SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.
December 22, 2003
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Date of Report (Date of earliest event reported)
VIKING SYSTEMS, INC.
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(Name of Small Business Issuer as specified in its charter)
Nevada 86-0913802
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(State or other jurisdiction of (I.R.S. employer
incorporation or organization identification No.)
SEC File Number 000-49636
7514 Girard Ave, Suite 1509, La Jolla, CA 92037
(Address of principal executive offices)
Registrant's telephone no., including area code: (858) 456-6608
2501 Dunlap Avenue, Suite 102
Phoenix, AZ
Telephone (602) 678-5544
and
4131 North 24th Street, Suite C-202
Phoenix, AZ 85016
Telephone (602) 288-7247
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(Former name or former address)
In this current report references to "Viking," "we," "us," and "our" refer to
Viking Systems, Inc.
FORWARD LOOKING STATEMENTS
This current report contains certain forward-looking statements and any
statements contained in this current report that are not statements of
historical fact may be deemed to be forward-looking statements. Without limiting
the foregoing, words such as "may," "will," "expect," "believe," "anticipate,"
"estimate" or "continue" or comparable terminology are intended to identify
forward-looking statements. These statements by their nature involve substantial
risks and uncertainties, and actual results may differ materially depending on a
variety of factors, many of which are not within Viking's control. These factors
include, but are not limited to, economic conditions generally and in the
markets in which Viking may participate, competition within Viking's markets and
failure by Viking to successfully develop business relationships.
ITEM 2: ACQUISITION AND DISPOSITION OF ASSETS
General
On December 22, 2003, Viking entered into an Asset Purchase Agreement
("Purchase Agreement") with Vista Medical Systems, Inc. ("Vista"), a Delaware
corporation. Pursuant to the Purchase Agreement, Viking agreed to purchase,
subject to the terms and conditions of the Purchase Agreement, certain assets
used by Vista in its medical device and technology business (the "Medical
Technology Business"). In addition to the purchase of assets from Vista, Viking
will, at the closing of the acquisition, enter into a "License Agreement" with
Vista whereby Viking will have the exclusive, worldwide license to commercialize
certain intellectual property owned by Vista which is used in the Medical
Technology Business. The closing of the Purchase Agreement is subject to several
conditions, including but not limited to, approval by Vista's stockholders and
accordingly, there can be no assurance that the agreed upon acquisition will be
completed. If all conditions of the Purchase Agreement are fulfilled or waived,
we anticipate that the Purchase Agreement will close at the end of January or
the first part of February 2004.
Description of Business
We have agreed to purchase assets and licensing technologies from Vista
that will, upon closing, allow us to operate the Medical Technology Business. We
intend, through our operations of the Medical Technology Business, to develop,
manufacture and market products which provide surgeons and interventional
physicians performing complex minimally invasive procedures with a more
effective, ergonomic method of visualization of anatomical structures. Our
products will involve 3-D Visualization which is generally regarded as a
critical enabler to the broader adoption of complex minimally invasive
procedures in numerous clinical specialties.
We anticipate that our principal product line related to the Medical
Technology Business will be the Endosite Advanced Visualization and Information
System for general surgery, which combines a stereo head mounted display with
3-D video cameras to provide critical visual information during complex
minimally invasive procedures, combined with the real-time ability to view new
additional information in a voice-controlled, picture-in-picture format to
facilitate decision-making. The V head mounted display, incorporating
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picture-in-picture capability and voice control, is designed to give the surgeon
ergonomic real-time access to such critical information, integrated with the
anatomical images generated by the endoscopic camera systems.
All necessary 510(k) clearances and CE marks which are required to market
the components of the EndoSite System have been received.
General Terms of the Purchase Agreement
The Purchase Agreement provides that Viking will acquire from Vista, the
assets relating to the Medical Technology Business for the following
considerations: (i) cash in an amount not exceeding $400,000; (ii) the issuance
of approximately 3,054,000 shares of our common stock to Vista; and (iii) the
assumption of certain liabilities relating to the Medical Technology Business
and the assets purchased. The closing of the purchase is subject to several
conditions including the approval of the transaction by the stockholders of
Vista. Vista anticipates that it will hold a Special Meeting of Stockholders
during the last week of January to consider and vote upon the sale of assets
pursuant to the Purchase Agreement..
The acquisition agreement contains customary representations and warranties
relating to each company's corporate status, corporate authority to complete the
acquisition, capital structure and corporate conduct prior to the closing. Each
company provided corporate documentation to the other for due diligence
purposes. Also, Vista agreed to conduct its business in the normal course, and
not to sell, pledge, or assign any assets, amend its articles of incorporation
or bylaws prior to the closing of the transaction.
Currently 27 employees of Vista are employed in the Medical Technology
Business. One of these employees will retain employment with Vista and we will
offer the remaining employees employment in our operation of the Medical
Technology Business.
We have agreed to appoint John Lyons, the CEO of Vista, to our board of
directors at the time of the closing of the purchase transaction.
A copy of the Purchase Agreement is attached hereto as an exhibit.
License Agreement
In addition to the assets we are purchasing from Vista, we are also
licensing certain "Intellectual Property" from Vista. The Intellectual Property
we are licensing includes any and all patents, patent registrations, patent
applications, data rights, utility models, business processes, trademarks, trade
secrets, know how, trade names, registered or unregistered designs, mask works,
copyrights, moral rights and any other form of proprietary protection afforded
by law to intellectual property, or any applications therefore, which arises or
is enforceable under the laws of the United States, any other jurisdiction or
any bi-lateral or multi-lateral treaty regime which relate to the Medical
Technology Business.
The License Agreement, which will be effective on the date of closing of
Purchase Agreement, requires us to pay a royalty of 5% of gross revenues (as
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defined in the License Agreement) for certain product sales transactions and 10%
of gross revenues for other product sales transactions. The License Agreement
grants us the worldwide, exclusive license to use the Intellectual Property to
manufacture, market, sublicense or otherwise commercialize products using the
technology included in the Intellectual Property. The License Agreement provides
for minimum annual royalties ranging from $175,000 to $375,000 per year.
The royalties agreed to in the License Agreement are to be paid until the
earlier of the date on which we have paid Vista an aggregate of Four Million
Five Hundred Thousand Dollars ($4,500,000) or the fifth anniversary of effective
date of the License Agreement. ("Total Royalty"). If we pay Vista the Total
Royalty, Vista is required to assign and transfer to us all of Vista's rights,
title and interests in and to the Intellectual Property for no additional
consideration.
If we fail to pay the required minimum royalties are otherwise breach the
License Agreement, Vista may terminate the license.
Consideration for the Acquisition
The consideration we are to pay Vista pursuant to the Purchase Agreement
was negotiated at "arms length" and our management relied on representations
made by Vista's management and other documents and information provided to us.
Our management considered factors used in similar proposals to determine the
amount of consideration appropriate for the acquisition of the assets. These
factors included the relative value of the assets, the present and past
operations of the Medical Technology Business, the future potential of the
Medical Technology Business, the continued employment of employees of the
Medical Technology Business, and the potential benefit of the transaction to the
stockholders of Viking.
Our board of directors determined that the terms of the Purchase Agreement
and License Agreement are reasonable based upon the above factors. Our board did
not seek a third party fairness opinion or any valuation or appraisal of the
terms of the transaction. Thus, our stockholders will not have the benefit of a
third party opinion that the terms of the Purchase Agreement and License
Agreement are fair from a financial point of view.
In order to fund the cash portion of the purchase price of the assets, we
will sell 5,000,000 shares of our Series A Convertible Preferred Stock to Donald
Tucker for $400,000. "See Item 5 of this Form 8-K".
Interests of Certain Persons
Other than as described in this report, there have been no contacts,
negotiations or transactions within the past two years between Viking or any of
our directors, executive officers or their affiliates, on the one hand, and
Vista or its affiliates, on the other hand, regarding the acquisition,
consolidation, acquisition of shares or election of directors.
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ITEM 5: OTHER EVENTS AND REGULATION FD DISCLOSURE
Series A Convertible Preferred Stock
Donald E. Tucker has provided us with funds to be used to pay professional
fees related to various corporate filings and to pay for other corporate
expenses. In exchange for such funds, we issued Mr. Tucker 3,200,000 shares of
our common stock at a price of $.02 per share. In order to fund the cash portion
of the purchase price of the assets we are purchasing from Vista, we need to
raise an additional $400,000. We have requested that Mr. Tucker purchase
additional shares of our capital stock in the amount of $400,000 to provide us
with the funds necessary to make such cash payment. Mr. Tucker has agreed to
make such additional investment in Viking on the same terms and conditions as
his initial purchase of 3,200,000 shares of our common stock.
We do not currently have sufficient shares of common stock authorized for
issuance to Mr. Tucker to fund the $400,000 requirement of the acquisition of
assets. We do have 5,000,000 shares of preferred stock authorized which may be
designated in one or more series with such characteristics as determined
appropriate by our board of directors. Our board of directors has determined
that it is in the best interests of Viking and it shareholders to designate and
establish a Series A Preferred Stock. We have granted Mr. Tucker an option to
purchase 5,000,000 shares of our Series A Preferred Stock. The Series A
Preferred Stock consists of 5,000,000 shares of Preferred Stock. Each share of
Series A Preferred Stock is convertible into shares of our common stock the
basis of one share of Series A Preferred Stock convertible into 4 shares of
common stock. Each share of Series A Preferred Stock has four votes in all
matters submitted to shareholders for a vote. Dividends do not accrue on the
Series A Preferred Stock.
In order to have a sufficient number of shares of common stock authorized
for issuance in conversion of the Series A Preferred Stock, and for use in
future financing transactions, we intend to seek shareholder consent to amend
our Articles of Incorporation to increase the number of shares of our common
stock, and the number of shares of preferred stock, authorized.
Appointment of Director
On December 18, 2003, our board of directors appointed Daniel F. Crowley as
a director of Viking to replace interim director Mark A. Scharmann. Mr.
Scharmann had been serving as an interim director until a permanent director
could be appointed to our board of directors. Biographical information about Mr.
Crowley is as follows:
Daniel F Crowley - Mr. Crowley, age 54, has been a private investor and
business consultant since 2002. Mr. Crowley is a principal in and
co-founder of Spectrum Partners LLC, a business strategy and development
advisory firm, specializing in the transportation and logistics industry,
with offices in Scottsdale, Arizona. Prior to Spectrum Partners LLC, Mr.
Crowley was Executive VP & CFO at BAX Global from 1998 through 2002.
Previous positions include senior management positions with Frito-Lay
International, and Grand Metropolitan PLC companies including The Pillsbury
Company and Pearle Vision. Mr. Crowley has a CPA from the State of New
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York, a MBA in Finance from Columbia University Graduate School of
Business, and a BA from Columbia College.
Grant of Incentive Options
On December 18, 2003, Viking's board of directors granted stock options to
Thomas B. Marsh, the president and a director of Viking, and Daniel F. Crowley,
a director of Viking. Each option is exercisable at $.02 per share and expires
December 31, 2008. Mr. Marsh's option is for 1,000,000 shares of Viking's common
stock and Mr. Crowley's option is for 200,000 shares of Viking' common stock.
Each option agreement provides for registration rights on Form S-8 for the
shares underlying such options.
ITEM 7: FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS
(a) Financial Statements: N/A
(b) Proforma Financial Statements: N/A
(c) Exhibits.
Exhibit No. Title
2.1 Asset Purchase Agreement
10.1 Patent and Technology License Agreement
10.2 Stock Option Agreement - Donald E. Tucker
10.3 Stock Option Agreement - Thomas B. Marsh
10.4 Stock Option Agreement - Daniel F. Crowley
99.1 Press Release regarding Asset Purchase Agreement
ITEM 9. REGULATION FD DISCLOSURE
Attached here to as Exhibit 99.1 is a Press Release regarding the execution
of the Asset Purchase Agreement described in Item 2 of this Form 8-K.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1934, the Registrant
has duly caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
Dated: December 23, 2003 VIKING SYSTEMS, INC.
By /s/ Thomas B. Marsh
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Thomas B. Marsh,
President/Chairman of the Board
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