, on the date that such Registrable Securities are delivered to the underwriters for sale, if such securities are being sold through underwriters, or, if such securities are not being sold through underwriters, on the date that the registration statement with respect to such securities becomes effective, (i) an opinion, dated as of such date, of the counsel representing the Company for the purposes of such registration, in form and substance as is customarily given to underwriters in an underwritten public offering and reasonably satisfactory to a majority in interest, on a fully-diluted basis, of the Holders requesting registration, addressed to the underwriters, if any, and to the Holders requesting registration of Registrable Securities and (ii) a "comfort" letter dated as of such date, from the independent certified public accountants of the Company, in form and substance as is customarily given by independent certified public accountants to underwriters in an underwritten public offering and reasonably - -12- satisfactory to a majority in interest of the Holders, on a fully-diluted basis, requesting registration, addressed to the underwriters, if any, and to the Holders requesting registration of Registrable Securities; (j) apply for listing and list the Registrable Securities being registered on any national securities exchange on which a class of the Company's equity securities is listed or, if the Company does not have a class of equity securities listed on a national securities exchange, apply for qualification and use its best efforts to qualify the Registrable Securities being registered for inclusion on the automated quotation system of the National Association of Securities Dealers, Inc.; (k) make available for inspection by each seller of Registrable Securities, any underwriter participating in any distribution pursuant to such registration statement, and any attorney, accountant or other agent retained by such seller or underwriter, all financial and other records, pertinent corporate documents and properties of the Company, and cause the Company's officers, directors and employees to supply all information reasonably requested by any such seller, underwriter, attorney, accountant or agent in connection with such registration statement; (l) take all actions reasonably necessary to facilitate the timely preparation and delivery of certificates (not bearing any legend restricting the sale or transfer of such securities) representing the Registrable Securities to be sold pursuant to the Registration Statement and to enable such certificates to be in such denominations and registered in such names as the Sellers or any underwriters may reasonably request; and (m) take all other reasonable actions necessary to expedite and facilitate the registration of the Registrable Securities pursuant to the Registration Statement. 2.5 EXPENSES. All expenses incurred in connection with registrations, filings or qualifications pursuant to Sections 2.1, 2.2 and 2.3 (excluding underwriters' and brokers' discounts and commissions), including, without limitation all registration, filing and qualification fees, printers' and accounting fees, fees and disbursements of counsel for the Company and the reasonable fees and disbursements of one (1) counsel for the selling Holder or Holders shall be borne by the Company. 2.6 FURNISH INFORMATION. It shall be a condition precedent to the obligations of the Company to take any action pursuant to Sections 2.1, 2.2 and 2.3 of this Agreement that the selling Holders shall furnish to the Company such information regarding themselves, the Registrable Securities held by them and the intended method of disposition of such securities as shall be required to timely effect the registration of their Registrable Securities. 2.7 DELAY OF REGISTRATION. No Holder shall have any right to obtain or seek an injunction restraining or otherwise delaying any such registration as the result of any controversy that might arise with respect to the interpretation or implementation of this Section 2. 2.8 INDEMNIFICATION. In the event any Registrable Securities are included in a registration statement under Sections 2.1, 2.2 and 2.3 of this Agreement: (a) BY THE COMPANY. To the extent permitted by law, the Company will indemnify and hold harmless each Holder, the partners, officers, members, employees, - -13- agents and directors of each Holder, any underwriter (as defined in the Securities Act) for such Holder and each Person, if any, who controls such Holder or underwriter within the meaning of the Securities Act or the Securities Exchange Act of 1934, as amended, (the "Exchange Act"), against any losses, claims, damages, or liabilities (joint or several) to which they may become subject under the Securities Act, the Exchange Act or other federal or state law, insofar as such losses, claims, damages, or liabilities (or actions in respect thereof) arise out of or are based upon any of the following statements, omissions or violations (collectively a "Violation"): (i) any untrue statement or alleged untrue statement of a material fact contained in such registration statement, including any preliminary prospectus or final prospectus contained therein or any amendments or supplements thereto; (ii) the omission or alleged omission to state therein a material fact required to be stated therein, or necessary to make the statements therein not misleading; or (iii) any violation or alleged violation by the Company of the Securities Act, the Exchange Act, any federal or state securities law or any rule or regulation promulgated under the Securities Act, the Exchange Act or any federal or state securities law in connection with the offering covered by such registration statement; and the Company will reimburse each such Holder, partner, officer, member, employee, agent or director, underwriter or controlling person for any legal or other expenses reasonably incurred by them, as incurred, in connection with investigating or defending any such loss, claim, damage, liability or action; provided, however, that if the Company is found not to be liable for a Violation and such Holder (or a partner, officer, member, employee, agent or director or controlling person of such Holder) is found to be liable for such Violation, such Holder shall pay the Company's legal or other expenses reasonably incurred in defending any such loss, claim, damage, liability or action; provided further that the indemnity agreement contained in this Section 2.8(a) shall not apply to amounts paid in settlement of any such loss, claim, damage, liability or action if such settlement is effected without the consent of the Company (which consent shall not be unreasonably withheld), nor shall the Company be liable in any such case for any such loss, claim, damage, liability or action to the extent that it arises out of or is based upon a Violation which occurs in reliance upon and in conformity with written information furnished expressly for use in connection with such registration by such Holder, partner, officer, member, employee, agent or director, underwriter or controlling person of such Holder. (b) BY SELLING HOLDERS. To the extent permitted by law, each selling Holder, severally and not jointly with any other Holder, will indemnify and hold harmless the Company, each of its directors, each of its officers who have signed the registration statement, each Person, if any, who controls the Company within the meaning of the Securities Act, any underwriter and any other Holder selling securities under such registration statement or any of such other Holder's partners, directors or officers or any Person who controls such Holder within the meaning of the Securities Act or the Exchange Act, against any losses, claims, damages or liabilities (joint or several) to which the Company or any such director, officer, controlling person, underwriter or other such Holder, partner, officer, director, member, employee or agent or controlling person of such other Holder may become subject under the Securities Act, the Exchange Act or other federal or state law, insofar as such losses, claims, damages or liabilities - -14- (or actions in respect thereto) arise out of or are based upon any Violation, in each case to the extent (and only to the extent) that such Violation occurs in reliance upon and in conformity with written information furnished by such Holder expressly for use in connection with such registration; and each such Holder will reimburse any legal or other expenses reasonably incurred by the Company or any such partner, director, officer, member, employee, agent or controlling person, underwriter or other Holder, partner, officer, director, member, employee, agent or controlling person of such other Holder in connection with investigating or defending any such loss, claim, damage, liability or action; provided, however, that if the Holder is found not to be liable for a Violation, the Company shall pay the Holder's legal or other expenses reasonably incurred in defending any such loss, claim, damage, liability or action; provided further that the indemnity agreement contained in this Section 2.8(b) shall not apply to amounts paid in settlement of any such loss, claim, damage, liability or action if such settlement is effected without the consent of the Holder, (which consent shall not be unreasonably withheld), nor shall the selling Holder be liable in any such case for any such loss, claim, damage, liability or action to the extent that it arises out of or is based upon a Violation which occurs in reliance upon and in conformity with written information furnished expressly for use in connection with such registration by the Company, and provided further, that the total amounts payable in indemnity by a Holder under this Section 2.8(b) in respect of any Violation shall not exceed the net proceeds (after deduction of all underwriters' discounts and commissions paid by such Holder in connection with the registration in question) received by such Holder in the registered offering out of which such Violation arises. (c) NOTICE. Promptly after receipt by an indemnified party under this Section 2.8 of notice of the commencement of any action (including any governmental action), such indemnified party will, if a claim in respect thereof is to be made against any indemnifying party under this Section 2.8, deliver to the indemnifying party a written notice of the commencement thereof and the indemnifying party shall have the right to participate in, and, to the extent the indemnifying party so desires, jointly with any other indemnifying party similarly noticed, to assume the defense thereof with counsel mutually satisfactory to the parties; provided, however, that an indemnified party shall have the right to retain its own counsel, with the fees and expenses to be paid by the indemnifying party, if representation of such indemnified party by the counsel retained by the indemnifying party would be inappropriate due to actual or potential conflict of interests between such indemnified party and any other party represented by such counsel in such proceeding. The failure to deliver written notice to the indemnifying party within a reasonable time of the commencement of any such action, if prejudicial to its ability to defend such action, shall relieve such indemnifying party of any liability to the indemnified party under this Section 2.8, but the omission so to deliver written notice to the indemnifying party will not relieve it of any liability that it may have to any indemnified party otherwise than under this Section 2.8. (d) CONTRIBUTION. In order to provide for just and equitable contribution to joint liability under the Securities Act in any case in which either (i) any Holder exercising rights under this Agreement, or any controlling person of any such Holder, makes a claim for indemnification pursuant to this Section 2.8 but it is judicially determined (by the entry of a final judgment or decree by a court of competent jurisdiction and the expiration of time to appeal or the denial of the last right of appeal) that such indemnification may not be enforced in such case notwithstanding the fact that this Section 2.8 provides for indemnification in such case, - -15- or (ii) contribution under the Securities Act may be required on the part of any such selling Holder or any such controlling person in circumstances for which indemnification is provided under this Section 2.8; then, and in each such case, the Company and such Holder will contribute to the aggregate losses, claims, damages or liabilities to which they may be subject (after contribution from others) in such proportion so that such Holder is responsible for the portion represented by the percentage that the public offering price of its Registrable Securities offered by and sold under the registration statement bears to the public offering price of all securities offered by and sold under such registration statement, and the Company and other selling Holders are responsible for the remaining portion; provided, however, that, in any such case, (A) no such Holder will be required to contribute any amount in excess of the public offering price of all such Registrable Securities offered and sold by such Holder pursuant to such registration statement and (B) no Person or entity guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) will be entitled to contribution from any Person or entity who was not guilty of such fraudulent misrepresentation. (e) SURVIVAL. The obligations of the Company and Holders under this Section 2.8 shall survive the completion of any offering of Registrable Securities in a registration statement, and otherwise. 2.9 "MARKET STAND-OFF" AGREEMENT. Each Holder hereby agrees that it shall not, to the extent requested by the Company or an underwriter of securities of the Company, offer, sell or otherwise transfer or dispose of or engage in any other transaction regarding any Registrable Securities or other shares of stock of the Company then owned by such Holder (other than to donees, affiliates or partners of the Holder who agree to be similarly bound and except for securities sold pursuant to such Registration Statement) for up to one hundred eighty (180) calendar days following the effective date of the first firmly underwritten public offering of Common Stock pursuant to a Registration Statement filed with, and declared effective by, the SEC under the Securities Act, on the terms and conditions approved by the Board of Directors (an "Initial Public Offering"), and for up to ninety (90) calendar days following the effective date in the case of subsequent public offerings; provided, however, that the holders of more than 1% of the Company's capital stock, the Prior Holders, and executive officers and directors of the Company then holding Common Stock of the Company enter into similar agreements. In order to enforce the foregoing covenant, the Company shall have the right to place restrictive legends on the certificates representing the shares subject to this Section 2.9 and to impose stop transfer instructions with respect to the Registrable Securities and such other shares of stock of each Holder (and the shares or securities of every other Person subject to the foregoing restriction) until the end of such period. 2.10 RULE 144 REPORTING. With a view to making available the benefits of certain rules and regulations of the SEC which may at any time permit the sale of the Registrable Securities to the public without registration, after such time as a public market exists for the Common Stock, the Company agrees to: (a) make and keep public information available, as those terms are understood and defined in Rule 144 under the Securities Act, at all times after the effective date that the Company becomes subject to the reporting requirements of the Securities Act or the Exchange Act; - -16- (b) use its best efforts to file with the SEC in a timely manner all reports and other documents required of the Company under the Securities Act and the Exchange Act (at any time after it has become subject to such reporting requirements); and (c) furnish to any Holder forthwith upon request a written statement by the Company as to its compliance with the reporting requirements of Rule 144 (at any time after ninety (90) calendar days after the effective date of the first registration statement filed by the Company for an offering of its securities to the general public), and of the Securities Act and the Exchange Act (at any time after it has become subject to such reporting requirements), a copy of the most recent annual or quarterly report of the Company and such other reports, documents of the Company or other information in the possession of or reasonably obtainable by the Company as a Holder may reasonably request in availing itself of any rule or regulation of the SEC allowing a Holder to sell any such securities without registration. 2.11 TERMINATION OF THE COMPANY'S OBLIGATIONS. The Company shall have no obligations pursuant to Section 2 with respect to: (i) any request or requests for registration made by any Holder on a date more than five (5) years after the closing date of the Company's Initial Public Offering, or (ii) any Registrable Securities proposed to be sold by a Holder in a registration pursuant to Section 2 if in the opinion of counsel to the Company, all such Registrable Securities proposed to be sold by a Holder may be sold in a ninety (90) day period without registration under the Securities Act pursuant to Rule 144 under the Securities Act. Notwithstanding the foregoing, in no event shall a Holder's registration rights terminate prior to the end of the end of the lock up period provided for in Section 2.9. 2.12 LIMITATIONS ON SUBSEQUENT REGISTRATION RIGHTS. From and after the date of this Agreement, the Company shall not, without the prior written consent of the Debentureholders, enter into any agreement with any holder or prospective holder of any securities of the Company that provides such holder or prospective holder with registration rights superior or equal to the registration rights provided to the Investors pursuant to this Section 2. 3. Assignment, Amendment and Restriction on Transfer. 3.1 ASSIGNMENT. Notwithstanding anything herein to the contrary, the registration rights of a Holder under Section 2, the pre-emptive rights, right of first refusal, tag-along rights and drag along rights under Section 4 and the information rights under Section 6 may be assigned only to (i) a party who acquires at least three hundred thousand (300,000) shares of Registrable Securities, on a fully-diluted basis, or (ii)(A) a shareholder, partner, member, affiliate or beneficiary of such Holder; (B) a spouse, child, parent or beneficiary of the estate of such Holder or (C) a trust for the benefit of the persons set forth in (A) or (B); provided, however, that no party may be assigned any of the foregoing rights unless the Company is given written notice by the assigning party within five (5) calendar days after such assignment stating the name, address and tax identification number, if any, of the assignee and identifying the securities of the Company as to which the rights in question are being assigned; and provided further that any such assignee (i) shall receive such assigned rights subject to all the terms and conditions of this Agreement, including without limitation the provisions of this Section 3, and (ii) is not a competitor of the Company as determined in good faith by the Company's Board of Directors. 3.2 AMENDMENT OF REGISTRATION RIGHTS. Any provision of this Agreement may be amended and the observance thereof may be waived (either generally or in a particular - -17- instance and either retroactively or prospectively), only with the written consent of: (i) the Company, (ii) the Debentureholders, (iii) the Holders (and/or any of their permitted successors or assigns) of at least two-thirds of Series B Registrable Securities then outstanding, and (iv) the Holders (and/or any of their permitted successors or assigns) of at least a majority of the Series A Registrable Securities then outstanding. Any amendment or waiver effected in accordance with this Section 3.2 shall be binding upon each Investor and each permitted successor or assignee of such Investor or Holder and the Company; provided, however, that no waiver which adversely affects the rights of any Investor or Holder disproportionately relative to the other Investors or Holders shall be effective against such party unless such party has given its consent to such waiver. 3.3 GENERAL RESTRICTION ON TRANSFER. Except as otherwise permitted in Section 4.8 of the Series B Purchase Agreement, Section 4.8 of the Debenture Subscription Agreement and Section 4.3 of this Agreement, no securities of the Company or any beneficial interest therein shall be sold, transferred, assigned, mortgaged, pledged, charged, hypothecated or otherwise encumbered or disposed of by any Investor or Prior Holder whether by operation of law or otherwise, except with the prior written approval of the Board of Directors, or as expressly required or permitted pursuant to the provisions of this Agreement, and any action in contravention of this Section 3.3 shall be void. 4. Pre-emptive Rights; Right to Maintain Proportionate Holding; Right of First Refusal. 4.1 Pre-Emptive Rights. (a) Except as otherwise provided in Section 4.1(f), if the Company proposes to issue any Securities (the "Offered Securities"), the Company shall first offer (the "Subscription Offer") the Offered Securities for subscription and purchase by the Investors and the Prior Holders, in each case as nearly as may be offered (disregarding fractional interests) on a pro rata basis in proportion to their respective Proportionate Interests at that date (in this Section 4.1, the "Initial Allotment"), at such price as the Board of Directors of the Company may determine. (b) The Subscription Offer shall be made in writing by the Company to each Investor and Prior Holder and shall (i) specify the price at which the Offered Securities are offered, the amount of Offered Securities which represents such Investor's or Prior Holders' Initial Allotment and the date on which the purchase of the Offered Securities by the Investors and the Prior Holders is to be completed, (ii) contain a summary of the principal attributes of the Offered Securities (if other than Common Stock), (iii) state that any Investor or Prior Holder who wishes to subscribe for Offered Securities must give written notice (a "Subscription Notice") to that effect to the Company within 20 calendar days after the date of the Subscription Offer, (iv) state that any Investor or Prior Holder who wishes to subscribe for an amount of Offered Securities different than its Initial Allotment must specify, in its Subscription Notice, the amount of Offered Securities that it wishes to purchase and (v) state that, unless the Investors and Prior Holders subscribe for all the Offered Securities, the Company may elect not to sell any Offered Securities under the Subscription Offer. (c) If any Investors or Prior Holders do not subscribe in the manner provided above for all of their Initial Allotments, the unsubscribed Offered Securities (in this - -18- Section 4.1, the "Unsubscribed Securities") shall be applied to satisfy the subscriptions of Investors or Prior Holders (in this Section 4.1, "Additional Subscribers") for Offered Securities in excess of their Initial Allotments (in this Section 4.1, "Additional Securities"). If the amount of Unsubscribed Securities is less than the amount of Additional Securities subscribed for by the Additional Subscribers, the Unsubscribed Securities shall be allocated among the Additional Subscribers as nearly as may be (disregarding fractional interests) on a pro rata basis based on the proportion that the number of shares of Common Stock held by each Additional Subscriber at the date of the Subscription Offer bears to the total number of shares of Common Stock held by all Additional Subscribers at that date, with all such holdings being calculated on a fully-diluted basis; provided, however, that the amount of Unsubscribed Securities allocated to any Additional Subscriber shall not exceed the amount of Additional Securities subscribed for by such Additional Subscriber as specified in its Subscription Notice. (d) If Offered Securities are subscribed for by the Investors or Prior Holders in accordance with this Section 4.1, each Investor and Prior Holder shall purchase the amount of Offered Securities subscribed for by and allocated to it and the Company shall issue and sell such Offered Securities to such Investor or Prior Holder on the closing date specified in the Subscription Offer and otherwise on the terms specified in the Subscription Offer. (e) If less than all the Offered Securities are subscribed for by the Investors and Prior Holders in accordance with this Section 4.1, unless the Company determines not to proceed with the issuance and sale of the Offered Securities, the Company shall complete the issuance and sale of the Offered Securities subscribed for by the Investors and Prior Holders as contemplated by Section 4.1(d) and may offer and sell the unsubscribed portion of the Offered Securities to such persons as the Board of Directors of the Company may determine provided that (A) any such sale is completed within 90 days after the expiry of the period of 20 calendar days for the giving of Subscription Notices, (B) the price at which any Offered Securities are sold is not less than the subscription price offered to the Investors and (C) each purchaser becomes a party to this Agreement. After the expiry of such 90-day period, the foregoing provisions of this Section 4.1 shall again apply to any proposed issuance of Securities by the Company. (f) The pre-emptive rights in this Section 4.1 shall not be applicable to (i) the issuance or sale of shares of Common Stock (or options therefor) to employees, directors and consultants for the primary purpose of soliciting or retaining their services, pursuant to plans or agreements approved by a majority of the Board of Directors of the Company, (ii) the issuance of securities upon the conversion of shares of the Company's preferred stock, conversion of the Convertible Debentures or exercise of the Share Purchase Option, (iii) the issuance of securities to persons or entities with which the Company has business relationships in connection with bona fide arm's length equipment leasing arrangements, bank or institutional loans or other bona fide arm's length transactions wherein the principal purpose of the issuance of such securities is for non-equity financing purposes, so long as all such arrangements and transactions are approved by a majority of the Board of Directors of the Company (including at least one (1) Debentureholder nominee), (iv) the issuance of securities pursuant to currently outstanding (as of the date of this Agreement) options, warrants or notices to acquire securities of the Company, (v) the issuance of securities in connection with a bona fide arm's length business acquisition of or by the Company, whether by merger, consolidation, sale of assets, sale or - -19- exchange of stock or otherwise, as approved by a majority of the Board of Directors of the Company (including at least one (1) Debentureholder nominee), or (vi) the issuance of securities pursuant to a Qualified IPO. (g) The covenants set forth in this Section 4.1 shall terminate and be of no further force and effect after the closing of the Qualified IPO. 4.2 Right to Maintain Proportionate Holding. (a) In addition to any rights an Investor or Prior Holder may have pursuant to Section 4.1, if the Company issues any Securities (the "Issued Securities"), the Company shall offer (in this Section 4.2, the "Subscription Offer") each Investor and Prior Holder the right to subscribe, at a price per Security equal to the price received by the Company per Issued Security, for such number (in this Section 4.2, the "Initial Allotment") of Securities (in this Section 4.2, the "Offered Securities") of the same type and class as the Issued Securities as is necessary to ensure that such Investor's or Prior Holder's percentage ownership of the outstanding Common Stock, on a fully-diluted basis after giving effect to the issuance of the Issued Securities and any additional securities subscribed for pursuant to this Section 4.2, is equal to such Investor's or Prior Holder's percentage ownership of the outstanding Common Stock, on a fully-diluted basis, immediately prior to the issuance of the Issued Securities. (b) The Subscription Offer shall be made in writing by the Company to each Investor and Prior Holder and shall (i) specify the price at which the Offered Securities are offered, the amount of Offered Securities which represents such Investor's or Prior Holders' Initial Allotment and the date on which the purchase of the Offered Securities by the Investors and the Prior Holders is to be completed, (ii) contain a summary of the principal attributes of the Offered Securities (if other than Common Stock), (iii) state that any Investor or Prior Holder who wishes to subscribe for Offered Securities must give a Subscription Notice to that effect to the Company within 20 calendar days after the date of the Subscription Offer and (iv) state that any Investor or Prior Holder who wishes to subscribe for an amount of Offered Securities different than its Initial Allotment must specify, in its Subscription Notice, the amount of Offered Securities that it wishes to purchase. (c) If any Investors or Prior Holders do not subscribe in the manner provided above for all of their Initial Allotments, the unsubscribed Offered Securities (in this Section 4.2, the "Unsubscribed Securities") shall be applied to satisfy the subscriptions of Investors or Prior Holders (in this Section 4.2 "Additional Subscribers") for Offered Securities in excess of their Initial Allotments (in this Section 4.2, "Additional Securities"). If the amount of Unsubscribed Securities is less than the amount of Additional Securities subscribed for by the Additional Subscribers, the Unsubscribed Securities shall be allocated among the Additional Subscribers as nearly as may be (disregarding fractional interests) on a pro rata basis based on the proportion that the number of shares of Common Stock held by each Additional Subscriber at the date of the Subscription Offer bears to the total number of shares of Common Stock held by all Additional Subscribers at that date, with all such holdings being calculated on a fully-diluted basis; provided, however, that the amount of Unsubscribed Securities allocated to any Additional Subscriber shall not exceed the amount of Additional Securities subscribed for by such Additional Subscriber as specified in its Subscription Notice. - -20- (d) If Offered Securities are subscribed for by the Investors or Prior Holders in accordance with this Section 4.2, each Investor and Prior Holder shall purchase the amount of Offered Securities subscribed for by and allocated to it and the Company shall issue and sell such Offered Securities to such Investor or Prior Holder on the closing date specified in the Subscription Offer and otherwise on the terms specified in the Subscription Offer. (e) The rights in this Section 4.2 shall not be applicable to (i) the issuance or sale of shares of Common Stock (or options therefor) to employees, directors and consultants for the primary purpose of soliciting or retaining their services, pursuant to plans or agreements approved by a majority of the Board of Directors of the Company, (ii) the issuance of securities upon the conversion of shares of the Company's preferred stock, conversion of the Convertible Debentures or exercise of the Share Purchase Option, (iii) the issuance of securities to persons or entities with which the Company has business relationships in connection with bona fide arm's length equipment leasing arrangements, bank or institutional loans or other bona fide arm's length transactions wherein the principal purpose of the issuance of such securities is for non-equity financing purposes, so long as all such arrangements and transactions are approved by a majority of the Board of Directors of the Company (including at least one (1) Debentureholder nominee), (iv) the issuance of securities pursuant to currently outstanding (as of the date of this Agreement) options, warrants or notices to acquire securities of the Company, (v) the issuance of securities in connection with a bona fide arm's length business acquisition of or by the Company, whether by merger, consolidation, sale of assets, sale or exchange of stock or otherwise, as approved by a majority of the Board of Directors of the Company (including at least one (1) Debentureholder nominee), or (vi) the issuance of securities pursuant to a Qualified IPO. For greater certainty, the rights in this Section 4.2 shall be applicable to any issuance of Securities relating to the Asahi Note. (f) The covenants set forth in this Section 4.2 shall terminate and be of no further force and effect after the closing of the Qualified IPO. 4.3 Right of First Refusal of Sales by Investors. (a) If an Investor (the "Proposed Seller") intends to sell any of such Investor's Series B Preferred Stock or Series B Registrable Securities (other than the sale or transfer of such securities as otherwise permitted in Section 4.8 of the Series B Purchase Agreement), the Proposed Seller shall give written notice (the "Seller's Notice") to the Company stating that the Proposed Seller intends to make such a sale or transfer, specifying the number of shares of Series B Preferred Stock or Series B Registrable Securities (the "First Refusal Shares"), and specifying the per share purchase price (payable in cash) which the Proposed Seller is willing to accept for the First Refusal Shares (the "Sale Price"). (b) Upon receipt of the Seller's Notice, the Company shall have the irrevocable and exclusive right, exercisable by notice given to the Proposed Seller within twenty (20) calendar days of its receipt of the Seller's Notice: (i) to agree that it will purchase all the First Refusal Shares at the Sale Price and on the terms of payment set out in the Seller's Notice; or - -21- (ii) to agree that the Proposed Seller may sell all the First Refusal Shares held by it to a Person acting bona fide and at arm's length with the Proposed Seller (a "Third Party") on terms and conditions no more favorable to the Third Party than those contained in the Seller's Notice, provided that, prior to completion of such sale, such Third Party become subject to all of the obligations of the Proposed Seller under this Agreement and agree to be bound by all of the provisions hereof in which case such Third Party shall become entitled to exercise all the rights of the Proposed Seller under this Agreement. If no notice is given by the Company under Section 4.3(b)(i), the Company shall be deemed to have given the notice referred to in Section 4.3(b)(ii). (c) If the Company gives the notice referred to in Section 4.3(b)(i), the purchase and sale of the First Refusal Shares shall be completed on the 5th business day after the Company has agreed that it will purchase all the First Refusal Shares held by the Proposed Seller. If (i) the Company agrees that the Proposed Seller may sell the First Refusal Shares held by it to a Third Party, or (ii) the Company does not purchase all the First Refusal Shares in accordance with Section 4.3(c), then, for a period of ninety (90) business days from the date of the Seller's Notice, the Proposed Seller shall be entitled to sell the First Refusal Shares held by it to a Third Party. Any transfer of the First Refusal Shares by the Proposed Seller after the end of such ninety (90) business day period or any change in the terms of the sale as set forth in the Seller's Notice which is more favorable to such Third Party shall require a new notice of intent to transfer to be delivered to the Company and shall give rise anew to the rights provided in the preceding paragraphs. (d) The covenants set forth in this Section 4.3 shall terminate and be of no further force and effect after the closing of the Qualified IPO. 4.4 TAG-ALONG RIGHTS. If an Investor or Prior Holder (the "Seller") proposes to sell, whether in a single transaction or a series of transactions, (a "Tag-Along Sale") Securities to a Third Party Purchaser(s) (subject to prior satisfaction of Section 4.3, if applicable) and the sale of such Securities constitutes a Change of Control and no Drag-Along Notice is given to the other Investors and Prior Holders pursuant to Section 4.5 in respect of such proposed sale, each other Investor and Prior Holder shall have the right, exercisable by giving written notice (the "Tag-Along Notice") to the Seller within 10 days after the expiry of the 20 calendar day period referred to in Section 4.3, to sell to the Third Party Purchaser up to that number of Securities which equals (disregarding fractions) the total number of Securities which the Third Party Purchaser is prepared to purchase as specified in its Third Party Offer multiplied by a fraction, the numerator of which is the number of shares of Common Stock owned by such Investor or Prior Holder and the denominator of which is the total number of shares of Common Stock owned by the Seller and all other Investors and Prior Holders giving a Tag-Along Notice to the Seller pursuant to this Section 4.4, each calculated on a fully-diluted basis. Each such other Investor or Prior Holder that elects to participate in the Tag-Along Sale shall sell the Securities indicated in its Tag-Along Notice for the same consideration per Security and otherwise on the same terms and conditions, mutatis mutandis, as those specified in the Third Party Offer. The number of Securities to be sold by the Seller to the Third Party Purchaser shall be equal to the difference between the number of Securities that the other Investors and Prior Holders are - -22- entitled to sell to the Third Party Purchaser pursuant to this Section 4.4 and the total number of Securities which the Third Party Purchaser is prepared to purchase as specified in its Third Party Offer. The Seller shall not be responsible for any failure by the Third Party Purchaser to complete the Tag-Along Sale but shall not sell any Securities to the Third Party Purchaser unless the Securities to be sold by those other Investors and Prior Holders (if any) that elect to participate in the Tag-Along Sale are purchased by the Third Party Purchaser at the same time in accordance with the provisions of this Section 4.4. Unless the Board of Directors of the Company otherwise determines, the sale of any Securities pursuant to this Section 4.4 shall be conditional on any Third Party Purchaser becoming a party to this Agreement. 4.5 Drag-Along Rights. (a) If any of the Investors or Prior Holders (in this Section 4.5, the "Sellers") propose to sell all (but not less than all) of their Securities to a Third Party Purchaser as permitted under Section 4.3 and such Securities represent at least 66-2/3% of the outstanding Common Stock, calculated on a fully-diluted basis, the Sellers may, by giving written notice (a "Drag-Along Notice") to the other Investors and Prior Holders, require each of the other Investors and Prior Holders to sell all (but not less than all) of their Securities to the Third Party Purchaser for the same consideration per Security and otherwise on the same terms and conditions, mutatis mutandis, as those specified in the Third Party Offer; (b) The Sellers shall not be responsible for any failure by the Third Party Purchaser to complete the transactions contemplated by its Third Party Offer but shall not sell any Securities to the Third Party Purchaser unless the Securities to be sold by the other Investors and Prior Holders are purchased by the Third Party Purchaser at the same time in accordance with the provisions of this Section 4. 5. Closing Arrangements. 5.1 DEFINITIONS. In this Section 5, the term "Purchased Securities" means any Securities of the Company to be purchased from any Investor or Prior Holder by any other party (including the Company) pursuant to this Agreement, and the terms "Vendor" and "Purchaser" mean, respectively, the vendor and the purchaser of Purchased Securities. 5.2 PLACE AND TIME OF CLOSING. Unless otherwise provided in this Agreement, the closing of the purchase and sale of the Purchased Shares shall occur at the registered office of the Company at 1:00 p.m. (New York time) on the tenth Business Day after the day on which the Vendor and the Purchaser first became obliged to carry out such transaction or at such other place and time as the Vendor and the Purchaser may mutually determine, the actual time of closing on the closing date being hereinafter referred to as the "Time of Closing". 5.3 CLOSING DELIVERIES. At the Time of Closing, subject to the other provisions of this Agreement: (a) the Purchaser shall pay the purchase price for the Purchased Securities (the "Purchase Price") as determined in accordance with the relevant provisions of this Agreement by bank draft or certified cheque; and (b) the Vendor shall deliver to the Purchaser: (i) a receipt for payment of the Purchase Price; - -23- (ii) the certificates or instruments representing the Purchased Securities, duly endorsed for transfer; and (iii) a warranty from the Vendor, in form satisfactory to the Purchaser, acting reasonably, that the Vendor is the registered and beneficial owner of the Purchased Securities, free and clear of any lien, charge, pledge, security interest, adverse claim or other encumbrance. 5.4 TENDER PROCESS. If the Vendor is not present at the Time of Closing or is present but fails for any reason to deliver to the Purchaser any document referred to in Section 5.3, the Purchaser may deposit the Purchase Price into a special account at any branch of the Company's bank in the joint names of the Vendor and the Purchaser. Forthwith after the making of such deposit, the Purchaser shall give the Vendor written notice thereof, which notice shall specify the date of deposit, the name and address of the bank at which the deposit was made and the account number. Such deposit shall constitute valid payment and satisfaction of the Purchase Price even though the Vendor may have encumbered or disposed of any of the Purchased Securities and even though the certificates or instruments representing the Purchased Securities may have been delivered to any pledgee, transferee or other person. Upon presentation by the Vendor to the Purchaser of the documents referred to in Section 5.3, the Vendor shall be entitled to be paid the monies so deposited, without interest. All interest in respect of any such bank account shall belong to the Purchaser. 5.5 TRANSFER OF TITLE. If, pursuant to Section 5.4, the Purchase Price is deposited with the Company's bank in the joint names of the Vendor and the Purchaser, from and after the date of such deposit, and even though the certificates or instruments representing the Purchased Securities may not have been delivered to the Purchaser, the purchase and sale of the Purchased Securities shall be deemed to have been completed and all right, title, benefit and interest, both at law and in equity, in and to the Purchased Securities shall be conclusively deemed to have been transferred and assigned to and become vested in the Purchaser and all right, title, benefit and interest, legal or equitable, therein or thereto of the Vendor, or of any pledgee, transferee or other person claiming through the Vendor, shall cease. 5.6 Payment in Satisfaction of Indebtedness. (a) Without in any way limiting the restriction in Section 3.3, where the Vendor is unable to deliver the certificates or instruments representing the Purchased Securities because any Purchased Securities have been pledged as security for any indebtedness of the Vendor, the Purchaser may, instead of depositing the Purchase Price into a special bank account as provided in Section 5.4, pay all or a portion of the Purchase Price to discharge the indebtedness secured thereby and to obtain a release of the relevant security interest. Any such payment by the Purchaser shall constitute a complete discharge of the Purchaser's obligation to pay to the Vendor a corresponding amount of the Purchase Price. (b) If the Purchaser pays only part of the Purchase Price to a secured party pursuant to Section 5.6(a), the Purchaser may deposit an amount equal to the balance of the Purchase Price into a special bank account in accordance with the provisions of Section 5.4 and the provisions of Section 5.5 shall apply, mutatis mutandis, to the portion of the Purchase Price so deposited. - -24- (c) If, following any payment by the Purchaser to a secured party pursuant to Section 5.6(a), the balance, if any, of the Purchase Price is either paid to the Vendor or deposited in a special bank account as provided in Section 5.4, from and after the date of the last to occur of such payment and such deposit, and even though the certificates or instruments representing the Purchased Securities may not have been delivered to the Purchaser, the purchase and sale of the Purchased Securities shall be deemed to have been completed and all right, title, benefit and interest, both at law and in equity, in and to the Purchased Securities shall be conclusively deemed to have been transferred and assigned to and become vested in the Purchaser and all right, title, benefit and interest, legal or equitable, therein or thereto of the Vendor, or of any pledgee, transferee or other person claiming through the Vendor, shall cease. (d) If the Vendor is indebted to the Company at the Time of Closing, the Vendor hereby irrevocably directs the Purchaser to pay all or the relevant portion of the Purchase Price to the Company to discharge such indebtedness. Any such payment to the Company by the Purchaser shall constitute a complete discharge of the Purchaser's obligation to pay to the Vendor all or the relevant portion, as the case may be, of the Purchase Price. 5.7 POWER OF ATTORNEY. The Vendor hereby irrevocably makes, constitutes and appoints the Company or any officer of the Company as the Vendor's true and lawful attorney with power to, in the name and on behalf of the Vendor, execute and deliver all such assignments, transfers, instruments and other documents as may be necessary effectively to transfer and assign the Purchased Securities, or any part thereof, to the Purchaser on the books of the Company. The appointment of the Company as the Vendor's attorney, and each and every one of its rights and powers, being coupled with an interest, is irrevocable. 6. Information, Board Rights and Business and Finance of the Company. 6.1 Financial Statements and Reports. (a) The Company will maintain true books and records of account in which full and correct entries will be made of all its business transactions pursuant to a system of accounting established and administered in accordance with generally accepted accounting principles consistently applied, and will set aside on its books all such proper accruals and reserves as shall be required under generally accepted accounting principles consistently applied. (b) The Company shall deliver to the Debentureholders and each Investor that continues to hold not less than three hundred thousand (300,000) shares of Registrable Securities, on a fully-diluted basis: (i) As soon as practicable after the end of each fiscal year of the Company, and in any event within ninety (90) calendar days thereafter an audited consolidated balance sheet of the Company and its subsidiaries, if any, at the end of such fiscal year and audited consolidated statements of income, stockholders' equity and cash flows for such fiscal year, which year-end financial reports shall be in reasonable detail prepared in accordance with generally accepted accounting principles setting forth in each case in comparative form the figures for the previous year and such financial statements shall be accompanied by a report and opinion thereon by independent chartered accountants of national standing selected by the Company's Board of Directors (including at least one (1) Debentureholder nominee); - -25- (ii) As soon as practicable after the end of each month, and in any event within thirty (30) calendar days after the end of each month and as soon as practicable after the end of each fiscal quarter of the Company, and in any event within forty-five (45) calendar days thereafter, an unaudited consolidated balance sheet of the Company and its subsidiaries, as at the end of such period, and a consolidated statement of income, stockholders' equity and cash flows for such period and for the current fiscal year to date, each certified by the Company's Chief Financial Officer, and all such statements shall be in reasonable detail and prepared in accordance with generally accepted accounting principles, except that they may not contain full footnote disclosures and may be subject to normal year-end adjustments for recurring accruals; (iii) Prior to thirty (30) calendar days before the end of each fiscal year, an operating budget for the next fiscal year; and (iv) Any other business or financial information regarding the Company that is reasonably requested by a Debentureholder. (c) Each Investor agrees that any information obtained by the Investor pursuant to this Section 6.1 which is reasonably perceived to be proprietary to the Company or otherwise confidential will not, unless such Investor shall otherwise be required by a court, governmental agency, any law or the rules of any national securities exchange or association, be disclosed without the prior written consent of the Company (so long as such information is not in the public domain), provided that the Debentureholders may disclose such proprietary or confidential information to their directors, officers, employees and agents on a need to know basis, including for purposes of evaluating their investment in the Company. (d) For so long as an Investor is eligible to receive reports under this Section 6.1, such Investor, or any authorized representative thereof, shall have the right to visit and inspect the Company's properties, to examine its books of account and records and to discuss its business and finances with officers of the Company, all at such reasonable times and as often as may be reasonably requested; provided, however, that each Investor agrees to use, and to use its reasonable efforts to ensure that its authorized representatives use, the same degree of care as such Investor uses to protect its own confidential information and to keep confidential any information furnished to it which the Company reasonably considers as confidential or proprietary and which has been identified by the Company to the Investor as such (so long as such information is not in the public domain), provided that the Debentureholders may disclose such proprietary or confidential information to their directors, officers, employees and agents on a need to know basis, solely for the purpose of evaluating and monitoring their investment in the Company. Each Investor shall pay any expenses incurred by it in connection with its discussions of the affairs, finances and accounts of the Company. (e) The covenants set forth in this Section 6.1 shall terminate and be of no further force and effect after the closing of the Qualified IPO. - -26- 6.2 Board of Directors and Voting Agreement. (a) The Investors and Prior Holders covenant and agree to at all times vote or cause to be voted all shares of outstanding voting capital stock of the Company, which they may own, control or be entitled to vote, determined on a fully diluted basis, and to take all necessary action within their power to cause its nominees acting as officers or directors of the Company to at all times act, in order that the provisions of this Agreement shall govern the business and affairs of the Company to the maximum extent permitted by law. (b) The Company, the Investors and the Prior Holders confirm his, her or its knowledge of this Agreement and will carry out and be bound by the provisions of this Agreement to the full extent that he, she or it has the capacity and power at law to do so. (c) Subject to the other provisions of this Agreement AND NOTWITHSTANDING ANYTHING TO THE CONTRARY CONTAINED IN THE BYLAWS OF THE COMPANY, the Investors and the Prior Holders shall take all necessary action within their power to ensure that the Company's Board of Directors shall consist of seven (7) directors. The Investors and Prior Holders shall cause such meetings of the Company to be held, votes cast, resolutions passed, bylaws enacted, documents executed and things and acts done to ensure the election to the Company's Board of Directors of the nominees as set out in Section 6.2(d) and Section 6.2(e). (d) Subject to the prior nomination right of the Debentureholders, the Investors and the Prior Holders shall take all necessary action within their power to ensure that the Prior Holders shall have the right to nominate the remaining directors, at their discretion, for such time that the ownership of shares of Common Stock by the Prior Holders is at least 18% of the outstanding shares of Common Stock on a fully-diluted basis. Without taking away from the prior nomination right of the Debentureholders, if the ownership of shares of Common Stock by the Prior Holders falls below 18% of the outstanding shares of Common Stock on a fully-diluted basis, then the Prior Holders shall be entitled to elect such number of directors as is determined by the following formula: a percentage of the number of board members, rounded up to the nearest whole number equal to the percentage of shares of Common Stock issued and held by the Prior Holders bears to the total number of shares of Common Stock of the Company then outstanding on a fully diluted basis. Any vacancy on the Board of Directors of the Company after giving effect to the provisions of Sections 6.2(d) and 6.2(e) will be filled by individuals nominated by a majority of the remaining directors then in office. (e) The Investors and Prior Holders shall take all necessary action within their power to ensure that the Debentureholders shall be entitled to nominate the greater of (i) four (4) directors or (ii) such number of directors as is determined by the following formula: a percentage of the number of board members, rounded up to the nearest whole number equal to the percentage of shares of Common Stock issued and held on a fully diluted basis, bears to the total number of shares of Common Stock of the Company then outstanding on a fully diluted basis. Notwithstanding the foregoing, in the event that all outstanding indebtedness under the Convertible Debentures has been repaid by the Company following a demand made by the Debentureholders pursuant to Section 2.7.1 of the Convertible Debentures, the Debentureholders shall lose their rights pursuant to this Section 6.2(e) and all directors nominated by the Debentureholders shall be required to immediately resign from the Company's - -27- Board of Directors. The vacancies caused by the resignation of the Debentureholders' directors shall be filled by a majority of the Company's Board of Directors and shall thereafter be elected by the holders of Common Stock and Preferred Stock, voting together as a single class. (f) The Investors and Prior Holders shall take all necessary action within their power to ensure that the Debentureholders shall have the right to have two (2) nominee directors appointed as members of both an Audit Committee (comprised of three (3) members) and a Compensation Committee (comprised of three (3) members). The remaining members of the Audit Committee and the Compensation Committee will be determined by the Company's Board of Directors. (g) The Investors and Prior Holders shall take all such necessary action within their power to ensure that the Debentureholders shall be entitled to nominate one (1) representative who shall be permitted to attend at and observe (but not vote at) any meeting of the Company's Board of Directors at which at least one (1) director nominated by the Debentureholders cannot attend. The Investors and Prior Holders shall take all such necessary action within their power to ensure that such observer shall have the right to receive the materials distributed to directors for meetings of the Company's Board of Directors and to be heard at such meetings. The Investors and Prior Holders shall take all such necessary action within their power to ensure that such observer will be reimbursed for reasonable out-of-pocket expenses related to attending meetings of the Company's Board of Directors. All information furnished by the Company to the observer shall be treated as confidential information, excluding only such information as is otherwise generally available on a non-confidential basis. The observer shall use the standard of care to maintain the confidentiality of all of the confidential information furnished by the Company that is set out in Section 6.1(e) of this Agreement. (h) Notwithstanding anything to the contrary contained in the bylaws of the Company and subject to the limitations described Section 6.2(n), the Company shall hold meetings of the Board of Directors after providing all directors with at least five (5) calendar days' prior written notice; provided that, upon the Debentureholders' request, if at least one (1) Debentureholder nominee is unable or unwilling to attend any properly noticed meeting either in person or telephonically, then the Company shall reschedule such meeting and shall again provide at least five (5) calendar days' prior written notice. (i) Meetings of the Board of Directors shall be held five (5) times per year. Prior to the end of each fiscal year, the meetings of the Board of Directors for the following fiscal year shall be scheduled. The timing of four of the meetings shall coincide with the completion of each quarter for such fiscal year, allowing sufficient time for the financial statements for such quarter to be completed and circulated to the directors in advance of such meeting. The fifth meeting shall be scheduled as a strategy/budget meeting for the coming fiscal year. Materials for meetings of the Board of Directors shall be provided to the directors at least 5 days prior to a meeting of the Board of Directors. (j) Meetings of the Audit Committee and the Compensation Committee shall be scheduled prior to but on the same day as meetings of the Board of Directors. - -28- (k) Each member of the Board of Directors shall be paid fees of $12,500 per annum plus $4,000 per annum for each seat on the Audit Committee or the Compensation Committee. Travel and accommodation expenses of the directors and Committee members shall be for the account of the Company. (l) The Company shall maintain directors and officers insurance in scope and amount consistent with industry standards. (m) The Company, the Investors and the Prior Holders agree that, in addition to any fees paid by the Company pursuant to paragraph (k) above, any services rendered by representatives of the Debentureholders in favour of the Company or Occulogix, L.P. shall be compensated by the Company or Occulogix, L.P., as the case may be, at fair market value and that all travel and accommodation expenses associated with such services shall be paid by the Company or Occulogix, L.P., as the case may be. (n) Each notice of a meeting of the Board of Directors shall set out in reasonable detail the business to be considered at such meeting and no other business shall be transacted at such meeting without the consent of all of the directors. Notwithstanding the notice periods described in Section 6.2(h) above, in the event that the Chief Executive Officer and one other director or any three directors of the Company determine that the Board of Directors needs to act at a special meeting (a "Special Meeting") in order to respond to a matter (other than the matters set forth in Section 6.2(o) of this Agreement) with respect to which they determine in good faith that the failure of the Board of Directors to immediately act would be potentially detrimental to the best interests of the Company's stockholders, then such Special Meeting may be called on forty-eight (48) hours prior notice. In the event that at least one (1) Debentureholder nominee is unable to attend a Special Meeting either in person or telephonically, the Company covenants that (i) it will take no action at such Special Meeting that relates to that certain Limited Partnership Agreement of OccuLogix, L.P., Sales Agreement, TLC Software License Agreement, VSC Software License Agreement and License Agreement or adversely affects a Debentureholder, in its capacity as a securityholder or joint venture partner with the Company (or its affiliates) or otherwise or that affects a Debentureholder, in a discriminatory manner inconsistent with its adverse effects of the rights of the Company's other stockholders, and (ii) it will provide the Debentureholders with prompt notice of any and all actions taken at such Special Meeting, including providing the Debentureholders with any materials distributed to directors at the Special Meeting. (o) In addition to any other rights provided by law, the Company shall not, without first obtaining the prior approval of the Board of Directors (by vote at a properly noticed meeting in accordance with Section 6.2(h) of this Agreement or by unanimous written consent): (i) authorize any stock option plans or other similar contracts with stockholders, directors, officers, consultants and employees of the Company for the purchase of securities of the Company or purchase any key-person life insurance by the Company; - -29- (ii) take, hold, subscribe for or agree to purchase or acquire shares of any corporation or take or have any interest in a joint venture or partnership or similar undertaking; (iii) approve the annual operating budget of the Company and any material changes or alterations to such budget (including additional expenditures not provided for therein); (iv) incur indebtedness (other than payables in the ordinary course of business) in excess of $100,000 in the aggregate; (v) make any single capital expenditure in excess of $10,000 per calendar month or aggregate capital expenditures in excess of $25,000 per calendar month, unless included in a budget approved by the majority of the Board of Directors; (vi) acquire, or permit any subsidiary to acquire, any interest in any business with a value in excess of $25,000 (whether by purchase of assets, purchase of stock, merger or otherwise); (vii) change the location of the Company's current head office, executive office, principal place of business or jurisdiction of incorporation; (viii) change the fiscal year of the Company; (ix) the appointment or change of the accountants or auditors of the Company or change in accounting policies applied by the Company; (x) the establishment of, or any change in the business plan for the Company or senior management of the Company or entering into a material strategic alliance, joint venture, material acquisition or disposition or the carrying on by the Company of any other business or operation; or (xi) enter into or modify any agreement, transaction or arrangement with any of its officers, directors or employees, except for customary compensation or benefit arrangements as approved by the majority of Board of Directors. (p) The Investors and Prior Holders covenant and agree to at all times vote or cause to be voted all shares of outstanding voting capital stock of the Company, which they may own, control or be entitled to vote, determined on a fully diluted basis, and to take all necessary action within their power to enable the Company to fulfill its obligations described in Section 7.10 of the Series B Purchase Agreement, including, but not limited to, voting in favor of any amendment to the Company's Certificate or Incorporation necessary to effect such obligations. (q) In addition to any other rights provided by law, the Company shall not, without first obtaining the prior approval of the majority of the Board of Directors of the Company, including at least one (1) nominee of the Prior Holders, enter into any transaction with a party which does not deal at arm's length with either of the Debentureholders where such - -30- transaction involves the transfer or sale of all or substantially all of the assets of the Company or any merger, amalgamation or other business combination with the Company. (r) The Company and each of the Investors and Prior Holders covenant and agree that they will take all necessary action to amend the bylaws of the Company, as necessary, to implement and give effect to the provisions of this Agreement. 6.3 Board Designations. For purposes of this Agreement: (i) any individual who is designated for election to the Company's Board of Directors pursuant to the foregoing provisions of Section 6.2 is hereinafter referred to as a "Board Designee"; and (ii) any individual, entity, or group of individuals and/or entities who has the right to designate one or more Board Designees for election the Company's Board of Directors pursuant to the foregoing provisions of Section 6.2 is hereinafter referred to as a "Designator" or as "Designators," as applicable. (a) NOTWITHSTANDING ANYTHING TO THE CONTRARY CONTAINED IN THE BYLAWS OF THE COMPANY, FROM time to time during the term of this Agreement, a Designator or Designators shall, in their sole discretion, have the sole and absolute right to: (i) elect to or remove from the Company's Board of Directors any incumbent Board Designee who occupies a Board seat for which such Designator or Designators are entitled to designate the Board Designee under Section 6.2; and/or (ii) designate a new Board Designee for election to a Board seat for which such Designator or Designators are entitled to designate the Board Designee under Section 6.2 (whether to replace a prior Board Designee or to fill a vacancy in such Board seat); provided, that, such removal and/or designation of a Board Designee is approved in a writing signed by the appropriate Designator or Designators who are entitled to designate such Board Designee under Section 6.2, in which case such election to remove a Board Designee and/or elect a new Board Designee will be binding on all such Designators. In the event of such a removal and/or designation of a Board Designee under this Section 6.3(a)(ii), the Investors and the Prior Holders shall vote their shares of the Company's capital stock as provided in Section 6.2 to cause: (A) the removal from the Company's Board of Directors of the Board Designee or Designees so designated for removal by the appropriate Designator or Designators; and (B) the election to the Company's Board of Directors of any new Board Designee or Designees so designated for election to the Company's Board of Directors by the appropriate Designator or Designators. (iii) Notwithstanding anything to the contrary in this Section 6, if a Board Designee designated by the Prior Holders pursuant to Section 6.2 who is an employee of the Company subsequently ceases to be an employee of the Company, such Designee may be removed from the Company's Board of Directors by the holders of a majority of the Common Stock held by the Prior Holders determined on a fully diluted basis,. The vacancy on the Board of Directors resulting from such removal shall be filled in the manner provided in Section 6.2. - -31- (b) The Company shall promptly give each of the Investors and the Prior Holders written notice of any change in composition of the Company's Board of Directors and of any proposal by a Designator or Designators to remove or elect a new Board Designee. (c) Each of the Investors, the Prior Holders and the Company agree not to vote any shares of Company capital stock, or to take any other actions, that would in any manner defeat, impair, be inconsistent with or adversely affect the stated intentions of the parties under this Section 6 of this Agreement. 6.4 Liquidity Covenant of Company. If the Company: (a) has not completed an Initial Public Offering and had its common stock Listed prior to the date that is two years after the date that the Company has received an "approvable ruling" for the Company's rheopheresis technology from the U.S. Food and Drug Administration; or (b) has recorded net income, calculated in accordance with generally accepted accounting principles ("Net Income"), in excess of $1,000,000 in each of four consecutive fiscal quarters, then the Board of Directors of the Company shall declare and shall cause the Company to pay, on an annual basis, a dividend to holders of Common Stock, on a fully-diluted basis, in an aggregate amount equal to 50% of Net Income. Such a dividend shall be payable on an annual basis for such time as either condition above continues to be satisfied. 6.5 Except as set forth in this Section 6, the covenants set forth in Section 6.3 shall terminate and be of no further force and effect after the closing of the Qualified IPO. 7. Representations and Warranties. 7.1 Each Prior Holder and Investor represents and warrants: (a) that, subject to any transfers permitted hereunder, such Prior Holder and Investor owns beneficially and of record the number of shares of Common Stock (or any securities convertible or exchangeable or exercisable into shares of Common Stock) which are expressed to be owned by him, her or it in Schedule 7.1 to this Agreement, that such shares or securities are not subject to any mortgage, lien, charge, pledge, encumbrance, security interest or adverse claim and that no Person has any rights to become a holder or possessor of any of such shares or of the certificates representing the same; (b) that if such Prior Holder or Investor is an individual that he or she has the capacity to enter into and give full effect to this Agreement; (c) that if such Prior Holder or Investor is a corporation, that it is duly incorporated and validly existing under the laws of its jurisdiction of incorporation and that it has the corporate power and capacity to own its assets and to enter into and perform its obligations under this Agreement; - -32- (d) if such Prior Holder or Investor is a trust, partnership or joint venture, that it is duly constituted under the laws which govern it and that it has the power to own its assets and to enter into and perform its obligations under this Agreement; (e) that this Agreement has been duly authorized by it, and duly executed and delivered by him, her or it, as the case may be, and constitutes a valid and binding obligation enforceable in accordance with its terms, subject to the usual exceptions as to bankruptcy and the availability of equitable remedies; (f) that the execution, deliver and performance of this Agreement does not and will not contravene the provisions of its articles, bylaws, constating documents or other organizational documents or the documents by which it was created or established or the provisions of any indenture, agreement or other instrument to which he or it is a party or by which he or it may be bound; and (g) that all of the foregoing representations and warranties will continue to be true and correct during the continuance of the Agreement. 7.2 The Company, to the best of its knowledge, information and belief confirms the representations and warranties set out in Section 7.1 and further represents and warrants that the securities set forth in Schedule 7.1 are the only outstanding securities of the Company. 8. Miscellaneous. 8.1 SUCCESSORS AND ASSIGNS. Except as otherwise provided in this Agreement, the terms and conditions of this Agreement shall inure to the benefit of and be binding upon the respective successors and assigns of the parties (including transferees of any Registrable Securities). Nothing in this Agreement, express or implied, is intended to confer upon any party other than the parties to this Agreement or their respective successors and assigns any rights, remedies, obligations, or liabilities under or by reason of this Agreement, except as expressly provided in this Agreement. 8.2 GOVERNING LAW. This Agreement shall be governed by and construed exclusively in accordance with the internal laws of the State of Delaware, without giving effect to any choice of law or conflict of law provisions. 8.3 COUNTERPARTS. This Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original and all of which taken together shall be deemed to constitute one and the same instrument. Counterparts may be executed either in original or faxed form and the parties adopt any signatures received by a receiving fax machine as original signatures of the parties. 8.4 TITLES AND SUBTITLES. The titles and subtitles used in this Agreement are used for convenience only and are not to be considered in construing or interpreting this Agreement. 8.5 NOTICES. Unless otherwise provided, any notice required or permitted under this Agreement shall be given in writing and shall be deemed effectively given (i) upon personal delivery to the party to be notified; (ii) upon transmission, when sent by facsimile if sent during normal business hours of the recipient, if not, then on the next business day; (iii) five calendar days after having been sent by registered or certified mail, return receipt requested, - -33- postage prepaid; (iv) one day after a deposit with a nationally recognized overnight courier, specifying next day delivery, with written verification of receipt. All communications shall be sent to the address indicated for such party on the signature page hereof, or at such other address as such party may designate by ten (10) calendar days advance written notice to the other parties. 8.6 SEVERABILITY. If one or more provisions of this Agreement are held to be unenforceable under applicable law, then such provision(s) shall be excluded from this Agreement and the balance of this Agreement shall be interpreted as if such provision(s) were so excluded and shall be enforceable in accordance with its terms. 8.7 THIRD PARTIES. Nothing in this Agreement, express or implied, is intended to confer upon any Person, other than the parties hereto and their successors and assigns, any rights or remedies under or by reason of this Agreement. 8.8 ENTIRE AGREEMENT. This Agreement, together with all the exhibits hereto, constitutes and contains the entire agreement and understanding of the parties with respect to the subject matter of this Agreement and supersedes any and all prior negotiations, correspondence, agreements, understandings, duties or obligations between the parties respecting the subject matter of this Agreement. 8.9 COSTS AND ATTORNEYS' FEES. In the event that any action, suit or other proceeding is instituted concerning or arising out of this Agreement or any transaction contemplated hereunder, the prevailing party shall recover all of such party's costs and attorneys' fees incurred in each such action, suit or other proceeding, including any and all appeals or petitions therefrom. 8.10 ADJUSTMENTS FOR STOCK SPLITS AND CERTAIN OTHER CHANGES. Wherever in this Agreement there is a reference to a specific number of shares of Common Stock or Preferred Stock of the Company of any class or series, then, upon the occurrence of any subdivision, combination or stock dividend of such class or series of stock, the specific number of shares so referenced in this Agreement shall automatically be proportionally adjusted to reflect the effect on the outstanding shares of such class or series of stock by such subdivision, combination or stock dividend. 8.11 AGGREGATION OF STOCK. All shares held or acquired by affiliated entities or persons shall be aggregated together for the purpose of determining the availability of any rights under this Agreement. 8.12 GENERALLY ACCEPTED ACCOUNTING PRINCIPLES. Wherever in this Agreement, or any Exhibit hereto, reference is made to a calculation to be made or an action to be taken in accordance with generally accepted accounting principles, such reference will be deemed to be to the generally accepted accounting principles from time to time by the American Institute of Certified Public Accountants or any successor institute, applicable as at the date on which such calculation or action is made or taken or required to be made or taken in accordance with generally accepted accounting principles. 8.13 COOPERATION. The parties shall cooperate fully in good faith with each other and their respective legal advisers, accountants and other representatives in connection with any steps required to be taken as part of their respective obligations under this Agreement. 8.14 REMEDIES CUMULATIVE. The rights and remedies of the parties under this Agreement are cumulative and in addition to and not in substitution for any of the rights or remedies provided by law. Any single or partial exercise by any party hereto of any right or remedy for default or breach of any term, covenant or condition of this Agreement does not - -34- waive, alter, affect or prejudice any other right or remedy to which such party may be lawfully entitled for the same default or breach. 8.15 TIME OF ESSENCE. Time shall be of the essence of this Agreement. IN WITNESS WHEREOF, the parties hereto have executed this Investors' Rights Agreement as of the date first set forth above. "THE COMPANY": VASCULAR SCIENCES CORPORATION By:______________________________ Richard Davis, Jr., M.D, President and Chief Executive Officer Address: 612 Florida Avenue Palm Harbor, FL 34683 Attention: President Fax: (727) 784-0898 - -35- COUNTERPART SIGNATURE PAGE TO VASCULAR SCIENCES CORPORATION AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT "INVESTORS" Diamed Medizintechnik GMBH By:___________________________________ Address:______________________________ ______________________________________ ______________________________________ Name:_________________________________ Title:________________________________ Date:___________________________, 2003 TLC Vision Corporation By:___________________________________ Address:______________________________ ______________________________________ ______________________________________ Name:_________________________________ Title:________________________________ Date:___________________________, 2003 ______________________________________ Howard Howell Address:______________________________ ______________________________________ ______________________________________ Rehab Associates of West Florida, P.A. By:___________________________________ Address:______________________________ ______________________________________ ______________________________________ Name:_________________________________ Title:________________________________ Date:___________________________, 2003 ______________________________________ Charles Edgar Hart Address:______________________________ ______________________________________ ______________________________________ - -ii- ______________________________________ Charles Edgar Hart Jr. Address:______________________________ ______________________________________ ______________________________________ ______________________________________ Nancy E. Hart Address:______________________________ ______________________________________ ______________________________________ ______________________________________ Patrick J. Sheppard Address:______________________________ ______________________________________ ______________________________________ ______________________________________ Stephen M. Weinstock Address:______________________________ ______________________________________ ______________________________________ - -iii- ______________________________________ David Hooks Address:______________________________ ______________________________________ ______________________________________ Barkley Family Partnership, Ltd. By:___________________________________ Address:______________________________ ______________________________________ ______________________________________ Name:_________________________________ Title:________________________________ Date:___________________________, 2003 Roger and S. Lorraine C. Golomb ______________________________________ Address:______________________________ ______________________________________ ______________________________________ - -iv- Gene DMD and Brenda Whitehead ______________________________________ Address:______________________________ ______________________________________ ______________________________________ Jeffrey S. Schwartz and S. Maribeth Turner ______________________________________ Address:______________________________ ______________________________________ ______________________________________ - -v- William J. Jr. MD and Kris Richards ______________________________________ Address:______________________________ ______________________________________ ______________________________________ ______________________________________ Richard J. Hairston Address:______________________________ ______________________________________ ______________________________________ ______________________________________ Gary M. Najar Address:______________________________ ______________________________________ ______________________________________ - -vi- Northlea Partners By:___________________________________ Address:______________________________ ______________________________________ ______________________________________ Name:_________________________________ Title:________________________________ Date:___________________________, 2003 Michael O. and Rebecca L. Abdoney ______________________________________ Address:______________________________ ______________________________________ ______________________________________ ______________________________________ Alan B. Aker Address:______________________________ ______________________________________ ______________________________________ - -vii- The Thomas D. Arthur Revocable Trust By:___________________________________ Address:______________________________ ______________________________________ ______________________________________ Name:_________________________________ Title:________________________________ Date:___________________________, 2003 ______________________________________ Richard Beard, III Address:______________________________ ______________________________________ ______________________________________ - -viii- ______________________________________ Daniel A. Bertoch, D.D.S. Address:______________________________ ______________________________________ ______________________________________ ______________________________________ Brandt, Tom E. Address:______________________________ ______________________________________ ______________________________________ ______________________________________ David C. Brown Address:______________________________ ______________________________________ ______________________________________ - -ix- Capital Paradigms, Inc. By:___________________________________ Address:______________________________ ______________________________________ ______________________________________ Name:_________________________________ Title:________________________________ Date:___________________________, 2003 ______________________________________ Margaret A. Cornish Address:______________________________ ______________________________________ ______________________________________ - -x- DD Irrevocable Trust, Nancie Reichle, Trustee By:___________________________________ Nancy Reichle, Trustee Address:______________________________ ______________________________________ ______________________________________ ______________________________________ David W. Dieters Address:______________________________ ______________________________________ ______________________________________ ______________________________________ Raphael Andre Drehsen Address:______________________________ ______________________________________ ______________________________________ - -xi- Dan and Lockye Drone ______________________________________ Address:______________________________ ______________________________________ ______________________________________ ______________________________________ Dubin, Richard J. Address:______________________________ ______________________________________ ______________________________________ ______________________________________ Burt W. Dubow Address:______________________________ ______________________________________ ______________________________________ - -xii- Richard and Brigitte Fielder, JT TEN By:___________________________________ Address:______________________________ ______________________________________ ______________________________________ Name:_________________________________ Title:________________________________ Date:___________________________, 2003 First Trust Corporation TTEE FBO David H. Shapiro Acct # 031038028709 By:___________________________________ Address:______________________________ ______________________________________ ______________________________________ Name:_________________________________ Title:________________________________ Date:___________________________, 2003 - -xiii- Gills, James P. Gills Flint Trust Dated 12/20/99 By:___________________________________ Address:______________________________ ______________________________________ ______________________________________ Name:_________________________________ Title:________________________________ Date:___________________________, 2003 ______________________________________ David E. Geller Address:______________________________ ______________________________________ ______________________________________ ______________________________________ Willi E. Gunti Address:______________________________ ______________________________________ ______________________________________ - -xiv- ______________________________________ Cecil S. Harrell Address:______________________________ ______________________________________ ______________________________________ JTB VisionQuest Corporation By:___________________________________ Address:______________________________ ______________________________________ ______________________________________ Name:_________________________________ Title:________________________________ Date:___________________________, 2003 ______________________________________ William S. Jacobson Address:______________________________ ______________________________________ ______________________________________ - -xv- Charles S. and Edeltrout Jenkins ______________________________________ Address:______________________________ ______________________________________ ______________________________________ Dan R. Johnson, Revocable Trust By:___________________________________ Address:______________________________ ______________________________________ ______________________________________ Name:_________________________________ Title:________________________________ Date:___________________________, 2003 ______________________________________ Ralph Katz Address:______________________________ ______________________________________ ______________________________________ - -xvi- ______________________________________ Greta Meeks Address:______________________________ ______________________________________ ______________________________________ ______________________________________ Lorraine K. Mikolon Address:______________________________ ______________________________________ ______________________________________ ______________________________________ Gregory Mincey Address:______________________________ ______________________________________ ______________________________________ - -xvii- Anthony P. Pizzo Family Trust By:___________________________________ Address:______________________________ ______________________________________ ______________________________________ Name:_________________________________ Title:________________________________ Date:___________________________, 2003 ______________________________________ Richard Powell Address:______________________________ ______________________________________ ______________________________________ ______________________________________ Dr. John A. Retzlaff Address:______________________________ ______________________________________ ______________________________________ - -xviii- ______________________________________ A.H. Rodriguez Address:______________________________ ______________________________________ ______________________________________ A.H. Rodriguez Family Trust By:___________________________________ Address:______________________________ ______________________________________ ______________________________________ Name:_________________________________ Title:________________________________ Date:___________________________, 2003 ______________________________________ A.H. or Christopher Rodriguez Address:______________________________ ______________________________________ ______________________________________ Donna Rodriguez Family Trust - -xix- By:___________________________________ Address:______________________________ ______________________________________ ______________________________________ Name:_________________________________ Title:________________________________ Date:___________________________, 2003 Jennifer or Donna Rodriguez ______________________________________ Address:______________________________ ______________________________________ ______________________________________ ______________________________________ Eric F. Rubin Address:______________________________ ______________________________________ ______________________________________ - -xx- ______________________________________ Leslie A. Rubin Address:______________________________ ______________________________________ ______________________________________ ______________________________________ Tracie B. Rubin Address:______________________________ ______________________________________ ______________________________________ Safe Harbor Fund I, L.P. By:___________________________________ Address:______________________________ ______________________________________ ______________________________________ Name:_________________________________ Title:________________________________ Date:___________________________, 2003 - -xxi- Safe Harbor Managed Account 101-A, Ltd. By:___________________________________ Address:______________________________ ______________________________________ ______________________________________ Name:_________________________________ Title:________________________________ Date:___________________________, 2003 Donald Sanders, Custodian for Kendra Sanders By:___________________________________ Donald Sanders, Custodian Address:______________________________ ______________________________________ ______________________________________ Date:___________________________, 2003 - -xxii- Donald Sanders, Custodian for Monica Sanders By:___________________________________ Donald Sanders, Custodian Address:______________________________ ______________________________________ ______________________________________ Date:___________________________, 2003 Donald Sanders, IRA CIBC Oppenheimer as Custodian By:___________________________________ Address:______________________________ ______________________________________ ______________________________________ Name:_________________________________ Title:________________________________ Date:___________________________, 2003 ______________________________________ Santaromita, Joseph Address:______________________________ ______________________________________ ______________________________________ The Schoenbaum Revocable Trust dtd 10/29/99 - -xxiii- By:___________________________________ Address:______________________________ ______________________________________ ______________________________________ Name:_________________________________ Title:________________________________ Date:___________________________, 2003 ______________________________________ Chris Spieldenner Address:______________________________ ______________________________________ ______________________________________ Mark Stern and Ellen Kaplan Stern, ATBE ______________________________________ Address:______________________________ ______________________________________ ______________________________________ Mark Stern and Ellen Kaplan Stern, Irrevocable Trust for Elliott Benjamin Stern By:___________________________________ - -xxiv- Address:______________________________ ______________________________________ ______________________________________ Name:_________________________________ Title:________________________________ Date:___________________________, 2003 Mark Stern and Ellen Kaplan Stern, Irrevocable Trust for Lennie Beth Stern By:___________________________________ Address:______________________________ ______________________________________ ______________________________________ Name:_________________________________ Title:________________________________ Date:___________________________, 2003 - -xxv- Mark Stern and Ellen Kaplan Stern, Irrevocable Trust for Zachary Adam Stern By:___________________________________ Address:______________________________ ______________________________________ ______________________________________ Name:_________________________________ Title:________________________________ Date:___________________________, 2003 ______________________________________ Elizabeth Strapp Address:______________________________ ______________________________________ ______________________________________ ______________________________________ Alan Szucs Address:______________________________ ______________________________________ ______________________________________ - -xxvi- ______________________________________ David E. Wise Address:______________________________ ______________________________________ ______________________________________ ______________________________________ Ellis Wolben Address:______________________________ ______________________________________ ______________________________________ ______________________________________ Thomas G. Wolf Address:______________________________ ______________________________________ ______________________________________ - -xxvii- ______________________________________ Richard C. Davis, Jr. Address:______________________________ ______________________________________ ______________________________________ ______________________________________ Hans K. Stock Address:______________________________ ______________________________________ ______________________________________ - -xxviii- COUNTERPART SIGNATURE PAGE TO VASCULAR SCIENCES CORPORATION AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT "PRIOR HOLDERS": Richard C. Davis, Jr. Address:______________________________ ______________________________________ ______________________________________ Hans K. Stock Address:______________________________ ______________________________________ ______________________________________ Jane Cornish Smith Address:______________________________ ______________________________________ ______________________________________ Ramia H. Cornish Address:______________________________ ______________________________________ ______________________________________ ______________________________________ John Cornish Address:______________________________ ______________________________________ ______________________________________ Margaret A. Cornish QDOT Trust, dated 8/2/90, Margaret A. Cornish and Jane Cornish Smith, Trustees By:___________________________________ Margaret A. Cornish, Trustee By:___________________________________ Jane Cornish Smith , Trustee Address:______________________________ ______________________________________ ______________________________________ - -ii- Schedule A SCHEDULE OF INVESTORS AND THEIR HOLDINGS

Brandt, Tom E. 14,591 Brown, David C. 65,760 Capital Paradigms, Inc. 486 Cornish, Margaret A. 3,648 Davis, Richard C., Jr. 79,751 Dieters, David W. 2,918 Drehsen, Raphael Andre 912 Drone, Dan and Lockye 6,250 Dubin, Richard J. 1,824 Dubow, Burt W. 5,218 Fielder, Richard and Brigitte, JT TEN 75,700 7,295 First Trust Corporation TTEE FBO 4,875 David H. Shapiro Acct # 031038028709 Gills, James P. Gills Flint Trust Dated 12/20/99 187,500 42,223 Geller, David E. 3,750 3,648 Gunti, Willy E. 25,000 Harrell, Cecil S. 6,250 7,295 JTB VisionQuest Corporation 989 Jacobson, William S. 3,288 Jenkins, Charles S. and Edeltrout 1,562 1,824 Johnson, Dan R. Revocable Trust 6,250 3,648 Kahn, Harvey 3,288 Katz, Ralph 3,288 Meeks, Greta 1,824 Mikolon, Lorraine K. 822 Mincey, Gregory 8,220 Pizzo, Anthony P. Family Trust 3,648 Powell, Richard 7,295 RD Irrevocable Trust, Reichle, Nancie, Trustee 12,527 Retzlaff, Dr. John A. 32,880

- - ii - Rodriguez, A.H. 4,008 438 Rodriguez, A.H. Family Trust 40,125 Rodriguez, A.H. or Christopher 3,648 Rodriguez, Donna Family Trust 40,125 Rodriguez, Jennifer or Donna 3,648 Rubin, Eric F. 1,824 Rubin, Leslie A. 3,648 Rubin, Tracie B. 1,824 Safe Harbor Fund I, L.P. 13,883 Safe Harbor Managed Account 101-A, Ltd. 21,082 Sanders, Donald, Custodian for Kendra Sanders 9,098 Sanders, Donald, Custodian for Monica Sanders 9,098 Sanders, Donald, IRA CIBC 250,000 246,599 Oppenheimer as Custodian Santaromita, Joseph 2,466 The Schoenbaum Revocable Trust dtd 10/29/99 7,295 Spieldenner, Chris 7,295 Stern, Mark and Ellen Kaplan Stern, ATBE 80,548 14,591 Stern, Mark and Ellen Kaplan Stern, 730 Irrevocable Trust for Elliott Benjamin Stern Stern, Mark and Ellen Kaplan Stern, 730 Irrevocable Trust for Lennie Beth Stern Stern, Mark and Ellen Kaplan Stern, 730 Irrevocable Trust for Zachary Adam Stern Stock, Hans 72,954 Strapp, Elizabeth 912 Szucs, Alan 3,125 3,648 Wise, David E. 20,550 Wolbe Ellis 3,648 Wolf, Thomas G. 3,125 3,648 TOTALS 783,435 1,275,932 620,112 7,106,452

- - iii - Schedule B PRIOR HOLDERS
NAME OF PRIOR HOLDERS NUMBER OF SHARES OF COMMON STOCK HELD - ---------------------------------------------------- ------------------------------------- Richard C. Davis, Jr. 1,184,603 Hans K Stock 250,000 John Cornish 228,589 Jane Cornish Smith 230,586 Ramia H. Cornish 206,250 Margaret A. Cornish QDOT Trust, dated 8/2/90, 676,676 Margaret A. Cornish and Jane Cornish Smith, Trustees TOTAL: 2,776,704
- - iv - Schedule 7.1 OUTSTANDING SECURITIES - -v- EX-10.1 5 t13715exv10w1.txt EX-10.1 EXHIBIT 10.1 ASSIGNMENT AND DISTRIBUTION AGREEMENT THIS ASSIGNMENT AND DISTRIBUTORSHIP AGREEMENT (the "Agreement") is entered into as of March 22, 2000, by and among RheoLogix, L.L.C., a Delaware limited liability company ("RheoLogix"), Apheresis Technologies, Inc., a Florida corporation ("ATI") ("RheoLogix and ATI are sometimes collectively referred to as the "Assignor") and CytaLogix Corporation, a Delaware corporation ("Assignee"). RECITALS A. Assignor is the holder, owner and possessor of certain rights, technologies, devices, know-how, proprietary information, clinical data, intellectual property, and other unique and valuable assets, tangible and intangible, which are useful in providing extracorporeal blood separation/filtering procedures, including, without limitation, rights under the Asahi Distributorship Agreement (as defined herein) and certain rights granted by the Unites States Food and Drug Administration and the United States Patent Office (the foregoing and any and all anticipated an unanticipated future rights of Assignor relating to the Foregoing are, collectively, the "Proprietary Rights and Technologies"). B. Contemporaneously with the assignment of the Assigned rights and Technologies (as defined herein) hereunder, Assignor will assign certain of the Proprietary Rights and Technologies similar to the Assigned Rights and Technologies to certain of its affiliates, including, without limitation, (i) OccuLogix Corporation, a Florida corporation ("OccuLogix"); (ii) VascuLogix Corporation, a Delaware corporation ("VascuLogix"); and (iii) NephroLogix Corporation, a Delaware corporation ("NephroLogix"); provided that, Assignor may assign rights similar to the Assigned Rights and Technologies to other companies, entities, and individuals. C. Assignor desires to assign, and Assignee desires to accept, in accordance with and pursuant to the terms herein, the Assigned Rights and Technologies. COVENANTS In consideration of the mutual covenants and promises hereinafter set forth, and other good and valuable consideration, the sufficiency of which is hereby acknowledged, the parties hereto agree as follows: 1. ASSIGNMENT. Assignor hereby assigns to Assignee, its successors and assigns, and Assignee, its successors and assigns, hereby accepts, an exclusive right to use, sell, market, develop or distribute the Assigned Rights and Technologies specifically for use within the Market (as defined herein). 1.1 ASSIGNED RIGHTS AND TECHNOLOGIES. Whenever used herein, "Assigned Rights and Technologies" shall mean the Proprietary Rights and Technologies, and any and all anticipated and unanticipated future rights, including, without limitation, certain rights granted by the United States Food and Drug Administration, Assignor may acquire, purchase, procure, develop, receive, accept or otherwise obtain in connection with the Proprietary Rights and Technologies. 1.2 MARKET. Whenever used herein, "Market" shall mean any and all treatment and/or research relating to the Disease (as defined herein) performed and/or conducted in the Territory (as defined herein). 1.3 DISEASE. Whenever used herein, "Disease" shall mean any and all cell-mediated chronic inflammatory diseases, specifically, without limitation, Ulcerative Colitis, Crohn's Disease, Rheumatoid Arthritis and Multiple Sclerosis. 1.4 TERRITORY. Whenever used herein, "Territory" shall mean and any and all present and future territories held, owned or possessed by Assignor relating to the Assigned Rights and Technologies (currently the United States, Canada, and Mexico). 2. LIMITATION OF CERTAIN OF THE ASSIGNED RIGHTS AND TECHNOLOGIES. In addition to the limitations upon the commercial application, scope an utility of the Assigned rights and Technologies contained herein, Assignee acknowledges and understands that certain of the Assigned Rights and Technologies are now and may continue to be effectively limited in their commercial application, scope and utility by certain agreements, licenses and other obligations, including, without limitation, (i) the limitations upon the use, sale, marketing, development and distribution of the Device (as defined herein) contained in that certain 1997 Distributorship Agreement, by and between Asahi Medical Co., Ltd., a corporation organized and existing under the laws of Japan ("Asahi") and ATI, dated February 1, 1997, as amended by that certain Amendment to 1997 Distributorship Agreement and Plasmaflo Agreement, by and between Asahi and ATI, dated January 1, 1999, as amended (collectively, the "Asahi Distributorship Agreement"), and (ii) any and all other instruments, assignments, documents and/or agreements pursuant to which Assignor obtains the right to distribute some or all of the Assigned rights and Technologies. 3. MARKET. Assignee acknowledges, accepts and understands that Assignor, contemporaneously herewith will, and in the future may, assign rights in the Proprietary rights and Technologies for use outside of the Market to third parties or other assignees, including, without limitation, OccuLogix, VascuLogix, and NephroLogix, which are similar to the rights in the Assigned Rights and Technologies assigned hereunder (provided that Assignor shall not assign rights in the Proprietary Rights and Technologies for use within the Market which are similar to the rights in the Assignor Rights and Technologies assigned hereunder). Assignee agrees that it will not, directly or indirectly, whether through or by one of its affiliates or otherwise, use, sell, market, develop or distribute the Assigned Rights and Technologies outside of the Market. In the event a dispute arises among Assignee and any or all of OccuLogix, VascuLogix and NephroLogix as to the ownership and/or commercial application of the Proprietary Rights and Technologies, including, without limitation, the scope of a specific Market, Disease, or Territory (as such terms are defined in the individual assignments from Assignor to each of Assignee, OccuLogix, VascuLogix and NephroLogix), then Assignor shall act as the sole arbiter and shall provide an equitable determination of the ownership and/or commercial application of the Proprietary Rights and Technologies among the parties. Assignee -2- hereby agrees to be bound by such determination(s) made by Assignor and to fully comply with the terms of such determination(s). 4. RIGHT OF ASSIGNEE TO ASSIGN THE ASSIGNED RIGHTS AND TECHNOLOGIES. Assignee shall have the right to assign any or all of its right and interest in the Assigned Rights and Technologies to third parties or its affiliates, provided, that, the terms and provisions of any such assignment shall (i) be substantially similar to, and no less favorable to Assignor than, the terms and provisions of this Agreement, including, without limitation, the restrictions on the use, sale, marketing, development and distribution of the Assigned Rights and Technologies and (ii) not conflict with the Asahi Distributorship Agreement. 5. AGREEMENT TO SUPPLY CERTAIN OF THE ASSIGNED RIGHTS AND TECHNOLOGIES. 5.1 EXCLUSIVE DISTRIBUTORSHIP. As a part of the assignment of the Assigned Rights and Technologies hereunder, ATI shall grant to Assignee (i) the exclusive right to use, sell, market, develop or distribute the products set forth in Exhibit A attached hereto for use within the Market ("Product I") and (ii) the non-exclusive right to use, sell, market, develop or distribute the products set forth on Exhibit B attached hereto for use within the Market ("Product II") (Product I and Product II are collectively, the "Device"), and Assignee (y) agrees to give Assignor the first opportunity to fill any orders for the Device pursuant to his Agreement, and (z) subject to Section 5.6.2, agrees not to purchase, use, sell, market, develop or distribute any apheresis devices or similar devices other than the Device, without the prior written consent of Assignor. 5.2 SALE OF DEVICE AT COST; PAYMENT TERMS. 5.2.1 ATI shall sell the Device to Assignee at Cost. Whenever used herein, "Cost" shall mean the aggregate price paid by ATI for the Device, including all transfer costs, shipping, import duties, royalties and the price paid to Asahi for the Device, less any discounts or allowances. 5.2.2 Unless otherwise agreed in writing by Assignor and Assignee, upon Assignee's receipt of ATI's acceptance of an order by Assignee, Assignee (i) shall open an irrevocable letter of credit ("L/C") within thirty (30) days after bill of lading date in favor of ATI for the Cost of such order or (ii) shall make the advanced payment for the Cost of such order by money transfer in favor of ATI to ATI's designated account. Any bank charges related to the opening or amendment of the L/C or advanced payment shall be borne by Assignee. 5.3 SCHEDULE OF ORDERS FOR THE DEVICE. For the purpose of sales planning by ATI, Assignee shall submit to ATI, in writing, before the tenth (10th) day of each calendar quarter, a report of Assignee's sales and inventory of the Device, including the level of inventory of the Device by article. Assignee also shall submit to ATI, upon request from time to time, information in its possession with respect to competitors' state of marketing and general market information, relevant economic, political and business conditions in the Territory, and texts and summaries of governmental statutes, rules and regulations established or revised from time to time, affecting the marketing or sale of the Device in the Territory. -3- 5.4 MONTHLY FORECASTS. Assignee shall submit to ATI a monthly rolling order forecast before the fifteenth (15th) day of each calendar month for the six (6) calendar month period immediately following such calendar month. The rolling order forecasts for the first two (2) months of each such six (6) month period shall be deemed a firm order for the Device, and each monthly forecast shall be consistent with previous forecasts with respect to such firm orders. 5.5 ACCEPTANCE OF ORDERS. Assignee's order shall be deemed accepted when it is acknowledged and accepted by ATI in writing which shall include, without limitation, transmission via facsimile or email. Assignee may not cancel any order after it is accepted by ATI without the written consent of ATI. 5.6 BEST EFFORTS FOR DELIVERY; DELAY IN DELIVERY; APPORTIONMENT. 5.6.1 ATI shall use its best efforts to deliver the Device in accordance with the delivery schedules set forth in the accepted orders. ATI shall promptly notify Assignee if it anticipates any potential delay. 5.6.2 If Assignee has given Assignor reasonable time to fill an order of the Device and if ATI, in the reasonable judgment of Assignee, has not or will not be able to completely or partially fill orders accepted by ATI in accordance with Section 5.5, then (i) Assignee, at its discretion and upon the giving of written notice to Assignor, may agree to accept a delayed or partial shipment of the Device or (ii) Assignee, at its discretion and upon the giving of written notice to Assignor, may fill all or a portion of its unfilled order for the Device directly from Asahi and/or any other distributor. Notwithstanding the foregoing, the rights of Assignee provided for in this Section 5.6.2 shall not relieve Assignee of its obligation to give Assignor the first opportunity to fill any subsequent orders for the Device. 5.6.3 In the event that Assignee, after first attempting to fill an order of the Device with Assignor, fills all or a portion of an order of the Device directly from Asahi and/or another distributor in accordance with Section 5.6.2, then, upon written notice from Assignee of Assignee's intention to seek other distributors to fill all or a portion of its order, Assignor shall immediately refund to Assignee any and all portions of an advanced payment for which Assignee has not or will not receive Devices. The portion of such order relating to Devices for which Assignee will seek delivery from a distributor other than Assignor will be deemed canceled in all respects and neither Assignor nor Assignee shall have any further obligation relating to such canceled portion of the order, other than Assignor's obligation to immediately refund to Assignee any advance payment by Assignee. 5.6.4 In the event that ATI is unable to fill all of the orders placed at a specific time by each of Assignee, OccuLogix, VascuLogix and NephroLogix (for purposes of this Section 5.6.4, collectively, the "Orderers"), then ATI agrees to equitably and reasonably apportion its Devices on-hand among the Orderers; provided, that, any or all of the Orders may seek to fill the unfilled portion of its order through Asahi directly or any other distributor in accordance with Section 5.6.2 -4- 5.7 TERMS OF DELIVERY. The delivery of the Device shall be at the office of Assignee or such other place as reasonably requested by Assignee. ATI shall have the sole responsibility for the delivery of the Device to such destination. Assignee, in accordance with Section 5.2.1, shall be responsible for all expenses in connection with the delivery and shipment of the Device, including, without limitation, all expenses incurred in the storage, cartage and transportation of the Device, as well as all insurance, fees, charges, taxes (whether sales, use, value added or other), and governmental charges or levies and all other charges or levies relating to the delivery of the Device, whether the same are levied upon Assignor or Assignee. 5.8 RISK OF LOSS AND TITLE. The title to and risk of loss of the Device shall pass from ATI to Assignee at the time when the purchased Device have been delivered to Assignee, to another person acting on Assignee's behalf or to such other place as reasonably requested by Assignee. All risks of loss in connection with the Device thereafter shall rest upon Assignee, including, without limitation, all risks incurred in the storage, cartage and transportation of the Device. ATI shall not be deemed in anyway responsible for obtaining freight and/or insurance, and shall not in any way be liable for the transportation, cartage, insurance or other aspects of the storage or shipment of the Device, after passage of title thereto to Assignee as set forth above. 5.9 WARRANTY. 5.9.1 If any Device is in a damaged condition upon its delivery to Assignee, or the amount delivered is less than that provided for in the order accepted by ATI, Assignee shall advise ATI in writing of any such circumstance within six (6) months of delivery of such Device and shall fully describe the nature of the shortage or damage. ATI shall replace such damaged Device and/or remedy such shortages, without additional charge; provided, that, ATI is given the notice referred to above and the opportunity promptly to inspect the claimed damaged or incompletely delivered Device, and provided further that ATI is reasonably satisfied that such damage and/or shortage was not caused by mishandling or misuse by the parties other than ATI after title passed to Assignee. In the event that Assignee fails to notify ATI or allow such inspection as described above, Assignee shall be deemed to have waived all damage and shortage claims against ATI for said Device. 5.9.2 Assignor warrants that the Device has been manufactured and distributed in compliance with the United States Food and Drug Administration "good manufacturing practices." Other than the foregoing warranty, Assignor makes no warranty as to the manufacture or distribution of the Device. The Device shall be subject only to the applicable warranty provided by the manufacturer and Assignor will have no responsibility therefor; and provided further that all warranties described above in this Section 5.9.2 shall be ineffective, and Assignor shall have no responsibility whatsoever, in the event any Device has been subjected to misuse, mishandling, misapplication, neglect, contamination, accident, improper repair, damage by circumstances beyond Assignor's reasonable control or unauthorized modification by Assignee or its immediate customers, including, without limitation, any damage, contamination, defects or malfunctions resulting from (a) the opening of the packaging of the Device to combine the bloodline to be procured by Assignee and to be used for the Device, (b) the repackaging of the Device with the bloodline for delivery to customers, or (c) the failure -5- to adhere to instructions for use and other documentation included in shipments of the Device. The responsibility of Assignor under all warranties is limited solely to the repair or replacement of the Device, as the case may be, pursuant to the foregoing warranties. All warranty claims are subject to verification by Assignor. 5.9.3 THE WARRANTIES SET FORTH ABOVE ARE EXCLUSIVE AND IN LIEU OF, AND ASSIGNOR EXPRESSLY DISCLAIMS, ALL OTHER WARRANTIES, EXPRESS OR IMPLIED, INCLUDING, WITHOUT LIMITATION, ANY WARRANTY OF MERCHANTABLITY OR FITNESS FOR A PARTICULAR USE OR PURPOSE AND THOSE ARISING BY STATUTE OR OTHERWISE IN LAW OR FROM A COURSE OF DEALING OR USE OF TRADE. ASSIGNOR SHALL NOT HAVE ANY LIABILITY TO ASSIGNEE, ITS CUSTOMERS, END-USERS OR ANY OTHER PARTY OR ANY AMOUNTS IN EXCESS OF THE ORDER PRICE OF THE DEVICE NOR FOR SPECIAL, INCIDENTAL OR CONSEQUENTIAL DAMAGES, INCLUDING, WITHOUT LIMITATION, LOST PROFITS OR PROSPECTIVE PROFITS OR ANY OTHER COMMERCIAL OR ECONOMIC LOSS OF ANY KIND OR NATURE OF ASSIGNEE OR ANY THIRD PERSON, EVEN IF ASSIGNOR HAS BEEN ADVISED OF THE POSSIBILITY OF THE SAME, ARISING OUT OF OR IN CONNECTION WITH THE USE OR PERFORMANCE OF THE DEVICE. 5.9.4 Assignee shall not represent, in relation to the Device purchased hereunder, to its customers any warranties of any nature whatsoever other than those given by Assignor or required by applicable law. 5.10 TRADEMARK AND OTHER RIGHTS. 5.10.1 Assignee shall use the trademark(s) designated by Asahi (hereinafter referred to as "Trademark"), including, without limitation, "Plasmaflo," "Hemosorba" and "Rheofilter," as instructed by Assignor in distributing the Device purchased hereunder and shall not use any other trademarks in connection with such distribution without prior written consent of Assignor. Assignee acknowledges that Asahi is the owner of all right, title and interest in and to the Trademark in the Territory in any form or embodiment thereof and is the owner of the goodwill attached or which shall become attached to the Trademark in connection with the business and goods in relation to which the same has been, is or shall be used. Sales by Assignee shall be deemed to have been made by Asahi for purposes of trademark registration and all uses of the Trademark by Assignee shall inure to the benefit of Asahi. Assignee shall not, at any time, do or suffer to be done any act or thing which may in any way adversely affect any rights of Asahi in and to the Trademark or any registration thereof or which, directly or indirectly, may reduce the value of the Trademark or detract from its reputation. At Assignor's request, Assignee shall execute any documents, including registered user agreements, reasonably required by Assignor to confirm Asahi's ownership of all rights in and to the Trademark in the Territory and to confirm the respective rights of Assignor and Assignee under this Agreement. Assignee shall not alter, obliterate, deface or remove any mark, marking, serial number or other symbol carried on the Device or on the packaging in which the Device are enclosed without the consent of Assignor. In the event that Asahi desires to -6- change any such mark, marking, serial number of other symbol, Assignee will cooperate with Assignor in such manner as may be agreed upon by the parties. Assignee never shall challenge Asahi's ownership of or the validity of the Trademark or any application for registration there, or any trademark registrations thereof, or any rights of Asahi's therein. 5.10.2 During the term of this Agreement and thereafter, Assignee shall not apply for or acquire the registration of the Trademark, not shall Assignee contest Asahi's right in or disturb Asahi's use of the trademark or goodwill. Should Assignee have the Trademark registered in its name or name of any other person, Assignor shall have the right to have the registration canceled or transferred to Asahi. 5.10.3 In the event that Assignee learns of any infringement or imitation of the Trademark or of any use by any person of any trademark similar to the trademark, it promptly shall notify Assignor thereof. If requested to do so by Assignor, Assignee shall cooperate with Assignor in the protection of Asahi's rights in and to the Trademark. Assignee shall have no right to take any action with respect to the Trademark without Assignor's prior written approval. 5.10.4 Upon the termination of this Agreement for any reason whatsoever and after Assignee has had a reasonable and sufficient time to liquidate its inventory of the Device, Assignee shall, except as Assignor may specifically authorize in writing, immediately cease and desist from carrying on any and all use of any trademarks, trade names, words or symbols of any nature indicating, explicitly or implicitly, that it is an authorized distributor or dealer of Assignor's and/or Asahi's products or other Assignor and/or Asahi goods and services. 5.10.5 Any patent, design, copyright and other intellectual property rights embodied in the Device shall be the sole property of Assignor or the third party designated by Assignor, and Assignee shall not, either directly or indirectly, contest nor assist others in contesting the validity of such intellectual property rights. Assignor shall be entitled to terminate this Agreement forthwith on notice to Assignee if Assignee should violate said obligation. Assignee shall not acquire any right in the device by execution of this Agreement or performance hereunder or otherwise and shall not use any of them after termination of this Agreement resulting from expiration of its term or any other cause whatsoever. 5.10.6 Nothing in this Agreement shall be construed as a warranty or representation that the Device of the use thereof will be free from infringement of any patent or other intellectual property rights of any third party. Assignor shall not be under any obligation to defend, or to participate in the defense of, Assignee against any claim or suit alleging such infringement; provided, however, that Assignor shall, at Assignee's costs, cooperate and assist Assignee in the defense of any such claim or suit. 5.11 INDEMNIFICATION AND PRODUCT LIABILITY INSURANCE. -7- 5.11.1 Assignee shall defend and indemnify Assignor against, and hold Assignor harmless from, any loss, cost, liability or expense (including court costs and reasonable fees of attorneys and other professionals) arising or alleged to arise out of the conduct of Assignee in connection with Assignee's use, distribution, promotion, technical and in-service training, and sale of the Assigned Rights and Technologies; provided, however, that (i) Assignee shall have sole control of such defense; and (ii) Assignor shall provide notice promptly to Assignee of any actual or threatened claim of which Assignor becomes aware. 5.11.2 Assignor shall defend and indemnify Assignee against, and hold Assignee harmless from, any loss, cost, liability or expense (including court costs and reasonable fees of attorneys and other professionals) arising or alleged to arise out of the conduct of Assignor in connection with the distribution of the Assigned rights and Technologies; provided, however, that (i) Assignor shall have sole control of such defense, and (ii) Assignee shall provide notice promptly to Assignor of any actual or threatened claim of which Assignee becomes aware. 5.11.3 Each party shall be responsible for maintaining reasonable product liability insurance coverage with respect to the Assigned Rights and Technologies in the Territory at all times during the term of this Agreement and thereafter until the time when both parties agree upon. Such insurance policy shall be written for the benefit of both Assignee and Assignor. Assignee shall deliver a certificate of such insurance to Assignor promptly upon issuance of said insurance policy. 5.12 DISTRIBUTION OF OTHER ASSIGNED RIGHTS AND TECHNOLOGIES. Assignor agrees to enter into distributorship agreements with Assignee or Assignee's affiliate for the distribution by Assignor to Assignee of any of the Assigned Right and Technologies, other than the Device (the distribution of which is provided for herein), for which Assignor holds or owns or will hold or own distribution and/or marketing rights. Such distributorship agreements shall provide for the distribution by Assignor of the subject Assigned Rights and Technologies on terms that are substantially similar to those terms upon which Assignor receives the subject Assigned rights and Technologies; provided, that, if commercially viable, such distributorship agreements shall contain terms and provisions substantially similar to the terms and provisions contained in Section 5.6 hereof. 5.13 USE OF THE DEVICE. Assignee hereby agrees to use the Device only for lawful purposes and uses in accordance with any and all local, state or federal laws, rules or regulations, including, without limitation, rules and regulations relating to "good manufacturing practices" promulgated by the United States Food and Drug Administration. 6. ROYALTY. 6.1 PAYMENT OF ROYALTY. In consideration of the assignment of the Assigned Rights and Technologies to the Assignee, Assignee agrees to pay to Assignor a royalty in an amount equal to five percent (5%) of the Gross Revenues (as defined herein) (collectively, the "Royalty"). Whenever used herein, "Gross Revenues" shall mean all revenues of Assignee and an Affiliate of Assignee (as defined herein) derived from, attributable to, or earned with the use, -8- sale, marketing, development or distribution of the Assigned Rights and Technologies, including, without limitation, the sale, lease, assignment, or license of the Assigned Rights and Technologies, less (i) all sales and use taxes relating to the foregoing; (ii) all paid reserves for returns related to the foregoing; (iii) all customer rebates related to the foregoing; (iv) all warranty reserves related to the foregoing; and (v) all charges for freight and shipping relating to the foregoing. When used in this Section 6, "Affiliate of Assignee" shall mean any individual, sole proprietorship, partnership, joint venture, limited liability company, trust, unincorporated organization, association, corporation, institution, entity or party which, directly or indirectly, controls, is controlled by, or which is under common control with Assignee. Assignee or an Affiliate of Assignee shall be deemed to be "controlled by" the other if one of them possesses, directly or indirectly, the power (a) to vote 10% or more of the securities or interests (on a fully diluted basis) having ordinary voting power for the election of directors or managers of the other or (b) to direct or cause the direction of the management policies of the other, whether by contract or otherwise. Notwithstanding the foregoing, a sales and marketing partner of Assignee which would otherwise be deemed to be an Affiliate of Assignee shall not be deemed to be an Affiliate of Assignee, if assignor in its sole discretion, so consents. 6.2 DELIVERY OF PAYMENT AND STATEMENTS. Within forty-five (45) days after the end of each fiscal quarter of Assignee, Assignee shall deliver to Assignor (i) quarterly financial statements clearly showing the Gross Revenues and (ii) the payment of the Royalty. Assignee agrees to keep complete and correct books, accounts and records to facilitate computation of the Royalty. 6.3 RIGHT TO AUDIT; OVERPAYMENT; UNDERPAYMENT. For the purpose of verifying the amount of Royalty due, Assignor shall have the right to audit (the "Audit"), at its expense, the books of Assignee once per calendar year upon the giving of reasonable notice to Assignee. In the even that the amount of the aggregate quarterly payments of the Royalty for the time period contemplated by the Audit are more than the correct amount of the payments of the royalty for such time period, then the amount overpaid shall be credited to future sales of the Device. In the event that he amount of the aggregate quarterly payments of the royalty for the time period contemplated by the Audit are more than five percent (5%) less than the correct amount of the payments of the Royalty for such time period, then, in addition to paying to Assignor the amount of the Royalty previously underpaid, Assignee shall reimburse Assignor for any and all costs and expenses associated with or related to the Audit. 7. INTELLECTUAL PROPERTY. Assignor accepts, understands and acknowledges that, for the term of this Agreement, Assignee shall be the owner and holder of, among other things, any and all intellectual property, including, without limitation, all present and future rights to market the Assigned Rights and Technologies within the Market granted by the United States Food and Drug Administration, and that Assignee shall have the sole right to, among other things, conduct clinical trials and market the Assigned Rights and Technologies within the Market. 8. FORCE MAJEURE. Except for the prepayment by Assignor pursuant to Section 5.2 of advance payments of Assignee, neither party hereto shall be liable to the other in any manner for failure or delay in fulfillment of all or part of this Agreement, or any individual contract, which -9- is directly or indirectly owing to any causes or circumstances beyond that party's control, including, but not limited to, failure of Asahi to supply the Device to Assignor, acts of God, governmental orders or restriction, war, war-like conditions, hostilities, sanctions, mobilization, blockade, embargo, detention, revolution, riot, looting, strike, lockout, plague or other epidemics, fire, earthquake, explosion, flood, and shortage of raw materials. 9. TERM. This Agreement shall come into effect as of the date first above written and shall continue in perpetuity until terminated pursuant to Section 10. 10. TERMINATION. 10.1 EVENTS OF TERMINATION. 10.1.1 Assignor may terminate this Agreement and any individual contract for the Device hereunder if upon written notice from Assignor to Assignee that Assignee is in material default of the terms and provisions of the Agreement, Assignee fails to cure such material default within 90 days after receipt of such notice. 10.1.2 Assignee acknowledges that the assignment of the rights in the Assigned Rights and Technologies to Assignee hereunder shall immediately terminate when, and to the extent, Assignor's rights to such Assigned rights and Technologies are terminated. 10.2 EFFECT OF TERMINATION. Termination of this Agreement and/or any individual contracts for the Device hereunder pursuant to the preceding Section shall be without prejudice and shall be additional to any right of Assignor under this Agreement, such individual contracts for the Device, law, statute or otherwise. Upon termination of this Agreement and/or such individual contracts for the Device, all payments to be made under this Agreement, including, without limitation, the payment of the Royalty and/or such individual contracts in connection with the sale of the Device hereunder shall become immediately due and payable. 11. MISCELLANEOUS. 11.1 GOVERNING LAW; FORUM. This Agreement shall be governed by the laws of the State of Florida. Each party agrees that any suit, action or proceeding brought by such party in connection with or arising from this Agreement shall be brought solely in any state or federal court located in Florida, and each party consents to the jurisdiction and venue of each such court. Each party agrees that a final judgment in any action or proceeding so brought shall be conclusive and may be enforced by suit on the judgment or in any other manner provided by law or equity. 11.2 EFFECT OF WAIVER. The waiver, express or implied, by either of the parties hereto of any right hereunder or of any failure to perform or breach hereof by the other party hereto shall not constitute or be deemed as a waiver of any other right hereunder or of any other failure to perform or breach hereof by the other party, whether or a similar or dissimilar nature. 11.3 ENTIRE AGREEMENT. This Agreement and its Exhibits contain the entire agreement of the parties with respect to the subject matter herein contained and supersedes any prior Agreements or understandings between the parties. -10- 11.4 DISPUTE RESOLUTION. Except as provided in Section 3, all disputes, controversies or differences which may arise between the parties, out of or in relation to or in connection with this Agreement, or for the breach thereof, shall be settled by mutual consultation between the parties hereto in good faith as promptly as possible, but failing an amicable settlement, shall be finally settled by arbitration to be held in the State of Florida. 11.5 NOTICES. Unless otherwise provided in this Agreement, all notices to be given hereunder shall be in writing and sent by facsimile transmission, overnight courier or registered airmail to the respective addresses of the parties stated above or to such other addresses as may be indicated in writing by the parties hereto by notice pursuant to this Section. If either party has changed its address, a written notice thereof shall be given to the other party pursuant to this Section. 11.6 RELATIONSHIP OF THE PARTIES. Nothing in this Agreement shall be construed or interpreted to provide that Assignee shall or may act as the agent or legal representative of Assignor for any purpose whatsoever. Assignee is not granted any right or authority to assume or to create any obligation or responsibility, expressed or implied, on behalf of, or in the name of, Assignor or to bind Assignor in any manner whatsoever. Notwithstanding the common ownership of the equity holders of Assignor, Assignee, OccuLogix, VascuLogix and NephroLogix, the parties hereto shall remain separate entities. 11.7 RESPONSIBILITY FOR COSTS INCURRED HEREUNDER. Assignee shall be solely responsible for all expenses and costs incurred in performing its duties hereunder, including, without limitation, all of its own operating and sales promotion expenses. 11.8 CONDUCT OF ASSIGNEE. the business conducted by Assignee in connection with the sale, use, marketing, development and distribution of the Assigned Rights and Technologies shall at all times be conducted and maintained so as not to detract from, interfere with or adversely reflect upon the goodwill and reputation of Assignor, the Trademark and/or trade names and Assigned Rights and Technologies. [SIGNATURE PAGE FOLLOWS] -11- IN WITNESS WHEREOF, the parties hereto have caused this Assignment and Distributorship Agreement to be executed by their respective duly authorized representative as of the day and year first above written. ASSIGNOR: RheoLogix, L.L.C., a Delaware limited liability company By: --------------------------------- Its: President & CEO Apheresis Technologies, Inc., a Florida corporation By: /s/ John Cornish --------------------------------- Its: President & CEO ASSIGNEE: CytaLogix Corporation, a Delaware corporation By: --------------------------------- Its: President & CEO EXHIBIT A PRODUCT I First filter: Plasmaflo OP-05W(L) Second filter: Rheofilter AR-2000 Product I means the set of the above first filter and second filter which are used together. EXHIBIT B PRODUCT II Plasmaflo AP-05H(L) Hemosorba CH-350 EX-10.2 6 t13715exv10w2.txt EX-10.2 EXHIBITS 10.2 MEMORANDUM This Memorandum is made on 31st of December 2001 (hereinafter called "ASSIGNED DAY"), by and among ASAHI MEDICAL CO., LTD., a corporation organized and existing under the laws of Japan, with its principal place at 9-1, Kanda Mitoshirocho, Chiyoda-ku, Tokyo, Japan (hereinafter called "ASAHI"), OCCULOGIX CORPORATION, a corporation organized and existing under the laws of the State of Florida, the United States of America, with its principal place at 612 Florida Avenue, Palm Harbor, Florida 34683, the United States of America (hereinafter called "OCCULOGIX"), and APHERESIS TECHNOLOGIES, INC., a corporation organized and existing under the laws of the State of Florida, the United States of America, with its principal place at 612 Florida Avenue, Palm Harbor, Florida 34683, the United States of America (hereinafter called "ATI"). BACKGROUND OCCULOGIX and ATI, as a wholly owned subsidiary of OCCULOGIX, have jointly and severally engaged in sales, marketing, and exploring regulatory approvals of certain plasma therapy products manufactured by ASAHI in the Territory (hereinafter defined) under the terms and conditions of the following six (6) agreements (hereinafter collectively called "AGREEMENTS"): 1. 1997 DISTRIBUTORSHIP AGREEMENT made on February 1, 1997 (hereinafter called "AGREEMENT-I") 2. Plasmaflo AGREEMENT made on June 1, 1997 (hereinafter called "AGREEMENT-II") 3. MEMORANDUM made on April 1, 1998 4. AMENDMENT to 1997 DISTRIBUTORSHIP AGREEMENT and Plasmaflo AGREEMENT made on January 1, 1999 -2- 5. 2000 AGREEMENT made on September 1, 2000 6. SECOND AMENDMENT to 1997 DISTRIBUTORSHIP AGREEMENT and Plasmaflo AGREEMENT made on November 1, 2000 OCCULOGIX splits off ATI as of ASSIGNED DAY and each company will be engaged in the following business respectively: A) OCCULOGIX: i) Exploring to obtain, at its own expenses, the FDA approval of Product I (defined in AGREEMENT-I) for Treatment Disease (defined in AGREEMENT-I) ii) Distributing aforesaid Product I in the Territory B) ATI: i) Sales and marketing of Product II (defined in AGREEMENT-I) in the Territory ii) Exploring to obtain, at its own expenses, the FDA approval of Product (defined in AGREEMENT-II) for TPE (defined in AGREEMENT-II) iii) Distributing the aforesaid Product II and Product in the Territory ASAHI accepted such split and is desirous that each of them will engage in each business relating to ASAHI's products. NOW, THEREFORE, it is agreed among the three parties as follows: 1. The AGREEMENTS shall terminate as of ASSIGNED DAY. 2. ASAHI and OCCULOGIX shall newly enter into a distributorship agreement for the distribution of Product-I (defined in AGREEMENT-I) for Treatment Disease (defined in AGREEMENT-I) as of ASSIGNED DAY. -3- 3. ASAHI and ATI shall newly enter into a distributorship agreement for the distribution of Product-II (defined in AGREEMENT-I) and of Product (defined in AGREEMENT-II) for TPE (defined in AGREEMENT-II) as of ASSIGNED DAY. IN WITNESS WHEREOF, the three parties hereto have caused this Memorandum to be executed by their respective duly authorized representatives as of ASSIGNED DAY. Signed and agreed by _____________________________ ____________________________ Akihiro Isobe John B. Cornish President President ASAHI MEDICAL CO., LTD. APHERESIS TECHNOLOGIES, INC. ____________________________ OCCULOGIX CORPORATION EX-10.3 7 t13715exv10w3.txt EX-10.3 EXHIBIT 10.3 MEMORANDUM This Memorandum is made on 31st of December 2001 (hereinafter called "ASSIGNED DAY"), by and among ASAHI MEDICAL CO., LTD, a corporation organized and existing under the laws of Japan, with its principal place at 9-1, Kanda Mitoshirocho, Chiyoda-ku, Tokyo, Japan (hereinafter called "ASAHI"), OCCULOGIX CORPORATION, a corporation organized and existing under the laws of the State of Florida, the United States of America, with its principal place at 612 Florida Avenue, Palm Harbor, Florida 34683, the United States of America (hereinafter called "OCCULOGIX"), and APHERESIS TECHNOLOGIES, INC., a corporation organized and existing under the laws of the State of Florida, the United States of America, with its principal place at 612 Florida Avenue, Palm Harbor, Florida 34683, the United States of America (hereinafter called "ATI"). BACKGROUND OCCULOGIX and ATI, as a wholly owned subsidiary of OCCULOGIX, have jointly and severally engaged in sales, marketing, and exploring regulatory approvals of certain plasma therapy products manufactured by ASAHI in the Territory (hereinafter defined) under the terms and conditions of the following six (6) agreements (hereinafter collectively called "AGREEMENTS"): 1. 1997 DISTRIBUTORSHIP AGREEMENT made on February 1, 1997 (hereinafter called "AGREEMENT-I") 2. Plasmaflo AGREEMENT Made on June 1, 1997 (hereinafter called "AGREEMENT-II") 3. MEMORANDUM made on April 1, 1998 4. AMENDMENT to 1997 DISTRIBUTORSHIP AGREEMENT and Plasmaflo AGREEMENT Made oft January 1, 1999 5. 2000 AGREEMENT made on September 1, 2000 6. SECOND AMENDMENT to 1997 DISTRIBUTORSHIP AGREEMENT and Plasmaflo AGREEMENT made on November 1, 2000 OCCULOGIX splits off ATI as of ASSIGNED DAY and each company will be engaged in the following business respectively: -1- A) OCCULOGIX: i) Exploring to obtain, at its own expenses, the FDA approval of Product I (defined in AGREEMENT-I) for Treatment Disease (defined in AGREEMENT-I) ii) Distributing aforesaid Product I in the Territory B) ATI: i) Sales and marketing of Product II (defined in AGREEMENT-I) in the Territory ii) Exploring to obtain, at its own expenses, the FDA approval of Product (defined in AGREEMENT-II) for TPE (defined in AGREEMENT-II) iii) Distributing the aforesaid Product II and Product in the Territory ASAHI accepted such split and is desirous that each of them will engage in each business relating to ASAHI's products. NOW, THEREFORE, it is agreed among the three parties as follows: 1. The AGREEMENTS shall terminate as of ASSIGNED DAY. 2. ASAHI and OCCULOGIX shall newly enter into a distributorship agreement for the distribution of Product-I (defined in AGREEMENT-I) for Treatment Disease (defined in AGREEMENT-I) as of ASSIGNED DAY. 3. ASAHI and ATI shall newly enter into a distributorship agreement for the distribution of Product-II (defined in AGREEMENT-I) and of Product (defined in AGREEMENT-II) for TPE (defined in AGREEMENT-II) as of ASSIGNED DAY. IN WITNESS WHEREOF, the three parties hereto have caused this Memorandum to be executed by their respective duly authorized representatives as of ASSIGNED DAY. Signed and agreed by ____________________________ ____________________________ Akihiro Isobe John B. Cornish President President ASAHI MEDICAL CO., LTD. APHERESIS TECHNOLOGIES, INC. -2- _________________________________ OCCULOGIX CORPORATION -3- 2000 AGREEMENT This AGREEMENT is made on the first day of September, 2000 by and among ASAHI MEDICAL CO., LTD., a corporation organized and existing under the laws of Japan, with its principal place of business at 9-1, Kanda Mitoshirocho, Chiyoda-ku, Tokyo, 101-8482 Japan (hereinafter called "ASAHI"), OCCULOGIX CORPORATION, a corporation organized and existing under the laws of State of Florida with its principal place of business at 2575 Ulmerton Road, Suite 210, Clearwater, Florida 34622, the United States of America (hereinafter called "OCCULOGIX"), and APHERESIS TECHNOLOGIES, INC., a corporation organized and existing under the laws of State of Florida with its principal place of business at 612 Florida Avenue, Palm Harbor, Florida 34683 , the United States of America (hereinafter called "ATI"). BACKGROUND ASAHI and ATI entered into the following agreements (hereinafter collectively called "AGREEMENTS"), which are effective as of the day above written. 1. 1997 DISTRIBUTORSHIP AGREEMENT made on February 1, 1997 2. Plasmaflo AGREEMENT made on June 1, 1997 3. MEMORANDUM made on April 1, 1998 4. AMENDMENT to 1997 DISTRIBUTORSHIP AGREEMENT and Plasmaflo AGREEMENT made on January 1, 1999 5. STANDARD OPERATION PROCEDURE BETWEEN ASAHI MEDICAL CO., LTD. AND APHERESIS TECHNOLOGIES, INC. FOR THE AM QUALITY REPORTING PROGRAM made on July 31, 1996 Since signing the AGREEMENTS, ATI has engaged in sales, marketing, and exploring regulatory approvals of certain plasma therapy products manufactured by ASAHI, in the countries defined in the AGREEMENTS (hereinafter called "TERRITORY"). OCCULOGIX now desires to acquire ATI, and ATI desires to operate as a wholly owned subsidiary of OCCULOGIX after acquisition. Furthermore, OCCULOGIX and ATI desire to continue acting as distributors of ASAHI plasma therapy products in the TERRITORY. The purpose of such acquisition is to ensure more effective sales, marketing, and regulatory work relating to ASAHI plasma therapy products. -1- ASAHI recognizes that said acquisition of ATI by OCCULOGIX does not adversely affect sales, marketing, and exploring regulatory approvals of ASAHI plasma therapy products, and is willing for the AGREEMENTS to remain effective. NOW, THEREFORE, it is agreed among the three parties as follows 1. The AGREEMENTS shall remain in effect after acquisition of ATI by OCCULOGIX. The party "ATI" referred to in the AGREEMENTS shall be interpreted as "OCCULOGIX and/or ATI" as soon as acquisition of ATI by OCCULOGIX is effective. 2. OCCULOGIX and ATI shall jointly and severally assume the rights and obligations stipulated in the AGREEMENTS. 3. OCCULOGIX and ATI shall also include their affiliate company(ies), which are the organizations that are more than fifty percent (50%) owned or controlled by OCCULOGIX and/or ATI (hereinafter called "AFFILIATE(S)"). 4. Notwithstanding Paragraph 3 hereof, the marketing, sales and distribution by AFFILIATE of ASAHI plasma therapy/blood purification products defined in the AGREEMENTS shall be subject to ASAHI's prior approval in writing. IN WITNESS WHEREOF, the three parties hereto have caused this AGREEMENT to be executed by their respective duly authorized representatives as of the day and year first above written. Date: September 1, 2000 ___________________________________ ____________________________ Richard C. Davis Jr., M.D. John B. Cornish Chairman and Chief Science Officer President OCCULOGIX CORPORATION APHERESIS TECHNOLOGIES, INC. ___________________________________ Akihiro Isobe President ASAHI MEDICAL CO., LTD. -2- DISTRIBUTORSHIP AGREEMENT This Distributorship Agreement made on _______________ (hereinafter referred to as "EFFECTIVE DATE"), by and between ASAHI MEDICAL CO., LTD., a corporation organized and existing under the laws of Japan, with its principal place of business at 9-1, Kanda Mitoshirocho, Chiyoda-ku, Tokyo, Japan (hereinafter referred to as "ASAHI"), and OCCULOGIX CORPORATION, a corporation organized and existing under the laws of the State of Florida, the United States of America, with its principal place of business at 612 Florida Avenue, Palm Harbor, Florida 34683, the United States of America (hereinafter referred to as "OCCULOGIX"): WITNESSETH WHEREAS, ASAHI desires to sell and market the Product (hereinafter defined) and granting to OCCULOGIX certain distributor rights with respect to the Product in the Territory (hereinafter defined); and WHEREAS, OCCULOGIX is desirous of distributing the Product in the Territory. NOW, THEREFORE, for and in consideration of the mutual covenants and premises hereinafter set forth, and other good and valuable consideration, the sufficiency of which is hereby acknowledged, the parties hereto agree as follows: ARTICLE 1. DEFINITIONS As used in this Agreement, the following terms shall have the following meanings respectively: A. "Product" shall mean the products set forth in attached Exhibit A hereto. The first and the second filter set forth in Exhibit A shall always be used together for the Treatment Disease. B. "Territory" shall mean U.S., Canada, Mexico, Commonwealth of The Bahamas, Dominican Republic, Republic of Haiti, Puerto Rico, Jamaica, Antigua and Barbuda, Commonwealth of Dominica, Barbados, Republic of Trinidad and Tobago, Grenada, Saint Thomas, Saint Lucia, Saint Christopher and Nevis, Saint Vincent and the Grenadines, Caicos Islands, and Virgin Islands of the United States of America. C. "Treatment Disease" shall mean a disease of an age-related macular degeneration, which is considered as one of the theological disorders. D. "FDA" shall mean the Federal Food and Drug Administration in the U.S. -1- E. "OCCULOGIX" shall also include its affiliate company(s), which are the organizations that are more than fifty percent (50%) owned or controlled by OCCULOGIX (hereinafter referred to as "AFFILIATE(S)"). Notwithstanding the above, the marketing, sales and distribution by AFFILIATE of ASAHI's plasma therapy/blood purification products defined in this Agreement shall be subject to ASAHI's prior approval in writing. ARTICLE 2. DISTRIBUTORSHIP 2.1 ASAHI hereby appoints OCCULOGIX as its exclusive distributor in the Territory for the sale of Product solely used for the Treatment Disease, provided, however, that OCCULOGIX obtains the FDA approval and other necessary approvals in the Territory according to Article 7 of this Agreement. OCCULOGIX agrees to act as such exclusive distributor under the terms and conditions of this Agreement. 2.2 This Agreement does not construe OCCULOGIX as the agent or legal representative of ASAHI for any purpose whatsoever. OCCULOGIX is not granted any right or authority to assume or to create any obligation or responsibility, expressed or implied, on behalf of or in the name of ASAHI or to bind ASAHI in any manner or thing whatsoever, or to accept any legal process addressed to or intended for ASAHI. 2.3 OCCULOGIX shall not, directly or indirectly, seek customers for the Product or establish a branch or distribution depot related to the Product outside the Territory. 2.4 OCCULOGIX shall not represent, market, nor sell any similar to or competitive products with Product during the term of this Agreement. 2.5 OCCULOGIX shall be solely responsible for all expenses and costs incurred in performing its duties hereunder, including, without limitation, all of its own operating and sales promotion expenses. 2.6 OCCULOGIX shall use its best efforts to promote the sale and use of, and to secure orders and develop the market for the Product in the Territory. The business conducted by OCCULOGIX in connection with the marketing of the Product shall at all times be conducted and maintained so as not to detract from, interfere with or adversely reflect upon the goodwill and reputation of ASAHI, its trademarks and/or trade names and the Product. 2.7 OCCULOGIX also shall make its best efforts that public and private medical insurance reimbursement shall be applied for the Treatment Disease using the Product in the U.S. ARTICLE 3. MINIMUM AND TARGET PURCHASE REQUIREMENT 3.1 OCCULOGIX shall purchase Product from ASAHI in not less than the following quantities: First year: 9, 000 pieces of each filter i.e. First and Second filter -2- Second year: 15,000 pieces of each filter i.e. First and Second filter Third year: 22,500 pieces of each filter i.e. First and Second filter The above minimum purchase quantities shall be effective from six (6 ) months after OCCULOGIX obtains the FDA approval of Product. The minimum purchase quantities for the Fourth year shall be discussed and determined immediately after the term of the First year by mutual consent, but shall not be less than that of the previous year. The minimum purchase quantities for the Five year shall be discussed and determined immediately after the term of the Second year by mutual consent, but shall not be less than that of the previous year. This same method shall be used in the Sixth year and thereafter, for the determination of future minimum purchase quantities, such that minimum purchase quantities are always fixed for three years. 3.2 For the purpose of this Article, the Product shall be considered purchased when the Product has actually been delivered as defined in Paragraph 4.6. ARTICLE 4. ORDER AND DELIVERY 4.1 For the purpose of sales planning by ASAHI, OCCULOGIX shall submit to ASAHI, in writing, before the twentieth (20th) day of each calendar quarter a report of OCCULOGIX's sales and inventory of the Product, including the level of inventory of the Product by article. OCCULOGIX also shall submit to ASAHI, upon request from time to time, information in its possession with respect to competitors' state of marketing and general market information, relevant economic, political and business conditions in the Territory, and texts and summaries of governmental statutes, rules and regulations established or revised from time to time, affecting the marketing or sale of the Product in the Territory. 4.2 OCCULOGIX shall submit to ASAHI a calendar monthly rolling order forecast by the end of each calendar month for the six (6) calendar month period immediately following such calendar month. The rolling order forecasts for the first two (2) months of each such six (6) month period shall be deemed a firm order for the Product, and each monthly forecast shall be consistent with previous forecasts with respect to such firm orders. 4.3 ASAHI shall have the right to reject any order but agree not to unreasonably reject any order placed by OCCULOGIX to satisfy its minimum purchase obligations of Product (as set forth above in Paragraph 3.1). OCCULOGIX's order shall be deemed accepted when it is acknowledged and accepted by ASAHI in writing. OCCULOGIX may not cancel any order after it is accepted by ASAHI without the written consent of ASAHI. 4.4 ASAHI shall make its efforts to deliver the Product in accordance with the delivery schedules set forth in the accepted orders. However, if anything beyond the control of ASAHI prevents ASAHI from completely filling orders accepted by ASAHI in accordance with the Paragraph 4.3, a delayed and/or partial shipment shall be accepted by -3- OCCULOGIX. ASAHI shall notify OCCULOGIX promptly if it anticipates any potential delay. 4.5 If OCCULOGIX submits to ASAHI a reasonable order forecast of Product stipulated in Paragraph 4.2 above and when it becomes clear that ASAHI may significantly be unable to meet such forecast or orders of Product for a period of more than six (6) months, both parties shall consult and discuss to reach a mutually acceptable resolution of the matter. If both parties cannot reach an acceptable resolution, notwithstanding Paragraph 2.4 of this Agreement, OCCULOGIX may obtain competitive product(s) with Product from the third party with prior written consent of ASAHI; provided, however, that such OCCULOGIX purchase is necessary to meet customers' demand in the Territory and shall be ceased immediately when ASAHI is able to resolve the situation described in the foregoing sentence. 4.6 The delivery of the Product shall be at the loading port in Japan on the basis of "FOB" as defined in INCOTERMS/1990, and parties' respective obligations shall be determined in accordance with INCOTERMS/2000. ARTICLE 5. PRICES AND TERMS OF PAYMENT 5.1 The prices of the Product shall be as set forth in the price list to be issued to OCCULOGIX by ASAHI from time to time but not later than sixty (60) days before the effective date of such price list, provided that the price of any product of the Product in a given calendar year shall not exceed one hundred and twenty percent (120% ) of the price effective at the end of the preceding calendar year, unless any of the following circumstances arise during a given calendar year; (a) significant change of. currency exchange rate, or (b) significant increase of production cost of the Product, or (c) any events beyond ASAHI's control. With respect to Product, quantity discount shall be reasonably determined when the minimum purchase quantity is determined in accordance with Paragraph 3.1. 5.2 As soon as OCCULOGIX receives ASAHI's acceptance of the order, OCCULOGIX shall open an irrevocable letter of credit (hereinafter referred to as "L/C") at thirty (30) days after Bill of Lading (B/L) date in favor of ASAHI by full cable confirmed by a Japanese, European or American bank which ASAHI accepts in advance or shall make the advanced payment by money transfer in favor of ASAHI to ASAHI's designated account. Any bank charges related to L/C opening, L/C amendment and advanced payment shall be borne by OCCULOGIX. 5.3 Payments under the preceding paragraphs shall be made in the currency of U.S. dollars. -4- ARTICLE 6. RISK OF LOSS AND TITLE The title to and risk of loss of the Product shall pass from ASAHI to OCCULOGIX at the time when the purchased Product have been handed over to the carrier or to another person acting on his behalf as defined in INCOTERMS/1990. All risks of loss and expenses in connection with such Product thereafter shall rest upon OCCULOGIX, including, without limitation all risks and expenses incurred in the storage, cartage and transportation of the Product as well as all insurance, fee, charges, taxes (whether sales use, value added or other), customs duties, and governmental charges or levies and all other charges and expenses of any nature whatsoever, thereafter incurred with respect to the Product, whether the same are levied upon ASAHI or OCCULOGIX. ASAHI shall not be deemed in any way responsible for obtaining such freight and/or insurance, and shall not in any way be liable for the transportation, cartage, insurance or other aspects of the storage or shipment of the Product, after passage of title thereto to OCCULOGIX as set forth above. ARTICLE 7. REGULATORY APPROVAL 7.1 OCCULOGIX shall be responsible, at its own costs and expenses, for obtaining and maintaining the FDA and all other applicable approvals and validations for the marketing, sales and use of Product for the Treatment Disease in each country of the Territory under the name of ASAHI by the end of July, 2003. If the above approvals cannot be obtained by such day and year, OCCULOGIX shall consult with ASAHI and attempt to reach a mutual acceptable resolution. Despite consultation, if both parties cannot find a mutual acceptable resolution, ASAHI may delete Product from this Agreement upon six (6) months prior written notice to OCCULOGIX. 7.2 OCCULOGIX shall submit the protocol of the clinical trial for obtaining the FDA approval to ASAHI four (4) months before the start of the clinical trial and inform ASAHI of the necessary quantity and timing of Product in order to carry out the clinical trial. ASAHI has shipped to OCCULOGIX one-hundred and seventeen (117) dozens of Product, free of charge for the clinical trial to obtain the FDA approval for the Treatment Disease. In excess of one-hundred and seventeen (117) dozens of Product, if OCCULOGIX needs more Product for the clinical trial to obtain the FDA approval, ASAHI may, at its discretion, supply Product at the price stipulated in ASAHI's price list. 7.3 OCCULOGIX shall inform ASAHI of the documentation which is necessary for the FDA approval related to Product. Upon OCCULOGIX's request, ASAHI shall make its best efforts to provide technical data of Product within ASAHI's capacity. 7.4 OCCULOGIX shall not be entitled to any compensation from ASAHI even when OCCULOGIX may not obtain the FDA approval of Product. 7.5 OCCULOGIX shall endeavor to obtain, at its own expenses, the FDA approval and other necessary approvals in the Territory of the accessories of the Product, such as blood pump or tubing set, which may be required for the Treatment Disease. -5- 7.6 In addition to this Agreement. ASAHI and OCCULOGIX shall enter into an agreement which indicates the standard operating procedure for ASAHI's quality reporting program (hereinafter referred to as "S.O.P."). 7.7 Without limiting any other provision in this Agreement, OCCULOGIX shall fully comply with the FDA's Medical Device Reporting (hereinafter referred to as "M.D.R.") Regulation and with the S.O.P. ARTICLE 8. SUPPLY AND FIRST REFUSAL RIGHT 8.1 Subject to the provisions in Paragraph 4.3, ASAHI shall continue to supply Product to OCCULOGIX during the term of this Agreement after OCCULOGIX obtains the FDA approval of Product; provided, however, in the following events, that ASAHI may, with twelve (12 ) months prior written notice to OCCULOGIX and without any compensation to OCCULOGIX, discontinue the manufacture and supply of any of Product: if (a) due to the decrease in the demand of any of Product, the exchange rate situation, or price of raw materials, ASAHI cannot economically manufacture or supply Product, or (b) due to the special circumstances, such as patent infringement liability or product liability issues of Product or the treatment using Product, ASAHI cannot manufacture or supply Product, or (c) ASAHI develops improved products which may be used in place of any product of Product and ASAHI cannot economically manufacture or supply Product. In the event that any of the above circumstances arise, OCCULOGIX shall be given an opportunity to consult with ASAHI to seek a mutually acceptable resolution, after said twelve (12) months prior written notice is given by ASAHI to OCCULOGIX. Despite consultation, if both parties cannot find a mutually acceptable resolution, ASAHI may discontinue the manufacture and supply of Product without any compensation or other obligation to OCCULOGIX. 8.2 In the event of the circumstance of Paragraph 8.1(c) above, OCCULOGIX may have the first refusal right to obtain the distribution rights of such improved product(s) of Product solely used for the Treatment Disease in the Territory under the terms and conditions by mutual consent; provided, however, that OCCULOGIX shall, at its own costs and expenses, obtain the FDA and other applicable approvals of such products for the Treatment Disease in the Territory within a reasonable period. 8.3 OCCULOGIX may also have the first refusal right to obtain the exclusive distribution rights in the Territory of: (a) Product which shall be solely used for the treatment of Retinopathy which is one of eye diseases and/or other specific diseases in the scope of the hemo-rheological disorders than the Treatment Disease, and -6- (b) the first filter only, set forth in Exhibit A, which shall be solely used for the Treatment Disease, Retinopathy and/or other specific diseases in the scope of hemo-rheological disorders, under the terms and conditions mutually agreed on between both parties; provided, however, that (i) OCCULOGIX shall, at its own costs and expenses, obtain the FDA approval of such product for such Treatment Disease, Retinopathy and/or hemo-rheological disorders within a reasonable period, and (ii) both parties agree that the aforementioned specific diseases are considered in the scope of the hemo-rheological disorders. 8.4 Notwithstanding anything herein contained to the contrary, it is hereby expressly understood by both parties hereto that ASAHI may, directly or indirectly, market or sell ASAHI's plasma filter(s) other than Product for the Treatment Disease or any other diseases in the Territory. ARTICLE 9. WARRANTY 9.1 If any Product is in a damaged condition upon its delivery to OCCULOGIX, or the amount delivered is less than that provided for in the order accepted by ASAHI, OCCULOGIX shall advise ASAHI in writing of any such circumstance within six (6) months of delivery of such Product and shall fully describe the nature of the shortage or damage. ASAHI shall replace such damaged Product and/or remedy such shortages, without additional charge, provided that, ASAHI is given the notice referred to above and the opportunity promptly to inspect the claimed damaged or incompletely delivered Product, and provided further that ASAHI is reasonably satisfied that such damage and/or shortage was not caused by mishandling or misuse by the parties other than ASAHI after title passed to OCCULOGIX. In the event that OCCULOGIX fails to notify ASAHI or allow such inspection as described above, OCCULOGIX shall be deemed to have waived all damage and shortage claims against ASAHI. 9.2 ASAHI warrants exclusively to OCCULOGIX and to no other person, firm or corporation that each Product is manufactured and inspected in accordance with ASAHI's quality system. In the event that a defect covered by this warranty is found and notice is given to ASAHI with full particulars thereof within six (6) months after delivery of the Product, as required by Paragraph 9.1, ASAHI undertakes to replace the defective Product without additional charge; provided, however, that any and all component parts of or other articles utilized in connection with the Product manufactured by any manufacturer other than ASAHI shall be subject only to the applicable warranty provided by such other manufacturer and ASAHI will have no responsibility therefor, and provided further that all warranties described above in this Paragraph 9.2 shall be ineffective, and ASAHI shall have no responsibility whatsoever, in the event any Product has been subjected to misuse, mishandling, misapplication, neglect, contamination, accident, improper repair, damage by circumstances beyond ASAHI's reasonable control or unauthorized modification by OCCULOGIX or its mediate or immediate customers, -7- including, without limitation, any damage, contamination, defects or malfunctions resulting from (i) the opening of the packaging of the Product to combine the blood line to be procured by OCCULOGIX and to be used for the Product, (ii) the repackaging of the Product with the blood line for delivery to customers, or (iii) the failure to adhere to instructions for use and other documentation included by ASAHI with its shipments of the Product. The responsibility of ASAHI under all warranties is limited solely to the repair or replacement of the Product, as the case may be, pursuant to the foregoing warranties. All warranty claims are subject to verification by ASAHI. 9.3 THE WARRANTIES SET FORTH ABOVE ARE EXCLUSIVE AND IN LIEU OF, AND ASAHI EXPRESSLY DISCLAIMS, ALL OTHER WARRANTIES, EXPRESS OR IMPLIED, INCLUDING, WITHOUT LIMITATION, ANY WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR USE OR PURPOSE AND THOSE ARISING BY STATUTE OR OTHERWISE IN LAW OR FROM A COURSE OF DEALING OR USE OF TRADE. ASAHI SHALL NOT HAVE ANY LIABILITY TO OCCULOGIX, CUSTOMERS, END-USERS OR ANY OTHER PARTY FOR ANY AMOUNTS IN EXCESS OF THE ORDER PRICE OF THE PRODUCT NOR FOR SPECIAL, INCIDENTAL OR CONSEQUENTIAL DAMAGES, INCLUDING, WITHOUT LIMITATION, LOST PROFITS OR PROSPECTIVE PROFITS OR ANY OTHER COMMERCIAL OR ECONOMIC LOSS OF ANY KIND OR NATURE OF OCCULOGIX OR ANY THIRD PERSON, EVEN IF ASAHI HAS BEEN ADVISED OF THE POSSIBILITY OF THE SAME, ARISING OUT OF OR IN -CONNECTION WITH THE USE OR PERFORMANCE OF THE PRODUCT. 9.4 OCCULOGIX shall not represent, in relation to the Product purchased hereunder, to its customers any warranties of any nature whatsoever other than those given by ASAHI or required by applicable law. ARTICLE 10. TRADEMARK AND OTHER RIGHTS 10.1 OCCULOGIX shall use the trademark(s) designated by ASAHI (hereinafter referred to as "Trademark"), including, without limitation, "Plasmaflo" and "Rheofilter", as instructed by ASAHI in distributing the Product purchased hereunder and shall not use any other trademarks in connection with such distribution without prior written consent of ASAHI. OCCULOGIX acknowledges that, as between ASAHI and OCCULOGIX, ASAHI is the owner of all right, title and interest in and to the Trademark in the Territory in any form or embodiment thereof and is the owner of the goodwill attached or which shall become attached to the Trademark in connection with the business and goods in relation to which the same has been, is or shall be used. Sales by OCCULOGIX shall be deemed to have been made by ASAHI for purposes of trademark registration and all uses of the Trademark by OCCULOGIX shall inure to the benefit of ASAHI. OCCULOGIX shall not, at any time, do or suffer to be done any act or thing which may in any way adversely affect any rights of ASAHI in and to the Trademark or any registrations thereof or which, directly or indirectly, may reduce the value of the Trademark or detract from its reputation. At ASAHI's request, OCCULOGIX shall execute any documents, including registered user agreements, reasonably required by ASAHI to confirm ASAHI's -8- ownership of all rights in and to the Trademark in the Territory and to confirm the respective rights of ASAHI and OCCULOGIX under this Agreement. OCCULOGIX shall not alter, obliterate, deface or remove any mark, marking, serial number or other symbol carried on the Product or on the packaging in which the Product are enclosed without the consent of ASAHI. In the event that ASAHI desires to change any such mark, marking, serial number or other symbol, OCCULOGIX will cooperate with ASAHI in such manner as may be agreed upon by the parties. OCCULOGIX never shall challenge ASAHI's ownership of or the validity of the Trademark or any application for registration thereof, or any trademark registrations thereof, or any rights of ASAHI therein. 10.2 During the term of this Agreement and thereafter, OCCULOGIX shall not apply for or acquire the registration of the Trademark, nor shall OCCULOGIX contest ASAHI's right in or disturb ASAHI's use of the trademark or goodwill. Should OCCULOGIX have the Trademark registered in its name or name of any other person, ASAHI shall have the right to have the registration canceled or transferred to ASAHI. 10.3 In the event that OCCULOGIX learns of any infringement or imitation of the Trademark or of any use by any person of any trademark similar to the Trademark, it promptly shall notify ASAHI thereof. ASAHI thereupon shall take such action as it deems advisable for the protection of its rights in and to the Trademark and, if requested to do so by ASAHI, OCCULOGIX shall cooperate with ASAHI in all respects at ASAHI's sole expense. In no event, however, shall ASAHI be required to take any action if it deems it inadvisable to do so and OCCULOGIX shall have no right to take any action with respect to the Trademark without ASAHI's prior written approval. 10.4 Upon the termination of this Agreement for any reason whatsoever, OCCULOGIX shall, except as ASAHI may specifically authorize in writing, immediately cease and desist from carrying on any and all use of any trademarks, trade names, words or symbols of any nature indicating, explicitly or implicitly, that it is an authorized ASAHI distributor or dealer of ASAHI's products or other ASAHI goods and services. 10.5 Any patent, design, copyright and other intellectual property rights embodied in the Product shall be the sole property of ASAHI or the third party designated by ASAHI, and OCCULOGIX shall not, either directly or indirectly, contest nor assist others in contesting the validity of such intellectual property rights. ASAHI shall be entitled to terminate this Agreement forthwith on notice to OCCULOGIX if OCCULOGIX should violate said obligation. OCCULOGIX shall not acquire any right in the Product by execution of this Agreement or performance hereunder or otherwise and shall not use any of them after termination of this Agreement resulting from expiration of its term or any other cause whatsoever. 10.6 Nothing in this Agreement shall be construed as a warranty or representation that the Product or the use thereof will be free from infringement of any patent or other intellectual property rights of any third party. ASAHI shall not be under any obligation to defend, or to participate in the defense of, OCCULOGIX against any claim or suit alleging such infringement; provided, however, that ASAHI shall, at OCCULOGIX's costs, cooperate and assist OCCULOGIX in the defense of any such claim or suit. -9- 10.7 In the event that OCCULOGIX obtains any intellectual property right relating to the Treatment Disease using Product, ASAHI shall have the first refusal right to obtain a non-exclusive right and license from OCCULOGIX to use such intellectual property right for manufacture, sell and use of Product (i) outside the Territory during the term of this Agreement and, (ii)within the Territory after expiration or termination of this Agreement pursuant to Paragraph 18.1 or 19.1, or after the conversion into non-exclusive right pursuant to Paragraph 19.3. ARTICLE 11. PROMOTION AND ADVERTISEMENT OCCULOGIX shall exert its best efforts in marketing, promoting and advertising the Product at its own costs. ARTICLE 12. INVENTORY OCCULOGIX shall maintain sufficient stock of the Product for the purpose of distribution at its own cost, and shall deliver the Product to its customers by a "first-in, first-out" method. ARTICLE 13. INDEMNIFICATION AND PRODUCT LIABILITY INSURANCE 13.1 OCCULOGIX shall defend and indemnify ASAHI against, and hold ASAHI harmless from, any loss, cost, liability or expense (including court costs and reasonable fees of attorneys and other professionals) arising or alleged to arise out of the conduct of OCCULOGIX in connection with OCCULOGIX's use, distribution, promotion, technical and in-service training, sale of the Product; provided, however, that (i) OCCULOGIX shall have sole control of such defense, and (ii) ASAHI shall provide notice promptly to OCCULOGIX of any actual or threatened claim of which ASAHI becomes aware. 13.2 ASAHI shall defend and indemnify OCCULOGIX against, and hold OCCULOGIX harmless from, any loss, cost, liability or expense (including court costs and reasonable fees of attorneys and other professionals) arising or alleged to arise out of the conduct of ASAHI in connection with the manufacture of the Product; provided, however, that (i) ASAHI shall have sole control of such defense, and (ii) OCCULOGIX shall provide notice promptly to ASAHI of any actual or threatened claim of which OCCULOGIX becomes aware. 13.3 Each party shall be responsible for maintaining reasonable product liability insurance coverage with respect to the Product in the Territory at all times during the term of this Agreement and thereafter until the time when both parties agree upon. Such insurance policy shall be written for the benefit of both OCCULOGIX and ASAHI. OCCULOGIX shall deliver a certificate of such insurance to ASAHI promptly upon issuance of said insurance policy. 13.4 OCCULOGIX shall maintain product liability insurance for the clinical trial for the FDA approval for Product during the clinical trial and until the FDA approval. OCCULOGIX -10- shall deliver a certificate of such insurance to ASAHI promptly upon issuance of said insurance policy. ARTICLE 14. REPORTS AND INVESTIGATION 14.1 OCCULOGIX shall submit, in writing, to ASAHI the situation and the result of the clinical trial stipulated in Paragraph 7.2 quarterly within thirty (30) days after the end of previous quarter. It is expressly understood that OCCULOGIX shall fully comply with the FDA's M.D.R. Regulation and with the S.O.P. even during the clinical trial for the FDA approval. 14.2 In addition to the reports to be provided by OCCULOGIX to ASAHI pursuant to Paragraph 4.1 of this Agreement, OCCULOGIX shall provide ASAHI, on annual basis, the annual finance statements of OCCULOGIX. As used herein, the phrase "annual financial statements" shall refer to the income statement, balance sheet and supporting schedules prepared by the Certified Public Accountant for OCCULOGIX for each fiscal year and of OCCULOGIX. Such financial statement shall be prepared in conformity with generally accepted accounting principles of the U.S. OCCULOGIX shall forward to ASAHI copies of the annual financial statements within twenty (20) days of receipt of the finalized annual financial statements from the Certified Public Accountant utilized by OCCULOGIX. ARTICLE 15. CONFIDENTIALITY During the term of this Agreement including any renewal under Article 18 and for a period of five (5) years thereafter, or ten (10) years after the effective date of this Agreement, whichever is longer, neither party hereto shall disclose or otherwise divulge to any third party any confidential information which may be acquired from the other in connection with the Product, this Agreement, or its performance, except for any information which: (a) is known to the public or to the receiving party prior to disclosure; (b) is disclosed to the receiving party by a third party under no obligation of secrecy to the other party after disclosure; or (c) becomes known to the public through no fault of the receiving party after disclosure. ARTICLE 16. ARTICLE 16. FORCE MAJEURE 16.1 Neither party hereto shall be liable to the other in any manner for failure or delay in fulfillment of all or part of this Agreement, or any individual contract, which is directly or indirectly owing to any causes or circumstances beyond that party's control, including, but not limited to, acts of God, governmental orders or restriction, war, war-like conditions hostilities, sanctions, mobilization, blockade, embargo, detention, revolution, -11- riot, looting, strike, lockout, plague or other epidemics, fire, earthquake, explosion, flood, and shortage of raw materials. 16.2 Notwithstanding the foregoing, no occurrence of an event of Force Majeure shall relieve OCCULOGIX of its obligation to make any payment hereunder. ARTICLE 17. ASSIGNMENT OCCULOGIX shall hot assign, transfer or otherwise dispose of this Agreement, voluntarily or by operation of law, in whole or in part, to any individual, firm or corporation without the prior written consent of ASAHI. ARTICLE 18. TERM 18.1 This Agreement shall be effective from EFFECTIVE DATE until January 31, 2009, unless terminated prior to such expiration date by either party, as provided herein, and shall automatically be renewed for additional and successive one (1) year term unless ASAHI or OCCULOGIX gives the other written notice of its intention to terminate this Agreement at least six (6) months prior to the expiration date of the term then in effect. 18.2 Notwithstanding the foregoing paragraph, the following paragraphs shall survive any expiration or termination of this Agreement: Article 9, 10, 13 and 15, Paragraph 19.2, and Article 23. ARTICLE 19. TERMINATION 19.1 ASAHI may forthwith terminate this Agreement and/or any individual contract of the Product hereunder without any compensation to OCCULOGIX by giving a written notice of termination to OCCULOGIX: A. if OCCULOGIX becomes insolvent or a petition in bankruptcy or for corporate reorganization or for any similar relief is filed by or against OCCULOGIX or a receiver is appointed with respect to any of the assets of OCCULOGIX, or liquidation proceeding is commenced by or against OCCULOGIX; or B. if the whole or an important part of the business of OCCULOGIX is transferred to a third party by agreement, order of court or otherwise, and such transfer adversely affects the sale of the Product in the Territory pursuant to this Agreement; or C. if OCCULOGIX defaults in payment for any Product or any debt owing to ASAHI or otherwise defaults in relation to any of the provisions of this Agreement and/or any individual contracts for the Product hereunder except for those in Paragraphs 2.3 and 2.4 and does not make the payment or remedy the default within thirty (30) days after a prior written notice is given requesting the payment or remedy of the default; or -12- D. if any essential changes in the management personnel or ownership of the shares of OCCULOGIX would adversely affect the sale of the Product in the Territory pursuant to this Agreement; or E. if OCCULOGIX violates the prohibition provided for in Paragraphs 2.3 and 2.4 hereof. 19.2 Termination of this Agreement and/or any individual contracts for the Product hereunder pursuant to the preceding Paragraph shall be without prejudice and shall be additional to any right of ASAHI under this Agreement, such individual contracts for the Product, law, statute or otherwise. Upon termination of this Agreement and/or such individual contracts for the Product, all payments to be made under this Agreement and/or such individual contracts in connection with the sale of the Product hereunder shall become due. 19.3 If OCCULOGIX fails to fulfill the provisions stipulated in the Paragraph 3.1 for the Product, ASAHI may, at its option, modify the exclusive right granted to OCCULOGIX hereunder to a non-exclusive right. ARTICLE 20. GOVERNING LAW This Agreement shall be governed by the laws of Japan. ARTICLE 21. NON-WAIVER The waiver, express or implied, by either of the parties hereto of any right hereunder or of any failure to perform or breach hereof by the other party hereto shall not constitute or be deemed as a waiver of any other right hereunder or of any other failure to perform or breach hereof by the other party, whether of a similar or dissimilar nature. ARTICLE 22. ENTIRETY This Agreement and its Exhibit contain the entire agreement of the parties with respect to the subject matter herein contained and supersedes any prior Agreements or understandings between the parties except the S.O.P. ARTICLE 23. ARBITRATION All disputes, controversies or differences which may arise between the parties, out of or in relation to or in connection with this Agreement, or for the breach thereof, shall be settled by mutual consultation between the parties hereto in good faith as promptly as possible, but failing an amicable settlement, shall be finally settled by arbitration to be held in Tokyo, Japan under the Rules of Conciliation and Arbitration of the International Chamber of Commerce, by which each party hereto agrees to be bound. -13- ARTICLE 24. NOTICE 24.1 Unless otherwise provided in this Agreement, all notices to be given hereunder shall be in writing and sent by registered airmail to the respective addresses of the parties stated above or to such other addresses as may indicated in writing by the parties hereto by notice pursuant to this Paragraph. If either party has changed its address, a written notice thereof shall be given to the other party pursuant to this Paragraph. 24.2 All notices shall be deemed to have been given on the day when such notice is mailed by registered airmail. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their respective duly authorized representatives as of EFFECTIVE DATE: _______________________ Akihiro Isobe ______________________ President OCCULOGIX CORPORATION ASAHI MEDICAL CO., LTD. -14- Exhibit A Product First filter: Plasmaflo OP-05W(L) Second filter: Rheofilter AR-2000 Product means the set of the above first filter and second filter which is used together for the Treatment Disease. -15- 2003 MEMORANDUM This Memorandum is made and effective as of October 30, 2003, by and between ASAHI MEDICAL CO., LTD., a corporation organized and existing under the laws of Japan, with its principal place of business at 9-1, Kanda Mitoshirocho, Chiyoda-ku, Tokyo, Japan (hereinafter referred to as "ASAHI"), and VASCULAR SCIENCES CORPORATION, a corporation organized and existing under the laws of the State of Delaware, the United States of America, with its principal place of business at 612 Florida Avenue, Palm Harbor, Florida 34683, the United States of America (hereinafter referred to as "VSC"), and which is known as its former name of Occulogix Corporation (hereinafter referred to as "OCCULOGIX"), to mutually confirm the followings with respect to the five (5) agreements as below: 1. Distributorship Agreement made by and between ASAHI and OCCULOGIX on December 31, 2001 (hereinafter referred to as "AGREEMENT") 2. Secured Fixed Rate Note made by and between ASAHI and OCCULOGIX on February 28, 2001 (hereinafter referred to as "NOTE-1") 3. Amendment No. 1 dated as of November 10, 2001, to NOTE-1 made by and between ASAHI and OCCULOGIX (hereinafter referred to as "NOTE-2") 4. Consent to Assignment of Contract made by and between ASAHI and OCCULOGIX on July 25, 2002 5. Amendment No. 2 dated as of November 30, 2002, to NOTE-1 and NOTE-2 made by and between ASAHI and VSC (hereinafter referred to as "NOTE-3") BACKGROUND For acceleration and completion of the clinical trials for Treatment Disease (hereinafter referred to as "CLINICAL TRIAL"), VSC requested ASAHI to be a stockholder of VSC and to send VSC additional free samples of Product as defined in the AGREEMENT. - 2 - VSC also requested ASAHI, due to the delay of CLINICAL TRIAL, to extend the time limit of VSC's obtaining the FDA approval of Product for Treatment Disease (hereinafter referred to as "APPROVAL"). Both parties desire to clarify, for obtaining and maintaining APPROVAL, the procedures of the FDA application of Product for Treatment Disease (hereinafter referred to as "APPLICATION") and the term "under the name of ASAHI" provided in the Article 7.1 of AGREEMENT. NOW, THEREFORE, both parties shall confirm and agree to the followings: 1. Stock Purchase ASAHI shall convert, from the outstanding principal of the Loan defined in NOTE-1, five hundred thousand US dollars (US$ 500,000) into five hundred and seven thousand six hundred and four (507,604) shares of Common Stock of VSC under the "Stock Purchase Agreement" to be agreed between ASAHI and VSC within two (2) months after the executed date of this Memorandum; provided, however, that: (a) after the date of the said conversion (hereinafter referred to as "CONVERSION DATE"), the outstanding balance of five hundred thousand US dollars (US$ 500,000) shall remain as Loan, and the rights and obligations of each party stipulated in NOTE-1, NOTE-2 and NOTE-3 shall remain unchanged, and (b) interest on the principal amount of one million US dollars (US$ 1,000,000) provided in NOTE-3 shall be accrued from December 1, 2002 until CONVERSION DATE, and payable within one (1) week after CONVERSION DATE. 2. Additional Filter Sample Supply Notwithstanding the Article 7.2 of AGREEMENT, ASAHI shall additionally ship to VSC up to one-hundred and fifteen (115) dozens of Product free of charge; provided, however, that: (a) the expenses of shipment of the said free samples shall be borne by VSC, and - 3 - (b) in excess of the said one-hundred and fifteen (115) dozens of Product, if VSC need more Product, ASAHI may, at its discretion, supply Product at the price stipulated in ASAHI's latest price list, and (c) VSC shall send ASAHI the draft of APPLICATION for ASAHI's review, soon after the completion of CLINICAL TRIAL and before submitting APPLICATION to the FDA. 3. Extension of APPROVAL Time Limit The term "the end of July 2004" referred to in the Article 7.1 of AGREEMENT shall be replaced with "the end of December 2006". The other part of the Article 7.1 shall remain unchanged. 4. Procedure of APPLICATION and Ownership For performance of the Article 7.1 of AGREEMENT, both parties shall make the following procedures: (a) VSC shall submit APPLICATION to the FDA as its applicant. (b) Upon VSC's receipt of APPROVAL from the FDA, VSC shall transfer to ASAHI the whole ownership of APPROVAL (hereinafter referred to as "TRANSFER") at its cost and expenses. (c) Any clinical data contained in APPLICATION (hereinafter referred to as "DATA") shall continue to belong to VSC after TRANSFER. ASAHI will have the right to use the DATA in any territory that VSC is granted distributorship by ASAHI. - 4 - IN WITNESS WHEREOF, the both parties hereto have caused this Memorandum to be executed by their authorized representatives written as below. "Elias Vamvakas" "Jiro Enoki" - ----------------------------- ------------------------------- Elias Vamvakas Jiro Enoki Chairman Managing Director VASCULAR SCIENCES CORPORATION ASAHI MEDICAL CO., LTD. Date: October 30, 2003 Date: October 30, 2003 2004 MEMORANDUM This Memorandum is made and effective as of "July 28", 2004, by and between ASAHI MEDICAL CO., LTD., a corporation organized and existing under the laws of Japan, with its principal place of business at 9-1, Kanda Mitoshirocho, Chiyoda-ku, Tokyo, Japan (hereinafter referred to as "ASAHI"), and VASCULAR SCIENCES CORPORATION, a corporation organized and existing under the laws of the State of Delaware, the United States of America, with its principal place of business at 612 Florida Avenue, Palm Harbor, Florida 34683, the United States of America (hereinafter referred to as "VSC"), and which is known as its former name of Occulogix Corporation and will, subsequent to executing this 2004 Memorandum, change its name to OccuLogix, Inc., to mutually confirm the following with respect to the two (2) agreements below: 1. Distributorship Agreement made by and between ASAHI and OCCULOGIX on December 31, 2001 (hereinafter referred to as "AGREEMENT") 2. 2003 Memorandum dated as of October 30, 2003 made by and between ASAHI and VSC (hereinafter referred to as "2003 MEMORANDUM") BACKGROUND ASAHI has indicated its intention to cease production of its cellulose acetate Rheofilter AR-2000 in 2008 and indicated that it will replace this product with a new, improved, polysulfone Rheofilter. VSC has requested that it be permitted to disclose the AGREEMENT and all amendments thereto from time to time as required under securities laws in the United States and Canada in connection with, and following VSC's proposed initial public offering of its common stock. VSC has also requested that ASAHI consent to its proposed reorganization that it will undertake in connection with proposed initial public offering of its common stock. NOW, THEREFORE, both parties shall confirm and agree to the followings: 1. Right of First Refusal Over Proposed Polysulphone Filter Pursuant to Article 8.2 of AGREEMENT, VSC hereby exercises its right of first refusal to obtain the exclusive distribution rights to the new polysulfone Rheofilter (which will replace the current cellulose acetate Rheofilter AR-2000) solely used for the Treatment Disease in the Territory, on terms and conditions to be mutually agreed, but in any event substantially equivalent to the terms for the current filter. ASAHI hereby acknowledges and accepts such exercise by VSC. 1 2. Waiver by Confidentiality Obligations Notwithstanding Article 15 of AGREEMENT, VSC may disclose AGREEMENT and any amendments made thereto before or after this date, including 2003 MEMORANDUM and this MEMORANDUM, as required in order to comply with securities laws in the United States and Canada. 3. Consent to VSC Reorganization ASAHI hereby consents to VSC's corporate reorganization whereby VSC will purchase TLC Vision Corporation's interest in OccuLogix, L.P. in exchange for additional shares of VSC and a subsidiary of VSC, and VSC's creation of new subsidiaries in Canada and the United States to undertake the activities currently being undertaken by OccuLogix, L.P. For greater clarity, nothing in this section will expand the Territory set out in AGREEMENT. IN WITNESS WHEREOF, the both parties hereto have caused this Memorandum to be executed by their authorized representatives written as below. "Elias Vamvakas" "K. Nakamae" - -------------------------------- --------------------------------- Elias Vamvakas Kenji Nakamae Chairman President VASCULAR SCIENCES CORPORATION ASAHI MEDICAL CO., LTD. Date: "July 28, 2004" Date: "27 July 2004" 2 EX-10.4 8 t13715exv10w4.txt EX-10.4 EXHIBIT 10.4 DISTRIBUTION AGREEMENT This agreement ("Agreement") is made on 01. January 2002 between MESYS GMBH, a company organized under the laws of Germany with offices at Beneckeallee 30, D-30419 Hannover ("MESYS") and OccuLogix Corporation, 612 Florida Avenue, Palm Harbor, Florida 34683, USA. MESYS developed and produces on the order of DIAMED a blood- and plasma therapy device. This device has been introduced into the market under the tradenames Octo Nova and Octo Therm. These tradenames have been registered, among others, by DIAMED in various countries. Furthermore, DIAMED holds all rights worldwide on Octo Nova and Octo Therm. MESYS is the manufacturer of the plasma therapy devices "Octo Nova/Octo Therm" and shall be authorized to enter into distribution agreements with distributors outside Germany, provided that the exclusive marketing agreement between DIAMED and OccuLogix Corp. has been concluded (Exhibit D). OccuLogix Corp. is the exclusive distributor for Octo Nova and Octo Therm in the territory of United States, Canada and Mexico. MESYS manufactures Octo Nova/Octo Therm including accessories and spare parts, according to the terms of this Agreement, and for which MESYS has the necessary facilities, equipment, qualified personnel and experience. Accordingly, the parties agree as follows: 1. MANUFACTURE OF PRODUCT 1.1 MESYS shall manufacture and sell to OccuLogix Corp. the device(s), accessories, spare parts, and other tools (hereinafter "Product(s)") as described in Exhibit A, attached to this Agreement and in the quantity agreed between the parties. MESYS shall also furnish the Product and spare parts and meet other conditions as set forth in this Agreement, including those provided in Exhibit A and in the following specifications, descriptive literature, and other documents ("Specifications"). Exhibit A: List of Product(s) and Quantities Exhibit B: Spare Parts Exhibit C: Price List Exhibit D: marketing agreement MESYS reserves the right to change the Specifications at any time in agreement and upon a written notice to OccuLogix Corp. No change to the Products shall be made by OccuLogix Corp. without MESYS's prior written consent. During the term of this agreement OccuLogix Corp. shall submit to MESYS for their approval and acceptance in writing all proposed enhancements to the Product during the term of this Agreement. All cost related to such product -2- enhancements will be paid by OccuLogix Corp. Procedures for handling of property rights in case of product enhancements have been included in the marketing agreement between DIAMED and OccuLogix Corp. (Exhibit D). 1.2 MESYS shall furnish OccuLogix Corp. the following services for the Product purchased under this Agreement: 1.2.1 Adequate technical and maintenance training for personnel. OccuLogix Corp. will bear the costs of those training. The first training is free of charge at MESYS. 1.2.2 Meetings between OccuLogix Corp. and MESYS shall take place in so far as reasonable at Hannover. Upon appropriate notification by OccuLogix Corp. participation of MESYS personnel shall also be possible at other places. 1.3 If requested by OccuLogix Corp. in writing, MESYS shall have sufficiently spare parts available, during a period of five (5) years after expiration of this Agreement and sell to OccuLogix Corp. within agreed delivery times and at reasonable prices. 1.4 MESYS warrants that the Products delivered to OccuLogix Corp. are free from defects in materials, workmanship and manufacturing and is merchantable, fit for the purpose intended, and in compliance with the requirements of this Agreement. MESYS shall replace or repair any Product, Product component, work, or other item furnished by it under this Agreement, that fails to conform to the requirements of this Agreement if such non conformance appears within a period of twelve (12) months as of delivery of the Product by MESYS to OccuLogix Corp. 2. ORDERS, PAYMENTS AND TERMS OF DELIVERY 2.1 Forecast and orders 2.1.1 Upon execution of this Agreement, and no later than thirty (30) days after each succeeding anniversary date of this Agreement, OccuLogix Corp. shall submit to MESYS an annual rolling forecast. OccuLogix Corp. guarantees that for the term of this Agreement will purchase 25 units of the Product Octo Nova per year beginning after FDA approval (12 month period). 2.1.2 OccuLogix Corp. shall submit to MESYS purchase orders indicating the type and quantity of Product required. OccuLogix Corp. shall submit such purchase orders regularly in the form of a rolling forecast over a period of 12 months, whereby the running and the following 3 subsequent months shall be binding orders allowing lead time of thirty (30) business days for MESYS to fill the orders. OccuLogix Corp. purchase orders shall be deemed accepted by MESYS unless it notifies OccuLogix Corp. to the contrary within ten (10) business days of its receipt thereof. 2.1.3 All sales of the Products by MESYS to OccuLogix Corp. and orders from OccuLogix Corp. to MESYS shall be subject to the provisions of this Agreement, -3- and shall not be subject to the terms and conditions contained in any purchase order of MESYS or OccuLogix Corp. 2.2 Delivery 2.2.1 OccuLogix Corp. or its agent shall collect Products at MESYS facility in Hannover. Till collection the Products remain under the custody and the responsibility of MESYS. The following shall be agreed as delivery term: "ex works MESYS". 2.2.2 After the Product has passed all required test, verification and approvals and has been properly packed by MESYS, MESYS will inform in writing OccuLogix Corp. of availability of the Product. 2.3 OccuLogix Corp. shall pay MESYS the prices for the Product as stipulated in Exhibit C. These prices include not freight and packing costs. MESYS shall be authorized to raise the prices as per 1st January of every year according to the general price increase. Exceptional price increases shall be proven separately and can be enforced if deemed essential. 2.4 OccuLogix Corp. shall pay accepted MESYS invoices within thirty (30) days of the date of invoice or per letter of credit. Invoices are payable in DEM or EURO. 2.5 In the event OccuLogix Corp. were not to purchase the full guaranteed 25 units per year of Product within the terms of this Agreement specified in Section 7, the parties agree that OccuLogix Corp. would pay MESYS DEM 5,000 or EURO 2.560 for every not purchased unit up to the limit of 25 units per year. 3. QUALITY REQUIREMENTS All Products shall be manufactured and packaged in accordance with EU/MDD with FDA and UL standards. 4. REGISTRATION/REGULATORY MATTERS The Octo Nova/Octo Term is labelled with CE mark and have the registration for all EU States. OccuLogix Corp. is responsible for FDA approval. 5. EXCLUSIVITY During the term of this Agreement, MESYS shall not enter into any agreement with third parties for the sale of the Octo Nova in United States, Canada and Mexico. 6. CONFIDENTIALITY Any information conveyed to OccuLogix Corp. by MESYS in connection with this Agreement, and specifically identified as confidential, shall be used by OccuLogix Corp. only for the purposes of this Agreement and shall not be disclosed to third parties during -4- the term of this Agreement or for a period of five years thereafter, provided, however, that such obligation of confidentiality shall not apply to information that: (a) was known prior to its disclosure by the transferring Party; (b) is received at any time in good faith from a third party with the legal right to disclose the same; or (c) is in the public domain or subsequently enter the public domain other than by reason of acts or omissions of the employees or agents. 7. TERM, TERMINATION 7.1 This Agreement shall be in effect for the initial term beginning with the execution date and for a duration of three (3) years after the date of FDA approval. It will expire at that date without requiring termination. Any prolongation must be agreed upon in advance and in writing. 7.2 Either party may immediately terminate this Agreement if any breach of its terms is not cured within sixty (60) days following receipt of written notice from the other Party. 7.3 Either party may terminate this Agreement, effective immediately upon the giving of notice, if (a) the other Party shall file a petition in bankruptcy, or shall be adjudicated a bankrupt, or shall become insolvent, or shall make an assignment for the benefit of creditors, or shall be voluntarily or involuntarily dissolved, or shall have a receiver, trustee or other court officer appointed for its property. (b) the production contract between DIAMED and MESYS is terminated. (c) the marketing contract between DIAMED and OccuLogix Corp. is terminated. 7.4 Termination shall not relieve or release either party from performing all obligations hereunder and making any and all payments which may be due and owing under the terms of this Agreement. 8. INTELLECTUAL PROPERTY RIGHTS 8.1 This Agreement shall not affect the rights of the parties in their respective trademarks or patents. 8.2 OccuLogix Corp. shall not retain any MESYS documents, files, records, correspondence, notes, or other items, including copies, relating to the business of MESYS, except as its association with MESYS shall require and then only with permission of MESYS. In cases where MESYS permits OccuLogix Corp. to retain such items, OccuLogix Corp. shall promptly return them to MESYS upon request or upon completion or termination under this Agreement. -5- 8.3 All drawings, specifications, proposals, photographs, recordings, samples, prototypes and products given to OccuLogix Corp. by MESYS or produced by OccuLogix Corp. under this Agreement and which incorporates any of MESYS's ideas or technology, shall not be shown or displayed by OccuLogix Corp. to any third party. 8.4 OccuLogix Corp. shall not disclose to any third party in any manner the fact or nature of its association with MESYS without first obtaining the express written permission. 8.5 OccuLogix Corp. may disclose MESYS's information to subcontractors, regulatory authorities, and others, as required to meet OccuLogix Corp. obligations under this Agreement, provided: (1) MESYS has approved such disclosure, and (2) OccuLogix Corp. secures confidential/and proprietary treatment of any information thus disclosed in a manner accepted by MESYS. 9. INDEMNITY OccuLogix Corp. shall indemnify and hold MESYS harmless from all claims resulting from any act or omission. OccuLogix Corp. agrees to maintain product liability coverage in an amount sufficient to meet its obligations under this Section 9. MESYS's liability shall be limited to liability in compliance with German law. OccuLogix Corp. shall fulfil its obligations as representative in accordance with FDA requirements. 10. RECALLS, INSPECTIONS AND PRODUCT COMPLAINTS 10.1 The parties shall notify and cooperate with each other as to any complaints, inspections and recalls concerning the Product. 10.2 In the event of a recall of the Product, OccuLogix Corp. shall assume complete responsibility for the conduct of the recall. MESYS shall provide OccuLogix Corp. with any manufacturing information required by OccuLogix Corp. in connection with the recall. The cost of any recall hereunder shall be equitably allocated between the parties in accordance with their responsibility for its underlying cause. 11. TECHNICAL SERVICE OccuLogix Corp. is responsible for the technical service in United States, Canada and Mexico. OccuLogix Corp. has the necessary equipment, stock of spare parts and qualified personnel to realize the technical service in accordance with MESYS requirements. OccuLogix Corp. should only use original spare parts delivered from MESYS for repair. Maintenance and safety checks for Octo Nova/Octo Therm has to be done in accordance with MESYS requirements. -6- 12. CUSTOMER TRAINING OccuLogix Corp. is responsible for customer training in United States, Canada and Mexico. OccuLogix Corp. has the necessary equipment and qualified personnel to realize the training in accordance with MESYS requirements. 13. FORCE MAJEURE Neither party shall be liable to the other party for failure to perform any of its obligations hereunder because of any cause beyond the control of or occurring without the fault of such party. 14. NOTICES All notices or communications shall be effective when sent via registered mail, with sufficient postage, prepaid, addressed to the recipient party at the address of that party first above written, or to such other address(es) as either party shall specify by notice to the other party. 15. MISCELLANEOUS 15.1 This Agreement shall be binding upon the parties, their successors and assigns. Neither party shall assign this Agreement without the prior consent in writing of the other party, except that either party may assign this Agreement to an entity under common control. 15.2 This Agreement constitutes the entire agreement between the parties relating to its subject matter and all prior proposals, discussions, and writings by the parties and relating to the subject matter of this Agreement are superseded. This Agreement may be amended only by written agreement of the parties. 15.3 This Agreement is to be deemed to have been entered into in Hannover, and its construction shall be in accordance with the laws of Germany, and all disputes under it shall be adjudicated in the courts of Hannover. Partner MESYS By: _________________________ By: _______________________ Title: Chairman, President & CEO Title: EXHIBIT A List of Products Octo Nova EU Version Octo Therm Heater for Octo Nova Quantities Octo Nova 25 units per year (minimum) Octo Therm 25 units per year (minimum) EXHIBIT B MESYS Medizinische Systeme MeSys GmbH Beneckeallee 30 30419 Hannover Fon: 0511 679999-0 Fax: 0511 679999-11 Email: mesys@aol.com SPARE PART LIST 2000 OCTO NOVA 05/2000 Valid from 01.05.2000 _______________ Price changes and errors excepted. All Prices without packaging and transportation costs. For Shipments with a goods worth below DM 50.-a fee of DM 35.- will be charged. DOOR INSIDE VIEW
PART NO. DESCRIPTION EURO DM - ---------- ---------------------------------------------- ------ -------- KM E039-10 Chargeable Battery Pack Octo Nova LCR 24V/2, 2P 168,73 330,00 BG-F467-00 Power Supply Octo Nova complete 762,34 1491,00 AN-F028-00 Fan Octo Nova 39,88 78,00 SZ-E030-00 Fuse 5x20 T10A 0,92 1,80 BG-E313-04 Motherboard 220,88 432,00 BG-E300-04 PCB, CPU-517 315,47 617,00 BG-E325-00 PC/104 CPU complete 1692,37 3310,00 BG-E308-02 PCB, Scale 140,61 275,00 BG-E309-01 PCB, Bloodleak detector 87,43 171,00 BG-E310-00 PCB, Alarmtone 78,74 154,00 BG-E319-00 PCB, Drip Counter 108,39 212,00 SZ-E027-00 Fuse 5x20 T200mA 0,92 1,80 IT-E020-00 Toroidal Transformer 119,64 234,00 IE-E007-00 Line Filter 75,16 147,00
DOOR OUTSIDE VIEW
PART NO. DESCRIPTION EURO DM - ---------- ---------------------------- ----- ------ SE-F022-00 Fuse Holder 6,44 12,60 SE-F020-00 Power Connector 37,32 73,00 SZ-E029-00 Fuse 5x20 2AmT 0,92 1,80 SI-F148-00 Label Technical Service 2,53 4,95 SI-F144-00 Label Fuses 0,82 1,60 SI-F147-00 Label Connector Octo Therm 2,30 4,50 SI-F016-00 Label Potential Equalization 0,61 1,20 KK-F037-00 Power Cord 8,08 15,80 KT-F326-00 T-Clip Cableguiding Cart 1,64 3,20
FRONT OUTSIDE VIEW
PART NO. DESCRIPTION EURO DM - ---------- ------------------------------------ ------ -------- SE-F088-00 Keyboard with plate German 728,08 1424,00 KT-F286-00 Line holder, red 2,94 5,75 KT-F287-00 Line holder, blue 2,94 5,75 KT-F288-00 Line holder, yellow 2,94 5,75 KT-F324-00 Bubble catcher holder D=21 blue 3,89 7,60 BG-F473-00 Sensors, Air detector 319,56 625,00 BG-F493-00 Blood pump rotor 314,96 616,00 BG-F494-00 Balance pump rotor 293,99 575,00 BG-F484-00 Reedswitch for Pump housing 9,25 18,10 BG-F495-00 Citrate pump rotor 219,86 430,00 BG-F479-00 Door, Blood pupmpen 99,19 194,00 BG-F477-00 Door, Balance pump 1 113,37 166,00 BG-F478-00 Door, Balance pump 2 113,37 166,00 BG-F470-00 Door, Citrate pump 55,73 109,00 SE-F090-00 Keyboard, Level Lifter 44,99 88,00 BG-F481-00 Mirror, Bloodleak detector 11,40 22,30 BG-F482-00 Drip Counter 324,67 635,00 BG-F500-00 Scale 1014,91 1985,00 BG-F464-00 Detector, Substitution 371,71 727,00 KT-F276-00 Roller with Brake 60,33 118,00 KT-F277-00 Roller without Brake 49,08 96,00 KT-F129-00 Plexiglass Supporting Disk blue 5,47 10,70 KT-F130-00 Plexiglass Supporting Disk red 5,47 10,70 KT-F132-00 Plexiglass Supporting Disk yellow 5,47 10,70 KT-F200-00 Plexiglass Supporting Disk transparent 3,78 7,40 KT-F325-00 Plexiglass Supporting Disk orange 5,47 10,70
ACCESSORIES
PART NO. DESCRIPTION EURO DM - ---------- -------------------- ----- ----- BG-F485-00 Filter holder blue 49,80 97,40 BG-F486-00 Filter holder yellow 49,80 97,40 MT-F050-10 Crank, Blood pump 25,31 49,50 MT-F362-00 Key for Case 2,20 4,30
EXHIBIT C PRICE LIST ~~Octo Nova 15.000 Euro Octo Therm 1.125 Euro (in combination with Octo Nova)~~

EXHIBIT D: MARKETING AGREEMENT DIAMED / OCCULOGIX CORP. Addendum to Distribution Agreement from 01. January 2002 between MESYS GMBH, Hannover (Germany) and OccuLogix Corporation, Florida (USA) MESYS and OccuLogix agrees to change section 9 - Indemnity as follows 9. INDEMNITY OccuLogix shall indemnify and hold MESYS harmless from all claims resulting from any act or omission of OccuLogix. MESYS shall indemnify and hold OccuLogix harmless from all claims resulting from any act or omission of MESYS. OccuLogix Corp. and MESYS agrees to maintain product liability coverage in an amount sufficient to meet its obligations under this Section 9. MESYS's liability shall be limited to liability in compliance with German law. OccuLogix Corp. shall fulfill its obligations as representative in accordance with FDA requirements. The additional insurance cost for MESYS will be charged per each invoice to OccuLogix with the amount of 4.90 Euro (at the moment) per 500, Euro turn over. The insurance rate depends on the actual insurance rate and can be adapt in future to the actual rates. OccuLogic agrees to bear this cost. April 7th 2003 OCCULOGIX CORPORATION/VSC MESYS By: "John Cornish" By: "R. Hoffman" Title: Chief Technology Officer Title: Managing Director SECOND ADDENDUM TO DISTRIBUTION AGREEMENT On January 1, 2002, an Agreement ("AGREEMENT") was executed between MESYS GMBH ("MESYS") and VASCULAR SCIENCES CORPORATION ("VSC"), formerly known as Occulogix Corporation, On April 7, 2003, the first addendum to the AGREEMENT was signed, thereby changing the Indemnity provision in Section 9. On September 22, 2003, MESYS and VSC hereby agree to a second addendum ("SECOND ADDENDUM") as follows: WHEREAS, VSC distributes the Octo Nova Blood Plasma Therapy Machine (manufactured by MESYS) in North America. VSC hereby agrees to: 1. Providing technical training for the Octo Nova to the end-user. VSC's technical representative will receive formal training, and be certified, by MESYS, or an authorized MESYS representative. 2. VSC will maintain traceability of all Octo Nova units distributed, and make this information available to MESYS upon the request. 3. Any complaints received by VSC regarding the Octo Nova will be forwarded to MESYS for review. VSC shall forward MESYS' response and conclusion to the complainant. VSC maintains complaint handling procedures in compliance with FDA regulations as well as Canadian Medical Device Regulation (CMDR). 4. The contact person for VSC will be: Mr. John Cornish Director of Regulatory Affairs Vascular Sciences Corporation Palm Harbor FL 34683 PH 727-784-2353 VASCULAR SCIENCES CORPORATION By: "John B. Cornish" Title: Director of Regulatory Affairs MESYS GMBH By: "R. Hoffman" Title: Managing Director Addendum to Distribution Agreement from 01, January 2002 between MESYS GMBII, Hannover (Germany) and OccuLogix Corporation, Florida (USA) MESYS and OccuLogix agrees to change section 9 - Indemnity as follows 9. INDEMNITY OccuLogix shall indemnity and hold MESYS harmless from all claims resulting from any act or omission of OccuLogix. MESYS shall indemnify and hold OccuLogix harmless from all claims resulting from any act or omission of MESYS. OccuLogix Corp. and MESYS agrees to maintain product liability coverage in an amount sufficient to meet its obligations under this Section 9. MESYS's liability shall be limited to liability in compliance with German law. OccuLogix Corp. shall fulfil its obligations as representative in accordance with FDA requirements. The additional insurance cost for MLSYS will be charged per each invoice to OccuLogix with the amount of 4,90 Euro (at the moment) per 500,- Euro turn over. The insurance rate depends on the actual insurance rate and can be adapt in future to the actual rates. OccuLogic agrees to bear this costs. April 7th 2003 OccuLogix Corporation VSC MESYS By: /s/ John B. Cornish By: /s/ R. Hoffman ---------------------------- ------------------------- Title: Cheif Technology Officer Title: Managing Director SECOND ADDENDUM TO DISTRIBUTION AGREEMENT On January 1, 2002, an Agreement ("AGREEMENT") was executed between MESYS GMBH ("MESYS") and VASCULAR SCIENCES CORPORATION ("VSC"), formerly known as Occulogix Corporation, On April 7, 2003, the first addendum to the AGREEMENT was signed, thereby changing, the Indemnity provision in Section 9 On September 22, 2003, MESYS and VSC hereby agree to a second addendum ("SECOND ADDENDUM") as follows: WHEREAS, VSC distributes the Octo Nova Blood Plasma Therapy Machine (manufacture by MESYS) in North America, VSC hereby agrees to; 1. Providing technical training for the Octo Nova to the end-user, VSC's technical representative will receive formal training, and be certified, by MESYS, or an authorized MESYS representative. 2. VSC will maintain traccability of all Octo Nova units distributed, and make this information available to MESYS upon the request. 3. Any complaints received by VSC regarding the Octo Nova will be forwarded to MESYS for review. VSC shall forward MESYS response and conclusion to the complaintant. VSC maintains complaint handling procedures in compliance with FDA regulations as well as Canadian Medical Device Regulation (CMDR). 4. The contact person for VSC will be: Mr. John Cornish Director of Regulatory Affairs Vascular Sciences Corporation Palm Harbor FL 34683 PH. 727-784-2353 VASCULAR SCIENCES CORPORATION BY: /s/ John B. Cornish --------------------------------------- John B. Cornish, Director of Regulatory Affairs MESYS GMBH BY: /s/ R. Hoffman --------------------------------------- Title: R. Hoffman, Managing Director DISTRIBUTION AGREEMENT AMENDMENT #3 This amending agreement ("Agreement") is made on ___________ July 2004 between MESYS GMBH, a company organized under the laws of Germany with offices at Beneckeallee 30, D-30419 Hannover ("MESYS") and OccuLogix, Inc. (formerly Vascular Sciences Corporation), 612 Florida Avenue, Palm Harbor, Florida 34683, USA ("OccuLogix"). MESYS developed and produces on the order of Diamed Medizintechnik GmbH ("DIAMED") a blood- and plasma therapy device. This device has been introduced into the market under the tradenames Octo Nova and Octo Therm. These tradenames have been registered, among others, by DIAMED in various countries. Furthermore, DIAMED holds all rights worldwide on Octo Nova and Octo Therm. MESYS is the manufacturer of the plasma therapy devices "Octo Nova/Octo Therm" and shall be authorized to enter into distribution agreements with distributors outside Germany, provided that the exclusive marketing agreement between DIAMED and OccuLogix has been concluded. OccuLogix is the exclusive distributor for Octo Nova and Octo Therm in the territory of United States, Canada and Mexico. MESYS manufactures Octo Nova/Octo Therm including accessories and spare parts, according to the terms of the Distribution Agreement, and for which MESYS has the necessary facilities, equipment, qualified personnel and experience. MESYS and OccuLogix Corp. entered into a distribution agreement (the "Distribution Agreement") dated 01 January 2002 pursuant to which MESYS has agreed to supply Octo Nova and Octo Therm to OccuLogix, as amended on April 7, 2003 and further amended on September 22, 2003. Accordingly, the parties agree as follows: 1. AMENDMENTS TO DISTRIBUTION AGREEMENT MESYS and OccuLogix hereby agree that the following changes have been made to the Distribution Agreement effective as of the date hereof. 1.1 The following words shall hereby be added to the end of section 6 of the Distribution Agreement: "Notwithstanding the foregoing, OccuLogix may disclose the Distribution Agreement, and any amendments made thereto as required in order to comply with securities laws in the United States and Canada". MESYS acknowledges that the foregoing additional language would include the disclosure of this Agreement. 1.2 All references to "OccuLogix Corp." in the Distribution Agreement shall be deemed to be references to "OccuLogix" (as defined under this Agreement). MESYS acknowledges that OccuLogix, Inc. is the successor to OccuLogix Corp. and the proper party to this Agreement and the Distribution Agreement. -2- 1.3 The following words shall hereby be added to the end of the third sentence in section 2.3 of the Distribution Agreement: "charged to all clients worldwide to whom it sells the Product". 2. MISCELLANEOUS 2.1 This Agreement shall be binding upon the parties, their successors and assigns. Neither party shall assign this Agreement without the prior consent in writing of the other party, except that either party may assign this Agreement to an entity under common control. 2.2 This Agreement constitutes the entire agreement between the parties relating to its subject matter and all prior proposals, discussions, and writings by the parties and relating to the subject matter of this Agreement are superseded. This Agreement may be amended only by written agreement of the parties. 2.3 This Agreement is to be deemed to have been entered into in Hannover, and its construction shall be in accordance with the laws of Germany, and all disputes under it shall be adjudicated in the courts of Hannover. OccuLogix MESYS By: ___________________________ By: _____________________________ Title: ___________________________ Title: _____________________________ EX-10.5 9 t13715exv10w5.txt EX-10.5 EXHIBIT 10.5 ASSET PURCHASE AGREEMENT THIS ASSET PURCHASE AGREEMENT is made and entered into as of the 1st day of January 2002, by and between APHERESIS TECHNOLOGIES, INC., a Florida corporation ("ATI"); and OCCULOGIX CORPORATION, a Florida corporation (the "Seller"). WITNESSETH: WHEREAS, the Seller is the owner of certain assets used in therapeutic apheresis business (the "Business"); and WHEREAS, ATI desires to purchase, subject to certain liabilities, substantially all of the assets of the Seller used in the Business, which constitute only a portion of the assets of the Seller, and the Seller desires to sell such assets, all upon the terms and subject to the conditions hereinafter set forth. NOW, THEREFORE, in consideration of the premises and the mutual covenants contained in this Agreement, it is hereby agreed as follows: 1. PURCHASE AND SALE OF ASSETS: CLOSING. (a) Purchase and Sale. Upon the terms and subject to the conditions hereinafter set forth, the Seller hereby agrees to sell to ATI, and ATI agrees to purchase from the Seller the assets owned or used by the Seller in connection with the Business and listed on Exhibit A to this Agreement (collectively, the "Assets"). (b) Procedure for Closing. At the closing of the transactions contemplated hereby (the "Closing"), the Seller shall sell, assign, transfer, convey and deliver to ATI free and clear of all liabilities whatsoever (whether absolute or contingent, and including all liens, encumbrances, equities, claims, charges or interests of third persons) other than those liabilities set forth on Exhibit B, and ATI shall purchase from the Seller, all of the Seller's right, title and interest in or to the Assets. The Closing shall be held at such place, date and time as the parties to this Agreement may agree (the "Closing Date"). At the Closing, in accordance with the terms of this Agreement, the Seller shall deliver to ATI a bill or bills of sale, assignments and all other instruments necessary or appropriate in the opinion of counsel to ATI to convey all right, title and interest in or to the Assets to ATI, and ATI shall deliver the consideration for the purchase of the Assets as provided in Section 2 of this Agreement. 2. CONSIDERATION. (a) Purchase Price. In consideration of the purchase, sale, conveyance, transfer and delivery of the Assets, and upon the terms and subject to the conditions of this Agreement, ATI shall pay, the sum of TWENTY FIVE THOUSAND AND. NO/100 DOLLARS ($25,000.00), which the parties agree is the fair market value -2- of the Assets as determined by an independent appraisal performed by Southland Business Group, 3314 Henderson Blvd, Tampa FL (the "Purchase Price"). The Purchase Price shall be paid by the execution and delivery by ATI of an assumption agreement (the "Assumption Agreement"), covering the liabilities specified on Exhibit B hereto. (b) No Assumption of Liabilities. Except as set forth in the Assumption Agreement, ATI shall not and does not assume any of the Seller's liabilities, including but not limited to its accounts payable and other trade liabilities incurred in the Business, or the debts, taxes, contingencies or other liabilities of the Business, whether fixed or contingent, and all such liabilities incurred prior to Closing shall remain the sole obligation of the Seller. 3. REPRESENTATIONS AND WARRANTIES. The Seller hereby represents and warrants to ATI the following: (a) Organization and Standing. The Seller is a corporation duly organized, validly existing and in good standing under the laws of the State of Florida and has the corporate power and authority to carry on its business as it is now being conducted. (b) Authority Relative to this Agreement. The execution, delivery and performance of this Agreement by the Seller have been duly authorized by the Board of Directors of the Seller. No further corporate or other action is necessary on its part to make this Agreement valid and binding upon it and enforceable against it in accordance with its terms or to carry out the transactions contemplated hereby. (c) No Violations. The execution, delivery and performance of this Agreement by the Seller do not and will not (1) constitute a breach or a violation of any law, rule or regulation, agreement, indenture, deed of trust, mortgage, loan agreement or other instrument to which the Seller is a party or by which it is bound; (2) constitute a violation of any order, judgment or decree to which the Seller is a party or by which it is bound or by which any of the Seller's assets or properties are bound or affected; or (3) result in the creation of any lien, charge or encumbrance upon any of the Setter's assets or properties. (d) Litigation. The Seller (1) is not a party to any litigation, proceeding or administrative investigation and none is pending or threatened against it, its properties, or any property used in the Business, (2) knows of no basis for any such litigation, proceeding or investigation which might have a material adverse effect, financial or otherwise, on the Business, (3) knows of no outstanding order, writ, injunction or decree of any court, government, governmental authority or arbitration against or affecting the Business; and (4) knows of no material infringement of any copyright, trademark, trade name, patent or other proprietary right owned or licensed by it. -3- (e) Title to and Condition of Assets. The Seller has good and marketable title to all the Assets. As of the date of this Agreement, such assets are subject to no guaranty, judgment, execution, pledge, lien, conditional sales agreement, security agreement, encumbrance or charge, except as disclosed pursuant to this Agreement (with respect to which no default exists) and except for liens for taxes not delinquent. The Assets are in good condition and repair, reasonable wear and tear excepted, and are operated in conformity with all applicable building and zoning ordinances and regulations and all other applicable laws, ordinances and regulations. (f) Leases, Contracts and Commitments. The Seller is not a party to any leases, contracts, agreements or commitments associated with the Business, whether written or oral, of any nature (including employment or consulting agreements, mortgages, loans, deeds of trust, indentures, credit and collective bargaining agreements). (g) Compliance With Applicable Laws. The conduct of the Business by the Seller does not violate or infringe any federal, state, local or foreign law, statute, ordinance, license or regulation that is presently in effect. Such conduct does not violate or infringe any right or concession, copyright, trademark, trade name, patent, know how or other proprietary right of others, the enforcement of which would adversely affect the Business or the value of the Assets. The Seller has and has maintained all licenses and permits required by all local, state and federal authorities and regulating bodies. (h) Approvals and Consents. No consent, approval or authorization is required in connection with the execution or delivery of this Agreement by the Seller or the consummation by it of the transactions contemplated hereby. (i) Disclosure. No representation or warranty made by the Seller in this Agreement, the exhibits hereto or any of the documents and papers required to be delivered pursuant to this Agreement or in connection with the consummation of the transactions contemplated hereby contains or will contain any untrue statement of a material fact or omits or will omit to state a material fact necessary to make the statements contained herein or therein not misleading. 4. REPRESENTATIONS AND WARRANTIES OF ATI. ATI hereby represents and warrants the following: (a) Organization and Standing. ATI is a corporation duly organized, validly existing and in good standing under the laws of the State of Florida and has the corporate power and authority to carry on its business as it is now being conducted. (b) Authority Relative to this Agreement. The execution and delivery of this Agreement by ATI has been duly authorized by the Board of Directors of ATI, and no further corporate action is necessary on its part to make this Agreement -4- valid and binding upon it and enforceable against it in accordance with the terms hereof or to carry out the actions contemplated hereby. (c) Approvals and Consents. No additional consent, approval or authorization is required in connection with the execution or delivery of this Agreement by ATI or the consummation by ATI of the transactions contemplated hereby. (d) No Violations. The execution, delivery and performance of this Agreement by ATI do not and will not (1) constitute a breach or a violation of ATI's Articles of Incorporation or by laws, or of any law, rule or regulation, agreement, indenture, deed of trust, mortgage, loan agreement or other instrument to which ATI is a party or by which it is bound; (2) constitute a violation of any order, judgment or decree to which ATI is a party or by which it is bound or by which any of ATI's assets or properties are bound or affected; or (3) result in the creation of any lien, charge or encumbrance upon any of ATI's assets or properties, except as contemplated by this Agreement. (e) Litigation. ATI (1) is not a party to any litigation, proceeding or administrative investigation and none is pending or threatened against such corporation, its properties, or any property used in its business or the transactions contemplated by this Agreement; (2) knows of no basis for any such litigation, proceeding or investigation which might have a material adverse effect, financial or otherwise, on its business, property, operations or prospects; (3) knows of no outstanding order, writ, injunction or decree of any court, government, governmental authority or arbitration against or affecting it, its properties or business; and (4) knows of no material infringement of any copyright, trademark, trade name, patent or other proprietary right owned or licensed by it. 5. COVENANTS. The Seller hereby covenants the following: (a) Conduct of the Business Until Closing. Except as ATI may otherwise consent in writing, between the date of this Agreement and the Closing Date, the Seller will: (1) neither enter into any transaction, take any action nor fail to take any action which would, or could reasonably be expected to, materially adversely affect the Seller or its usability to perform its obligations under this Agreement; encumber any of the Assets, or dispose of any of the Assets; (2) neither enter into any transaction, take any action nor fail to take any action, in a manner which would result in any of the representations, warranties, disclosures, agreements or covenants of the Seller contained in this Agreement, the exhibits hereto or any document delivered in connection with the consummation of the transactions contemplated hereby, not to be true and complete, as of the time of such transaction, action or failure to take action, and also on the Closing Date; and -5- (3) maintain all the Assets in good condition and repair, reasonable wear and tear excepted. (b) Compliance with Laws. The Seller shall comply with all laws of the State of Florida, the United States and any other governmental body with jurisdiction over the Seller or the Business. (c) Advice of Changes. Between the date of this Agreement and the Closing, the Seller will promptly advise ATI in writing of any fact which, if existing or known at the date of this Agreement, would have been required to be set forth in or disclosed pursuant to this Agreement. (d) Other Transactions Prohibited. During the term of this Agreement, the Seller will not enter into any written or oral agreements providing for the sale, lease or mortgage of the Assets. . (e) Access to Properties and Records, Etc. Between the date of this Agreement and the Closing, after reasonable notice, the Seller will provide to ATI and its counsel, accountants and other representatives full access during normal business hours for inspection of all of the properties, personnel, books, tax returns, contracts, commitments and records of the Seller to the extent they relate to the Business, and will furnish to ATI all such additional documents and information with respect to the affairs of the Business as ATI or its counsel or accountants may from time to time reasonably request. All such books, tax returns, contracts, commitments, documents and records of the Seller will be complete and correct as of the date of any inspection by or delivery to ATI or its representatives of such items. 6. CONDITIONS PRECEDENT TO THE OBLIGATIONS OF ATI. The obligations of ATI under this Agreement are subject to the satisfaction, at or prior to the Closing, of each of the following conditions (the fulfillment of any of which may be waived in writing by ATI): (a) Accuracy of Representations and Warranties. The representations, warranties and statements of the Seller contained in this Agreement, all exhibits hereto and any documents delivered in connection herewith shall not only have been true and complete as of the date of this Agreement but shall also be true and complete as though again made on the Closing date, except to the extent that such representations and warranties and statements are incorrect as of such later date by reason of events occurring after the date of this Agreement in compliance with the terms hereof. (b) Compliance. The Seller shall have performed and complied with all agreements, covenants and conditions required by this Agreement and all exhibits hereto to be performed and complied with by it at or prior to the Closing. (c) Certificate. ATI shall have received a certificate executed by the President of the Seller and attested to by its Secretary, dated the Closing Date, satisfactory in form -6- and substance to ATI and its counsel, certifying as to (1) the fulfillment of the matters set forth in Sections 6(a) and (b) of this Agreement and (2) the resolutions adopted by the Board of Directors of the Seller approving. the execution of this Agreement and the consummation of the transactions contemplated hereby and (3) the resolutions adopted by the Stockholders of the Seller approving the execution of this Agreement and the consummation of the transactions contemplated hereby. (d) Litigation. There shall not be any litigation or proceeding to restrain or invalidate the consummation of the transactions contemplated hereby. 7. CONDITIONS PRECEDENT TO THE OBLIGATIONS OF SELLER. The obligations. of the Seller under this Agreement are subject to the satisfaction at or prior to the Closing of each of the following conditions (the fulfillment of any one of which may be waived in writing by the Seller): (a) Accuracy of Representations and Warranties. The representations, warranties and statements of ATI contained in this Agreement shall not only have been true and complete on the date of this Agreement and when made but shall also be true and complete as though again made on the Closing Date, except to the extent that they are incorrect as of the Closing Date by reason of events occurring after the date of this Agreement in compliance with the terms hereof. (b) Compliance. ATI shall have performed and complied with all agreements, covenants and conditions required by this Agreement and all exhibits hereto to be performed and complied with by it at or prior to the Closing. (c) Certificate. The Seller shall have received a certificate executed by the President of ATI and attested to by its Secretary, dated the Closing Date, certifying as to (1) the fulfillment of the matters mentioned in Sections 7(a) and (b) of this Agreement and (2) the resolutions adopted by the Board of Directors of ATI approving the execution of this Agreement and the consummation of the transactions contemplated hereby. 8. INDEMNIFICATION. (a) General -- Seller. The Seller agrees to indemnify and hold harmless ATI in respect of any and all claims, losses and expenses which may be incurred by ATI arising out of: (1) any breach by the Seller of any representations, warranties, covenants or agreements made in this Agreement, the exhibits hereto or any document or paper delivered in connection with the transactions contemplated hereby; (2) any attempt by any person to cause or require ATI to pay or discharge any debt, obligation, liability or commitment inconsistent with any such representation, warranty, covenant or agreement; -7- (3) any action, suit, proceeding, assessment or judgment arising out of or incident to any of the matters indemnified against in this Section 8, including reasonable fees and disbursements of counsel (before and at trial, in bankruptcy proceedings and in appellate proceedings). (b) General -- ATI. ATI agrees to indemnify and hold harmless the Seller in respect of any and all claims, losses and expenses which may be incurred by the Seller arising out of: (1) any breach by ATI of any representations, warranties, covenants or agreements made in this Agreement, the exhibits hereto or any document or paper delivered in connection with the transactions contemplated hereby; (2) any attempt by any person to cause or require the Seller or the Stockholder to pay or discharge any debt, obligation, liability or commitment inconsistent with any such representation, warranty, covenant or agreement, or any debt, obligation, liability or commitment arising out of the operation of the Business after Closing; (3) any action, suit, proceeding, assessment or judgment arising out of or incident to any of the matters indemnified against in this Section 8, including reasonable fees and disbursements of counsel (before and at trial, in bankruptcy proceedings and in appellate proceedings). 9. GENERAL. (a) No Brokers. Each of the parties to this Agreement represents and warrants to the other, that it has not utilized the services of any finder, broker or agent. (b) Survival of Representations Warranties, Etc: Each of the parties to this Agreement covenants and agrees that its representations, warranties, covenants, statements and agreements contained in this Agreement and the exhibits hereto and any document delivered in connection herewith shall survive the Closing Date and terminate on the fifth anniversary of such date. (c) Waivers. No action taken pursuant to this Agreement, including any investigation by or on behalf of any party, shall be deemed to constitute a waiver by the party taking such action of compliance with any representation, warranty, covenant or agreement contained herein, therein and in any document delivered in connection herewith or therewith. The waiver by any party to this Agreement of a breach of any provision of this Agreement shall not operate or be construed as a waiver of any subsequent breach. (d) Confidentiality. If the transactions contemplated by this Agreement are not consummated, then each of the parties to this Agreement agrees to keep confidential and shall not use for its own benefit any of the information (unless in the public domain) obtained from any other party and shall promptly return to -8- such other parties all schedules, documents or other written information (without retaining copies thereof) previously obtained from such other parties. (e) Entire Agreement, Amendment. This Agreement (including the exhibits hereto and all documents and papers delivered pursuant hereto) constitutes the entire agreement, and supersedes all prior agreements and understandings, oral and written, among the parties to this Agreement with respect to the subject matter hereof. This Agreement may not be modified or otherwise amended except by an instrument in writing executed by the parties to this Agreement. (f) Assignability. This Agreement shall not be assignable by any party to this Agreement without the prior written consent of the other party to this Agreement. (g) Further Assurances. The parties to this Agreement will execute and deliver, or cause to be executed and delivered, such additional or further transfers, assignments, endorsements or other instruments as either party may reasonably request for the purpose of carrying out the transactions contemplated by this Agreement. (h) Counterparts. This Agreement may be executed in several counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. (i) Section and Other Headings. The section and other headings contained in this Agreement are for reference purposes only and shall not affect the meaning or interpretation of this Agreement. (j) Governing Law. The validity, construction and enforcement of, and the remedies under, this Agreement shall be governed in accordance with the laws of the State of Florida. (k) Construction. The parties acknowledge and agree that each of them has participated in the negotiation of this Agreement and has been represented by counsel. The parties agree that any rule of law requiring construction of a document against a party by reason such party's having prepared such document shall not apply to this Agreement. (l) Cost of Enforcement. If either party engages the services of an attorney or any other third party or in any way initiates legal action to enforce its rights under this Agreement, the nonprevailing party agrees to pay to the prevailing party all costs and expenses incurred by it relating to the enforcement of this Agreement (including reasonable attorneys' and legal assistants' fees before, at and after trial and in appellate proceedings). IN WITNESS WHEREOF, this Agreement has been signed by the parties hereto, all on the date first above written. -9- APHERESIS TECHNOLOGIES, INC. OCCULOGIX CORPORATION __________________________________ _______________________________________ By: Name By: Name EXHIBIT A Assets 1. Distributorship rights as defined in the 2001 Asahi/ATI Distributorship Agreement 2. ATI Balance Sheet dated December 31, 2001, including ATI Assets Cash in Bank (Schedule A) Accounts Receivable (Schedule B) Inventory (Schedule C) Prepaid Expenses (Schedule D) Prepaid Taxes Contingent Assets (Schedule E) Fixed Assets (Schedule F) Depreciable Assets, Accumulated Depreciation Property Other Assets: Previously Expensed Items Cash in Bank Deposits Receivable and Bond Receivable ATI Accounting Computer Software, Customer Files Capital Paid in Capital, Retained Earnings, Common Stock Other ATI Assets: Contracts/Agreements ATI Employee Agreements Lease / Rent Agreements Service Agreements, Consulting Agreements Regulatory Files and correspondence (Excluding IDE # G970241) Asahi Plasmaflo AP 05H(L), #P820033 Asahi Hemosorba CH-350 #K885017 ATI Plasma Pump PP-04, #K961137 ATI Plasma Exchange Tubeset, Model 064, K831747 ATIPlasma Discard Bag, K926409 Asahl Blood Pump ABP-03A, K830818 ATI Plasmaflo OP-051W(L) for stand alone use in TPEX ATI Accounts Payable (Schedule G) Sales Tax Payable (Schedule H) Other Short Term Liabilities (Schedule 1) Notes Payable, Royalties, Line of Credit (South Trust Bank, Amex) EXHIBIT B Assumed Liabilities $25,000 of Occulogix payable to ATI will be credited by ATI against the Occulogix "Contingent Asset." EX-10.6 10 t13715exv10w6.txt EX-10.6 EXHIBIT 10.6 MARKETING AND DISTRIBUTION AGREEMENT between Diamed Medizintechnik GmbH, Stadtwaldgutel 77, 50935 Koln, Germany (DIAMED) and Occulogix, Inc., P.O. Box 2081, Palm Harbor, Florida 34682-2081 (Occulogix) WHEREAS: DIAMED has developed a device for the therapy of blood-and blood plasma for various indications. The device is marketed under the trademarks Octo Nova and Octo Therm which are registered in various countries. DIAMED owns all property and marketing rights world wide for Octo Nova/Octo Therm and its future developments. MESYS has engineered and produces Octo Nova/Octo Therm exclusively on orders from DIAMED. For each Octo Nova/Octo Therm produced, DIAMED receives compensation for amortization of development cost from MESYS. MESYS is the manufacturer of Octo Nova/Octo Therm according to the European quality standards, especially MDD and MPG. Agreements between DIAMED and MESYS provide that only DIAMED is allowed to decide on production and marketing of the Octo Nova/Octo Therm. Occulogix desires to distribute Octo Nova/Octo Therm in its territory. SECTION 1 PURPOSE OF AGREEMENT The sole purpose of this agreement is to define the rights of Occulogix to distribute Octo Nova/Octo Therm in its territory. SECTION 2 PRODUCT Product is the Octo Nov/Octo Term and its further developments during the life of this agreement. SECTION 3 TERRITORY Territory is: USA, Canada, Mexico, Caribbean. SECTION 4 DISTRIBUTION RIGHTS, NON-COMPETITION CLAUSE On the basis of this agreement, DIAMED permits Occulogix to enter into an agreement with MESYS to purchase the product directly from MESYS and to market and distribute it in the territory as an independent distributor. This permission does not include any right for Occulogix to produce the product or have produced the product by any third party. -2- Occulogix commits itself to purchase, market and distribute the product as it is exclusively produced by MESYS. With the exception of machine Model PP-04 (ATI) and Plasmatic (Kimal) Occulogix commits itself to not market and distribute other devices, neither directly nor indirectly in the territory which compete with the product or have a similar application. Occulogix shall enter into an agreement with MESYS for the production and purchasing of products (hereafter "the Production Contract"). DIAMED is not responsible whatsoever for the execution of obligations under such agreement, namely and not limited to deliveries, warranties, product properties and product liabilities. SECTION 5 EXCLUSIVITY, TRADEMARKS, PRODUCT CHANGES, OBLIGATIONS OF DISTRIBUTION, MINIMUM QUANTITIES 1. (a) With this agreement, Occulogix acquires the exclusive rights to market and distribute the product in the territory. The marketing and distribution of the product, neither directly or indirectly outside of the territory is not permitted. (b) Occulogix has the right and the obligation to distribute the product under the trademarks Octo Nova/Octo Therm. Any registration of trademarks in connection with the product in the territory must be approved by DIAMED in advance. Any cost involved is born by Occulogix. Upon termination of this marketing agreement, all rights associated with the product have to be transferred to DIAMED without compensation. (c) Occulogix has the right to request product changes by MESYS at his expense. Any product change however, must be approved by DIAMED in writing and in advance. (d) For the duration of this agreement, the rights on such product changes are passed over to the financing Occulogix with validity for its territory only. Upon termination of the agreement, all such rights are to be transferred to DIAMED without compensation. The rights for all other territories pass over to DIAMED immediately when developed and without compensation. 2. Occulogix commits itself to undertake all possible and tolerable efforts to market and distribute the product optimally. Such obligations begin immediately with this contract coming into effect. 3. Occulogix is obliged to promote the product in its territory with a reasonable and to the most effective extent by exhibitions, advertising-and sales activities or similar, appropriate action. 4. In the case that Occulogix falls short of fulfilling the annual minimum quantities agreed upon in the production agreement with MESYS for two successive years, DIAMED is entitled to terminate this marketing agreement with 3 months notice or, upon the sole choice of DIAMED, to revise it to the effect that Occulogix shall not anymore be entitled -3- to the exclusive marketing and distribution of the product in its territory. Any such termination or alteration has to be performed in writing by registered mail. In the case that is agreement does not begin with a calendar year, twelve months from the date of effectiveness shall be considered as one year. SECTION 6 LICENSE FEE Occulogix is obliged to pay to DIAMED an annual license fee for the use of the exclusive rights in the amount of E3.000,-. It is payable within the first month of each year in the sense of Section 5.4. In case that it is not paid in due time and also is not paid within 60 days after receipt of a formal letter of caution, Section 5.4 will become effective. SECTION 7 TERM OF AGREEMENT, TERMINATION 1. This agreement has a term of three (3) years from the date of effectiveness. It will become initially effective upon the effective date of the Production Contract between Occulogix and MESYS. The agreement terminates at that time without requiring specific termination. Any extension of this agreement must be agreed upon expressively in advance and in writing. 2. This agreement can be terminated anytime by extraordinary termination due only to important reason. Important reasons are especially: (a) Breach of essential regulations of this agreement by the other party, provided that it is not corrected within 60 days after receipt of a formal letter of caution. (b) If the other party shall file a petition on bankruptcy, or shall be adjudicated a bankrupt, or shall become insolvent, or shall make an assignment for the benefit of creditors, or shall be voluntarily or involuntarily dissolved or shall have a receiver, trustee or other court officer appointed for its property. (c) Termination of the production agreement between DIAMED and MESYS. (d) Termination of the distribution agreement between MESYS and Occulogix. 3. Termination of this agreement does not relieve either party from the execution of obligations entered into including any payment. SECTION 8 REGISTRATION 1. The Product has been registered and CE-marked within the EU-states for use according to the written documentation and instructions. The Product may only be operated in accordance to the instructions. 2. The Product is not registered outside the EU-states. In case that such a registration or similar authorisation should be required, Occulogix commits itself to cooperate with MESYS in such a way that a registration or similar authorisation outside the EU-states -4- will be accomplished. Also in this area, DIAMED has no responsibilities. Any cost occurring are to be born by Occulogix. SECTION 9 LIABILITY DIAMED is liable only for its intellectual property rights and its marketing rights on the product. DIAMED will not be liable whatsoever, neither for the execution of agreements between Occulogix and MESYS nor for the quality or other properties of the product. In so far, all and any claims must be dealt with directly between Occulogix and MESYS. In particular, DIAMED is not liable that a Production Contract will be entered into with MESYS. Such agreement shall be negotiated directly among Occulogix and MESYS. In the case that a damage to Occulogix should develop by action or omission on the part of DIAMED and should this case be based on violation of contractual obligations, DIAMED shall be liable only for actions of intent and gross negligence. Any further liability is excluded. SECTION 10 PLACE OF EXECUTION, PLACE OF JURISDICTION, GOVERNING LAW For any disputes from this agreement, the place of Execution and Place of Jurisdiction shall be Cologne (Koln), Germany. German Law shall govern. SECTION 11 MISCELLANEOUS 1. The parties are in agreement that neither verbal nor written supplementary agreements besides this one have been made. Alterations and additions of this agreement are only valid if agreed in writing between the parties. Such requirement cannot be cancelled. 2. In the case that certain regulations of this agreement should be void, this will not influence the effectiveness of the agreement in total. In such case, the parties commit themselves to replace the void regulation by an effective regulation which comes closest to the economic purpose of the void regulation. 3. This marketing agreement has been drawn up in German and English language. However, in case of contradictions or differences among these two versions, only the German version is of binding nature. Place/Date _______________________ ___________________________________ _____________________________________ DIAMED Occulogix -5- EX-10.7 11 t13715exv10w7.txt EX-10.7 EXHIBIT 10.7 2002 OCCULOGIX/STOCK AGREEMENT THIS AGREEMENT, dated this day of February, 2002, is entered into by and between HANS K. STOCK, of Wullnerstrasse 145, 50935 Koln, Germany, and OCCULOGIX CORPORATION, a Florida corporation with offices at 612 Florida Avenue, Palm Harbor, Florida 34683 ("OCCULOGIX"). NOW THEREFORE, for good and valuable consideration, the parties hereto agree as follows: 1. DEFINITIONS ASAHI/OCCULOGIX DISTRIBUTOR AGREEMENT. ("DISTRIBUTOR AGREEMENT") -- An exclusive sales, marketing and distributorship agreement (effective December 31, 2001) between OCCULOGIX and ASAHI for Asahi's Rheolfilter and Plasmaflo products to be used in the treatment of AMD and other ophthalmic diseases. 2. RECITALS A. The DISTRIBUTOR AGREEMENT between OCCULOGIX and ASAHI has been executed and is operative. B. The DISTRIBUTOR AGREEMENT was procured with the assistance of STOCK. 3. STOCK'S PROCUREMENT OF ADDITIONAL PRODUCTS FOR OCCULOGIX STOCK has heretofore assisted OCCULOGIX in procuring the DISTRIBUTOR AGREEMENT. The parties desire that STOCK further assist OCCULOGIX in procuring new product lines from ASAHI for marketing and distribution by OCCULOGIX. Accordingly, STOCK hereby agrees to assist OCCULOGIX, in the capacity of an independent contractor, to obtain new product lines from ASAHI which will be reduced to writing and upon terms which are fully and completely agreeable with OCCULOGIX. Such agreement shall provide, to the extent OCCULOGIX deems necessary, for unlimited access by OCCULOGIX to technical and clinical data and information relating to the product or products at issue. To the extent that STOCK is in possession of such technical and clinical data and information, he agrees to allow OCCULOGIX unlimited access thereto. To the extent that ASAHI or any other third party is in possession of such data and information, STOCK agrees to assist OCCULOGIX in the procurement thereof. 4. ROYALTY OBLIGATIONS A. OCCULOGIX remains obligated to pay royalties to STOCK for his assistance in procuring the DISTRIBUTOR AGREEMENT. OCCULOGIX shall henceforth -2- pay to STOCK a 5% royalty on the purchase price from ASAHI for all products procured pursuant to the DISTRIBUTOR AGREEMENT. Such royalty payments shall be payable through the duration of the DISTRIBUTOR AGREEMENT but not thereafter except by written agreement of the parties. B. All such royalty payments to STOCK shall be made in U.S. dollars within forty-five (45) days after the previous business quarter, accompanied by a full accounting of product purchases during such business quarter. C. The right of STOCK to receive all such royalty payments shall survive the death of HANS K. STOCK and shall become a receivable of STOCK's estate until the termination of this Agreement. D. If the DISTRIBUTOR AGREEMENT is extended or renegotiated at the end of their current term and OCCULOGIX requires STOCK's assistance in formulating that agreement, the royalty payments shall be negotiated with STOCK in a separate agreement at that time. E. If the exclusivity of the DISTRIBUTOR AGREEMENT is terminated by ASAHI during the terms of said agreements, the obligation of OCCULOGIX to pay royalties to STOCK shall be terminated as well. OCCULOGIX shall be responsible for the payment of royalties to STOCK up to the day of the termination of exclusivity. 5. DEFAULT AND REMEDIES A. In the event that OCCULOGIX fails to perform its obligations under this Agreement, STOCK shall have as its exclusive remedy recovery of unpaid royalties provided that STOCK is entitled to recovery of same pursuant to the terms set forth above. B. In the event that STOCK fails to comply with the terms of this Agreement, OCCULOGIX shall have as its exclusive remedy recovery of all ascertainable damages for interference with or impeding the DISTRIBUTOR AGREEMENT. C. The parties hereto hereby stipulate and agree that this Agreement shall be governed and construed exclusively by the laws of the State of Florida and, in the event of suit, venue of such proceeding shall be in the Circuit Court for Pinellas County, Florida. The prevailing party in such suit shall have the right to recover attorney's fees through any appeal. This Agreement shall inure to the benefit of any successor in interest to OCCULOGIX whether by merger or otherwise; but the parties agree and stipulate that there are no other attendant or incidental beneficiaries to this Agreement. 6. ENTIRE AGREEMENT This Agreement constitutes the entire understanding of the parties hereto relating to the subject matter hereof and supersedes all prior agreements or understandings with respect to the -3- subject matter hereof among the parties. This Agreement may be amended, and the observance of any term of this Agreement may be waived, with the written consent of each of the parties hereto. Any such waiver does not imply or express that any other similar or dissimilar waiver shall be granted or agreed to by the parties. OCCULOGIX __________________________________________ HANS K. STOCK By: ______________________________ Its: _____________________________ [title] Signed, sealed and delivered in the presence of: As to STOCK: As to OCCULOGIX: Date: ____________________________________ Date: ______________________________ __________________________________________ ____________________________________ [signature, Witness] [signature, Witness] "Beatrice Birkhole" "John Cornish" __________________________________________ ____________________________________ [typed/printed name] [typed/printed name] Address: _________________________________ Address: ___________________________ __________________________________________ ____________________________________ __________________________________________ ____________________________________ __________________________________________ ____________________________________ [signature, Witness] [signature, Witness] "Angelina KimKar" "Susan B. Howard" __________________________________________ ____________________________________ [typed/printed name] [typed/printed name] Address: _________________________________ Address: ___________________________ __________________________________________ ____________________________________ __________________________________________ ____________________________________ -4- EX-10.8 12 t13715exv10w8.txt EX-10.8 EXHIBIT 10.8 PATENT LICENSE AND ROYALTY AGREEMENT THIS AGREEMENT (the "Agreement") is made by and between OccuLogix Corporation. a Florida Corporation (the "Licensee"), and Prof Dr. Richard Brunner ("Brunner) living in Germany and listed as inventor [along with Prof. Dr. Helmut Borberg ("Borberg") but who is not yet or currently a party to this Agreement or other license agreement with OccuLogix] in US patent application 09/000,917, which is the parent application of US letters patent 6,245,038 issued June 12, 2001 (the "Patent"). WHEREAS, Brunner [and Borberg] are the sole owners of the Patent and enjoy all of the rights, title and interests therein, and WHEREAS, Brunner desires to license any and all of his rights, title and interests to the Patent and the Patent Rights derived therefrom to Licensee, and WHEREAS, Licensee desires to obtain an exclusive license to all of Brunner's interests in the Patent and. the Patent Rights derived therefrom and to exclusively own the License to any and all of his rights, title, interests and ownership to the Patent and any and all related patents, rights and inventions that specifically relate to the Patent whether owned now or at any time in the future by Brunner (the "License"), and WHEREAS, Brunner shall be eligible to receive any and all consideration and compensation from the Licensee, such as those pledged to be made by the Licensee to Brunner under the terms of this Agreement NOW THEREFORE, in consideration for guaranteed Advance Royalty Payments and Royalty Payments as described below, and other good and valuable consideration, Brunner does hereby exclusively license, in accordance with the terms set forth below, unto Licensee, its successors and assigns, Brunner's entire undivided right, title, ownership and interest in and to the Patent and the invention(s) therein contained (the "Patent Rights"), throughout the Territory, to be held and enjoyed by Licensee its successors and assigns, the same as it would have been held and enjoyed by Brunner if this Exclusive License and Royalty Agreement had not been made and entered into. Brunner recognizes that by signing this Agreement, the combination of this Agreement and the Agreement between Professor Dr. Helmut Borberg and Licensee attached as Exhibit A will collectively constitute an EXCLUSIVE PATENT LICENSE AND ROYALTY AGREEMENT by which Borberg and Brunner grant an exclusive license in the patent to Licensee including the right to sue for past infringement 1. Patent Rights. Shall mean any and all of Brunner's rights, title, ownership and interests in and to US letters patent 6,245,038 and any and all inventions, modifications, continuations-in-part, extensions, divisions, improvements, etc. made by Brunner or his agents, in any and all areas that relate directly to the Patent, regardless of whether such inventions or improvements are patentable or may become parented; all inventions. modifications, continuations-in-part, extensions, divisions, improvements, etc. shall -2- automatically be incorporated herein without the payment of any additional fees, royalties or any other compensation or considerations of any kind. 2. Representation by Brunner. Brunner warrants that he, along with Borberg as the joint inventor of United States Patent 6,245,038, exclusively owns and possesses the Patent and the Patent Rights, and has all right and title thereto and that this Patent License and Royalty Agreement is made without encumbrance or threat of future interference by others claiming ownership therein and that no security interests to any third party exists therein or any other agreement to the contrary. 3. Representation by Licensee. Licensee represents that it is a bona fide corporation in good standing in Florida. 4. Advance Royalty Payments. Licensee agrees to pay Brunner Fifty Thousand Dollars ($50,000 USD) annually as an advance and credited against any and all Royalty Payments paid in accordance with this License. Such Advance Royalty Payments shall be paid to Brunner and in equal payments of Twelve Thousand Five-hundred Dollars ($12,500 USD), made quarterly, on or before the expiration of Forty-five (45) days after the reporting close of each prior calendar quarter. The initial payment of Twelve Thousand Five-hundred Dollars ($12,500 USD) shall be due and payable within Forty-five (45) Days of the Effective Date herein. 5. Royalty Payments. Licensee agrees to pay royalties to Brunner totaling One-Half Percent (0,5% in USD). Royalty Payments shall be calculated and paid based upon Total Net Revenues that Licensee receives from the bona fide commercial sales of its Products sold in reliance and dependence upon the validity of the Patent's claims and of the Patent Rights in the Territory. 6. Accounting and Timing of Royalty Payments. Upon making each Royalty Payment, Licensee shall provide Brunner with a summary of the accounting used to determine the amount of Royalty Payment due. Royalty Payments shall be made by wire transfer and shall be computed on Total Net Revenues received by the Licensee by the reporting close of each calendar quarter and distributed and paid to Brunner and on a quarterly basis, on or before the expiration of Forty-five (45) days after the reporting close of each prior calendar quarter. 7. Failure to Pay by Licensee. Should Licensee fail to make any payments as required herein, and should the Licensee fail to cure the breach created thereby, any and all rights, title and ownership to the License provided to the Licensee under this Agreement shall be forfeited and any and all such rights, title and ownership to the License shall, upon notice of the failure to cure the breach, immediately revert to Brunner, and all monies paid by Licensee until such date shall be retained by him without forfeiture. 8. Territory. Shall mean the United States and any other jurisdictions subject to recognizing any valid claims of the Patent or of the Patent Rights. 9. Total Net Revenues. Shall mean total gross revenues less any discounts, rebates, shipping costs, handling costs, transportation insurance costs, importation fees, and duties -3- on any and all Products sold by the Licensee in the Territory and which are sold in reliance upon and specifically used in accordance with or subject to any of the valid claims of the Patent. 10. Records. Licensee agrees to keep complete and correct books, accounts and records according to Generally Accepted Accounting Principles (GAAP) regulations to facilitate computation of Royalty Payments. Brunner or his representatives acceptable to Licensee, shall have a full right of accounting including the right to confidentially examine Licensee's books and records, at all reasonable times and upon reasonable notice, for the purpose of verifying the amount of Royalty Payments due. 11. Products. Shall mean any of Licensee's products, goods or technologies sold to unaffiliated third parties in the Territory for the purposes of providing extracorporeal therapies for the treatment of the ophthalmic diseases as defined by any valid claim(s) of the Patent. In this case, Licensee's sale of extracorporeal filters and tubing sets for use in any and all ophthalmic indications. 12. Term. The Royalty Payments shall be due to Brunner beginning with the first bona fide commercial sale of any Product in the Territory and may, at the discretion of Licensee terminate upon the first of any of the following three events to occur: a) All patents of the Patient Rights expire, b) All patent claims of the Patent Rights are invalidated, or c) A similarly fashioned competitive extracorporeal product, method or technology is commercially introduced in the Territory for use in ophthalmic indications that could not be deterred by best-efforts enforcement/infringement proceedings brought by Licensee against the competitive product, method or technology where such proceedings are made in reliance in full or in part upon the Patent's claims and or the Patent Rights. 13. Patent Defense. Licensee shall pay for any and all costs incurred for patent maintenance, enforcement and defense of the Patent or the Patent Rights in the Territory. 14. Participation. Brunner agrees, in consideration of the premises herein, that his executors and administrators will, at any time upon request, communicate to the Licensee, its successors and assigns, any facts relating to said Patent and Patent Rights, and the history thereof known to him or his successors and assigns, and that he will testify as to the same in any interference or other proceeding when requested to do so by the Licensee, its successors and assigns. Any and all costs of such participation by Brunner or his successors and assigns shall be borne by Licensee. 15. Succession. Brunner binds himself and his heirs, executors, administrators, employees and legal representatives, as the case may be, to execute and deliver to the Licensee, its successors and assigns, any further documents or instruments and to do any and all further acts that may be deemed necessary by the Licensee, its successors and assigns to file applications for improvements and inventions in any country where Licensee may elect to file such application(s), and that may be necessary to vest in the Licensee, its successors and assigns, the license, rights or title herein conveyed, or intended so to be, and to enable such title to be recorded in the United States and or foreign countries where -4- such application(s) may be filed. Any and all costs of such participation by Brunner or his successors and assigns shall be borne by Licensee. 16. Relationship of the Parties: Indemnification. It is agreed that this Agreement does not make any Party herein a general or special agent, legal representative, subsidiary, joint venturer, partner, employee or servant of any other Party herein for any purpose. 17. Breach and Disputes. Any breaching Party shall have Thirty (30) Days from the date of notification to cure such breach. Any dispute between the Parties to this Agreement shall be resolved through binding arbitration, which shall be governed under the rules and regulations of the American Arbitration Association. 18. Forum, Venue and Governing Law. This agreement shall be governed and interpreted under Delaware law (without applying its conflict of law principles). Exclusive venue for legal proceedings arising hereunder shall be in Hillsborough County, Florida. 19. Entire Agreement. This Agreement supersedes any prior understanding that may have been reached between the Parties and encompasses the entire agreement between the Licensee and Brunner with respect to the Patent and the Patent Rights. The terms of this Agreement are confidential and shall be maintained by the Parties in accordance thereby. 20. Modification. This Agreement cannot be modified except in writing executed mutually between the Parties. 21. Additional Consideration. This Agreement shall be transformed into an EXCLUSIVE PATENT LICENSE and ROYALTY AGREEMENT under the provision that a separate Agreement with substantially identical terms and conditions shall be concluded with Prof. Dr. Helmut Borberg (Borberg) on or before May 31, 2002. If such Agreement is not concluded by such date, this Agreement shall remain in full force and effect as a NONEXCLUSIVE PATENT LICENSE and ROYALTY AGREEMENT between Brunner and Licensee. IN WITNESS WHEREOF, the Parties have signed and executed this Agreement and have caused this Agreement to become effective as of the Effective Date last executed below. OCCULOGIX CORPORATION prof. Dr. RICHARD BRUNNER By:_____________________________ By:_____________________________ Title:__________________________ Title:__________________________ Date:___________________________ Date:___________________________ PATENT LICENSE AND ROYALTY AGREEMENT (EXHIBIT A) THIS AGREEMENT (the "Agreement") is made by and between OccuLogix Corporation, a Florida Corporation (the "Licensee"), and living in Germany and listed as inventor [along with Prof. Dr. Richard Brunner ("Brunner") in US patent application 09/000,917, which is the parent application of US letters patent 6,245,038 issued Jane 12, 2001 (the "Patent"). WHEREAS, Borberg [and Brunner] are the sole owners of the Patent and enjoy all of the rights, title and interests therein, and WHEREAS Borberg is aware of the attached NON EXCLUSIVE PATENT LICENSE and ROYALTY AGREEMENT made between Brunner and Licensee. WHEREAS , Borberg desires to license any and all of his rights, title and interests to the Patent and the Patent Rights derived therefrom to Licensee, and WHEREAS, Borberg recognizes that by signing this Agreement, the combination of this Agreement and the agreement between Brunner and Licensee together will become an EXCLUSIVE PATENT LICENSE and ROYALTY AGREEMENT by which Brunner and Borberg assign an exclusive license in the patent to Licensee. WHEREAS, Licensee desires to obtain an exclusive license to all of Borberg's interests in the Patent and the Patent Rights derived therefrom and to exclusively own the License to any and all of their rights, title, interests and ownership to the Patent any and all related patents, rights and inventions that specifically relate to the Patent whether owned now or at any tame in the future by Borberg (the "License"), and WHEREAS, Borberg shall be eligible to receive any and all consideration and compensation from the Licensee, such as those pledged to be made by the Licensee to Borberg under the terms of this Agreement. NOW THEREFORE in consideration for guaranteed Advance Royalty Payments and Royalty Payments as described below, and other good and valuable consideration, Borberg does hereby exclusively license, in accordance with the terms set forth below, unto Licensee, its successors and assigns, Borberg's entire undivided right, title, ownership and interest in and to the Patent and the invention(s) therein contained (the "Patent Rights"), throughout the Territory to be held and enjoyed by Licensee its successors and assigns, the same as it would have been held and enjoyed by Borberg if this License and Royalty Agreement had not been made and entered into. 1. Patent Rights. Shall mean any and all of Borberg rights, title, ownership and interests in and to US letters patent 6,245,038 and any and all inventions, modifications, continuations-in-part, extensions, divisions, improvements, etc. made by Borberg or his agents, in any and all areas that relate directly to the Patent, regardless of whether such inventions or improvements are patentable or may become patented; all inventions, modifications, continuations-in-part, extensions, divisions, improvements, etc. shall -6- automatically be incorporated herein without the payment of any additional fees, royalties or any other compensation or considerations of any kind. 2. Representation by Borberg. Borberg warrants that he, along with Brunner, exclusively owns and possesses the Patent and the Patent Rights, and has all right and title thereto and that this Patent License and Royalty Agreement is made without encumbrance or threat of future interference by others claiming ownership therein and that no security interests to any third party exists therein or any other agreements to the contrary. 3. Representation by Licensee. Licensee represents that it is a bona fide corporation in good standing in Florida. 4. Advance Royalty Payments. Licensee agrees to pay Borberg Fifty Thousand Dollars ($50,000 USD) annually as an advance and credited against any and all Royalty Payments paid in accordance with this License. Such Advance Royalty Payments shall be paid to Borberg and in equal payments of Twelve Thousand Five-hundred Dollars ($12,500 USD), made quarterly, on or before the expiration of Forty-five (45) days after the reporting close of each prior calendar quarter. The initial payment of Twelve Thousand Five-hundred Dollars ($12,500 USD) shall be due and payable within Forty-five (45) days of the Effective Date herein. 5. Royalty Payments. Licensee agrees to pay royalties to Brunner totaling One-Half Percent (0,5% in USD). Royalty Payments shall be calculated and paid based upon Total Net Revenues that Licensee receives from the bona fide commercial sales of its Products sold in reliance and dependence upon the validity of the Patent's claims and of the Patent Rights in the Territory. 6. Accounting and Timing of Royalty Payments. Upon making each Royalty Payment, Licensee shall provide Brunner with a summary of the accounting used to determine the amount of Royalty Payment due. Royalty Payments shall be made by wire transfer and shall be computed on Total Net Revenues received by the Licensee by the reporting close of each calendar quarter and distributed and paid to Brunner and on a quarterly basis, on or before the expiration of Forty-five (45) days after the reporting close of each prior calendar quarter. 7. Failure to Pay by Licensee. Should Licensee fail to make any payments as required herein, and should the Licensee fail to cure the breach created thereby, any and all rights, title and ownership to the License provided to the Licensee under this Agreement shall be forfeited and any and all such rights, title and ownership to the License shall, upon notice of the failure to cure the breach, immediately revert to Brunner, and all monies paid by Licensee until such date shall be retained by him without forfeiture. 8. Territory. Shall mean the United States and any other jurisdictions subject to recognizing any valid claims of the Patent or of the Patent Rights. 9. Total Net Revenues. Shall mean total gross revenues less any discounts, rebates, shipping costs, handling costs, transportation insurance costs, importation fees, and duties on any and all Products sold by the Licensee in the Territory and which are sold in -7- reliance upon and specifically used in accordance with or subject to any of the valid claims of the Patent. 10. Records. Licensee agrees to keep complete and correct books, accounts and records according to Generally Accepted Accounting Principles (GAAP) regulations to facilitate computation of Royalty Payments. Brunner or his representatives acceptable to Licensee, shall have a full right of accounting including the right to confidentially examine Licensee's books and records, at all reasonable times and upon reasonable notice, for the purpose of verifying the amount of Royalty Payments due. 11. Products. Shall mean any of Licensee's products, goods or technologies sold to unaffiliated third parties in the Territory for the purposes of providing extracorporeal therapies for the treatment of the ophthalmic diseases as defined by any valid claim(s) of the Patent. In this case, Licensee's sale of extracorporeal filters and tubing sets for use in any and all ophthalmic indications. 12. Term. The Royalty Payments shall be due to Brunner beginning with the first bona fide commercial sale of any Product in the Territory and may, at the discretion of Licensee terminate upon the first of any of the following three events to occur: a) All patents of the Patient Rights expire, b) All patent claims of the Patent Rights are invalidated, or c) A similarly fashioned competitive extracorporeal product, method or technology is commercially introduced in the Territory for use in ophthalmic indications that could not be deterred by best-efforts enforcement/infringement proceedings brought by Licensee against the competitive product, method or technology where such proceedings are made in reliance in full or in part upon the Patent's claims and or the Patent Rights. 13. Patent Defense. Licensee shall pay for any and all costs incurred for patent maintenance, enforcement and defense of the Patent or the Patent Rights in the Territory. 14. Participation. Borberg agrees, in consideration of the promises herein, that he and any of his executors and administrators will, at any time upon request, communicate to the Licensee, its successors and assigns, any facts relating to said Patent and Patent Rights, and the history thereof, known to him or his successors and assigns, and that he will testify as to the same in any interference or other proceeding when requested to do so by the Licensee, its successors and assigns. Any and all costs of such participation by Borberg or his successors and assigns shall be borne by Licensee. 15. Succession. Borberg binds himself and his heirs, executors, administrators, employees and legal representatives, the case may be, to execute and deliver to the Licensee, its successors and assigns, any further documents or instruments and to do any and all further acts that may be deemed necessary by the Licensee, its successors and assigns to file applications for improvements and inventions in any country where Licensee may elect to file such application(s) and that may be necessary to vest in the Licensee, its successors and assigns, the license, rights or title herein conveyed, or intended so to be, and to enable such title to be recorded in the United States and or foreign countries where such application(s) may be filed. Any and all costs of such participation by Borberg or his successors and assigns shall be borne by Licensee. -8- 16. Relationship of the Parties; Indemnification. It is agreed that this Agreement does not make any Party herein a general or special agent, legal representative, subsidiary, joint venturer, partner, employee or servant of any other Party herein for any purpose. 17. Breach and Disputes. Any breaching Party shall have Thirty (30) Days from the date of notification to cure sure breach. Any dispute between the Parties to this Agreement shall be resolved through binding arbitration, which shall be governed under the rules and regulations of the American Arbitration Association. . 18. Forum, Venue and Governing Law. This agreement shall be governed and interpreted. under Delaware law (without applying its conflict of law principles). Exclusive venue for legal proceedings arising hereunder shall be in Hillsborough County, Florida. 19. Entire Agreement. This Agreement supersedes any prior understanding that may have been reached between the Parties and encompasses the entire agreement between the Licensee and Borberg with respect to the Patent and the Patent Rights. The terms of this Agreement are confidential and shall be maintained by the Parties in accordance thereby. 20. Modification. This Agreement cannot be modified except in writing executed mutually between the Parties. IN WITNESS WHEREOF, the Partise have signed and executed this Agreement and have caused this Agreement to become affective as of the Effective Date Last executed below. OCCULOGIX CORPORATION prof. Dr. RICHARD BRUNNER By:_____________________________ By:_____________________________ Title:__________________________ Title:__________________________ Date:___________________________ Date:___________________________ EX-10.9 13 t13715exv10w9.txt EX-10.9 EXHIBIT 10.9 DISTRIBUTION SERVICES AGREEMENT THIS DISTRIBUTION SERVICES AGREEMENT is made and entered into this _____ day of May, 2002, by and between Apheresis Technologies, Inc., a Florida corporation located at 612 Florida Avenue, Palm Harbor Florida (the "Provider"), and OccuLogix Corporation, a Florida corporation ("OccuLogix"). WITNESSETH: WHEREAS, the Provider is a provider of customer service, warehousing, order fulfillment, billing and shipping services; and WHEREAS, OccuLogix is initiating marketing into Canada and Mexico and is in the process of obtaining FDA approval for the sale and distribution of its Rheopheresis product group, including certain disposable filters, tubing and pump machines (the "Product'); and WHEREAS, OccuLogix desires to obtain from the Provider certain services; and WHEREAS, the Provider desires to provide certain services to OccuLogix. NOW, THEREFORE, in consideration of the mutual obligations and promises set forth herein, the Provider and OccuLogix agree as follows: 1. Term. The term of this Agreement shall commence on the date hereof and shall continue until the date ten years subsequent to the "Approval Date." For purposes of this Agreement, the term "Approval Date" shall mean the date on which the FDA grants to OccuLogix PMA approval to sell the Product in the US; provided, however, that if the Approval Date shall not have occurred by May 1, 2012, this Agreement shall terminate. 2. Services. The parties agree that the Provider shall be the exclusive provider to OccuLogix of warehousing, order fulfillment, shipping, billing services and customer service related to shipping and billing all as further provided herein. 3. Warehousing. OccuLogix, at its expense, shall ship a quantity of Product inventory determined by OccuLogix to the premises of the Provider at 612 Florida Avenue, Palm Harbor Florida, or other such facility as deemed necessary or appropriate by the Provider. The Provider shall store, maintain, manage and account for such inventory in accordance with warehouse procedures to be agreed upon from time to time by the parties, but will at a minimum materially satisfy all FDA and or other regulatory requirements as may be necessary. As such, the Provider agrees to remain in compliance with all pertinent regulations at all times. 4. Order Fulfillment; Customer Service. Orders for the Product, whether received by OccuLogix or directly by the Provider, shall be forwarded to the Provider for processing. Upon Provider's receipt of confirmation of the purchase from OccuLogix, the order shall be picked from inventory on a FIFO basis, packed, labeled and otherwise prepared for -2- shipping by the Provider, all in accordance with order fulfillment procedures to be agreed upon from time to time by the parties. 5. Shipping; Billing. The Provider agrees to ship all orders processed hereunder in accordance with shipping procedures to be agreed upon from time to time by the parties. At the time of shipment, the Provider shall invoice the customer in accordance with procedures approved by OccuLogix and shall enter such invoice information into a billing and collection system specified by OccuLogix. 6. Reporting. The Provider shall report its activities hereunder to OccuLogix in reasonable detail on a daily basis using such report formats as are agreed upon from time to time by the parties. 7. Fees. OccuLogix shall pay to the Provider service fees for the services provided hereunder in accordance with the following terms: (a) OccuLogix shall pay to the Provider a basic service fee of 5% of the cost of delivered goods. For purposes of this Agreement, the tern "cost of delivered goods" shall mean the purchase price paid by OccuLogix for the goods, together with all shipping and related charges to the Provider's warehouse. For the purposes of this agreement, the basic service fee shall be compensation for all preparation and handling of shipments, customer service of shipping, handling and returns, all invoicing activities and warehousing (including labor costs for employees directly involved in the performance of such services). (b) In addition, Occulogix shall pay the Provider the cost of shipping between Provider and customer including any required packaging and labeling (materials and labor). (c) The Provider shall invoice OccuLogix for services monthly. Invoices are due 30 days after the date of the invoice. The invoice shall be in a format with sufficient detail for use by OccuLogix for financial reporting and management planning purposes. 8. Examination of Records. Upon not less than 48 hours notice, each party shall be entitled to examine the records of the other party regarding the performance of the parties under this Agreement on regular business days (Monday through Friday) and during regular business hours (8:30 A.M. - 5:00 P.M. Eastern Time). 9. Notices. Notice by either party will be made only in writing by certified mail, return receipt requested or facsimile addressed to the other party and will be considered given as of the time it is received. Addresses for notices are as follows: Provider: Apheresis Technologies, Inc -3- 612 Florida Avenue Palm Harbor FL 34683 FAX: 784-0898 OccuLogix Corporation 612 Florida Avenue Palm Harbor FL 34683 FAX: 784-0898 Changes to the notice addresses may be accomplished by notice in accordance with this paragraph. 10. Risk of Loss and Insurance. (a) The risk of loss of OccuLogix inventory shall at all times be borne by OccuLogix; provided, however, that any damage occurring as a result of negligence of the Provider shall be the responsibility of the Provider. (b) Each party shall be responsible for maintaining insurance upon its own inventory, equipment, furniture, fixtures, supplies and other property located upon the premises of the Provider. (c) Each party shall carry General Liability Insurance in the amount of not less than $1,000,000 per occurrence/$2,000,000 aggregate during the term of this agreement. (d) Each party shall furnish evidence to the other party of its compliance with this paragraph. 11. Confidential Information. The parties hereto consider this Agreement and all of its terms and conditions to be confidential. Except as may have been, or shall be, authorized in writing, or as hereinafter mentioned, each of the parties hereto shall keep confidential and shall not use otherwise than in the performance of this Agreement and shall take all reasonable steps to insure that its employees keep confidential and not use, all information supplied to them or which they have learned during the negotiations leading to this Agreement or learned hereafter concerning the business of the other. This obligation shall survive the termination of this Agreement and for 5 years after any termination of this Agreement. Nothing herein shall preclude disclosure of information to the extent that the disclosure is required to be made under laws or regulations in force and applicable to the party, or pursuant to a subpoena; provided, however, the party required to disclose any such confidential information shall immediately, upon receipt of a subpoena, notice, demand or order to produce the information, and prior to complying with the subpoena, notice, demand, or order, notify the other party of said subpoena, notice, demand or order and at the request of the other party, contest or join with the other party in contesting the propriety and/or authority of disclosing the information. Each party shall bear its own costs of complying with the provisions of this paragraph. -4- 12. Independent Contractor. The parties each agree and acknowledge that this Agreement does not constitute a joint venture or partnership. This Agreement has been reached by arms' length negotiations and is an independent services contract in which the Provider acts as an independent contractor. 13. Assignability. This Agreement and the rights and obligations hereunder may not be assigned by either party without the prior written consent of the other party. 14. Force Majeure. Except for the payment of money due hereunder, the Provider and OccuLogix shall be excused for failure to perform under this Agreement where such failure results from circumstances beyond the affected party's control including, without limitation, such circumstances as fire, storm, flood, earthquake, strikes, work stoppages or slow downs, delay or failure of transportation or supplies, acts of the public enemy, acts of God or acts, regulations, priorities or actions of the United States, a state or any local government or agents or instrumentalities thereof. 15. Governing Law. This Agreement shall be interpreted, and the rights, obligations and liabilities of the parties determined in accordance with the laws of the State of Florida (without regard to the conflicts of laws provisions thereof). The parties agree that any litigation arising out of this Agreement or performance of it by either party shall be litigated in either the Circuit Court of Pinellas County, Florida, or the United States District Court for the Middle District of Florida, Tampa Division. 16. Amendments. No alteration, modification or change of this Agreement shall be valid except by an agreement in writing executed by both parties hereto. 17. Dispute Resolution. The Provider and OccuLogix will attempt to settle any claim or controversy arising out of this Agreement through consultation and negotiation in good faith and a spirit of mutual cooperation. If those attempts fail, then the dispute will be mediated by a mutually acceptable mediator to be chosen by the Provider and OccuLogix within 45 days after written notice by either to the other demanding mediation. Neither party may unreasonably withhold consent to the selection of a mediator, and the Provider and OccuLogix will share the cost of the mediation equally. By mutual agreement, the Provider and OccuLogix may postpone mediation until some specified but limited discovery about the dispute has been completed. The parties may also agree to replace mediation with some other form of alternative dispute resolution. Any dispute which cannot be resolved between the parties through negotiation, mediation or other form of agreed alternative dispute resolution within 120 days of the date of the initial demand for it by one of the parties may then be submitted to the courts for resolution. Nothing in this section will prevent either party from resorting to judicial proceedings if (A) good faith efforts to resolve the dispute under these procedures have been unsuccessful, (B) interim relief from a court is necessary to prevent serious and irreparable injury to one party or to others, or (C) litigation is required to be filed prior to the running of the applicable statute of limitations. The use of any alternative dispute resolution procedure will not be construed under the doctrines of laches, waiver or estoppel to affect adversely the rights of either party. -5- 18. Severability. In the event that any provision or any portion of any provision of this agreement is held illegal, unenforceable, or invalid by any Court, such provision or portion thereof shall be deemed to be deleted from this agreement, and the validity of the remainder of this agreement shall remain unaffected thereby. 19. Entire Agreement. This Agreement constitutes the entire Agreement and understanding of the parties with regard to the matters covered herein. 20. Attorneys' Fees. If any suit, action or arbitration is initiated by any party to enforce this Agreement or otherwise with respect to the subject matter of this Agreement, the prevailing party in such suit, action or arbitration shall be entitled to recover reasonable attorneys' fees and expenses, including but not limited to travel, incurred in the preparation and prosecution or defense of such suit, action or arbitration, and if any appeal is taken from the decision of the trial court or arbitrator, reasonable attorneys' fees for such appeal. 21. Events of Default. The occurrence of one or more of the following events (an "Event of Default") shall constitute a default hereunder: (a) Covenants. The failure of either party hereto to perform or observe any covenant, term or condition binding on it contained herein if such default is not remedied within 30 days after written notice thereof from the non-defaulting party. (b) Liquidation; Bankruptcy. In the case of the Provider, the liquidation or dissolution of the Provider, or the filing by or against the Provider of a petition seeking relief under the United States Bankruptcy Code, as amended, or under any other insolvency act or law. (c) Business Suspension. In the case of the Provider, the suspension of the Provider's business by a governmental agency or instrumentality, including without limitation the United States Food and Drug Administration, as a result of any alleged violation by the Provider of any law, rule or regulation administered or promulgated by such agency or instrumentality. 22. Remedies. Upon the occurrence of any Event of Default, and at any time thereafter as long as the Event of Default is continuing, the nondefaulting party may terminate this Agreement and may pursue all rights, remedies or recourses available to such party at law, in equity or otherwise. Such remedies are cumulative, and exercisable concurrently, and may be pursued singularly, successively or together and may be exercised as often as occasion therefore shall arise. -6- IN WITNESS WHEREOF, each of the parties hereto have caused this Agreement to be signed by its respective duly authorized representative. Apheresis Technologies, Inc. By:______________________________ OccuLogix Corporation By:______________________________ EX-10.10 14 t13715exv10w10.txt EX-10.10 EXHIBIT 10.10 CONSULTING AGREEMENT THIS AGREEMENT (the "Agreement") is made by and between OccuLogix Corporation, a Florida Corporation (the "OccuLogix"), and Dipl. Ing. Hans K. Stock, an individual living in Germany ("Stock"). WHEREAS, Stock seeks to assist OccuLogix in procuring a license (the "License") to US patent 6,245,038 issued June 12, 2001 (the "Patent") from Prof. Dr. Helmut Borberg and or Prof. Dr. Richard Brunner, both individuals living in Germany and both listed as inventors in provisional US patent application 60/034,909 (the "Inventors") which is the parent and domestic-priority application of US letters patent 6,245,038 issued June 12, 2001, and WHEREAS, OccuLogix desires to acquire the License to the Patent and requests Stock's assistance in procuring said License. NOW THEREFORE, in consideration for the Retainer and Consulting Payments as described below, and other good and valuable consideration, the Parties enter into this Consulting Agreement in accordance with the terms set forth below. 1. Representation by Stock. Stock warrants that he is a natural person living in Germany who, along with Prof. Dr. Richard Brunner and Prof. Dr. Helmut Borberg, is listed as an inventor in provisional US patent application 60/034,909 which is the parent and domestic-priority application of US letters patent 6,245,038 issued June 12, 2001. 2. Representation by OccuLogix. OccuLogix represents that it is a bona fide corporation in good standing in Florida. 3. Patent Rights. Shall mean any and all of the rights, title, ownership and interests in and to US letters patent 6,245,038 and any and all inventions, modifications, continuations-in-part, extensions, divisions, improvements, etc., in any and all areas that relate directly to the Patent, regardless of whether such inventions or improvements are patentable or may become patented; It is expressly agreed that any and all such inventions, modifications, continuations-in-part, extensions, divisions, improvements, etc. shall automatically be incorporated herein without the payment of any additional fees, royalties or any other compensation or considerations of any kind. 4. Consulting Retainer Payments. OccuLogix agrees to pay Stock Fifty Thousand Dollars ($50,000 USD) annually as an advance and credited against any and all Consulting Payments paid in accordance with this License. Such Consulting Retainer Payments shall be paid to Stock in equal payments of Twelve Thousand Five-hundred Dollars ($12,500 USD), made quarterly, on or before the expiration of Forty-five (45) days after the reporting close of each prior calendar quarter. The initial payment of Twelve Thousand Five-hundred Dollars ($12,500 USD) shall be due and payable within Forty-five (45) Days of the Effective Date herein. -2- 5. Consulting Payments. OccuLogix agrees to pay Stock a total of One Percent (1.0% USD) of Total Net Revenues that OccuLogix receives from the bona fide commercial sales of its Products sold in reliance and dependence upon the validity of the Patent's claims and of the Patent Rights in the Territory. All payments due hereunder shall continue until the termination of the Agreement, to Stock, his assigns, heirs, or otherwise; even in the event of Stock's death. 6. Accounting and Timing of Royalty Payments. Upon making each Royalty Payment, Licensee shall provide Stock with a summary of the accounting used to determine the amount of Royalty Payment due. Royalty Payments shall be made by wire transfer and shall be computed on Total Net Revenues received by the Licensee by the reporting close of each calendar quarter and distributed and paid to Stock and on a quarterly basis, on or before the expiration of Forty-five (45) days after the reporting close of each prior calendar quarter. 7. Territory. Shall mean the United States and any other jurisdictions subject to recognizing any valid claims of the Patent or of the Patent Rights. 8. Total Net Revenues. shall mean total gross revenues less any discounts, rebates, shipping costs, handling costs, transportation insurance costs, importation fees, and duties on any and all Products sold by the Licensee in the Territory and which are sold in reliance upon and specifically used in accordance with or subject to any of the valid claims of the Patent. 9. Records. OccuLogix agrees to keep complete and correct books, accounts and records according to Generally Accepted Accounting Principles (GAAP) regulations to facilitate computation of Royalty Payments. Stock, or his representatives acceptable to OccuLogix, shall have a full right of accounting including the right to confidentially examine OccuLogix's books and records, at all reasonable times and upon reasonable notice, for the purpose of verifying the amount of Royalty Payments due. 10. Products. Shall mean any of the Licensee's products, goods or technologies sold to unaffiliated third parties in the Territory for the purposes of providing extracorporeal therapies for the treatment of the opthalmic diseases as defined by any valid claim(s) of the Patent. In this case, Licensee's sale of extracorporeal filters and tubing sets for use in any and all opthalmic indications. 11. Term. The Royalty Payments shall be due to Stock beginning with the first bona fide commercial sale of any Product in the Territory and shall terminate upon the first of any of the following three events to occur: a) All patents of the Patent Rights expire, b) All patent claims of the Patent Rights are invalidated, or c) A similarly fashioned competitive extracorporeal product, method or technology is commercially introduced in the Territory for use in opthalmic indications that could not be deterred by best-efforts enforcement/infringement proceedings brought by Licensee against the competitive product, method or technology where such proceedings are made in reliance in full or in part upon the Patent's claims and or the Patent Rights. -3- 12. Relationship of the Parties; Indemnification. It is agreed that this Agreement does not make either Party herein a general or special agent, legal representative, subsidiary, joint venturer, partner, employee or servant of the other Party herein for any purpose. 13. Breach and Disputes. Any breaching Party shall have Thirty (30) Days from the date of notification to cure such breach. Any dispute between the Parties to this Agreement shall be resolved through binding arbitration, which shall be governed under the rules and regulations of the American Arbitration Association. 14. Forum, Venue and Governing Law. This Agreement shall be governed and interpreted under Delaware law (without applying its conflict of law principles). Exclusive venue for legal proceedings arising hereunder shall be in Hillsborough County, Florida. 15. Entire Agreement. This Agreement supersedes any prior understanding that may have been reached between the Parties and encompasses the entire agreement between the Parties with respect to the Patent and the Patent Rights. The terms of this Agreement are confidential and shall be maintained by the Parties in accordance thereby. 16. Modification. This Agreement cannot be modified except in writing executed mutually between the Parties. IN WITNESS WHEREOF, the Parties have signed and executed this Agreement and have caused this Agreement to become effective as of the Effective Date last executed below. OCCULOGIX CORPORATION DIPL. ING. HANS K. STOCK By:___________________________ _________________________________ Title:________________________ Date:_________________________ Date:____________________________ EX-10.11 15 t13715exv10w11.txt EX-10.11 EXHIBIT 10.11 VASCULAR SCIENCES CORPORATION 2002 STOCK OPTION PLAN 1. ESTABLISHMENT, PURPOSE AND TERM OF PLAN. 1.1 ESTABLISHMENT. The Vascular Sciences Corporation 2002 Stock Option Plan (the "PLAN") is hereby established effective as of the effective date of the Delaware reincorporation of OccuLogix Corporation (the predecessor corporation to the Company) (the "EFFECTIVE DATE"). 1.2 PURPOSE. The purpose of the Plan is to advance the interests of the Participating Company Group and its stockholders by providing an incentive to attract, retain and reward persons performing services for the Participating Company Group and by motivating such persons to contribute to the growth and profitability of the Participating Company Group. 1.3 TERM OF PLAN. The Plan shall continue in effect until the earlier of its termination by the Board or the date on which all of the shares of Stock available for issuance under the Plan have been issued and all restrictions on such shares under the terms of the Plan and the agreements evidencing Options granted under the Plan have lapsed. However, all Options shall be granted, if at all, within ten (10) years from the earlier of the date the Plan is adopted by the Board or the date the Plan is duly approved by the stockholders of the Company. 2. DEFINITIONS AND CONSTRUCTION. 2.1 DEFINITIONS. Whenever used herein, the following terms shall have their respective meanings set forth below: (a) "BOARD" means the Board of Directors of the Company. If one or more Committees have been appointed by the Board to administer the Plan, "BOARD" also means such Committee(s). (b) "CODE" means the Internal Revenue Code of 1986, as amended, and any applicable regulations promulgated thereunder. (c) "COMMITTEE" means the Compensation Committee or other committee of the Board duly appointed to administer the Plan and having such powers as shall be specified by the Board. Unless the powers of the Committee have been specifically limited, the Committee shall have all of the powers of the Board granted herein, including, without limitation, the power to amend or terminate the Plan at any time, subject to the terms of the Plan and any applicable limitations imposed by law. (d) "COMPANY" means Vascular Sciences Corporation, a Delaware corporation, or any successor corporation thereto. (e) "CONSULTANT" means a person engaged to provide consulting or advisory services (other than as an Employee or a Director) to a Participating Company, provided that the identity of such person, the nature of such services or the entity to which such services are provided would not preclude the Company from offering or selling securities to such person pursuant to the Plan in reliance on either the exemption from registration provided by Rule 701 under the Securities Act or, if the Company is required to file reports pursuant to Section 13 or 15(d) of the Exchange Act, registration on a Form S-8 Registration Statement under the Securities Act. (f) "DIRECTOR" means a member of the Board or of the board of directors of any other Participating Company. (g) "DISABILITY" means the inability of the Optionee, in the opinion of a qualified physician acceptable to the Company, to perform the major duties of the Optionee's position with the Participating Company Group because of the sickness or injury of the Optionee. (h) "EMPLOYEE" means any person treated as an employee (including an Officer or a Director who is also treated as an employee) in the records of a Participating Company and, with respect to any Incentive Stock Option granted to such person, who is an employee for purposes of Section 422 of the Code; provided, however, that neither service as a Director nor payment of a director's fee shall be sufficient to constitute employment for purposes of the Plan. The Company shall determine in good faith and in the exercise of its discretion whether an individual has become or has ceased to be an Employee and the effective date of such individual's employment or termination of employment, as the case may be. For purposes of an individual's rights, if any, under the Plan as of the time of the Company's determination, all such determinations by the Company shall be final, binding and conclusive, notwithstanding that the Company or any court of law or governmental agency subsequently makes a contrary determination. (i) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended. (j) "FAIR MARKET VALUE" means, as of any date, the value of a share of Stock or other property as determined by the Board, in its discretion, or by the Company, in its discretion, if such determination is expressly allocated to the Company herein, subject to the following: (i) If, on such date, the Stock is listed on a national or regional securities exchange or market system, the Fair Market Value of a share of Stock shall be the closing price of a share of Stock (or the mean of the closing bid and asked prices of a share of Stock if the Stock is so quoted instead) as quoted on the Nasdaq National Market, The Nasdaq SmallCap Market or such other national or regional securities exchange or market system constituting the primary market for the Stock, as reported in The Wall Street Journal or such other source as the Company deems reliable. If the relevant date does not fall on a day on which the Stock has traded on such securities exchange or market system, the date on which the Fair 2 Market Value shall be established shall be the last day on which the Stock was so traded prior to the relevant date, or such other appropriate day as shall be determined by the Board, in its discretion. (ii) If, on such date, the Stock is not listed on a national or regional securities exchange or market system, the Fair Market Value of a share of Stock shall be as determined by the Board in good faith without regard to any restriction other than a restriction which, by its terms, will never lapse. (k) "INCENTIVE STOCK OPTION" means an Option intended to be (as set forth in the Option Agreement) and which qualifies as an incentive stock option within the meaning of Section 422(b) of the Code. (l) "INSIDER" means an Officer, a Director of the Company or other person whose transactions in Stock are subject to Section 16 of the Exchange Act. (m) "NONSTATUTORY STOCK OPTION" means an Option not intended to be (as set forth in the Option Agreement) or which does not qualify as an Incentive Stock Option. (n) "OFFICER" means any person designated by the Board as an officer of the Company. (o) "OPTION" means a right to purchase Stock pursuant to the terms and conditions of the Plan. An Option may be either an Incentive Stock Option or a Nonstatutory Stock Option. (p) "OPTION AGREEMENT" means a written agreement between the Company and an Optionee setting forth the terms, conditions and restrictions of the Option granted to the Optionee and any shares acquired upon the exercise thereof. An Option Agreement may consist of a form of "Notice of Grant of Stock Option" and a form of "Stock Option Agreement" incorporated therein by reference, or such other form or forms as the Board may approve from time to time. (q) "OPTIONEE" means a person who has been granted one or more Options. (r) "PARENT CORPORATION" means any present or future "parent corporation" of the Company, as defined in Section 424(e) of the Code. (s) "PARTICIPATING COMPANY" means the Company or any Parent Corporation or Subsidiary Corporation. (t) "PARTICIPATING COMPANY GROUP" means, at any point in time, all corporations collectively which are then Participating Companies. 3 (u) "PRIOR PLAN OPTIONS" means, any option granted pursuant to the OccuLogix Corporation 1997 Stock Option Plan which is outstanding on or after the date on which the Board adopts the Plan or which is granted thereafter and prior to the Effective Date. (v) "RULE 16b-3" means Rule 16b-3 under the Exchange Act, as amended from time to time, or any successor rule or regulation. (w) "SECURITIES ACT" means the Securities Act of 1933, as amended. (x) "SERVICE" means an Optionee's employment or service with the Participating Company Group, whether in the capacity of an Employee, a Director or a Consultant. An Optionee's Service shall not be deemed to have terminated merely because of a change in the capacity in which the Optionee renders Service to the Participating Company Group or a change in the Participating Company for which the Optionee renders such Service, provided that there is no interruption or termination of the Optionee's Service. Furthermore, an Optionee's Service with the Participating Company Group shall not be deemed to have terminated if the Optionee takes any military leave, sick leave, or other bona fide leave of absence approved by the Company; provided, however, that if any such leave exceeds ninety (90) days, on the ninety-first (91st) day of such leave the Optionee's Service shall be deemed to have terminated unless the Optionee's right to return to Service with the Participating Company Group is guaranteed by statute or contract. Notwithstanding the foregoing, unless otherwise designated by the Company or required by law, a leave of absence shall not be treated as Service for purposes of determining vesting under the Optionee's Option Agreement. The Optionee's Service shall be deemed to have terminated either upon an actual termination of Service or upon the corporation for which the Optionee performs Service ceasing to be a Participating Company. Subject to the foregoing, the Company, in its discretion, shall determine whether the Optionee's Service has terminated and the effective date of such termination. (y) "STOCK" means the common stock of the Company, as adjusted from time to time in accordance with Section 4.2. (z) "SUBSIDIARY CORPORATION" means any present or future "subsidiary corporation" of the Company, as defined in Section 424(f) of the Code. (aa) "TEN PERCENT OWNER OPTIONEE" means an Optionee who, at the time an Option is granted to the Optionee, owns stock possessing more than ten percent (10%) of the total combined voting power of all classes of stock of a Participating Company within the meaning of Section 422(b)(6) of the Code. 2.2 CONSTRUCTION. Captions and titles contained herein are for convenience only and shall not affect the meaning or interpretation of any provision of the Plan. Except when otherwise indicated by the context, the singular shall include the plural and the plural shall include the singular. Use of the term "or" is not intended to be exclusive, unless the context clearly requires otherwise. 4 3. ADMINISTRATION. 3.1 ADMINISTRATION BY THE BOARD. The Plan shall be administered by the Board. All questions of interpretation of the Plan or of any Option shall be determined by the Board, and such determinations shall be final and binding upon all persons having an interest in the Plan or such Option. 3.2 AUTHORITY OF OFFICERS. Any Officer shall have the authority to act on behalf of the Company with respect to any matter, right, obligation, determination or election which is the responsibility of or which is allocated to the Company herein, provided the Officer has apparent authority with respect to such matter, right, obligation, determination or election. 3.3 POWERS OF THE BOARD. In addition to any other powers set forth in the Plan and subject to the provisions of the Plan, the Board shall have the full and final power and authority, in its discretion: (a) to determine the persons to whom, and the time or times at which, Options shall be granted and the number of shares of Stock to be subject to each Option; (b) to designate Options as Incentive Stock Options or Nonstatutory Stock Options; (c) to determine the Fair Market Value of shares of Stock or other property; (d) to determine the terms, conditions and restrictions applicable to each Option (which need not be identical) and any shares acquired upon the exercise thereof, including, without limitation, (i) the exercise price of the Option, (ii) the method of payment for shares purchased upon the exercise of the Option, (iii) the method for satisfaction of any tax withholding obligation arising in connection with the Option or such shares, including by the withholding or delivery of shares of stock, (iv) the timing, terms and conditions of the exercisability of the Option or the vesting of any shares acquired upon the exercise thereof, (v) the time of the expiration of the Option, (vi) the effect of the Optionee's termination of Service with the Participating Company Group on any of the foregoing, and (vii) all other terms, conditions and restrictions applicable to the Option or such shares not inconsistent with the terms of the Plan; (e) to approve one or more forms of Option Agreement; (f) to amend, modify, extend, cancel or renew any Option or to waive any restrictions or conditions applicable to any Option or any shares acquired upon the exercise thereof; (g) to accelerate, continue, extend or defer the exercisability of any Option or the vesting of any shares acquired upon the exercise thereof, including with respect to 5 the period following an Optionee's termination of Service with the Participating Company Group; (h) to prescribe, amend or rescind rules, guidelines and policies relating to the Plan, or to adopt supplements to, or alternative versions of, the Plan, including, without limitation, as the Board deems necessary or desirable to comply with the laws of, or to accommodate the tax policy or custom of, foreign jurisdictions whose citizens may be granted Options; and (i) to correct any defect, supply any omission or reconcile any inconsistency in the Plan or any Option Agreement and to make all other determinations and take such other actions with respect to the Plan or any Option as the Board may deem advisable to the extent not inconsistent with the provisions of the Plan or applicable law. 3.4 ADMINISTRATION WITH RESPECT TO INSIDERS. With respect to participation by Insiders in the Plan, at any time that any class of equity security of the Company is registered pursuant to Section 12 of the Exchange Act, the Plan shall be administered in compliance with the requirements, if any, of Rule 16b-3. 3.5 INDEMNIFICATION. In addition to such other rights of indemnification as they may have as members of the Board or officers or employees of the Participating Company Group, members of the Board and any officers or employees of the Participating Company Group to whom authority to act for the Board or the Company is delegated shall be indemnified by the Company against all reasonable expenses, including attorneys' fees, actually and necessarily incurred in connection with the defense of any action, suit or proceeding, or in connection with any appeal therein, to which they or any of them may be a party by reason of any action taken or failure to act under or in connection with the Plan, or any right granted hereunder, and against all amounts paid by them in settlement thereof (provided such settlement is approved by independent legal counsel selected by the Company) or paid by them in satisfaction of a judgment in any such action, suit or proceeding, except in relation to matters as to which it shall be adjudged in such action, suit or proceeding that such person is liable for gross negligence, bad faith or intentional misconduct in duties; provided, however, that within sixty (60) days after the institution of such action, suit or proceeding, such person shall offer to the Company, in writing, the opportunity at its own expense to handle and defend the same. 4. SHARES SUBJECT TO PLAN. 4.1 MAXIMUM NUMBER OF SHARES ISSUABLE. Subject to adjustment as provided in Section 4.2, the maximum aggregate number of shares of Stock that may be issued under the Plan shall be Two Million Six Hundred Seventy-Eight Thousand Nine Hundred and Ninety-Seven (2,678,997). This share reserve shall consist of authorized but unissued or reacquired shares of Stock or any combination thereof. However, the share reserve, determined at any time, shall be reduced by the number of shares subject to Prior Plan Options. If an outstanding Option, including any Prior Plan Option, for any reason expires or is terminated or canceled or if shares of Stock are acquired upon the exercise of an Option, including any Prior Plan Option, subject to a Company repurchase option and are repurchased by the Company at the 6 Optionee's exercise price, the shares of Stock allocable to the unexercised portion of such Option or Prior Plan Option or such repurchased shares of Stock shall again be available for issuance under the Plan. However, except as adjusted pursuant to Section 4.2, in no event shall more than Two Million Six Hundred Seventy-Eight Thousand Nine Hundred and Ninety-Seven (2,678,997) shares of Stock be available for issuance pursuant to the exercise of Incentive Stock Options (the "ISO SHARE ISSUANCE LIMIT"). Notwithstanding the foregoing, at any such time as the offer and sale of securities pursuant to the Plan is subject to compliance with Section 260.140.45 of Title 10 of the California Code of Regulations ("SECTION 260.140.45"), the total number of shares of Stock issuable upon the exercise of all outstanding Options (together with options outstanding under any other stock option plan of the Company) and the total number of shares provided for under any stock bonus or similar plan of the Company shall not exceed thirty percent (30%) (or such other higher percentage limitation as may be approved by the stockholders of the Company pursuant to Section 260.140.45) of the then outstanding shares of the Company as calculated in accordance with the conditions and exclusions of Section 260.140.45. 4.2 ADJUSTMENTS FOR CHANGES IN CAPITAL STRUCTURE. In the event of any stock dividend, stock split, reverse stock split, recapitalization, combination, reclassification or similar change in the capital structure of the Company, appropriate adjustments shall be made in the number and class of shares subject to the Plan and to any outstanding Options, in the ISO Share Issuance Limit set forth in Section 4.1, and in the exercise price per share of any outstanding Options. If a majority of the shares which are of the same class as the shares that are subject to outstanding Options are exchanged for, converted into, or otherwise become (whether or not pursuant to an Ownership Change Event, as defined in Section 8.1) shares of another corporation (the "NEW SHARES"), the Board may unilaterally amend the outstanding Options to provide that such Options are exercisable for New Shares. In the event of any such amendment, the number of shares subject to, and the exercise price per share of, the outstanding Options shall be adjusted in a fair and equitable manner as determined by the Board, in its discretion. Notwithstanding the foregoing, any fractional share resulting from an adjustment pursuant to this Section 4.2 shall be rounded down to the nearest whole number, and in no event may the exercise price of any Option be decreased to an amount less than the par value, if any, of the stock subject to the Option. The adjustments determined by the Board pursuant to this Section 4.2 shall be final, binding and conclusive. 5. ELIGIBILITY AND OPTION LIMITATIONS. 5.1 PERSONS ELIGIBLE FOR OPTIONS. Options may be granted only to Employees, Consultants, and Directors. For purposes of the foregoing sentence, "Employees," "Consultants" and "Directors" shall include prospective Employees, prospective Consultants and prospective Directors to whom Options are granted in connection with written offers of an employment or other service relationship with the Participating Company Group. Eligible persons may be granted more than one (1) Option. However, eligibility in accordance with this Section shall not entitle any person to be granted an Option, or, having been granted an Option, to be granted an additional Option. 5.2 OPTION GRANT RESTRICTIONS. Any person who is not an Employee on the effective date of the grant of an Option to such person may be granted only a Nonstatutory Stock 7 Option. An Incentive Stock Option granted to a prospective Employee upon the condition that such person become an Employee shall be deemed granted effective on the date such person commences Service with a Participating Company, with an exercise price determined as of such date in accordance with Section 6.1. 5.3 FAIR MARKET VALUE LIMITATION. To the extent that options designated as Incentive Stock Options (granted under all stock option plans of the Participating Company Group, including the Plan) become exercisable by an Optionee for the first time during any calendar year for stock having a Fair Market Value greater than One Hundred Thousand Dollars ($100,000), the portions of such options which exceed such amount shall be treated as Nonstatutory Stock Options. For purposes of this Section 5.3, options designated as Incentive Stock Options shall be taken into account in the order in which they were granted, and the Fair Market Value of stock shall be determined as of the time the option with respect to such stock is granted. If the Code is amended to provide for a different limitation from that set forth in this Section 5.3, such different limitation shall be deemed incorporated herein effective as of the date and with respect to such Options as required or permitted by such amendment to the Code. If an Option is treated as an Incentive Stock Option in part and as a Nonstatutory Stock Option in part by reason of the limitation set forth in this Section 5.3, the Optionee may designate which portion of such Option the Optionee is exercising. In the absence of such designation, the Optionee shall be deemed to have exercised the Incentive Stock Option portion of the Option first. Separate certificates representing each such portion shall be issued upon the exercise of the Option. 6. TERMS AND CONDITIONS OF OPTIONS. Options shall be evidenced by Option Agreements specifying the number of shares of Stock covered thereby, in such form as the Board shall from time to time establish. No Option or purported Option shall be a valid and binding obligation of the Company unless evidenced by a fully executed Option Agreement. Option Agreements may incorporate all or any of the terms of the Plan by reference and shall comply with and be subject to the following terms and conditions: 6.1 EXERCISE PRICE. The exercise price for each Option shall be established in the discretion of the Board; provided, however, that (a) the exercise price per share for an Incentive Stock Option shall be not less than the Fair Market Value of a share of Stock on the effective date of grant of the Option, (b) the exercise price per share for a Nonstatutory Stock Option shall be not less than eighty-five percent (85%) of the Fair Market Value of a share of Stock on the effective date of grant of the Option, and (c) no Option granted to a Ten Percent Owner Optionee shall have an exercise price per share less than one hundred ten percent (110%) of the Fair Market Value of a share of Stock on the effective date of grant of the Option. Notwithstanding the foregoing, an Option (whether an Incentive Stock Option or a Nonstatutory Stock Option) may be granted with an exercise price lower than the minimum exercise price set forth above if such Option is granted pursuant to an assumption or substitution for another option in a manner qualifying under the provisions of Section 424(a) of the Code. 8 6.2 EXERCISABILITY AND TERM OF OPTIONS. Options shall be exercisable at such time or times, or upon such event or events, and subject to such terms, conditions, performance criteria and restrictions as shall be determined by the Board and set forth in the Option Agreement evidencing such Option; provided, however, that (a) no Option shall be exercisable after the expiration of ten (10) years after the effective date of grant of such Option, (b) no Incentive Stock Option granted to a Ten Percent Owner Optionee shall be exercisable after the expiration of five (5) years after the effective date of grant of such Option, (c) no Option granted to a prospective Employee, prospective Consultant or prospective Director may become exercisable prior to the date on which such person commences Service with a Participating Company, and (d) with the exception of an Option granted to an Officer, a Director or a Consultant, no Option shall become exercisable at a rate less than twenty percent (20%) per year over a period of five (5) years from the effective date of grant of such Option, subject to the Optionee's continued Service. Subject to the foregoing, unless otherwise specified by the Board in the grant of an Option, any Option granted hereunder shall terminate ten (10) years after the effective date of grant of the Option, unless earlier terminated in accordance with its provisions. 6.3 PAYMENT OF EXERCISE PRICE. (a) FORMS OF CONSIDERATION AUTHORIZED. Except as otherwise provided below, payment of the exercise price for the number of shares of Stock being purchased pursuant to any Option shall be made (i) in cash, by check or cash equivalent, (ii) by tender to the Company, or attestation to the ownership, of shares of Stock owned by the Optionee having a Fair Market Value not less than the exercise price, (iii) by delivery of a properly executed notice together with irrevocable instructions to a broker providing for the assignment to the Company of the proceeds of a sale or loan with respect to some or all of the shares being acquired upon the exercise of the Option (including, without limitation, through an exercise complying with the provisions of Regulation T as promulgated from time to time by the Board of Governors of the Federal Reserve System) (a "CASHLESS EXERCISE"), (iv) provided that the Optionee is an Employee (unless otherwise not prohibited by law, including, without limitation, any regulation promulgated by the Board of Governors of the Federal Reserve System) and in the Company's sole discretion at the time the Option is exercised, by delivery of the Optionee's promissory note in a form approved by the Company for the aggregate exercise price, provided that, if the Company is incorporated in the State of Delaware, the Optionee shall pay in cash that portion of the aggregate exercise price not less than the par value of the shares being acquired, (v) by such other consideration as may be approved by the Board from time to time to the extent permitted by applicable law, or (vi) by any combination thereof. The Board may at any time or from time to time, by approval of or by amendment to the standard forms of Option Agreement described in Section 7, or by other means, grant Options which do not permit all of the foregoing forms of consideration to be used in payment of the exercise price or which otherwise restrict one or more forms of consideration. (b) LIMITATIONS ON FORMS OF CONSIDERATION. (i) TENDER OF STOCK. Notwithstanding the foregoing, an Option may not be exercised by tender to the Company, or attestation to the ownership, of shares of Stock to the extent such tender or attestation would constitute a violation of the provisions of 9 any law, regulation or agreement restricting the redemption of the Company's stock. Unless otherwise provided by the Board, an Option may not be exercised by tender to the Company, or attestation to the ownership, of shares of Stock unless such shares either have been owned by the Optionee for more than six (6) months (and not used for another Option exercise by attestation during such period) or were not acquired, directly or indirectly, from the Company. (ii) CASHLESS EXERCISE. The Company reserves, at any and all times, the right, in the Company's sole and absolute discretion, to establish, decline to approve or terminate any program or procedures for the exercise of Options by means of a Cashless Exercise. (iii) PAYMENT BY PROMISSORY NOTE. No promissory note shall be permitted if the exercise of an Option using a promissory note would be a violation of any law. Any permitted promissory note shall be on such terms as the Board shall determine. The Board shall have the authority to permit or require the Optionee to secure any promissory note used to exercise an Option with the shares of Stock acquired upon the exercise of the Option or with other collateral acceptable to the Company. Unless otherwise provided by the Board, if the Company at any time is subject to the regulations promulgated by the Board of Governors of the Federal Reserve System or any other governmental entity affecting the extension of credit in connection with the Company's securities, any promissory note shall comply with such applicable regulations, and the Optionee shall pay the unpaid principal and accrued interest, if any, to the extent necessary to comply with such applicable regulations. 6.4 TAX WITHHOLDING. The Company shall have the right, but not the obligation, to deduct from the shares of Stock issuable upon the exercise of an Option, or to accept from the Optionee the tender of, a number of whole shares of Stock having a Fair Market Value, as determined by the Company, equal to all or any part of the federal, state, local and foreign taxes, if any, required by law to be withheld by the Participating Company Group with respect to such Option or the shares acquired upon the exercise thereof. Alternatively or in addition, in its discretion, the Company shall have the right to require the Optionee, through payroll withholding, cash payment or otherwise, including by means of a Cashless Exercise, to make adequate provision for any such tax withholding obligations of the Participating Company Group arising in connection with the Option or the shares acquired upon the exercise thereof. The Fair Market Value of any shares of Stock withheld or tendered to satisfy any such tax withholding obligations shall not exceed the amount determined by the applicable minimum statutory withholding rates. The Company shall have no obligation to deliver shares of Stock or to release shares of Stock from an escrow established pursuant to the Option Agreement until the Participating Company Group's tax withholding obligations have been satisfied by the Optionee. 6.5 REPURCHASE RIGHTS. Shares issued under the Plan may be subject to a right of first refusal, one or more repurchase options, or other conditions and restrictions as determined by the Board in its discretion at the time the Option is granted. The Company shall have the right to assign at any time any repurchase right it may have, whether or not such right is then exercisable, to one or more persons as may be selected by the Company. Upon request by the Company, each Optionee shall execute any agreement evidencing such transfer restrictions prior to the receipt of shares of Stock hereunder and shall promptly present to the Company any 10 and all certificates representing shares of Stock acquired hereunder for the placement on such certificates of appropriate legends evidencing any such transfer restrictions. 6.6 EFFECT OF TERMINATION OF SERVICE. (a) OPTION EXERCISABILITY. Subject to earlier termination of the Option as otherwise provided herein and unless otherwise provided by the Board in the grant of an Option and set forth in the Option Agreement, an Option shall be exercisable after an Optionee's termination of Service only during the applicable time period determined in accordance with this Section 6.6 and thereafter shall terminate: (i) DISABILITY. If the Optionee's Service terminates because of the Disability of the Optionee, the Option, to the extent unexercised and exercisable on the date on which the Optionee's Service terminated, may be exercised by the Optionee (or the Optionee's guardian or legal representative) at any time prior to the expiration of twelve (12) months (or such longer period of time as determined by the Board, in its discretion) after the date on which the Optionee's Service terminated, but in any event no later than the date of expiration of the Option's term as set forth in the Option Agreement evidencing such Option (the "OPTION EXPIRATION DATE"). (ii) DEATH. If the Optionee's Service terminates because of the death of the Optionee, the Option, to the extent unexercised and exercisable on the date on which the Optionee's Service terminated, may be exercised by the Optionee's legal representative or other person who acquired the right to exercise the Option by reason of the Optionee's death at any time prior to the expiration of twelve (12) months (or such longer period of time as determined by the Board, in its discretion) after the date on which the Optionee's Service terminated, but in any event no later than the Option Expiration Date. The Optionee's Service shall be deemed to have terminated on account of death if the Optionee dies within three (3) months (or such longer period of time as determined by the Board, in its discretion) after the Optionee's termination of Service. (iii) OTHER TERMINATION OF SERVICE. If the Optionee's Service terminates for any reason, except Disability or death, the Option, to the extent unexercised and exercisable by the Optionee on the date on which the Optionee's Service terminated, may be exercised by the Optionee at any time prior to the expiration of three (3) months (or such longer period of time as determined by the Board, in its discretion) after the date on which the Optionee's Service terminated, but in any event no later than the Option Expiration Date. (b) EXTENSION IF EXERCISE PREVENTED BY LAW. Notwithstanding the foregoing, if the exercise of an Option within the applicable time periods set forth in Section 6.6(a) is prevented by the provisions of Section 10 below, the Option shall remain exercisable until three (3) months (or such longer period of time as determined by the Board, in its discretion) after the date the Optionee is notified by the Company that the Option is exercisable, but in any event no later than the Option Expiration Date. 11 (c) EXTENSION IF OPTIONEE SUBJECT TO SECTION 16(b). Notwithstanding the foregoing, if a sale within the applicable time periods set forth in Section 6.6(a) of shares acquired upon the exercise of the Option would subject the Optionee to suit under Section 16(b) of the Exchange Act, the Option shall remain exercisable until the earliest to occur of (i) the tenth (10th) day following the date on which a sale of such shares by the Optionee would no longer be subject to such suit, (ii) the one hundred and ninetieth (190th) day after the Optionee's termination of Service, or (iii) the Option Expiration Date. 6.7 TRANSFERABILITY OF OPTIONS. During the lifetime of the Optionee, an Option shall be exercisable only by the Optionee or the Optionee's guardian or legal representative. No Option shall be assignable or transferable by the Optionee, except by will or by the laws of descent and distribution. Notwithstanding the foregoing, to the extent permitted by the Board, in its discretion, and set forth in the Option Agreement evidencing such Option, a Nonstatutory Stock Option shall be assignable or transferable subject to the applicable limitations, if any, described in Section 260.140.41 of Title 10 of the California Code of Regulations, Rule 701 under the Securities Act, and the General Instructions to Form S-8 Registration Statement under the Securities Act. 7. STANDARD FORMS OF OPTION AGREEMENT. 7.1 OPTION AGREEMENT. Unless otherwise provided by the Board at the time the Option is granted, an Option shall comply with and be subject to the terms and conditions set forth in the form of Option Agreement approved by the Board concurrently with its adoption of the Plan and as amended from time to time. 7.2 AUTHORITY TO VARY TERMS. The Board shall have the authority from time to time to vary the terms of any standard form of Option Agreement described in this Section 7 either in connection with the grant or amendment of an individual Option or in connection with the authorization of a new standard form or forms; provided, however, that the terms and conditions of any such new, revised or amended standard form or forms of Option Agreement are not inconsistent with the terms of the Plan. 8. CHANGE IN CONTROL. 8.1 DEFINITIONS. (a) An "OWNERSHIP CHANGE EVENT" shall be deemed to have occurred if any of the following occurs with respect to the Company: (i) the direct or indirect sale or exchange in a single or series of related transactions by the stockholders of the Company of more than fifty percent (50%) of the voting stock of the Company; (ii) a merger or consolidation in which the Company is a party; (iii) the sale, exchange, or transfer of all or substantially all of the assets of the Company; or (iv) a liquidation or dissolution of the Company. (b) A "CHANGE IN CONTROL" shall mean an Ownership Change Event or a series of related Ownership Change Events (collectively, a "TRANSACTION") wherein the stockholders of the Company immediately before the Transaction do not retain immediately after 12 the Transaction, in substantially the same proportions as their ownership of shares of the Company's voting stock immediately before the Transaction, direct or indirect beneficial ownership of more than fifty percent (50%) of the total combined voting power of the outstanding voting securities of the Company or, in the case of a Transaction described in Section 8.1(a)(iii), the corporation or other business entity to which the assets of the Company were transferred (the "TRANSFEREE"), as the case may be. For purposes of the preceding sentence, indirect beneficial ownership shall include, without limitation, an interest resulting from ownership of the voting securities of one or more corporations or other business entities which own the Company or the Transferee, as the case may be, either directly or through one or more subsidiary corporations or other business entities. The Board shall have the right to determine whether multiple sales or exchanges of the voting securities of the Company or multiple Ownership Change Events are related, and its determination shall be final, binding and conclusive. 8.2 EFFECT OF CHANGE IN CONTROL ON OPTIONS. In the event of a Change in Control, the surviving, continuing, successor, or purchasing corporation or other business entity or parent thereof, as the case may be (the "ACQUIRING CORPORATION"), may, without the consent of the Optionee, either assume the Company's rights and obligations under outstanding Options or substitute for outstanding Options substantially equivalent options for the Acquiring Corporation's stock. Any Options which are neither assumed or substituted for by the Acquiring Corporation in connection with the Change in Control nor exercised as of the date of the Change in Control shall terminate and cease to be outstanding effective as of the date of the Change in Control. Notwithstanding the foregoing, shares acquired upon exercise of an Option prior to the Change in Control and any consideration received pursuant to the Change in Control with respect to such shares shall continue to be subject to all applicable provisions of the Option Agreement evidencing such Option except as otherwise provided in such Option Agreement. Furthermore, notwithstanding the foregoing, if the corporation the stock of which is subject to the outstanding Options immediately prior to an Ownership Change Event described in Section 8.1(a)(i) constituting a Change in Control is the surviving or continuing corporation and immediately after such Ownership Change Event less than fifty percent (50%) of the total combined voting power of its voting stock is held by another corporation or by other corporations that are members of an affiliated group within the meaning of Section 1504(a) of the Code without regard to the provisions of Section 1504(b) of the Code, the outstanding Options shall not terminate unless the Board otherwise provides in its discretion. 9. PROVISION OF INFORMATION. At least annually, copies of the Company's balance sheet and income statement for the just completed fiscal year shall be made available to each Optionee and purchaser of shares of Stock upon the exercise of an Option. The Company shall not be required to provide such information to key employees whose duties in connection with the Company assure them access to equivalent information. Furthermore, the Company shall deliver to each Optionee such disclosures as are required in accordance with Rule 701 under the Securities Act. 13 10. COMPLIANCE WITH SECURITIES LAW. The grant of Options and the issuance of shares of Stock upon exercise of Options shall be subject to compliance with all applicable requirements of federal, state and foreign law with respect to such securities. Options may not be exercised if the issuance of shares of Stock upon exercise would constitute a violation of any applicable federal, state or foreign securities laws or other law or regulations or the requirements of any stock exchange or market system upon which the Stock may then be listed. In addition, no Option may be exercised unless (a) a registration statement under the Securities Act shall at the time of exercise of the Option be in effect with respect to the shares issuable upon exercise of the Option or (b) in the opinion of legal counsel to the Company, the shares issuable upon exercise of the Option may be issued in accordance with the terms of an applicable exemption from the registration requirements of the Securities Act. The inability of the Company to obtain from any regulatory body having jurisdiction the authority, if any, deemed by the Company's legal counsel to be necessary to the lawful issuance and sale of any shares hereunder shall relieve the Company of any liability in respect of the failure to issue or sell such shares as to which such requisite authority shall not have been obtained. As a condition to the exercise of any Option, the Company may require the Optionee to satisfy any qualifications that may be necessary or appropriate, to evidence compliance with any applicable law or regulation and to make any representation or warranty with respect thereto as may be requested by the Company. 11. TERMINATION OR AMENDMENT OF PLAN. The Board may terminate or amend the Plan at any time. However, subject to changes in applicable law, regulations or rules that would permit otherwise, without the approval of the Company's stockholders, there shall be (a) no increase in the maximum aggregate number of shares of Stock that may be issued under the Plan (except by operation of the provisions of Section 4.2), (b) no change in the class of persons eligible to receive Incentive Stock Options, and (c) no other amendment of the Plan that would require approval of the Company's stockholders under any applicable law, regulation or rule. No termination or amendment of the Plan shall affect any then outstanding Option unless expressly provided by the Board. In any event, no termination or amendment of the Plan may adversely affect any then outstanding Option without the consent of the Optionee, unless such termination or amendment is required to enable an Option designated as an Incentive Stock Option to qualify as an Incentive Stock Option or is necessary to comply with any applicable law, regulation or rule. 12. STOCKHOLDER APPROVAL. The Plan or any increase in the maximum aggregate number of shares of Stock issuable thereunder as provided in Section 4.1 (the "AUTHORIZED SHARES") shall be approved by the stockholders of the Company within twelve (12) months of the date of adoption thereof by the Board. Options granted prior to stockholder approval of the Plan or in excess of the Authorized Shares previously approved by the stockholders shall become exercisable no earlier than the date of stockholder approval of the Plan or such increase in the Authorized Shares, as the case may be. 14 PLAN HISTORY June ___, 2002 Board of Directors of OccuLogix Corporation, a Florida corporation ("OccuLogix") adopts Plan, with an initial reserve of Two Million Six Hundred Seventy-Eight Thousand Nine Hundred and Ninety-Seven (2,678,997) shares. This share reserve includes the number of shares of stock underlying outstanding options and the number of shares available for grant as options under the OccuLogix Corporation 1997 Stock Option Plan. However, this share reserve, at any time, shall be reduced by the number of shares subject to Prior Plan Options. June ___, 2002 Stockholders of OccuLogix approve Plan, with an initial reserve of Two Million Six Hundred Seventy-Eight Thousand Nine Hundred and Ninety-Seven (2,678,997) shares. This share reserve includes the number of shares of stock underlying outstanding options and the number of shares available for grant as options under the OccuLogix Corporation 1997 Stock Option Plan. However, this share reserve, at any time, shall be reduced by the number of shares subject to Prior Plan Options. June ___, 2002 Effective date of Delaware reincorporation of OccuLogix. 15 EX-10.12 16 t13715exv10w12.txt EX-10.12 EXHIBIT 10.12 PATENT LICENSE AND ROYALTY AGREEMENT THIS AGREEMENT (the "Agreement") is made by and between OccuLogix, Inc. (formerly Vascular Sciences Corporation), a Delaware Corporation (the "Licensee"), and Dr. Hans Stock ("Stock") living in Germany, and the assignee of the rights of Prof. Dr. Helmut Borberg ("Borberg"), listed as inventor along with Dr. Richard Brunner ("Brunner") in US patent application 09/000,917, which is the parent application of US letters patent 6,245,038 issued June 12, 2001 (the "Patent"). WHEREAS, Brunner executed a patent license and royalty agreement with a predecessor of the Licensee as of May 6, 2002 and amended and restated that agreement as of the date hereof; WHEREAS, Borberg assigned all his right, title and interest to the Patent and the Patent Rights to Stock; WHEREAS, Stock originally licensed any and all of his rights, title and interests to the Patent and the Patent Rights to the Licensee in an undocumented oral agreement; WHEREAS, Stock continues to desire to license any and all of his rights, title and interest to the Patent and the Patent Rights derived therefrom to Licensee, and WHEREAS, Licensee continues to desire to obtain an exclusive license to all of Stock's interest in the Patent and the Patent Rights derived therefrom and to exclusively own the License to any and all of his rights, title, interests and ownership to the Patent and any and all related patents, rights and inventions that specifically relate to the Patent whether owned now or at any time in the future by Stock (the "License"), and WHEREAS, Stock shall be eligible to receive any and all consideration and compensation from the Licensee, such as those pledged to be made by the Licensee to Stock under the terms of this Agreement. NOW THEREFORE, in consideration for guaranteed Advance Royalty Payments and Royalty Payments as described below, and other good and valuable consideration, Stock does hereby continue to exclusively license, in accordance with the terms set forth below, unto Licensee, its successors and assigns, Stock's entire undivided right, title, ownership and interest in and to the Patent and the invention(s) therein contained (the "Patent Rights"), throughout the Territory, to be held and enjoyed by Licensee its successors and assigns, the same as it would have been held and enjoyed by Stock if this Patent License and Royalty Agreement had not been made and entered into. Stock recognizes that by signing this Agreement, the combination of this Agreement and a patent license and royalty agreement between Brunner and Licensee will collectively constitute an EXCLUSIVE PATENT LICENSE AND ROYALTY AGREEMENT by which Stock and Brunner grant an exclusive license in the patent to Licensee including the right to sue for past infringement. -2- 1. Patent Rights. Shall mean any and all of Stock's rights, title, ownership and interests in and to US letters patent 6,245,038 and any and all inventions, modifications, continuations-in-part, extensions, divisions, improvements, etc. made by Stock or his agents, in any and all areas that relate directly to the Patent, regardless of whether such inventions or improvements are patentable or may become patented; all inventions, modifications, continuations-in-part, extensions, divisions, improvements, etc. shall automatically be incorporated herein without the payment of any additional fees, royalties or any other compensation or considerations of any kind. 2. Representation by Stock. Stock warrants that he as the assignee of the right of Borberg, along with Brunner, as the joint inventors of United States Patent 6,245,038, exclusively owns and possesses the Patent and the Patent Rights, and has all right and title thereto and that this Patent License and Royalty Agreement is made without encumbrance or threat of future interference by others claiming ownership therein and that no security interests to any third party exists therein or any other agreement the contrary. 3. Representation by Licensee. Licensee represents that it is a bona fide corporation in good standing in Delaware. 4. Advance Royalty Payments. Licensee agrees to pay Stock Fifty Thousand Dollars ($50,000 USD) annually as an advance and credited against any and all Royalty Payments paid in accordance with this Agreement. Such Advance Royalty Payments shall be paid to Stock and in equal payments of Twelve Thousand Five-hundred Dollars ($12,500 USD), made quarterly, on or before the expiration of Forty-five (45) days after the reporting close of each prior calendar quarter. 5. Royalty Payments. Licensee agrees to pay royalties to Stock totaling One-and-a-Half Percent (1.5% in USD). Royalty Payments shall be calculated and paid based upon Total Net Revenues that Licensee receives from the bona fide commercial sales of its Products sold in reliance and dependence upon the validity of the Patient's claims and of the Patent Rights in the Territory. 6. Accounting and Timing of Royalty Payments. Upon making each Royalty Payment, Licensee shall provide Stock with a summary of the accounting used to determine the amount of Royalty Payment due. Royalty Payments shall be made by wire transfer and shall be computed on Total Net Revenues received by the Licensee by the reporting close of each calendar quarter and distributed and paid to Stock and on a quarterly basis, on or before the expiration of Forty-five (45) days after the reporting close of each prior calendar quarter. 7. Failure to Pay by Licensee. Should Licensee fail to make any payments as required herein, and should the Licensee fail to cure the breach created thereby, any and all rights, title and ownership to the License provided to the Licensee under this Agreement shall be forfeited and any and all such rights, title and ownership to the License shall, upon notice of the failure to cure the breach, immediately revert to Stock, and all monies paid by Licensee until such date shall be retained by him without forfeiture. - 3 - 8. Territory. Shall mean the United States and any other jurisdictions subject to recognizing any valid claims of the Patent or of the Patent Rights. 9. Total Net Revenues. Shall mean total gross revenues less any discounts, rebates, shipping costs, handling costs, transportation insurance costs, importation fees, and duties on any and all Products sold by the Licensee in the Territory and which are sold in reliance upon and specifically used in accordance with or subject to any of the valid claims of the Patent. 10. Records. Licensee agrees to keep complete and correct books, accounts and records according to Generally Accepted Accounting Principles (GAAP) regulations to facilitate computation of Royalty Payments. Stock or his representatives acceptable to Licensee, shall have a full right of accounting including the right to confidentially examine Licensee's books and records, at all reasonable times and upon reasonable notice, for the purpose of verifying the amount of Royalty Payments due. 11. Products. Shall mean any of Licensee's products, goods or technologies sold unaffiliated third parties in the Territory for the purposes of providing extracorporeal therapies for the treatment of the ophthalmic diseases as defined by any valid claim(s) of the Patent, in this case, Licensee's sale of extracorporeal filters and tubing sets for use in any and all ophthalmic indications. 12. Term. The Royalty Payments shall be due to Stock beginning with the first bona fide commercial sale of any Product in the Territory and may, at the discretion of Licensee terminate upon the first of any of the following three events to occur. (a) All patents of the Patent Rights expire; (b) All patent claims of the Patent Rights are invalidated; or (c) A similarly fashioned competitive extracorporeal product, method or technology is commercially introduced in the Territory for use in ophthalmic indications that could not be deterred by best-efforts enforcement/infringement proceedings brought by Licensee against the competitive product, method or technology where such proceedings are made in reliance in full or in part upon the Patent's claims and or the Patent Rights. 13. Patent Defense. Licensee shall pay for any and all costs incurred for patent maintenance, enforcement and defense of the Patent or the Patent Rights in the Territory. 14. Participation. Stock agrees, in consideration of the premises herein, that his executors and administrators will, at any time upon request, communicate to the Licensee, its successors and assigns, any facts relating to said Patent and Patent Rights, and the history thereof, known to him or his successors and assigns, and that he will testify as to the same in any interference or other proceeding when requested to do so by the Licensee, its successors and assigns. Any and all costs of such participation by Stock or his successors and assigns shall be borne by Licensee. 15. Succession. Stock binds himself and his heirs, executors, administrators, employees and legal representatives, as the case may be, to execute and deliver to the Licensee, its successors and assigns, any further documents or instruments and to do any and all further acts that may be deemed necessary by the Licensee, its successors and assigns to -4- file applications for improvements and inventions in any country where Licensee may elect to file such application(s), and that may be necessary to vest in the Licensee, its successors and assigns, the license, rights or title herein conveyed, or intended so to be, and to enable such title to be recorded in the United States and or foreign countries where such application(s) may be filed. Any and all costs of such participation by Stock or his successors and assigns shall be borne by Licensee. 16. Relationship of the Parties: Indemnification. It is agreed that this Agreement does not make any Party herein a general or special agent, legal representative, subsidiary, joint venturer, partner, employee or servant of any other Party herein for any purpose. 17. Breach and Disputes. Any breaching Party shall have Thirty (30) Days from the date of notification to cure such breach. Any dispute between the Parties to this Agreement shall be resolved through binding arbitration, which shall be governed under the rules and regulations of the American Arbitration Association. 18. Forum, Venue and Governing Law. This agreement shall be governed and interpreted under Delaware law (without applying its conflict of law principles). Exclusive venue for legal proceedings arising hereunder shall be in Hillborough County, Florida. 19. Entire Agreement. This Agreement supersedes any prior understanding that may have been reached between the Parties (including the Consulting Agreement between OccuLogix Corporation and Hans Stock dated June 25, 2002) and encompasses the entire agreement between the Licensee and Stock with respect to the Patent and the Patent Rights. The terms of this Agreement are confidential and shall be maintained by the Parties in accordance thereby. 20. Modification. This Agreement cannot be modified except in writing executed mutually between the Parties. IN WITNESS WHEREOF, the Parties have signed and executed this Agreement and have caused this Agreement to becomes effective as of the Effective Date last executed below. OCCULOGIX, INC. Dr. HANS STOCK By:__________________________ By: /s/ Dr. Hans Stock -------------------- Title:_______________________ Date:________________________ Date: 6. August 2004 EX-23.1 17 t13715exv23w1.txt EX-23.1 EXHIBIT 23.1 CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM We consent to the reference to our firm under the caption "Experts" and to the use of our report dated August 13, 2004 with respect to the consolidated financial statements of OccuLogix, Inc. (the "Company," formerly Vascular Sciences Corporation) as at December 31, 2003 and 2002 and for each of the years in the three year period ended December 31, 2003, in the Registration Statement (Form S-1 No, 333-0000) and related Prospectus (collectively, the "Registration Statement") of the Company dated August 13, 2004. 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Delaware	3841	59 343 4771
(State or other Jurisdiction of incorporation or organization)	(Primary Standard Industrial Classification Code Number)	(I.R.S. Employer Identification Number)




	Proposed maximum
Title of each class of	aggregate offering	Amount of
securities to be registered	price(1)(2)	registration fee


Common Stock, par value $0.001 per share	$100,000,000	$12,670


	Per Share	Total

Public Offering Price	$	$
Underwriting Discount	$	$
Proceeds to OccuLogix (before expenses)	$	$
Proceeds to the selling stockholders (before expenses)	$	$


Common stock offered by us		shares

Common stock offered by the selling stockholders		shares

Common stock to be outstanding after this offering		shares

Use of proceeds		We intend to use the net proceeds of this offering to fund our ongoing pivotal clinical trial, MIRA-1 and related clinical trials, and to purchase and accumulate inventory and build infrastructure for commercialization of our RHEO System in the United States if and when we receive FDA approval. We will also use the funds to continue our expansion in Canada. We expect to use the remainder of the net proceeds for general corporate purposes. We will not receive any proceeds from the sale of shares by the selling stockholders.

Proposed Nasdaq National Market symbol		RHEO


																			Pro Forma
											Pro Forma		Three Months						Three Months
		Year Ended December 31,									Year Ended		Ended March 31,						Ended
											December 31,								March 31,
		2001			2002			2003			2003(1)		2003			2004			2004


		(in thousands of U.S. dollars except share and per share amounts)
Loss per share from continuing operations
	Basic and diluted		(1.15	)		(0.77	)		(0.62	)				(0.11	)		(0.46	)
	Earnings per share from discontinued operations		0.02			—			—			—		—			—
Net loss per share			(1.13	)		(0.77	)		(0.62	)				(0.11	)		(0.46	)
Weighted-average number of shares used in per share calculations — basic and diluted			3,603			3,735			3,977					3,895			5,035


Andrew J. Beck, Esq. Torys LLP 237 Park Avenue New York, NY 10017 Tel: (212) 880-6000 Fax: (212) 682-0200		David A. Chaikof Torys LLP 79 Wellington Street West Box 270, TD Centre Toronto, Ontario M5K 1N2, Canada Tel: (416) 865-0040 Fax: (416) 865-7380		Marjorie Sybul Adams, Esq. Piper Rudnick LLP 1251 Avenue of the Americas New York, NY 10020 Tel: (212) 835-6000 Fax: (212) 884-8517


	Page

Summary		1
Risk Factors		8
Forward Looking Statements		19
Use of Proceeds		21
Dividend Policy		21
Capitalization		22
Dilution		23
Unaudited Pro Forma Condensed Consolidated Financial Data		24
Selected Consolidated Financial Data		27
Management’s Discussion and Analysis of Financial Condition and Results of Operations		29
Business		38
Reorganization		55
Management		56
Certain Relationships and Related Party Transactions		64
Principal and Selling Stockholders		65
Description of Capital Stock		67
Shares Eligible for Future Sale		72
Underwriting		74
Legal Matters		76
Experts		76
Where You Can Find More Information		76
Index to Consolidated Financial Statements		F-1
EX-3.1
EX-3.2
EX-4.1
EX-10.1
EX-10.2
EX-10.3
EX-10.4
EX-10.5
EX-10.6
EX-10.7
EX-10.8
EX-10.9
EX-10.10
EX-10.11
EX-10.12
EX-23.1



	As of March 31, 2004

				Pro Forma
	Actual			As Adjusted


	(in thousands)
Consolidated Balance Sheet Data:
Cash	$	1,146		$
Working capital		(3,160	)
Total assets		1,893
Long-term debt (including current portion due to stockholders)		4,373			1,023
Total liabilities		4,773
Common stock		5
Series A convertible preferred stock		2
Series B convertible preferred stock		1
Additional paid in capital		25,595
Accumulated deficit		(28,483	)
Total stockholders’ deficiency		(2,880	)


	*We do not know whether we will be able to increase our revenues and become profitable in the future.*


	*Even if we complete MIRA-1, we may not receive FDA approval to market the RHEO System in the United States.*


	If we fail to comply with the extensive regulatory requirements to which we and our RHEO System are subject, our RHEO System could be subject to restrictions or withdrawals from the market and we could be subject to penalties.


	*We may be unable to commercialize our RHEO System successfully in the United States.*


	RHEO Therapy is based on a model that has not achieved widespread acceptance, and may be proven incorrect. If we are unsuccessful in achieving widespread acceptance of RHEO Therapy among physicians and patients, our business may not succeed.


	*If RHEO Therapy is not reimbursed by governmental and other third-party payors, or is only reimbursed on a limited basis, our business may not succeed.*


	*Our patents may not be valid and we may not be able to obtain and enforce patents to protect our proprietary rights from use by competitors.*


Citigroup


SG Cowen & Co.		ThinkEquity Partners LLC


	*Patents of other companies could require us to stop using or pay to use required technology.*


	*If we are unable to establish adequate sales and marketing capabilities, we may not be able to generate significant revenue and may not become profitable.*


	*Our suppliers may not have sufficient manufacturing capacity and inventory to support our commercialization plans.*


	*Our success depends upon our ability to sell to key multi-facility health care providers as well as private eye care professional practices.*


	*RHEO Therapy may produce adverse side effects in patients that prevent its adoption or that necessitate withdrawal from the market.*


	*We may face future product liability claims that may result from the use of our products.*


	*We have incurred losses since inception and anticipate that we will incur continued losses for the foreseeable future.*


	*We will need to increase the size of our organization, and we may experience difficulties in managing our growth.*


	*We may face competition and may not be successful in addressing it.*


	*We may be unable to attract and retain key personnel which may adversely affect our business.*


	*Our business may not generate the cash necessary to fund our operations.*


	Our current stockholders own a significant interest in our common stock and may be able to exert significant influence over our management and affairs. In particular, for as long as TLC Vision owns a majority of our common stock, our other stockholders will be unable to affect the outcome of stockholder voting.


	Conflicts of interest may arise between us and TLC Vision, which has three directors on our board and for which our Chief Executive Officer and Chairman serves as Chairman. Our Chairman and Chief Executive Officer and our Vice President, Corporate Affairs will also devote a portion of their time to TLC Vision, which may divert their attention from our business and operations.


	There has been no prior trading market for our common stock, the trading price of our common stock is likely to be volatile and you may not be able to sell your shares at or above the public offering price of this offering.


	*If you purchase shares of common stock in this offering, you will experience significant and immediate dilution.*


	*Future sales of our common stock could reduce our stock price.*


	*We may use the proceeds of this offering in ways with which you may disagree.*


	*Payment of cash dividends on shares of our common stock is at the discretion of our board of directors.*


	*We will incur increased costs as a result of being a public company.*



		As of March 31, 2004

					Pro	Pro Forma
		Actual			Forma	As Adjusted


		(in thousands)
Convertible debentures		$	3,350		$	$	—

Stockholders’ equity (deficiency):
	Common stock, $0.001 par value, 25,000,000 shares authorized and 5,082,665 shares issued and outstanding, actual; 50,000,000 shares authorized and 36,217,454 shares issued and outstanding, pro forma and shares issued and outstanding pro forma as adjusted		5
	Series A convertible preferred stock $0.001 par value; 2,500,000 shares authorized and 1,767,740 shares issued and outstanding, actual; no shares authorized and no shares issued and outstanding, pro forma and pro forma as adjusted;		2				—
	Series B convertible preferred stock $0.001 par value; 2,000,000 shares authorized and 620,112 shares issued and outstanding, actual; no shares authorized and no shares issued and outstanding, pro forma and pro forma as adjusted		1				—
Additional paid-in capital			25,595
Accumulated deficit			(28,483	)

Total stockholders’ (deficiency) equity		$	(2,880	)	$	$

Total capitalization		$	470		$	$