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As filed with the Securities and Exchange Commission on November ___, 1999
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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FORM 10-SB
GENERAL FORM FOR REGISTRATION OF SECURITIES OF SMALL BUSINESS ISSUERS
UNDER SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934
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BIOSANTE PHARMACEUTICALS, INC.
(Name of Small Business Issuer in its charter)
WYOMING
(State or other jurisdiction of 58-2301143
incorporation or organization) (I.R.S. Employer Identification No.)
175 OLDE HALF DAY ROAD, SUITE 123
LINCOLNSHIRE, ILLINOIS 60069
(Address of principal executive offices) (Zip Code)
(847) 793-2458
(Issuer's telephone number, including area code)
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Securities to be registered under Section 12(b) of the Act:
NONE
Securities to be registered under Section 12(g) of the Act:
COMMON STOCK, NO PAR VALUE PER SHARE
(Title of Class)
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IN REVIEWING THIS REGISTRATION STATEMENT, YOU SHOULD CAREFULLY CONSIDER THE
MATTERS DESCRIBED UNDER THE HEADINGS "RISKS RELATING TO OUR COMPANY" BEGINNING
ON PAGE 14, "RISKS RELATING TO OUR INDUSTRY" ON PAGE 22 AND "RISKS RELATING TO
OUR COMMON STOCK" BEGINNING ON PAGE 22.
PART I
ITEM 1. DESCRIPTION OF BUSINESS.
OVERVIEW
We are a development stage biopharmaceutical company engaged in the
development and commercialization of vaccine adjuvants, proprietary novel
vaccines and drug delivery systems. Our core technology, which we license on an
exclusive basis from the University of California, is based on the use of
extremely small, solid, uniform particles, which we call "nanoparticles," as
immune system boosters and for drug delivery. We have identified three potential
initial applications for our core technology:
- the creation of improved versions of current vaccines by the
"adjuvant" activity of our proprietary nanoparticles;
- the development of new, unique vaccines against diseases for
which there currently are few or no effective methods of
prevention (E.G., genital herpes); and
- the creation of inhaled forms of pharmaceutical compounds that
currently must be given by injection (E.G., insulin).
Our goal is to leverage our core technology to become a pharmaceutical
company that develops and commercializes a wide range of pharmaceutical
products. Our strategy to obtain this goal is to:
- enter into business collaborations or joint ventures to
further develop and commercialize products incorporating our
core technology;
- in-license or otherwise acquire products in the late-stage
development phase;
- in-license or otherwise acquire products already on the
market; and
- enter into business collaborations or joint ventures with
complementary firms outside the scope of our core technology.
On November 1, 1999, we announced that we formed a collaborative
research alliance with Medi-Ject Corporation to evaluate the efficacy of
continuing our nanoparticle drug delivery and adjuvant system with Medi-Ject's
needle-free pressure injection. This research alliance will evaluate the ability
of the combined systems to deliver DNA vaccines as part of a DNA vaccine program
at a major U.S. university.
On November 10, 1999, our shareholders approved our name change from
Ben-Abraham Technologies Inc. to BioSante Pharmaceuticals, Inc. Our company
was continued as a corporation under the laws of the State of Wyoming on
December 19, 1996, was initially formed as a corporation organized under the
laws of the Province of Ontario on August 29, 1996. Our company is the
continuing corporation resulting from an amalgamation of three companies, our
company, which was previously named "Ben-Abraham Technologies Inc.",
Structured Biologicals Inc., a corporation organized under the laws of the
Province of Ontario and 923934 Ontario Inc., a corporation organized under
the laws of the Province of Ontario and a wholly owned subsidiary of
Structured Biologicals. The amalgamation was effective as of December 6, 1996.
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INDUSTRY BACKGROUND
In order to understand the three potential initial applications for our
core technology, it is helpful to understand the vaccine, vaccine adjuvant and
drug delivery markets and the need for products incorporating our core
technology in each of these.
NEW VACCINES. The function of the human immune system is to respond to
pathogens, including infectious bacteria and viruses that enter the body.
However, a pathogen may establish an infection and cause disease before it is
eliminated by an immune response. Antibodies are produced as part of the immune
response to antigens, which are components of the pathogen. These antibodies can
continue to circulate in the human body for many years, providing continued
protection against reinfection by the same pathogen.
Vaccines are a preemptive means of generating a protective antibody
response. A vaccine consists of either a weakened pathogen or pathogen-specific,
non-replicating antigens, which are deliberately administered to induce the
production of antibodies. When weakened pathogens are used as a vaccine, they
replicate in the body, extending presentation to the immune system and inducing
the production of antibodies without causing the underlying disease. When
non-replicating antigens are used as a vaccine, they must be delivered in
sufficient quantity and remain in the body long enough to generate an effective
antibody response. To achieve this goal, many vaccines require multiple
administrations over a period of time.
The Centers for Disease Control and Prevention have estimated that
every dollar spent on vaccination saves $16 in healthcare costs. D&MD Reports,
an industry research report, indicates that the vaccine segment is growing
faster than any other part of the pharmaceutical market. From 1990 to 1997,
annual worldwide vaccine sales increased from $1.6 billion to $4.1 billion. By
the year 2000, the worldwide vaccine market is expected to hit $6.5 billion.
Worldwide vaccine sales are expected to grow 15% a year over the next decade,
and by year 2010 vaccines are forecasted to be a $14 billion market. We believe
that the acceleration of this growth rate will largely be a result of advances
in vaccine technologies and formulations that address the shortcomings of
existing vaccines. Areas of potential improvement include enhancement of immune
responses, which could lead to a reduction in the number of doses required for
effective protection as well as effective immunization in a higher percentage of
the population, and delivery of vaccines through methods other than injection.
Our nanoparticle technology presents a new, and we believe, more
effective and safer, approach to vaccine preparation. Based on animal tests to
date, we are contemplating developing a vaccine to prevent or treat the herpes
simplex type II virus, which is most often associated with genital herpes
infections. Nearly 30 million people in the U.S. are infected with the herpes
simplex type II virus. Up to 500,000 new cases are reported each year, according
to the Alan Guttmacher Institute. To date, there is no approved vaccine for
genital herpes. In addition, we have begun discussions with other companies to
out-license our adjuvant for use in those companies' vaccine development.
VACCINE ADJUVANTS. The antigens contained in many injectable vaccines
will not produce an immune response sufficient to confer protection against
infection and therefore require the use of an adjuvant to sustain the
presentation of the antigens to the human immune system. As a result, most
vaccines are combined with an adjuvant that enhances the ability of an injected
vaccine to stimulate an immune response and thus protect the recipient by
preventing or treating diseases. Aluminum hydroxide, or alum, is the only
adjuvant currently approved by the United States Food and Drug Administration
for commercial use in humans. While alum has gained widespread use, it does not
sufficiently enhance the immune response to permit administration of many
existing injected vaccines in a single dose. In the case of certain vaccines,
such as influenza, alum is not effectively used as an adjuvant because of the
potential for allergic or other reactions. Accordingly, we believe that there is
a significant need for a new adjuvant that is safe, works with a wide variety of
antigens, and induces
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a protective immune response with only one or two injections. These attributes
could result in certain benefits, including cost savings and improved patient
compliance.
Our nanoparticles (we refer to our nanoparticles as CAP) when combined
with vaccines have been shown in animal studies conducted by us to possess an
ability to elicit a higher immune response than non-adjuvanted vaccines and an
immune response of the same magnitude as alum-formulated vaccines but up to 100
times lower concentrations of adjuvant. These preclinical studies also have
shown that our CAP nanoparticles also may sustain higher antibody levels over a
longer time period than both alum-formulated vaccines and non-adjuvanted
vaccines. Based on these preclinical results, we believe that our CAP
nanoparticles may offer a means of preparing new improved formulations of
current vaccines that are equal or better in their immunogenicity, that is, in
their capacity to elicit an immune response, to alum-formulated and
non-adjuvanted vaccines but may be injected in lower concentrations and less
often which could result in certain benefits, including cost savings and
improved patient compliance.
DRUG DELIVERY SYSTEMS. The third field of use in which we are exploring
applying our proprietary nanoparticle technology is the creation of inhaled
forms of pharmaceutical compounds that currently must be given by injection
(E.G., insulin). Many therapeutic drugs, including insulin, are currently
delivered by injection. Injections are undesirable for numerous reasons,
including patient discomfort, inconvenience and risk of infection. Poor patient
acceptance of, and compliance with, injectable therapies can lead to increased
incidence of medical complications and higher disease management costs.
Alternatives to injection, such as oral, transdermal and nasal delivery, have to
date been shown generally to be commercially unattractive due to low natural
bioavailability. Bioavailability is the amount of drug absorbed from the
delivery site into the bloodstream. As an alternative to the invasiveness of
injection, we believe our nanoparticle technology can assist in the creation of
inhaled forms of drugs that currently must be given by injection.
The first market in which we are targeting our development efforts for
an inhaled form of drug incorporating our nanoparticle technology is the
diabetes market. Diabetes is a chronic disease in which the body's metabolism of
glucose is ineffective due to inadequate production of insulin. Over time, high
blood glucose levels can lead to eye, kidney and nerve diseases. It is estimated
that there are as many as 120 million people with diabetes worldwide, and
according to the Centers for Disease Control and Prevention, more than 16
million people in the United States have diabetes, of which 10.3 million have
been diagnosed with diabetes and 5.4 million have undiagnosed diabetes. There
are two primary classes of diabetes, type I and type II. It is estimated that
there are over one million type I diabetics in the United States, and about
45,000 new cases are diagnosed each year. Virtually all of the type I diabetics
require daily insulin injections and most are currently monitoring their own
blood glucose levels. According to the Centers for Disease Control and
Prevention, as of 1997, approximately eight to nine million Americans have been
diagnosed with type II diabetes. Although most patients with type II diabetes do
not require insulin as part of their therapy, in aggregate, they consume the
majority of insulin in the United States due to their larger numbers. The
insulin market in the United States exceeded $870 million in 1997.
Various manufacturers, including Eli Lilly and Company, Novo-Nordisk
A/S and Hoechst Marion Roussel AG supply insulin. Insulin is currently marketed
only in injectable form. Several companies, however, are working to develop an
insulin pulmonary delivery system to allow for delivery of insulin into the
lungs thereby eliminating the need for at least a portion of injectable insulin.
These companies include the combined efforts of Inhale Therapeutic Systems,
Inc., Pfizer, Inc. and Hoechst Marion Roussel AG; Dura Pharmaceuticals Inc. and
Eli Lilly and Company; and Aradigm Corporation and Novo Nordisk A/S. We believe
that we have created an improved formulation for the inhaled delivery of insulin
that could be used in conjunction with the combined efforts of these companies.
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DESCRIPTION OF OUR CORE TECHNOLOGY
Research and development involving our core technology originated in a
project set up under an agreement dated April 6, 1989 between the University of
California and our predecessor company, Structured Biologicals, relating to
viral protein surface adsorption studies. The discovery research was performed
by Structured Biologicals at UCLA School of Medicine and was based, in essence,
on the use of extremely small, solid, uniform particles as molecular stabilizing
and transporting media for biopharmaceutical and other applications. These
ultrafine particles are made from inert, biologically acceptable materials, such
as ceramics, pure crystalline carbon or a biodegradable calcium phosphate
compound. The size of the particles is in the nanometer range. A nanometer is
one millionth of a millimeter and typically particles measure less than 1,000
nanometers (nm). For comparison, a polio virus particle is about 27 nm in
diameter, a herpes virus particle has a central core measuring 100 nm in
diameter, contained in an envelope measuring 150-200 nm, while a tuberculosis
bacterium is rod-shaped, about 1,200 nm long by 300 nm across. Because the size
of these particles is measured in nanometers, we use the term "nanoparticles" to
describe them.
We use the nanoparticles as the basis of an active molecular transport
system by applying a layer of a "bonding" coating of cellobiose or another
carbohydrate derivative. The critical property of these coated nanoparticles is
that biologically active molecules, proteins, peptides or pharmacological agents
attached to them retain their activity and can be protected from natural
alterations to their molecular structure by adverse environmental conditions. It
has been shown in studies conducted by us that, when such constructs are
injected into animals, the attachment can actually enhance the biological
activity as compared to injection of the molecule alone in solution.
A major immune response that is triggered by these constructs is the
creation of antibody molecules, which can then specifically counteract an
invading virus or bacterium. Similarly, a drug will produce an effect on an
organ system only if it can attach to specific receptors on the surface of
target cells (E.G., tumor cells). The stabilizing and slow release capabilities
of a drug carrier and delivery system based on this discovery can lead to
significant advances towards finding more effective and less toxic molecules to
seek out and attach to such receptors.
We believe our core technology has a number of benefits, including the
following:
- it is biodegradable and non-toxic;
- it is fast, easy and inexpensive to manufacture;
- the nanometer (one-millionth of a millimeter) size range makes
it ideal for delivering drugs through aerosol sprays or
inhalation; and
- it has excellent "loading" capacity - the amount of molecules
that can bond with the nanoparticles.
Research in these areas has resulted in the issuance of a number of
patents that we license from the University of California. For more information
of these patents, we refer you to the information under the heading "Patents,
Licenses and Proprietary Rights."
PROPOSED PRODUCTS AND PRODUCT DEVELOPMENT
We plan to develop commercial applications of our core technology and
any proprietary technology developed as a result of our ongoing research and
development efforts. Initially, we plan to pursue the
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development of (1) vaccine adjuvants, (2) new virus vaccines, including vaccines
to treat or prevent disease caused by Herpes viruses and (3) drug delivery
systems, including a method of delivering insulin through inhalation. Our
research and development team is currently pursuing these objectives in our
laboratory in Smyrna, Georgia.
VACCINE ADJUVANTS. Our nanoparticles when combined with vaccine
antigens have been shown in animal studies conducted by us to possess an ability
to elicit a higher immune response than non-adjuvanted vaccines and an immune
response of the same magnitude as alum-formulated vaccines but up to 100 times
lower concentrations. These preclinical studies also have shown that our CAP
nanoparticles also may sustain higher antibody levels over a longer time period
than both alum-formulated vaccines and non-adjuvanted vaccines. Because our CAP
nanoparticles are made of calcium phosphate which has a chemical nature similar
to normal bone material and therefore is natural to the human body, as opposed
to aluminum hydroxide, which is not natural to the human body, we believe that
our nanoparticles may be safer to use than alum. In our animal studies, we
observed no material adverse reactions when our CAP nanoparticles were
administered at effective levels.
Based on these preclinical results, we believe that our CAP
nanoparticles may offer a means of preparing new improved formulations of
current vaccines that are equal or better in their immunogenicity, that is, in
their capacity to elicit an immune response, to alum-formulated and
non-adjuvanted vaccines but may be injected in lower concentrations and less
often which could result in certain benefits, including cost savings and
improved patient compliance. We hope to file an investigational new drug (IND)
application with the FDA before the end of 1999 to commence a Phase I human
clinical trial. As discussed in more detail under the heading "Government
Regulation," the purpose of a Phase I trial is to evaluate the metabolism and
pharmacological actions of the experimental product in humans, the side effects
associated with increasing doses, and, if possible, to gain early evidence of
possible effectiveness. The Phase I trial of our CAP specifically will look at
safety parameters including local irritation and blood chemistry changes. In
anticipation of commencing the Phase I trial, we have made arrangements with the
University of Iowa to assist us in manufacturing our CAP nanoparticles for use
in our proposed Phase I human clinical trial.
In addition to continuing our own research and development in this
area, we intend to seek opportunities to enter into business collaborations or
joint ventures with vaccine companies and others interested in co-development
and co-marketing arrangements with respect to our nanoparticle adjuvants. These
arrangements also could include out-licenses of our core technology to vaccine
companies and others for further development in their on-going vaccine
development.
NEW VACCINES. We believe our nanoparticle technology presents a new,
and more effective and safer, approach to vaccine preparation. As with our
vaccine adjuvant technology, we are continuing our own research and development
in this area, but we also intend to seek opportunities to enter into business
collaborations or joint ventures with vaccine companies and others interested in
co-development and co-marketing arrangements. We believe these collaborations
may enable us to accelerate the development of potential improved vaccines for
any products developed from our core technology. These arrangements also could
include out-licenses of our core technology to vaccine companies and others for
further development and marketing. We have begun discussions with other
companies to out-license our adjuvant for use in those companies' new vaccine
development.
Based on animal tests to date, we hope to develop a vaccine using our
proprietary nanoparticle technology to prevent or treat genital herpes. Herpes
is the family name of over 50 related viruses that share common characteristics.
The viruses that cause oro-facial (affecting the lips, mouth and face and
sometimes called "cold sores") and genital herpes are two members of this group
and are classified as herpes simplex virus type I and herpes simplex virus type
II, respectively. To date, there is no currently approved vaccine for genital
herpes.
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DRUG DELIVERY SYSTEMS. The third field of use in which we are exploring
applying our core technology involves creating novel and improved forms of
delivery of drugs, including hormones (E.G., insulin). The attachment of such
agents to nanoparticles may enhance their stability in the body or enable the
addition of further protective coatings to permit oral, delayed-release and
mucosal applications. Currently, insulin is given by frequent, inconvenient and
often painful injections. Recent human clinical research indicates the insulin
delivered through the airways can achieve the same results as injections. We
believe we may have successfully created a formulation for the inhaled delivery
of insulin. Our research and development efforts in this area are on going. We
are in the process of contacting several insulin manufacturers and companies
with devices for inhalation of drugs to pursue collaborations for this
development.
FUTURE PRODUCT DEVELOPMENT
We intend to explore other applications of our nanoparticle technology. Such
applications may include the development of additional vaccines, including DNA
vaccines, and the treatment of diseases or conditions other than diabetes in
which inhaled delivery of drugs may be useful. We believe that our nanoparticle
technology has potentially major applications as an alternative approach to
immunization and for drug delivery. The results obtained in our virus construct
program indicate that similar constructs could be made using key antigens, or
molecules that can stimulate antibodies, extracted from the surface membranes of
pathogenic bacteria. Several biotechnology companies are pursuing the bacterial
extract approach and may offer future opportunities for us to develop
collaborations. On November 1, 1999, we announced that we formed a collaborative
research alliance with Medi-Ject Corporation to evaluate the efficacy of
continuing our nanoparticle drug delivery and adjuvant system with Medi-Ject's
needle-free pressure injection. This research alliance will evaluate the ability
of the combined systems to deliver DNA vaccines as part of a DNA vaccine program
at a major U.S. university. Other than the area of DNA vaccines, we currently
are not pursuing, however, any of these programs or collaborations, and we
cannot assure you that we will have the personnel or resources to develop them
in the future.
BUSINESS STRATEGY
Our goal is to leverage our core technology to become a pharmaceutical
company that develops and commercializes a wide range of pharmaceutical
products. Our strategy to obtain this goal is to (1) develop commercial
applications of our core technology or enter into business collaborations or
joint ventures with vaccine companies and others interested in either
co-development and co-marketing arrangements or out-license arrangements with
respect to our core technology, (2) further enhance our pharmaceutical portfolio
by in-licensing or otherwise acquiring products in the late-stage development
phase or products already on the market and (3) enter into business
collaborations or joint ventures with complementary firms outside the scope of
our core technology.
- ENTER INTO BUSINESS COLLABORATIONS OR JOINT VENTURES TO FURTHER
DEVELOP AND COMMERCIALIZE PRODUCTS INCORPORATING OUR CORE
TECHNOLOGY. We intend to seek opportunities to enter into business
collaborations or joint ventures with entities that have
businesses or technologies complementary to our business, such as
vaccine and pharmaceutical companies. We are particularly
interested in entering into product co-development and
co-marketing arrangements with respect to our core technology or
out-licensing our core technology to others for further
development and marketing. We believe that this partnering
strategy will enable us to capitalize on our partner's strengths
in products development, manufacturing and commercialization and
thereby enable us to introduce into the market products
incorporating our core technology sooner than which we otherwise
would be able. In addition, such collaborations would
significantly reduce our cash requirements for developing and
commercializing our core technology and thereby permit us to spend
cash on in-
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licensing or otherwise acquiring products in the late-stage
development phase or products already on the market.
- IN-LICENSE OR OTHERWISE ACQUIRE PRODUCTS IN THE LATE-STAGE
DEVELOPMENT PHASE. We intend to seek opportunities to in-license
or otherwise acquire products in the late-stage development phase.
In seeking such opportunities, we intend to target products that
cover therapeutic areas treated by a limited number of physicians
and drugs that are in or require human clinical trials that
involve a limited number of patients and not a significant amount
of time and cost needed to complete them. We believe that
targeting these products that are currently in or ready for human
clinical trials would decrease the risk associated with product
development and would likely shorten the time before we can
introduce the products into the market.
- IN-LICENSE OR OTHERWISE ACQUIRE PRODUCTS ALREADY ON THE MARKET. In
addition to late-stage development products, we intend to seek
opportunities to in-license or otherwise acquire products that (1)
have FDA approval, (2) have been or are about to be commercially
introduced into the U.S. markets, (3) have a concentrated
physician prescriber audience, and (4) have the potential to
generate significant sales.
- ENTER INTO BUSINESS COLLABORATIONS OR JOINT VENTURES WITH
COMPLEMENTARY FIRMS OUTSIDE THE SCOPE OF OUR CORE TECHNOLOGY. We
intend to seek opportunities to enter into business collaborations
or joint ventures with entities that have businesses or technology
complementary to our business. We are particularly interested in
entering into product co-development and co-marketing
arrangements.
PATENTS, LICENSES AND PROPRIETARY RIGHTS
Our success depends and will continue to depend in part on our ability
to maintain patent protection for our products and processes, to preserve our
proprietary information and trade secrets and to operate without infringing the
proprietary rights of third parties. Our policy is to attempt to protect our
technology by, among other things, filing patent applications or obtaining
license rights for technology that we consider important to the development of
our business. The validity and breadth of claims covered in medical technology
patents involve complex legal and factual questions and, therefore, may be
highly uncertain. We cannot assure you that any of our pending or future
applications will result in patents being issued or, if issued, that these
patents, or the patents we license from University of California, will provide
us a competitive advantage, or that our competitors will not design around any
patents issued to or licensed by us.
UNIVERSITY OF CALIFORNIA. In June 1997, we entered into a licensing
agreement with the Regents of the University of California pursuant to which the
University has granted us an exclusive license to nine United States patents
owned by the University, including rights to sublicense such patents, in fields
of use pertaining to: (1) vaccine adjuvants; (2) vaccine constructs for use in
immunization against herpes virus; (3) drug delivery systems; and (4) red blood
cell surrogates. The University of California has filed patent applications for
this licensed technology in certain foreign jurisdictions, including Canada,
Europe and Japan. Some of these foreign patents have issued but we cannot assure
you that any others will issue. Even if these foreign patents are obtained, they
may not provide the level of protection provided by United States patents.
The license agreement with the University of California requires us to
undertake various obligations, including:
- payment of a license fee;
- payment of royalties to the University on the net sales of any
products developed pursuant to the agreement;
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- payment of minimum annual royalties beginning in the year
2003, to be credited against earned royalties, for the life of
the agreement or the last-to-expire patent licensed under the
agreement;
- maintaining an annual minimum amount of available capital
until product launch;
- payment of the costs of patent prosecution and maintenance of
the patents included in the agreement;
- meeting performance milestones; and
- entering into partnership or alliance arrangements or
agreements with other entities regarding commercialization of
the technology covered by the license.
The license agreement further provides that we have the right to
abandon any project in any field of use without abandoning our license to pursue
other projects in that or other fields of use covered by the agreement. In May
1999, we notified the University of California that we would not pursue the red
blood cell surrogate use because we do not believe this will be proven an
effective use of CAP. On October 26, 1999, we signed an amendment to our license
agreement with the University of California. The amendment removes the red-blood
cell surrogate use from the agreement. In addition, under the terms of the
amendment, the University agreed to make other changes we suggested to the
license agreement, including delaying minimum royalty payments until 2004 and
limiting the University of California's rights to terminate the agreement in
cases where we do not perform under the agreement.
PATENTS AND PATENT APPLICATIONS. Although we do not own any United
States patents or foreign patents, nor do we have any United States or foreign
patent applications pending, we have filed three provisional patents relating to
our development work with adjuvants, aerosol delivery and DNA and RNA vaccines.
TRADEMARKS AND TRADEMARK APPLICATIONS. We have filed an intent-to-use
application for the mark BioSante. On November 10, 1999, our shareholders
approved our name change from Ben-Abraham Technologies Inc. to BioSante
Pharmaceuticals, Inc. We currently do not have any registered trademarks.
CONFIDENTIALITY AND ASSIGNMENT OF INVENTIONS AGREEMENTS. We require our
employees, consultants and advisors having access to our confidential
information to execute confidentiality agreements upon commencement of their
employment or consulting relationships with us. These agreements generally
provide that all confidential information we develop or make known to the
individual during the course of the individual's employment or consulting
relationship with us must be kept confidential by the individual and not
disclosed to any third parties. We also require all of our employees and
consultants who perform research and development for us to execute agreements
that generally provide that all inventions conceived by these individuals will
be our property.
LIMITATIONS OF OUR SAFEGUARDS. We cannot assure you, however, that our
confidentiality and assignment of inventions agreements and other safeguards
will protect our proprietary information and know-how or provide adequate
remedies for us in the event of unauthorized use or disclosure of this
information, or that others will not be able to independently develop this
information. In addition, to the extent, our strategic partners or consultants
apply technical information developed independently by them or others to our
projects or apply our technology to other projects, disputes may arise as to the
ownership of proprietary rights to this technology.
The issuance of a patent to us or of one of our licensed patents to the
University of California is not conclusive evidence as to the validity or as to
the enforceable scope of claims covered by the patent. The validity and
enforceability of a patent can be challenged by a request for re-examination or
litigation after its
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issuance, and, if the outcome of this litigation is adverse to the owner of the
patent, other parties may be free to use the subject matter covered by the
patent.
RESEARCH AND DEVELOPMENT
We expect to spend a significant amount of our financial resources on
research and development activities. We spent approximately $1,400,000 in 1998
and approximately $336,000 in 1997 on research and development activities. Since
we are not yet engaged in the commercial distribution of any products and we
have no revenues, other than interest revenues earned on available cash
balances, these research and development costs must be financed by us. We
estimate that we are currently spending approximately $80,000 to $120,000 per
month on research and development activities. These expenditures, however, may
fluctuate from quarter-to-quarter and year-to-year depending on the resources
available and our development schedule. Results of preclinical studies, clinical
trials, regulatory decisions and competitive developments may significantly
influence the amount of our research and development activities. In addition, we
expect that our spending on product development will increase if we are
successful at in-licensing or otherwise acquiring other late-stage development
products.
GOVERNMENT REGULATION
Pharmaceutical products intended for therapeutic use in humans are
governed by extensive Food and Drug Administration regulations in the United
States and by comparable regulations in foreign countries. Any products
developed by us will require FDA approvals in the United States and comparable
approvals in foreign markets before they can be marketed. The process of seeking
and obtaining FDA approval for a previously unapproved new human pharmaceutical
product generally requires a number of years and involves the expenditure of
substantial resources.
Following drug discovery, the steps required before a drug product may
be marketed in the United States include:
- preclinical laboratory and animal tests;
- the submission to the FDA of an investigational new drug
application, commonly known as an IND application;
- clinical and other studies to assess safety and parameters of
use;
- adequate and well-controlled clinical trials to establish the
safety and effectiveness of the drug product;
- the submission to the FDA of a new drug application, commonly
known as an NDA; and
- FDA approval of the NDA prior to any commercial sale or
shipment of the product.
Typically, preclinical studies are conducted in the laboratory and in
animal model systems to gain preliminary information on a proposed product's
pharmacology and toxicology and to identify any potential safety problems that
would preclude testing in humans. The results of these studies, together with
the general investigative plan, protocols for specific human studies and other
information, are submitted to the FDA as part of the IND application. The FDA
regulations do not, by their terms, require FDA approval of an IND. Rather, they
allow a clinical investigation to commence if the FDA does not notify the
sponsor to the contrary within 30 days of receipt of the IND. As a practical
matter, however, FDA approval is often sought before a company
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commences clinical investigations. That approval may come within 30 days of IND
receipt but may involve substantial delays if the FDA requests additional
information.
The initial phase of clinical testing Phase I, which is known as, is
conducted to evaluate the metabolism and pharmacological actions of the
experimental product in humans, the side effects associated with increasing
doses, and, if possible, to gain early evidence of possible effectiveness. Phase
I studies can also evaluate various routes, dosages and schedules of product
administration. These studies generally involve a small number of healthy
volunteer subjects, but may be conducted in people with the disease the product
is intended to treat. The total number of subjects is generally in the range of
20 to 80. A demonstration of therapeutic benefit is not required in order to
complete Phase I trials successfully. If acceptable product safety is
demonstrated, Phase II trials may be initiated.
Phase II trials are designed to evaluate the effectiveness of the
product in the treatment of a given disease and involve people with the disease
under study. These trials often are well controlled, closely monitored studies
involving a relatively small number of subjects, usually no more than several
hundred. The optimal routes, dosages and schedules of administration are
determined in these studies. If Phase II trials are successfully completed,
Phase III trials are often commenced, although Phase III trials are not always
required.
Phase III trials are expanded, controlled trials that are performed
after preliminary evidence of the effectiveness of the experimental product has
been obtained. These trials are intended to gather the additional information
about safety and effectiveness that is needed to evaluate the overall
risk/benefit relationship of the experimental product and provide the
substantial evidence of effectiveness and the evidence of safety necessary for
product approval. Phase III trials usually include from several hundred to
several thousand subjects.
A clinical trial may combine the elements of more than one Phase and
typically two or more Phase III studies are required. A company's designation of
a clinical trial as being of a particular Phase is not necessarily indicative
that this trial will be sufficient to satisfy the FDA requirements of that Phase
because this determination cannot be made until the protocol and data have been
submitted to and reviewed by the FDA. In addition, a clinical trial may contain
elements of more than one Phase notwithstanding the designation of the trial as
being of a particular Phase. The FDA closely monitors the progress of the Phases
of clinical testing and may, at its discretion, reevaluate, alter, suspend or
terminate the testing based on the data accumulated and its assessment of the
risk/benefit ratio to patients. It is not possible to estimate with any
certainty the time required to complete Phase I, II and III studies with respect
to a given product.
Upon the successful completion of clinical testing, an NDA is submitted
to the FDA for approval. This application requires detailed data on the results
of preclinical testing, clinical testing and the composition of the product,
specimen labeling to be used with the drug, information on manufacturing methods
and samples of the product. The FDA typically takes from six to 18 months to
review an NDA after it has been accepted for filing. Following its review of an
NDA, the FDA invariably raises questions or requests additional information. The
NDA approval process can, accordingly, be very lengthy. Further, there is no
assurance that the FDA will ultimately approve an NDA. If the FDA approves that
NDA, the new product may be marketed. The FDA often approves a product for
marketing with a modification to the proposed label claims or requires that
post-marketing surveillance, or Phase IV testing, be conducted.
All facilities and manufacturing techniques used to manufacture
products for clinical use or sale in the United States must be operated in
conformity with current "good manufacturing practice" regulations, commonly
referred to as "GMP" regulations, which govern the production of pharmaceutical
products. We currently do not have manufacturing capability. In the event we
undertake any manufacturing activities or contract with a third-party
manufacturer to perform our manufacturing activities, we intend to establish a
quality control and quality assurance program to ensure that our products are
manufactured in accordance with the GMP regulations and any other applicable
regulations.
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Products marketed outside of the United States are subject to
regulatory approval requirements similar to those in the United States, although
the requirements governing the conduct of clinical trials, product licensing,
pricing and reimbursement vary widely from country to country. No action can be
taken to market any product in a country until an appropriate application has
been approved by the regulatory authorities in that country. The current
approval process varies from country to country, and the time spent in gaining
approval varies from that required for FDA approval. In certain European
countries, the sales price of a product must also be approved. The pricing
review period often begins after market approval is granted. We intend to seek
and utilize foreign partners to apply for foreign approvals of our products.
THIRD PARTY REIMBURSEMENT
Our ability to successfully commercialize our proposed products may
depend in part on the extent to which coverage and reimbursement for our
products will be available from government health care programs, private health
insurers and other third party payors or organizations. Significant uncertainty
exists as to the reimbursement status of new therapeutic products and there can
be no assurance that third party insurance coverage and reimbursement will be
available for any products we might develop. In the United States, health care
reform is an area of increasing national attention and a priority of many
governmental officials. Recent legislation, for example, imposes limitations on
the amount of reimbursement available for specific drug products under some
governmental health care programs. We cannot assure you that future additional
limitations will not be imposed in the future on drug coverage and
reimbursement.
COMPETITION
Competition in the biopharmaceutical industry is intense both in the
development of products for prevention and/or treatment of the same infectious
diseases we target and in the acquisition of products in the late-stage
development phase or already on the market. Potential competitors in the United
States are numerous and include major pharmaceutical and specialized
biotechnology companies, universities and other institutions. In general,
competition in the pharmaceutical industry can be divided into four categories:
(1) corporations with large research and developmental departments that develop
and market products in many therapeutic areas; (2) companies that have moderate
research and development capabilities and focus their product strategy on a
small number of therapeutic areas; (3) small companies with limited development
capabilities and only a few product offerings; and (4) university and other
research institutions.
All of our competitors in categories (1) and (2) and some of our
competitors in category (3) have longer operating histories, greater name
recognition, substantially greater financial resources and larger research and
development staffs than we do, as well as substantially greater experience than
us in developing products, obtaining regulatory approvals, and manufacturing and
marketing pharmaceutical products. We cannot assure you that our competitors
will not succeed in developing technologies and products that are more effective
than any of which we are developing or which we may develop or which would
render our technology and products obsolete and noncompetitive. In addition, we
cannot assure you that our products under development will be able to compete
successfully with existing products or products under development by other
companies, universities and other institutions or that they will attain
regulatory approval in the United States or elsewhere. A significant amount of
research in the field is also being carried out at academic and government
institutions. These institutions are becoming increasingly aware of the
commercial value of their findings and are becoming more aggressive in pursuing
patent protection and negotiating licensing arrangements to collect royalties
for use of technology that they have developed. These institutions may also
market competitive commercial products on their own or in collaboration with
competitors and will compete with us in recruiting highly qualified scientific
personnel. We expect our products, if and when approved for sale, to compete
primarily on the basis of product efficacy, safety, patient convenience,
reliability and patent position. In addition, the first product to reach the
market in a therapeutic or preventative area is often at a significant
competitive advantage relative to later entrants in the market.
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We are aware of certain programs and products under development by
others which may compete with our programs and proposed products. The
international vaccine industry is dominated by three companies: SmithKline
Beecham plc, Rhone-Poulenc S.A. (through its subsidiaries, including Institut
Merieux International, Pasteur Merieux Serums et Vaccins, Connaught Laboratories
Limited and Connaught Laboratories, Inc.) and Merck & Co., Inc. The larger,
better known pharmaceutical companies have generally focused on a traditional
synthetic drug approach, although some have substantial expertise in
biotechnology. During the last decade, however, significant research activity in
the biotechnology industry has been completed by smaller research and
development companies, like us, formed to pursue new technologies. Competitive
or comparable companies to us include ID Biomedical Inc., which develops
sub-unit vaccines from mycobacteria and other organisms, ANTEX Inc., which is
similar to ID Biomedical Inc., and RIBI Pharmaceuticals, Inc., which develop new
vaccine adjuvants. The existence of products developed by these and other
competitors, or other products of which we are not aware or which may be
developed in the future, may adversely affect the marketability of our products.
In addition, our competitive position will depend upon our ability to enter into
business collaborations or joint ventures to further develop and commercialize
products incorporating our core technology, in-license or otherwise acquire
products in the late-stage development phase or products already on the market
and obtain additional financing when needed.
MANUFACTURING
We currently do not have any facilities suitable for manufacturing on a
commercial scale basis any of our proposed products nor do we have any
experience in volume manufacturing. If, and when we are ready to commercially
launch a product, we will either find our own manufacturing facilities, hire
additional personnel with manufacturing experience and comply with the extensive
GMP regulations of the FDA and other regulations applicable to such a facility
or we will more likely rely upon contractors to manufacture our proposed
products in accordance with these regulations. We have recently entered into an
arrangement with the University of Iowa to manufacture our CAP nanoparticles in
sufficient quantities for use in our proposed Phase I human clinical trial.
SALES AND MARKETING
We currently do not have any sales and marketing personnel to sell on a
commercial basis any of our proposed products. If and when we are ready to
commercially launch a product, we will either hire qualified sales and marketing
personnel or seek a joint marketing partner to assist us with this function.
EMPLOYEES
We had six full-time employees as of November 1, 1999, including four
in research and development and two in management or administrative positions.
None of our employees is covered by a collective bargaining agreement. We
consider our relationships with our employees to be good.
FORWARD-LOOKING STATEMENTS
This registration statement contains forward-looking statements. In
addition, from time to time, our representatives or we may make forward-looking
statements orally or in writing. We base these forward-looking statements on our
expectations and projections about future events, which we derive from the
information currently available to us. These forward-looking statements relate
to future events or our future performance, including:
- our financial performance;
- the timing of product development; and
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- the timing of regulatory approvals.
You can identify forward-looking statements by those that are not
historical in nature, particularly those that use terminology, such as "may,"
"will," "should," "expects," "anticipates," "contemplates," "estimates,"
"believes," "plans," "projected," "predicts," "potential" or "continue" or the
negative of these or similar terms. In evaluating these forward-looking
statements, you should consider various factors, including the risk factors
listed below. These factors may cause our actual results to differ materially
from any forward-looking statement.
Forward-looking statements are only predictions. The forward-looking
events discussed in this registration statement and other statements made from
time to time by us or our representatives, may not occur, and actual events and
results may differ materially and are subject to risks, uncertainties and
assumptions about us. We are not obligated to publicly update or revise any
forward-looking statement, whether as a result of new information, future events
or otherwise. In light of these risks, uncertainties and assumptions, the
forward-looking events discussed in this registration statement and other
statements made from time to time by our representatives, or us might not occur.
For these statements, we claim the protection of the safe harbor for
forward-looking statements contained in the Private Securities Litigation Reform
Act of 1995.
RISKS RELATING TO OUR COMPANY
WE HAVE A HISTORY OF OPERATING LOSSES, EXPECT CONTINUING LOSSES AND MAY NEVER
ACHIEVE PROFITABILITY.
We have incurred losses in each year since our amalgamation in 1996 and
expect to incur substantial and continuing losses for the foreseeable future. We
incurred a net loss of approximately $1,000,000 for the nine months ended
September 30, 1999, and as of September 30, 1999, our accumulated deficit was
approximately $11,800,000.
All of our revenue to date has been derived from interest earned on
invested funds. We have not commercially introduced any products. We expect to
incur substantial and continuing losses for the foreseeable future as we seek to
in-license or otherwise acquire new products and as our own product development
programs expand and various preclinical and clinical trials commence. The amount
of these losses may vary significantly from year-to-year and quarter-to-quarter
and will depend on, among other factors:
- the costs of licensure or acquisition of new products;
- the timing and cost of product development;
- the progress and cost of preclinical and clinical development
programs;
- the timing and cost of obtaining necessary regulatory approvals;
and
- the timing and cost of obtaining third party reimbursement.
In order to generate revenues, we must successfully develop and
commercialize our own proposed products or products in the late-stage human
clinical development phase or already on the market that we may in-license or
otherwise acquire or enter into collaborative agreements with others who can
successfully develop and commercialize them. Even if our proposed products and
the products we may license or otherwise acquire are commercially introduced,
they may never achieve market acceptance and we may never generate revenues or
achieve profitability.
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WE ARE A DEVELOPMENT STAGE COMPANY WITH A SHORT OPERATING HISTORY, MAKING IT
DIFFICULT FOR YOU TO EVALUATE OUR BUSINESS AND YOUR INVESTMENT.
We are in the development stage and our operations and the development
of our proposed products are subject to all of the risks inherent in the
establishment of a new business enterprise, including:
- the absence of an operating history;
- the lack of commercialized products;
- insufficient capital;
- expected substantial and continual losses for the foreseeable
future;
- limited experience in dealing with regulatory issues;
- the lack of manufacturing experience and limited marketing
experience;
- an expected reliance on third parties for the development and
commercialization of our proposed products;
- a competitive environment characterized by numerous,
well-established and well-capitalized competitors; and
- reliance on key personnel.
Because we are subject to these risks, you may have a difficult time
evaluating our business and your investment in our company.
OUR PROPOSED PRODUCTS ARE IN THE RESEARCH STAGES AND WILL LIKELY NOT BE
COMMERCIALLY INTRODUCED FOR SEVERAL YEARS, IF AT ALL.
Our proposed products are in the research stages and will require
further research and development, preclinical and clinical testing and
investment prior to commercialization in the United States and abroad. We cannot
assure you that any of our proposed products will:
- be successfully developed;
- prove to be safe and efficacious in clinical trials;
- meet applicable regulatory standards;
- demonstrate substantial protective or therapeutic benefits in the
prevention or treatment of any disease;
- be capable of being produced in commercial quantities at
reasonable costs; or
- be successfully marketed.
We do not anticipate that any of our proposed products will receive the
requisite regulatory approvals for commercialization in the United States or
abroad for a number of years, if at all, and we cannot assure you
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that any of our proposed products, if approved and marketed, will generate
significant product revenue and provide an acceptable return on our investment.
WE WILL NEED TO RAISE SUBSTANTIAL ADDITIONAL CAPITAL IN THE FUTURE TO FUND OUR
OPERATIONS AND WE MAY BE UNABLE TO RAISE SUCH FUNDS WHEN NEEDED AND ON
ACCEPTABLE TERMS.
We currently do not have sufficient resources to complete the
commercialization of any of our proposed products. Therefore, we may need to
raise substantial additional capital to fund our operations sometime in the
future. We cannot be certain that any financing will be available when needed.
If we fail to raise additional financing as we need it, we may have to delay or
terminate our own product development programs or pass on opportunities to
in-license or otherwise acquire new products that we believe may be beneficial
to our business.
We expect to continue to spend capital on:
- research and development programs;
- preclinical studies and clinical trials;
- regulatory processes;
- establishment of our own commercial scale manufacturing and
marketing capabilities or a search for third party manufacturers
and marketing partners to manufacture and market our products for
us; and
- the licensure or acquisition of new products.
The amount of capital we may need will depend on many factors,
including the:
- progress, timing and scope of our research and development
programs;
- progress, timing and scope of our preclinical studies and clinical
trials;
- time and cost necessary to obtain regulatory approvals;
- time and cost necessary to build our own manufacturing facilities
and obtain the necessary regulatory approvals for those facilities
or to seek third party manufacturers to manufacture our products
for us;
- time and cost necessary to establish our own sales and marketing
capabilities or to seek marketing partners to market our products
for us;
- time and cost necessary to respond to technological and market
developments;
- changes made or new developments in our existing collaborative,
licensing and other commercial relationships; and
- new collaborative, licensing and other commercial relationships
that we may establish.
In addition, our principal asset, a license agreement with the
University of California, requires us to have available minimum amounts of funds
each year for research and development activities relating to our licensed
technology and to achieve research and development milestones. Moreover, our
fixed expenses, such as rent, license payments and other contractual
commitments, may increase in the future, as we may:
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- enter into additional leases for new facilities and capital
equipment;
- enter into additional licenses and collaborative agreements; and
- incur additional expenses associated with being a public company.
Our cash on hand as of September 30, 1999 was $5,648,796. We believe
this cash will be sufficient to fund our operations through June 2001. We have
based this estimate on assumptions that may prove to be wrong. As a result, we
may need to obtain additional financing prior to that time. In addition, we may
need to raise additional capital at an earlier time to fund our ongoing research
and development activities, acquire new products or take advantage of other
unanticipated opportunities. Any additional equity financings may be dilutive to
our existing shareholders, and debt financing, if available, may involve
restrictive covenants on our business. In addition, insufficient funds may
require us to delay, scale back or eliminate some or all of our programs
designed to facilitate the commercial introduction of our proposed products,
prevent commercial introduction of our products altogether or restrict us from
acquiring new products that we believe may be beneficial to our business.
OUR STRATEGY TO ACQUIRE PRODUCTS IN THE LATE-STAGE DEVELOPMENT PHASE OR PRODUCTS
ALREADY ON THE MARKET IS RISKY AND THE MARKET FOR ACQUIRING THESE PRODUCTS IS
COMPETITIVE.
We intend to acquire, through outright purchase, license, joint venture
or other methods, products in the late-stage development phase or products
already on the market, and assist in the final development and commercialization
of those products. There are a number of companies that have similar strategies
to ours, many of whom have substantially greater resources than us. It is
difficult to determine the value of a product that has not been fully developed
or commercialized, and the possibility of significant competition for these
products may tend to increase the cost to us of these products beyond the point
at which we will experience an acceptable return on our investment. We cannot
assure you that we will be able to acquire any products on commercially
acceptable terms or at all, that any product we may acquire will be approved by
the FDA or if approved, will be marketable, or that even if marketed, that we
will be able to obtain an acceptable return on our investment.
While we have no current agreements or negotiations underway, if we
purchase any products, we could issue stock that would dilute existing
shareholders' percentage ownership, incur substantial debt or assume contingent
liabilities. These purchases also involve numerous other risks, including:
- problems assimilating the purchased products;
- unanticipated costs associated with the purchase;
- incorrect estimates made in the accounting for acquisitions; and
- risks associated with entering markets in which we have no or
limited prior experience.
IF WE FAIL TO OBTAIN REGULATORY APPROVAL TO COMMERCIALLY MANUFACTURE OR SELL ANY
OF OUR FUTURE PRODUCTS, OR IF APPROVAL IS DELAYED, WE WILL BE UNABLE TO GENERATE
REVENUE FROM THE SALE OF OUR PRODUCTS.
We must obtain regulatory approval to sell any of our products in the
United States and abroad. In the United States, we must obtain the approval of
the FDA for each vaccine or drug that we intend to commercialize. The FDA
approval process is typically lengthy and expensive, and approval is never
certain. Products distributed abroad are subject to similar foreign government
regulation.
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Generally, only a very small percentage of newly discovered
pharmaceutical products that enter preclinical development are approved for
sale. Because of the risks and uncertainties in biopharmaceutical development,
our proposed products could take a significantly longer time to gain regulatory
approval than we expect or may never gain approval. If regulatory approval is
delayed or never obtained, our management's credibility, the value of our
company and our operating results would be adversely affected.
Moreover, even if the FDA approves a product, such approval may be
conditioned upon commercially unacceptable limitations on the indications for
which a product may be marketed, and further studies may be required to provide
additional data on safety or effectiveness. The FDA may also require
post-marketing surveillance programs to monitor the product's side effects. The
later discovery of previously unknown problems with a product or manufacturer
may result in restrictions or sanctions on the product or manufacturer,
including the withdrawal of the product from the market.
TO OBTAIN REGULATORY APPROVAL TO MARKET OUR PRODUCTS, COSTLY AND LENGTHY
PRECLINICAL STUDIES AND CLINICAL TRIALS MAY BE REQUIRED, AND THE RESULTS OF THE
STUDIES AND TRIALS ARE HIGHLY UNCERTAIN.
As part of the FDA approval process, we must conduct, at our own
expense, preclinical studies on animals and clinical trials on humans on each of
our proposed products. We expect the number of preclinical studies and clinical
trials that the FDA will require will vary depending on the product, the disease
or condition the product is being developed to address and regulations
applicable to the particular product. We may need to perform multiple
preclinical studies using various doses and formulations before we can begin
clinical trials, which could result in delays in our ability to market any of
our products. Furthermore, even if we obtain favorable results in preclinical
studies on animals, the results in humans may be different.
After we have conducted preclinical studies in animals, we must
demonstrate that our products are safe and effective for use on the target human
patients in order to receive regulatory approval for commercial sale. The data
obtained from preclinical and clinical testing are subject to varying
interpretations that could delay, limit or prevent regulatory approval. Adverse
or inconclusive clinical results would prevent us from filing for regulatory
approval of our products. Additional factors that can cause delay or termination
of our clinical trials include:
- slow patient enrollment;
- longer treatment time required to demonstrate efficacy;
- adverse medical events or side effects in treated patients; and
- lack of effectiveness of the product being tested.
IF WE FAIL TO OBTAIN AN ADEQUATE LEVEL OF REIMBURSEMENT FOR OUR PRODUCTS BY
THIRD PARTY PAYORS, THERE WOULD BE NO COMMERCIALLY VIABLE MARKETS FOR OUR
PRODUCTS.
Our ability to commercialize our products successfully will depend in
part on the price we may be able to charge for our products and on the extent to
which reimbursement for the cost of our products and related treatment will be
available from government health administration authorities, private health
insurers and other third party payors. Third party payors, such as government or
private health care insurers, carefully review and increasingly challenge the
price charged for products. Reimbursement rates from private companies vary
depending on the third party payor, the insurance plan and other factors.
Reimbursement systems in international markets vary significantly by country and
by region, and reimbursement approvals must be obtained on a country-by-country
basis. We cannot be certain that third party payors will pay for the costs of
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our products. We currently have limited expertise obtaining reimbursement. We
will need to seek additional reimbursement expertise unless we enter into
collaborations with other companies with the necessary expertise.
Even if we are able to obtain reimbursement from third party payors, we
cannot be certain that reimbursement rates will be high enough to allow us to
profit from sales of our products and realize an acceptable return on our
investment in product development. Certain payors may attempt to further control
costs by selecting exclusive providers of their pharmaceutical products. If
these types of arrangements were made with our competitors, these payors would
not reimburse patients for purchases of our competing products.
We expect that in the future reimbursement will be increasingly
restricted both in the United States and internationally. The escalating cost of
health care has led to increased pressure on the health care industry to reduce
costs. Governmental and private third party payors have proposed health care
reforms and cost reductions. A number of federal and state proposals to control
the cost of health care, including the cost of drug treatments, have been made
in the United States. In some foreign markets, the government controls the
pricing of products which would affect our profitability on these products.
Current government regulations and possible future legislation regarding health
care may affect our future revenues and profitability from sales of our products
and may adversely affect our business and prospects.
WE DO NOT HAVE ANY FACILITIES APPROPRIATE FOR CLINICAL TESTING, WE LACK
MANUFACTURING EXPERIENCE AND WE HAVE NO SALES AND MARKETING PERSONNEL. WE WILL,
THEREFORE, BE DEPENDENT UPON OTHERS FOR OUR CLINICAL TESTING, MANUFACTURING,
SALES AND MARKETING.
Our current facilities do not include accommodation for the testing of
our proposed products in animals to determine their toxicology and pharmacology
or in humans for the clinical testing required by the FDA. We do not have a
manufacturing facility that can be used for full-scale production of our
products. In addition, at this time, we do not have any sales and marketing
personnel. In the course of our development program, we will therefore be
required to enter into arrangements with other companies or universities for our
animal testing, human clinical testing, manufacturing, and sales and marketing
activities. If we are unable to retain third parties for these purposes on
acceptable terms, we may be unable to successfully develop, manufacture and
market our proposed products. In addition, any failures by third parties to
adequately perform their responsibilities may delay the submission of our
proposed products for regulatory approval, impair our ability to deliver our
products on a timely basis or otherwise impair our competitive position. Our
dependence on third parties for the development, manufacture, sale and marketing
of our products may also adversely affect our profit margins.
WE WILL NOT BE ABLE TO SELL OUR PRODUCTS IF WE OR OUR THIRD PARTY MANUFACTURERS
FAIL TO COMPLY WITH MANUFACTURING REGULATIONS.
Before we can begin selling our products, we must obtain regulatory
approval of our manufacturing facility and process or the manufacturing facility
and process of the third party or parties with whom we may outsource our
manufacturing activities. In addition, the manufacture of our products must
comply with the FDA's current Good Manufacturing Practices regulations, commonly
known as GMP regulations. The GMP regulations govern quality control and
documentation policies and procedures. Our manufacturing facilities, if any in
the future, and the manufacturing facilities of our third party manufacturers
will be continually subject to inspection by the FDA and other state, local and
foreign regulatory authorities, before and after product approval. We cannot
guarantee that we, or any potential third party manufacturer of our products,
will be able to comply with the GMP regulations or other applicable
manufacturing regulations.
WE LICENSE OUR CORE TECHNOLOGY FROM A THIRD PARTY AND MAY LOSE THE RIGHT TO
LICENSE IT.
We license our core technology from the University of California and
may lose the right to license it if we breach our obligations under the license
agreement or fail to meet required development milestones. Under
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the license agreement, we are generally required to have available funds for
research and development activities involving the licensed technology and to
meet certain progress benchmarks with respect to the commercial development of
products incorporating the licensed technology. If we were unable to meet these
progress benchmarks, the University of California may be entitled to terminate
our license rights to some or all of the licensed technology. Our failure to
retain the right to license this technology could harm our business, financial
condition and operating results.
IF WE ARE UNABLE TO PROTECT OUR PROPRIETARY TECHNOLOGY, WE MAY NOT BE ABLE TO
COMPETE AS EFFECTIVELY.
The pharmaceutical industry places considerable importance on obtaining
patent and trade secret protection for new technologies, products and processes.
Our success will depend, in part, on our ability to obtain, enjoy and enforce
protection for any products we develop or acquire under United States and
foreign patent laws and other intellectual property laws, preserve the
confidentiality of our trade secrets and operate without infringing the
proprietary rights of third parties.
Where appropriate, we seek patent protection for certain aspects of our
technology. However, our owned and licensed patents and patent applications will
not ensure the protection of our intellectual property for a number of other
reasons:
- We do not know whether our patent applications will result in
actual patents. For example, we may not have developed a method
for treating a disease before others developed similar methods.
- Competitors may interfere with our patent process in a variety of
ways. Competitors may claim that they invented the claimed
invention before us or may claim that we are infringing on their
patents and therefore cannot use our technology as claimed under
our patent. Competitors may also contest our patents by showing
the patent examiner that the invention was not original or novel
or was obvious.
- We are in the research and development stage and are in the
process of developing proposed products. Even if we receive a
patent, it may not provide much practical protection. If we
receive a patent with a narrow scope, then it will be easier for
competitors to design products that do not infringe on our patent.
Even if the development of our proposed products is successful and
approval for sale is obtained, there can be no assurance that
applicable patent coverage, if any, will not have expired or will
not expire shortly after this approval. Any expiration of the
applicable patent could have a material adverse effect on the
sales and profitability of our proposed product.
- Enforcing patents is expensive and may require significant time by
our management. In litigation, a competitor could claim that our
issued patents are not valid for a number of reasons. If the court
agrees, we would lose that patent.
- We may also support and collaborate in research conducted by
government organizations or universities. We cannot guarantee that
we will be able to acquire any exclusive rights to technology or
products derived from these collaborations. If we do not obtain
required licenses or rights, we could encounter delays in product
development while we attempt to design around other patents or we
may be prohibited from developing, manufacturing or selling
products requiring these licenses. There is also a risk that
disputes may arise as to the rights to technology or products
developed in collaboration with other parties.
It is also unclear whether our trade secrets will provide useful
protection. While we use reasonable efforts to protect our trade secrets, our
employees or consultants may unintentionally or willfully disclose our
proprietary information to competitors. Enforcing a claim that someone else
illegally obtained and is using our
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trade secrets, like patent litigation, is expensive and time consuming, and the
outcome is unpredictable. In addition, courts outside the United States are
sometimes less willing to protect trade secrets. Our competitors may
independently develop equivalent knowledge, methods and know-how.
CLAIMS BY OTHERS THAT OUR PRODUCTS INFRINGE THEIR PATENTS OR OTHER INTELLECTUAL
PROPERTY RIGHTS COULD ADVERSELY AFFECT OUR FINANCIAL CONDITION.
The pharmaceutical industry has been characterized by frequent
litigation regarding patent and other intellectual property rights. Patent
applications are maintained in secrecy in the United States until the patents
are issued and are also maintained in secrecy for a period of time outside the
United States. Accordingly, we can conduct only limited searches to determine
whether our technology infringes any patents or patent applications of others.
Any claims of patent infringement would be time-consuming and could likely:
- result in costly litigation;
- divert the time and attention of our technical personnel and
management;
- cause product development delays;
- require us to develop non-infringing technology; or
- require us to enter into royalty or licensing agreements.
Although patent and intellectual property disputes in the
pharmaceutical industry have often been settled through licensing or similar
arrangements, costs associated with these arrangements may be substantial and
often require the payment of ongoing royalties, which could hurt our gross
margins. In addition, we cannot be sure that the necessary licenses would be
available to us on satisfactory terms, or that we could redesign our products or
processes to avoid infringement, if necessary. Accordingly, an adverse
determination in a judicial or administrative proceeding, or the failure to
obtain necessary licenses, could prevent us from developing, manufacturing and
selling some of our products, which could harm our business, financial condition
and operating results.
BECAUSE WE ARE DEVELOPING NEW PRODUCTS, WE MAY FAIL TO GAIN MARKET ACCEPTANCE
FOR OUR PRODUCTS AND OUR BUSINESS COULD SUFFER.
None of the products we propose to develop or are developing have yet
been approved for marketing by regulatory authorities in the United States or
elsewhere. Even if our proposed products are ultimately approved for sale, there
can be no assurance that they will be commercially successful.
WE ARE DEPENDENT ON KEY PERSONNEL, MANY OF WHOM WOULD BE DIFFICULT TO REPLACE.
Our success will be largely dependent upon the efforts of Stephen M.
Simes, our President and Chief Executive Officer, Phillip B. Donenberg, our
Chief Financial Officer, Treasurer and Secretary, and other key employees. We do
not have key person life insurance on any of our key personnel, and with the
exception of Messrs. Simes and Donenberg, we generally do not have written
employment or noncompetition agreements with our employees. Our future success
also will depend in large part on our ability to identify, attract and retain
other highly qualified managerial, technical and sales and marketing personnel.
Competition for these individuals is intense. The loss of the services of any of
our key personnel, the inability to identify, attract or retain qualified
personnel in the future or delays in hiring qualified personnel, could make it
more difficult for us to manage our business and meet key objectives, such as
the timely introduction of our proposed products, which would harm our business,
financial condition and operating results.
21
<PAGE>
RISKS RELATING TO OUR INDUSTRY
BECAUSE OUR INDUSTRY IS VERY COMPETITIVE AND OUR COMPETITORS HAVE SUBSTANTIALLY
GREATER CAPITAL RESOURCES AND MORE EXPERIENCE IN RESEARCH AND DEVELOPMENT,
MANUFACTURING AND MARKETING THAN US, WE MAY NOT SUCCEED IN DEVELOPING OUR
PROPOSED PRODUCTS AND BRINGING THEM TO MARKET.
Competition in the pharmaceutical industry is intense. Potential
competitors in the United States are numerous and include pharmaceutical,
chemical and biotechnology companies, most of which have substantially greater
capital resources and more experience in research and development, manufacturing
and marketing than us. Academic institutions, hospitals, governmental agencies
and other public and private research organizations are also conducting research
and seeking patent protection and may develop and commercially introduce
competing products or technologies on their own or through joint ventures. We
cannot assure you that our competitors will not succeed in developing similar
technologies and products more rapidly than we do or that these competing
technologies and products will not be more effective than any of those that we
are currently developing or will develop.
IF WE DO NOT KEEP PACE WITH TECHNOLOGICAL CHANGE, OUR PRODUCTS MAY BE RENDERED
OBSOLETE AND OUR OPERATING RESULTS MAY SUFFER.
The pharmaceutical industry has experienced rapid and significant
technological change. We expect that pharmaceutical technology will continue to
develop rapidly, and our future success will depend, in large part, on our
ability to develop and maintain a competitive position. Rapid technological
development may result in our products or processes becoming obsolete before
they are marketed or before we can recover a significant portion of the
development and commercialization expenses we incurred in developing and
commercially introducing the products. In addition, innovations in drug delivery
systems, alternative therapies or new medical treatments that alter existing
treatment regimes, reduce the need for therapy or cure certain chronic diseases
could harm our business.
IF PRODUCT LIABILITY LAWSUITS ARE SUCCESSFULLY BROUGHT AGAINST US, WE MAY INCUR
SUBSTANTIAL LIABILITIES.
We are exposed to the potential product liability risks inherent in the
testing, manufacturing and marketing of human drug treatments. We currently do
not maintain insurance against product liability lawsuits. Although we intend to
obtain product liability insurance shortly before initiating clinical trials for
our products, we cannot be certain that we will be able to obtain adequate
insurance coverage. The pharmaceutical industry has experienced increasing
difficulty in maintaining product liability insurance coverage at reasonable
levels, and substantial increases in insurance premium costs in many cases have
rendered coverage economically impractical. We cannot be certain that if any of
our products receive FDA approval, the product liability insurance we will need
to obtain in connection with the commercial sales of this product will be
available at a reasonable cost. In addition, we cannot be certain that we can
successfully defend any product liability lawsuit brought against us. If we are
the subject of a successful product liability claim which exceeds the limits of
any insurance coverage we may obtain, we may incur substantial liabilities which
would adversely affect our operating results and financial condition.
RISKS RELATING TO OUR COMMON STOCK
BECAUSE OUR COMMON STOCK IS TRADED ON THE ALBERTA STOCK EXCHANGE AND THE "PINK
SHEETS," YOUR ABILITY TO SELL YOUR SHARES IN THE SECONDARY TRADING MARKET MAY BE
LIMITED.
Our common stock is currently traded on the Alberta Stock Exchange and
the National Quotation Bureau's "Pink Sheets" and we expect that after the
effectiveness of this registration statement, our common stock will also be
traded in the over-the-counter market on the OTC Electronic Bulletin Board.
Consequently,
22
<PAGE>
the liquidity of our common stock is impaired, not only in the number of shares
that are bought and sold, but also through delays in the timing of transactions,
and coverage by security analysts and the news media, if any, of our company. As
a result, prices for shares of our common stock may be lower than might
otherwise prevail if our common stock was traded on Nasdaq or a national
securities exchange.
BECAUSE OUR SHARES ARE "PENNY STOCKS," YOU MAY HAVE DIFFICULTY SELLING THEM IN
THE SECONDARY TRADING MARKET.
Federal regulations under the Securities Exchange Act of 1934 regulate
the trading of so-called "penny stocks," which are generally defined as any
security not listed on a national securities exchange or Nasdaq, priced at less
than $5.00 per share and offered by an issuer with limited net tangible assets
and revenues. Since our common stock currently trades on the "Pink Sheets" at
less than $5.00 per share, our shares are "penny stocks" and may not be traded
unless a disclosure schedule explaining the penny stock market and the risks
associated therewith is delivered to a potential purchaser prior to any trade.
In addition, because our common stock is not listed on Nasdaq or any
national securities exchange and currently trades at less than $5.00 per share,
trading in our common stock is subject to Rule 15g-9 under the Exchange Act.
Under this rule, broker-dealers must take certain steps prior to selling a
"penny stock," which steps include:
- obtaining financial and investment information from the investor;
- obtaining a written suitability questionnaire and purchase
agreement signed by the investor; and
- providing the investor a written identification of the shares
being offered and the quantity of the shares.
If these penny stock rules are not followed by the broker-dealer, the
investor has no obligation to purchase the shares. The application of these
comprehensive rules will make it more difficult for broker-dealers to sell our
common stock and our shareholders, therefore, may have difficulty in selling
their shares in the secondary trading market.
OUR STOCK PRICE MAY BE VOLATILE AND YOUR INVESTMENT IN OUR COMMON STOCK COULD
SUFFER A DECLINE IN VALUE.
Prior to being listed on the "Pink Sheets," there was no public market
for our common stock in the United States. Our common stock has been listed on
the Alberta Stock Exchange since December 20, 1996. The market price of our
common stock may fluctuate significantly in response to a number of factors,
some of which are beyond our control. These factors include:
- progress of our products through the regulatory process;
- results of preclinical studies and clinical trials;
- announcements of technological innovations or new products by us
or our competitors;
- government regulatory action affecting our products or our
competitors' products in both the United States and foreign
countries;
- developments or disputes concerning patent or proprietary rights;
- general market conditions for emerging growth and pharmaceutical
companies;
23
<PAGE>
- economic conditions in the United States or abroad;
- actual or anticipated fluctuations in our operating results;
- broad market fluctuations; and
- changes in financial estimates by securities analysts.
In addition, the value of our common stock may fluctuate because it is
listed on both the "Pink Sheets" (and eventually on the OTC Bulletin Board) and
the Alberta Stock Exchange. We do not know what effect, if any, the dual listing
will have on the price of our common stock in either market. Listing on both the
Alberta Stock Exchange and the Pink Sheets may increase our stock price
volatility due to:
- trading in different time zones;
- different ability to buy or sell our stock; and
- different trading volume.
WE MAY INCUR SIGNIFICANT COSTS FROM CLASS ACTION LITIGATION DUE TO OUR EXPECTED
STOCK VOLATILITY.
In the past, following periods of large price declines in the public
market price of a company's stock, holders of that stock have occasionally
instituted securities class action litigation against the company that issued
the stock. If any of our shareholders were to bring this type of lawsuit against
us, even if the lawsuit is without merit, we could incur substantial costs
defending the lawsuit. The lawsuit could also divert the time and attention of
our management, which would hurt our business. Any adverse determination in
litigation could also subject us to significant liabilities.
THE SALE OF 23,125,000 RESTRICTED SHARES OF OUR COMMON STOCK, OR 40% OF OUR
TOTAL OUTSTANDING SHARES, IN THE PUBLIC MARKET IN SEPTEMBER 2000 COULD CAUSE THE
MARKET PRICE OF OUR COMMON STOCK TO DECLINE SIGNIFICANTLY, EVEN IF OUR BUSINESS
IS DOING WELL.
Our current shareholders hold 29,437,686 shares, which they will be
able to sell in the public market in the near future. Beginning 90 days after
the date this registration statement is declared effective, approximately
15,103,686 shares will be freely tradable and the remainder of these shares will
become freely tradable at various later times. Sales of a substantial number of
shares of our common stock could cause our stock price to decline significantly,
even if our business is doing well. In addition, the sale of these shares could
limit our ability to raise capital through the sale of additional stock.
PROVISIONS IN OUR CORPORATE DOCUMENTS AND WYOMING LAW COULD DISCOURAGE OR
PREVENT A TAKEOVER, EVEN IF AN ACQUISITION WOULD BE BENEFICIAL TO OUR
SHAREHOLDERS.
Provisions of our articles of incorporation and bylaws, as well as
provisions of Wyoming law, could make it more difficult for a third party to
acquire us, even if doing so would be beneficial to our shareholders.
These provisions include:
- authorizing the issuance of "blank check" preferred that could be
issued by our board of directors to increase the number of
outstanding shares and thwart a takeover attempt; and
- prohibiting cumulative voting in the election of directors, which
would otherwise allow less than a majority of shareholders to
elect director candidates.
24
<PAGE>
In addition, the laws of the State of Wyoming, our state of
incorporation, contain certain provisions that 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 our company. Such provisions could limit
the price that certain investors might be willing to pay in the future for
shares of our common stock. These provisions could also make it more difficult
for shareholders to change the management of our company or to effect certain
transactions.
OUR DIRECTORS AND EXECUTIVE OFFICERS OWN A SUFFICIENT NUMBER OF SHARES OF OUR
COMMON STOCK TO CONTROL OUR COMPANY, WHICH COULD DISCOURAGE OR PREVENT A
TAKEOVER, EVEN IF AN ACQUISITION WOULD BE BENEFICIAL TO OUR SHAREHOLDERS.
Our directors and executive officers own or control approximately 50.4%
of our outstanding voting power. Accordingly, these shareholders, individually
and as a group, may be able to influence the outcome of shareholder votes,
involving votes concerning the election of directors, the adoption or amendment
of provisions in our articles of incorporation and bylaws and the approval of
certain mergers or other similar transactions, such as sales of substantially
all of our assets. Such control by existing shareholders could have the effect
of delaying, deferring or preventing a change in control of our company. In
addition, under a shareholders agreement entered into in connection with our May
1999 private placement, several of our shareholders entered into a voting
agreement with respect to the election of directors.
WE DO NOT INTEND TO PAY ANY CASH DIVIDENDS IN THE FORESEEABLE FUTURE.
We do not intend to pay any cash dividends in the foreseeable future.
WE WILL LIKELY ISSUE ADDITIONAL EQUITY SECURITIES WHICH WILL DILUTE YOUR SHARE
OWNERSHIP.
We will likely issue additional equity securities to raise capital and
through the exercise of options and warrants that are outstanding or may be
outstanding. These additional issuances will dilute your share ownership.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
GENERAL
We are a development stage biopharmaceutical company engaged in the
development and commercialization of vaccine adjuvants, proprietary novel
vaccines and drug delivery systems. Our core technology, which we license on an
exclusive basis from the University of California, is based on the use of
extremely small, solid, uniform particles, which we call "nanoparticles," as
immune system boosters and for drug delivery. We have identified three potential
initial applications for our core technology:
- the creation of improved versions of current vaccines by the
"adjuvant" activity of our proprietary nanoparticles;
- the development of new, unique vaccines against diseases for which
there currently are few or no effective methods of prevention
(E.G., genital herpes); and
- the creation of inhaled forms of pharmaceutical compounds that
currently must be given by injection (E.G., insulin).
Our goal is to leverage our core technology to become a pharmaceutical
company that develops and commercializes a wide range of pharmaceutical
products. Our strategy to obtain this goal is to :
25
<PAGE>
- enter into business collaborations or joint ventures to further
develop and commercialize products incorporating our core
technology;
- in-license or otherwise acquire products in the late-stage
development phase;
- in-license or otherwise acquire products already on the market;
and
- enter into business collaborations or joint ventures with
complementary firms outside the scope of our core technology.
Our strategy over the next 12 months is to continue development of our
core technology and to actively seek collaborators and licensees to accelerate
the development and commercialization of products incorporating our core
technology. We hope to file an investigational new drug application with the FDA
before the end of 1999 to commence a Phase I human clinical trial with respect
to our CAP nanoparticles. In addition, during the next 12 months, we intend to
seek opportunities to in-license or otherwise acquire products in the late-stage
development phase or products already on the market. We currently do not expect
any significant changes in the number of our employees unless we are able to
enter into a business collaboration or joint venture to further develop and
commercialize products incorporating our core technology or in-license or
otherwise acquire products in the late-stage human clinical development phase or
products already on the market. Alternatively, if we are able to enter into
business collaborations or joint ventures, in lieu of hiring additional
employees, we may elect to enter into arrangements with third parties to
accomplish the similar tasks of hired employees.
LIQUIDITY
We expect to continue to incur significant expenses, primarily relating
to our research and development activities. Management estimates that it is
currently expending approximately $80,000 per month on research and development
activities and approximately $100,000 to $125,000 per month in total expenses.
Research and development expenditures, however, may fluctuate from
quarter-to-quarter and year-to-year depending on the resources available and our
development schedule. Results of studies, clinical trials, regulatory decisions
and competitive developments also may influence our expenditures. We are
required under the terms of our license agreement with the University of
California to make available certain amounts of funds for research and
development activities. In the event, however, we are able to in-license or
otherwise acquire drugs in the late-stage development phase or drugs already on
the market, it is likely that our research and development and total expenses
would increase.
We, as well as our predecessor, Structured Biologicals, have
consistently raised equity financing to fund our activities in the past and we
expect to continue this practice to fund our ongoing activities. In May 1999, we
closed a private placement whereby we raised $4.4 million, thereby increasing
our cash balance to approximately $5.6 million as of October 1, 1999. This cash
balance is expected to fund our operations through at least June 2001. We have
based this estimate, however, on assumptions which may prove to be wrong. As a
result, we may need to obtain additional financing prior to that time. In
addition, we may need to raise additional capital at an earlier time to fund our
ongoing research and development activities, acquire new products or take
advantage of other unanticipated opportunities. Any additional equity financings
may be dilutive to our existing shareholders, and debt financing, if available,
may involve restrictive covenants on our business. In addition, insufficient
funds may require us to delay, scale back or eliminate some or all of our
programs designed to facilitate the commercial introduction of our proposed
products, prevent commercial introduction of our products altogether or restrict
us from acquiring new products that we believe may be beneficial to our
business.
26
<PAGE>
CAPITAL RESOURCES
Construction of the laboratory, which was initiated in October 1997 and
completed in January 1998, cost approximately $500,000. We expect to spend
approximately $10,000 to $20,000 in capital expenditures during the next 12
months.
ITEM 3. DESCRIPTION OF PROPERTY.
Our principal executive office is located in Lincolnshire, Illinois. We
lease approximately 700 square feet of office space for approximately $1,000 per
month, which lease expires in June 2000. Our research and development operations
are located in Smyrna, Georgia where we lease approximately 11,840 square feet
of laboratory space for approximately $5,100 per month, which lease expires in
October 2003. We also lease approximately 2,600 square feet of office space in
Atlanta, Georgia for approximately $3,500 per month, which lease expires in
September 2002. Effective September 16, 1999, we entered into a sublease
agreement for the Atlanta office space under which we receive approximately
$3,500 per month from the sub-tenant through September 14, 2002. Management of
our company considers our leased properties suitable and adequate for our
current needs and adequately covered by insurance.
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<PAGE>
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth information known to us with respect to
the beneficial ownership of our capital stock as of October 1, 1999 for (1) each
person known by us to beneficially own more than 5% of any class of our voting
securities, (2) each of the executive officers named in the Summary Compensation
Table under the heading "Item 6. Executive Compensation" beginning on page 30,
(3) each of our current directors, and (4) all of our executive officers and
directors as a group. Except as otherwise indicated, we believe that the
beneficial owners of our capital stock listed below, based on information
provided by these owners, have sole investment and voting power with respect to
such shares, subject to community property laws where applicable.
<TABLE>
<CAPTION>
COMMON STOCK PERCENT OF
COMMON STOCK CLASS C STOCK AND COMMON TOTAL
---------------------------- --------------------- STOCK VOTING
NAME NUMBER PERCENT NUMBER PERCENT EQUIVALENTS POWER (3)
- ----------------------------------- ----------------- --------- ---------- -------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C>
Avi Ben-Abraham, M.D. (4).......... 12,467,300 (5) 23.6% -- -- 12,467,300 21.6%
Stephen M. Simes (4)............... 1,621,110 (6) 3.0% -- -- 1,621,110 2.6%
Louis W. Sullivan, M.D. (4)........ -- -- 1,000,000 20.8% 1,000,000 1.7%
Edward C. Rosenow III, M.D. (4).... 100,000 (7) * -- -- 100,000 *
Victor Morgenstern (4)............. 3,750,000 (8) 7.0% -- -- 3,750,000 6.4%
Fred Holubow (4)................... 375,000 (9) * -- -- 375,000 *
Ross Mangano (4)................... 11,250,000 (10) 19.9% -- -- 11,250,000 18.4%
Angela Ho (4)...................... 700,000 (11) 1.3% 1,000,000 20.8% 1,700,000 3.1%
Peter Kjaer (4).................... -- -- -- -- -- --
JO & Co............................ 11,250,000 (12) 19.9% -- -- 11,250,000 18.4%
Hans Michael Jebsen................ 3,750,000 (13) 7.0% 1,000,000 20.8% 4,750,000 8.2%
King Cho Fung...................... 3,187,500 (14) 6.0% 625,000 13.0% 3,812,500 6.6%
All executive officers and
directors as a group (10 persons).. 30,582,498 (15) 51.1% 2,000,000 41.6% 32,582,498 50.4%
- ---------------------
* less than 1%.
</TABLE>
(1) In calculating the percent of total voting power, the voting power of
shares of our class C stock and our common stock is aggregated.
(2) In calculating an individual's percentage ownership, conversion of any
shares of our class C stock owned by such individual is assumed for
purposes of such calculation.
(3) This Shareholder has entered into an agreement limiting voting rights
with respect to his or her shares of class C stock and common stock in
certain circumstances. See "Item 8 - Description of Securities." The
percentage has been calculated without taking these restrictions into
account.
(4) Address: 175 Olde Half Day Road, Suite 123, Lincolnshire, IL 60069.
(5) Dr. Ben-Abraham's beneficial ownership includes 200,000 shares of
common stock issuable under currently exercisable options.
(6) Mr. Stephen M. Simes' beneficial ownership includes 1,246,110 shares of
common stock issuable under currently exercisable options and 125,000
shares of common stock issuable under a warrant.
(7) Dr. Edward C. Rosenow's beneficial ownership includes 100,000 shares of
common stock issuable under currently exercisable options.
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<PAGE>
(8) Mr. Victor Morgenstern's beneficial ownership includes 750,000 shares
of common stock issuable under a currently exercisable warrant, 250,000
shares of common stock issuable under a currently exercisable warrant
and 500,000 shares of common stock held by Mr. Morgenstern's wife as
trustee of the Morningstar Trust and 250,000 shares of common stock
issuable under a currently exercisable warrant and 500,000 shares of
common stock held by Resolute Partners. Victor Morgenstern is a partner
of Resolute Partners.
(9) Mr. Fred Holubow's beneficial ownership includes 125,000 shares of
common stock issuable under a currently exercisable warrant.
(10) Mr. Ross Mangano's beneficial ownership includes 3,750,000 shares of
common stock issuable under a currently exercisable warrant and
7,500,000 shares of common stock held by JO & Co. to which Mr. Mangano
has sole voting power. See note (12) below.
(11) Ms. Angelo Ho's beneficial ownership includes 100,000 shares of common
stock issuable under currently exercisable options.
(12) Includes 3,750,000 shares of common stock issuable under a currently
exercisable warrant. The address for JO & Co. is 112 West Jefferson
Boulevard, Suite 613, South Bend, Indiana 46634.
(13) Mr. Hans Michael Jebsen's beneficial ownership includes 750,000 shares
of common stock issuable under a currently exercisable warrant. Mr.
Jebsen's address is c/o Jebsen & Co. Ltd., 28/F Caroline Center, 28 Yun
Ping Road, Causeway Bay, Hong Kong.
(14) Mr. King Cho Fung's beneficial ownership includes 750,000 shares of
common stock issuable under a currently exercisable warrant. Mr. Fung's
address is Room 2101, Lyndhurst Tower, One Lyndhurst Terrace, Central
Hong Kong.
(15) The amount beneficially owned by all current directors and executive
officers as a group includes the aggregate of 2,965,198 shares issuable
under currently exercisable warrants and exercisable options. Also
includes an aggregate of 4,250,000 shares issuable under currently
exercisable warrants held by Resolute Partners, Morningstar Trust and
JO & Co., respectively. See notes (8), (10) and (12) above.
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<PAGE>
ITEM 5. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS.
Set forth below are our directors and executive officers and their ages
and positions as of October 1, 1999:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Louis W. Sullivan, M.D. (1)(2)(3).......... 66 Chairman of the Board
Stephen M. Simes........................... 47 Vice Chairman, President and Chief Executive Officer
Victor Morgenstern (2)..................... 56 Director
Fred Holubow (3)........................... 60 Director
Ross Mangano (1)........................... 53 Director
Edward C. Rosenow III, M.D. (3)............ 64 Director
Angela Ho (2).............................. 46 Director
Peter Kjaer (1)............................ 38 Director
Avi Ben-Abraham, M.D....................... 41 Director
Phillip B. Donenberg....................... 39 Chief Financial Officer, Treasurer and Secretary
- ---------------------------------
</TABLE>
(1) Member of the Audit and Finance Committee
(2) Member of the Compensation Committee
(3) Member of the Scientific Review Committee
THE HONORABLE LOUIS W. SULLIVAN, M.D. has been our Chairman of the
Board since March 1998 and has been a director of our company since its
formation. Dr. Sullivan served as Secretary of Health and Human Services in the
cabinet of President George Bush from 1989 to 1993. Since retiring from the Bush
Administration, Dr. Sullivan has been President of the Morehouse School of
Medicine in Atlanta, Georgia. He had previously served as President and Dean of
the School from 1981 to 1985. Since 1993, Dr. Sullivan has served and continues
to serve on the boards of several large U.S. corporations including 3M Corp.,
Bristol-Myers Squibb, Cigna, General Motors Corporation, Georgia Pacific Corp.
and Household International Inc.
STEPHEN M. SIMES has served as our Vice Chairman, President and a
director of our company since January 20, 1998 and Chief Executive Officer since
March 1998. From October 1994 to January 1997, Mr. Simes was President, Chief
Executive Officer and a Director of Unimed Pharmaceuticals, Inc., a company with
a product focus on infectious diseases, AIDS, endocrinology and oncology. From
1989 to 1993, Mr. Simes was Chairman, President and Chief Executive Officer of
Gynex Pharmaceuticals, Inc., a company which concentrated on the AIDS,
endocrinology, urology and growth disorders markets. In 1993, Gynex was acquired
by Bio-Technology General Corp., and from 1993 to 1994, Mr. Simes served as
Senior Vice President and Director of Bio-Technology General Corp. Mr. Simes'
career in the pharmaceutical industry started in 1974 with G.D. Searle & Co.
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<PAGE>
VICTOR MORGENSTERN was elected a director of our company in July 1999
in connection with the May 1999 private placement. Mr. Morgenstern has more than
31 years of investment experience and is a partner and chairman of Harris
Associates L.P., a Chicago, Illinois-based investment management firm since
1976. He is a director of Nvest Companies, L.P. and a trustee of the Illinois
Institute of Technology.
FRED HOLUBOW was elected a director of our company in July 1999 in
connection with the May 1999 private placement. Mr. Holubow has been a Vice
President of Pegasus Associates, a registered investment advisement firm since
he founded Pegasus in 1982. He specializes in analyzing and investing in
pharmaceutical and biotechnology companies. Mr. Holubow serves on the board of
directors for ThermoRetec and has served on the Board of Directors for
Bio-Technology General Corp. and Unimed Pharmaceuticals.
ROSS MANGANO was elected a director of our company in July 1999 in
connection with the May 1999 private placement. Mr. Mangano has been the
President and a director of Oliver Estate, Inc., a management company
specializing in investments in public and private companies since 1971. He has
been the Chairman of Cerprobe Corporation, and serves as a director for Blue
Chip Casino, Inc.; Orchard Software Corporation; Tower Federal Savings Bank; and
U.S. RealTel Inc.
EDWARD C. ROSENOW, III, M.D. has been a director of our company since
November 1997. Dr. Rosenow was the Arthur M. and Gladys D. Gray Professor of
Medicine at the Mayo Clinic from 1988 until his recent retirement. Beginning
with his residency in 1960, Dr. Rosenow has worked at the Mayo Clinic in many
professional capacities including as a Consultant in Internal Medicine (Thoracic
Diseases) from 1966 to 1996, an Assistant Professor, Associate Professor and
Professor of Medicine at the Mayo Clinic Medical School, President of the Mayo
Clinic Staff in 1986, and Chair of the Division of Pulmonary and Critical Care
Medicine from 1987 to 1994. Dr. Rosenow has also served as a consultant to NASA,
space station FREEDOM at the Johnson Space Center in Houston, Texas from 1989 to
1990 and as the President of the American College of Chest Physicians from 1989
to 1990.
ANGELA HO has been a director of our company since June 1998. Ms. Ho
was elected to our Board of Directors as a representative of our major investors
in Hong Kong. She specializes in investments in small and microcap companies.
PETER KJAER has been a director of our company since July 1999. Mr.
Kjaer has been President of Jet Asia Ltd., a Hong Kong-based transportation
company since April 1996 and a representative of our major investors in that
province.
AVI BEN-ABRAHAM, M.D. founded our company and has been a director of
our company since inception. Dr. Ben-Abraham was the Chairman of the Board and
Chief Executive Officer of our company from inception to March 1998. Dr.
Ben-Abraham was a trustee of the Morehouse School of Medicine in Atlanta,
Georgia until December 1998. From July 1995 to March 1998, Dr. Ben-Abraham
served as Chairman, Chief Executive Officer and Director of Structured
Biologicals, Inc.
PHILLIP B. DONENBERG has served as our Chief Financial Officer,
Treasurer and Secretary since July 1998. Before joining our company, Mr.
Donenberg was Controller of Unimed Pharmaceuticals, Inc. from January 1995 to
June 1998. From May 1993 to December 1994, Mr. Donenberg was Controller of
Molecular Geriatrics Corporation, a bio-tech corporation. Prior to this, Mr.
Donenberg held similar positions with other pharmaceutical companies:
Gynex Pharmaceuticals, Inc. and Xtramedics, Inc.
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<PAGE>
ITEM 6. EXECUTIVE COMPENSATION.
EXECUTIVE COMPENSATION
The following table provides information concerning cash and non-cash
compensation paid to or earned by our Chief Executive Officer and the only other
executive officer whose salary and bonus exceeded $100,000 for the fiscal year
ended December 31, 1998:
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
LONG-TERM
COMPENSATION COMPENSATION
------------ ------------
SECURITIES
UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY ($) BONUS ($) OPTIONS (#) COMPENSATION ($)
- --------------------------- ---- --------- -------- ---------- ----------------
<S> <C> <C> <C> <C> <C>
Stephen M. Simes (1).................... 1998 $218,795 $0 1,000,000 $16,333 (2)
PRESIDENT AND CHIEF EXECUTIVE OFFICER
Claus G.J. Wagner-Bartak, D.Sc. (3)..... 1998 $105,000 $0 500,000 $65,000 (4)
EXECUTIVE VICE PRESIDENT AND CHIEF
SCIENTIFIC OFFICER
- --------------------------
</TABLE>
(1) Mr. Simes became our President in January 1998 and Chief Executive
Officer in March 1998.
(2) Represents an auto allowance ($11,333) and a 401(k) matching
contribution ($5,000).
(3) Effective February 28, 1999, Dr. Wagner-Bartak's employment with our
company was terminated and his options to purchase 500,000 shares of
common stock were cancelled.
(4) Represents amounts paid to a corporation controlled by Dr.
Wagner-Bartak ($60,000) and a 401(k) matching contribution ($5,000) to
Dr. Wagner-Bartak.
32
<PAGE>
OPTION GRANTS IN LAST FISCAL YEAR
The following table summarizes stock option grants during 1998 to each of
our Named Executive Officers.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS (1)
------------------------------------------------------------------
NUMBER OF PERCENT OF
SECURITIES TOTAL OPTIONS
UNDERLYING GRANTED TO EXERCISE
OPTIONS EMPLOYEES IN PRICE EXPIRATION
NAME GRANTED (#) FISCAL YEAR PER SHARE DATE
- ---- ------------------------------------------------------------------
<S> <C> <C> <C> <C>
Stephen M. Simes........................ 600,000 (2) 27.5% $0.29 04/20/03
400,000 (3) 18.3% $0.28 10/06/03
Claus G.J. Wagner-Bartak, D.Sc.......... 165,000 (4) 7.6% $0.29 04/20/03
335,000 (4) 15.3% $0.28 10/06/03
- --------------------------
</TABLE>
(1) All of the options granted to the Named Executive Officers were
initially granted under our 1997 Stock Option Plan. These options,
however, were subsequently transferred to our 1998 Stock Option Plan.
We refer you to the information under the heading "- Stock Option Plan"
on page 35 for a discussion of the material terms of our 1998 Stock
Option Plan.
(2) These options become exercisable as follows: (1) 100,000 shares are
immediately exercisable, and (2) the remaining shares become
exercisable in as nearly equal as possible quarterly installments over
a three-year period, so long as the executive remains employed by us or
one of our subsidiaries at that date. To the extent not already
exercisable, these options become immediately exercisable in full upon
certain changes in control of our company and remain exercisable for
the remainder of their term. We refer you to the information under the
heading "- Employment Agreements" on page 34 and "- Stock Option Plan"
on page 35.
(3) These options become exercisable as follows: (1) 33,333 shares are
immediately exercisable, and (2) the remaining shares become
exercisable in as nearly equal as possible quarterly installments over
a three-year period, so long as the executive remains employed by us or
one of our subsidiaries at that date. To the extent not already
exercisable, these options become immediately exercisable in full upon
certain changes in control of our company and remain exercisable for
the remainder of their term. We refer you to the information under the
heading "- Employment Agreements" on page 34 and "- Stock Option Plan"
on page 35.
(4) These options were exercisable annually over a three-year period, so
long as the executive remains employed by us or one of our subsidiaries
at that date. Dr. Wagner-Bartak's employment with our company was
terminated effective as of February 28, 1999, at which time all of his
options were cancelled.
33
<PAGE>
AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES
The following table summarizes the number and value of options exercised
during 1998 and the value of options held by the Named Executive Officers at
December 31, 1998.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
OPTIONS AT DECEMBER 31, 1998 AT DECEMBER 31, 1998 (1)
----------------------------- ------------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Stephen M. Simes........................ 325,000 675,000 $0 $0
Claus G.J. Wagner-Bartak, D.Sc. (2)..... 0 500,000 $0 $0
</TABLE>
- -----------------------
(1) Value based on the difference between the fair market value of one
share of our common stock at December 31, 1998 ($0.18), the closing
sale price on that date as reported by the Alberta Stock Exchange, and
the exercise price of the options ranging from $0.28 to $1.07 per
share. Options are in-the-money if the market price of the shares
exceeds the option exercise price.
(2) Dr. Wagner-Bartak's employment with our company was terminated
effective as of February 28, 1999, at which time all of his options
were cancelled.
EMPLOYMENT AGREEMENTS
On January 21, 1998, we entered into a letter agreement with Stephen M.
Simes pursuant to which Mr. Simes serves as our President, Chief Executive
Officer and Executive Vice Chairman. The initial term of this agreement
continues until December 31, 2000, after which time the term will be
automatically extended for three additional years unless on or before October 1
of the preceding year, either party gives written notice to the other of the
termination of the agreement. Mr. Simes' base salary is $250,000 per year, and
he is entitled to receive an annual performance bonus of up to 50% of his then
base salary if certain performance criteria are met. Under the terms of this
agreement, Mr. Simes was granted a five-year option to purchase 600,000 shares
of common stock at an exercise price of $0.29 per share. This option is
immediately exercisable with respect to 100,000 shares and will become
exercisable with respect to the remaining 500,000 shares in 12 equal quarterly
installments over the initial three-year term of the agreement. Mr. Simes was
also granted an option to purchase an additional 400,000 shares of common stock
at an exercise price of $0.28 per share. This option is immediately exercisable
with respect to 33,333 shares and will become exercisable with respect to the
remaining 366,666 shares in 12 equal quarterly installments over the initial
three-year term of the agreement. In the event Mr. Simes is terminated without
cause or upon a change in control or in the event he terminates his employment
for good reason, all of his options will become immediately exercisable and will
remain exercisable for a period of one year (for the remainder of their term in
the event of a change in control), and he will be entitled to a minimum
severance payment of 12 months base salary. Mr. Simes is also subject to
assignment of inventions, confidentiality and non-competition provisions. The
company and Mr. Simes amended this agreement in connection with our May 1999
private placement, to clarify that the anti-dilution rights held by Mr. Simes
apply only in the context of a stock dividend, stock split or exchange or other
similar change in capital and to waive any rights Mr. Simes may have under the
agreement in the event the May 1999 private placement would have resulted in a
change in control of our company, including the acceleration of the
exercisability of his stock options. In connection with the amendment, we
granted Mr. Simes an option to purchase 5% of the number of shares of common
stock sold in the May 1999 private placement (excluding any shares issuable
pursuant to the warrants).
On June 11, 1998, we entered into a letter agreement with Phillip B.
Donenberg pursuant to which Mr. Donenberg serves our Chief Financial Officer.
Mr. Donenberg's base salary is $110,000 per year, and he is
34
<PAGE>
entitled to receive an annual performance bonus of up to 30% of his then base
salary if certain performance criteria are met. Under the terms of this
agreement, Mr. Donenberg was granted a five-year option to purchase 340,000
shares of common stock at an exercise price of $0.28 per share. This option is
immediately exercisable with respect to 34,000 shares and will become
exercisable with respect to the remaining 306,000 shares in 12 equal quarterly
installments with the first installment vesting on October 1, 1998. In the event
Mr. Donenberg is terminated without cause or upon a change in control or in the
event he terminates his employment for good reason, all of his options will
become immediately exercisable and will remain exercisable for a period of one
year (for the remainder of their term in the event of a change in control), and
he will be entitled to a minimum severance payment of 12 months base salary. Mr.
Donenberg is also subject to assignment of inventions, confidentiality and
non-competition provisions. The company and Mr. Donenberg amended this agreement
in connection with our May 1999 private placement, among other things, to
clarify that the anti-dilution rights held by Mr. Donenberg apply only in the
context of a stock dividend, stock split or exchange or other similar change in
capital and to waive any rights Mr. Donenberg may have under the agreement in
the event the May 1999 private placement would have resulted in a change in
control of our company, including the acceleration of the exercisability of his
stock options. In connection with the amendment, we granted Mr. Donenberg an
option to purchase 1.5% of the number of shares of common stock sold in the May
1999 private placement (excluding any shares issuable pursuant to the warrants).
STOCK OPTION PLAN
From time to time we grant options under our 1998 Stock Option Plan.
The 1998 Plan was approved by our Board of Directors on December 8, 1998 and
approved by shareholders on July 13, 1999. The 1998 Plan provides for the grant
to employees, officers, directors, consultants and independent contractors of
our company and our subsidiaries of options to purchase shares of common stock
that qualify as "incentive stock options" within the meaning of Section 422 of
the Internal Revenue Code of 1986, as amended, as well as non-statutory options
that do not qualify as incentive stock options. This plan is administered by the
Compensation Committee of our Board of Directors, which determines the persons
who are to receive awards, as well as the type, terms and number of shares
subject to each award.
We have reserved an aggregate of 5,000,000 shares of common stock for
awards under the 1998 Plan. As of October 1, 1999, options to purchase an
aggregate of 4,283,125 shares of common stock were outstanding under the 1998
Plan, of which 2,026,865 were fully vested, and a total of 716,875 shares of
common stock remained available for grant. As of October 1, 1999, the
outstanding options under the plan were held by an aggregate of nine individuals
and were exercisable at prices ranging from $0.23 to $1.07 per share of common
stock.
Incentive stock options granted under the plans may not have an
exercise price less than the fair market value of the common stock on the date
of the grant (or, if granted to a person holding more than 10% of our voting
stock, at less than 110% of fair market value). Non-statutory stock options
granted under the plans may not have an exercise price less than 85% of fair
market value on the date of grant. Aside from the maximum number of shares of
common stock reserved under the plans, there is no minimum or maximum number of
shares that may be subject to options under the plans. However, the aggregate
fair market value of the stock subject to incentive stock options granted to any
optionee that are exercisable for the first time by an optionee during any
calendar year may not exceed $100,000. Options generally expire when the
optionee's employment or other service is terminated with us. Options generally
may not be transferred, other than by will or the laws of descent and
distribution, and during the lifetime of an optionee, may be exercised only by
the optionee. The term of each option, which is fixed by our Board of Directors
at the time of grant, may not exceed 5 years from the date the option is granted
if our common stock is then listed on the Alberta Stock Exchange and we have not
been exempted from the Alberta Stock Exchange requirements in this regard
(except that an incentive stock option may be exercisable only for 10 years and
an incentive stock option granted to a person holding more than 10% of our
voting stock may be exercisable only for five years regardless of the
availability of such exemption).
35
<PAGE>
The 1998 Plan contains provisions under which options would become
fully exercisable following certain changes in control of our company, such as
(1) the sale, lease, exchange or other transfer of all or substantially all of
the assets of our company to a corporation that is not controlled by us, (2) the
approval by our shareholders of any plan or proposal for the liquidation or
dissolution of our company, (3) certain merger or business combination
transactions, (4) more than 50% of our outstanding voting shares are acquired by
any person or group of persons who did not own any shares of common stock on the
effective date of the plan, or (5) certain changes in the composition of our
Board of Directors.
Payment of an option exercise price may be made in cash, or at the
Compensation Committee's discretion, in whole or in part by tender of a broker
exercise notice, a promissory note or previously acquired shares of our common
stock having an aggregate fair market value on the date of exercise equal to the
payment required.
BOARD COMPOSITION AND STRUCTURE
In connection with our May 1999 private placement, we entered into a
Shareholders Agreement with the investors and certain existing shareholders.
This agreement contains, among other things, a voting agreement with respect to
the election of directors. Under the Shareholders Agreement, our Board of
Directors will consist of not less than three nor more than 12 directors. So
long as Avi Ben-Abraham, M.D. holds at least 10% of our outstanding capital
stock, he will be entitled to be nominated as a director and, at the next two
general elections for directors and certain parties to the Shareholders
Agreement must, subject to certain exceptions, vote all of the shares of capital
stock held by them to elect Dr. Ben-Abraham as a director. The holders of a
majority of the shares of capital stock held by the Starbow Investors (the lead
investors in the May 1999 private placement) will be entitled to nominate three
members of our Board of Directors, and all of the parties to the Shareholders
Agreement must vote their shares of our capital stock to elect the Starbow
Investors' nominees to our Board of Directors. In addition, the holders of a
majority of the shares of capital stock held by certain other of our
shareholders will be entitled to nominate three members of our Board of
Directors and all parties to the Shareholders Agreement must vote their shares
of our capital stock to elect their nominees to the Board of Directors. The
right to nominate three directors held by the Starbow Investors and the other
parties will terminate immediately prior to the later of the third general
election of directors subsequent to the date of the closing of the May 1999
private placement or March 31, 2001.
BOARD COMMITTEES
Our Board has created a Compensation Committee, an Audit and Finance
Committee and a Scientific Review Committee. The Compensation Committee reviews
general programs of compensation and benefits for all our employees and makes
recommendations to the Board concerning such matters as compensation to be paid
to our officers and directors. The Compensation Committee consists of Dr.
Sullivan (Chairman), Mr. Morgenstern and Ms. Ho. The Audit and Finance Committee
provides assistance to the Board in satisfying our fiduciary responsibilities
relating to our accounting, auditing, operating and reporting practices, and
reviews our annual financial statements, the selection and work of our
independent auditors and the adequacy of internal controls for compliance with
corporate policies and directives. The Audit and Finance Committee consists of
Mr. Kjaer (Chairman), Dr. Sullivan and Mr. Mangano. The Scientific Review
Committee helps to evaluate our potential licenses or new products. The
Scientific Review Committee consists of Dr. Rosenow (Chairman), Dr. Sullivan and
Mr. Holubow.
DIRECTOR COMPENSATION
We do not pay fees to the members of the Board of Directors. We do,
however, periodically compensate our directors through the granting of stock
options. On November 7, 1997 and October 7, 1998, respectively, our board of
directors granted Dr. Rosenow two options to purchase an aggregate of 100,000
36
<PAGE>
shares of our common stock at an exercise price of $1.04 and $.28, respectively.
Such options vest immediately with respect to 50,000 shares and vests one year
from October 7, 1998 for the remaining 50,000 shares.
On October 7, 1998, Ms. Angelo Ho was granted an option to purchase
100,000 shares of our common stock at an exercise price of $.28. Such option
vests one year from the date of grant.
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
DIRECTOR RELATIONSHIPS
Angela Ho, a director of our company, owns approximately 3.0% of our
outstanding voting securities and was elected to our Board of Directors as a
representative of our several investors located in Hong Kong. Ms. Ho has not
entered into any voting agreements with these Hong Kong investors nor does she
otherwise have any control over the voting of shares held by these investors.
Our operations were located at the Morehouse School of Medicine from
November 1996 until June 1997, when our laboratory facilities were completed and
we paid rent during such period to the Morehouse School of Medicine. Louis W.
Sullivan, M.D., our Chairman, is the President, and Avi Ben-Abraham, a director
and a principal shareholder of our company, was a trustee of Morehouse School of
Medicine during this time. We believe that the lease payments reflected payments
that would have been made by an arm's length lessee.
Avi Ben-Abraham, M.D., a director and a founder of our company and our
former Chief Executive Officer and Chairman of the Board, entered into an
agreement with us in May 1998 pursuant to which, among other things, he agreed
to convert shares of our former class A stock held by him into shares of common
stock at $0.25 per share and to transfer shares of common stock held by him to
certain third parties. In addition, Dr. Ben-Abraham agreed, subject to certain
exceptions, not to sell any shares of common stock or any other securities of
our company for a period of 15 months. He also agreed to transfer certain shares
of class A and class C stock held by him to us. In addition, under the
agreement, we agreed to indemnify Dr. Ben-Abraham for certain actions, and he
agreed to indemnify us upon the occurrence of certain events.
Messrs. Morgenstern, Holubow and Mangano were elected to our Board of
Directors in July 1999 as representatives of the new investors (Starbow
investors) in the May 1999 private placement. In May 1999, the Starbow investors
entered into a shareholders agreement, which contains a voting agreement, with
respect to the election of these directors. We refer you to the information on
page 36 under the heading "Item 6. Management--Board Composition and Structure"
for a description of this voting agreement. This right terminates immediately
prior to the later of May 6, 2002, three years from the closing of the May 1999
private placement or March 31, 2001.
Mr. Kjaer was elected to our Board of Directors as a representative of
our Hong Kong investors in July 1999. Mr. Kjaer has not entered into any voting
agreements with these Hong Kong investors nor does he otherwise have any control
over the voting of shares held by these investors.
EMPLOYMENT AGREEMENTS
For a discussion of the employment agreements we have entered into with
our executive officers, we refer you to "Item 6. Management--Employment
Agreements."
37
<PAGE>
ITEM 8. DESCRIPTION OF SECURITIES.
AUTHORIZED SHARES
We are authorized to issue an unlimited number of shares of common
stock, no par value per share, and an unlimited number of shares of preference
stock, no par value per share. The following is a summary of the material terms
and provisions of our capital stock. Because it is a summary, it does not
include all of the information that is included in our Articles of Continuance.
The text of our Articles of Continuance, which is attached as an exhibit to this
registration statement, is incorporated into this section by reference.
COMMON STOCK
We are authorized to issue an unlimited number of shares of common
stock, of which 52,642,686 shares were issued and outstanding as of October 1,
1999. Each share of our common stock entitles its holder to one vote per share.
Holders of our common stock are entitled to receive dividends as and when
declared by our Board of Directors from time to time out of funds properly
applicable to the payment of dividends. Subject to the liquidation rights of any
outstanding preferred stock, the holders of our common stock are entitled to
share pro rata in the distribution of the remaining assets of our company upon a
liquidation, dissolution or winding up of our company. The holders of our common
stock have no cumulative voting, preemptive, subscription, redemption or sinking
fund rights. The holders of shares of our common stock purchased in connection
with our May 1999 private placement offering and issuable upon exercise of
warrants issued in connection with this private placement are entitled to
preemptive rights under a shareholders' agreement. The investors and certain
existing shareholders were granted a right of first offer for a two year period
to which, subject to certain exceptions, we must give the investors written
notice prior to selling any securities. The preemptive rights expire on May 6,
2001.
CLASS C SPECIAL STOCK
We are authorized to issue an unlimited number of shares of class C
special stock, of which 4,807,865 shares were issued and outstanding as of
October 1, 1999. Each share of class C special stock entitles its holder to one
vote per share. Each share of our class C special stock is exchangeable, at the
option of the holder, for one share of common stock, at an exchange price of
$.25 per share, subject to adjustment upon certain capitalization events.
Holders of our class C special stock are not entitled to receive dividends.
Holders of our class C special stock are not entitled to participate in the
distribution of our assets upon any liquidation, dissolution or winding-up of
our company. The holders of our class C special stock have no cumulative voting,
preemptive, subscription, redemption or sinking fund rights.
PREFERRED STOCK
We are authorized to issue an unlimited number of shares of preferred
stock, none of which are issued and outstanding. Our Board of Directors is
authorized to issue one or more series of preferred stock With such rights,
privileges, restrictions and conditions as our Board may determine. The
preferred stock, if issued, may be entitled to rank senior to our common stock
with respect to the payment of dividends and the distributions of assets in the
event of a liquidation, dissolution or winding-up of our company.
OPTIONS AND WARRANTS
As of October 1, 1999, we had outstanding options to purchase an
aggregate of 4,283,125 shares of common stock at a weighted average exercise
price of $0.30 per share. All outstanding options provide for antidilution
adjustments in the event of certain mergers, consolidations, reorganizations,
recapitalizations, stock dividends, stock splits or other similar changes in our
corporate structure and shares of our capital stock. We
38
<PAGE>
typically grant options with a five-year term. We have outstanding warrants to
purchase an aggregate of 11,562,500 shares of common stock at an exercise price
of $0.30 per share with a five-year term. The warrants provide for antidilution
adjustments in the event of certain mergers, consolidations, reorganizations,
recapitalizations, stock dividends, stock splits or other changes in our
corporate structure of our company and, subject to certain exceptions, the
issuance by our company of any securities for a purchase price of less than
$0.20 per share.
REGISTRATION RIGHTS
The holders of the common stock and warrants purchased in our May 1999
private placement are entitled to certain registration rights under the
Securities Act. If at any time after we become listed on Nasdaq, the holders of
a specified amount of these registrable shares request that we file a
registration statement covering the shares, we will use commercially reasonable
efforts to cause these shares to be registered. We are not required to file more
than two registration statements under these demand rights, or more than one
registration statement in any twelve-month period. In addition, the holders of
these registrable shares are entitled to have their shares included in a
registration statement under the Securities Act in connection with the public
offering of our securities. In any underwritten public offering, the
registration rights are limited to the extent that the managing underwriter has
the right to (1) limit the number of registrable shares to be included in the
registration statement; (2) prohibit the sale of any of our securities other
than those registered and included in the underwritten offering for a period of
180 days; and (3) require holders of registrable shares not to sell or otherwise
dispose of any securities of our company (other than securities included in the
registration) without the prior written consent of the underwriters for a period
of up to 180 days from the effective date of such registration. These
registration rights will terminate as to any registrable shares when such
registrable shares are effectively registered and sold by the holder thereof or
when such registrable shares are sold pursuant to Rule 144(k) or are sold
pursuant to Rule 144 under the Securities Act.
TRANSFER AGENTS AND REGISTRARS
The transfer agents and registrars for our common stock in Canada is
Montreal Trust Company of Canada and in the United States is American Securities
Transfer.
PART II
ITEM 1. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND
OTHER SHAREHOLDER MATTERS.
MARKET INFORMATION
Our common stock has been traded in the United States on the National
Quotation Bureau, commonly referred to as the "Pink Sheets," under the symbol
"BNHT" since September 10, 1999 and on the Alberta Stock Exchange under the
symbol "BAI" since December 20, 1996.
The following table sets forth, in U.S. dollars and in dollars and
cents (in lieu of fractions), the high and low sales prices for each of the
calendar quarters indicated, as reported by the Alberta Stock Exchange. The
prices in the table may not represent actual transactions.
<TABLE>
<CAPTION>
ALBERTA STOCK EXCHANGE
----------------------
HIGH LOW
1997 ---- ---
<S> <C> <C>
First Quarter.......................................... $2.41 $1.11
39
<PAGE>
Second Quarter......................................... $1.38 $0.95
Third Quarter.......................................... $1.31 $0.98
Fourth Quarter......................................... $1.28 $0.94
1998
----
First Quarter.......................................... $0.98 $0.55
Second Quarter......................................... $0.84 $0.26
Third Quarter.......................................... $0.65 $0.33
Fourth Quarter......................................... $0.48 $0.10
1999
----
First Quarter.......................................... $0.24 $0.15
Second Quarter......................................... $0.50 $0.21
Third Quarter.......................................... $0.37 $0.23
NATIONAL QUOTATION BUREAU ("PINK SHEETS")
1999
----
Third Quarter.......................................... $.51 $.27
</TABLE>
As of October 1, 1999, 52,642,686 shares of our common stock were
issued and outstanding held by approximately 1,600 holders of record and
4,807,865 shares of our class C special stock were issued and outstanding held
by approximately 11 holders of record.
As of October 1, 1999, we had outstanding options and warrants to
purchase an aggregate of 15,845,625 shares of our common stock.
As of October 1, 1999, holders of approximately 36,742,300 shares of
our common stock, have entered into lock-up arrangements under which they have
agreed that they will not, offer, sell or otherwise dispose of, any shares of
our common stock, owned by them until September 6, 2000. Approximately
14,334,000 shares of our common stock are eligible to be sold in compliance with
Rule 144(k) without regard to the volume and manner of sale limitations in Rule
144 and approximately 15,103,686 shares of our common stock are eligible to be
sold in compliance with the limitations of Rule 144 under the Securities Act,
although certain holders have been granted registration rights which, if
exercised, would cause their shares to be registered and eligible for sale. We
refer to the information under the heading "Item 8. Description of
Securities--Registration Rights."
In general, under Rule 144 as currently in effect, a person ( or
persons whose shares are aggregated), including an affiliate, who has
beneficially owned shares for at least one year, within any three-month period
commencing 90 days after the date of this registration statement, may sell a
number of shares that does not exceed the greater of (1) one percent of the
number of shares of common stock then outstanding (approximately 526,427 shares)
or (2) the average weekly trading volume of the common stock during the four
calendar weeks preceding such sale. Sales under Rule 144 are generally subject
to certain manner of sale provisions and notice requirements and to the
availability of our current public information. Under Rule 144(k), a person who
is not deemed to have been an affiliate of BioSante at any time during the 90
days preceding a sale, and who has beneficially owned the shares proposed to be
sold for at least two years, is entitled to sell such shares without having to
comply with the manner of sale, public information, volume limitation or notice
provisions of Rule 144. Under Rule 701 under the Securities Act, persons who
purchase shares upon exercise of options granted prior to the effective date of
this registration statement in reliance on Rule 144, without having to comply
with
40
<PAGE>
the holding period requirements of Rule 144 and, in the case of non-affiliates,
without having to comply with the public information, volume limitation or
notice provisions of Rule 144.
DIVIDEND POLICY
To date, we have neither declared nor paid any cash dividends on our
common stock. We currently intend to retain any future earnings, if any, to fund
the development and growth of our business and, therefore, do not anticipate
paying any cash dividends in the foreseeable future.
ITEM 2. LEGAL PROCEEDINGS.
We are not a party to any material legal proceedings.
ITEM 3. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
None.
ITEM 4. RECENT SALES OF UNREGISTERED SECURITIES.
Since our formation on August 29, 1996, we have issued the following
securities in transactions not registered under the Securities Act of 1933 (all
information is presented in U.S. dollars and reflects the reverse split which
occurred as part of the Amalgamation):
1. Prior to the Amalgamation on December 6, 1996, we issued 20,000,000
shares of our former class A stock (17,000,000 of such shares to Dr.
Ben-Abraham) for $0.0001 per share, 4,150,000 shares of class C stock
(1,050,000 of such shares to Dr. Ben-Abraham to be held by him in trust
for the benefit of others; 500,000 of such shares to Wagner-Bartak
Holdings Inc.; 1,000,000 of such shares to Dr. Louis Sullivan;
1,000,000 of such shares to Angela Ho; and the remainder to
non-affiliated investors) for $0.0001 per share and 4,100,000 shares of
our common stock to eight individuals for $1.00 per share.
2. In November 1996, we issued an aggregate of 128,570 shares of our
common stock for $1.28 per share to non-U.S. persons outside the U.S.
within the meaning of Regulation S of the Securities Act.
3. In December 1996, we issued: (1) an aggregate of 1,429 shares of our
common stock pursuant to the exercise of warrants issued prior to the
Amalgamation, at an exercise price of $1.79 per share; and (2) an
aggregate of 87,143 shares of our common stock pursuant to the exercise
of warrants issued prior to the Amalgamation, at an exercise price of
$1.28 per share.
4. In connection with the Amalgamation, we issued 7,434,322 shares of our
common stock to the shareholders of SBI in exchange for their common
shares of SBI at a ratio of 1 share of common stock for every 3.5
common shares of SBI.
5. In January 1997, we issued: (1) an aggregate of 24,000 shares of common
stock pursuant to the exercise of warrants issued prior to the
Amalgamation, at an exercise price of $1.53 per share; (2) 377,135
shares of common stock (94,285 of such shares to Wagner-Bartak Holdings
Inc. and 282,850 of such shares to Pennyworth Corporation Inc.)
pursuant to the conversion of an aggregate of 377,135 class C shares,
which had been previously issued at a conversion price of $0.25 per
share; and (3) an aggregate of 28,571 shares of common stock pursuant
to the exercise of warrants issued prior to the Amalgamation, at an
exercise price of $1.28 per share.
6. In July 1997, we issued an aggregate of 20,000 shares of common stock
pursuant to the exercise of warrants issued prior to the Amalgamation,
at an exercise price of $1.28 per share.
41
<PAGE>
7. In December 1997, we issued an aggregate of 206,386 shares of common
stock (106,386 of such shares to Wagner-Bartak Holdings Inc. and
100,000 of such shares to Marblegate Holdings Limited) pursuant to the
conversion of an aggregate of 206,386 class C shares which had been
previously issued at a conversion price of $0.25 per share.
8. In March 1998, we issued an aggregate of 30,000 shares of common stock
pursuant to the conversion of class C shares, which had previously
issued at a conversion price of $0.25 per share for a payment of $7,500
to us.
9. In May 1998, we issued 15,000,000 shares of common stock to Dr.
Ben-Abraham pursuant to his conversion of class A shares which had been
previously issued at a conversion price of $0.25 per share for a
payment of $3,750,000 to us. In addition, Dr. Ben-Abraham returned
1,468,614 class A shares and 250,000 class C shares to our treasury for
no consideration.
10. In June 1998, we issued an aggregate of 2,000,000 shares of common
stock pursuant to the conversion of class A shares, which had been
previously issued at a conversion price of $0.25 per share for a
payment of $500,000 to us.
11. In February 1999, we issued 10,000 shares of common stock pursuant to
the conversion of class C shares, which had been previously issued at a
conversion price of $0.25 per share in a cashless exercise.
12. In May 1999, we issued an aggregate of 23,125,000 shares of common
stock and warrants to purchase 11,562,500 shares of common stock at an
exercise price of $0.30 per share to 31 accredited investors pursuant
to a private placement of our stock for a payment of $4,372,500 to us.
Stephen Simes purchased 250,000 shares of common stock, Victor
Morgenstern, including an affiliated Trust and a Partnership, purchased
an aggregate of 2,500,000 shares of common stock, Fred Holubow
purchased 250,000 shares of common stock and JO & Co. purchased
7,500,000 shares of common stock to which Ross Mangano has sole voting
power.
13. In August 1999, an outstanding liability of $25,000 was converted into
70,000 shares of common stock at approximately $.36 per share.
No underwriting commissions or discounts were paid with respect to the
sales of the unregistered securities described above. In addition, all of the
above sales were made in reliance on Rule 701, Regulation D and Section 4(2)
under the Securities Act. With regard to the reliance by us upon the exemptions
set forth in the previous sentence, certain inquiries were made by us to
establish that such sales qualified for such exemptions from the registration
requirements. In particular, we confirmed that (1) all offers of sales and sales
were made by personal contact from our officers or directors or other persons
closely associated with us; (2) each investor made representations that he or
she was sophisticated in relation to this investment (and we have no reason to
believe such representations were incorrect); (3) each purchaser gave assurance
of investment intent and the certificates for the shares bear a legend
accordingly; and (4) offers and sales within any offering were made to a limited
number of persons.
ITEM 5. INDEMNIFICATION OF OFFICERS AND DIRECTORS.
LIMITATION ON LIABILITY OF DIRECTORS AND INDEMNIFICATION
Our Articles of Continuance limit the liability of our directors and
officers to the fullest extent permitted by the Wyoming Business Corporation
Act. Specifically, our directors will not be personally liable for monetary
damages for breach of fiduciary duty as our directors, except liability for (1)
the amount of financial benefit received by our director to which our director
is not entitled, (2) an intentional infliction of harm to us or
42
<PAGE>
our shareholders, (3) a violation of Section 17-16-833 of the Wyoming Business
Corporation Act, and (4) an intentional violation of criminal law. Liability
under federal securities law is not limited by our Articles of Continuance.
We also maintain an insurance policy for our directors and executive
officers pursuant to which our directors and executive officers are insured
against liability for certain actions in their capacity as our directors and
executive officers.
The Wyoming Business Corporation Act requires that we indemnify any
director, made or threatened to be made a party to a proceeding, by reason of
the former or present official capacity of the person, against reasonable
expenses incurred in connection with the proceeding if certain statutory
standards are met. "Proceeding" means a threatened, pending or completed civil,
criminal, administrative, arbitration or investigative proceeding, including a
derivative action by us. Reference is made to the detailed terms of the Wyoming
indemnification statute, Section 17-16-852 of the Wyoming Business Corporation
Act, for a complete statement of such indemnification rights. Section 15 of our
Articles of Continuance also require us to provide indemnification beyond the
mandatory indemnification in Section 17-16-852 for our officers and directors.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to our directors, officers or persons controlling us
pursuant to the foregoing provisions, we are aware that in the opinion of the
Securities and Exchange Commission this indemnification is against public policy
as expressed in the Securities Act and is therefore unenforceable.
43
<PAGE>
PART F/S
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Description Page
- ----------- ----
<S> <C>
Independent Auditors' Report............................................................................F-1
Balance Sheets as of December 31, 1998 and 1997.........................................................F-2
Statements of Operations for the year ended December 31, 1998 and 1997..................................F-3
Statements of Stockholders' Equity as of December 31, 1998 and 1997.....................................F-4
Statements of Cash Flows for the year ended December 31, 1998 and 1997 and the
cumulative period from August 29, 1996 to December 31, 1998.............................................F-5
Notes to the Financial Statements for the year ended December 31, 1998 and 1997 and the
cumulative period from August 29, 1996 to December 31, 1998......................................F-6 - F-14
Unaudited Balance Sheet as of September 30, 1999 and Audited Balance Sheet as of
December 31, 1998......................................................................................F-15
Unaudited Statements of Operations for the nine and three months ended September 30, 1999 and
1998 and the cumulative period from August 29, 1996 to September 30, 1999..............................F-16
Unaudited Statement of Stockholders' Equity for the cumulative period from August 29, 1996
to September 30, 1999..................................................................................F-17
Unaudited Statements of Cash Flows for the nine months ended September 30, 1999 and 1998
and the cumulative period from August 29, 1996 to September 30, 1999...................................F-18
Notes to Financial Statements for the nine months ended September 30, 1999......................F-19 - F-24
</TABLE>
<PAGE>
PART III
ITEM 1. EXHIBITS.
Reference is made to the Exhibit Index included in this Registration Statement
at pages 44 through 45.
Listed below are all exhibits filed as part of this Registration Statement:
Exhibit 2.1 Arrangement Agreement, dated October 23, 1996,
between Structured Biologicals Inc. and BioSante
Pharmaceuticals, Inc.
Exhibit 3.1 Articles of Continuance of BioSante
Pharmaceuticals, Inc.
Exhibit 3.2 Bylaws of BioSante Pharmaceuticals, Inc.
Exhibit 4.1 Form of Warrant issued in connection with the May
1999 Private Placement
Exhibit 10.1* License Agreement, dated June 18, 1997, between
BioSante Pharmaceuticals, Inc. and the Regents of
the University of California
Exhibit 10.2* Amendment to License Agreement, dated October 26,
1999, between BioSante Pharmaceuticals, Inc. and
the Regents of the University of California
Exhibit 10.3 1998 Stock Option Plan
Exhibit 10.4 Stock Option Agreement, dated July 6, 1995,
between BioSante Pharmaceuticals, Inc. and Avi
Ben-Abraham, M.D.
Exhibit 10.5 Stock Option Agreement, dated December 7, 1997,
between BioSante Pharmaceuticals, Inc. and
Edward C. Rosenow, III, M.D.
Exhibit 10.6 Stock Option Agreement, dated December 8, 1998,
between BioSante Pharmaceuticals, Inc. and
Stephen M. Simes
Exhibit 10.7 Stock Option Agreement, dated December 8, 1998,
between BioSante Pharmaceuticals, Inc. and
Stephen M. Simes
Exhibit 10.8 Stock Option Agreement, dated March 30, 1999,
between BioSante Pharmaceuticals, Inc. and
Stephen M. Simes
Exhibit 10.9 Escrow Agreement, dated December 5, 1996, among
BioSante Pharmaceuticals, Inc., Montreal Trust
Company of Canada, as Escrow Agent, and certain
shareholders of BioSante Pharmaceuticals, Inc.
Exhibit 10.10 Voting Rights Limitation Agreement, dated
November 28, 1996, by Avi Ben-Abraham, M.D.
to the Alberta Stock Exchange
<PAGE>
Exhibit 10.11 Voting Agreements, dated May 6, 1999, between
BioSante Pharmaceuticals, Inc.,
Avi Ben-Abraham, M.D. and certain shareholders of
BioSante Pharmaceuticals, Inc.
Exhibit 10.12 Shareholders' Agreement, dated May 6, 1999,
between BioSante Pharmaceuticals, Inc.,
Avi Ben-Abraham, M.D. and certain shareholders of
BioSante Pharmaceuticals, Inc.
Exhibit 10.13 Registration Rights Agreement, dated May 6, 1999,
between BioSante Pharmaceuticals, Inc. and certain
shareholders of BioSante Pharmaceuticals, Inc.
Exhibit 10.14 Securities Purchase Agreement, dated May 6, 1999,
between BioSante Pharmaceuticals, Inc. and certain
shareholders of BioSante Pharmaceuticals, Inc.
Exhibit 10.15 Lease, dated September 15, 1997, between BioSante
Pharmaceuticals, Inc. and Highlands Park Associates
Exhibit 10.16 Employment Agreement, dated January 21, 1998,
between BioSante Pharmaceuticals,Inc. and
Stephen M. Simes, as amended
Exhibit 27.1 Financial Data Schedule
- --------------------------
* Confidential treatment has been requested with respect to designated
portions of this document. Such portions have been omitted and filed
separately with the Secretary of the Commission pursuant to Rule 24b-2
of the Securities Exchange Act of 1934, as amended.
<PAGE>
SIGNATURES
In accordance with Section 12 of the Securities Exchange Act of 1934, the
Registrant caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized.
Dated: November 11, 1999 BIOSANTE PHARMACEUTICALS, INC.
By /s/ Stephen M. Simes
-------------------------------------------------
Stephen M. Simes
Vice Chairman, President and Chief Executive
Officer
By /s/ Phillip B. Donenberg
------------------------------------------------
Phillip B. Donenberg
Chief Financial Officer, Treasurer and Secretary
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Stephen M. Simes and Phillip B.
Donenberg, each one of them, individually, as his or her true and lawful
attorneys-in-fact and agents, with full power of substitution and
resubstitution, for him or her and in his or her name, place and stead, in any
and all capacities, to sign any and all amendments (including post-effective
amendments) to this Registration Statement and any additional Registration
Statements filed pursuant to Section 12 under the Securities Exchange Act of
1934, and to file the same, with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, granting 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 connection therewith, 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 substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934,
this Registration Statement has been signed by the following persons in the
capacities indicated, on November 11, 1999.
NAME AND SIGNATURE TITLE
/s/ Stephen M. Simes Vice Chairman, President and Chief Executive
- ---------------------------- Officer (Principal Executive Officer)
Stephen M. Simes
/s/ Phillip B. Donenberg Chief Financial Officer, Treasurer and Secretary
- ---------------------------- (Principal Financial Officer)
Phillip B. Donenberg
/s/ Louis W. Sullivan, M.D. Chairman of the Board
- ----------------------------
Louis W. Sullivan, M.D.
<PAGE>
/s/ Avi Ben-Abraham, M.D.
- --------------------------------
Avi Ben-Abraham, M.D. Director
/s/ Victor Morgenstern
- --------------------------------
Victor Morgenstern Director
/s/ Edward C. Rosenow, III, M.D.
- --------------------------------
Edward C. Rosenow, III, M.D. Director
/s/ Fred Holubow
- --------------------------------
Fred Holubow Director
/s/ Ross Mangano
- --------------------------------
Ross Mangano Director
/s/ Angelo Ho
- --------------------------------
Angela Ho Director
/s/ Peter Kjaer
- --------------------------------
Peter Kjaer Director
<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------
EXHIBIT INDEX
TO
FORM 10-SB
------------------
BIOSANTE PHARMACEUTICALS, INC.
------------------
<TABLE>
<CAPTION>
METHOD
OF
EXHIBIT NO. EXHIBIT FILING
- ----------- ------- ------
<S> <C> <C>
2.1 Arrangement Agreement, dated October 23, 1996, between Structured
Biologicals Inc. and BioSante Pharmaceuticals, Filed herewith
Inc................................................................. electronically
Filed herewith
3.1 Articles of Continuance of BioSante Pharmaceuticals, Inc., as amended electronically
Filed herewith
3.2 Bylaws of BioSante Pharmaceuticals, Inc............................. electronically
Filed herewith
4.1 Form of Warrant issued in connection with May 1999 Private Placement electronically
10.1* License Agreement, dated June 18, 1997, between BioSante Filed herewith
Pharmaceuticals, Inc. and The Regents of the University of California electronically
10.2* Amendment to License Agreement, dated October 26, 1999, between
BioSante Pharmaceuticals, Inc. and the Regents of the University of Filed herewith
California.......................................................... electronically
Filed herewith
10.3 1998 Stock Option Plan.............................................. electronically
10.4 Stock Option Agreement, dated July 6, 1995, between BioSante Filed herewith
Pharmaceuticals, Inc. and Avi Ben-Abraham, M.D...................... electronically
<PAGE>
10.5 Stock Option Agreement, dated December 7, 1997, Filed herewith
between BioSante Pharmaceuticals, Inc. and Edward C. Rosenow, III, M.D. electronically
10.6 Stock Option Agreement, dated December 8, 1998, between BioSante Filed herewith
Pharmaceuticals, Inc. and Stephen M. Simes.......................... electronically
10.7 Stock Option Agreement, dated December 8, 1998, between BioSante Filed herewith
Pharmaceuticals, Inc. and Stephen M. Simes.......................... electronically
10.8 Stock Option Agreement, dated March 30, 1999, between BioSante Filed herewith
Pharmaceuticals, Inc. and Stephen M. Simes.......................... electronically
10.9 Escrow Agreement, dated December 5, 1996, among BioSante
Pharmaceuticals, Inc., Montreal Trust Company of Canada, as Escrow Filed herewith
Agent, and certain shareholders of BioSante Pharmaceuticals, Inc.... electronically
10.10 Voting Rights Limitation Agreement, dated November 28, 1996, by Avi Filed herewith
Ben-Abraham, M.D. to the Alberta Stock Exchange..................... electronically
10.11 Voting Agreements, dated May 6, 1999, between BioSante
Pharmaceuticals, Inc., Avi Ben-Abraham, M.D. and certain shareholders Filed herewith
of BioSante Pharmaceuticals, Inc.................................... electronically
10.12 Shareholders' Agreement, dated May 6, 1999, between BioSante
Pharmaceuticals, Inc., Avi Ben-Abraham, M.D. and certain shareholders Filed herewith
of BioSante Pharmaceuticals, Inc.................................... electronically
10.13 Registration Rights Agreement, dated May 6, 1999, between BioSante
Pharmaceuticals, Inc. and certain shareholders of BioSante Filed herewith
Pharmaceuticals, Inc................................................ electronically
10.14 Securities Purchase Agreement, dated May 6, 1999, between BioSante
Pharmaceuticals, Inc. and certain shareholders of BioSante Filed herewith
Pharmaceuticals, Inc................................................ electronically
10.15 Lease, dated September 15, 1997, between BioSante Pharmaceuticals, Filed herewith
Inc. and Highlands Park Associates.................................. electronically
10.16 Employment Agreement, dated January 21, 1998, between Filed herewith
BioSante Pharmaceuticals, Inc. and Stephen M. Simes, as amended..... electronically
Filed herewith
27.1 Financial Data Schedule............................................. electronically
</TABLE>
- --------------------------
* Confidential treatment has been requested with respect to designated
portions of this document. Such portions have been omitted and filed
separately with the Secretary of the Commission pursuant to Rule 24b-2
of the Securities Exchange Act of 1934, as amended.
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors
Ben-Abraham Technologies Inc.
We have audited the accompanying balance sheets of Ben-Abraham Technologies
Inc. (a development stage company) as of December 31, 1998 and 1997 and the
related statements of operations, stockholders' equity and cash flows for the
years ended December 31, 1998 and 1997, and for the period from August 29,
1996 (date of incorporation) to December 31, 1998. 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 generally accepted auditing
standards. Those standards require that we plan and perform an audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatements. 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, such financial statements present fairly, in all material
respects, the financial position of the Company as of December 31, 1998 and
1997 and the results of its operations and its cash flows for the years ended
December 31, 1998 and 1997, and for the period from August 29, 1996 (date of
incorporation) to December 31, 1998 in conformity with generally accepted
accounting principles.
As discussed in Note 1 to the financial statements, the Company is in the
development stage.
/s/ Deloitte & Touche LLP
Chartered Accountants
Toronto, Ontario
February 19, 1999
F-1
<PAGE>
BEN-ABRAHAM TECHNOLOGIES INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEETS
DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
1998 1997
------------------ ----------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $2,841,250 $1,750,331
Prepaid expenses and other sundry assets 75,266 21,890
- -------------------------------------------------------------------------------------------------------------------------
2,916,516 1,772,221
CAPITAL ASSETS (Note 4) 532,829 677,545
- -------------------------------------------------------------------------------------------------------------------------
$3,449,345 $2,449,766
- -------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable (Note 11) $ 202,696 $1,207,804
Accrued expenses 487,902 81,128
Due to licensor 127,317 127,317
- -------------------------------------------------------------------------------------------------------------------------
817,915 1,416,249
- -------------------------------------------------------------------------------------------------------------------------
COMMITMENTS (Note 10)
STOCKHOLDERS' EQUITY (Note 6)
Capital stock
Issued
1,531,386 (1997 - 20,000,000) Class A special shares 153 2,000
3,286,479 (1997 - 3,566,479) Class C special shares 329 357
29,437,686 (1997 - 12,407,686) Subordinate voting shares 13,427,166 9,167,963
- -------------------------------------------------------------------------------------------------------------------------
13,427,648 9,170,320
Deficit accumulated during the development stage (10,796,218) (8,136,803)
- -------------------------------------------------------------------------------------------------------------------------
2,631,430 1,033,517
- -------------------------------------------------------------------------------------------------------------------------
$3,449,345 $2,449,766
- -------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to the financial statements.
F-2
<PAGE>
BEN-ABRAHAM TECHNOLOGIES INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1998 AND 1997 AND
THE CUMULATIVE PERIOD FROM AUGUST 29, 1996 (DATE OF INCORPORATION) TO
DECEMBER 31, 1998
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CUMULATIVE
PERIOD FROM
AUGUST 29, 1996
(DATE OF
YEAR ENDED YEAR ENDED INCORPORATION) TO
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1998 1997 1998
------------------- ----------------------- ----------------------
<S> <C> <C> <C>
REVENUE
Interest income $ 123,061 $ 143,718 $ 320,135
- -------------------------------------------------------------------------------------------------------------------------
EXPENSES
Research and development 1,400,129 335,823 1,735,952
General and administration 1,112,647 1,618,436 3,278,268
Depreciation and amortization 139,769 51,938 192,369
Loss on disposal of capital assets 129,931 27,614 157,545
Costs of acquisition of Structured
Biologicals Inc. -- -- 375,219
Purchased in-process research
and development -- -- 5,377,000
- -------------------------------------------------------------------------------------------------------------------------
2,782,476 2,033,811 11,116,353
- -------------------------------------------------------------------------------------------------------------------------
NET LOSS $ (2,659,415) $ (1,890,093) $ (10,796,218)
- -------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------
BASIC AND DILUTED NET LOSS
PER SHARE (Note 8) $ (0.08) $ (0.05) $ (0.32)
- -------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------
WEIGHTED AVERAGE NUMBER
OF SHARES OUTSTANDING 34,858,243 35,961,528 33,886,262
- -------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to the financial statements.
F-3
<PAGE>
BEN-ABRAHAM TECHNOLOGIES INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF STOCKHOLDERS' EQUITY
DECEMBER 31, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
Class A Class C
Special Shares Special Shares
------------------------------------- --------------------------
Shares Amount Shares Amount
--------------- ------------------- -------------- ----------
<S> <C> <C> <C> <C>
BALANCE, AUGUST 29, 1996,
DATE OF INCORPORATION - $ - - $ -
Issuance of Class "C" shares August 29, 1996
($0.0001 per share) - - 4,150,000 415
Issuance of Class "A" shares September 23, 1996
($0.0001 per share) 20,000,000 2,000 - -
Issuance of Subordinate voting shares
September 23, 1996 - - - -
Financing fees accrued - - - -
November 27, 1996 - issued as consideration
upon acquisition of SBI (Note 3) - - - -
Exercise of Series "X" warrants (Note 6) - - - -
Exercise of Series "Z" warrants (Note 6) - - - -
Net loss - - - -
- -------------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1996 20,000,000 2,000 4,150,000 415
Conversion of shares
January 13, 1997 - - (282,850) (28)
January 13, 1997 - - (94,285) (9)
December 2, 1997 - - (106,386) (11)
December 2, 1997 - - (100,000) (10)
Exercise of Series "V" warrants (Note 6) - - - -
Exercise of Series "X" warrants (Note 6) - - - -
Exercise of Series "W" warrants (Note 6) - - - -
Adjustment for partial shares issued
upon amalgamation - - - -
Financing fees reversed - - - -
Net loss - - - -
- -------------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1997 20,000,000 2,000 3,566,479 357
Conversion of shares
March 4, 1998 - - (20,000) (2)
March 16, 1998 - - (10,000) (1)
May 8, 1998 (15,000,000) (1,500) - -
June 1, 1998 (1,000,000) (100) - -
June 1, 1998 (1,000,000) (100) - -
Return of shares to treasury
May 8, 1998 (1,468,614) (147) - -
May 8, 1998 - - (250,000) (25)
Net loss - - - -
- -------------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1998 1,531,386 $ 153 3,286,479 $ 329
- -------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Deficit
Subordinate Accumulated
Voting Shares During the
-------------------------------- Development
Shares Amount Stage Total
--------------- --------------- ----------------- --------------
<S> <C> <C> <C> <C>
BALANCE, AUGUST 29, 1996,
DATE OF INCORPORATION - $ - $ - $ -
Issuance of Class "C" shares August 29, 1996
($0.0001 per share) - - - 415
Issuance of Class "A" shares September 23, 1996
($0.0001 per share) - - - 2,000
Issuance of Subordinate voting shares
September 23, 1996 4,100,000 4,100,000 - 4,100,000
Financing fees accrued - (410,000) - (410,000)
November 27, 1996 - issued as consideration
upon acquisition of SBI (Note 3) 7,434,322 4,545,563 - 4,545,563
Exercise of Series "X" warrants (Note 6) 215,714 275,387 - 275,387
Exercise of Series "Z" warrants (Note 6) 1,428 2,553 - 2,553
Net loss - - (6,246,710) (6,246,710)
- -------------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1996 11,751,464 8,513,503 (6,246,710) 2,269,208
Conversion of shares
January 13, 1997 282,850 70,741 - 70,713
January 13, 1997 94,285 23,580 - 23,571
December 2, 1997 106,386 26,607 - 26,596
December 2, 1997 100,000 25,010 - 25,000
Exercise of Series "V" warrants (Note 6) 24,000 36,767 - 36,767
Exercise of Series "X" warrants (Note 6) 28,571 36,200 - 36,200
Exercise of Series "W" warrants (Note 6) 20,000 25,555 - 25,555
Adjustment for partial shares issued
upon amalgamation 130 - - -
Financing fees reversed - 410,000 - 410,000
Net loss - - (1,890,093) (1,890,093)
- -------------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1997 12,407,686 $ 9,167,963 (8,136,803) 1,033,517
Conversion of shares
March 4, 1998 20,000 5,002 - 5,000
March 16, 1998 10,000 2,501 - 2,500
May 8, 1998 15,000,000 3,751,500 - 3,750,000
June 1, 1998 1,000,000 250,100 - 250,000
June 1, 1998 1,000,000 250,100 - 250,000
Return of shares to treasury -
May 8, 1998 - - - (147)
May 8, 1998 - - - (25)
Net loss - - (2,659,415) (2,659,415)
- -------------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1998 29,437,686 $13,427,166 $(10,796,218) $ 2,631,430
- -------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to the financial statements.
F-4
<PAGE>
BEN-ABRAHAM TECHNOLOGIES INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1998 AND 1997
AND THE CUMULATIVE PERIOD FROM AUGUST 29, 1996 (DATE OF INCORPORATION) TO
DECEMBER 31, 1998
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CUMULATIVE
PERIOD FROM
AUGUST 29, 1996
(DATE OF
YEAR ENDED YEAR ENDED INCORPORATION) TO
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1998 1997 1998
--------------------- ------------------- -----------------------
<S> <C> <C> <C>
CASH FLOWS USED IN OPERATING ACTIVITIES
Net loss $ (2,659,415) $ (1,890,093) $ (10,796,218)
Adjustments to reconcile net loss to
net cash used in operating activities
Depreciation and amortization 139,769 51,938 192,369
Purchased in-process research and development - - 5,377,000
Loss on disposal of equipment 129,931 27,614 157,545
Changes in other assets and liabilities
affecting cash flows from operations
Prepaid expenses (53,376) (10,831) (72,298)
Accounts payable and accrued expenses (598,334) 712,306 (49,589)
Due to licensor - (135,632) 127,317
Due from SBI - - (128,328)
- ---------------------------------------------------------------------------------------------------------------------------------
NET CASH USED IN OPERATING ACTIVITIES (3,041,425) (1,244,698) (5,192,202)
- ---------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS USED IN INVESTING ACTIVITIES
Purchase of capital assets (124,984) (723,649) (848,633)
- ---------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS PROVIDED BY FINANCING ACTIVITIES
(Conversion) issuance of Class "A" shares (1,847) - 153
(Conversion) issuance of Class "C" shares (28) (58) 329
Proceeds from sale or conversion of shares 4,259,203 244,460 8,881,603
- ---------------------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 4,257,328 244,402 8,882,085
- --------------------------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS 1,090,919 (1,723,945) 2,841,250
CASH AND CASH EQUIVALENTS
AT BEGINNING OF PERIOD 1,750,331 3,474,276 -
- ---------------------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 2,841,250 $ 1,750,331 $ (2,841,250)
- ---------------------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL SCHEDULE OF
CASH FLOW INFORMATION
Acquisition of SBI
Purchased in-process research and development $ - $ - $ 5,377,000
Other net liabilities assumed - - (831,437)
- ---------------------------------------------------------------------------------------------------------------------------------
- - 4,545,563
Less: subordinate voting shares issued therefor - - 4,545,563
- ---------------------------------------------------------------------------------------------------------------------------------
$ - $ - $ -
- ---------------------------------------------------------------------------------------------------------------------------------
Income tax paid $ - $ - $ -
- ---------------------------------------------------------------------------------------------------------------------------------
Interest paid $ - $ - $ -
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to the financial statements.
F-5
<PAGE>
BEN-ABRAHAM TECHNOLOGIES INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997, AND THE CUMULATIVE PERIOD
FROM AUGUST 29, 1996 (DATE OF INCORPORATION) TO DECEMBER 31, 1998
- -------------------------------------------------------------------------------
1. ORGANIZATION
On December 19, 1996, Ben-Abraham Technologies Inc. ("the Company") was
continued under the laws of the State of Wyoming, U.S.A. Previously, the
Company had been incorporated under the laws of the Province of Ontario
effective August 29, 1996. On November 27, 1996, the Company acquired
Structured Biologicals Inc. and its wholly-owned subsidiary 923934
Ontario Inc. ("SBI"), a Canadian public company listed on the Alberta
Stock Exchange. The "acquisition" was effected by a statutory
amalgamation wherein the stockholders of the Company were allotted a
significant majority of the shares of the amalgamated entity. Upon
amalgamation, the then existing stockholders of SBI received 7,434,322
subordinate voting shares of the Company (1 such share for every 3 1/2
shares held in SBI).
The Company was established to develop prescription pharmaceutical
products, vaccines and vaccine adjuvants using its core nanoparticle
technology licensed from the University of California. Research on this
technology was conducted by a predecessor company and as a result the
Company is continuing its efforts to develop several different potential
products using this core technology.
The Company has been in the development stage since its inception. The
Company's successful completion of its development program and its
transition to profitable operations is dependent upon obtaining
regulatory approval from the United States (the "U.S.") Food and Drug
Administration ("FDA") prior to selling its products within the U.S., and
foreign regulatory approval must be obtained to sell its products
internationally. There can be no assurance that the Company's products
will receive regulatory approvals, and a substantial amount of time may
pass before the achievement of a level of sales adequate to support the
Company's cost structure. Obtaining marketing approval will be directly
dependent on the Company's ability to implement the necessary regulatory
steps required to obtain marketing approval in the United States and in
other countries. It is not possible at this time to predict with
assurance the outcome of these activities.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
These financial statements are expressed in U.S. dollars.
The financial statements have been prepared in accordance with generally
accepted accounting principles in the United States and SFAS No. 7
"Accounting and Reporting by Development Stage Enterprises". The
preparation of financial statements, in conformity with generally
accepted accounting principles, requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities,
the disclosure of contingent assets and liabilities at the date of the
financial statements, and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
F-6
<PAGE>
BEN-ABRAHAM TECHNOLOGIES INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997, AND THE CUMULATIVE PERIOD
FROM AUGUST 29, 1996 (DATE OF INCORPORATION) TO DECEMBER 31, 1998
- -------------------------------------------------------------------------------
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
CASH AND CASH EQUIVALENTS
For purposes of reporting cash flows, the Company considers all
instruments with original maturities of three months or less to be cash
equivalents.
CAPITAL ASSETS
Capital assets are stated at cost less accumulated depreciation and
amortization. Depreciation of computer, office and laboratory equipment
is computed primarily by accelerated methods over estimated useful lives
of seven years. Leasehold improvements are amortized on a straight-line
basis over the terms of the leases, plus option renewals.
RESEARCH AND DEVELOPMENT
Research and development costs are charged to expense as incurred.
BASIC AND DILUTED NET LOSS PER SHARE
The Company implemented the provisions of SFAS No. 128, "Earnings Per
Share", which requires presentation of basic and diluted earnings (loss)
per share, as of December 31, 1997. Basic earnings (loss) per share is
computed by dividing income (loss) available to common stockholders by
the weighted average number of shares outstanding for the reporting
period. Diluted earnings (loss) per share reflects the potential dilution
that could occur if securities or other contracts to issue common stock
were exercised or converted into common stock. All prior period weighted
average and per share information has been restated in accordance with
SFAS No. 128. The computation of diluted earnings (loss) per share does
not include stock options and warrants with dilutive potential that would
have an antidilutive effect on earnings (loss) per share.
STOCK-BASED COMPENSATION
The Company follows the provisions of APB Opinion No. 25, which requires
compensation cost for stock-based employee compensation plans be
recognized based on the difference, if any, between the quoted market
price of the stock and the amount the employee must pay to acquire the
stock. As a result of the Company continuing to apply APB No. 25, SFAS
No. 123, "Accounting for Stock-Based Compensation" requires increased
disclosure of the compensation expense arising from the Company's fixed
and performance stock compensation plans. The expense is measured as the
fair value of the award at the date it was granted using an
option-pricing model that takes into account the exercise price and the
expected term of the option, the current price of the underlying stock,
its expected volatility, expected dividends on the stock and the expected
risk-free rate of return during the term of the option. The compensation
cost is recognized over the service period, usually the period from the
grant date to the vesting date. The company has disclosed the required
pro forma net loss and loss per share data in Note 8 as if the Company
has applied the SFAS No. 123 method.
F-7
<PAGE>
BEN-ABRAHAM TECHNOLOGIES INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997, AND THE CUMULATIVE PERIOD
FROM AUGUST 29, 1996 (DATE OF INCORPORATION) TO DECEMBER 31, 1998
- -------------------------------------------------------------------------------
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
COMPREHENSIVE INCOME
The Company has implemented SFAS No. 130, REPORTING COMPREHENSIVE INCOME
as of December 31, 1998. The statement establishes standards for the
reporting and display of comprehensive income and its components
(revenues, expenses, gains and losses) is a full set of general-purpose
financial statements. The statement requires all items that are required
to be recognized under accounting standards as components of
comprehensive income be reported separately from the Company's
accumulated deficit balance in a financial statement that is displayed
with the same prominence as other financial statements. The Company has
determined that there is no impact as a result of the implementation of
this statement.
SEGMENT REPORTING
The Company has implemented SFAS No. 131, DISCLOSURE ABOUT SEGMENTS OF AN
ENTERPRISE AND RELATED INFORMATION, as of December 31, 1998. The
Statement establishes standards for the way that a public business
enterprise reports information about operating segments in annual
financial statements and interim financial reports issued to
shareholders. It also established standards for related disclosures about
products and services, geographic areas, and major customers. The Company
has determined that, at present, it does not have any reportable
segments.
PENSIONS AND OTHER POSTRETIREMENT BENEFITS
The Company has implemented SFAS No. 132, EMPLOYERS' DISCLOSURES ABOUT
PENSIONS AND OTHER POSTRETIREMENT BENEFITS, as of December 31, 1998. The
Statement standardizes the disclosure requirements for pensions and other
postretirement benefits. No additional disclosures were required as a
result of the implementation of this statement.
NEW STATEMENTS OF FINANCIAL ACCOUNTING STANDARDS
In June 1998, the FASB issued SFAS No. 133, ACCOUNTING FOR DERIVITIVES
INSTRUMENTS AND HEDGING ACTIVITIES. This Statement establishes accounting
and reporting standards for derivative instruments, including certain
derivative instruments embedded in other contracts, and for hedge
activities. It requires that an entity recognize all derivatives as
either assets or liabilities in the statement of financial position and
measure those instruments at fair value. The statement is effective for
the fiscal quarters of the Company's fiscal year ending December 31,
2000. The Company is in the process of evaluating the effect of this
Statement on its financial statements.
F-8
<PAGE>
BEN-ABRAHAM TECHNOLOGIES INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997, AND THE CUMULATIVE PERIOD
FROM AUGUST 29, 1996 (DATE OF INCORPORATION) TO DECEMBER 31, 1998
- -------------------------------------------------------------------------------
3. ACQUISITION
Effective November 27, 1996, the Company completed the acquisition of
100% of the outstanding shares of SBI. The acquisition was effected by a
statutory amalgamation wherein the stockholders of the Company were
allotted a significant majority of the shares of the amalgamated entity.
Upon amalgamation, the then existing shareholders of SBI received
7,434,322 subordinate voting shares of the Company, (1 such share for
every 3 1/2 shares they held in SBI). SBI's results of operations have
been included in these financial statements from the date of acquisition.
The acquisition was accounted for by using the purchase method of
accounting, as follows:
<TABLE>
<S> <C>
ASSETS
In-process research and development $ 5,377,000
Other 37,078
--------------------------------------------------------------------------------------------- -----------------
5,414,078
--------------------------------------------------------------------------------------------- -----------------
LIABILITIES
Current liabilities 679,498
Due to directors 60,689
Due to the Company 128,328
--------------------------------------------------------------------------------------------- -----------------
868,515
--------------------------------------------------------------------------------------------- -----------------
Net Assets Acquired $ 4,545,563
--------------------------------------------------------------------------------------------- -----------------
CONSIDERATION
Subordinate voting shares $ 4,545,563
--------------------------------------------------------------------------------------------- -----------------
</TABLE>
In connection with the acquisition of SBI, in 1996, the Company has
expensed purchased in-process research and development of $5,377,000.
4. CAPITAL ASSETS
<TABLE>
<CAPTION>
1998 1997
-------------- -------------
<S> <C> <C>
Computer equipment $ 22,976 $ 3,321
Office equipment 29,619 27,301
Laboratory equipment 103,012 211,455
Leasehold improvements - Laboratory 470,094 481,096
----------------------------------------------------------------------------- ---------------- -------------
625,701 723,173
Accumulated depreciation and amortization (92,872) (45,628)
----------------------------------------------------------------------------- ---------------- -------------
$ 532,829 $ 677,545
----------------------------------------------------------------------------- ---------------- -------------
</TABLE>
F-9
<PAGE>
BEN-ABRAHAM TECHNOLOGIES INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997, AND THE CUMULATIVE PERIOD
FROM AUGUST 29, 1996 (DATE OF INCORPORATION) TO DECEMBER 31, 1998
- -------------------------------------------------------------------------------
5. INCOME TAXES
The Company estimates that the losses for the post-continuance period
were approximately $4,550,000 which are available to reduce future
taxable income for up to 15 taxation years. Additionally, the Company had
approximately $144,000 of research and development credits available to
reduce future income taxes through the year 2012.
The resulting deferred tax asset of approximately $1,835,000 has not been
recorded due to the establishment of a valuation allowance. As the
deferred tax asset has been fully reserved, it is not recorded in these
financial statements. When realized, the income tax benefit relating to
this item will be reflected in the current operations as a reduction of
income tax expense.
6. STOCKHOLDERS' EQUITY
A) AUTHORIZED
PREFERENCE SHARES
An unlimited number of preference shares issuable in series subject
to limitation, rights, and privileges as determined by the
directors. No preference shares have been issued as of December 31,
1998.
SPECIAL SHARES
An unlimited number of Class A special shares without par value,
convertible to Class B special shares or subordinate voting shares
on the basis of one Class A share and U.S. $0.25. These shares are
not entitled to a dividend and carry ten votes per share.
An unlimited number of Class B special shares without par value
convertible to subordinate voting shares on the basis of one
subordinate voting share for each Class B share. These shares are
entitled to dividends as declared by the directors not to exceed
the dividends per share declared on the subordinate voting shares,
and carry ten votes per share. No Class B special shares have been
issued as of December 31, 1998.
An unlimited number of Class C special shares without par value,
convertible to subordinate voting shares on the basis of one Class
C share and U.S. $0.25. These shares are not entitled to a dividend
and carry one vote per share.
SUBORDINATE VOTING SHARES
An unlimited number of subordinate voting shares without par value,
and carry one vote per share.
F-10
<PAGE>
BEN-ABRAHAM TECHNOLOGIES INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997, AND THE CUMULATIVE PERIOD
FROM AUGUST 29, 1996 (DATE OF INCORPORATION) TO DECEMBER 31, 1998
- -------------------------------------------------------------------------------
6. STOCKHOLDERS' EQUITY (CONTINUED)
B) WARRANTS
The Company upon the acquisition of SBI assumed the following
warrants to purchase subordinate voting shares.
<TABLE>
<CAPTION>
Exercise Price
per share
------------------
Actual
Series Number of Warrants Cdn. $ Expiry Date
------ ------------------ ------ -----------
<S> <C> <C> <C>
V 171,829 $ 2.10 March 28, 1997
W 114,286 $ 1.75 June 30, 1997
X 1,651,014 $ 1.75 September 30, 1997
Z 640,000 $ 2.45 February 28, 1998
</TABLE>
A summary of the status of the Company's warrants is as follows:
<TABLE>
<CAPTION>
SERIES
---------------------------------------------------
V W X Z
------- ------- --------- -------
<S> <C> <C> <C> <C>
Balance, December 31, 1996 171,829 114,286 1,435,300 638,572
Warrants exercised
January 13, 1997 (24,000) - - -
January 23, 1997 - - (28,571) -
June 30, 1997 - (20,000) - -
Warrants expired (147,829) (94,286) (1,406,729) -
---------------------------------- ------------- ------------ ------------ ----------------- ------------
Balance, December 31, 1997 - - - 638,572
Warrants expired - - - (638,572)
---------------------------------- ------------- ------------ ------------ ----------------- ------------
Balance, December 31, 1998 - - - -
---------------------------------- ------------- ------------ ------------ ----------------- ------------
</TABLE>
7. STOCK OPTIONS
The Company has a stock option plan for certain officers, directors,
employees and consultants whereby 2,465,000 shares of subordinate voting
stock have been reserved for issuance. Options for 2,465,000 shares of
subordinate voting stock have been granted as of December 31, 1998 at
prices equal to the ten-day weighted average closing price of the stock
at the date of the grant and are exercisable and vest in a range
substantially over a three year period. The options expire five years
from the date of the grants.
F-11
<PAGE>
BEN-ABRAHAM TECHNOLOGIES INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997, AND THE CUMULATIVE PERIOD
FROM AUGUST 29, 1996 (DATE OF INCORPORATION) TO DECEMBER 31, 1998
- -------------------------------------------------------------------------------
7. STOCK OPTIONS (CONTINUED)
The Company applies APB Opinion No. 25 and related interpretations in
accounting for its plan. Accordingly, no compensation cost has been
recognized for the plan. Had the compensation cost for the Company's plan
been determined based on the fair value of the rates of award under the
plan consistent with the method of SFAS No. 123 "Accounting for
Stock-Based Compensation" the Company's net loss, cumulative net loss,
and basic net loss per common share would have been increased to the
proforma amounts indicated below:
<TABLE>
<CAPTION>
1998 1997
--------------- ----------------
<S> <C> <C>
Net loss
As reported $ (2,659,415) $ (1,890,093)
Proforma $ (2,771,391) $ (1,953,587)
Basic and diluted net loss per share
As reported $ (0.08) $ (0.05)
Proforma $ (0.08) $ (0.05)
Cumulative net loss
As reported $ (10,796,218) $ (8,136,803)
Proforma $ (11,159,995) $ (8,388,604)
Cumulative basic and diluted net loss per share
As reported $ (0.32) $ (0.25)
Proforma $ (0.32) $ (0.25)
</TABLE>
The fair value of the options at the date of the grant was estimated
using the Cox Rubinstien binomial model and the Black-Scholes
option-pricing model with following weighted average assumptions:
<TABLE>
<CAPTION>
1998 1997
------------- ------------
<S> <C> <C>
Expected option life (years) 5 5
Risk free interest rate 5.05% 5.44%
Expected stock price volatility 350.00% 105.81%
Dividend yield - -
</TABLE>
F-12
<PAGE>
BEN-ABRAHAM TECHNOLOGIES INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997, AND THE CUMULATIVE PERIOD
FROM AUGUST 29, 1996 (DATE OF INCORPORATION) TO DECEMBER 31, 1998
- -------------------------------------------------------------------------------
7. STOCK OPTIONS (CONTINUED)
Changes for the stock option plan during the years ended December 31,
1998 and 1997 were as follows:
<TABLE>
<CAPTION>
Weighted Weighted
Average Exercise Average Exercise
1998 Price 1997 Price
------------------------------------- ------------- --------------------- -------------- --------------------
<S> <C> <C> <C> <C>
Options outstanding,
Beginning of period 250,000 Cdn. $ 1.64 200,000 Cdn. $ 1.65
Options granted 2,225,000 Cdn. $ 0.45 50,000 Cdn. $ 1.60
Options cancelled/expired (10,000) Cdn. $ 0.44
Options exercised - - - -
------------------------------------- ------------- --------------------- -------------- --------------------
Options outstanding,
end of period 2,465,000 Cdn. $ 0.57 250,000 Cdn. $ 1.64
------------------------------------- ------------- --------------------- -------------- --------------------
Shares exercisable,
end of year 674,500 250,000
------------------------------------- ------------- --------------------- -------------- --------------------
</TABLE>
8. BASIC AND DILUTED NET LOSS PER SHARE
The basic and diluted net loss per share is computed based on the
weighted average number of the aggregate of subordinate voting shares,
Class A shares and Class C shares outstanding, all being considered as
equivalent of one another. The computation of diluted loss per share does
not include stock options and warrants with dilutive potential that would
have an antidilutive effect on loss per share.
9. RETIREMENT PLAN
In July 1998, the company began offering a discretionary 401(k) Plan (the
Plan) to all of its employees. Under the Plan, employees may defer income
on a tax-exempt basis, subject to IRS limitation. Under the Plan the
Company can make discretionary matching contributions. Company
contributions expensed in 1998 totaled $21,799.
F-13
<PAGE>
BEN-ABRAHAM TECHNOLOGIES INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997, AND THE CUMULATIVE PERIOD
FROM AUGUST 29, 1996 (DATE OF INCORPORATION) TO DECEMBER 31, 1998
- -------------------------------------------------------------------------------
10. COMMITMENTS
The Company has entered into lease commitments for rental of its office
space and laboratory facilities. The minimum lease payments are:
<TABLE>
<S> <C>
1999 $ 110,891
2000 101,341
2001 98,520
2002 87,944
2003 48,051
THEREAFTER -
---------------------------------------------------------------------------------------------------------
$ 446,747
---------------------------------------------------------------------------------------------------------
</TABLE>
Rent expense amounted to $105,396 and $36,755 for the year ended December
31, 1998 and 1997, respectively.
11. RELATED PARTY TRANSACTIONS
<TABLE>
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
Management fees paid to a company controlled
by a member of management, who is also a shareholder
and member of the Board of Directors $ 94,200 $ 185,000
Financing expenses paid to a company controlled by a
member of management, who is also a shareholder
and member of the Board of Directors $ - $ 44,019
</TABLE>
Included in accounts payable is an amount of $133,901 (1997 - $156,412)
due to directors and officers of the Company.
12. UNCERTAINTY DUE TO THE YEAR 2000 ISSUE
The Year 2000 Issue arises because many computerized systems use two
digits rather than four to identify a year. Date sensitive systems may
recognize the Year 2000 as 1900 or some other date, resulting in errors
when information using Year 2000 dates is processed. In addition, similar
problems may arise in some systems which use certain dates in 1999 to
represent something other than a date. The effects of the Year 2000 Issue
may be experienced before, on, or after January 1, 2000, and, if not
addressed, the impact on operations and financial reporting may range
from minor errors to significant systems failure which could affect the
Company's ability to conduct normal business operations. It is not
possible to be certain that all aspects of the Year 2000 Issue affecting
the Company, including those related to the efforts of customers,
suppliers, or other third parties, will be fully resolved.
F-14
<PAGE>
BEN-ABRAHAM TECHNOLOGIES INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEETS
SEPTEMBER 30, 1999 AND DECEMBER 31, 1998
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1999 1998
------------- --------------
(UNAUDITED)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 5,648,796 $ 2,841,250
Prepaid expenses and other sundry assets 93,891 75,266
------------- --------------
5,742,687 2,916,516
CAPITAL ASSETS, net of depreciation 469,068 532,829
------------- --------------
$ 6,211,755 $ 3,449,345
------------- --------------
------------- --------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 144,299 $ 202,696
Accrued and other liabilities 86,374 487,902
Due to licensor 127,317 127,317
------------- --------------
357,990 817,915
------------- --------------
STOCKHOLDERS' EQUITY
Capital stock
Issued
4,807,865 (1998 - 4,817,865) Class C 481 482
52,642,686 (1998 - 29,437,686) Common 17,652,510 13,427,166
------------- --------------
17,652,991 13,427,648
Deficit accumulated during the development stage (11,799,226) (10,796,218)
------------- --------------
5,853,765 2,631,430
------------- --------------
$ 6,211,755 $ 3,449,345
------------- --------------
------------- --------------
</TABLE>
See accompanying notes to financial statements.
F-15
<PAGE>
BEN-ABRAHAM TECHNOLOGIES INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS
THREE MONTH AND NINE MONTH PERIODS ENDED SEPTEMBER 30, 1999 AND 1998 AND THE
CUMULATIVE PERIOD FROM AUGUST 29, 1996 (DATE OF INCORPORATION) TO
SEPTEMBER 30, 1999
(UNAUDITED)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
THREE MONTHS THREE MONTHS NINE MONTHS
ENDED ENDED ENDED
SEPTEMBER 30, 1999 SEPTEMBER 30, 1998 SEPTEMBER 30, 1999
------------------ ------------------ ------------------
<S> <C> <C> <C>
REVENUE
Interest income $ 62,022 $ 45,659 $ 134,538
- ---------------------------------------------------------------------------------------------------------------------------------
EXPENSES
Research and development 160,671 309,696 477,202
General and administration 232,932 163,276 592,364
Depreciation and amortization 23,160 29,783 67,980
- ---------------------------------------------------------------------------------------------------------------------------------
416,763 502,755 1,137,546
- ---------------------------------------------------------------------------------------------------------------------------------
LOSS BEFORE OTHER EXPENSES (354,741) (457,096) (1,003,008)
- ---------------------------------------------------------------------------------------------------------------------------------
OTHER EXPENSES
Loss on disposal of equipment - - -
Costs of acquisition of Structured
Biologicals Inc. - - -
Purchased in-process research
and development - - -
- ---------------------------------------------------------------------------------------------------------------------------------
- - -
- ---------------------------------------------------------------------------------------------------------------------------------
NET LOSS $ (354,741) $ (457,096) $ (1,003,008)
- ---------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------
BASIC AND DILUTED NET LOSS
PER SHARE $ (0.01) $ (0.01) $ (0.02)
- ---------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------
WEIGHTED AVERAGE NUMBER
OF SHARES OUTSTANDING 57,415,551 34,255,551 46,719,269
<CAPTION>
CUMULATIVE PERIOD FROM
NINE MONTHS AUGUST 29, 1996 (DATE
ENDED OF INCORPORATION) TO
SEPTEMBER 30, 1998 SEPTEMBER 30, 1999
-------------------- ----------------------
<S> <C> <C>
REVENUE
Interest income $ 88,599 $ 454,673
- ---------------------------------------------------------------------------------------------------------------------------------
EXPENSES
Research and development 623,673 2,213,154
General and administration 912,401 3,870,632
Depreciation and amortization 90,081 260,349
- ---------------------------------------------------------------------------------------------------------------------------------
1,626,155 6,344,135
- ---------------------------------------------------------------------------------------------------------------------------------
LOSS BEFORE OTHER EXPENSES (1,537,556) (5,889,462)
- ---------------------------------------------------------------------------------------------------------------------------------
OTHER EXPENSES
Loss on disposal of equipment - 157,545
Costs of acquisition of Structured
Biologicals Inc. - 375,219
Purchased in-process research
and development - 5,377,000
- ---------------------------------------------------------------------------------------------------------------------------------
- 5,909,764
- ---------------------------------------------------------------------------------------------------------------------------------
NET LOSS $ (1,537,556) $ (11,799,226)
- ---------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------
BASIC AND DILUTED NET LOSS
PER SHARE $ (0.04) $ (0.32)
- ---------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------
WEIGHTED AVERAGE NUMBER
OF SHARES OUTSTANDING 35,061,348 36,989,372
</TABLE>
The accompanying notes are an integral part of these statements.
F-16
<PAGE>
BEN-ABRAHAM TECHNOLOGIES INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND THE YEARS ENDED DECEMBER 31,
1998 AND 1997
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS A CLASS C
SPECIAL SHARES SPECIAL SHARES
---------------------------- ----------------------------
SHARES AMOUNT SHARES AMOUNT
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1996 20,000,000 2,000 4,150,000 415
Conversion of shares
January 13, 1997 - - (282,850) (28)
January 13, 1997 - - (94,285) (9)
December 2, 1997 - - (106,386) (11)
December 2, 1997 - - (100,000) (10)
Exercise of Series "V" warrants
Exercise of Series "X" warrants - - - -
Exercise of Series "W" warrants - - - -
Adjustment for partial shares issued upon amalgamation - - - -
Financing Fees - - - -
Net loss - - - -
- ---------------------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1997 20,000,000 2,000 3,566,479 357
Conversion of shares
March 4, 1998 - - (20,000) (2)
March 16, 1998 - - (10,000) (1)
May 8, 1998 (15,000,000) (1,500) - -
June 1, 1998 (1,000,000) (100) - -
June 1, 1998 (1,000,000) (100) - -
Return of shares to treasury
May 8, 1998 (1,468,614) (147) - -
May 8, 1998 - - (250,000) (25)
Net loss - - - -
- ---------------------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1998 1,531,386 $ 153 3,286,479 $ 329
Conversion of shares
February 2, 1999 - - (10,000) (1)
Private placement of shares
May 6, 1999 - - - -
Share redesignation
July 13, 1999 (1,531,386) (153) 1,531,386 153
Issuance of shares
August 15, 1999 - - - -
Net loss - - - -
- ---------------------------------------------------------------------------------------------------------------------------------
BALANCE, SEPTEMBER 30, 1999 (UNAUDITED) - $ - 4,807,865 $ 481
- ---------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
DEFICIT
ACCUMULATED
COMMON DURING THE
STOCK DEVELOPMENT
--------------------------------
SHARES AMOUNT STAGE TOTAL
---------- --------- ------------- ---------
<S> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1996 11,751,464 8,513,503 (6,246,710) 2,269,208
Conversion of shares
January 13, 1997 282,850 70,741 - 70,713
January 13, 1997 94,285 23,580 - 23,571
December 2, 1997 106,386 26,607 - 26,596
December 2, 1997 100,000 25,010 - 25,000
Exercise of Series "V" warrants 24,000 36,767 - 36,767
Exercise of Series "X" warrants 28,571 36,200 - 36,200
Exercise of Series "W" warrants 20,000 25,555 - 25,555
Adjustment for partial shares 130 - -
issued upon amalgamation
Financing Fees - 410,000 - 410,000
Net loss - - (1,890,093) (1,890,093)
- ---------------------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1997 12,407,686 9,167,963 (8,136,803) 1,033,517
Conversion of shares
March 4, 1998 20,000 5,002 - 5,000
March 16, 1998 10,000 2,501 - 2,500
May 8, 1998 15,000,000 3,751,500 - 3,750,000
June 1, 1998 1,000,000 250,100 - 250,000
June 1, 1998 1,000,000 250,100 - 250,000
Return of shares to treasury
May 8, 1998 - - - (147)
May 8, 1998 - - - (25)
Net loss - - (2,659,415) (2,659,415)
- ---------------------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1998 29,437,686 $ 13,427,166 $ (10,796,218) $ 2,631,430
Conversion of shares
February 2, 1999 10,000 2,501 - 2,500
Private placement of shares
May 6, 1999 23,125,000 4,197,843 - 4,197,843
Share redesignation
July 13, 1999 - - - -
Issuance of shares
August 15, 1999 70,000 25,000 - 25,000
Net loss - - (1,003,008) (1,003,008)
- ---------------------------------------------------------------------------------------------------------------------------------
BALANCE, SEPTEMBER 30, 1999 (UNAUDITED) 52,642,686 $ 17,652,510 $ (11,799,226) $ 5,853,765
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these statements.
F-17
<PAGE>
BEN-ABRAHAM TECHNOLOGIES INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998 AND THE CUMULATIVE PERIOD
FROM AUGUST 29, 1996 (DATE OF INCORPORATION) TO SEPTEMBER 30, 1999
(UNAUDITED)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CUMULATIVE PERIOD
FROM AUGUST 29,
1996 (DATE OF
NINE MONTHS ENDED SEPTEMBER 30, INCORPORATION) TO
-------------------------------------
1999 1998 SEPTEMBER 30, 1999
-------------- -------------- ------------------
<S> <C> <C>
CASH FLOWS USED IN OPERATING ACTIVITIES
Net loss $ (1,003,008) $ (1,537,556) $ (11,799,226)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization 67,980 90,081 260,350
Purchased in-process research & development - - 5,377,000
Loss on disposal of equipment - - 157,545
Changes in other assets and liabilities impacting cash
flows from operations:
Prepaid expenses (18,625) (13,410) (90,924)
Accounts payable, accrued expenses & other liabilities (459,925) (877,531) (509,514)
Due to other - - 127,317
Due to the Company - - (128,328)
Due to directors and officers - (156,412) -
-------------- -------------- ------------------
NET CASH USED IN OPERATING ACTIVITIES (1,413,578) (2,494,828) (6,605,780)
-------------- -------------- ------------------
CASH FLOWS USED IN INVESTING ACTIVITIES
Purchase of capital assets (4,219) (120,124) (852,852)
-------------- -------------- ------------------
CASH FLOWS PROVIDED BY FINANCING ACTIVITIES
(Conversion) Issuance of Class "A" & "C" stock - (175) 482
Issuance of common stock 4,225,343 4,257,503 13,106,946
-------------- -------------- ------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 4,225,343 4,257,328 13,107,428
-------------- -------------- ------------------
NET INCREASE IN CASH AND CASH EQUIVALENTS 2,807,546 1,642,376 5,648,796
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 2,841,250 1,750,331 -
-------------- -------------- ------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 5,648,796 $ 3,392,707 $ 5,648,796
-------------- -------------- ------------------
SUPPLEMENTAL SCHEDULE OF CASH FLOW INFORMATION
Acquisition of SBI
Purchased in-process research & development $ - $ - $ 5,377,000
Other net liabilities assumed - - (831,437)
-------------- -------------- ------------------
- - 4,545,563
Less: subordinate voting shares issued therefor - - 4,545,563
-------------- -------------- ------------------
$ - $ - $ -
-------------- -------------- ------------------
Income tax paid $ - $ - $ -
-------------- -------------- ------------------
Interest paid $ - $ - $ -
-------------- -------------- ------------------
</TABLE>
The accompanying notes are an integral part of these statements.
F-18
<PAGE>
Ben-Abraham Technologies Inc.
NOTES TO FINANCIAL STATEMENTS
September 30, 1999
1. ORGANIZATION
On December 19, 1996, Ben-Abraham Technologies Inc. (the "Company") was
continued under the laws of the State of Wyoming, U.S.A. Previously, the
Company had been incorporated under the laws of the Province of Ontario
effective August 29, 1996. On November 27, 1996, the Company acquired
Structured Biologicals Inc. and its wholly-owned subsidiary 923934 Ontario
Inc. ("SBI"), a Canadian public company listed on the Alberta Stock
Exchange. The "acquisition" was effected by a statutory amalgamation
wherein the stockholders of the Company were allotted a significant
majority of the shares of the amalgamated entity. Upon amalgamation, the
then existing stockholders of SBI received 7,434,322 subordinate voting
shares of the Company (one such share for every 3 1/2 shares held in SBI).
The Company was established to develop prescription pharmaceutical
products, vaccines and vaccine adjuvants using its core nanoparticle
technology licensed from the University of California. Research on this
technology was conducted by a predecessor company and as a result the
Company is continuing its efforts to develop several different potential
products using this core technology.
The Company intends to in-license other products in order to expand its
portfolio of potential pharmaceutical products in the next several years.
The Company has been in the development stage since its inception. The
Company's successful completion of its development program and its
transition to profitable operations is dependent upon obtaining regulatory
approval from the United States (the "U.S.") Food and Drug Administration
("FDA") prior to selling its products within the U.S., and foreign
regulatory approval must be obtained to sell its products internationally.
There can be no assurance that the Company's products will receive
regulatory approvals, and a substantial amount of time may pass before the
achievement of a level of sales adequate to support the Company's cost
structure. Obtaining marketing approval will be directly dependent on the
Company's ability to implement the necessary regulatory steps required to
obtain marketing approval in the United States and in other countries. It
is not possible at this time to predict with assurance the outcome of
these activities.
F-19
<PAGE>
Ben-Abraham Technologies Inc.
NOTES TO FINANCIAL STATEMENTS
September 30, 1999
2. SUMMARY OF ACCOUNTING POLICIES
A summary of the significant accounting policies consistently applied in
the preparation of the accompanying financial statements follows.
BASIS OF PRESENTATION
The financial statements are expressed in United States dollars and have
been prepared in accordance with generally accepted accounting principles
in the United States and SFAS No. 7 "Accounting and Reporting by
Development Stage Enterprises".
RESEARCH AND DEVELOPMENT
Research and development costs are expensed as incurred.
DEPRECIATION
Depreciation of computer, office and laboratory equipment is computed
primarily by accelerated methods over estimated useful lives of five to
seven years.
TRANSLATION OF FOREIGN CURRENCIES
Current assets and current liabilities denominated in foreign currencies
are translated into United States dollars using the exchange rate at the
period end. Transactions during the period recorded in foreign currencies
are translated into United States dollars using the exchange rate in
effect at the date of the transaction. Gains and losses on translation of
foreign currencies are charged to operations during the period. Currently
an insignificant amount of the Company's business is conducted in non-U.S.
currency.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect amounts reported in the financial statements and
notes. Actual results may differ from these estimates.
F-20
<PAGE>
Ben-Abraham Technologies Inc.
NOTES TO FINANCIAL STATEMENTS
September 30, 1999
2. SUMMARY OF ACCOUNTING POLICIES (CONTINUED)
BASIC AND DILUTED NET LOSS PER SHARE
The basic and diluted net loss per share is computed based on the weighted
average number of the aggregate of common stock and Class C shares
outstanding, all being considered as equivalent of one another. The
computation of diluted loss per share does not include stock options and
warrants with dilutive potential that would have an antidilutive effect on
loss per share.
NEW STATEMENT OF FINANCIAL ACCOUNTING STANDARDS
In June 1998, and subsequently amended, the FASB issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities". The
Statement establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other
contracts, and hedging activities. It requires that an entity recognize
all derivatives as either assets or liabilities in the statement of
financial position and measure those instruments at fair value. This
Statement is effective for the fiscal quarters of the Company's year
ended December 31, 2001. The Company does not anticipate that the
implementation of this Statement will have a material impact on the
financial statements.
3. INCOME TAXES
The Company estimates that as of September 30, 1999 it has a loss
carryforward of approximately $5,590,000. This amount may be carried
forward up to 15 taxation years to be claimed against future income.
Additionally, the Company had approximately $175,000 of research and
development credits available to reduce future income taxes through year
2013.
The resulting deferred tax asset of approximately $2,235,000 has been
fully reserved and accordingly is not recorded in these financial
statements. When realized, the income tax benefit relating to this item
will be reflected in the current operations as a reduction of income tax
expense.
F-21
<PAGE>
Ben-Abraham Technologies Inc.
NOTES TO FINANCIAL STATEMENTS
September 30, 1999
4. STOCKHOLDERS' EQUITY
Effective July 13, 1999, and by articles of amendment dated July 20, 1999,
the subordinate voting shares of the Corporation were redesignated as
common stock, the Class A special shares, which carry 10 votes per share,
were reclassified as Class C special shares and the Class B special
shares were eliminated. There were no changes in number of shares
outstanding.
AUTHORIZED
PREFERENCE SHARES - An unlimited number of preference shares issuable in
series subject to limitations, rights and privileges as determined by the
directors. No preference shares have been issued as of September 30, 1999.
SPECIAL SHARES - An unlimited number of Class C special shares without par
value convertible to common stock on the basis of one Class C share and
U.S. $0.25. These shares are not entitled to a dividend and carry one vote
per share.
COMMON STOCK - An unlimited number of common stock without par value, and
carry one vote per share.
CAPITAL STOCK ISSUED AND OUTSTANDING
<TABLE>
<CAPTION>
NUMBER OF SHARES VALUE
---------------- ----------------
<S> <C> <C>
Class C special shares 4,807,865 $ 481
Common Stock 52,642,686 17,652,510
---------- ----------
57,450,551 $17,652,991
========== ===========
</TABLE>
MATERIAL CONVERSION OF SHARES
During the third quarter of 1999, an outstanding liability of $25,000
was converted into 70,000 shares of common stock.
WARRANTS
Pursuant to the Company's private placement financing which closed on May
6, 1999, warrants to purchase an aggregate of 11,562,500 shares of common
stock were issued at an exercise price of US$ 0.30 (CDN$ 0.436) per share
with a term of five years. These warrants represent the total number of
warrants outstanding as of September 30, 1999.
F-22
<PAGE>
Ben-Abraham Technologies Inc.
NOTES TO FINANCIAL STATEMENTS
September 30, 1999
5. STOCK OPTIONS
The Company has reserved an aggregate of 5,000,000 shares of common stock
for awards under the 1998 Plan. As of September 30, 1999, options to
purchase an aggregate of 4,283,125 shares of common stock were outstanding
under the 1998 Plan, of which 2,026,865 were fully vested, and a total of
716,875 shares of common stock remained available for grant. The rules of
the Alberta Stock Exchange restrict the aggregate number of our shares of
common stock reserved for issuance pursuant to any stock options up to 10%
of the number of our common stock on a non-diluted basis. As of September
30, 1999, the outstanding options under the plan were held by an aggregate
of nine individuals and were exercisable at prices ranging from $0.23 to
$1.07 per share of common stock.
Incentive stock options granted under the plan may not have an exercise
price less than the fair market value of the common stock on the date of
the grant (or, if granted to a person holding more than 10% of our voting
stock, at less than 110% of fair market value). Non-statutory stock
options granted under the plan may not have an exercise price less than
85% of fair market value on the date of grant. The options are exercisable
and vest in a range substantially over a three-year period and expire five
years from the date of the grants.
6. RELATED PARTY TRANSACTIONS
No remuneration has been paid to directors for acting in this capacity.
7. YEAR 2000 PROGRAM
The Company will continue to conduct a comprehensive review of its
computer systems to identify the systems that could be affected by the
"Year 2000" issue. The Company presently believes that, with modifications
to existing software and converting to new software, the Year 2000 problem
will not pose significant operational problems for the Company's computer
systems as so modified and converted. However, if such modifications and
conversions are not completed in a timely manner, the Year 2000 problem
may have a material impact on the operations of the Company.
F-23
<PAGE>
Ben-Abraham Technologies Inc.
NOTES TO FINANCIAL STATEMENTS
September 30, 1999
8. SUBSEQUENT EVENTS
In the Company's License Agreement with the University of California,
as amended, assuming the Company continues its product development
efforts under the agreement, the Company is obligated to pay minimum
annual royalties beginning in the year 2004. Minimum annual royalties
in 2004 equal $50,000 rising each year until 2011 when the minimum
annual royalty is $1.5 million. The total minimum royalty obligation
for the years 2004 through 2013 is $6.8 million.
On November 10, 1999, our shareholders approved our name change from
Ben-Abraham Technologies Inc. to BioSante Pharmaceuticals, Inc.
F-24
<PAGE>
ARRANGEMENT AGREEMENT
THIS AGREEMENT made on and as of the 23rd day of October, 1996.
B E T W E E N:
STRUCTURED BIOLOGICALS INC., a corporation amalgamated
under the laws of Ontario (hereinafter referred to as "SBI")
- and -
BEN-ABRAHAM TECHNOLOGIES INC., a corporation incorporated
under the laws of Ontario (hereinafter referred to as "BA
Tech")
WHEREAS SBI and BA Tech wish to amalgamate pursuant a Plan of Arrangement;
AND WHEREAS SBI intends to propose the Arrangement to its shareholders;
AND WHEREAS the parties hereto wish to record their agreements with respect
to the Arrangement;
NOW THEREFORE THIS AGREEMENT WITNESSES that, in consideration of the
premises and the respective covenants and agreements herein contained, the
parties hereto covenant and agree as follows:
ARTICLE 1
INTERPRETATION
1.1 DEFINITIONS
In this Plan of Arrangement, unless there is something in the subject
matter or context inconsistent therewith:
"ACT" means the Ontario BUSINESS CORPORATIONS ACT, R.S.O. 1990, c. B.16, as
amended;
"AMALCO" means the corporation continuing from the Amalgamation;
"AMALCO CLASS A SHARES" means the Class A special shares in the capital of
Amalco;
<PAGE>
"AMALCO CLASS B SHARES" means the Class B special shares in the capital of
Amalco;
"AMALCO CLASS C SHARES" means the Class C special shares in the capital of
Amalco;
"AMALCO SV SHARES" means the subordinate voting shares in the capital of Amalco;
"AMALGAMATION" means the amalgamation of BA Tech, NCI and SBI pursuant to this
Plan of Arrangement;
"ARRANGEMENT" means an arrangement under the provisions of section 182 of the
Act, on the terms and conditions set forth in the Plan of Arrangement;
"BA CLASS A SHARES" means the Class A special shares of BA Tech;
"BA CLASS B SHARES" means the Class B special shares of BA Tech;
"BA CLASS C SHARES" means the Class C special shares of BA Tech;
"BA COMMON SHARES" means the common shares of BA Tech;
"BA SHARES" means the BA Class A Shares, the BA Class B Shares, the Class C
Shares and the BA Common Shares;
"BA TECH" means Ben-Abraham Technologies Inc., a corporation, incorporated under
the laws of Ontario;
"BUSINESS DAY" means a day other than a Saturday, Sunday or an Ontario
provincial holiday or any other day when banks in Toronto, Canada, are not open
for business;
"CONTINUANCE" means the continuance of Amalco as a corporation under the laws of
the State of Wyoming;
"COURT" means the Ontario Court (General Division);
"DEPOSITARY" means Montreal Trust Company;
"DIRECTOR" means the Director appointed under section 278 of the Act;
"EFFECTIVE DATE" means the date shown in the certificate of arrangement giving
effect to the Arrangement which is issued under the Act by the Director;
"FINAL ORDER" means the final order of the Court made in connection with
approval of the Arrangement, following the application therefor contemplated in
section 3.3 hereof;
"HOLDER" means a registered holder of SBI Common Shares on the Effective Date;
<PAGE>
"INTERIM ORDER" means the interim order of the Court made in connection with
approval of the Arrangement, following the application therefor contemplated in
section 3.3 hereof;
"NCI" means 923934 Ontario Corporation, a corporation incorporated under the
laws of Ontario, and a wholly-owned subsidiary of SBI;
"PLAN OF ARRANGEMENT" means the plan of arrangement which is annexed as Appendix
1 hereto or any amendment or variation thereto made in accordance with Section
5.1 hereof;
"SBI" means Structured Biologicals Inc., a corporation amalgamated under the
laws of Ontario;
"SBI COMMON SHARES" means the common shares of SBI;
"SBI INFORMATION CIRCULAR" means the management information circular of SBI to
be prepared and sent to the registered holders of SBI Common Shares in
connection with the SBI Shareholders Meeting;
"SBI SHAREHOLDERS MEETING" means the annual and special meeting of shareholders
of SBI (including any adjournment thereof) to be held, among other things, to
consider and, if deemed advisable, to approve the Arrangement and the
Continuance;
"THIS AGREEMENT", "HEREOF", "HEREIN", AND "HEREUNDER" and similar expressions
refer to this Arrangement Agreement and the Schedules hereto and not to any
particular article, section or other portion hereof;
"UCLA" means the University of California, Los Angeles.
1.2 INTERPRETATION NOT AFFECTED BY HEADINGS, ETC.
The division of this Arrangement Agreement into articles, sections and
other portions and the insertion of headings are for convenience of reference
only and shall not affect the construction or interpretation of this Arrangement
Agreement.
1.3 CURRENCY
All sums of money which are referred to in this Plan of Arrangement are
expressed in lawful money of Canada unless otherwise specified.
1.4 NUMBER, ETC.
Unless the context requires the contrary, words importing the singular number
only shall include the plural and vice versa; words importing the use of any
gender shall include all genders; and words importing persons shall include
natural persons, firms, trusts, partnerships and corporations.
<PAGE>
1.5 ENTIRE AGREEMENT
This Agreement, together with the exhibits, appendices, schedules, agreements
and other documents herein and therein referred to, constitutes the entire
agreement between the parties pertaining to the subject matter hereof and
supersedes all prior agreements, understandings, negotiations and discussions,
whether oral or written, between the parties with respect to the subject matter
hereof.
ARTICLE 2
REPRESENTATIONS AND WARRANTIES
2.1 REPRESENTATIONS AND WARRANTIES OF SBI
SBI represents and warrants to and in favour of BA Tech as follows:
(a) SBI is a corporation duly amalgamated and validly existing under the Act
and is governed by the Act and has the corporate power and authority to
own, operate and lease its property and assets and to carry on its business
as now being conducted by it, and it is duly registered, licensed or
qualified to carry on business in each jurisdiction in which a material
amount of its business is conducted or where the character of its
properties and assets make such registration, licensing or qualification
necessary;
(b) SBI has the corporate power and authority to enter into this Agreement and,
subject to obtaining the requisite approvals contemplated hereby, to
perform its obligations hereunder;
(c) the authorized capital of SBI consists of an unlimited number of preference
shares, issuable in series, and an unlimited number of SBI Common Shares,
of which 26,020,128 SBI Common Shares are issued and outstanding;
(d) no individual, firm, corporation or other person holds any securities
convertible or exchangeable into any shares of SBI or of any of its
subsidiaries or has any agreement, warrant, option or any right capable of
becoming an agreement, warrant or option for the purchase of any unissued
shares of SBI or any of its subsidiaries, except for:
(i) warrants to acquire 9,301,950 SBI Common Shares;
(ii) options to acquire 700,000 SBI Common Shares; and
(iii) agreements to settle claims against SBI by the issuance of an
aggregate of 450,000 SBI Common Shares, subject to regulatory
approval.
(e) the execution and delivery of this Agreement by SBI and the completion of
the transactions contemplated herein:
<PAGE>
(i) do not and will not result in a breach of, or violate any term or
provision of the articles or bylaws of SBI or any of the constating
documents of its subsidiaries;
(ii) do not and will not, as of the Effective Date, conflict with, result
in the breach of, constitute a default under, or accelerate or
permit the acceleration of the performance required by, any
agreement, instrument, licence, permit or authority to which SBI or
any of its subsidiaries is a party, or to which any material
property of SBI or any of its subsidiaries is subject, or result in
the creation of any lien, charge or encumbrance upon any of the
material assets of SBI or any of its subsidiaries under any such
agreement, instrument, licence, permit or authority or give to any
person any material interest or right, including rights of purchase,
termination, cancellation or acceleration, under any such agreement,
instrument, licence, permit, or authority;
(iii) do not and will not, as of Effective Date, violate any provision of
law or administrative regulation or any judicial or administrative
award, judgment or decree applicable and known to SBI after due
inquiry, the breach of which would have a material adverse effect on
SBI and its subsidiaries taken as a whole;
(f) the execution and delivery of this Agreement and the completion of the
transactions contemplated herein have been duly approved by the Board of
Directors of SBI and this Agreement has been duly executed and delivered by
SBI and, upon the approval of the holders of the SBI Common Shares given by
a special resolution, will constitute a valid and binding obligation to SBI
enforceable against it in accordance with its terms;
(g) NCI is a wholly-owned subsidiary of SBI;
(h) SBI is a reporting issuer within the meaning of the securities legislation
of Ontario, Alberta and British Columbia and is not in default of any
filings required to be made pursuant thereto or the regulations made
thereunder;
(i) the SBI Common Shares are listed and posted for trading on The Alberta
Stock Exchange and SBI is not in default of any filings required to be made
with respect thereto; and
(j) the information set forth in the SBI In formation Circular and incorporated
therein by reference relating to SBI and its subsidiaries is true, correct
and complete in all material respects does not contain untrue statement of
any material fact or omit to state any material fact required to be stated
therein or necessary in order to make the statements therein not misleading
in light of the circumstances in which they are made and discloses the
nature and extent of the interest of each director or officer of SBI in
this Agreement in reasonable detail.
<PAGE>
2.2 REPRESENTATIONS AND WARRANTIES OF BA TECH
BA Tech represents and warrants to and in favour of SBI as follows:
(a) BA Tech is a corporation duly incorporated, organized and validly existing
under the Act;
(b) BA Tech has the corporate power and authority to enter into this Agreement
and, subject to obtaining the requisite approvals contemplated hereby, to
perform its obligations hereunder;
(c) immediately prior to the Effective Date, the authorized capital of BA Tech
will consist of an unlimited number of BA Class A Shares, an unlimited
number of BA Class B Shares, an unlimited number of BA Class C Shares and
an unlimited number of BA Common Shares, of which 20,000,000 BA Class A
Shares, 4,150,000 BA Class C Shares and 4,100,000 BA Common Shares are
issued and outstanding;
(d) no individual, firm, corporation or other person holds any securities
convertible or exchangeable into any shares of BA Tech or of any of its
subsidiaries or has any agreement, warrant, option or any right capable of
becoming an agreement, warrant or option for the purchase of any unissued
shares of BA Tech or any of its subsidiaries, except for:
(i) the issued shares described in paragraph 2.2(c); and
(ii) an agreement for BA Tech to issue, and for an investor to subscribe
for an aggregate consideration of U.S. $20,000,000, 10,000,000 BA
Common Shares and warrants to acquire an additional 10,000,000 BA
Common Shares for a period of three years at an exercise price of
U.S. $2.00 per share;
(e) the execution and delivery of this Agreement by BA Tech and the completion
of the transactions contemplated herein:
(i) do not and will not result in a breach of, or violate any term or
provision of, the articles or by-laws of BA Tech;
(ii) do not and will not, as of the Effective Date, conflict with, result
in the breach of, constitute a default under, or accelerate or
permit the acceleration of the performance required by, any
agreement, instrument, licence, permit or authority to which BA Tech
or any of its subsidiaries is a party, or to which any material
property of BA Tech or any of its subsidiaries is subject, or result
in the creation of any lien, charge or encumbrance upon any of the
material assets of BA Tech or any of its subsidiaries under any such
agreement, instrument, licence, permit or authority or give to any
person any material interest or right, including rights of purchase,
termination, cancellation or acceleration, under any such agreement,
instrument, licence, permit, or authority;
<PAGE>
(iii) do not and will not, as of Effective Date, violate any provision of
law or administrative regulation or any judicial or administrative
award, judgment or decree applicable and known to BA Tech after due
inquiry, the breach of which would have a material adverse effect on
BA Tech and its subsidiaries taken as a whole;
(f) the execution and delivery of this Agreement and the completion of the
transactions contemplated herein have been duly approved by the Board of
Directors of BA Tech and this Agreement has been duly executed and
delivered by BA Tech and constitutes a valid and binding obligation to BA
Tech enforceable against it in accordance with its terms; and
(g) BA Tech is not engaged in any business nor is it a party to or bound by any
contract, agreement, arrangement, instrument, licence, permit or authority,
other than this Agreement and any transaction or agreement necessary or
incidental to the fulfillment of its obligations under this Agreement, or
is contemplated by the SBI Information Circular, nor does it have any
subsidiaries or liabilities, contingent or otherwise, except as provided in
or permitted by this Agreement.
ARTICLE 3
COVENANTS
3.1 COVENANTS OF SBI
Except as SBI and BA Tech may otherwise agree in writing, SBI hereby
covenants and agrees as follows:
(a) until the Effective Date, SBI shall carry on its business in the ordinary
course and, in particular, make any payments due to UCLA in a timely
fashion;
(b) except as otherwise contemplated in this Agreement, until the Effective
Date, SBI shall not merge into or with, or amalgamate, consolidate or enter
into any other corporate reorganization with, any other corporation or
person, or perform any act or enter into any transaction or negotiation
which reasonably could be expected to, directly or indirectly, interfere or
be inconsistent with the completion of the Arrangement;
(c) SBI shall do all such acts and things as may be necessary or reasonably
required in order to give effect to the Arrangement and, without limiting
the generality of the foregoing, SBI shall use all reasonable efforts to
apply for and obtain:
(i) the Interim Order and the Final Order as provided in Section 3.3.
hereof on terms and conditions satisfactory to SBI and BA Tech;
<PAGE>
(ii) the approval of the Alberta Stock Exchange to the Arrangement on
terms and conditions satisfactory to SBI and BA Tech;
(iii) the approval of the holders of the SBI Common Shares to the
Arrangement and to the Continuance; and
(d) SBI shall provide BA Tech with a pledge of the shares of NCI owned by it to
secure the amounts borrowed by SBI from BA Tech and to cause NCI to
guarantee such amounts and to grant a security interest in all of its
assets, including its technology rights with UCLA, in order to secure such
guarantee.
3.2 COVENANTS OF BA TECH
Except as SBI and BA Tech may otherwise agree in writing, BA Tech hereby
covenants and agrees as follows:
(a) except as otherwise contemplated in this Agreement, until the Effective
Date, BA Tech shall not merge into or with, or amalgamate, consolidate or
enter into any other corporate reorganization with, any other corporation
or person, or perform any act or enter into any transaction or negotiation
which reasonably could be expected to, directly or indirectly, interfere or
be inconsistent with the completion of the Arrangement;
(b) BA Tech shall do all such acts and things as may be necessary or reasonably
required in order to give effect to the Arrangement and, without limiting
the generality of the foregoing, BA Tech shall use all reasonable efforts
to:
(i) apply for and obtain the interim Order and the Final Order as
provided in Section 3.3. hereof on terms and conditions satisfactory
to SBI and BA Tech;
(ii) assist SBI in obtaining the approval of the Alberta Stock Exchange
for the Arrangement;
(iii) solicit and obtain the approval of the BA Class A Shares, the BA
Class C Shares and the BA Common Shares to the Arrangement and the
Continuance;
(c) to lend to SBI sufficient funds to enable it to make any payments due to
UCLA and any other payments necessary or desirable to permit SBI to
continue to carry on business in the ordinary course and to carry out all
steps necessary to consummate the Arrangement; the amount outstanding to
bear interest at a rate equal to the prime rate of interest at the bank of
BA Tech and to be due and payable upon demand; and
(d) not to demand repayment of such loan until on or after the earlier of the
Effective Date or the termination of this Agreement.
<PAGE>
3.3 INTERIM ORDER AND FINAL ORDER
Each party covenants and agrees that it will, as soon as reasonably
practicable, apply to the Court pursuant to Section 182 of the Act for the
Interim Order providing for, among other things, the calling and holding of the
SBI Shareholders' Meeting for the purpose of, among other matters, considering
and, if deemed advisable, approving the Arrangement; and, if the approvals of
the holders of SBI Common Shares and the BA Shares as set forth in the Interim
Order are obtained by SBI, as soon as practicable thereafter each party will
take the necessary steps to submit the Arrangement to the Court and apply for
the Final Order in such fashion as the Court may direct. As soon as practicable
following the grant of the Final Order, and subject to compliance with the other
conditions provided for in Article 4 hereof, SBI and BA Tech shall send to the
Director pursuant to subsection 183(1) of the Act articles of arrangement to
give effect to the Arrangement.
ARTICLE 4
CONDITIONS
4.1 MUTUAL CONDITIONS PRECEDENT
The respective obligations of each party hereto to complete the
transactions contemplated by this Agreement shall be subject to the satisfaction
on or before the Effective Date, of the following conditions, none of which may
be waived by either party hereto in whole or in part:
(a) the required approval of the shareholders of SBI and BA Tech to the
Arrangement and the Continuance shall have been obtained;
(b) the Final Order shall have been obtained in form and substance
satisfactory to SBI and BA Tech, acting reasonably, and shall be
unamended except with the consent of both parties.
4.2 OTHER MUTUAL CONDITIONS PRECEDENT
The respective obligations of each party hereto to complete the
transactions contemplated by this Agreement shall be further subject to the
satisfaction or waiver by either party of the following conditions on or before
the Effective Date:
(a) the Alberta Stock Exchange shall have accepted notice of the Arrangement
and shall have confirmed, prior to the Effective Date, the listing and
posting for trading of the number of Amalco SV Shares issuable in the
Arrangement, subject to compliance with the listing requirements thereof or
any notice of issuance, as the case may be;
(b) all of the issued and outstanding SBI Preference Shares shall have been
converted into SBI Common shares;
<PAGE>
(c) no action shall have been instituted and be continuing on the Effective
Date for an injunction to restrain, a declaratory judgment in respect of or
damages on account of or relating to the Arrangement and no cease trading
or similar order with respect to any securities of SBI or BA Tech shall
have been issued and remain outstanding;
(d) the other party hereto shall have performed each of its covenants contained
herein that are required to be performed on or before the Effective Date
and, except as affected by the transactions contemplated by this Agreement,
the representations and warranties of the other party hereto shall be true
and correct in all material respects as of the Effective Date, with the
same effect as if such representations and warranties had been made at and
as of such time.
4.3 MERGER OF CONDITIONS
The conditions set out in Sections 4.1 and 4.2 shall be conclusively deemed
to have been satisfied, waived or released upon the delivery to the Director
pursuant to subsection 183(1) of the Act of articles of arrangement to give
effect to the Arrangement.
ARTICLE 5
AMENDMENT AND TERMINATION
5.1 AMENDMENT
This Agreement may, at any time and from time to time before and after the
holding of the SBI Shareholder Meeting, be amended by written agreement of the
parties hereto without, subject to applicable law, further notice to or action
on the part of the shareholders of SBI or BA Tech, provided that after the SBI
Shareholder Meeting this Agreement may not be amended in a manner materially
adverse to the interests of the holders of the SBI Common Shares and the holders
of the SBI Preference Shares.
5.2 TERMINATION
This Agreement may, at any time before or after the holding of the SBI
Shareholder Meeting, be terminated by the Board of Directors of SBI or BA Tech
for any reason whatsoever, acting in good faith and in its sole discretion,
without further notice to, or action on the part of, the shareholders of SBI or
BA Tech.
5.3 EFFECT OF TERMINATION
Upon the termination of this Agreement pursuant to Section 5.2 hereof,
neither party shall have any liability or further obligation to the other party
hereto.
<PAGE>
ARTICLE 6
GENERAL
6.1 NOTICES
All notices which may or are required to be given pursuant to any provision
of this Agreement shall be given or made in writing and shall be deemed to be
validly given if served personally or by facsimile at the following addresses or
at such other addresses as shall be specified by the parties by like notice:
If to SBI: If to BA Tech:
372 Bay Street 372 Bay Street
Suite 302 Suite 302
Toronto, Ontario Toronto, Ontario
M5H 2W9 M5H 2W9
Attention: President Attention: Chairman
The date of receipt of any such notice shall be deemed to be the date of
delivery or facsimile transmission thereof.
6.2 ASSIGNMENT
No party may assign its rights or obligations under this Agreement or the
Arrangement without the prior written consent of the other party hereto.
6.3 BINDING EFFECT
This Agreement and the Arrangement shall be binding upon and shall enure to
the benefit of the parties hereto and their respective successors and permitted
assigns.
6.4 WAIVER
Any waiver or release of any of the provisions of this Agreement, to be
effective, must be in writing executed by the party granting the same.
6.5 GOVERNING LAW
This Agreement shall be governed by and construed in accordance with the
laws of the Province of Ontario and the laws of Canada applicable therein and
shall be treated in all respects as an Ontario contract.
<PAGE>
IN WITNESS WHEREOF the parties hereto have executed this Agreement as of
the year and day first above written.
STRUCTURED BIOLOGICAL-S INC.
By: /s/ Claus G.J. Wagner-Bartak
----------------------------------------
Name: Claus G.J. Wagner-Bartak
Title: President
BEN-ABRAHAM TECHNOLOGIES INC.
By: /s/ Avi Ben-Abraham, M.D.
----------------------------------------
Name: Avi Ben-Abraham, M.D.
Title: Chairman, President and Chief
Executive Officer
<PAGE>
APPENDIX I
PLAN OF ARRAIGNMENT UNDER SECTION 182
OF THE ONTARIO BUSINESS CORPORATIONS ACT
ARTICLE 1
INTERPRETATION
1.1 DEFINITIONS
In this Plan of Arrangement, unless there is something in the subject
matter or context inconsistent therewith:
"ACT" means the Ontario Business Corporations Act, R.S.O. 1990, c. B.16, as
amended;
"ARRANGEMENT AGREEMENT" means the arrangement agreement made as of October 23,
1996 between BA Technologies, NCI and SBI;
"AMALCO" means the corporation resulting from the Amalgamation;
"AMALCO CLASS A SHARES" means the Class A special shares in the capital of
Amalco;
"AMALCO CLASS B SHARES" means the Class B special shares in the capital of
Amalco;
"AMALCO CLASS C SHARES" means the Class C special shares in the capital of
Amalco;
"AMALCO SV SHARES" means the subordinate voting shares in the capital of Amalco;
"AMALGAMATION" means the amalgamation of BA Technologies, NCI and SBI pursuant
to this Plan of Arrangement;
"ARRANGEMENT" means an arrangement under the provisions of section 182 of the
Act, on the terms and conditions set forth in this Plan of Arrangement, and any
amendment or variation hereto made in accordance with section 5.1 of the
Arrangement Agreement;
"BA CLASS A SHARES" means the Class A special shares of BA Technologies;
"BA CLASS B SHARES" means the Class B special shares of BA Technologies;
"BA CLASS C SHARES" means the Class C special shares of BA Technologies;
"BA COMMON SHARES" means the common shares of BA Technologies;
<PAGE>
"BA SHARES" means the BA Class A Shares, the BA Class B Shares, the BA Class C
Shares and the BA Common Shares;
"BA TECH" means Ben-Abraham Technologies Inc., a corporation, incorporated under
the laws of Ontario;
"BUSINESS DAY" means a day other than a Saturday, Sunday or an Ontario
provincial holiday or any other day when banks in Toronto, Canada, are not open
for business;
"COURT" means the Ontario Court (General Division);
"DEPOSITARY" means Montreal Trust Company;
"DIRECTOR" means the Director appointed under section 278 of the Act;
"EFFECTIVE DATE" means the date shown in the certificate of arrangement giving
effect to the Arrangement which is issued under the Act by the Director;
"FINAL ORDER" means the final order of the Court made in connection with
approval of the Arrangement, following the application therefor contemplated in
section 3.3 of the Arrangement Agreement;
"HOLDER" means a registered holder of SBI Common Shares or SBI Preference Shares
on the Effective Date;
"INTERIM ORDER" means the interim order of the Court made in connection with
approval of the Arrangement, following the application therefor contemplated in
section 3.3 of the Arrangement Agreement;
"NCI" means 923934 Ontario Corporation, a corporation incorporated under the
laws of Ontario, and a wholly-owned subsidiary of SBI;
"PLAN OF ARRANGEMENT", "hereof", "herein", and "hereunder" and similar
expressions refer to this Plan of Arrangement and the Schedules hereto and not
to any particular article, section or other portion hereof;
"SBI" means Structured Biologicals Inc., a corporation incorporated under the
laws of Ontario;
"SBI COMMON SHARES" means the common shares of SBI;
"SBI INFORMATION CIRCULAR" means the management information circular of SBI to
be prepared and sent to the registered holders of SBI Common Shares in
connection with the SBI Shareholders Meeting;
<PAGE>
"SBI SHAREHOLDERS MEETING" means the annual and special meeting of shareholders
of SBI (including any adjournment thereof) to be held, among other things, to
consider and, if deemed advisable, to approve the Arrangement;
1.2 INTERPRETATION NOT AFFECTED BY HEADINGS, ETC.
The division of this Plan of Arrangement into articles, sections and other
portions and the insertion of headings are for convenience of reference only and
shall not affect the construction or interpretation of this Plan of Arrangement.
1.3 CURRENCY
All sums of money which are referred to in this Plan of Arrangement are
expressed in lawful money of Canada unless otherwise specified.
1.4 NUMBER, ETC.
Unless the context requires the contrary, words importing the singular
number only shall include the plural and vice versa; words importing the use of
any gender shall include all genders; and words importing persons shall include
natural persons, firms, trusts, partnerships and corporations.
1.5 BUSINESS DAYS
If any date on which any action is required to be taken hereunder by any
person is not a Business Day, such action shall required to be taken on the next
succeeding day which is a Business Day.
ARTICLE 2
ARRANGEMENT AGREEMENT
2.1 ARRANGEMENT AGREEMENT
This Plan of Arrangement is made pursuant to the Arrangement Agreement.
ARTICLE 3
THE AMALGAMATION
3.1 AMALGAMATION OF SBI CANADA AND BA TECH
On the Effective Date, BA Tech, NCI and SBI (sometimes referred to
hereinafter as "predecessor corporations") will amalgamate to form Amalco with
the same effect as if section 179 of the Act were applicable to such
amalgamation and in connection with such amalgamation:
<PAGE>
(a) Amalco will possess all of the property, rights, privileges and franchises
of each of the predecessor corporations immediately before the
Amalgamation;
(b) Amalco will be subject to all liabilities, including civil, criminal and
quasi-criminal, and all contracts, disabilities and debts of each of the
predecessor corporations immediately before the Amalgamation;
(c) all convictions against, or rulings, orders or judgments in favour of or
against a predecessor corporation immediately before the Amalgamation may
be enforced by or against Amalco;
(d) the articles of arrangement in respect of the Arrangement shall be deemed
to be the articles of incorporation of Amalco and the certificate of
arrangement in respect of the Arrangement shall be deemed to be the
certificate of incorporation of Amalco;
(e) Amalco shall be deemed to be the party plaintiff or the party defendant, as
the case may be, in any civil action commenced by or against a predecessor
corporation before the Amalgamation.
3.2 CONVERSION OF SHARES
Upon the Amalgamation becoming effective:
(a) the issued and outstanding SBI Common Shares shall be converted into issued
and fully paid Amalco SV Shares on the basis of one Amalco SV Share for
each 3.5 SBI Common Shares;
(b) the issued and outstanding BA Common Shares shall be converted into issued
and fully paid Amalco SV Shares on the basis of one Amalco SV Share for
each BA Common Share;
(c) the issued and outstanding BA Class A Shares shall be converted into issued
and fully paid Amalco Class A Shares on the basis of one Amalco Class A
Share for each BA Class A Share;
(d) the issued and outstanding BA Class B Shares shall be converted into issued
and fully paid Amalco Class B Shares on the basis of one Amalco Class B
Share for each BA Class A Share;
(e) the issued and outstanding BA Class C Shares shall be converted into issued
and fully paid Amalco Class C Shares on the basis of one Amalco Class C
Share for each BA Class C Share;
<PAGE>
(f) the issued and outstanding shares of NC! shall be cancelled without any
repayment of capital in respect thereof.
3.3 ARTICLES AND BY-LAWS OF AMALCO
Upon the Amalgamation:
(a) the name of Amalco shall be "Ben-Abraham Technologies Inc.;
(b) the registered office of Amalco shall be in the City of Toronto in the
Province of Ontario;
(c) the number of directors of Amalco shall be such number not less than 3 and
not more than 11 as the Board of Directors may from time to time determine;
(d) the directors of Amalco may appoint one or more directors who shall hold
office for a term expiring not later than the close of the next annual
meeting of Amalco, but the total number of directors so appointed may not
exceed one third of the number of directors elected at the previous annual
meeting of Amalco; and
(e) the number of the first directors shall be 3 and the first directors of
Amalco shall be the persons set out below, who shall hold office until the
first annual meeting of Amalco or until their successors are elected or
appointed.
NAME ADDRESS RESIDENT CANADIAN
Dr. Avi Ben-Abraham 12 West 55th Street No
Suite 5B
New York, New York
U.S.A. 10019
James K. Lau 1274 Woodeden Drive Yes
Mississauga, Ontario
L5H 2T6
A. Suzan Khan 110 Bloor Street West Yes
Suite 1008
Toronto, Ontario
M5S 2W7
Dr. Claus G.J. 32 Woodgreen Drive Yes
Wagner-Bartak Woodbridge, Ontario
L4L 3B3
(f) there shall be no restrictions on the business which Amalco is authorized
to carry on or on the powers Amalco may exercise;
<PAGE>
(g) the authorized capital of Amalco shall consist of an unlimited number of
subordinate voting shares, an unlimited number of Class A special shares,
an unlimited number of Class B special shares, an unlimited number of Class
C special shares and an unlimited number of Preference Shares, issuable in
series;
(h) the rights, privileges, restrictions and conditions attaching to each class
of shares and directors' authority with respect to any class of shares
which may be issued in series are as set out in Exhibit 1 hereto;
(i) without limiting the powers of the Board of Directors as set out in the
Act, the Board of Directors may from time to time on behalf of Amalco:
(i) borrow money upon the credit of Amalco;
(ii) issue, reissue, sell or pledge debt obligations of Amalco;
(iii) to the extent permitted by the Act, give, directly or indirectly,
financial assistance to any person by means of a loan, a guarantee to
secure the performance of an obligation or otherwise; and
(iv) mortgage, hypothecate, pledge or otherwise create a security interest
in all or any property of Amalco owned or subsequently acquired, to
secure any obligation of Amalco.
The Board of Directors may from time to time delegate to such one or more
of the directors and officers of Amalco as may be designated by the Board
of Directors all or any of the powers conferred on the Board of Directors
in relation to the foregoing by this paragraph or by the Act to such extent
and in such manner as the Board of Directors shall determine at the time of
each such delegation. Nothing in this paragraph limits or restricts the
borrowing of money by Amalco on bills of exchange or promissory notes made,
drawn, accepted or endorsed by or on behalf of Amalco;
(j) the by-laws of SBI shall be the by-laws of Amalco until repealed, amended,
altered or added to.
3.4 CONTINUANCE
As the application for continuance of Amalco as a corporation under the
laws of the State of Wyoming has been approved by special resolutions of both
SBI and BA Tech and as NCI is a wholly-owned subsidiary of SBI, the
shareholders of Amalco shall be deemed, for the purposes of section 181 of
the Act, to have authorized an application to the appropriate official or
public body in the State of Wyoming requesting that Amalco be continued as if
it had been incorporated under the laws of the State of Wyoming.
<PAGE>
ARTICLE 4
RIGHTS OF DISSENT
4.1 RIGHTS OF DISSENT
Any holder of SBI Common Shares may exercise rights of dissent pursuant to
and in the manner set forth in section 185 of the Act, as such rights may have
been modified by the interim Order or the Final Order, in connection with the
Arrangement, and holders who duly exercise such rights of dissent and who:
(a) are ultimately entitled to be paid fair value for their SBI Common
Shares by Amalco shall have their SBI Common Shares cancelled as of
the Effective Date; or
(b) are ultimately not entitled for any reason to be paid fair value for
their SBI Common Shares or withdraw their dissent in accordance with
section 185 of the Act shall be deemed to have participated in the
Arrangement as of and from the Effective Date on the same basis as any
non-dissenting holder of SBI Common Shares.
In no case shall SBI, BA Tech or Amalco be required to recognize holders of SBI
Common Shares referred to in subsection 4.1(a) as holders of SBI Common Shares
at and after the Effective Date, and the names of such holders of SBI Common
Shares shall be deleted from SBI's register of holders of such shares on the
Effective Date.
ARTICLE 5
RIGHTS TO CERTIFIED AND FRACTIONAL SHARES
5.1 RIGHTS TO RECEIVE NEW CERTIFICATES
Following the Effective Date, certificates for the appropriate number and
class of Amalco Shares will be issued to former holders of SBI Common Shares and
BA Shares, as the case may be, in accordance with the provisions of section 3.2
hereof against deposit of the certificates representing the SBI Common Shares or
the BA Shares with the Depository.
5.2 FRACTIONAL CERTIFICATES
No certificates representing fractional Amalco SV Shares shall be issued to
holders of SBI Common Shares. Each former holder of SBI Common Shares who is
otherwise entitled to a fraction of an Amalco SV Share which is less than .5 of
an Amalco SV Share shall not be entitled to any compensation therefor. Each
former holder of SBI Common shares who is otherwise entitled to a fraction of an
Amalco SV Share which is equal to or greater than .5 of an Amalco SV Share shall
be entitled to one whole Amalco SV Share.
<PAGE>
ARTICLE 6
STATED CAPITAL
6.1 STATED CAPITAL OF AMALCO
The amount of the stated capital account for each class of shares of Amalco
shall be:
(a) for the Amalco Class A Shares, the amount of the stated capital account for
the BA Class A Shares as it existed immediately prior to the amalgamation;
(b) for the Amalco Class C Shares, the amount of the stated capital account for
the BA Class C Shares as it existed immediately prior to the amalgamation;
and
(c) for the Amalco SV Shares, the aggregate of $7,084,976 for the SBI Common
Shares and the BA Common Shares as they existed immediately prior to the
amalgamation.
<PAGE>
EXHIBIT I
BEN-ABRAHAM TECHNOLOGIES INC. SHARE PROVISIONS
The rights, privileges, restrictions and conditions attaching to each class
of shares and directors authority with respect to any class of shares which may
be issued in series:
A. PREFERENCE SHARES
The rights, privileges, restrictions and conditions attaching to the preference
shares as a class are as follows:
1. DIRECTORS' RIGHT TO ISSUE IN ONE OR MORE SERIES
The preference shares may at any time or from time to time be issued in one
or more series. Before any shares of a particular series are issued, the
directors of the Corporation shall fix the number of shares that will form
such series and shall, subject to the limitations set out herein, by
resolution, determine the designation, rights, privileges, restrictions and
conditions to be attached to the preference shares of such series
including, but without in any way limiting or restricting the generality of
the foregoing, the rate, amount or method of calculation of dividends
thereon, the time and place of payment of dividends, the consideration and
the terms and conditions of any purchase for cancellation, retraction or
redemption thereof, conversion rights and the terms and conditions of any
share purchase plan or sinking fund, the whole subject to the filing with
the Director, as defined in the Business Corporations Act (Ontario), as
amended from time to time (the "Act"), of articles of amendment in the form
prescribed under the Act containing a description of such series including
the designation, rights, privileges, restrictions and conditions as
determined by the directors, and the endorsement thereon of a certificate
of amendment in respect thereof. Notwithstanding the foregoing, the
preference shares of a series shall not be entitled to any voting rights
except as prescribed by law or except if the Corporation has failed to pay
dividends on any series of preference shares.
2. RANKING
The preference shares of each series shall rank on a parity with the
preference shares of every other series with respect to accumulated
dividends and return of capital. The preference shares of the Corporation
shall be entitled to preference over the subordinate voting shares of the
Corporation and over any other shares of the Corporation ranking junior to
the preference shares with respect to priority in the payment of dividends
and the distribution of assets in the event of the liquidation, dissolution
or winding-up of the Corporation, whether voluntary or involuntary, or any
other distribution of the assets of the Corporation among its shareholders
for the purposes of winding up its affairs. If any accumulated dividends
or amounts payable on a return of capital are not paid in full, the
<PAGE>
preference shares of all series shall Participate rateably in respect of
such dividends, including accumulations, if any, in accordance with the
sums that would be payable on such shares if all such dividends were
declared and paid in full, and in respect of any repayment of capital if
all sums so payable were paid in full; provided however that in the event
of there being insufficient assets to satisfy in full all such claims, the
claims of the holders of the preference shares with respect to repayment of
capital shall first be applied toward the payment and satisfaction of
claims in respect of dividends.
3. VOTING
Except as hereinafter referred to or as required by law or in accordance
with any voting rights which may from time to time be attached to any
series of preference shares, the holders of the preference shares, as a
class, shall not be entitled as such to receive notice of, to attend or to
vote at any meeting of the shareholders of the Corporation.
Notwithstanding the foregoing, neither the holders of any series of
preference shares, nor the holders of preference shares as a class shall be
entitled to vote, as a series or class, as the case may be, or to dissent
pursuant to subsection 185(2) of the Act in respect of any proposal to
amend the articles of the Corporation as contemplated in clauses (a), (b)
and (e) of subsection 170(1) of the Act.
4. AMENDMENT WITH APPROVAL OF HOLDERS OF PREFERENCE SHARES
The rights, privileges, restrictions and conditions attaching to the
preference shares as a class may be added to, changed or removed but only
with the approval of the holders of the preference shares given as
hereinafter specified.
5. APPROVAL OF HOLDERS OF PREFERENCE SHARES]
The approval of the holders of the preference shares to add to, change or
remove any right, privilege, restriction or condition attaching to the
preference shares as a class or any other matter requiring the consent of
the holders of the preference shares may be given in such manner as may be
required by law, subject to a minimum requirement that such approval be
given by resolution passed by the affirmative vote of at least 2/3 of the
votes cast at a meeting of the holders of the preference shares duly called
for that purpose. Each holder of preference shares entitled to vote at
such meeting shall have one vote in respect of each $1.00 of the issue
price of each preference share held by such person.
B. SUBORDINATE VOTING SHARES, CLASS A SHARES, CLASS B SHARES AND CLASS C
SHARES
The rights, privileges, restrictions and conditions attaching to the
subordinate voting shares, the Class A shares, the Class B shares and the
Class C shares are as follows:
<PAGE>
1. DIVIDEND RIGHTS
(a) DIVIDEND RIGHTS OF SUBORDINATE VOTING SHARES
The holders of the subordinate voting shares, shall be entitled to
receive dividends as and when declared by the directors from time to
time out of moneys of the Corporation properly applicable to the
payment of dividends and the amount per share of each such dividend
shall be determined by the directors of the Corporation at the time of
declaration.
(b) DIVIDEND RIGHTS OF CLASS B SHARES
The holders of the Class B shares shall be entitled to receive
dividends as and when declared by the directors from time to time out
of moneys of the Corporation properly applicable to the payment of
dividends and the amount per share of each such dividend shall be
determined by the directors of the Corporation at the time of
declaration, provided that the amount of the dividend per Class B
share in any calendar year shall not exceed the amount of the dividend
per subordinate voting share in such year.
(c) DIVIDEND RIGHTS OF CLASS A AND CLASS C SPECIAL SHARES
The holders of the Class A shares and the Class C shares shall not be
entitled to receive any dividends.
2. VOTING RIGHTS
(a) VOTING OF SUBORDINATE VOTING SHARES
Subject to the provisions of the Business Corporations Act, the
holders of the subordinate voting shares shall be entitled to receive
notice of and to attend all meetings of the shareholders of the
Corporation and shall be entitled to vote at all meetings of
shareholders, except meetings at which only holders of another class
of shares are entitled to vote. Each subordinate voting share shall
entitle the holder thereof to one vote.
(b) VOTING OF CLASS A SHARES
Subject to the provisions of the Business Corporations Act, the
holders of the Class A shares shall be entitled to receive notice of
and to attend all meetings of the shareholders of the Corporation and
shall be entitled to vote at all meetings of the shareholders, except
meetings at which only holders of another class of shares are entitled
to vote. Each Class A share shall entitle the holder thereof to ten
votes.
<PAGE>
(c) VOTING OF CLASS B SHARES
Subject to the provisions of the Business Corporations Act, the
holders of the Class B shares shall be entitled to receive notice of
and to attend all meetings of the shareholders of the Corporation and
shall be entitled to vote at all meetings of the shareholders, except
meetings at which only holders of another class of shares are entitled
to vote. Each Class B share shall entitle the holder thereof to ten
votes.
(d) VOTING OF CLASS C SHARES
Subject to the provisions of the Business Corporations Act, the
holders of the Class C shares shall be entitled to receive notice of
and to attend all meetings of the shareholders of the Corporation and
shall be entitled to vote at all meetings of the shareholders, except
meetings at which only holders of another class of shares are entitled
to vote. Each Class C share shall entitle the holder thereof to one
vote.
3. PURCHASE RIGHTS
(a) SUBORDINATE VOTING SHARE PURCHASE RIGHTS OF CLASS A SHARES
A holder of Class A shares shall be entitled, in accordance with the
provisions hereof, to acquire subordinate voting shares of the
Corporation as the same may then be constituted by tendering any of
the Class A shares held and registered in his name together with U.S.
$0.25 per share (the "Subordinate Voting Share Purchase Price") on the
basis of one subordinate voting share for each Class A share and U.S.
$0.25. The purchase right herein provided shall be exercised by
notice in writing given to the Corporation which notice shall specify
the number of Class A shares that the holder desires to have applied
to the purchase price of subordinate voting shares. If any Class A
shares are applied to the purchase of subordinate voting shares
pursuant to this paragraph, the holder of such Class A shares shall
surrender the certificate or certificates representing the Class A
shares so applied to the registered office of the Corporation, or to
the transfer agent of the Corporation at the time of purchase together
with cash or a certified cheque in the amount of U.S. $0.25 per
subordinate voting share being acquired, and the Corporation shall
thereupon issue to such holder certificates representing the number of
subordinate voting shares to which the holder became entitled upon
such purchase.
(b) CLASS B SHARE PURCHASE RIGHTS OF CLASS A SHARES
A holder of Class A shares shall be entitled, in accordance with the
provisions hereof, to acquire, Class B shares of the Corporation as
the same may then be constituted by tendering any of the Class A
shares held and registered in his name
<PAGE>
together with U.S. $0.25 (the "Class B Share Purchase Price") per
share on the basis of one Class B share for each Class A share and
U.S. $0.25. The purchase right herein provided shall be exercised by
notice in writing given to the Corporation which notice shall specify
the number of Class A shares that the holder desires to have applied
to the purchase price of Class B shares. If any Class A shares are
applied to the purchase of subordinate voting shares pursuant to this
paragraph, the holder of such Class A shares shall surrender the
certificate or certificates representing the Class A shares so applied
to the registered office of the Corporation, or to the transfer agent
of the Corporation at the time of purchase together with cash or a
certified cheque in the amount of U.S. $0.25 per Class B share being
acquired, and the Corporation shall thereupon issue to such holder
certificates representing the number of Class B shares to which the
holder became entitled upon such purchase.
(c) SUBORDINATE VOTING SHARE PURCHASE RIGHTS OF CLASS C SHARES
A holder of Class C shares shall be entitled, in accordance with the
provisions hereof, to acquire subordinate voting shares of the
Corporation as the same may then be constituted by tendering any of
the Class C shares held and registered in his name together with U.S.
$0.25 per share on the basis of one subordinate voting share for each
Class C share and U.S. $0.25. The purchase right herein provided
shall be exercised by notice in writing given to the Corporation which
notice shall specify the number of Class C shares that the holder
desires to have applied to the purchase price of subordinate voting
shares. If any Class C shares are applied to the purchase of
subordinate voting shares pursuant to this paragraph, the holder of
such Class C shares shall surrender the certificate or certificates
representing the Class C shares so applied to the registered office of
the Corporation, or to the transfer agent of the Corporation at the
time of purchase together with cash or a certified cheque in the
amount of U.S. $0.25 per subordinate voting share being acquired, and
the Corporation shall thereupon issue to such holder certificates
representing the number of subordinate voting shares to which the
holder became entitled upon such purchase.
4. CONVERSION RIGHTS
(a) CONVERSION RIGHTS OF CLASS B SHARES
A holder of Class B shares shall be entitled, in accordance with the
provisions hereof, to have any of the Class B shares held and
registered in his name converted into subordinate voting shares of the
Corporation as the same may be constituted at the time of the
conversion on the basis of one subordinate voting share for each Class
B share converted. The conversion right herein provided shall be
exercised by notice in writing given to the Corporation which notice
shall specify the number of Class B shares that the holder desires to
have converted into subordinate voting shares. If any Class B shares
are converted into subordinate
<PAGE>
voting shares pursuant to this paragraph, the holder of such Class B
shares shall surrender the certificate or certificates representing
the Class B shares which were converted to the registered office of
the Corporation, or to the transfer agent of the Corporation at the
time of conversion, and the Corporation shall thereupon issue to such
holder certificates representing the number of subordinate voting
shares to which the holder became entitled upon the conversion.
5. ADJUSTMENT OF PURCHASE RIGHTS AND CONVERSION RIGHTS
(a) SUBORDINATE VOTING SHARES
(i) In case of any reclassification or redesignation of the
subordinate voting shares (hereinafter referred to in this
subsection 5(a) as the "Shares") or change of the Shares into
other shares, or in case of the consolidation, amalgamation or
merger of the Corporation with or into any other body corporate
(other than a consolidation, amalgamation or merger which does
not result in any reclassification or redesignation of the
outstanding Shares or a change of the Shares into other shares),
or in the case of any transfer of the undertaking or assets of
the Corporation as an entirety or substantially as an entirety to
another corporation, the holder of any Class A shares or Class C
shares who thereafter shall exercise his right to purchase Shares
pursuant to section 3 hereof and the holder of any Class B shares
who thereafter shall exercise his right to convert any Class B
shares into Shares pursuant to section 4 hereof shall be
entitled to receive, and shall accept, in lieu of the number of
Shares to which he was theretofore entitled upon such exercise of
such right to purchase or convert, as the case may be, the kind
and amount of shares which such holder would have been entitled
to receive as a result of such reclassification, redesignation,
change, consolidation, amalgamation, merger or transfer if, on
the effective date thereof, he had been the registered holder of
the number of Shares to which he was theretofore entitled upon
exercising his right to purchase or convert, as the case may be.
The subdivision or consolidation of Shares at anytime outstanding
into a greater or lesser number of Shares shall be deemed not to
be a reclassification of the capital of the Corporation for the
purposes of this paragraph 5(a)(i).
(ii) If and whenever the Shares shall be subdivided into a greater or
consolidated into a lesser number of Shares, or the Corporation
shall issue Shares (or securities exchangeable for or convertible
into Shares) to the holders of all or substantially all of the
outstanding Shares by way of a dividend or other distribution of
Shares (or securities exchangeable for or convertible into
Shares), any holder of Class A shares or Class C shares who has
not exercised his right of purchase pursuant to section 3 hereof
and any holder of Class B shares who has not exercised his right
to convert pursuant to section 4 hereof on or prior to the
effective date or
<PAGE>
record date, as the case may be, of such subdivision,
consolidation, dividend or other distribution, upon the exercise
of such right thereafter, shall be entitled to receive, and shall
accept, in lieu of the number of Shares to which he was
theretofore entitled upon such exercise of such right to purchase
or convert (and, in the case of a purchase of Shares pursuant to
section 3 hereto, at the Subordinate Voting Share Purchase Price
adjusted in accordance with subsection 6(a) hereof), the
aggregate number of Shares that such holder would have been
entitled to receive as a result of such subdivision,
consolidation, dividend or other distribution as if, on such
record date or effective date, as the case may be, he had been
the registered holder of the number of Shares to which he was
theretofore entitled upon such exercise of such right to purchase
or convert, as the case may be.
(b) CLASS B SHARES
(i) In case of any reclassification or redesignation of the Class B
shares (hereinafter referred to in this subsection 5(b) as the
"Shares") or change of the Shares into other shares, or in case
of the consolidation, amalgamation or merger of the Corporation
with or into any other body corporate (other than a
consolidation, amalgamation or merger which does not result in
any reclassification or redesignation of the outstanding Shares
or a change of the Shares into other shares), or in the case of
any transfer of the undertaking or assets of the Corporation as
an entirety or substantially as an entirety to another
corporation, the holder of any Class A shares who thereafter
shall exercise his right to purchase Shares pursuant to section 3
hereof shall be entitled to receive, and shall accept, in lieu of
the number of Shares to which he was theretofore entitled upon
such exercise of such right to purchase, the kind and amount of
shares which such holder would have been entitled to receive as a
result of such reclassification, redesignation, change,
consolidation, amalgamation, merger or transfer if, on the
effective date thereof, he had been the registered holder of the
number of Shares to which he was theretofore entitled upon
exercising his right to purchase. The subdivision or
consolidation of Shares at any time outstanding into a greater or
lesser number of Shares shall be deemed not to be a
reclassification of the capital of the Corporation for the
purposes of this paragraph 5(b)(i).
(ii) If and whenever the Shares shall be subdivided into a greater or
consolidated into a lesser number of Shares, any holder of Class
A shares who has not exercised his right of purchase on or prior
to the effective date of such subdivision or consolidation upon
the exercise of such right thereafter, shall be entitled to
receive, and shall accept, in lieu of the number of Shares to
which he was theretofore entitled upon such exercise of such
right to purchase (at the Class B Share Purchase Price adjusted
in
<PAGE>
accordance with subsection 6(b) hereof) the aggregate number of
Shares that such holder would have been entitled to receive as a
result of such subdivision or consolidation as if, on such the
effective date, he had been the registered holder of the number
of Shares to which he was theretofore entitled upon such exercise
of such right to purchase.
6. ADJUSTMENT OF PURCHASE PRICE
(a) SUBORDINATE VOTING SHARES
If the Corporation shall:
(i) subdivide its outstanding subordinate voting shares (hereinafter
referred to in this paragraph 6(a) as the "Shares") into a
greater number of shares,
(ii) consolidate the outstanding Shares into a lesser number of
shares, or
(iii) issue Shares or securities exchangeable for or convertible into
Shares ("convertible securities") to the holders of all or
substantially all of the outstanding Shares by way of a dividend
or distribution of Shares or securities convertible into Shares
(other than the issue of Shares or convertible securities as
dividends paid in the ordinary course), the Subordinate Voting
Share Purchase Price shall, on the effective date of such
subdivision or consolidation or on the record date of such
dividend or other distribution, as the case may be, be adjusted
by multiplying the Subordinate Voting Share Purchase Price in
effect immediately prior to such subdivision, consolidation,
dividend or other distribution by a fraction, the numerator of
which is the number of outstanding Shares before giving effect
to such subdivision, consolidation or stock dividend and the
denominator of which is the number of outstanding Shares after
giving effect to such subdivision, consolidation, dividend or
other distribution (including in the case where convertible
securities are distributed, the number of Shares that would have
been outstanding had such securities been exchanged for or
converted into Shares on such record date). Such adjustment
shall be made successively whenever any event referred to in
this paragraph 6(a) shall occur.
(b) CLASS B SHARES
If the Corporation shall:
(i) subdivide its outstanding Class B shares (hereinafter referred
to in this paragraph 6(b) as the "Shares") into a greater number
of shares, or
(ii) consolidate the outstanding Shares into a lesser number of
shares, or
<PAGE>
the Class B Share Purchase Price shall, on the effective date of
such subdivision or consolidation, be adjusted by multiplying
the Class B Share Purchase Price in effect immediately prior to
such subdivision or consolidation, by a fraction, the numerator
of which is the number of outstanding Shares before giving
effect to such subdivision or consolidation and the denominator
of which is the number of outstanding Shares after giving effect
to such subdivision or consolidation. Such adjustment shall be
made successively whenever any event referred to in this
paragraph 6(b) shall occur.
7. DISTRIBUTION RIGHTS OF ON LIQUIDATION
If the Corporation is liquidated, dissolved or wound-up or its assets are
otherwise distributed among the shareholders by way of repayment of
capital, whether voluntary or involuntary and subject to the rights,
privileges, and conditions attaching to any series of preference shares of
the Corporation:
(a) the holders of the subordinate voting shares shall be entitled
to share, equally share for share, in the distribution of the
remaining assets of the Corporation; and
(b) the holders of the Class A shares, the Class B shares and the
Class C shares shall not be entitled to share in the remaining
assets of the Corporation.
<PAGE>
STATE OF WYOMING
OFFICE OF THE
SECRETARY OF STATE
United States of America, )
State of Wyoming ) ss.
I, DIANA J. OHMAN, Secretary of State of the State of Wyoming, do hereby
certify
BEN-ABRAHAM TECHNOLOGIES INC.
a corporation originally organized under the laws of the ONTARIO, CANADA, did on
DECEMBER 19, 1996, apply for a Certificate of Registration and filed Articles of
Continuance in the office of the Secretary of State of Wyoming.
I FURTHER CERTIFY that BEN-ABRAHAM TECHNOLOGIES INC. has renounced its
original COUNTRY of incorporation, and is now incorporated under the laws of the
state of Wyoming in accordance with W.S. 17-16-1710.
IN TESTIMONY WHEREOF, I have hereunto set my hand
and affixed the Great Seal of the State of
Wyoming. Done at Cheyenne, the Capital, this 19TH
day of DECEMBER AD., 1996.
/s/ Diana J. Ohman
-------------------------------------------------
Secretary of State
By
-----------------------------------------------
<PAGE>
STATE OF WYOMING
APPLICATION FOR
CERTIFICATE OF REGISTRATION
AND ARTICLES OF CONTINUANCE
Pursuant to Wyo. Stat. 17-16-1710 of the Wyoming Business Corporation Act ,
the undersigned hereby submits the following Articles of Continuance:
1. The name of the corporation is: BEN-ABRAHAM TECHNOLOGIES INC.
2. It is incorporated under the laws of: ONTARIO, CANADA.
3. (a) The date of its incorporation is: December 6, 1996
(b) The period of its duration is: Perpetual
4. The address of its principal office in the state/province under the laws of
which it is incorporated is:
372 Bay Street, Suite 302
Toronto, Ontario, Canada M5H 2W9
5. The mailing address where correspondence and annual reports can be sent:
372 Bay Street, Suite 302
Toronto, Ontario, Canada M5H 2W9
6. The physical address of its proposed registered office in Wyoming and the
name of its registered agent at that address is:
CT Corporation
1720 Carey Avenue
Cheyenne, WY 82001
7. POWERS: The purpose or purposes of Ben-Abraham Technologies Inc. is to
engage in any lawful business permitted under the laws of the State of
Wyoming.
8. DIRECTORS & OFFICERS: The names and respective addresses of its officers
and directors are:
OFFICE NAME ADDRESS
------ ---- -------
Chairman, Chief Executive Avi Ben-Abraham, M.D. 12 West 55th St.
Officer Suite 5B
<PAGE>
OFFICE NAME ADDRESS
------ ---- -------
Chairman, Chief Executive Avi Ben-Abraham, M.D. 12 West 55th St.
Officer and Director Suite 5B
New York, NY 10019
Director James K. Lau 1274 Woodeden Dr.
Mississauga, Ontario
L5H 2T6
Director A. Suzan Khan 110 Bloor Street West
Suite 1008
Toronto, Canada
M5S 2W7
Director Dr. Claus G.J. 32 Woodgreen Dr.
Wagner-Bartak Woodbridge, Ontario
L4L 3P3
Director Louis W. Sullivan, M.D. Morehouse School of
Medicine
720 Westview Drive S.W.
Atlanta, Georgia
30310-1495
Director Paul F. Oreffice 7740 East Gainey
Ranch Road, #7
Scottsdale, AZ 85258
9. NUMBER OF DIRECTORS AND QUORUM: The Board shall consist of the number of
directors provided in the Bylaws of the Corporation. The quorum for the
transaction of business at any meeting of the Board shall be determined in
accordance with the Bylaws.
10. SHAREHOLDER QUORUM: A quorum for the transaction of business at any
meeting of shareholders shall be two shareholders represented in person or by
proxy from each voting group entitled to vote on each of the matters to be voted
on at the meeting, and otherwise entitled to vote at such meeting.
11. AUTHORIZED SHARES: The aggregate number of shares or other ownership
units which the Corporation has the authority to issue, itemized by classes, par
value of shares, shares without par value and series, if any, within a class is:
<PAGE>
NUMBER OF PAR VALUE PER
SHARES CLASS SERIES SHARE
------ ----- ------ -----
Unlimited Class A Special N/A Without par value
Unlimited Class B Special N/A Without par value
Unlimited Class C Special N/A Without par value
Unlimited Subordinate Voting N/A Without par value
Unlimited Preference N/A Without par value
The preferences, limitations, and relative rights of each class of shares are as
follows:
See Exhibit I attached hereto
12. ISSUED SHARES: The aggregate number of issued shares or other ownership
units itemized by classes, par value of shares, shares without par value and
series, if any, within a class is:
NUMBER OF PAR VALUE PER
SHARES CLASS SERIES SHARE
------ ----- ------ -----
20,000,000 Class A Special N/A Without par value
4,150,000 Class C Special N/A Without par value
11,662,893 Subordinate Voting N/A Without par value
13. NO PREEMPTIVE RIGHTS GRANTED: The shareholders of the Corporation do not
have a preemptive right to acquire the Corporation's unissued shares of any
class or series.
14. CONSTITUTION: The Corporation accepts the Constitution of the State of
Wyoming in compliance with the requirements of Article 10, Section 5 of the
Wyoming Constitution.
15. INDEMNIFICATION: Except as may be prohibited under, and subject to the
limitations contained in the Wyoming Business Corporation Act (the "Act"), the
Corporation shall indemnify a director or officer, a former director or officer,
or a person who acts or acted at the Corporation's request as a director or
officer of a body corporate of which the Corporation is or was a shareholder or
creditor (or a person who undertakes or has undertaken any liability on behalf
of the Corporation or number of any such body corporate) and his heirs and legal
representatives, against all costs, charges and expenses, including any amount
paid to settle an
<PAGE>
action or satisfy a judgment, reasonably incurred by him in respect of any
civil, criminal or administrative action or proceeding to which he is made a
party by reasons of being or having been a director or officer of the
Corporation or such body corporate, if
a. he conducted himself in good faith and he reasonably believed that his
conduct was in or at least not opposed to the Corporation's best interests, and
b. in the case of any criminal proceeding, he had no reasonable cause to
believe that his conduct was unlawful.
16. ELIMINATION OF CERTAIN LIABILITIES OF DIRECTORS: Except as may be
prohibited by the Act:
a. there shall be no personal liability, either direct or indirect, of
any director of the Corporation to the Corporation or its shareholders for
monetary damages for any breach or breaches of fiduciary duty as a director; and
b. no director or officer shall be liable for the acts, receipts,
neglects or defaults of any other director or officer or employee, or for
joining in any receipt or other act for conformity, or for any loss, damage or
expense happening to the Corporation through the insufficiency or deficiency of
title to any property acquired for or on behalf of the Corporation, or for the
insufficiency or deficiency of any security in or upon which any of the moneys
of the Corporation shall be invested, or for any loss or damage arising from the
bankruptcy, insolvency or tortious acts of any person with whom any of the
moneys securities or effects of the Corporation shall be deposited, or for any
loss occasioned by any error of judgment or oversight on his part, or for any
other loss, damage or misfortune whatever which shall happen in the execution of
the duties of his office or in relation thereto, unless the same are occasioned
by his own willful neglect or default; providing that nothing herein shall
relieve any director or officer from the duty to act in accordance with the Act,
and the regulations thereunder, or from liability for any breach thereof.
This provision shall not limit the rights of directors of the Corporation
for indemnification or other assistance from the Corporation. Any repeal or
modification of the foregoing provisions of this Article by the shareholders of
the Corporation or any repeal or modification of the provisions of the Act that
permits the elimination of liability of directors by this Article shall not
affect adversely any elimination of liability, right or protection of a director
of the Corporation with respect to any breach, act, omission, or transaction of
such director occurring prior to the time of such repeal or modification.
Dated: December 8, 1996.
----------------
By: /s/ Avi Ben-Abraham
-----------------------------------------
Title: Chairman and Chief Executive Officer
-------------------------------------
<PAGE>
PROVINCE OF ONTARIO )
MUNICIPALITY OF METROPOLITAN )
TORONTO )
I, PAUL G. FINDLAY, Notary Public, do hereby certify that on this 9th day
of December, 1996, personally appeared before me Avi Ben-Abraham, who, being by
me first duly sworn, declared that he signed the foregoing document as the
Chairman and Chief Executive Officer of the corporation, and that the statements
therein contained are true.
In witness whereof, I have hereunto set my hand and seal this 9th day of
December, 1996.
/s/ Paul G. Findlay
----------------------------------
Notary Public
(Notarial Seal)
My Commission Expires: FOR LIFE
--------
<PAGE>
EXHIBIT I
BEN-ABRAHAM TECHNOLOGIES INC. SHARE PROVISIONS
To the extent permitted by the WYOMING BUSINESS CORPORATIONS ACT (the
"Act"), the rights, privileges, restrictions and conditions attaching to each
class of shares and directors authority with respect to any class of shares
which may be issued in series:
A. PREFERENCE SHARES
The preferences, limitations and relative rights of the preference shares as a
class are as follows:
1. DIRECTORS' RIGHT TO ISSUE IN ONE OR MORE SERIES
The preference shares may at any time or from time to time be issued in one
or more series. Before any shares of a particular series are issued, the
directors of the Corporation shall fix the number of shares that will form
such series and shall, subject to the limitations set out herein, by
resolution, determine the designation, rights, privileges, restrictions and
conditions to be attached to the preference shares of such series
including, but without in any way limiting or restricting the generality of
the foregoing, the rate, amount or method of calculation of dividends
thereon, the time and place of payment of dividends, the consideration and
the terms and conditions of any purchase for cancellation, retraction or
redemption thereof, conversion rights and the terms and conditions of any
share purchase plan or sinking fund, the whole subject to the filing with
the Secretary of State, of articles of amendment in the form prescribed
under the Act containing a description of such series including the
designation, preferences, limitations and relative rights as determined by
the directors, and the endorsement thereon of a certificate of amendment in
respect thereof. Notwithstanding the foregoing, the preference shares of a
series shall not be entitled to any voting rights except as prescribed by
law or except if the Corporation has failed to pay dividends on any series
of preference shares.
2. RANKING
The preference shares of each series shall rank on a parity with the
preference shares of every other series with respect to accumulated
dividends and return of capital. The preference shares of the Corporation
shall be entitled to preference over the subordinate voting shares of the
Corporation and over any other shares of the Corporation ranking junior to
the preference shares with respect to priority in the payment of dividends
and the distribution of assets in the event of the liquidation, dissolution
or winding-up of the Corporation, whether voluntary or involuntary, or any
other distribution of the assets of the Corporation among its shareholders
for the purposes of winding-up its affairs. If any accumulated dividends
or amounts payable on a return of capital are not paid in full, the
preference shares of ail series shall participate rateably in respect of
such dividends, including accumulations, if any, in accordance with the
sums that would be payable on
<PAGE>
such shares if all such dividends were declared and paid in full, and in
respect of any repayment of capital if all sums so payable were paid in
full; provided however that in the event of there being insufficient assets
to satisfy in full all such claims, the claims of the holders of the
preference shares with respect to repayment of capital shall first be
applied toward the payment and satisfaction of claims in respect of
dividends.
3. VOTING
Except as hereinafter referred to or as required by law or in accordance
with any voting rights which may from time to time be attached to any
series of preference shares, the holders of the preference shares, as a
class, shall not be entitled as such to receive notice of, to attend or to
vote at any meeting of the shareholders of the Corporation.
4. AMENDMENT WITH APPROVAL OF HOLDERS OF PREFERENCE SHARES
The preferences, limitations and relative rights attaching to the
preference shares as a class may be added to, changed or removed but only
with the approval of the holders of the preference shares given as
hereinafter specified.
5. APPROVAL OF HOLDERS OF PREFERENCE SHARES
The approval of the holders of the preference shares to add to, change or
remove any preference, limitation or relative right attaching to the
preference shares as a class or any other matter requiring the consent of
the holders of the preference shares may be given in such manner as may be
required by law, subject to a minimum requirement that such approval be
given by resolution passed by the affirmative vote of a majority of the
votes cast at a meeting of the holders of the preference shares duly called
for that purpose. Each holder of preference shares entitled to vote at
such meeting shall have one vote in respect of each $1.00 of the issue
price of each preference share held by such person.
B. SUBORDINATE VOTING SHARES, CLASS A SHARES, CLASS B SHARES AND CLASS C
SHARES
The rights, privileges, restrictions and conditions attaching to the
subordinate voting shares, the Class A Special shares (the "Class A shares"),
the Class B Special shares (the "Class B shares") and the Class C Special shares
(the "Class C shares") are as follows:
1. DIVIDEND RIGHTS
(a) DIVIDEND RIGHTS OF SUBORDINATE VOTING SHARES
The holders of the subordinate voting shares, shall be entitled to
receive dividends as and when declared by the directors from time
to time out of moneys of the Corporation properly applicable to the
payment of dividends and the amount per
<PAGE>
share of each such dividend shall be determined by the directors of
the Corporation at the time of declaration.
(b) DIVIDEND RIGHTS OF CLASS B SHARES
The holders of the Class B shares shall be entitled to receive
dividends as and when declared by the directors from time to time
out of moneys of the Corporation properly applicable to the payment
of dividends and the amount per share of each such dividend shall
be determined by the directors of the Corporation at the time of
declaration, provided that the amount of the dividend per Class B
share in any calendar year shall not exceed the amount of the
dividend per subordinate voting share in such year.
(c) DIVIDEND RIGHTS OF CLASS A AND CLASS C SPECIAL SHARES
The holders of the Class A shares and the Class C shares shall not
be entitled to receive any dividends.
2. VOTING RIGHTS
(a) VOTING OF SUBORDINATE VOTING SHARES
Subject to the provisions of the Act, the holders of the
subordinate voting shares shall be entitled to receive notice of
and to attend all meetings of the shareholders of the Corporation
and shall be entitled to vote at all meetings of shareholders,
except meetings at which only holders of another class of shares
are entitled to vote. Each subordinate voting share shall entitle
the holder thereof to one vote.
(b) VOTING OF CLASS A SHARES
Subject to the provisions of the Act, the holders of the Class A
shares shall be entitled to receive notice of and to attend all
meetings of the shareholders of the Corporation and shall be
entitled to vote at all meetings of the shareholders, except
meetings at which only holders of another class of shares are
entitled to vote. Each Class A share shall entitle the holder
thereof to ten votes.
(c) VOTING OF CLASS B SHARES
Subject to the provisions of the Act, the holders of the Class B
shares shall be entitled to receive notice of and to attend all
meetings of the shareholders of the Corporation and shall be
entitled to vote at all meetings of the shareholders, except
meetings at which only holders of another class of shares are
entitled to vote. Each Class B share shall entitle the holder
thereof to ten votes.
<PAGE>
(d) VOTING OF CLASS C SHARES
Subject to the provisions of the Act, the holders of the Class C
shares shall be entitled to receive notice of and to attend all
meetings of the shareholders of the Corporation and shall be
entitled to vote at all meetings of the shareholders, except
meetings at which only holders of another class of shares are
entitled to vote. Each Class C share shall entitle the holder
thereof to one vote.
3. PURCHASE RIGHTS
(a) SUBORDINATE VOTING SHARE PURCHASE RIGHTS OF CLASS A SHARES
A holder of Class A shares shall be entitled, in accordance with
the provisions hereof, to acquire subordinate voting shares of the
Corporation as the same may then be constituted by tendering any
of the Class A shares held and registered in his name together
with U.S. $0.25 per share (the "Subordinate Voting Share Purchase
Price") on the basis of one subordinate voting share for each
Class A share and U.S. $0.25. The purchase right herein provided
shall be exercised by notice in writing given to the Corporation
which notice shall specify the number of Class A shares that the
holder desires to have applied to the purchase price of
subordinate voting shares. If any Class A shares are applied to
the purchase of subordinate voting shares pursuant to this
paragraph, the holder of such Class A shares shall surrender the
certificate or certificates representing the Class A shares so
applied to the registered office of the Corporation, or to the
transfer agent of the Corporation at the time of purchase together
with cash or a certified cheque in the amount of U.S. $0.25 per
subordinate voting share being acquired, and the Corporation shall
thereupon issue to such holder certificates representing the
number of subordinate voting shares to which the holder became
entitled upon such purchase.
(b) CLASS B SHARE PURCHASE RIGHTS OF CLASS A SHARES
A holder of Class A shares shall be entitled, in accordance with
the provisions hereof, to acquire, Class B shares of the
Corporation as the same may then be constituted by tendering any
of the Class A shares held and registered in his name together
with U.S. $0.25 (the "Class B Share Purchase Price") per share on
the basis of one Class B share for each Class A share and U.S.
$0.25. The purchase right herein provided shall be exercised by
notice in writing given to the Corporation which notice shall
specify the number of Class A shares that the holder desires to
have applied to the purchase price of Class B shares. If any
Class A shares are applied to the purchase of subordinate voting
shares pursuant to this paragraph, the holder of such Class A
shares shall surrender the certificate or certificates
representing the Class A shares so applied to the registered
office of the Corporation, or to the transfer agent of the
Corporation at the time of purchase together with cash or a
certified cheque in the amount of U.S. $0.25 per Class B
<PAGE>
share being acquired, and the Corporation shall thereupon issue to
such holder certificates representing the number of Class B shares
to which the holder became entitled upon such purchase.
(c) SUBORDINATE VOTING SHARE PURCHASE RIGHTS OF CLASS C SHARES
A holder of Class C shares shall be entitled, in accordance with
the provisions hereof, to acquire subordinate voting shares of the
Corporation as the same may then be constituted by tendering any
of the Class C shares held and registered in his name together
with U.S. $0.25 per share on the basis of one subordinate voting
share for each Class C share and U.S. $0.25. The purchase right
herein provided shall be exercised by notice in writing given to
the Corporation which notice shall specify the number of Class C
shares that the holder desires to have applied to the purchase
price of subordinate voting shares. If any Class C shares are
applied to the purchase of subordinate voting shares pursuant to
this paragraph, the holder of such Class C shares shall surrender
the certificate or certificates representing the Class C shares so
applied to the registered office of the Corporation, or to the
transfer agent of the Corporation at the time of purchase together
with cash or a certified cheque in the amount of U.S. $0.25 per
subordinate voting share being acquired, and the Corporation shall
thereupon issue to such holder certificates representing the
number of subordinate voting shares to which the holder became
entitled upon such purchase.
4. CONVERSION RIGHTS
(a) CONVERSION RIGHTS OF CLASS B SHARES
A holder of Class B shares shall be entitled, in accordance with
the provisions hereof, to have any of the Class B shares held and
registered in his name convened into subordinate voting shares of
the Corporation as the same may be constituted at the time of the
conversion on the basis of one subordinate voting share for each
Class B share converted. The conversion right herein provided
shall be exercised by notice in writing given to the Corporation
which notice shall specify the number of Class B shares that the
holder desires to have converted into subordinate voting shares.
If any Class B shares are converted into subordinate voting shares
pursuant to this paragraph, the holder of such Class B shares
shall surrender the certificate or certificates representing the
Class B shares which were converted to the registered office of
the Corporation, or to the transfer agent of the Corporation at
the time of conversion, and the Corporation shall thereupon issue
to such holder certificates representing the number of subordinate
voting shares to which the holder became entitled upon the
conversion.
5. ADJUSTMENT OF PURCHASE RIGHTS AND CONVERSION RIGHTS
(a) SUBORDINATE VOTING SHARES
<PAGE>
(i) In case of any reclassification or redesignation of the
subordinate voting shares (hereinafter referred to in this
subsection 5(a) as the "Shares") or change of the Shares into
other shares, or in case of the consolidation, amalgamation or
merger of the Corporation with or into any other body corporate
(other than a consolidation, amalgamation or merger which does
not result in any reclassification or redesignation of the
outstanding Shares or a change of the Shares into other shares),
or in the case of any transfer of the undertaking or assets of
the Corporation as an entirety or substantially as an entirety to
another corporation, the holder of any Class A shares or Class C
shares who thereafter shall exercise his right to purchase Shares
pursuant to section 3 hereof and the holder of any Class B shares
who thereafter shall exercise his right to convert any Class B
shares into Shares pursuant to section 4 hereof shall be entitled
to receive, and shall accept, in lieu of the number of Shares to
which he was theretofore entitled upon such exercise of such
right to purchase or convert, as the case may be, the kind and
amount of shares which such holder would have been entitled to
receive as a result of such reclassification, redesignation,
change, consolidation, amalgamation, merger or transfer if, on
the effective date thereof, he had been the registered holder of
the number of Shares to which he was theretofore entitled upon
exercising his right to purchase or convert, as the case may be.
The subdivision or consolidation of Shares at anytime outstanding
into a greater or lesser number of Shares shall be deemed not to
be a reclassification of the capital of the Corporation for the
purposes of this paragraph 5(a)(i).
(ii) If and whenever the Shares shall be subdivided into a greater or
consolidated into a lesser number of Shares, or the Corporation
shall issue Shares (or securities exchangeable for or convertible
into Shares) to the holders of all or substantially all of the
outstanding Shares by way of a dividend or other distribution of
Shares (or securities exchangeable for or convertible into
Shares), any holder of Class A shares or Class C shares who has
not exercised his right of purchase pursuant to section 3 hereof
and any holder of Class B shares who has not exercised his right
to convert pursuant to section 4 hereof on or prior to the
effective date or record date, as the case may be, of such
subdivision, consolidation, dividend or other distribution, upon
the exercise of such right thereafter, shall be entitled to
receive, and shall accept, in lieu of the number of Shares to
which he was theretofore entitled upon such exercise of such
right to purchase or convert (and, in the case of a purchase of
Shares pursuant to section 3 hereto, at the Subordinate Voting
Share Purchase Price adjusted in accordance with subsection 6(a)
hereof), the aggregate number of Shares that such holder would
have been entitled to receive as a result of such subdivision,
consolidation, dividend or other distribution as if, on such
record date or effective date, as the case may be, he had been
<PAGE>
the registered holder of the number of Shares to which he was
theretofore entitled upon such exercise of such right to purchase
or convert, as the case may be.
(b) CLASS B SHARES
(i) In case of any reclassification or redesignation of the Class B
shares (hereinafter referred to in this subsection 5(b) as the
"Shares") or change of the Shares into other shares, or in case
of the consolidation, amalgamation or merger of the Corporation
with or into any other body corporate (other than a
consolidation, amalgamation or merger which does not result in
any reclassification or redesignation of the outstanding Shares
or a change of the Shares into other shares), or in the case of
any transfer of the undertaking or assets of the Corporation as
an entirety or substantially as an entirety to another
corporation, the holder of any Class A shares who thereafter
shall exercise his right to purchase Shares pursuant to section 3
hereof shall be entitled to receive, and shall accept, in lieu of
the number of Shares to which he was theretofore entitled upon
such exercise of such right to purchase, the kind and amount of
shares which such holder would have been entitled to receive as
a result of such reclassification, redesignation, change,
consolidation, amalgamation, merger or transfer if, on the
effective date thereof, he had been the registered holder of the
number of Shares to which he was theretofore entitled upon
exercising his right to purchase. The subdivision or
consolidation of Shares at any time outstanding into a greater or
lesser number of Shares shall be deemed not to be a
reclassification of the capital of the Corporation for the
purposes of this paragraph 5(b)(i).
(ii) If and whenever the Shares shall be subdivided into a greater or
consolidated into a lesser number of Shares, any holder of Class
A shares who has not exercised his right of purchase on or poor
to the effective date of such subdivision or consolidation upon
the exercise of such right thereafter, shall be entitled to
receive, and shall accept, in lieu of the number of Shares to
which he was theretofore entitled upon such exercise of such
right to purchase (at the Class B Share Purchase Price adjusted
in accordance with subsection 6(b) hereof) the aggregate number
of Shares that such holder would have been entitled to receive as
a result of such subdivision or consolidation as if, on such the
effective date, he had been the registered holder of the number
of Shares to which he was theretofore entitled upon such exercise
of such right to purchase.
6. ADJUSTMENT OF PURCHASE PRICE
(a) SUBORDINATE VOTING SHARES
<PAGE>
If the Corporation shall:
(i) subdivide its outstanding subordinate voting shares (hereinafter
referred to in this paragraph 6(a) as the "Shares") into a
greater number of shares,
(ii) consolidate the outstanding Shares into a lesser number of
shares, or
(iii) issue Shares or securities exchangeable for or convertible into
Shares ("convertible securities") to the holders of all
or substantially all of the outstanding Shares by way of a
dividend or distribution of Shares or securities convertible
into Shares (other than the issue of Shares or convertible
securities as dividends paid in the ordinary course),
the Subordinate Voting Share Purchase Price shall, on the effective
date of such subdivision or consolidation or on the record date of
such dividend or other distribution, as the case may be, be adjusted
by multiplying the Subordinate Voting Share Purchase Price in effect
immediately prior to such subdivision, consolidation, dividend or
other distribution by a fraction, the numerator of which is the number
of outstanding Shares before giving effect to such subdivision,
consolidation or stock dividend and the denominator of which is the
number of outstanding Shares after giving effect to such subdivision,
consolidation, dividend or other distribution (including in the case
where convertible securities are distributed, the number of Shares
that would have been outstanding had such securities been exchanged
for or converted into Shares on such record date). Such adjustment
shall be made successively whenever any event referred to in this
paragraph 6(a) shall occur.
(b) CLASS B SHARES
If the Corporation shall:
(i) subdivide its outstanding Class B shares (hereinafter referred to
in this paragraph 6(b) as the "Shares") into a greater number of
shares, or
(ii) consolidate the outstanding Shares into a lesser number of
shares, or
the Class B Share Purchase Price shall, on the effective date of such
subdivision or consolidation, be adjusted by multiplying the Class B
Share Purchase Price in effect immediately prior to such subdivision
or consolidation, by a fraction, the numerator of which is the number
of outstanding Shares before giving effect to such subdivision or
consolidation and the denominator of which is the number of
outstanding Shares after giving effect to such subdivision or
consolidation. Such adjustment shall be made successively whenever
any event referred to in this paragraph 6(b) shall occur.
<PAGE>
7. DISTRIBUTION RIGHTS OF ON LIQUIDATION
If the Corporation is liquidated, dissolved or wound-up or its assets are
otherwise distributed among the shareholders by way of repayment of
capital, whether voluntary or involuntary and subject to the rights,
privileges, and conditions attaching to any series of preference shares of
the Corporation:
(a) the holders of the subordinate voting shares shall be entitled to
share, equally share for share, in the distribution of the remaining
assets of the Corporation; and
(b) the holders of the Class A shares, the Class B shares and the Class C
shares shall not be entitled to share in the remaining assets of the
Corporation.
<PAGE>
SECRETARY OF STATE
STATE OF WYOMING
CAPITOL BUILDING
CHEYENNE, WY 82002-0020
ARTICLES OF AMENDMENT
BY SHAREHOLDERS OF BEN-ABRAHAM TECHNOLOGIES INC.
Pursuant to the provisions of the Wyoming Business Corporation Act, the
shareholders of BEN-ABRAHAM TECHNOLOGIES INC. (the "Corporation"), a Wyoming
corporation, hereby adopts these Articles of Amendment on behalf of the
Corporation. The Corporation's Articles of Continuance were filed with the
Wyoming Secretary of State on December 19, 1996.
1. The name of the Corporation is Ben-Abraham Technologies Inc.
2. Effective as of the date of filing of these Articles of Amendment
with the Secretary of State, the Articles of Continuance of the Corporation
are hereby amended as follows:
a. All of the Corporation's issued Class A Special Shares are hereby
reclassified as Class C Special Shares. The unissued Class A Special
Shares and the Class B Shares (none of which are issued) are hereby deleted
and cancelled from the authorized capital of the Corporation. The
Subordinate Voting Shares hereby are reclassified as Common shares.
To effect the foregoing reclassifications, exchanges and cancellations
with respect to the authorized stock of the Corporation, Section 11 of the
Articles of Continuance is hereby amended and restated in its entirety as
follows:
AUTHORIZED SHARES: The aggregate number of shares or other
ownership units which the Corporation has the authority to issue,
itemized by classes, par value of shares, shares without par
value and series, if any, within a class is:
<TABLE>
<CAPTION>
NUMBER OF SHARES CLASS SERIES PAR VALUE PER SHARE
---------------- ----- ------ -------------------
<S> <C> <C> <C>
Unlimited Class C Special N/A Without par value
Unlimited Common N/A Without par value
Unlimited Preference N/A Without par value
</TABLE>
The preferences, limitations, and relative rights of each
class of shares are as follows:
See Exhibit I attached hereto.
<PAGE>
b. Exhibit I of the Articles of Continuance is replaced in its
entirety with Exhibit I which is attached hereto and incorporated herein by
this reference.
3. The foregoing amendments were adopted at a meeting of the
shareholders of the Corporation held on July 13, 1999 ("Shareholders'
Meeting").
4. Effective as of the date of the Corporation's execution of these
Articles of Amendment, the issued and outstanding shares of the Corporation
consisted of the following: there were 1,531,386 issued and outstanding
shares Class A Special shares, 3,276,479 issued and outstanding Class C
Special shares, and 52,572,686 issued and outstanding Subordinate Voting
shares. None of the Class B Special shares or the Preference shares are
issued or outstanding.
5. The designation and number of votes entitled to be cast by each
voting group entitled to vote separately on the foregoing amendments were as
follows: The holders of Class A Special shares were entitled to cast
15,313,860 votes. The holders of Class C Special shares were entitled to cast
3,276,479 votes. The holders of Subordinate Voting shares were entitled to
cast 52,572,686 votes.
6. The number of votes of each voting group indisputably represented
at the Shareholders' Meeting were as follows: 1,322,886 votes of Class A
Special shares; 2,752,829 votes of Class C Special shares; and 38,186,640
votes of Subordinate Voting shares.
7. The total number of undisputed votes cast at the Shareholders'
Meeting for the foregoing amendments by each voting group was as follows:
13,228,860 Class A Special shares voted for the foregoing amendments;
2,752,829 Class C Special shares voted for the foregoing amendments; and
34,480,901 Subordinate Voting shares voted for the foregoing amendments. The
total number of undisputed votes cast for the foregoing amendments by each
voting group was sufficient for approval of the foregoing amendments by each
voting group.
8. The provisions for implementing the reclassification, exchange and
cancellation of issued shares of the Corporation are as follows:
a. Class A Special shares are hereby reclassified as Class C Special
shares. Holders of share certificates evidencing Class A Special shares
may submit such share certificates to the Corporation in order to exchange
them for share certificates evidencing Class C Special shares, but until
such exchange occurs, Class A Special share certificates shall be deemed to
evidence Class C Special shares.
b. Subordinate Voting Shares are hereby reclassified as Common
shares. Holders of share certificates evidencing Subordinate Voting shares
may submit such share certificates to the Corporation in order to exchange
them for share certificates evidencing Common shares, but until such
exchange occurs, Subordinate Voting shares shall be deemed to evidence
Common shares.
2
<PAGE>
IN WITNESS WHEREOF, the undersigned has executed these Articles of
Amendment of the Corporation on this 19th day of July, 1999.
BEN-ABRAHAM TECHNOLOGIES INC.
By: /s/ Stephen M. Simes
----------------------------------------
Title: President and Chief Executive Officer
3
<PAGE>
EXHIBIT I
BEN ABRAHAM TECHNOLOGIES INC. SHARE PROVISIONS
To the extent permitted by the WYOMING BUSINESS CORPORATIONS ACT (the
"Act"), the rights, privileges, restrictions and conditions attaching to each
class of shares and directors authority with respect to any class of shares
which may be issued in series are as follows:
A. PREFERENCE SHARES
The preferences, limitations and relative rights of the preferences shares
as a class are as follows:
1. DIRECTORS' RIGHT TO ISSUE IN ONE OR MORE SERIES
The preference shares may at any time or from time to time be issued in one
or more series. Before any shares of a particular series are issued, the
directors of the Corporation shall fix the number of shares that will form
such series and shall, subject to the limitations set out herein, by
resolution, determine the designation, preferences, limitations, rights,
privileges, restrictions and conditions to be attached to the preference
shares of such series including, but without in any way limiting or
restricting the generality of the foregoing, the rate, amount or method of
calculation of dividends thereon, the time and place of payment of
dividends, the consideration and the terms and conditions of any purchase
for cancellation, retraction or redemption thereof, conversion rights and
the terms and conditions of any share purchase plan or sinking fund, the
whole subject to the filing with the Secretary of State, of articles of
amendment in the form prescribed under the Act containing a description of
such series including the designation, preferences, limitations and
relative rights as determined by the directors, and the endorsement thereon
of a certificate of amendment in respect thereof. Notwithstanding the
foregoing, the preference shares of a series shall not be entitled to any
voting rights except as prescribed by law or except if the Corporation has
failed to pay dividends on any series of preference shares.
2. RANKING
The preference shares of each series shall rank on a parity with the
preference shares of every other series with respect to accumulated
dividends and return of capital. The preference shares of the Corporation
shall be entitled to preference over the common shares of the Corporation
and over any other shares of the Corporation ranking junior to the
preference shares with respect to priority in the payment of dividends and
the distribution of assets in the event of liquidation, dissolution or
winding-up of the Corporation, whether voluntary or involuntary, or any
other distribution of the assets of the Corporation among its shareholders
for the purposes of winding-up its affairs. If any accumulated dividends
or amounts payable on a return of capital are not paid in full, the
preference shares of all series shall participate rateably in respect of
such dividends, including accumulations, if any, in accordance with the
sums that would be payable on such shares if all such dividends were
declared and paid in full, and in respect of any
<PAGE>
repayment of capital if all sums so payable were paid in full; provided
however that in the event of there being insufficient assets to satisfy
in full all such claims, the claims of the holders of the preference
shares with respect to repayment of capital shall first be applied
toward the payment and satisfaction of claims in respect of dividends.
3. VOTING
Except as hereinafter referred to or as required by law or in accordance
with any voting rights which may from time to time be attached to any
series of preference shares, the holders of the preference shares, as a
class, shall not be entitled as such to receive notice of, to attend or to
vote at any meeting of the shareholders of the Corporation.
4. AMENDMENT WITH APPROVAL OF HOLDERS OF PREFERENCE SHARES
The preferences, limitations and relative rights attaching to the
preference shares as a class may be added to, changed or removed by the
directors but only with the approval of the holders of the preference
shares given as hereinafter specified.
5. APPROVAL OF HOLDERS OF PREFERENCE SHARES
The approval of the holders of the preference shares to add to, change or
remove any preference, limitation or relative right attaching to the
preference shares as a class or any other matter requiring the consent of
the holders of the preference shares may be given in such manner as may be
required by law, subject to a minimum requirement that such approval be
given by resolution passed by the affirmative vote of a majority of the
votes cast at a meeting of the holders of the preference shares duly called
for that purpose. Each holder of preference shares entitled to vote at
such meeting shall have one vote in respect of each $1.00 of the issue
price of each preference share held by such person.
B. COMMON SHARES AND CLASS C SHARES
The rights, privileges, restrictions and conditions attaching to the
common shares, and the Class C Special shares (the "Class C Shares") are as
follows:
1. DIVIDEND RIGHTS
(a) DIVIDEND RIGHTS OF COMMON SHARES
The holders of the common shares, shall be entitled to receive
dividends as and when declared by the directors from time to time
out of moneys of the Corporation properly applicable to the
payment of dividends and the amount per share of each such
dividend shall be determined by the directors of the Corporation
at the time of declaration.
(b) DIVIDEND RIGHTS OF CLASS C SPECIAL SHARES
The holders of the Class C shares shall not be entitled to
receive any dividends.
2
<PAGE>
2. VOTING RIGHTS
(a) VOTING OF COMMON SHARES
Subject to the provisions of the Act, the holders of the common
shares shall be entitled to receive notice of and to attend all
meetings of the shareholders of the Corporation and shall be
entitled to vote at all meetings of shareholders, except meetings
at which only holders of another class of shares are entitled to
vote. Each common share shall entitle the holder thereof to one
vote.
(b) VOTING OF CLASS C SHARES
Subject to the provisions of the Act, the holders of the Class C
shares shall be entitled to receive notice of and to attend all
meetings of the shareholders of the Corporation and shall be
entitled to vote at all meetings of shareholders, except meetings
at which only holders of another class of shares are entitled to
vote. Each Class C share shall entitle the holder thereof to one
vote.
3. PURCHASE RIGHTS
(a) COMMON SHARE PURCHASE RIGHTS OF CLASS C SHARES
A holder of Class C shares shall be entitled, in accordance with
the provisions hereof, to acquire common shares of the
Corporation as the same may then be constituted by tendering any
of the Class C shares held and registered in his name together
with U.S. $0.25 per share (the "Common Share Purchase Price") on
the basis of one common share for each Class C share and U.S.
$0.25. The purchase right herein provided shall be exercised by
notice in writing given to the Corporation which notice shall
specify the number of Class C shares that the holder desires to
have applied to the purchase price of common shares. If any
Class C shares are applied to the purchase of common shares
pursuant to this paragraph, the holder of such Class C shares
shall surrender the certificate or certificates representing the
Class C shares so applied to the registered office of the
Corporation, or to the transfer agent of the Corporation at the
time of purchase together with cash or a certified cheque in the
amount of U.S. $0.25 per common share being acquired, and the
Corporation shall thereupon issue to such holder certificates
representing the number of common shares to which the holder
became entitled upon such purchase.
4. ADJUSTMENT OF PURCHASE RIGHTS AND CONVERSION RIGHTS
(a) In case of any reclassification or redesignation of the common
shares (hereinafter referred to in this subsection 4(a) as the
"Shares") or change of the Shares into other shares, or in case
of the consolidation, amalgamation or merger of the Corporation
with or into any other body
3
<PAGE>
corporate (other than a consolidation, amalgamation or merger
which does not result in any reclassification or redesignation
of the outstanding Shares or a change of the Shares into other
shares), or in the case of any transfer of the undertaking or
assets of the Corporation as an entirety or substantially as
an entirety to another corporation, the holder of any Class C
shares who thereafter shall exercise his right to purchase
Shares pursuant to section 3 hereof shall be entitled to
receive, and shall accept, in lieu of the number of Shares to
which he was theretofore entitled upon such exercise of such
right to purchase or convert, as the case may be, the kind and
amount of Shares which such holder would have been entitled to
receive as a result of such reclassification, redesignation,
change, consolidation, amalgamation, merger or transfer if, on
the effective date thereof, he had been the registered holder
of the number of Shares to which he was theretofore entitled
upon exercising his right to purchase or convert, as the case
may be. The subdivision or consolidation of Shares at anytime
outstanding into a greater or lesser number of Shares shall be
deemed not to be a reclassification of the capital of the
Corporation for the purposes of this paragraph 4(a).
(b) If and whenever the Shares shall be subdivided into a greater or
consolidated into a lesser number of Shares, or the corporation
shall issue Shares (or securities exchangeable for or convertible
into Shares) to the holders of all or substantially all of the
outstanding Shares by way of a dividend or other distribution of
Shares (or securities exchangeable for or convertible into
Shares), any holder of Class C shares who has not exercised his
right of purchase pursuant to section 3 hereof on or prior to the
effective date or record date, as the case may be of such
subdivision, consolidation, dividend or other distribution, upon
the exercise of such right thereafter, shall be entitled to
receive, and shall accept, in lieu of the number of Shares to
which he was theretofore entitled upon such exercise of such
right to purchase or convert (and, in the case of a purchase of
Shares pursuant to section 3 hereto, at the Common Share Purchase
Price adjusted in accordance with subsection 5(a) hereof), the
aggregate number of Shares that such holder would have been
entitled to receive as a result of such subdivision,
consolidation, dividend or other distribution as if, on such
record date or effective date, as the case may be, he had been
the registered holder of the number of Shares to which he was
theretofore entitled upon such exercise of such right to purchase
or convert, as the case may be.
5. ADJUSTMENT OF PURCHASE PRICE
(a) If the Corporation shall:
(i) subdivide its outstanding common shares (hereinafter
referred to in this paragraph 5 as the "Shares") into a
greater number of shares,
4
<PAGE>
(ii) consolidate the outstanding Shares into a lesser number of
shares, or
(iii) issue Shares or securities exchangeable for or convertible
into Shares ("convertible securities") to the holders of
all or substantially all of the outstanding Shares by way
of a dividend or distribution of Shares or securities
convertible into Shares (other than the issue of Shares or
convertible securities as dividends paid in the ordinary
course),
the Common Share Purchase Price shall, on the effective date of
such subdivision or consolidation or on the record date of such
dividend or other distribution, as the case may be, be adjusted
by multiplying the Common Shares Purchase Price in effect
immediately prior to such subdivision, consolidation, dividend or
other distribution by a fraction, the numerator of which is the
number of outstanding Shares before giving effect to such
subdivision, consolidation or stock dividend and the denominator
of which is the number of outstanding Shares after giving effect
to such subdivision, consolidation, dividend or other
distribution (including in the case where convertible securities
are distributed, the number of Shares that would have been
outstanding had such securities been exchanged for or converted
into Shares on such record date). Such adjustment shall be made
successively whenever any event referred to in this paragraph 5
shall occur.
6. DISTRIBUTION RIGHTS ON LIQUIDATION
If the Corporation is liquidated, dissolved or wound-up or its assets
are otherwise distributed among the shareholders by way of repayment
of capital, whether voluntary or involuntary and subject to the
rights, privileges, and conditions attaching to any series of
preference shares of the Corporation:
(a) the holders of the common shares shall be entitled to share,
equally share for share, in the distribution of the remaining
assets of the Corporation; and
(b) the holders of the Class C shares shall not be entitled to share
in the remaining assets of the Corporation.
5
<PAGE>
SECRETARY OF STATE
STATE OF WYOMING
CAPITOL BUILDING
CHEYENNE, WY 82002-0020
ARTICLES OF AMENDMENT BY SHAREHOLDERS OF BEN-ABRAHAM TECHNOLOGIES INC.
Pursuant to the provisions of the Wyoming Business Corporation Act, the
shareholders of BEN-ABRAHAM TECHNOLOGIES INC. (the "Corporation"), a Wyoming
corporation, hereby adopts these Articles of Amendment on behalf of the
Corporation. The Corporation's Articles of Continuance were filed with the
Wyoming Secretary of State on December 19, 1996, and have been subsequently
amended by the filing of Articles of Amendment with the Wyoming Secretary of
State on November 10, 1999.
1. The name of the Corporation is Ben-Abraham Technologies Inc.
2. Effective as of the date of filing of these Articles of Amendment
with the Secretary of State, the Articles of Continuance of the Corporation
are hereby amended as follows:
The name of the Corporation is hereby changed to be: BioSante
Pharmaceuticals, Inc.
3. The foregoing amendment was adopted at a meeting of the
shareholders of the Corporation held on November 10, 1999 ("Shareholders'
Meeting").
4. Effective as of the date of the Shareholders' Meeting, the issued
and outstanding shares of the Corporation consisted of the following: there
were 4,807,865 issued and outstanding Class C Special Shares and 52,642,686
issued and outstanding Common Shares.
5. The designation and number of votes entitled to be cast by each
voting group entitled to vote separately on the foregoing amendments were as
follows: The holders of Class C Special Shares were entitled to cast
4,807,865 votes. The holders of Common Shares were entitled to cast
52,642,686 votes.
6. The number of votes of each voting group indisputably represented
at the Shareholders' Meeting were as follows: 4,700,715 votes of Class C
Special Shares; and 42,973,846 votes of Common Shares.
7. The total number of undisputed votes cast at the Shareholders'
Meeting for the foregoing amendments by each voting group was as follows:
4,700,715 Class C Special Shares voted for the foregoing amendments; and
42,971,016 Common Shares
<PAGE>
voted for the foregoing amendments. The total number of undisputed votes
cast for the foregoing amendments by each voting group was sufficient for
approval of the foregoing amendments by each voting group.
IN WITNESS WHEREOF, the undersigned has executed these Articles of
Amendment of the Corporation on this 16th day of November, 1999.
BEN-ABRAHAM TECHNOLOGIES INC.
By: /s/ Stephen M. Simes
Title: President and Chief Executive
Officer
2
<PAGE>
BYLAWS
OF
BEN-ABRAHAM TECHNOLOGIES INC.
(THE "COMPANY")
OFFICES
SECTION 1. PRINCIPAL EXECUTIVE OFFICE. The principal executive office of the
Company will be determined from time to time by the Board of Directors.
SECTION 2. REGISTERED OFFICE. The registered office of the Company required by
Section 17-16 of the Wyoming Statutes to be maintained in the State of Wyoming
is as designated in the Articles of Incorporation. The Board of Directors of the
Company may, from time to time, change the location of the registered office. On
or before the day that such change is to become effective, a certificate of such
change and of the new address of the new registered office will be filed with
the Secretary of State of the State of Wyoming.
SECTION 3. OTHER OFFICE. The Company may establish and maintain such other
offices, within or without the State of Wyoming, as are from time to time
authorized by the Board of Directors.
MEETINGS OF SHAREHOLDERS.
SECTION 4. PLACE OF MEETINGS. Each meeting of the shareholders will be held at
the principal executive office of the Company or at such other place as may be
designated by the Board of Directors, the Chairman of the Board or the Chief
Executive Officer and President; provided, however, that any meeting called by
or at the demand of a shareholder or shareholders will be held in the county
where the principal executive office of the Company is located.
SECTION 5. ANNUAL MEETINGS. Annual meetings of the shareholders will be held on
an annual basis as determined by the Board of Directors. At each annual meeting,
the shareholders will elect directors whose terms have expired or are due to
expire within six months after the date of the meeting and may transact such
other business as may properly be brought before the meeting.
SECTION 6. NOTICE OF ANNUAL MEETINGS. Unless otherwise required by law, written
notice of the time and place of each annual shareholder meeting will be mailed,
postage prepaid, at least 10 but not more than 60 days before such meeting, to
each shareholder entitled to vote thereat at his or her address as the same
appears upon the books of the Company.
SECTION 7. SPECIAL MEETINGS. A special meeting of the shareholders may be called
for any purpose or purposes at any time by the Chairman of the Board or the
Chief Executive Officer and President and will be called by either such officer
at the request in writing of two or more members of the Board of Directors or at
the request in writing of one or more shareholders holding not less than ten
percent of the voting power of all shares of the Company entitled to vote. Such
request which will be by registered mail or delivered in person to the Chairman
of the Board or the Chief Executive Officer and President of the Company
specifying the purposes of the proposed meeting.
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SECTION 8. NOTICE OF SPECIAL MEETINGS. Written notice of the time, place and
purpose or purposes of a special meeting will be mailed, postage prepaid, at
least 10 but not more than 60 days before such meeting, to each shareholder
entitled to vote at such meeting at his or her address as the same appears
upon the books of the Company.
SECTION 9. BUSINESS TO BE TRANSACTED. No business will be transacted at any
special meeting of shareholders except that stated in the notice of the
meeting.
SECTION 10. WAIVER OF NOTICE. A shareholder may waive notice of the date,
time, place and purpose or purposes of a meeting of shareholders. A waiver of
notice by a shareholder entitled to notice is effective whether given before,
at or after the meeting, and will be given in writing or by attendance.
Attendance by a shareholder at a meeting is a waiver of notice of that
meeting, unless the shareholder objects at the beginning of the meeting to
the transaction of business because the meeting is not lawfully called or
convened, or objects before a vote on an item of business because the item
may not lawfully be considered at that meeting and does not participate in
the consideration of the item at that meeting.
SECTION 11. SHAREHOLDER'S LIST. After fixing a record date for a meeting, the
officer having charge of the share ledger of the Company will prepare an
alphabetical list of the names of all its shareholders who are entitled to
notice of a shareholders' meeting. The list will be arranged by voting group,
and within each voting group by class or series of shares, and show the
address of and number of shareholder held by each shareholder. The
shareholders' list will be available for inspection by any shareholder,
beginning two business days after notice of the meeting is given for which
the list was prepared and continuing through the meeting, at the Company's
principal executive office or at a place identified in the meeting notice in
the city where the meeting will be held. A shareholder, his or her agent, or
attorney is entitled on written demand to inspect, and subject to the
requirements of Section 17-16, to copy the list, during regular business
hours and at his or her expense, during the period it is available for
inspection. The Company will make the shareholders' list available at the
meeting, and any shareholder, his or her agent or attorney is entitled to
inspect the list at any time during the meeting or any adjournment.
SECTION 12. QUORUM AND ADJOURNMENT. A quorum for the transaction of business
at any meeting of shareholders shall be two shareholders represented in
person or by proxy from each voting group entitled to vote on each of the
matters to be voted on at the meeting, and otherwise entitled to vote at such
meeting, except as otherwise provided by statute or by the Articles of
Incorporation. If, however, such quorum will not be present or represented at
any meeting of the shareholders, the shareholders entitled to vote thereat,
present in person or represented by proxy, will have the power to adjourn the
meeting from time to time, without notice other than announcement at the
meeting, until a quorum will be present or represented. At such adjourned
meeting at which a quorum will be present or represented any business may be
transacted which might have been transacted at the meeting as originally
noticed. The shareholders present at a duly called or held meeting at which a
quorum is present may continue to transact business until adjournment, even
though the withdrawal of a number of shareholders originally present leaves
less than the proportion or number otherwise required for a quorum.
SECTION 13. VOTING RIGHTS. A shareholder may cast his or her vote in person
or by proxy. When a quorum is present at the time a meeting is convened, the
affirmative vote of the holders of a majority of the shares entitled to vote
on any question present in person or by proxy will decide such question
unless the question is one upon which, by express provision of the
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applicable statute or the Articles of Incorporation, a different vote is
required, in which case such express provision will govern and control the
decision of such question.
SECTION 14. PROXIES. A shareholder may cast or authorize the casting of a
vote by filing a written appointment of a proxy with an officer of the
Company at or before the meeting at which the appointment is to be effective.
The shareholder, or his or her agent or attorney-in-fact, may sign or
authorize the written appointment by telegram, cablegram or other means of
electronic transmission setting forth or submitted with information
sufficient to determine that the shareholder, or his or her agent or
attorney-in-fact, authorized such transmission. Any copy, facsimile,
telecommunication or other reproduction of the original of either the writing
or transmission may be used in lieu of the original, provided that it is a
complete and legible reproduction of the entire original. No proxy will be
valid after 11 months from its date, unless the proxy expressly provides for
a longer period.
SECTION 15. MANNER OF VOTING. Each shareholder will at every meeting of the
shareholders be entitled to one vote in person or by proxy for each share of
the capital stock having voting power held by such shareholder and except
where the transfer books of the Company have been closed or a date has been
fixed as a record date for the determination of its shareholders entitled to
vote, no share of stock that has been transferred on the books of the Company
within 20 days next preceding any election of directors will be voted in such
election of directors.
SECTION 16. RECORD DATE. The Board of Directors may fix a date, not exceeding
70 days preceding the date of any meeting of shareholders, as a record date
for the determination of the shareholders entitled to notice of and to vote
at such meeting, and in such case only shareholders of record on the date so
fixed, or their legal representatives, will be entitled to notice of and to
vote at such meeting, notwithstanding any transfer of any shares on the books
of the Company after any record date so fixed. The Board of Directors may
close the books of the Company against transfers of shares during the whole
or any part of such period.
SECTION 17. ORGANIZATION OF MEETINGS. The Chairman of the Board will preside
at all meetings of the shareholders, in the absence of the Chairman of the
Board or if the office of the Chairman of the Board is vacant, the Chief
Executive Officer and President will preside at meetings of the shareholders.
The Secretary will act as secretary of all meetings of the shareholders, or
in his or her absence any person appointed by the presiding officer will act
as secretary.
SECTION 18. ELECTRONIC CONFERENCES AND PARTICIPATION BY ELECTRONIC MEANS. A
conference among shareholders conducted by any means of communication through
which the shareholders may simultaneously hear each other during the
conference will constitute an annual or special meeting of shareholders,
provided the notice of the conference is given to every holder of shares
entitled to vote pursuant to sections 3 or 5 of this Article II. A
shareholder may participate in an annual or special meeting of shareholders
by any means of communication through which the shareholder, other
shareholders so participating, and all shareholders physically present at the
meeting may simultaneously hear each other during the meeting. Such
participation in a meeting will constitute presence at the meeting in person
or by proxy.
SECTION 19. ACTION WITHOUT A MEETING. Any action required or permitted to be
taken at a shareholders' meeting may be taken without a meeting notice if the
proposed action is given to all voting shareholders and the action is taken
by the holders of all shares entitled to vote on that
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action. Such action will be evidenced by one or more written consents bearing
the date of signature and describing the action taken, signed, either
manually or in facsimile, by the holders of the requisite number of shares
entitled to vote on the action, and delivered to the Company for inclusion in
the minutes for filing with the corporate records. If not otherwise fixed
under Section 17-16 of the Wyoming Statutes, the record date for determining
shareholders entitled to take action without a meeting is the date the first
shareholder signs the consent. No written consent will be effective to take
the corporate action referred to therein unless, within 60 days of the
earliest date appearing on a consent delivered to the Company, written
consents signed by all shareholders entitled to vote on the action are
received by the Company. If any action so taken requires a certificate to be
filed in the office of the Secretary of State, the officer signing such
certificate will state therein that the action was effected in the manner
aforesaid.
BOARD OF DIRECTORS
SECTION 20. GENERAL POWERS. The business and affairs of the Company will be
managed by or under its Board of Directors which may exercise all such powers
of the Company and do all such lawful acts and things as are not by statute
or by the Articles of Incorporation or by these Bylaws required to be
exercised or done by the shareholders.
SECTION 21. NUMBER AND TERM OF OFFICE. The number of directors which will
constitute the whole board will be at least one, or such other number as may
be determined by the Board of Directors or by the shareholders at an annual
or special meeting. Except as otherwise permitted by statute or by the
Articles of Incorporation of the Company, the directors will be elected at
each annual meeting of the Company's shareholders (or at any special meeting
of the shareholders called for that purpose) by a plurality of the votes cast
by the shares entitled to vote in the election at a meeting at which a quorum
is present, and each director will be elected to serve until the next annual
meeting of the shareholders and thereafter until a successor is duly elected
and qualified, unless a prior vacancy will occur by reason of death,
resignation, or removal for office. Directors will be natural persons, but
need not be shareholders.
SECTION 22. RESIGNATION AND REMOVAL. Any director may resign at any time by
giving written notice to the Company. Such resignation will take effect when
the notice is delivered or at any later time specified therein, and, unless
otherwise specified therein, the acceptance of such resignation will not be
necessary to make it effective. The shareholders may remove one or more
directors with or without cause unless the Company's Articles of
Incorporation provide that directors may be removed only for cause. If a
director is elected by a voting group of shareholders, only the shareholders
of that voting group may participate in the vote to remove such director. A
director may be removed by the shareholders only at a meeting called for the
purpose of removing such director and the meeting notice will state that the
purpose, or one of the purposes, of the meeting is removal of the director.
SECTION 23. VACANCIES. If the office of any director becomes vacant by reason
of death, resignation, removal, disqualification, or otherwise, the directors
then in office, although less than a quorum, by a majority vote, may choose a
successor who will hold office for the unexpired term in respect of which
such vacancy occurred. With respect to the initial election of a director to
fill a newly created directorship resulting from an increase in the number of
directors by action of the Board of Directors in the manner permitted by
statute, such vacancy will be filled by the affirmative vote of a majority of
the directors serving at the time of the increase.
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SECTION 24. MEETINGS OF DIRECTORS. The Board of Directors of the Company may
hold meetings, from time to time, either within or without the State of
Wyoming, at such place as a majority of the members of the Board of Directors
may from time to time appoint. If the Board of Directors fails to select a
place for the meeting, the meeting will be held at the principal executive
office of the Company.
SECTION 25. CALLING MEETINGS. Regular meetings of the Board of Directors may
be held without notice. Special meetings of the Board of Directors may be
called by (i) the Chairman of the Board or the Chief Executive Officer and
President on 24 hours' notice or (ii) any director on 10 days' notice, to
each director, either personally, by telephone or by mail or telegram. Every
such notice will state the date, time and place of the meeting. Notice of a
meeting called by a person other than the Chairman of the Board will state
the purpose of the meeting.
SECTION 26. PARTICIPATION BY ELECTRONIC COMMUNICATIONS. Directors of the
Company may participate in a meeting of the Board of Directors by means of
conference telephone or by similar means of communication by which all
persons participating in the meeting can simultaneously hear each other. A
director so participating will be deemed present in person at the meeting.
SECTION 27. WAIVER OF NOTICE. A director may waive notice of a meeting of the
Board of Directors. A waiver of notice by a director entitled to notice is
effective whether given before, at, or after the meeting, and will be given
in writing or by attendance. Attendance by a director at a meeting is a
waiver of notice of that meeting, except where the director objects at the
beginning of the meeting to the transaction of business because the meeting
was not lawfully called or convened and does not participate thereafter in
the meeting.
SECTION 28. ABSENT DIRECTORS. A director may give advance written consent or
opposition to a proposal to be acted on at a meeting of the Board of
Directors by actual delivery prior to the meeting of such advance written
consent or opposition to the Chairman of the Board or a director who is
present at the meeting. If the director is not present at the meeting,
advance written consent or opposition to a proposal will not constitute
presence for purposes of determining the existence of a quorum, but consent
or opposition will be counted as a vote in favor of or against the proposal
and will be entered in the minutes or other record of action at the meeting,
if the proposal acted on at the meeting is substantially the same or has
substantially the same effect as the proposal to which the director has
consented or objected.
SECTION 29. QUORUM. At all meetings of the Board of Directors a majority of
the directors will constitute a quorum for the transaction of business, and
the act of a majority of the directors present at any meeting at which there
is a quorum will be the act of the Board of Directors, except as may be
otherwise specifically provided by applicable statute or by the Articles of
Incorporation. If a quorum will not be present at any meeting of the Board of
Directors, the directors present thereat may adjourn the meeting from time to
time, without notice other than announcement at the meeting, until a quorum
is present. If a quorum is present at the call of a meeting, the directors
may continue to transact business until adjournment notwithstanding the
withdrawal of enough directors to leave less than a quorum.
SECTION 30. ORGANIZATION OF MEETINGS. The Chairman of the Board will preside
at all meetings of the Board of Directors and in his or her absence the Chief
Executive Officer and President will act as presiding officer. The Secretary
will act as secretary of all meetings of the
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Board of Directors, and in his or her absence any person appointed by the
presiding officer will act as secretary.
SECTION 31. COMMITTEES. The Board of Directors, by a resolution approved by
the affirmative vote of a majority of the directors then holding office, may
establish one or more committees of one or more persons having the authority
of the Board of Directors in the management of the business of the Company to
the extent provided in such resolution. Such committees, however, will at all
times be subject to the direction and control of the Board of Directors.
Committee members will be directors and will be appointed by the affirmative
vote of a majority of the directors present. A majority of the members of any
committee will constitute a quorum for the transaction of business at a
meeting of any such committee. In other matters of procedure the provisions
of these Bylaws will apply to committees and the members thereof to the same
extent they apply to the Board of Directors and directors, including, without
limitation, the provisions with respect to meetings and notice thereof,
absent members, written actions and valid acts. Each committee will keep
regular minutes of its proceedings and report the same to the Board of
Directors.
SECTION 32. ACTION WITHOUT MEETING. Unless otherwise restricted by the
Articles of Incorporation or these Bylaws, any action required or permitted
to be taken at any meeting of the Board of Directors may be taken without a
meeting, if a written consent thereto is signed by all members of the Board
of Directors and such written consent is filed with the minutes of
proceedings of the Board of Directors. If the proposed action need not be
approved by the shareholders and the Articles of Incorporation so provide,
action may be taken by written consent signed by the number of directors that
would be required to take the same action at a meeting of the Board of
Directors at which all directors were present. Such action will be effective
on the date on which the last signature is placed on such writing or
writings, or such other effective date as is set forth therein.
SECTION 33. COMPENSATION OF DIRECTORS. By resolution of the Board of
Directors, each director may be paid his or her expenses, if any, of
attendance at each meeting of the Board of Directors, and may be paid a
stated amount as a director or a fixed sum for attendance at each meeting of
the Board of Directors, or both. No such payment will preclude a director
from serving the Company in any other capacity and receiving compensation
therefor.
SECTION 34. CHAIRMAN OF THE BOARD. The Board of Directors will, from time to
time, elect one of the directors to serve as the Chairman of the Board. The
Chairman of the Board will be considered an officer of the Company and will
have such duties as the Board of Directors will determine.
OFFICERS
SECTION 35. NUMBER AND QUALIFICATION. The officers of the Company will be
chosen by the Board of Directors and include a Chairman of the Board, a Chief
Executive Officer and President, a Chief Operating Officer, a Chief Financial
Officer and a Secretary. The Board of Directors may elect or appoint such
other officers or agents as it deems necessary for the operation and
management of the Company, with such powers, rights, duties and
responsibilities as may be determined by the Board of Directors, including,
without limitation, one or more Vice Presidents, one or more Assistant
Secretaries and Assistant Chief Financial Officers, each of whom will have
the powers, rights duties and responsibilities set for the in these Bylaws
unless
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otherwise determined by the Board. Any of the offices or functions of those
offices may be held or exercised by the same person.
SECTION 36. ELECTION AND TERM OF OFFICE. The initial officers of the Company
will be elected by the Board of Directors at its first duly held meeting and
all officers will hold office until their successors have been duly elected,
unless prior thereto such officer will have resigned or been removed from
office as hereinafter provided.
SECTION 37. RESIGNATION, REMOVAL AND VACANCIES. An officer may resign at any
time by giving written notice to the Company. The resignation is effective
without acceptance when the notice is given to the Company, unless a later
effective date is specified in the notice. Any officer or agent elected or
appointed by the Board of Directors will hold office at the pleasure of the
Board of Directors and may be removed, with or without cause, at any time by
the affirmative vote of a majority of the Board of Directors present at a
duly held Board meeting. A vacancy in an office may, or in the case of a
vacancy in the office of the Chief Executive Officer and President or Chief
Financial Officer will, be filled for the unexpired portion of the term by
action of the Board of Directors.
SECTION 38. SALARIES. The salaries of all officers of the Company will be
fixed by the Board of Directors or by the Chief Executive Officer and
President if authorized by the Board of Directors.
SECTION 39. CHIEF EXECUTIVE OFFICER AND PRESIDENT. The Chief Executive
Officer and President will be the chief executive officer of the Company.
Unless provided otherwise by a resolution adopted by the Board of Directors,
the Chief Executive Officer and President will have general active management
of the business of the Company, will see that all orders and resolutions of
the Board of Directors are carried into effect, will sign and deliver in the
name of the Company any deeds, mortgages, bonds, contracts, or other
instruments pertaining to the business of the Company, except in cases in
which the authority to sign and deliver is required by law to be exercised by
another person or is expressly delegated by the Articles of Incorporation,
these Bylaws, or the Board of Directors to some other officer or agent of the
Company, will maintain records of and, whenever necessary, certify
proceedings of the Board of Directors and shareholders, and will perform such
other duties as may from time to time be prescribed by the Board of Directors.
SECTION 40. CHIEF OPERATING OFFICER. The Chief Operating Officer shall be the
chief operating officer of the Company and shall, in the absence and
disability of the Chief Executive Officer and President and with the Boards
approval, perform the duties and exercise the powers of the Chief Executive
Officer and President and shall perform such other duties and have such other
powers as the Board of Directors or the Chief Executive Officer and President
may from time to time prescribe.
SECTION 41. CHIEF FINANCIAL OFFICER. The Chief Financial Officer will be the
chief financial officer of the Company. The Chief Financial Officer will keep
accurate financial records for the Company, will deposit all moneys, drafts,
and checks in the name of and to the credit of the Company in such banks and
depositories as the Board of Directors will designate from time to time, will
endorse for deposit all notes, checks, and drafts received by the Company as
ordered by the Board of Directors, making proper vouchers therefor, will
disburse corporate funds and issue checks and drafts in the name of the
Company as ordered by the Board of Directors, will
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render to the Chief Executive Officer and President and the Board of
Directors, whenever requested, an account of all such officer's transactions
as Chief Financial Officer and of the financial condition of the Company, and
will perform such other duties as may be prescribed by the Board of Directors
from time to time. If required by the Board of Directors, the Chief Financial
Officer will give the Company a bond in such sum and with such surety or
sureties as will be satisfactory to the Board of Directors for the faithful
performance of the duties of his or her office and for the restoration to the
Company, in case of his or her death, resignation, retirement or removal from
office, of all books papers, vouchers, money and other property of whatever
kind in his or her possession or under his or her control belonging to the
Company.
SECTION 42. SECRETARY. The Secretary will attend all meetings of the Board of
Directors and all meetings of the shareholders and record all the proceedings
of the meetings of the Company and of the Board of Directors in a book to be
kept for that purpose. He or she will give, or cause to be given, notice of
all meetings of the shareholders and special meetings of the Board of
Directors, and will perform such other duties as may be prescribed by the
Board of Directors or the Chief Executive Officer and President, under whose
supervision he or she will be.
SECTION 43. VICE PRESIDENTS. The Vice President, if any, or if there will be
more than one, the Vice Presidents in the order determined by the Board of
Directors, will perform such duties and have such powers as the Board of
Directors or the President and Chief Executive Officer may from time to time
prescribe.
SECTION 44. ASSISTANT SECRETARIES. The Assistant Secretary or, if there be
more than one, the Assistant Secretaries, in the order determined by the
Board of Directors, will, in the absence or disability of the Secretary,
perform the duties and exercise the powers of the Secretary and will perform
such other duties and have such other powers as the Board of Directors or the
Chief Executive Officer and President may from time to time prescribe.
SECTION 45. AUTHORITY AND DUTIES. In addition to the foregoing authority and
duties, all officers of the Company will respectively have such authority and
perform such duties in the management of the business of the Company as may
be designated from time to time by the Board of Directors.
CERTIFICATES OF STOCK
SECTION 46. CERTIFICATES OF STOCK. Every holder of stock in the Company will
be entitled to have a certificate, signed by, or in the name of the Company
by the Chief Executive Officer and President and the Secretary or an
Assistant Secretary of the Company, if there be one, certifying the number of
shares owned by him or her in the Company. The certificates of stock of each
class will be numbered in the order of their issue.
SECTION 47. FACSIMILE SIGNATURES. Where a certificate is signed (1) by a
transfer agent or an assistant transfer agent, or (2) by a transfer clerk
acting on behalf of the Company and a registrar, the signature of any such
Chief Executive Officer and President, Secretary or Assistant Secretary may
be facsimile. In case any officer or officers who have signed, or whose
facsimile signature or signatures have been used on any such certificate or
certificates will cease to be such officer or officers of the Company before
such certificate or certificates have been delivered by the Company, such
certificate or certificates may nevertheless be adopted by the Company and be
issued and delivered as though the person or persons who signed such
certificate or certificates
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or whose facsimile signature or signatures have been used thereon had not
ceased to be such officer or officers of the Company.
SECTION 48. LOST OR DESTROYED CERTIFICATES. The Board of Directors may direct
a new certificate or certificates to be issued in place of any certificate or
certificates issued by the Company alleged to have been lost or destroyed,
upon the making of an affidavit of that fact by the person claiming the
certificate of stock to be lost or destroyed. When authorizing such issue of
a new certificate or certificates, the Board of Directors may, in its
discretion and as a condition precedent to the issuance thereof, require the
owner of such lost or destroyed certificate or certificates, or his or her
legal representative, to advertise the same in such manner as it will require
and/or to give the Company a bond in such sum as it may direct as indemnity
against any claim that may be made against the Company with respect to the
certificate alleged to have been lost or destroyed.
SECTION 49. TRANSFERS OF STOCK. Upon surrender to the Company or the transfer
agent of the Company of a certificate for shares duly endorsed or accompanied
by proper evidence of succession, assignment or authority to transfer, it
will be the duty of the Company to issue a new certificate to the person
entitled thereto, cancel the old certificate and record the transaction upon
its books.
SECTION 50. REGISTERED SHAREHOLDERS. The Company will be entitled to
recognize the exclusive right of a person registered on its books as the
owner of shares to receive dividends, and to vote as such owner, and will be
entitled to hold liable for calls and assessments a person so registered on
its books as the owner of shares, and will not be bound to recognize any
equitable or other claim to or interest in such share or shares on the part
of any other person, whether or not it will have express or other notice
thereof, except as otherwise provided by applicable statute.
INDEMNIFICATION
SECTION 51. INDEMNIFICATION. The Company shall indemnify its officers and
directors to the fullest extent permissible under the provisions of Section
17-16 of the Wyoming Statutes, as amended from time to time, or as required
or permitted by other provisions of law. Any repeal or modification of this
Article VI will be prospective only and will not adversely affect any right
to indemnification of a director or officer of the Company existing at the
time of such repeal or modification.
SECTION 52. INSURANCE. The Company may purchase and maintain insurance on
behalf of any person in such person's official capacity against any liability
asserted against and incurred by such person in or arising from that
capacity, whether or not the Company would otherwise be required to indemnify
the person against the liability.
GENERAL PROVISIONS
SECTION 53. FISCAL YEAR. The fiscal year of the Company will be fixed by
resolution of the Board of Directors.
SECTION 54. DIVIDENDS. Subject to the provisions of the applicable statute
and the Articles of Incorporation, dividends upon the capital stock of the
Company may be declared by the Board
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of Directors at any regular or special meeting, and may be paid in cash, in
property, or in shares of the capital stock.
SECTION 55. RESERVES. Before payment of any dividend, there may be set aside
out of any funds of the Company available for dividends such sum or sums as
the directors from time to time, in their absolute discretion, think proper
as a reserve or reserves to meet contingencies, or for equalizing dividends,
or for repairing or maintaining any property of the Company, or for such
other purposes as the directors will think conducive to the interest of the
Company, and the directors may modify or abolish any such reserve in the
manner in which it was created.
SECTION 56. SEAL. The Company will not have a corporate seal.
SECTION 57. CHECKS. All checks or demands for money and notes of the Company
will be signed by such officer or officers or such other person or persons as
the Board of Directors may from time to time designate.
SECTION 58. AMENDMENTS. The Board of Directors will have the power to adopt,
amend or repeal the Bylaws of the Company, subject to the power of the
shareholders to change or repeal the same, provided, however, that the Board
will not adopt, amend or repeal any Bylaw fixing a quorum for meetings of
shareholders, prescribing procedures for removing directors or filling
vacancies in the Board, or fixing the number of directors or their
classifications, qualifications or terms of office, but may adopt or amend a
Bylaw that increases the number of directors.
Date approved: December 8, 1998
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THIS WARRANT AND THE SUBORDINATE VOTING SHARES TO BE SOLD UPON EXERCISE HEREOF
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR UNDER
ANY STATE SECURITIES LAWS. THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED, OR
HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT RELATED
THERETO OR AN EXEMPTION THEREFROM.
Warrant to Purchase Up To
______________ Subordinate Voting Shares Of
Ben-Abraham Technologies Inc.
THIS CERTIFIES that, for value received, ________________ ("Investor") or
any transferee of Investor (Investor or such transferee being hereinafter
referred to as the "Holder"), is entitled, upon the terms and subject to the
conditions hereinafter set forth, to purchase from Ben-Abraham Technologies
Inc., a Wyoming corporation (the "Company"), that number of fully paid and
nonassessable subordinate voting shares (the "Subordinate Shares") of the
Company at the purchase price per share as set forth in Section 1 below (the
"Exercise Price"). The number of Subordinate Shares purchasable and Exercise
Price are subject to adjustment as provided in Section 10 hereof.
1. NUMBER OF WARRANT SHARES; EXERCISE PRICE; TERM.
(a) Subject to adjustments as provided herein, the Holder of this
Warrant may, at his option, exercise this Warrant in whole at any time or
in part from time to time for _____________________________ (__________)
Subordinate Shares (the "Warrant Shares") at an Exercise Price of Thirty
Cents ($0.30) per Warrant Share.
(b) Subject to the terms and conditions set forth herein, this
Warrant and all rights and options hereunder shall expire at 5:00 p.m.
central standard time on May 6, 2004. This Warrant and all options and
rights hereunder shall be wholly void to the extent this Warrant is not
exercised before it expires.
2. TITLE TO WARRANT. The Warrant and all rights hereunder are
transferable, in whole or in part. Transfers shall occur at the office or
agency of the Company by the Holder of the Warrant in person or by duly
authorized attorney, upon surrender of the Warrant together with the Assignment
Form annexed hereto properly endorsed.
3. EXERCISE OF WARRANT. The Warrant is exercisable by the Holder, in
whole or in part, at any time, or from time to time, during the term hereof as
described in Section l above, by the surrender of the Warrant and the Notice of
Exercise annexed hereto duly completed and executed on behalf of the Holder
hereof, at the office of the Company in Lincolnshire, Illinois (or such other
office or agency of the Company as it may designate by notice in writing to the
Holder hereof at the address of the Holder appearing on the books of the
Company), and subject to Section 4 hereof, upon payment of the Exercise Price in
cash or check, whereupon the Holder of the Warrant shall be entitled to receive
a Warrant for the number of Warrant Shares so purchased
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and, if the Warrant is exercised for fewer than all of the Warrant Shares, a
new Warrant representing the right to acquire the number of Warrant Shares in
respect of which this Warrant shall not have been exercised. Notwithstanding
the foregoing, payment of the Exercise Price may also be made by (a)
delivering Subordinate Shares already owned by the Holder having a total Fair
market Value (as defined in Section 4) on the date of delivery equal to the
aggregate Exercise Price; (b) authorizing the Company to return Subordinate
Shares which would otherwise be issuable upon exercise of this Warrant having
a total Fair Market Value on the date of exercise equal to the aggregate
Exercise Price; or (c) any combination of the foregoing. The Company agrees
that, upon exercise of the Warrant in accordance with the terms hereof, the
Warrant Shares so purchased shall be deemed to be issued to the Holder as the
record owner of such Warrant Shares as of the close of business on the date
on which the Warrant shall have been exercised.
Certificates for Warrant Shares purchased hereunder and, on exercise of
fewer than all of the Warrant Shares purchasable hereunder, a new Warrant
representing the right to acquire Warrant Shares not so purchased shall be
delivered to the Holder hereof as promptly as practicable after the date on
which the Warrant shall have been exercised.
The Company covenants that all Warrant Shares which may be issued upon the
exercise of the Warrant shall, upon exercise of the Warrant and payment of the
Exercise Price, be fully paid and nonassessable and free from all taxes, liens
and charges in respect of the issue thereof (other than taxes in respect of any
transfer occurring contemporaneously or otherwise specified herein).
4. NO FRACTIONAL WARRANT SHARES OR SCRIP. No fractional Warrant Shares
or scrip representing fractional shares shall be issued upon the exercise of the
Warrant. In lieu of any fractional Warrant Share to which the Holder would
otherwise be entitled, such Holder shall be entitled, at its option, to receive
either (a) a cash payment equal to the excess of Fair Market Value (as defined
herein) for such fractional Warrant Share above the Exercise Price for such
fractional share or (b) a whole share if the Holder tenders the Exercise Price
for one whole Warrant Share. For purposes hereof, the term "Fair Market Value"
shall mean an amount determined as follows: (A) if the Subordinated Shares is
listed on a national or regional securities exchange or admitted to unlisted
trading privileges on such exchange or listed for trading on the NASDAQ National
Market System or the NASDAQ Small Cap Market (collectively, "NASDAQ"), the Fair
Market Value on a particular day shall be the last reported sale price of the
Subordinated Shares on such exchange or on NASDAQ, on the last business day
prior to such day or, if no such sale is made on such business day, the average
closing bid and asked prices for such day on such exchange or on NASDAQ, or (B)
if the Subordinated Shares are not listed or admitted to unlisted trading
privileges on an exchange or on NASDAQ, the fair market value on a particular
day shall be the mean of the last reported bid and asked prices reported by the
National Quotation Bureau, Inc., or the National Association of Securities
Dealers, Inc. OTC Bulletin Board on the last business day prior to such day, or
(C) if the Subordinated Shares are not so listed or admitted to unlisted trading
privileges on an exchange or on NASDAQ and bid and asked prices are not so
reported, the Fair Market Value on a particular day shall be an
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amount determined in such reasonable manner as may be prescribed by the board
of directors of the Company.
5. CHARGES, TAXES AND EXPENSES. Issuance of certificates for Warrant
Shares upon the exercise of the Warrant shall be made without charge to the
Holder hereof for any issue or transfer tax or other incidental expense in
respect of the issuance of such certificates, all of which taxes and expenses
shall be paid by the Company, and such certificates shall be issued in the name
of the Holder of the Warrant or in such name or names as may be directed by the
Holder of the Warrant; provided, however, that in the event certificates for
Warrant Shares are to be issued in a name other than the name of the Holder of
the Warrant, the Warrant when surrendered for exercise shall be accompanied by
the Assignment Form attached hereto duly executed by the Holder and the Notice
of Exercise duly completed and executed and stating in whose name the
certificates are to be issued; and provided further, that such assignment shall
be subject to applicable laws and regulations.
6. NO RIGHTS AS WARRANT SHAREHOLDERS. The Warrant does not entitle the
Holder hereof to any voting rights, dividend rights or other rights as a
shareholder of the Company prior to the exercise thereof.
7. EXCHANGE AND REGISTRY OF WARRANT. The Company shall maintain a
registry showing the name and address of the Holder of the Warrant. The Warrant
may be surrendered for exchange, transfer or exercise, in accordance with the
terms hereof, at the office of the Company, and the Company shall be entitled to
rely in all respects, prior to written notice to the contrary, upon such
registry.
8. LOSS, THEFT, DESTRUCTION OR MUTILATION OF WARRANT. Upon receipt by the
Company of evidence reasonably satisfactory to it of the loss, theft,
destruction or mutilation of the Warrant, and in case of loss, theft or
destruction, of indemnity or security reasonably satisfactory to it, and upon
reimbursement to the Company of all reasonable expenses incidental thereto, and
upon surrender and cancellation of the Warrant, if mutilated, the Company will
make and deliver a new Warrant of like tenor and dated as of such cancellation,
in lieu of the Warrant.
9. SATURDAYS, SUNDAYS, HOLIDAYS, ETC. If the last or appointed day for
the taking of any action or the expiration of any right required or granted
herein shall be a Saturday or a Sunday or shall be a legal holiday, then such
action may be taken or such right may be exercised on the next succeeding day
not a Saturday or a Sunday or a legal holiday.
10. ADJUSTMENTS.
(a) Subject to the exceptions referred to in Section 10(f) below,
in the event the Company shall, at any time or from time to time after the
date hereof, (i) sell any Subordinate Shares for a consideration per share
less than U.S. $0.20, (ii) issue any Subordinate Shares as a stock dividend
to the holders of Subordinate Shares, or (iii) subdivide or combine the
outstanding Subordinate Shares into a greater or lesser number of shares
(any such sale, issuance, subdivision or combination being herein called a
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<PAGE>
"Change of Shares"), then, and thereafter upon each further Change of
Shares, the Exercise Price in effect immediately prior to such Change of
Shares shall be changed to a price (including any applicable fraction of a
cent) (A) in the case of clause (i), equal to the lesser of (A) the
consideration per share paid in such sale or (B) the then current Exercise
Price and (ii) in the case of clause (ii) or (iii), determined by
multiplying the Exercise Price in effect immediately prior thereto by a
fraction, the numerator of which shall be the number of Subordinate Shares
outstanding immediately prior to the issuance of such additional shares,
and the denominator of which shall be the number of Subordinate Shares
outstanding immediately after the issuance of such additional shares. Such
adjustment shall be made successively whenever such an issuance is made.
Upon each adjustment of the Exercise Price pursuant to this Section
10, except pursuant to Section 10(a)(i) or 10(e)(iv), the total number of
Subordinate Shares purchasable upon the exercise of each Warrant shall be
such number of shares (calculated to the nearest tenth) purchasable at the
Exercise Price immediately prior to such adjustment multiplied by a
fraction, the numerator of which shall be the Exercise Price in effect
immediately prior to such adjustment and the denominator of which shall be
the Exercise Price in effect immediately after such adjustment.
(b) In case of any reclassification, capital reorganization or
other change of outstanding Subordinate Shares, or in case of any
consolidation or merger of the Company with or into another corporation
(other than a consolidation or merger in which the Company is the
continuing corporation and which does not result in any, reclassification,
capital reorganization or other change of outstanding Subordinate Shares),
or in case of any sale or conveyance to another corporation of the property
of the Company as, or substantially as, an entirety (other than a
sale/leaseback, mortgage or other financing transaction), the Company shall
cause effective provision to be made so that the Holder of the Warrant
shall have the right thereafter, by exercising such Warrant, to purchase
the kind and highest number of shares of stock or other securities or
property (including cash) receivable upon such reclassification, capital
reorganization or other change, consolidation, merger, sale or conveyance
by a holder of the number of Subordinate Shares that might have been
purchased upon exercise of the Warrant immediately prior to such
reclassification, capital reorganization or other change, consolidation,
merger, sale or conveyance. Any such provision shall include provision for
adjustments that shall be as nearly equivalent as may be practicable to the
adjustments provided for in this Section 10. The Company shall not effect
any such consolidation, merger or sale unless prior to or simultaneously
with the consummation thereof the successor corporation (if other than the
Company) resulting from such consolidation or merger or the corporation
purchasing such assets or other appropriate corporation or entity shall
assume in writing the obligation to deliver to the Holder such shares of
stock, securities or assets as, in accordance with the foregoing provision,
the Holder may be entitled to purchase and the other obligations under this
Warrant. The foregoing provisions shall similarly apply to successive
reclassifications, capital reorganzations and other changes of outstanding
Subordinate Shares and to successive consolidations, mergers, sales or
conveyances.
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<PAGE>
(c) Irrespective of any adjustments or changes in the Exercise
Price or the number of Subordinate Shares purchasable upon exercise of the
Warrant, this Warrant shall continue to express the Exercise Price per
share, the number of shares purchasable thereunder as if the changed
Exercise Price per share, and the changed number of shares purchasable were
expressed in the Warrant when the same was originally issued.
(d) After each adjustment of the Exercise Price pursuant to this
Section 10, the Company will promptly deliver to the Holder a certificate
signed by the Chief Executive Officer of the Company setting forth: (i) the
Exercise Price as so adjusted, (ii) the number of Subordinate Shares
purchasable upon exercise of the Warrant after such adjustment, and (iii) a
brief statement of the facts accounting for such adjustment. No failure to
deliver such notice nor any defect therein or in the delivery thereof shall
affect the validity thereof.
(e) For purposes of Section 10(a) hereof, the following provisions
(i) through (v) shall also be applicable:
(i) The number of Subordinate Shares outstanding at any
given time shall include Subordinate Shares owned or held by or for
the account of the Company and the sale or issuance of such
treasury shares or the distribution of any such treasury shares
shall not be considered a Change of Shares for purposes of said
sections.
(ii) In case of (A) the sale by the Company of any
options, rights or warrants to subscribe for or purchase
Subordinate Shares or any securities convertible into or
exchangeable for Subordinate Shares without the payment of any
further consideration other than cash, if any (such convertible or
exchangeable securities being herein called "Convertible
Securities"), or (B) the issuance by the Company, without the
receipt by the Company of any consideration therefor, of any
options, rights or warrants to subscribe for or purchase
Subordinate Shares or Convertible Securities, in each case, if (and
only if) the consideration payable to the Company upon the exercise
of such rights, warrants or options shall consist of cash, whether
or not such rights, warrants or options, or the right to convert or
exchange such Convertible Securities, are immediately exercisable,
and the price per share for which Subordinate Shares are issuable
upon the exercise of such rights, warrants or options or upon the
conversion or exchange of such Convertible Securities (determined
by dividing (x) the minimum aggregate consideration payable to the
Company upon the exercise of such rights, warrants or options, plus
the consideration received by the Company for the issuance or sale
of such rights, warrants or options, plus, in the case of such
Convertible Securities, the minimum aggregate amount of additional
consideration, if any, other than such Convertible Securities,
payable upon the conversion or exchange thereof, by (y) the total
maximum number of Subordinate Shares issuable upon the exercise of
such rights, warrants or options or upon the conversion or
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<PAGE>
exchange of such Convertible Securities issuable upon the exercise
of such rights, warrants or options) is less than U.S. $0.20, then
the total maximum number of Subordinate Shares issuable upon the
exercise of such rights, warrants or options or upon the conversion
or exchange of such Convertible Securities (as of the date of the
issuance or sale of such rights, warrants or options) shall be
demed to have been sold for cash in an amount equal to such price
per share.
(iii) In case of the sale by the Company for cash of any
Convertible Securities, whether or not the right of conversion or
exchange thereunder is immediately exercisable, and the price per
share for which Subordinate Shares are issuable upon the conversion
or exchange of such Convertible Securities (determined by dividing
(A) the total amount of consideration received by the Company for
the sale of such Convertible Securities, plus the minimum aggregate
amount of additional consideration, if any, other than such
Convertible Securities, payable upon the conversion or exchange
thereof, by (B) the total maximum number of Subordinate Shares
issuable upon the conversion or exchange of such Convertible
Securities) is less than U.S. $0.20, then the total maximum number
of Subordinate Shares issuable upon the conversion or exchange of
such Convertible Securities (as of the date of the sale of such
Convertible Securities) shall be deemed to have been sold for cash
in an amount equal to such price per share.
(iv) In case the Company shall modify the rights of
conversion, exchange or exercise of any of the securities referred
to in clause (iii) above or any other securities of the Company
convertible, exchangeable or exercisable for Subordinate Shares,
for any reason other than an event that would require adjustment to
prevent dilution, such that the consideration per share received by
the Company after such modification is less than U.S. $0.20, the
Exercise Price to be in effect after such modification shall be the
lesser of (A) the consideration per share paid after such
modification or (B) the then current Exercise Price. Such
adjustment shall become effective as of the date upon which
modification shall take effect. On the expiration of any such
right, warrant or option or the termination of any such right to
convert or exchange any such Convertible Securities, the Exercise
Price then in effect hereunder shall forthwith be readjusted to
such Exercise Price had no adjustment been made with respect to
such right, warrant or option.
(v) In case of the sale for cash of any Subordinate
Shares, any Convertible Securities, any rights or warrants to
subscribe for or purchase, or any options for the purchase of,
Subordinate Shares or Convertible Securities, the consideration
received by the Company therefor shall be deemed to be the gross
sales price therefor without deducting therefrom any expense paid
or incurred by the Company or any underwriting discounts or
commissions or concessions paid or allowed by the Company in
connection therewith.
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<PAGE>
(f) No adjustment to the Exercise Price of the Warrant or to the
number of Warrant Shares shall be made, however:
(i) upon the grant or exercise of any other options which
may hereafter be granted or exercised under any stock option plan
or other employee benefit plan of the Company; or
(ii) upon the issuance or sale of Subordinate Shares or
Convertible Securities upon the exercise of any rights or warrants
or options to subscribe for or purchase Subordinate Shares or
Convertible Securities, whether or not such rights, warrants or
options were outstanding on the date of the original sale of the
Warrant or were thereafter issued or sold; or
(iii) upon the issuance or sale of Subordinate Shares upon
conversion or exchange of any Convertible Securities, whether or
not any adjustment in the Exercise Price was made or required to be
made upon the issuance or sale of such Convertible Securities and
whether or not such Convertible Securities were outstanding on the
date of the original sale of the Warrant or were thereafter issued
or sold.
(g) As used in this Section 10, the term "Subordinate Shares"
shall mean and include the Company's Subordinate Shares authorized on the
date of the original issue of the Warrant and shall also include any
capital stock of any class of the Company thereafter authorized which shall
not be limited to a fixed sum or percentage in respect of the rights of the
Holders thereof to participate in dividends and in the distribution of
assets upon the voluntary liquidation, dissolution or winding up of the
Company; provided, however, that the shares issuable upon exercise of the
Warrants shall include only shares of such class designated in the
Company's Articles of Incorporation as Subordinate Shares on the date of
the original issue of the Warrant or (i), in the case of any
reclassification, change, consolidation, merger, sale or conveyance of the
character referred to in Section 10(b) hereof, the stock, securities or
property provided for in such section or (ii), in the case of any
reclassification or change in the outstanding Subordinate Shares issuable
upon exercise of the Warrant as a result of a subdivision or combination or
consisting of a change in par value, or from par value to no par value, or
from no par value to par value, such Subordinate Shares as so reclassified
or changed.
(h) Any determination as to whether an adjustment in the Exercise
Price in effect hereunder is required pursuant to Section 10, or as to the
amount of any such adjustment, if required, shall be binding upon the
Holder of the Warrant and the Company if made in good faith by the board of
directors of the Company.
(i) If and whenever the Company shall grant to the holders of
Subordinate Shares, as such, rights or warrants to subscribe for or to
purchase, or any options for the purchase of, Subordinate Shares or
securities convertible into or exchangeable for or carrying a right,
warrant or option to purchase Subordinate Shares, the Company shall
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<PAGE>
concurrently therewith grant to the Holder of the Warrant all of such
rights, warrants or options to which the Holder would have been entitled
if, on the date of determination of stockholders entitled to the rights,
warrants or options being granted by the Company, the Holder were the
holder of record of the number of whole Subordinate Shares then issuable
upon exercise of its Warrant. Such grant by the Company to the Holder of
the Warrants shall be in lieu of any adjustment which otherwise might be
called for pursuant to this Section 10.
11. MISCELLANEOUS.
(a) GOVERNING LAW. The Warrant shall be binding upon any
successors or assigns of the Company. The Warrant shall constitute a
contract under the laws of Illinois and for all purposes shall be construed
in accordance with and governed by the laws of said state, without giving
effect to the conflict of laws principles.
(b) RESTRICTIONS. THIS WARRANT AND THE SUBORDINATE VOTING SHARES
TO BE SOLD UPON EXERCISE HEREOF HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR UNDER ANY STATE SECURITIES LAWS.
THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED, OR HYPOTHECATED IN THE
ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT RELATED THERETO OR AN
EXEMPTION THEREFROM.
(c) ATTORNEY'S FEES. In any litigation, arbitration or court
proceeding between the Company and the Holder relating hereto, the
prevailing party shall be entitled to reasonable attorneys' fees and
expenses incurred in enforcing the Warrant.
(d) AMENDMENTS. The Warrant may be amended and the observance of
any term of the Warrant may be waived with the written consent of the
Company and the Holder.
(e) SECTION HEADINGS. The section headings used herein are for
convenience of reference only, are not part of this Warrant and are not to
affect construction of or be taken into consideration in interpreting this
Warrant.
(f) NOTICES. Any notice required or permitted hereunder shall be
deemed effectively given upon personal delivery to the party to be notified
upon deposit with the United States Post Office, by certified mail, postage
prepaid and addressed to the party to be notified at the address: with
respect to the Company, at its principal address in Lincolnshire, Illinois
(or such other office or agency of the Company as it may designate by
notice in writing to the Holder); and with respect to the Holder, at the
address of the Holder appearing on the books of the Company.
* * * *
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IN WITNESS WHEREOF, Ben-Abraham Technologies Inc. has caused this Warrant
to be executed by its officer thereunto duly authorized.
Dated: May 6, 1999
BEN-ABRAHAM TECHNOLOGIES INC.
By:
----------------------------
Title:
----------------------------
WARRANT HOLDER:
- ----------------------------
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NOTICE OF EXERCISE
To: Ben-Abraham Technologies Inc.
1. The undersigned hereby elects to exercise the right to purchase
represented by the attached Warrant for, and to purchase thereunder, _______
subordinate voting shares (the "Warrant Shares") of Ben-Abraham Technologies
Inc. (the "Company") and tenders herewith payment of the purchase price and any
transfer taxes payable pursuant to the terms of the Warrant.
2. The Warrant Shares to be received by the undersigned upon exercise of
the Warrant are being acquired for its own account, not as a nominee or agent,
and not with a view to resale or distribution of any part thereof, and the
undersigned has no present intention of selling, granting any participation in,
or otherwise distributing the same. The undersigned further represents that it
does not have any contract, undertaking, agreement or arrangement with any
person to sell, transfer or grant participation to such person or to any third
person, with respect to the Warrant Shares. The undersigned believes it has
received all the information it considers necessary or appropriate for deciding
whether to purchase the Warrant Shares.
3. Please issue a certificate or certificates representing said Warrant
Shares in the name set forth below:
------------------------------------
[Name]
6. If said number of Warrant Shares are not all the Warrant Shares
purchasable under the Warrant, please issue a new Warrant for the balance of
such Warrant Shares in the name set forth below:
------------------------------------
[Name]
Executed on (date).
--------------------------
- ----------------------------------------------
[NAME OF HOLDER]
By:
-------------------------------------------
Printed Name:
---------------------------------
Title (if applicable):
------------------------
<PAGE>
ASSIGNMENT FORM
(To assign the foregoing Warrant, execute this form and
supply required information. Do not use this form to
purchase shares.)
FOR VALUE RECEIVED, the ____________ of foregoing Warrant and all rights
evidenced thereby are hereby assigned to
- -------------------------------------------------------------------------------
(Please Print)
whose address is .
--------------------------------------------------------------
(Please Print)
Please issue a new Warrant certificate for the unassigned Warrant (if any)
in the name set forth below:
--------------------------------------------
[Name]
Dated: , 19 .
----------------------- ----
Holder's Signature:
------------------------------------
Holder's Address:
------------------------------------
------------------------------------
NOTE: The signature to this Assignment Form must correspond with the name as it
appears on the Warrant registry maintained by the Company. Officers of
corporations and those acting in a fiduciary or other representative capacity
should file proper evidence of authority to assign the foregoing Warrant.
<PAGE>
PORTIONS OF THIS EXHIBIT HAVE BEEN OMITTED PURSUANT TO A REQUEST FOR
CONFIDENTIALITY UNDER RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED. A COPY OF THIS AGREEMENT WITH THIS EXHIBIT INTACT HAS BEEN FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
EXCLUSIVE LICENSE AGREEMENT
BETWEEN
THE REGENTS OF THE UNIVERSITY OF CALIFORNIA
AND
BEN-ABRAHAM TECHNOLOGIES, INC.
FOR
SELECTED APPLICATIONS OF COATED NANOCRYSTALLINE PARTICLES
CASE NO. 89-204
<PAGE>
TABLE OF CONTENTS
ARTICLE NO. TITLE PAGE
RECITALS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1. DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2. GRANT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
3. LICENSE ISSUE FEE . . . . . . . . . . . . . . . . . . . . . . . . . 8
4. ROYALTIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
5. DUE DILIGENCE . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
6. PROGRESS AND ROYALTY REPORTS. . . . . . . . . . . . . . . . . . . . 16
7. BOOKS AND RECORDS . . . . . . . . . . . . . . . . . . . . . . . . . 18
8. LIFE OF THE AGREEMENT . . . . . . . . . . . . . . . . . . . . . . . 18
9. TERMINATION BY THE REGENTS. . . . . . . . . . . . . . . . . . . . . 19
10. TERMINATION BY LICENSEE. . . . . . . . . . . . . . . . . . . . . . 20
11. DISPOSITION OF PATENT PRODUCTS ON HAND UPON TERMINATION. . . . . . 20
12. USE OF NAMES AND TRADEMARKS. . . . . . . . . . . . . . . . . . . . 21
13. LIMITED WARRANTY . . . . . . . . . . . . . . . . . . . . . . . . . 21
14. PATENT PROSECUTION AND MAINTENANCE . . . . . . . . . . . . . . . . 23
15. PATENT MARKING . . . . . . . . . . . . . . . . . . . . . . . . . . 25
16. PATENT INFRINGEMENT. . . . . . . . . . . . . . . . . . . . . . . . 25
17. INDEMNIFICATION. . . . . . . . . . . . . . . . . . . . . . . . . . 27
18. NOTICES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
19. ASSIGNABILITY. . . . . . . . . . . . . . . . . . . . . . . . . . . 29
20. LATE PAYMENTS. . . . . . . . . . . . . . . . . . . . . . . . . . . 29
21. WAIVER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
22. FAILURE TO PERFORM . . . . . . . . . . . . . . . . . . . . . . . . 30
23. GOVERNING LAWS . . . . . . . . . . . . . . . . . . . . . . . . . . 30
24. GOVERNMENT APPROVAL OR REGISTRATION. . . . . . . . . . . . . . . . 31
25. EXPORT CONTROL LAWS. . . . . . . . . . . . . . . . . . . . . . . . 31
26. FORCE MAJEURE. . . . . . . . . . . . . . . . . . . . . . . . . . . 31
27. CONFIDENTIALITY. . . . . . . . . . . . . . . . . . . . . . . . . . 32
28. MISCELLANEOUS. . . . . . . . . . . . . . . . . . . . . . . . . . . 33
<PAGE>
UC Case No. 89-204
Exclusive License Agreement
for
Selected Applications of Coated Nanocrystalline Particles
This license agreement ("Agreement") is effective this 18th day of June,
1997 by and between The Regents of the University of California ("The
Regents"), a California corporation, having its statewide administrative
offices at 300 Lakeside Drive, 22nd Floor, Oakland, California 94612-3550 and
Ben-Abraham Technologies, Inc. ("Licensee"), a Wyoming corporation, having a
principal place of business at 372 Bay Street, Suite 302, Toronto, Canada,
M5H 2W9.
RECITALS
Whereas, certain inventions, characterized as "Applications of Coated
Nanocrystalline Particles" ("Invention"), useful in the development of
vaccine adjuvants, virus vaccine constructs, drug delivery systems, and a red
blood cell surrogate, were made at the University of California, Los Angeles
by Dr. Nir Kossovsky et al. and are claimed in Patent Rights defined below;
Whereas, the Licensee is a "small entity" as defined in 37 C.F.R.
Section 1.9 and a "small-business concern" defined in 15 U.S.C. Section 632;
Whereas, both parties recognize that royalties due under this Agreement
will be paid on pending patent applications and issued patents;
Whereas, Licensee requested certain rights from The Regents to
commercialize the Invention; and
<PAGE>
Whereas, The Regents responded to the request of Licensee by granting the
following rights to Licensee so that the products and other benefits derived
from the Invention can be enjoyed by the general public.
The parties agree as follows:
1. DEFINITIONS
As used in this Agreement, the following terms will have the meaning set
forth below:
1.1 "Patent Rights" means all U.S. patents and patent applications
and foreign patents and patent applications assigned to The Regents, and in
the case of foreign patents and patent applications those requested under
Paragraph 14.4 herein, including any reissues, extensions, substitutions,
continuations, divisions, and continuations-in-part applications (only to the
extent, however, that claims in the continuations-in-part applications are
supported in the specification of the parent patent application) based on and
including any subject matter claimed in or covered by the following:
1.1a U.S. Patent No. 5,178,882 entitled "Viral Decoy Vaccine," issued
January 12, 1993 by Dr. Nir Kossovsky et al., and assigned to The
Regents;
1.1b U.S. Patent No. 5,219,577 entitled "Biologically Active Composition
Having a Nanocrystalline Core," issued June 15, 1993 by Dr. Nir
Kossovsky et al., and assigned to The Regents;
1.1c U.S. Patent No. 5,306,508 entitled "Red Blood Cell Surrogate,"
issued April 26, 1994 by Dr. Nir Kossovsky et al., and assigned to
The Regents;
1.1d U.S. Patent No. 5,334,394 entitled "Human Immunodeficiency Virus
Decoy," issued August 2, 1994 by Dr. Nir Kossovsky et al., and
assigned to The Regents;
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1.1e U.S. Patent No. 5,460,830 entitled "Biochemically Active Agents for
Chemical Catalysis and Cell Receptor Activation," issued October
24, 1995 by Dr. Nir Kossovsky et al., and assigned to The Regents;
1.1f U.S. Patent No. 5,460,831 entitled "Targeted Transfection
Nanoparticles," issued October 24, 1995 by Dr. Nir Kossovsky et
al., and assigned to The Regents;
1.1 g U.S. Patent No. 5,462,750 entitled "Biologically Active
Compositions Having a Nanocrystalline Core," issued October 31,
1995 by Dr. Nir Kossovsky et al., and assigned to The Regents;
1.1h U.S. Patent No. 5,462,751 entitled "Biological and Pharmaceutical
Agents Having a Nanomeric Biodegradable Core," issued October 31,
1995 by Dr. Nir Kossovsky et al., and assigned to The Regents; and
1.1i U.S. Patent No. 5,464,634 entitled "Red Blood Cell Surrogate,"
issued November 7, 1995 by Dr. Nir Kossovsky et al., and assigned
to The Regents.
1.2 "Patent Products" means:
i any kit, composition of matter, material, or product;
ii any kit, composition of matter, material, or product to be
used in a manner requiring the performance of the Patent
Method; or
iii any kit, composition of matter, material, or product
produced by the Patent Method;
to the extent that the manufacture, use, or sale of such kit, composition of
matter, material, or product, in a particular country, would be covered by or
infringe, but for the license granted to Licensee pursuant to this Agreement,
an unexpired claim of a patent or pending claim of a patent application were
it issued as a claim in a patent under Patent Rights in that country in which
such patent has issued or application is pending. This definition of Patent
Products also includes a service either used by Licensee or provided by
Licensee to its customers when such service requires the practice of the
Patent Method.
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1.3 "Patent Method" means any process or method covered by the claims
of a patent application or patent within Patent Rights or the use or practice
of which would constitute, in a particular country, but for the license
granted to Licensee pursuant to this Agreement, an infringement of an
unexpired claim of a patent or pending claim of a patent application were it
issued as a claim in a patent within Patent Rights in that country in which
the Patent Method is used or practiced.
1.4 "Vaccine Adjuvant" means coated nanocrystalline particles used to
improve, augment or potentiate the biological activity, and especially the
immunogenicity, of a pharmaceutical preparation intended for the immunization of
humans or other animals against diseases.
1.5 "Virus Vaccine Construct" means nanocrystalline particles coated
with viral antigens intended for use in the immunization of humans against HIV,
Epstein Barr virus, or herpes virus infections.
1.6 "Drug Delivery System" means coated nanocrystalline particles
used in pharmaceutical preparations to facilitate the therapeutic delivery of
5-fluorouracil, taxol, or insulin in humans.
1.7 "Red Blood Cell Surrogate" means coated nanocrystalline particles
used to serve as a substitute for human or animal red blood cells.
1.8 "Field" means vaccine Adjuvant, Virus Vaccine Construct, Drug
Delivery System and Red Blood Cell Surrogate.
1.9 "Excluded Field" means any application or use of coated
nanocrystalline particles in pharmaceutical preparations intended for use in
human or animal contraception, human or
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animal diagnostic application, human or animal antibiotic therapy, or human
or animal hormone therapy and any other field of use not expressly included
in Paragraphs 1.4, 1.5, 1.6 and 1.7, above.
1.10 "Net Sales" means the gross invoice prices from the sale of
Patent Products by Licensee, an Affiliate, a Joint Venture, or a sublicensee
to independent third parties for cash or other forms of consideration in
accordance with generally accepted accounting principles limited to the
following deductions (if not already deducted from the gross invoice price
and at rates customary within the industry): (a) allowances (actually paid
and limited to rejections, returns, and prompt payment and volume discounts
granted to customers of Patent Products, whether in cash or Patent Products
in lieu of cash); (b) freight, transport packing, insurance charges
associated with transportation; and (c) taxes, tariffs or import/export
duties based on sales when included in gross sales, but not value-added taxes
or taxes assessed on income derived from such sales. Where Licensee
distributes Patent Products for end use to itself, an Affiliate, a Joint
Venture, or a sublicensee, then such distribution will be considered a sale
at the price normally charged to independent third parties, and The Regents
will be entitled to collect a royalty on such sale in accordance with Article
4 (Royalties).
1.11 "Affiliate(s)" of Licensee means any entity which, directly or
indirectly, controls Licensee, is controlled by Licensee, or is under common
control with Licensee ("control" for these purposes being defined as the
actual, present capacity to elect a majority of the directors of such
affiliate, or if not, the capacity to elect the members that control forty
percent (40%) of the outstanding stock or other voting rights entitled to
elect directors) provided, however, that in any country where the local law
will not permit foreign equity participation of a majority, then an
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<PAGE>
"Affiliate" will include any company in which Licensee will own or control,
directly or indirectly, the maximum percentage of such outstanding stock or
voting rights permitted by local law. Each reference to Licensee herein will
be meant to include its Affiliates.
1.12 "Joint Venture" means any separate entity established pursuant to
an agreement between a third party and Licensee to constitute a vehicle for a
joint venture, in which the separate entity manufactures, uses, purchases,
sells, or acquires Patent Products from Licensee. Each reference to Licensee
herein will be meant to include its Joint Venture(s).
2. GRANT
2.1 Subject to the limitations set forth in this Agreement, The Regents
hereby grants to Licensee exclusive licenses under Patent Rights to make, use,
sell, offer for sale, and import Patent Products in the Field and to practice
the Patent Method in the Field.
2.2 The licenses granted hereunder expressly prohibit the right to
make, use, sell, offer for sale, and import Patent Products in the Excluded
Field and to practice the Patent Method in the Excluded Field.
2.3 The manufacture of Patent Products in the Field and the practice of
the Patent Method in the Field will be subject to applicable government
importation laws and regulations of a particular country on Patent Products made
outside the particular country in which such Patent Products are used or sold.
2.4 The Regents also grants to Licensee the right to issue
sublicenses to third parties to make, use, sell, offer for sale, and import
Patent Products in the Field and to practice the Patent Method in the Field,
provided Licensee retains current exclusive rights thereto under this
Agreement. If the exclusive licenses granted to Licensee in any Field are
reduced to nonexclu-
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sive licenses for any reason, then Licensee will be entitled to retain any
sublicenses in that Field granted by Licensee prior to the date on which the
reduction to nonexclusive licenses became effective. Licensee, however, is
prohibited from granting any additional sublicenses in the Field in which the
exclusive licenses were reduced to non-exclusive licenses. To the extent
applicable, such sublicenses will include all of the rights of and
obligations due to The Regents that are contained in this Agreement including
payment to The Regents of royalties at the rates provided for in Article 4
(Royalties).
2.5 Licensee will notify The Regents of each sublicense granted
hereunder and provide The Regents with a copy of each sublicense. Licensee
will collect and pay all fees and royalties due The Regents as set forth in
Paragraphs 3.1 and 4.1 below (and guarantee all such payments due from
sublicensees). Licensee will require sublicensees to provide it with progress
and royalty reports in accordance with the provisions herein, and Licensee
will collect and deliver to The Regents all such reports due from
sublicensees.
2.6 Upon termination of this Agreement for any reason, The Regents,
at its sole discretion, will determine whether any or all sublicenses will be
assigned to The Regents, except that The Regents will not be bound by any
duties or obligations contained in any sublicenses that extend beyond the
duties and obligations contained in this Agreement.
2.7 Nothing in this Agreement will be deemed to limit the right of
The Regents to publish any and all technical data resulting from any research
performed by The Regents relating to the Invention and to make and use the
Invention, Patent Product(s), Patent Method(s), and associated technology
solely for educational and research purposes and for purposes not covered by
this Agreement.
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<PAGE>
3. LICENSE ISSUE FEE
3.1 As partial consideration for all the rights and licenses granted
to Licensee, Licensee will pay to The Regents a license issue fee of _________
Dollars ($________) according to the following schedule:
3.1a Dollars ($________) within 30 days after
execution of this Agreement;
3.1b Dollars ($________) on or before the first
anniversary of the effective date of this Agreement;
3.1c Dollars ($________) on or before the second
anniversary of the effective date of this Agreement; and
3.1d Dollars ($________) on or before the third
anniversary of the effective date of this Agreement.
[Portions of this Section have been omitted pursuant to a request
for confidentiality under Rule 24b-2 of the Securities Exchange
Act of 1934, as amended. A copy of this Agreement with this section
intact has been filed separately with the Securities and Exchange
Commission.]
3.2 The fees set forth in Paragraph 3.1 above are non-refundable,
non-creditable, and not an advance against royalties.
4. ROYALTIES
4.1 As further consideration for all the rights and licenses granted
to Licensee, Licensee and its sublicensees will pay to The Regents an earned
royalty at the rate of four percent (4%) based on the Net Sales of Patent
Products. If, however, Licensee has granted both the right to manufacture and
sell a Vaccine Adjuvant to a party that also manufactures and sells a
pharmaceutical product that is combined with the Vaccine Adjuvant, then
Licensee may exchange the royalty rate paid to The Regents specified above
for a royalty rate of two percent (2%) based on the Net Sales of the
pharmaceutical product that contains the Vaccine Adjuvant.
4.2 Paragraphs 1.1, 1.2 and 1.3 define Patent Rights, Patent
Products, and Patent Method so that royalties will be payable on Patent
Products and Patent Method covered by both
8
<PAGE>
pending patent applications and issued patents. Earned royalties will accrue
in each country for the duration of Patent Rights in that country and will be
payable to The Regents when Patent Products are invoiced, or if not invoiced,
when delivered to a third party or to itself, an Affiliate, Joint Venture, or
sublicensee in the case where such delivery of the Patent Products to
Licensee, an Affiliate, Joint Venture, or sublicensee is intended for end use
or for purposes other than clinical trials.
4.3 Royalties accruing to The Regents will be paid to The Regents
quarterly on or before the following dates of each calendar year:
February 28 for the calendar quarter ending December 31
May 31 for the calendar quarter ending March 31
August 31 for the calendar quarter ending June 30
November 30 for the calendar quarter ending September 30
4.4 Each such payment will be for royalties which accrued up to the
most recently completed calendar quarter of Licensee.
4.5 Beginning in the year ____, Licensee will pay to The Regents a
minimum annual royalty in the amounts and at the times set forth below:
____ - $________
____ - $________
____ - $________
____ - $________
____ - $________
[Portions of this Section have been omitted pursuant to a request for
confidentiality under Rule 24b-2 of the Securities Exchange Act of 1934, as
amended. A copy of this Agreement with this section intact has been filed
separately with the Securities and Exchange Commission.]
9
<PAGE>
In each succeeding calendar year after the year 2007, Licensee will pay a
minimum annual royalty of One Million Five Hundred Thousand Dollars
($1,500,000) and thereafter for the life of this Agreement. This minimum
annual royalty will be paid to The Regents by February 28 of the year
following accrual of the royalties and will be credited against the earned
royalty due and owing for the calendar year in which the minimum payment was
made.
4.6 All monies due The Regents will be payable in United States funds
collectible at par in San Francisco, California. When Patent Products are
sold for monies other than United States dollars, the earned royalties will
first be determined in the foreign currency of the country in which such
Patent Products were sold and then converted into equivalent United States
funds. The exchange rate will be that rate quoted in the Wall Street Journal
on the last business day of the reporting period.
4.7 Earned royalties on sales of Patent Products occurring in any
country outside the United States will not be reduced by any taxes, fees, or
other charges imposed by the government of such country except those taxes,
fees, and charges allowed under the provisions of Paragraph 1.10 (Net Sales).
Licensee will also be responsible for all bank transfer charges.
4.8 Notwithstanding the provisions of Article 26 (Force Majeure), if at
any time legal restrictions prevent prompt remittance of part or all royalties
owed to The Regents by Licensee with respect to any country where a Patent
Product is sold or distributed, Licensee will convert the amount owed to The
Regents into United States funds and will pay The Regents directly from another
source of funds for the amount impounded.
4.9 In the event that any patent or any claim thereof included within
the Patent Rights is held invalid in a final decision by a court of competent
jurisdiction and last resort and from
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<PAGE>
which no appeal has or can be taken, all obligation to pay royalties based on
such patent or claim or any claim patentably indistinct therefrom will cease
as of the date of such final decision. Licensee will not, however, be
relieved from paying any royalties that accrued before such decision or that
are based on another patent or claim that has not expired or that is not
involved in such decision.
5. DUE DILIGENCE
5.1 The Licensee, upon execution of this Agreement, shall diligently
proceed with the development, manufacture, and sale of Patent Products and
shall earnestly and diligently market the same within a reasonable time after
execution of this Agreement and in quantities sufficient to meet the market
demands therefor.
5.2 Licensee will be entitled to exercise prudent and reasonable
business judgment in the manner in which it meets its due diligence
obligations hereunder. In no case, however, will Licensee be relieved of its
obligations to meet the due diligence provisions of this Article 5 (Due
Diligence).
5.3 The Licensee will obtain all necessary governmental approvals in
each country that Patent Products are manufactured, used, and sold.
5.4 Licensee will have available not less than $________ million
per year for development and commercialization of Patent Products for the
first three years that this Agreement is in effect and $________ million
for every year thereafter until a Patent Product is introduced to the market.
[PORTIONS OF THIS SECTION HAVE BEEN OMITTED PURSUANT TO A REQUEST FOR
CONFIDENTIALITY UNDER RULE 24b-2 OF THE SECURITIES EXCHANGE OF 1934, AS
AMENDED. A
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<PAGE>
COPY OF THIS AGREEMENT WITH THIS SECTION INTACT HAS BEEN FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION.]
5.5 Licensee will not knowingly hire any person into a management or
decision-making position who has been convicted or is under investigation by any
governmental entity in the United States or Canada for fraud in association with
the trading of securities. Licensee must diligently investigate the background
of all potential management hirees before hiring any person into a management or
decision-making position to determine if the person has been under investigation
in the United States or Canada for fraud in association with the trading of
securities.
5.6 Within 6 months of the effective date of this Agreement, Licensee
will acquire (by purchase, construction, rental, lease, or other means) the
necessary laboratory, pilot plant, and supporting area space necessary for
carrying out the projects specified in Paragraph 5.9. Within 18 months of the
effective date of this Agreement, Licensee will acquire (by purchase,
construction, rental, lease, or other means) the necessary laboratory,
manufacturing, and supporting area space to manufacture the Patent Products
specified in Paragraph 5.9 under good manufacturing practice conditions. The
majority of research and development work, including animal, toxicity and
product development work, will be conducted in facilities acquired (purchased,
constructed, rented or leased) by Licensee.
5.7 Licensee must hire the following key employees by the designated
dates:
[PORTIONS OF THIS SECTION HAVE BEEN OMITTED PURSUANT TO A REQUEST
FOR CONFIDENTIALITY UNDER RULE 24b-2 OF THE SECURITIES EXCHANGE
ACT OF 1934, AS AMENDED. A COPY OF THIS AGREEMENT WITH THIS SECTION
INTACT HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION.]
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<PAGE>
5.8 In the hiring of key employees designated in Paragraph 5.7 above,
Licensee will use the criteria set forth below to select and hire qualified
candidates.
[PORTIONS OF THIS SECTION HAVE BEEN OMITTED PURSUANT TO A REQUEST
FOR CONFIDENTIALITY UNDER RULE 24b-2 OF THE SECURITIES EXCHANGE
ACT OF 1934, AS AMENDED. A COPY OF THIS AGREEMENT WITH THIS SECTION
INTACT HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION.]
5.9 Licensee must perform the following in the designated Fields:
5.9a Vaccine Adjuvant Project
[PORTIONS OF THIS SECTION HAVE BEEN OMITTED PURSUANT TO A REQUEST
FOR CONFIDENTIALITY UNDER RULE 24b-2 OF THE SECURITIES EXCHANGE
ACT OF 1934, AS AMENDED. A COPY OF THIS AGREEMENT WITH THIS SECTION
INTACT HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION.]
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5.9b Epstein Barr Vaccine Project
[PORTIONS OF THIS SECTION HAVE BEEN OMITTED PURSUANT TO A REQUEST
FOR CONFIDENTIALITY UNDER RULE 24b-2 OF THE SECURITIES EXCHANGE
ACT OF 1934, AS AMENDED. A COPY OF THIS AGREEMENT WITH THIS SECTION
INTACT HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION.]
5.9c Herpes 2 Vaccine Project
[PORTIONS OF THIS SECTION HAVE BEEN OMITTED PURSUANT TO A REQUEST
FOR CONFIDENTIALITY UNDER RULE 24b-2 OF THE SECURITIES EXCHANGE
ACT OF 1934, AS AMENDED. A COPY OF THIS AGREEMENT WITH THIS SECTION
INTACT HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION.]
5.9d HIV Vaccine Project
[PORTIONS OF THIS SECTION HAVE BEEN OMITTED PURSUANT TO A REQUEST
FOR CONFIDENTIALITY UNDER RULE 24b-2 OF THE SECURITIES EXCHANGE
ACT OF 1934, AS AMENDED. A COPY OF THIS AGREEMENT WITH THIS SECTION
INTACT HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION.]
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5.9e Oral Insulin Project
[PORTIONS OF THIS SECTION HAVE BEEN OMITTED PURSUANT TO A REQUEST
FOR CONFIDENTIALITY UNDER RULE 24b-2 OF THE SECURITIES EXCHANGE
ACT OF 1934, AS AMENDED. A COPY OF THIS AGREEMENT WITH THIS SECTION
INTACT HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION.]
5.9f Taxol Delivery Project
[PORTIONS OF THIS SECTION HAVE BEEN OMITTED PURSUANT TO A REQUEST
FOR CONFIDENTIALITY UNDER RULE 24b-2 OF THE SECURITIES EXCHANGE
ACT OF 1934, AS AMENDED. A COPY OF THIS AGREEMENT WITH THIS SECTION
INTACT HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION.]
5.9g 5-Fluorouracil
[PORTIONS OF THIS SECTION HAVE BEEN OMITTED PURSUANT TO A REQUEST
FOR CONFIDENTIALITY UNDER RULE 24b-2 OF THE SECURITIES EXCHANGE
ACT OF 1934, AS AMENDED. A COPY OF THIS AGREEMENT WITH THIS SECTION
INTACT HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION.]
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5.10 [PORTIONS OF THIS SECTION HAVE BEEN OMITTED PURSUANT TO A REQUEST
FOR CONFIDENTIALITY UNDER RULE RULE 24b-2 OF THE SECURITIES EXCHANGE
ACT OF 1934, AS AMENDED. A COPY OF THIS AGREEMENT WITH THIS SECTION
INTACT HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION.]
5.11 The Regents shall have the right and option to terminate this
Agreement or reduce Licensee's exclusive licenses to non-exclusive licenses in
accordance with Paragraph 5.12 below, if any of the provisions of this Article 5
have not been met by Licensee. The exercise of this right and option by The
Regents supersedes the rights granted in Article 2 (Grant).
5.12 To exercise either the right to terminate this Agreement or reduce
the exclusive licenses granted to Licensee to non-exclusive licenses for lack of
diligence required in this Article 5, The Regents will give Licensee written
notice of the deficiency. Licensee thereafter has 60 (sixty) days to cure the
deficiency. These notices will be subject to Article 18 (Notices).
6. PROGRESS AND ROYALTY REPORTS
6.1 Beginning August 31, 1997 and semi-annually thereafter, Licensee
will submit to The Regents a progress report covering activities by Licensee
related to developing and testing all Patent Products and obtaining governmental
approvals necessary for marketing them. These
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progress reports will be provided to The Regents to cover the progress of the
research and development of the Patent Products until their first commercial
sale in the United States.
6.2 The progress reports submitted under Paragraph 6.1 will include,
but not be limited to, the following topics so that The Regents may be able
to determine the progress of the development of Patent Products and may also
be able to determine whether or not Licensee has met its diligence
obligations set forth in Article 5 (Due Diligence) above:
6.2a summary of work completed
6.2b key scientific discoveries
6.2c summary of work in progress
6.2d current schedule of anticipated events or milestones
6.2e market introduction date of Patent Products
6.2f raise the dollar amount to satisfy the diligence provisions
specified in Paragraph 5.4
6.2g activities of sublicensees and strategic partners.
6.3 Licensee will also report to The Regents in its immediately
subsequent progress and royalty report the date of first commercial sale of a
Patent Product(s) in each country.
6.4 After the first commercial sale of a Patent Product, Licensee will
provide The Regents with quarterly royalty reports to The Regents on or before
each February 28, May 31, August 31, and November 30 of each year. Each such
royalty report will cover the most recently completed calendar quarter of
Licensee (October through December, January through March, April through June,
and July through September) and will show:
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6.4a the gross sales and Net Sales of Patent Products sold by Licensee
and reported to Licensee as sold by its sublicensees during the
most recently completed calendar quarter;
6.4b the number of Patent Products sold or distributed by Licensee and
reported to Licensee as sold or distributed by its sublicensees;
6.4c the royalties, in U.S. dollars, payable hereunder with respect to
Net Sales; and
6.4d the exchange rates used, if any.
6.5 If no sales of Patent Products have been made during any reporting
period after the first commercial sale of a Patent Product, then a statement to
this effect is required.
7. BOOKS AND RECORDS
7.1 Licensee will keep books and records accurately showing all
Patent Products manufactured, used, and/or sold under the terms of this
Agreement. Such books and records will be preserved for at least five years
after the date of the royalty payment to which they pertain and will be open
to inspection by representatives or agents of The Regents upon request and at
reasonable times to determine the accuracy of the books and records and to
determine compliance by Licensee with the terms of this Agreement.
7.2 The fees and expenses of representatives of The Regents
performing such an examination will be borne by The Regents. However, if an
error in royalties of more than five percent (5%) of the total royalties due
for any year is discovered, then the fees and expenses of these
representatives will be borne by Licensee.
8. LIFE OF THE AGREEMENT
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8.1 Unless otherwise terminated by operation of law or by acts of the
parties in accordance with the terms of this Agreement, this Agreement will
be in force from the effective date recited on page one and will remain in
effect for the life of the last-to-expire patent licensed under this
Agreement, or until the last patent application licensed under this Agreement
is abandoned.
8.2 Any termination of this Agreement will not affect the rights and
obligations set forth in the following Articles:
Article 7 Books and Records
Article 11 Disposition of Patent Products on Hand Upon
Termination
Article 12 Use of Names and Trademarks
Paragraph 14.6 Patent Prosecution and Maintenance
Article 17 Indemnification
Article 22 Failure to Perform
Article 27 Confidentiality
9. TERMINATION BY THE REGENTS
9.1 If Licensee should violate or fail to perform any term or covenant
of this Agreement, then The Regents may give written notice of such default
("Notice of Default") to Licensee. If Licensee should fail to repair such
default within sixty (60) days after the date such notice takes effect, The
Regents will have the right to terminate this Agreement and the licenses herein
by a second written notice ("Notice of Termination") to Licensee. If a Notice of
Termination is sent to Licensee, this Agreement will automatically terminate on
the date such notice takes effect. Such termination will not relieve Licensee of
its obligation to pay any royalty or
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license fees owing at the time of such termination and will not impair any
accrued right of The Regents. These notices will be subject to Article 18
(Notices).
10. TERMINATION BY LICENSEE
10. Licensee will have the right at any time to terminate this
Agreement in whole or as to any portion of Patent Rights by giving notice in
writing to The Regents. Such Notice of Termination will be subject to Article 18
(Notices) and termination of this Agreement will be effective sixty (60) days
after the effective date thereof. Licensee's right to terminate any portion of
the Patent Rights under this Agreement in accordance with the foregoing notice
requirements shall include the right to abandon a specified project within a
Field without affecting Licensee's rights and obligations under this Agreement
with respect to other specified projects within that Field or another Field.
10.2 Any termination pursuant to the above Paragraph will not relieve
Licensee of any obligation or liability accrued hereunder prior to such
termination or rescind anything done by Licensee or any payments made to The
Regents hereunder prior to the time such termination becomes effective, and such
termination will not affect in any manner any rights of The Regents arising
under this Agreement prior to such termination.
11. Disposition of Patent Products on Hand Upon Termination
11.1 Upon termination of this Agreement, Licensee will have the
privilege of disposing of all previously made or partially made Patent Products,
but no more, within a period of one hundred twenty (120) days, provided,
however, that the sale of such Patent Products will be subject to the terms of
this Agreement including, but not limited to, the payment of royalties
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based on the Net Sales of Patent Products at the rates and at the times
provided herein and the rendering of reports in connection therewith.
12. USE OF NAMES AND TRADEMARKS
12.1 Nothing contained in this Agreement will be construed as
conferring any right to use in advertising, publicity, or other promotional
activities any name, trade name, trademark, or other designation of either
party hereto by the other (including contraction, abbreviation or simulation
of any of the foregoing). Unless required by law, the use by Licensee of the
name "The Regents of the University of California" or the name of any campus
of the University of California for use in advertising, publicity, or other
promotional activities is expressly prohibited.
12.2 It is understood that The Regents will be free to release to the
inventors and senior administrative officials employed by The Regents the
terms of this Agreement upon their request. If such release is made, The
Regents will request that such terms will be kept in confidence in accordance
with the provisions of Article 27 (Confidentiality) and not be disclosed to
others. It is further understood that should a third party inquire whether a
license to Patent Rights is available, The Regents may disclose the existence
of this Agreement and the extent of the grant in Article 2 (Grant) to such
third party, but will not disclose the name of Licensee, except where The
Regents is required to release such information under either the California
Public Records Act or other applicable law.
13. LIMITED WARRANTY
13.1 The Regents warrants to Licensee that it owns the Patent Rights
that are the subject of this license and that it has the lawful right to grant
this license.
21
<PAGE>
13.2 The Regents agrees that it will inform Licensee in writing if The
Regents, as represented by the actual knowledge of the Licensing Associate
responsible for administration of this Agreement, receives notice or
otherwise becomes aware of any claims, actions, suits or other proceedings
directly involving the Patent Rights in the Fields that are the subject of
this Agreement or The Regents' lawful right to grant the licenses contained
in this Agreement.
13.3 This license and the associated Invention, Patent Rights, Patent
Method, and Patent Products are provided WITHOUT WARRANTY OF MERCHANTABILITY
OR FITNESS FOR A PARTICULAR PURPOSE OR ANY OTHER WARRANTY, EXPRESS OR
IMPLIED. THE REGENTS MAKES NO REPRESENTATION OR WARRANTY THAT THE INVENTION,
PATENT PRODUCTS, OR PATENT METHOD WILL NOT INFRINGE ANY PATENT OR OTHER
PROPRIETARY RIGHT.
13.4 IN NO EVENT WILL THE REGENTS BE LIABLE FOR ANY INCIDENTAL,
SPECIAL, OR CONSEQUENTIAL DAMAGES RESULTING FROM EXERCISE OF THIS LICENSE OR
THE USE OF THE INVENTION, PATENT RIGHTS, PATENT METHOD, OR PATENT PRODUCTS.
13.5 Nothing in this Agreement will be construed as:
13.5a a warranty or representation by The Regents as to the
validity, enforceability, or scope of any Patent Rights; or
13.5b a warranty or representation that anything made, used, sold,
or otherwise disposed of under any license granted in this
Agreement is or will be free from infringement of patents of
third parties; or
13.5c an obligation to bring or prosecute actions or suits against
third parties for patent infringement except as provided in
Article 16 (Patent Infringement); or
22
<PAGE>
13.5d conferring by implication, estoppel, or otherwise any
license or rights under any patents of The Regents other
than Patent Rights as defined herein, regardless of whether
such patents are dominant or subordinate to Patent Rights;
or
13.5e an obligation to furnish any know-how not provided in Patent
Rights or Patent Products.
14. PATENT PROSECUTION AND MAINTENANCE
14.1 The Regents will diligently prosecute and maintain the United
States and foreign patents comprising Patent Rights using counsel of its
choice. The Regents will promptly provide Licensee with copies of all
relevant documentation so that Licensee may be currently and promptly
informed and apprised of the continuing prosecution, and may comment upon
such documentation sufficiently in advance of any initial deadline for filing
a response, provided, however, that if Licensee has not commented upon such
documentation prior to the initial deadline for filing a response with the
relevant government patent office or The Regents must act to preserve Patent
Rights, The Regents will be free to respond appropriately without
consideration of comments by Licensee, if any. Both parties hereto will keep
this documentation in confidence in accordance with the provisions of Article
27 (Confidentiality) herein. Counsel for The Regents will take instructions
only from The Regents.
14.2 The Regents will use all reasonable efforts to amend any patent
application to include claims requested by Licensee and required to protect
the Patent Products contemplated to be sold or Patent Method to be practiced
under this Agreement.
14.3 The Regents and Licensee will cooperate in applying for an
extension of the term of any patent included within Patent Rights, if
appropriate, under the Drug Price Competition and Patent Term Restoration Act of
1984. Licensee will prepare all such documents, and The
23
<PAGE>
Regents will execute such documents and will take such additional action as
Licensee may reasonably request in connection therewith.
14.4 The Regents will, at the request of Licensee, file, prosecute,
and maintain patent applications and patents covered by Patent Rights in
foreign countries if available. Within nine months of the filing of the
corresponding United States patent application, Licensee must request that
The Regents file any foreign counterpart patent applications of interest to
Licensee. This notice concerning foreign filing must be in writing and must
identify the countries desired. The absence of such a notice from Licensee to
The Regents within the nine (9) month period will be considered an election
by Licensee not to request The Regents to secure foreign patent rights on
behalf of Licensee. The Regents will have the right to file patent
applications at its own expense in any country Licensee has not included in
its list of desired countries, and such applications and resultant patents,
if any, will not be included in the licenses granted under this Agreement.
14.5 All past, present and future costs of preparing, filing,
prosecuting and maintaining all United States and foreign patent applications
and all costs and fees relating to the preparation and filing of patents
covered by Patent Rights in Paragraph 1.1 will be borne by Licensee. This
includes patent preparation and prosecution costs for the Patent Rights
incurred by The Regents prior to the execution of this Agreement. Any
outstanding costs incurred by The Regents and not already reimbursed by
Licensee will be due upon execution of this Agreement and will be paid at the
time that the license issue fee is paid. Licensee will reimburse The Regents
for all other costs and charges within thirty (30) days following receipt of
an itemized invoice from The Regents for same. The costs of all interferences
and oppositions will be considered prosecution expenses and also will be
borne by Licensee. Notwithstanding the foregoing, if The Regents grants a
24
<PAGE>
license under the Patent Rights to a licensee other than the Licensee, all
patent costs associated with the patents and applications which are the
subject of such license agreement will be allocated by The Regents
appropriately between Licensee and such licensee.
14.6 The obligation of Licensee to underwrite and to pay patent
preparation, filing, prosecution, maintenance, and related costs will
continue for costs incurred until three months after receipt by either party
of a Notice of Termination. Licensee will reimburse The Regents for all
patent costs incurred during the term of the Agreement and for three (3)
months thereafter whether or not invoices for such costs are received during
the three (3) month period after receipt of a Notice of Termination. Licensee
may, with respect to any particular patent application or patent, terminate
its obligations to the patent application or patent in any or all designated
countries upon three (3) months' written notice to The Regents. The Regents
may continue prosecution and/or maintenance of such application(s) or
patent(s) at its sole discretion and expense, provided, however, that
Licensee will have no further right or licenses thereunder.
14.7 Licensee will notify The Regents of any change of its status as a
small entity (as defined by the United States Patent and Trademark Office) and
of the first sublicense granted to an entity that does not qualify as a small
entity as defined therein.
15. PATENT MARKING
15.1 Licensee will mark all Patent Products made, used, or sold under
the terms of this Agreement, or their containers, in accordance with the
applicable patent marking laws.
16. PATENT INFRINGEMENT
16.1 In the event that Licensee learns of the substantial infringement
of any patent licensed under this Agreement, Licensee will call the attention of
The Regents thereto in writing
25
<PAGE>
and will provide The Regents with reasonable evidence of such infringement.
Both parties to this Agreement acknowledge that during the period and in a
jurisdiction where Licensee has exclusive rights under this Agreement,
neither will notify a third party of the infringement of any of Patent Rights
without first obtaining consent of the other party, which consent will not be
unreasonably withheld. Both parties will use their best efforts in
cooperation with each other to terminate such infringement without litigation.
16.2 Licensee may request that The Regents take legal action against
the infringement of Patent Rights. Such request must be made in writing and
must include reasonable evidence of such infringement and damages to
Licensee. If the infringing activity has not been abated within ninety (90)
days following the effective date of such request, The Regents will have the
right to elect to:
16.2a commence suit on its own account; or
16.2b refuse to participate in such suit and The Regents will give
notice of its election in writing to Licensee by the end of the 100th day
after receiving notice of such request from Licensee. Licensee may thereafter
bring suit for patent infringement if and only if The Regents elects not to
commence suit and if the infringement occurred during the period and in a
jurisdiction where Licensee had exclusive rights under this Agreement.
However, in the event Licensee elects to bring suit in accordance with this
Paragraph, The Regents may thereafter join such suit at its own expense.
16.3 Such legal action as is decided upon will be at the expense of
the party on account of whom suit is brought and all recoveries recovered
thereby will belong to such party, provided, however, that legal action
brought jointly by The Regents and Licensee and participated in by
26
<PAGE>
both will be at the joint expense of the parties and all recoveries will be
allocated in the following order: a) to each party reimbursement in equal
amounts of the attorney's costs, fees, and other related expenses to the
extent each party paid for such costs, fees, and expenses until all such
costs, fees, and expenses are consumed for each party; and b) any remaining
amount shared jointly by them in proportion to the share of expenses paid by
each party.
16.4 Each party will cooperate with the other in litigation
proceedings instituted hereunder but at the expense of the party on account
of whom suit is brought. Such litigation will be controlled by the party
bringing the suit, except that The Regents may be represented by counsel of
its choice in any suit brought by Licensee.
17. INDEMNIFICATION
17.1 Licensee will (and require its sublicensees to) indemnify, hold
harmless, and defend The Regents, its officers, employees, and agents; the
sponsors of the research that led to the Invention; the inventors of any
invention covered by patents or patent applications in Patent Rights
(including the Patent Products and Patent Method contemplated thereunder) and
their employers against any and all claims, suits, losses, damage, costs,
fees, and expenses resulting from or arising out of exercise of this license
or any sublicense. This indemnification will include, but will not be limited
to, any product liability.
17.2 Licensee, at its sole cost and expense, will insure its
activities in connection with the work under this Agreement and obtain, keep
in force, and maintain insurance as follows (or an equivalent program of self
insurance):
17.3 Comprehensive or Commercial Form General Liability Insurance
(contractual liability included) with limits as follows:
27
<PAGE>
Each Occurrence ............................................... $5,000,000
Products/Completed Operations Aggregate ....................... $5,000,000
Personal and Advertising Injury ............................... $5,000,000
General Aggregate (commercial form only)....................... $5,000,000
It should be expressly understood, however, that the coverages and limits
referred to under the above will not in any way limit the liability of
Licensee. Licensee will furnish The Regents with certificates of insurance
evidencing compliance with all requirements. Such certificates will:
17.3a Provide for thirty (30) days' advance written notice to The Regents
of any modification;
17.3b Indicate that The Regents has been endorsed as an additional
Insured under the coverages referred to under the above; and
17.3c Include a provision that the coverages will be primary and will not
participate with nor will be excess over any valid and collectable
insurance or program of self-insurance carried or maintained by The
Regents.
17.4 The Regents will promptly notify Licensee in writing of any claim
or suit brought against The Regents in respect of which The Regents intends to
invoke the provisions of this Article 17 (Indemnification). Licensee will keep
The Regents informed on a current basis of its defense of any claims pursuant to
this Article 17 (Indemnification).
18. NOTICES
18.1 Any notice or payment required to be given to either party will be
deemed to have been properly given and to be effective (a) on the date of
delivery if delivered in person or (b) five (5) days after mailing if mailed by
first-class certified mail, postage paid, to the respective addresses given
below, or to another address as it may designate by written notice given to the
other party.
28
<PAGE>
In the case of Licensee: Ben-Abraham Technologies, Inc.
Suite 302, 372 Bay Street
Toronto, Canada, M5H 2W9
Telephone: (416) 364-9279
Facsimile: (416) 364-6725
Attention: Dr. Claus G. J. Wagner-Bartak
In the case of The Regents: THE REGENTS OF THE UNIVERSITY OF CALIFORNIA
Harbor Bay Parkway, Suite 150
Alameda, California 94502
Tel: (510) 748-6600
Fax: (510) 748-6639
Attention: Executive Director;
Research Administration and
Technology Transfer
Referring to: U.C. Case No. 89-204
19. ASSIGNABILITY
19.1 This Agreement is binding upon and will inure to the benefit of The
Regents, its successors and assigns, but will be personal to Licensee and
assignable by Licensee only with the written consent and at the sole discretion
of The Regents.
20. LATE PAYMENTS
20.1 In the event royalty payments, fees, or patent prosecution costs
are not received by The Regents when due, Licensee will pay to The Regents
interest charges at a rate of ten percent (10%) simple interest per annum.
Such interest will be calculated from the date payment was due until actually
received by The Regents. Acceptance by The Regents of any late payment
interest from Licensee under this Paragraph 20.1 will in no way affect the
provision of Article 21 (Waiver) herein.
29
<PAGE>
21. WAIVER
21.1 It is agreed that no waiver by either party hereto of any breach
or default of any of the covenants or agreements herein set forth will be
deemed a waiver as to any subsequent and/or similar breach or default.
22. FAILURE TO PERFORM
22.1 In the event of a failure of performance due under the terms of
this Agreement and if it becomes necessary for either party to undertake
legal action against the other on account thereof, then such legal action
will take place in San Francisco, California and the prevailing party will be
entitled to reasonable attorney's fees in addition to costs and necessary
disbursements.
23. GOVERNING LAWS
23.1 THIS AGREEMENT WILL BE INTERPRETED AND CONSTRUED IN ACCORDANCE
WITH THE LAWS OF THE STATE OF CALIFORNIA, excluding any choice of law rules
that would direct the application of the laws of another jurisdiction, but
the scope and validity of any patent or patent application will be governed
by the applicable laws of the country of such patent or patent application.
24. GOVERNMENT APPROVAL OR REGISTRATION
24.1 If this Agreement or any associated transaction is required by
the law of any nation to be either approved or registered with any
governmental agency, Licensee will assume all legal obligations to do so.
Licensee will notify The Regents if it becomes aware that this Agreement is
subject to a United States or foreign government reporting or approval
require-
30
<PAGE>
ment. Licensee will make all necessary filings and pay all costs including
fees, penalties, and all other out-of-pocket costs associated with such
reporting or approval process.
25. EXPORT CONTROL LAWS
25.1 Licensee will observe all applicable United States and foreign
laws with respect to the transfer of Patent Products and related technical
data to foreign countries, including, without limitation, the International
Traffic in Arms Regulations (ITAR) and the Export Administration Regulations.
26. FORCE MAJEURE
26.1 The parties to this Agreement will be excused from any performance
required hereunder if such performance is rendered impossible or unfeasible due
to any acts of God, catastrophes, or other major events beyond their reasonable
control, including, without limitation, war, riot, and insurrection; laws,
proclamations, edicts, ordinances, or regulations; strikes, lock-outs, or other
serious labor disputes; and floods, fires, explosions, or other natural
disasters. However, any party to this Agreement will have the right to terminate
this Agreement upon thirty (30) days' prior written notice if either party is
unable to fulfill its obligations under this Agreement due to any of the causes
mentioned above and such inability continues for a period of one year. Notices
will be subject to Article 18 (Notices).
27. CONFIDENTIALITY
Licensee and The Regents respectively will treat and maintain the proprietary
business, patent prosecution, software, engineering drawings, process and
technical information, and other proprietary information ("Proprietary
Information") of the other party in confidence using at least the same degree of
care as that party uses to protect its own proprietary information of a like
31
<PAGE>
nature for a period from the date of disclosure until five years after the
date of termination of this Agreement. This confidentiality obligation will
apply to the information defined as "Data" under the Secrecy Agreement, and
such Data will be treated as Proprietary Information hereunder.
27.1 All Proprietary Information will be labeled or marked
confidential or as otherwise similarly appropriate by the disclosing party,
or if the Proprietary Information is orally disclosed, it will be reduced to
writing or some other physically tangible form, marked and labeled as set
forth above by the disclosing party, and delivered to the receiving party
within thirty (30) days after the oral disclosure as a record of the
disclosure and the confidential nature thereof. Notwithstanding the
foregoing, Licensee and The Regents may use and disclose Proprietary
Information to its employees, agents, consultants, contractors, and, in the
case of Licensee, its sublicensees, provided that any such parties are bound
by a like duty of confidentiality.
27.2 Nothing contained herein will in any way restrict or impair the
right of Licensee or The Regents to use, disclose, or otherwise deal with any
Proprietary Information:
27.3a that recipient can demonstrate by written records was previously
known to it;
27.3b that is now, or becomes in the future, public knowledge other than
through acts or omissions of recipient;
27.3c that is lawfully obtained without restrictions by recipient from
sources independent of the disclosing party;
27.3d that is required to be disclosed to a governmental entity or agency
in connection with seeking any governmental or regulatory approval,
or pursuant to the lawful requirement or request of a governmental
entity or agency;
27.3e that is furnished to a third party by the recipient with similar
confidentiality restrictions imposed on such third party, as
evidenced in writing; or
27.3f that The Regents is required to disclose pursuant to the California
Public Records Act or other applicable law.
32
<PAGE>
27.3 Upon termination of this Agreement, Licensee and The Regents will
destroy or return to the disclosing party proprietary information received from
the other in its possession within fifteen (15) days following the effective
date of termination. Licensee and The Regents will provide each other, within
thirty (30) days following termination, with a written notice that Proprietary
Information has been returned or destroyed. Each party may, however, retain one
copy of Proprietary Information for archival purposes in non-working files.
28. MISCELLANEOUS
28.1 The headings of the several sections are inserted for convenience
of reference only and are not intended to be a part of or to affect the meaning
or interpretation of this Agreement.
28.2 This Agreement will not be binding upon the parties until it has
been signed below on behalf of each party, in which event, it will be effective
as of the date recited on page one.
28.3 No amendment or modification hereof will be valid or binding upon
the parties unless made in writing and signed on behalf of each party.
28.4 This Agreement embodies the entire understanding of the parties and
will supersede all previous communications, representations or understandings,
either oral or written, between the parties relating to the subject matter
hereof.
28.5 In case any of the provisions contained in this Agreement are held
to be invalid, illegal, or unenforceable in any respect, such invalidity,
illegality, or unenforceability will not affect any other provisions hereof, but
this Agreement will be construed as if such invalid or illegal or unenforceable
provisions had never been contained herein.
33
<PAGE>
The Regents and Licensee execute this Agreement in duplicate originals by
their respective, authorized officers on the date indicated.
Ben-Abraham Technologies, Inc. The Regents of the University of
California
By /s/ Dr. Avi Ben-Abraham By /s/ Terence A. Feuerborn
----------------------- ------------------------
(Signature) (Signature)
Name: Dr. Avi Ben-Abraham Name: Terence A. Feuerborn
-------------------
(Please Print)
Title: Chairman & CEO Title: Executive Director
-------------- Research Administration and
Technology Transfer
Date May 30th 1977 Date --------------------
- ----------------------------------
34
<PAGE>
[PORTIONS OF THIS EXHIBIT HAVE BEEN OMITTED PURSUANT TO A
REQUEST FOR CONFIDENTIALITY UNDER RULE 24b-2 OF THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. A COPY OF THIS
AGREEMENT WITH THIS EXHIBIT INTACT HAS BEEN FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION.]
FIRST AMENDMENT TO
EXCLUSIVE LICENSE AGREEMENT
FOR
SELECTED APPLICATIONS OF COATED NANOCRYSTALLINE PARTICLES
BETWEEN
THE REGENTS OF THE UNIVERSITY OF CALIFORNIA
AND
BEN-ABRAHAM TECHNOLOGIES INC.
UC CASE NO. 89-204
<PAGE>
FIRST AMENDMENT TO THE EXCLUSIVE LICENSE AGREEMENT
FOR SELECTED APPLICATIONS OF COATED NANOCRYSTALLINE PARTICLES
This amendment ("Amendment") is effective this 26th day of October,
1999, by and between The Regents of the University of California ("The
Regents"), a California corporation, having its statewide administrative
offices at 1111 Franklin Street, 12th Floor, Oakland, California 94607-5200,
and Ben-Abraham Technologies Inc. ("Licensee"), a Wyoming corporation, having
a principal place of business at 175 Olde Half Day Road, Suite 123,
Lincolnshire, Illinois 60069.
RECITALS
Whereas, Licensee and The Regents entered into a license agreement
entitled "Exclusive License Agreement for Selected Applications of Coated
Nanocrystalline Particles," effective on June 18, 1997, having U.C. Agreement
Control Number 1997-04-0671 ("License Agreement"), covering licensure to
Licensee by The Regents of rights in certain inventions developed by Dr. Nir
Kossovsky et al. at the University of California, Los Angeles and covered by
Patent Rights (as defined in the License Agreement);
Whereas, although Licensee and The Regents both agree that the other
party has substantially complied with the terms of the License Agreement,
changed circumstances have necessitated that certain other provisions of the
License Agreement be modified and amended;
Whereas, Licensee has requested that The Regents amend certain
provisions in the License Agreement to a more financial and time feasible
schedule; and
Whereas, The Regents is willing to amend the License Agreement to
reflect such request.
Now, Therefore, in consideration of the foregoing and the mutual
promises and covenants contained herein, the parties hereto agree as follows:
<PAGE>
1. Paragraph 1.6 (Definitions) of the License Agreement is deleted in its
entirety and replaced with the following:
"1.6 Drug Delivery System" means coated nanocrystalline
particles used in pharmaceutical preparations to facilitate
the therapeutic delivery of insulin in humans."
2. Paragraph 1.7 (Definition) of the License Agreement is deleted in its
entirety and replaced with the following:
"1.7 [reserved]."
3. Paragraph 1.8 (Definitions) of the License Agreement is deleted in its
entirety and replaced with the following:
"1.8 "Field" means Vaccine Adjuvant, Virus Vaccine
Construct, and Drug Delivery System."
4. Paragraph 1.13 (Definitions) is added to the License Agreement
as follows:
"1.13 "Project" means the Vaccine Adjuvant project specified
in Subparagraph 5.9a, Epstein Barr Vaccine project specified in
Subparagraph 5.9b, Herpes 2 Vaccine project specified in Subparagraph
5.9c, HIV Vaccine project specified in Subparagraph 5.9d, and Insulin
project specified in Subparagraph 5.9e."
5. Paragraph 4.5 (Royalties) of the License Agreement is deleted in its
entirety and replaced with the following:
"4.5 Beginning in the year ____, Licensee will pay to The
Regents a minimum annual royalty in the amounts and at the times set
forth below:
------- $
------- $
------- $
------- $
------- $
------- $
------- $
------- $
[Portions of this Exhibit have been omitted pursuant to a request for
confidentiality under Rule 24b-2 of the Securities Exchange Act of
1934, as amended. A copy of this agreement with this Exhibit intact
has been filed separately with the Securities and Exchange Commission.]
2
<PAGE>
In each succeeding calendar year after the year 2011, Licensee will pay
a minimum annual royalty of One Million Five Hundred Thousand Dollars
($1,500,000) and thereafter for the life of this Agreement. This
minimum annual royalty will be paid to The Regents by February 28 of
the year following accrual of the royalties and will be credited
against the earned royalty due and owing for the calendar year in which
the minimum payment was made."
5. Paragraph 5.7 (Due Diligence) of the License Agreement is deleted in
its entirety and replaced with the following:
"5.7 Licensee must hire the following key employees or
independent contractors by the designated dates:
<TABLE>
<CAPTION>
- ------------------------------------------------------------ ------------------ --------------------------------------
POSITION DESCRIPTION # REQUIRED HIRING TARGET DATE
- ------------------------------------------------------------ ------------------ --------------------------------------
<S> <C> <C>
- ------------------------------------------------------------ ------------------ --------------------------------------
- ------------------------------------------------------------ ------------------ --------------------------------------
- ------------------------------------------------------------ ------------------ --------------------------------------
- ------------------------------------------------------------ ------------------ --------------------------------------
- ------------------------------------------------------------ ------------------ --------------------------------------
- ------------------------------------------------------------ ------------------ --------------------------------------
- ------------------------------------------------------------ ------------------ --------------------------------------
</TABLE>
[Portions of this Exhibit have been omitted pursuant to a request for
confidentiality under Rule 24b-2 of the Securities Exchange Act of
1934, as amended. A copy of this agreement with this Exhibit intact
has been filed separately with the Securities and Exchange Commission.]
6. Paragraph 5.8 (Due Diligence) of the License Agreement is deleted in
its entirety and replaced with the following:
"5.8 In the hiring of key employees or independent contractors
designated in Paragraph 5.7 above, Licensee will use the criteria set forth
and hire qualified candidates.
3
<PAGE>
7. Sub-paragraph 5.9a (Due Diligence) of the License Agreement is deleted
in its entirety and replaced with the following:
5.9a Vaccine Adjuvant Project
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------- --------------------------
Milestones # Target Date
- ------------------------------------------------------------------------------------------- --------------------------
<S> <C>
- ------------------------------------------------------------------------------------------- --------------------------
- ------------------------------------------------------------------------------------------- --------------------------
</TABLE>
[Portions of this Exhibit have been omitted pursuant to a request for
confidentiality under Rule 24b-2 of the Securities Exchange Act of
1934, as amended. A copy of this agreement with this Exhibit intact
has been filed separately with the Securities and Exchange Commission.]
8. Sub-paragraph 5.9b (Due Diligence) of the License Agreement is deleted
in its entirety and replaced with the following:
5.9b Epstein Barr Vaccine Project
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------- --------------------------
Milestones # Target Date
- ------------------------------------------------------------------------------------------- --------------------------
<S> <C>
- ------------------------------------------------------------------------------------------- --------------------------
- ------------------------------------------------------------------------------------------- --------------------------
</TABLE>
[Portions of this Exhibit have been omitted pursuant to a request for
confidentiality under Rule 24b-2 of the Securities Exchange Act of
1934, as amended. A copy of this agreement with this Exhibit intact
has been filed separately with the Securities and Exchange Commission.]
9. Sub-paragraph 5.9c (Due Diligence) of the License Agreement is deleted
in its entirety and replaced with the following:
5.9c Herpes 2 Vaccine Project
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------- --------------------------
Milestones # Target Date
- ------------------------------------------------------------------------------------------- --------------------------
<S> <C>
- ------------------------------------------------------------------------------------------- --------------------------
- ------------------------------------------------------------------------------------------- --------------------------
</TABLE>
[Portions of this Exhibit have been omitted pursuant to a request for
confidentiality under Rule 24b-2 of the Securities Exchange Act of
1934, as amended. A copy of this agreement with this Exhibit intact
has been filed separately with the Securities and Exchange Commission.]
4
<PAGE>
10. Sub-paragraph 5.9d (Due Diligence) of the License Agreement is deleted
in its entirety and replaced with the following:
5.9d HIV Vaccine Project
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------- --------------------------
Milestones # Target Date
- ------------------------------------------------------------------------------------------- --------------------------
<S> <C>
- ------------------------------------------------------------------------------------------- --------------------------
- ------------------------------------------------------------------------------------------- --------------------------
</TABLE>
[Portions of this Exhibit have been omitted pursuant to a request for
confidentiality under Rule 24b-2 of the Securities Exchange Act of
1934, as amended. A copy of this agreement with this Exhibit intact
has been filed separately with the Securities and Exchange Commission.]
11. Sub-paragraph 5.9e (Due Diligence) of the License Agreement is deleted
in its entirety and replaced with the following:
5.9e Insulin Project
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------- --------------------------
Milestones # Target Date
- ------------------------------------------------------------------------------------------- --------------------------
<S> <C>
- ------------------------------------------------------------------------------------------- --------------------------
- ------------------------------------------------------------------------------------------- --------------------------
</TABLE>
[Portions of this Exhibit have been omitted pursuant to a request for
confidentiality under Rule 24b-2 of the Securities Exchange Act of
1934, as amended. A copy of this agreement with this Exhibit intact
has been filed separately with the Securities and Exchange Commission.]
12. Sub-paragraphs 5.9f, 5.9g and 5.9h (Due Diligence) are deleted in their
entirety from the License Agreement.
13. Paragraph 5.11 (Due Diligence) of the License Agreement is deleted in
its entirety and replaced with the following:
"5.11 The Regents shall have the right and option to either (1)
terminate this Agreement when Licensee fails to meet due diligence provisions
for any three of the five projects specified under Projects, as defined in
Paragraph 1.13 above; or (2) reduce the exclusive license granted to
non-exclusive licenses for each project specified under Projects, as defined
in Paragraph 1.13 above, when Licensee fails to meet due diligence provisions
for that particular project, subject to the notice and opportunity to repair
provisions of Paragraph 9.1."
14. Paragraph 9.1 (Termination by the Regents) of the License Agreement is
deleted in its entirety and replaced with the following:
5
<PAGE>
"9.1 Subject to Paragraph 5.11, if Licensee should violate or fail
to perform any term or covenant of this Agreement, then The Regents may give
written notice of such default ("Notice of Default") to Licensee. If Licensee
should fail to repair such default within sixty (60) days after the date such
notice takes effect, The Regents will have the right to terminate this
Agreement and the licenses herein by a second written notice ("Notice of
Termination") to Licensee. If a Notice of Termination is sent to Licensee,
this Agreement will automatically terminate on the date such notice takes
effect. Such termination will not relieve Licensee of its obligation to pay
any royalty or license fees owing at the time of such termination and will
not impair any accrued right of The Regents. These notices will be subject to
Article 18 (Notices)."
15. Paragraph 18.1 (Notices) of the License Agreement is deleted in its
entirety and replaced with the following:
"18.1 Any notice or payment required to be given to either party
will be deemed to have been properly given and to be effective:
18.1a on the date of delivery if delivered in person;
18.1b on the date of mailing if mailed by first-class
certified mail, postage paid; or
18.1c on the date of mailing if mailed by any global express
carrier service that requires the recipient to sign the
documents demonstrating the delivery of such notice of
payment;
to the respective addresses given below, or to another address as designated
in writing by the party changing its prior address.
In the case of Licensee: Ben-Abraham Technologies, Inc.
175 Olde Half Day Road, Suite 123
Lincolnshire, Illinois 60069
Telephone: (847) 793-2434
Facsimile: (847) 793-2435
Attention: Stephen M. Simes
President & CEO
In the case of The Regents: The Regents of the University of California
Office of the President
Office of Technology Transfer
1111 Franklin Street, 5th Floor
Oakland, California 94607-5200
Telephone: (510) 587-6000
Facsimile: (510) 587-6090
Attention: Executive Director
Office of Technology Transfer
Referring to: U.C. Case No. 89-204
6
<PAGE>
In Witness Whereof, both The Regents and the Licensee have executed
this Amendment, in duplicate originals, by their respective officers hereunto
duly authorized, on the day and year hereinafter written.
BEN-ABRAHAM THE REGENTS OF THE
TECHNOLOGIES INC. UNIVERSITY OF CALIFORNIA
By /s/ Stephen M. Simes By /s/ Terence A. Feuerborn
------------------------------------ --------------------------------
(Signature) (Signature)
Name Stephen M. Simes Name Terence A. Feuerborn
----------------------------------
Title President & CEO Title Executive Director,
---------------------------------- Research Administration
and Technology Transfer
Date 10/22/99 Date 10/26/99
---------------------------------- ------------------------------
Approved as to legal form: /s/ Edwin H. Baker 10/22/99
---------------------------------
Edwin H. Baker Date
University Counsel
Office of General Counsel
7
<PAGE>
STOCK OPTION PLAN
PART I - INTRODUCTION
1.01 PURPOSE
The purpose of the Plan is to secure for BEN-ABRAHAM TECHNOLOGIES INC. (the
"Company") and its shareholders the benefits of incentive inherent in share
ownership by the directors, senior officers and key employees of the Company and
its Affiliates who, in the judgment of the Board, will be largely responsible
for its future growth and success.
1.02 DEFINITIONS
(a) "AFFILIATE" has the meaning ascribed thereto in the BUSINESS
CORPORATIONS ACT, (Ontario) as amended from time to time.
(b) "BOARD" means the board of directors of the Company.
(c) "COMPANY" means Ben-Abraham Technologies Inc., a corporation
incorporated under the laws of Wyoming.
(d) "ELIGIBLE PERSON" shall mean a senior officer or director of the
Company or of an Affiliate of the Company ("Executive") or an employee of
the Company or an Affiliate of the Company ("Employee") or a personal
holding company controlled by an Executive or an Employee or a Registered
Retirement Savings Plan established by an Executive or an Employee. In the
event that a personal holding company ceases to be controlled by an
Executive or an Employee, any options granted to such personal holding
company shall forthwith be terminated.
(e) "INSIDER" means;
(i) an insider as defined in the Securities Act (Ontario), other than
a person who falls within the definition solely by virtue of being a
director or senior officer of a subsidiary of the Company; and
(ii) an associate of any person who is an insider by virtue of the
preceding sub-clause (i).
(f) "MARKET PRICE" at any date in respect of the Shares means the closing
sale price of such Shares on a stock exchange in Canada on which the Shares
are listed and posted for trading, as may be selected for such purpose by
the Board, on the trading day immediately preceding such date; provided
that if the Shares are listed on more than one Stock Exchange, then the
Market Price shall be the closing sale price of such Shares on the Stock
Exchange on which the greatest volume of Shares traded on such trading day.
In the event that such Shares are not listed and posted for trading on any
stock exchange
<PAGE>
in Canada, the Market Price shall be the fair value of such Shares as
determined by the Board in its sole discretion.
(g) "OPTION" shall mean an option granted under the terms of the Share
Option Plan.
(h) "OPTION PERIOD" shall mean the period during which an option may be
exercised.
(i) "OPTIONEE" shall mean an Eligible Person to whom an Option has been
granted under the terms of the Share Option Plan.
(j) "OUTSTANDING ISSUE" means the number of shares of the applicable class
outstanding on a non-diluted basis.
(k) "PARTICIPANT" means, in respect of the Plan, an Eligible Person who is
eligible and elects to participate in the Plan.
(l) "PLAN" means, the Share Option Plan and the term "Plan" means such
plan.
(m) "SHARE OPTION PLAN" means the Plan established and operated pursuant
to Part 2 hereof.
(n) "SHARES" shall mean the Subordinate Voting Shares of the Company.
PART 2 - SHARE OPTION PLAN
2.01 PARTICIPATION
Options shall be granted only to Eligible Persons.
2.02 DETERMINATION OF OPTION RECIPIENTS
The Board shall make all necessary or desirable determinations regarding
the granting of Options to Eligible Persons and may take into consideration the
present and potential contributions of a particular Eligible Person to the
success of the Company and any other factors which it may deem proper and
relevant.
2.03 PRICE
The exercise price per Share when Options are granted shall be determined
from time to time by the Board but, in any event, shall not be lower than the
Market Price.
2.04 GRANT OF OPTIONS
The Board may at any time authorize the granting of Options to such
Eligible Persons as it may select for the number of Shares that it shall
designate, subject to the provisions of the Share Option Plan. The Date of each
grant of Options shall be determined by the Board when the grant is authorized.
2
<PAGE>
Each option granted to an Eligible Person shall be evidenced by a stock
option agreement with terms and conditions consistent with the Plan and as
approved by the Board (which terms and conditions need not be the same in each
case and may be changed from time to time).
A director of the Company to whom an Option may be granted shall not
participate in the decision of the Board to grant such Option.
2.05 TERM OF OPTIONS
The Option Period shall be for not more than ten years from the date such
Option is granted, but may be reduced with respect to any such Option as
provided in section 2.8 hereof covering termination of employment or death of
the Optionee.
Except as set forth in section 2.8, no Option may be exercised unless the
Optionee is at the time of such exercise:
(a) in the case of an Employee, in the employ of the Company or any
Affiliate and shall have been continuously so employed since the grant of
his or her Option, but absence on leave, having the approval of the Company
or such Affiliate, shall not be considered an interruption of employment
for any purpose of the Share Option Plan; or
(b) in the case of an Executive, a director or senior officer of the
Company or an Affiliate and shall have been such a director or senior
officer continuously since the grant of his or her Option.
The exercise of any Option will be contingent upon receipt by the Company
of cash payment of the full purchase price of the Shares being purchased. No
Optionee or his or her legal representative, legatees or distributees will be,
or will be deemed to be, a holder of any Shares subject to an Option, unless and
until certificates for such Shares are issued to him, her or them under the
terms of the Share Option Plan.
2.06 RESTRICTIONS ON GRANT OF OPTIONS.
The granting of Options shall be subject to the following conditions:
(c) not more than 10% of the Outstanding Issue may be reserved for the
granting of Options in any one-year period;
(d) not more than 10% of the Outstanding Issue may be reserved for the
grant of Options to insiders within a one-year period;
(e) within a one year period, not more than 10% of the Outstanding Issue
may be issued to insiders including Shares which may be issued under the
Options or which may be issued with respect to all other compensation
granted by the Company to such insider;
3
<PAGE>
(f) note more than 5% of the Outstanding Issue may be reserved for the
granting of Options to any one insider in any one-year period; and
(g) not more than 5 % of the Outstanding Issue may be issued to any one
insider in a one-year period.
2.07 LAPSED OPTIONS
If Options are surrendered, terminated or expire without being exercised in
whole or in part, new Options may be granted covering the Shares not purchased
under such lapsed Options.
2.08 EFFECT OF TERMINATION OF EMPLOYMENT OR DEATH
(h) If an Optionee shall die while employed by the Company or its
Affiliate, or while a director or senior officer of the Company or its
Affiliate, any Option held by the Optionee at the date of death shall
become exercisable, in whole or in part, but only by the person or persons
to whom the Optionee's rights under the Option shall pass by the Optionee's
will or the laws of descent and distribution. All such Options shall be
exercisable only to the extent that the Optionee was entitled to exercise
the Option at the date of his or her death and only for six months after
the date of death or prior to the expiration of the Option Period in
respect thereof, whichever is sooner.
(i) If the tenure of a director or senior officer or the employment of an
employee of the Company or its Affiliate is terminated ("Termination"), for
cause no Option held by such Optionee may be exercised following the date
upon which Termination occurred. If Termination occurs for any reason
other than cause, then any Option held by such Optionee shall be
exercisable, in whole or in part, for a period of six months after such
Termination or prior to the expiration of the Option Period in respect
thereof, whichever is sooner, or such shorter period of time as may be
determined by the Board when the Option is granted.
2.09 EFFECT OF AMALGAMATION, CONSOLIDATION OF MERGER
If the Company amalgamates, consolidates with or merges with or into
another corporation any Shares receivable on the exercise of an Option shall be
converted into the securities, property or cash which the Participant would have
received upon such amalgamation, consolidation or merger if the Participant had
exercised his or her option immediately prior to the record date applicable to
such amalgamation, consolidation or merger, and the option price shall be
adjusted appropriately by the Board and such adjustment shall be binding for all
purposes of the Share Option Plan.
2.10 ADJUSTMENT IN SHARES SUBJECT TO THE PLAN
If there is any change in the Shares through or by means of a declaration
of stock dividends of Shares or consolidations, subdivisions or
reclassifications of Shares, or otherwise, the number of Shares available under
the Share Option Plan, the Shares subject to any Option,
4
<PAGE>
and the purchase price thereof shall be adjusted appropriately by the Board and
such adjustment shall be effective and binding for all purposes of the Share
Option Plan.
PART 3 - GENERAL
3.01 NUMBER OF SHARES
The aggregate number of Shares that may be reserved for issuance under the
Plan, together with the aggregate number of Shares which are reserved for
issuance under options previously granted, shall not exceed !,428,571 Shares.
3.02 TRANSFERABILITY
All benefits, rights and options accruing to any Participant in accordance
with the terms and conditions of the Plan shall not be transferable unless
specifically provided herein. During the lifetime of a Participant, all
benefits, rights and options may only be exercised by the Participant.
3.03 EMPLOYMENT
Nothing contained in any Plan shall confer upon any Participant any right
with respect to employment or continuance of employment with the Company or any
Affiliate, or interfere in any way with the right of the Company or any
Affiliate to terminate the Participant's employment at any time. Participation
in any Plan by a Participant is voluntary.
3.04 APPROVAL OF PLAN
The Plan shall only become effective after it has been approved by a
majority of the votes cast at a meeting of the Company's shareholders called for
such purpose; provided, however, nothing contained herein shall in any way
affect stock options previously granted by the Company and currently outstanding
or the plan (the "Former Plan") pursuant to which any of such options may have
been granted. No further options shall be granted under the Former Plan which
shall be replaced and superseded by the Plan when same is duly approved by
shareholders of the Company.
The obligation of the Company to sell and deliver Shares in accordance with
the Plan is subject to the approval of any governmental authority having
jurisdiction or any stock exchanges on which the Shares are listed for trading
which may be required in connection with the authorization, issuance or sale of
such Shares by the Company. If an Shares cannot be issued to any Participant
for any reason including, without limitation, the failure to obtain such
approval, then the obligation of the Company to issue such Shares shall
terminate and any Participant's option price paid to the Company shall be
returned to the Participant.
5
<PAGE>
3.05 ADMINISTRATION OF THE PLAN
The Board is authorized to interpret each Plan from time to time and to
adopt, amend and rescind rules and regulations for carrying out such Plan. The
interpretation and construction of any provision of any Plan by the Board shall
be final and conclusive. Administration of the Plan shall be the responsibility
of the appropriate officers of the Company and all costs in respect thereof
shall be paid by the Company.
3.06 INCOME TAXES
As a condition of and prior to participation in the Plan, a Participant
shall authorize the Company in written form to withhold from any remuneration
otherwise payable to such Participant any amounts required by any taxing
authority to be withheld for taxes of any kind as a consequence of such
participation in the Plan.
3.07 AMENDMENTS TO PLAN
The Board reserves the right to amend, modify or terminate any Plan at any
time if and when it is advisable in the absolute discretion of the Board.
However, any amendment of such Plan which could at any time:
(a) materially increase the benefits under such Plan; or
(b) result in an increase in the number of Shares which would be issued
under such Plan (except any increase resulting automatically from an
increase in the number of issued and outstanding Shares); or
(c) materially modify the requirement as to eligibility for participation
in such Plan;
shall be effective only upon the approval of the shareholders of the Company.
Any amendment to any provision of such Plan shall be subject to approval, if
required, by any regulatory body having jurisdiction over the securities of the
Company.
3.08 REPRESENTATION OR WARRANTY
The Company makes no representation or warranty as the future market value
of any Shares issued in accordance with the provision of any Plan.
3.09 INTERPRETATION
The Plan will be governed by and construed in accordance with the laws of
the Province of Ontario and the laws of Canada applicable therein.
6
<PAGE>
3.10 COMPLIANCE WITH APPLICABLE LAW, ETC.
If any provision of any Plan of any agreement entered into pursuant to any
Plan contravenes any law or an order, policy, by-law or regulation of any
regulatory body or stock exchange having authority over the Company or the Plan
then such provision shall be deemed to be amended to the extent required to
bring such provision into compliance therewith.
<PAGE>
STRUCTURED BIOLOGICALS INC.
Option granted July 6, 1995 (herein called the "Date of Grant") by Ben-
Abraham Technologies Inc. (herein called the "Company") to
Avi Ben-Abraham, M.D.
700,000 common shares
Option Price: $0.47 per share
(herein called the "Optionee"):
1. GRANT OF OPTION. The Company grants to the Optionee an option to
purchase, on the terms and conditions herein set forth, 700,000 common shares
(herein called the "Option Shares") of the Company's capital, at the option
price of $0.47 per share.
2. PERIOD OPTION AND CERTAIN LIMITATIONS ON RIGHT TO EXERCISE. This
option will expire at 4:00 p.m., Toronto time, on June 30, 2000 (such date being
herein called the "Expiration Date"), except that (a) if the Optionee ceases to
be an officer and/or director and/or employee of the Company on or before the
Expiration Date, for any reason other than death, this Option shall expire as
provided in Section 5 below; and (b) if the Optionee dies on or before the
Expiration Date, this option shall expire as provided in Section 6 below.
Except as provided in Sections 5 and 6 below, none of the Option
Shares may be purchased hereunder unless the Optionee, at the time he exercises
this Option, is an officer and/or director and/or employee of the Company and
has continuously been an officer and/or director and or employee since the date
hereof.
3. METHOD OF EXERCISE OF OPTION. This Option shall be exercised in and
only in the following manner: the Optionee shall give written notice to the
Company, in a form satisfactory to the Company, specifying the number of Option
Shares which he then elects to purchase, accompanied by payment, in cash or by
certified cheque to the order of the Company, of the full option price of the
shares being purchased.
4. NON-TRANSFERABILITY OF OPTION. This option shall not be transferable
by the Optionee otherwise than by Will or by the laws of Descent and
distribution, and it shall be exercisable, during the lifetime of the Optionee,
only by him.
5. TERMINATION OF OFFICE. If the Optionee ceases on or before the
Expiration Date to be an officer and/or director and/or employee for any reason
other than death (a) he may, but only within the period of three (3) months next
succeeding such cessation and in no event after the Expiration Date, exercise
this Option if and to the extent that he was entitled to exercise it at the date
of such cessation; and (b) such Option shall expire (except as provided in
Section 6 below) at 4:00 p.m. Toronto time, on whichever is the earlier of (i)
the last day of such three (3) months' period or (ii)the Expiration Date.
<PAGE>
-2-
6. DEATH OF OPTIONEE. If the Optionee dies while he is an officer and/or
director and/or employee of the Company, this Option shall be exercisable
within, but only within the period of six (6) months next succeeding his death
and in no event after the Expiration Date, and then only if and to the extent
that the Optionee was entitled to exercise this Option at the date of his death;
and this Option shall expire at 4:00 p.m., Toronto time, on whichever is the
earlier of (i) six (6) months from the date of the Optionee's death or (ii) the
Expiration Date. Except as otherwise indicated by the context, the term
"Optionee", as used in this Option, shall be deemed to include any person acting
under this Section 6.
7. ADJUSTMENTS UPON THE OCCURRENCE OF CERTAIN EVENTS.
(a) In case the Company shall hereafter declare or pay to the holders
of its capital a dividend or dividends in stock of the Company, the Optionee,
upon any exercise of this Option, shall be entitled to receive (in addition to
the Option Shares purchased upon such exercise and without any payment other
than the option price for such shares) such additional share or shares of stock
as the Optionee would have received as such dividend or dividends if; from the
date of the granting of this Option, he had been the holder of record of the
Option Shares so purchased and had not, prior to the date of such exercise,
disposed of any such Option Shares or any shares which he would have received as
a stock dividend or dividends stemming from such holding of such Option Shares.
(b) In case of any reorganization or recapitalization of the Company
(by reclassification of its outstanding capital stock or otherwise), or its
consolidation or merger with or into another corporation, or the sale,
conveyance, lease or other transfer by the Company of all or substantially all
of its property, pursuant to any of which events the then outstanding shares of
the Company's capital are split up or combined, or are changed into or become
exchangeable for other shares of stock, the Optionee, upon any exercise of this
Option, shall be entitled to receive, in lieu of the Option Shares which he
would otherwise be entitled to receive upon such exercise and without any
payment in addition to the option price therefor, the shares of stock which the
Optionee would have received upon such reorganization, recapitalization,
consolidation, merger, sale or other transfer, if immediately prior thereto he
had owned the Option Shares to which such exercise of this Option relates and
had exchanged such Option Shares in accordance with the terms of such
reorganization, recapitalization, consolidation, merger, sale or other transfer.
(c) In case of any distribution by the Company of rights to
stockholders, the issuance of stock options to persons other than employees, the
issuance by the Company of securities convertible into the Company's capital
stock shall have been changed or for which it shall have been exchanged, or any
other change in the capital structure of the Company (other than as specified
above in this Section 7), which, in the judgment of the Company, would effect a
dilution of the Optionee's rights hereunder, the Company may make such
adjustment, if any, as it shall deem appropriate in the number or kind or option
price of shares then purchasable under this Option, and such adjustment shall be
effective and binding for all purposes of this Option.
<PAGE>
-3-
Notwithstanding the foregoing provisions of this Section 7, no
adjustment provided for in this Section 7 shall require the Company to sell a
fractional share under this Option.
8. DELIVERY OF STOCK CERTIFICATES. Upon each exercise of this Option,
the Company, as promptly as practicable, shall mail or deliver to the Optionee
stock certificates representing the common shares then purchased. The issuance
of such shares and delivery of the certificates therefor shall, however, be
subject to any delay necessary to complete (a) the admission of such shares, or
any of them, to listing on any stock exchange on which the Company's capital may
then be listed; and (b) such registration or other qualification of such shares,
or any of them, under any law, rule or regulation as the Company may determine
to be necessary or advisable.
9. NOTICES, ETC. Any notice hereunder by the Optionee shall be given to
the Company in writing and such notice and any payment by the Optionee hereunder
shall be deemed duly given or made only upon receipt thereof at the Company's
principal office or at such other address as the Company may designate by notice
to the Optionee.
Any notice or other communication to the Optionee hereunder shall be
in writing and any such communication and any delivery to the Optionee hereunder
shall be deemed duly given or made if mailed, delivered or given to the Optionee
at such address as the Optionee may have on file with the Company or in care of
the Company at its principal executive office in Toronto, Ontario.
10. WAIVER. The waiver by the Company of any provision of this Option
shall not operate as or be construed to be a waiver of the same provision or any
other provision hereof at any subsequent time or for any other purpose.
11. IRREVOCABILITY. This Option shall be irrevocable until it expires as
herein provided.
12. VALIDITY, INTERPRETATION AND CONSTRUCTION. The interpretation and
construction of this Option are vested in the Board of Directors of the Company
whose interpretations and construction shall be final and conclusive. The
section headings in this Option are for convenience of reference only and shall
not be deemed part of, or germane to the interpretation or construction of, this
Option.
IN WITNESS WHEREOF the Company has caused this Option to be executed and
its corporate seal to be hereunto affixed by its proper corporate officers
hereunto duly authorized.
Structured Biologicals Inc.
By: /s/
-----------------------------------------
President
By: /s/
-----------------------------------------
Secretary
<PAGE>
-4-
AGREED to, such option to supplement any and all options heretofore granted
to the undersigned by the Company or its predecessor corporations.
/s/ Avi Ben-Abraham, M.D.
------------------------------------
AVI BEN-ABRAHAM, M.D.
<PAGE>
BEN-ABRAHAM TECHNOLOGIES INC.
Option granted November 7, 1997 (herein called the "Date of Grant") by Ben-
Abraham Technologies Inc. (herein called the "Company") to
EDWARD C. ROSENOW III
50,000 common shares
Option Price: (Cdn)$1.60 per share
(herein called the "Optionee"):
1. GRANT OF OPTION. The Company grants to the Optionee an option to purchase,
on the terms and conditions herein set forth, 50,000 common shares (herein
called the "Option Shares") of the Company's capital at the option price of
(Cdn)$1.60 per share.
2. PERIOD OPTION AND CERTAIN LIMITATIONS ON RIGHT TO EXERCISE. This option
will expire at 4:00 p.m., Toronto time, on November 6, 2002 (such date being
herein called the "Expiration Date"), except that (a) if the Optionee ceases to
be an officer and/or director and/or employee of the Company on or before the
Expiration Date, for any reason other than death, this Option shall expire as
provided in Section 5 below; and (b) if the Optionee dies on or before the
Expiration Date, this option shall expire as provided in Section 6 below.
Except as provided in Sections 5 and 6 below, none of the Option Shares may
be purchased hereunder unless the Optionee, at the time he exercises this
Option, is an officer and/or director and/or employee of the Company and has
continuously been an officer and/or director and or employee since the date
hereof.
3. METHOD OF EXERCISE OF OPTION. This Option shall be exercised in and only
in the following manner: the Optionee shall give written notice to the Company,
in a form satisfactory to the Company, specifying the number of Option Shares
which he then elects to purchase, accompanied by payment, in cash or by
certified cheque to the order of the Company, of the full option price of the
shares being purchased.
4. NON-TRANSFERABILITY OF OPTION. This Option shall not be transferable by
the Optionee otherwise than by Will or by the laws of Descent and distribution,
and it shall be exercisable, during the lifetime of the Optionee, only by him.
5. TERMINATION OF OFFICE. If the Optionee ceases on or before the Expiration
Date to be an officer and/or director and/or employee for any reason other than
death (a) he may, but only within the period of three months next succeeding
such cessation and in no event after the Expiration Date, exercise this Option
if and to the extent that he was entitled to exercise it at the date of such
cessation; and (b) such Option shall expire (except as provided in Section 6
below) at 4:00 p.m. Toronto time, on whichever is the earlier of (i) the last
day of such three months' period or (ii) the Expiration Date.
<PAGE>
6. DEATH OF OPTIONEE. If the Optionee dies while he is an officer and/or
director and/or employee of the Company, this Option shall be exercisable
within, but only within the period of six months next succeeding his death and
in no event after the Expiration Date, and then only if and to the extent that
the Optionee was entitled to exercise this Option at the date of his death; and
this Option shall expire at 4:00 p.m., Toronto time, on whichever is the earlier
of (i) six months from the date of the Optionee's death or (ii) the Expiration
Date. Except as otherwise indicated by the context, the term "Optionee", as
used in this Option, shall be deemed to include any person acting under this
Section 6.
7. ADJUSTMENTS UPON THE OCCURRENCE OF CERTAIN EVENTS.
(a) In case the Company shall hereafter declare or pay to the holders of
its capital a dividend or dividends in stock of the Company, the Optionee, upon
any exercise of this Option, shall be entitled to receive (in addition to the
Option Shares purchased upon such exercise and without any payment other than
the option price for such shares) such additional share or shares of stock as
the Optionee would have received as such dividend or dividends if; from the date
of the granting of this Option, he had been the holder of record of the Option
Shares so purchased and had not, prior to the date of such exercise, disposed of
any such Option Shares or any shares which he would have received as a stock
dividend or dividends stemming from such holding of such Option Shares.
(b) In case of any reorganization or recapitalization of the Company (by
reclassification of its outstanding capital stock or otherwise), or its
consolidation or merger with or into another corporation, or the sale,
conveyance, lease or other transfer by the Company of all or substantially all
of its property, pursuant to any of which events the then outstanding shares of
the Company's capital are split up or combined, or are changed into or become
exchangeable for other shares of stock, the Optionee, upon any exercise of this
Option, shall be entitled to receive, in lieu of the Option Shares which he
would otherwise be entitled to receive upon such exercise and without any
payment in addition to the option price therefor, the shares of stock which the
Optionee would have received upon such reorganization, recapitalization,
consolidation, merger, sale or other transfer, if immediately prior thereto he
had owned the Option Shares to which such exercise of this Option relates and
had exchanged such Option Shares in accordance with the terms of such
reorganization, recapitalization, consolidation, merger, sale or other transfer.
(c) In case of any distribution by the Company of rights to stockholders,
the issuance of stock options to persons other than employees, the issuance by
the Company of securities convertible into the Company's capital stock shall
have been changed or for which it shall have been exchanged, or any other change
in the capital structure of the Company (other than as specified above in this
Section 7), which, in the judgment of the Company, would effect a dilution of
the Optionee's rights hereunder, the Company may make such adjustment, if any,
as it shall deem appropriate in the number or kind or option price of shares
then purchasable under this Option, and such adjustment shall be effective and
binding for all purposes of this Option.
<PAGE>
Notwithstanding the foregoing provisions of this Section 7, no adjustment
provided for in this Section 7 shall require the Company to sell a fractional
share under this Option.
8. DELIVERY OF STOCK CERTIFICATES. Upon each exercise of this Option, the
Company, as promptly as practicable, shall mail or deliver to the Optionee stock
certificates representing the common shares then purchased. The issuance of such
shares and delivery of the certificates therefor shall, however, be subject to
any delay necessary to complete (a) the admission of such shares, or any of
them, to listing on any stock exchange on which the Company's capital may then
be listed; and (b) such registration or other qualification of such shares, or
any of them, under any law, rule or regulation as the Company may determine to
be necessary or advisable.
9. NOTICES, ETC. Any notice hereunder by the Optionee shall be given to the
Company in writing and such notice and any payment by the Optionee hereunder
shall be deemed duly given or made only upon receipt thereof at the Company's
principal office or at such other address as the Company may designate by notice
to the Optionee.
Any notice or other communication to the Optionee hereunder shall be in
writing and any such communication and any delivery to the Optionee hereunder
shall be deemed duly given or made if mailed, delivered or given to the Optionee
at such address as the Optionee may have on file with the Company or in care of
the Company at its principal executive office in Toronto, Ontario.
10. WAIVER. The waiver by the Company of any provision of this Option shall
not operate as or be construed to be a waiver of the same provision or any other
provision hereof at any subsequent time or for any other purpose.
11. IRREVOCABILITY. This Option shall be irrevocable until it expires as
herein provided.
12. VALIDITY, INTERPRETATION AND CONSTRUCTION. The interpretation and
construction of this Option are vested in the Board of Directors of the Company
whose interpretations and construction shall be final and conclusive. The
section headings in this Option are for convenience of reference only and shall
not be deemed part of, or germane to the interpretation or construction of, this
Option.
IN WITNESS WHEREOF the Company has caused this Option to be executed and
its corporate seal to be hereunto affixed by its proper corporate officers
hereunto duly authorized.
BEN-ABRAHAM TECHNOLOGIES INC.
BY: __/s/___________________________
ITS: _______________________________
<PAGE>
AGREED to, such option to supplement any and all options heretofore granted
to the undersigned by the Company or its predecessor corporations.
/s/ Edward C. Rosenow III
-------------------------------------------
EDWARD C. ROSENOW III
<PAGE>
INCENTIVE STOCK OPTION AGREEMENT
THIS AGREEMENT is entered into and effective as of this 8TH day of
DECEMBER, 1998 (the "Date of Grant"), by and between Ben-Abraham Technologies
Inc., a Wyoming corporation (the "Company"), and STEPHEN M. SIMES (the
"Optionee").
A. The Company has adopted the Ben-Abraham Technologies Inc. 1998
Stock Option Plan (the "Plan") authorizing the Board of Directors of the
Company, or a committee as provided for in the Plan (the Board or such a
committee to be referred to as the "Committee"), to grant incentive stock
options to employees of the Company and its Subsidiaries (as defined in the
Plan).
B. The Company desires to give the Optionee an inducement to acquire
a proprietary interest in the Company and an added incentive to advance the
interests of the Company by granting to the Optionee an option to purchase
shares of subordinate voting stock of the Company pursuant to the Plan.
Accordingly, the parties agree as follows:
1. GRANT OF OPTION.
The Company hereby grants to the Optionee the right, privilege, and
option (the "Option") to purchase 400,000 shares (the "Option Shares") of the
Company's subordinate voting stock, no par value (the "Subordinate Voting
Stock"), according to the terms and subject to the conditions hereinafter set
forth and as set forth in the Plan. Subject to Section 10 of this Agreement,
the Option is intended to be an "incentive stock option," as that term is
used in Section 422 of the Internal Revenue Code of 1986, as amended (the
"Code").
2. OPTION EXERCISE PRICE.
The per share price to be paid by Optionee in the event of an
exercise of the Option will be $0.28 (US$).
3. DURATION OF OPTION AND TIME OF EXERCISE.
3.1 INITIAL PERIOD OF EXERCISABILITY. The Option will become
exercisable with respect to the Option Shares IN TWELVE QUARTERLY
INSTALLMENTS. The following table sets forth the initial dates of
exercisability of each installment and the number of Option Shares as to
which this Option will become exercisable on such dates:
<TABLE>
<CAPTION>
Initial Date of Number of Option Shares
Exercisability Available for Exercise
-------------- ------------------------
<S> <C>
04/21/98 QUARTERLY THROUGH 01/21/01 33,333
</TABLE>
<PAGE>
The foregoing rights to exercise this Option will be cumulative with
respect to the Option Shares becoming exercisable on each such date,
but in no event will this Option be exercisable after, and this Option
will become void and expire as to all unexercised Option Shares at,
5:00 p.m. (Lincolnshire, Illinois time) on OCTOBER 6, 2003 (the "Time
of Termination").
3.2 TERMINATION OF EMPLOYMENT.
(a) TERMINATION DUE TO DEATH, DISABILITY OR RETIREMENT.
(i) In the event the Optionee's employment with the
Company and all Subsidiaries is terminated by reason of death
or Disability, this Option will remain exercisable, to the
extent exercisable as of the date of such termination, for a
period of six months after such termination (but in no event
after the Time of Termination).
(ii) In the event the Optionee's employment with the
Company and all Subsidiaries is terminated by reason of
Retirement, this Option will remain exercisable, to the extent
exercisable as of the date of such termination, for a period
of three months after such termination (but in no event after
the Time of Termination).
(b) TERMINATION FOR REASONS OTHER THAN DEATH, DISABILITY OR
RETIREMENT. In the event that the Optionee's employment with the
Company and all Subsidiaries is terminated for any reason other than
death, Disability or Retirement, or the Optionee is in the employ of a
Subsidiary and the Subsidiary ceases to be a Subsidiary of the Company
(unless the Optionee continues in the employ of the Company or another
Subsidiary), all rights of the Optionee under the Plan and this
Agreement will immediately terminate without notice of any kind, and
this Option will no longer be exercisable; provided, however, that if
such termination is due to any reason other than termination by the
Company or any Subsidiary for "cause" (as defined in the Plan), this
Option will remain exercisable to the extent exercisable as of such
termination for a period of three months after such termination (but in
no event after the Time of Termination).
3.3 CHANGE IN CONTROL. If a Change in Control (as defined in the Plan)
of the Company occurs, this Option will become immediately exercisable in full
and will remain exercisable until the Time of Termination, regardless of whether
the Optionee remains in the employ of the Company or any Subsidiary.
4. MANNER OF OPTION EXERCISE.
4.1 NOTICE. This Option may be exercised by the Optionee in whole or
in part from time to time, subject to the conditions contained in the Plan
and in this Agreement, by delivery, in person, by facsimile or electronic
transmission or through the mail, to the Company at its principal executive
office in Lincolnshire, Illinois (Attention: Chief Financial Officer), of a
written notice of exercise. Such notice must be in a form satisfactory to the
Committee, must identify the Option, must specify the number of Option Shares
with respect to which the Option is being exercised, and must be signed by
the person or persons so exercising the Option. Such
2
<PAGE>
notice must be accompanied by payment in full of the total purchase price of
the Option Shares purchased. In the event that the Option is being exercised,
as provided by the Plan and Section 3.2 above, by any person or persons other
than the Optionee, the notice must be accompanied by appropriate proof of
right of such person or persons to exercise the Option. As soon as
practicable after the effective exercise of the Option, the Optionee will be
recorded on the stock transfer books of the Company as the owner of the
Option Shares purchased, and the Company will deliver to the Optionee one or
more duly issued stock certificates evidencing such ownership.
4.2 PAYMENT. At the time of exercise of this Option, the Optionee
must pay the total purchase price of the Option Shares to be purchased
entirely in cash (including a check, bank draft or money order, payable to
the order of the Company); provided, however, that the Committee, in its sole
discretion, may allow such payment to be made, in whole or in part, by tender
of a promissory note (on terms acceptable to the Committee in its sole
discretion) or a Broker Exercise Notice or Previously Acquired Shares (as
such terms are defined in the Plan), or by a combination of such methods. In
the event the Optionee is permitted to pay the total purchase price of this
Option in whole or in part with Previously Acquired Shares, the value of such
shares will be equal to their Fair Market Value on the date of exercise of
this Option.
5. RIGHTS OF OPTIONEE; TRANSFERABILITY.
5.1 EMPLOYMENT. Nothing in this Agreement will interfere with or
limit in any way the right of the Company or any Subsidiary to terminate the
employment of the Optionee at any time, nor confer upon the Optionee any
right to continue in the employ of the Company or any Subsidiary at any
particular position or rate of pay or for any particular period of time.
5.2 RIGHTS AS A SHAREHOLDER. The Optionee will have no rights as a
shareholder unless and until all conditions to the effective exercise of this
Option (including, without limitation, the conditions set forth in Sections 4
and 6 of this Agreement) have been satisfied and the Optionee has become the
holder of record of such shares. No adjustment will be made for dividends or
distributions with respect to this Option as to which there is a record date
preceding the date the Optionee becomes the holder of record of such shares,
except as may otherwise be provided in the Plan or determined by the
Committee in its sole discretion.
5.3 RESTRICTIONS ON TRANSFER. Except pursuant to testamentary will
or the laws of descent and distribution or as otherwise expressly permitted
by the Plan, no right or interest of the Optionee in this Option prior to
exercise may be assigned or transferred, or subjected to any lien, during the
lifetime of the Optionee, either voluntarily or involuntarily, directly or
indirectly, by operation of law or otherwise. The Optionee will, however, be
entitled to designate a beneficiary to receive this Option upon such
Optionee's death, and, in the event of the Optionee's death, exercise of this
Option (to the extent permitted pursuant to Section 3.2(a) of this Agreement)
may be made by the Optionee's legal representatives, heirs and legatees.
5.4 BREACH OF CONFIDENTIALITY OR NON-COMPETE AGREEMENTS.
Notwithstanding anything in this Agreement or the Plan to the contrary, in
the event that the Optionee materially breaches the terms of any
confidentiality or non-compete agreement entered into with the Company or any
Subsidiary, whether such breach occurs before or after termination of the
Optionee's employment with the Company or any Subsidiary, the Committee in
its sole
3
<PAGE>
discretion may immediately terminate all rights of the Optionee under the
Plan and this Agreement without notice of any kind.
6. SECURITIES LAW AND OTHER RESTRICTIONS.
Notwithstanding any other provision of the Plan or this Agreement,
the Company will not be required to issue, and the Optionee may not sell,
assign, transfer or otherwise dispose of, any Option Shares, unless (a) there
is in effect with respect to the Option Shares a registration statement under
the Securities Act of 1933, as amended, and any applicable state or foreign
securities laws or an exemption from such registration, and (b) there has
been obtained any other consent, approval or permit from any other regulatory
body which the Committee, in its sole discretion, deems necessary or
advisable. The Company may condition such issuance, sale or transfer upon the
receipt of any representations or agreements from the parties involved, and
the placement of any legends on certificates representing Option Shares, as
may be deemed necessary or advisable by the Company in order to comply with
such securities law or other restrictions.
7. WITHHOLDING TAXES.
The Company is entitled to (a) withhold and deduct from future
wages of the Optionee (or from other amounts that may be due and owing to the
Optionee from the Company), or make other arrangements for the collection of,
all legally required amounts necessary to satisfy any federal, state or local
withholding and employment-related tax requirements attributable to the
Option, including, without limitation, the grant or exercise of this Option
or a disqualifying disposition of any Option Shares, or (b) require the
Optionee promptly to remit the amount of such withholding to the Company
before acting on the Optionee's notice of exercise of this Option. In the
event that the Company is unable to withhold such amounts, for whatever
reason, the Optionee agrees to pay to the Company an amount equal to the
amount the Company would otherwise be required to withhold under federal,
state or local law.
8. ADJUSTMENTS.
In the event of any reorganization, merger, consolidation,
recapitalization, liquidation, reclassification, stock dividend, stock split,
combination of shares, rights offering, divestiture or extraordinary dividend
(including a spin-off), or any other similar change in the corporate
structure or shares of the Company, the Committee (or, if the Company is not
the surviving corporation in any such transaction, the board of directors of
the surviving corporation), in order to prevent dilution or enlargement of
the rights of the Optionee, will make appropriate adjustment (which
determination will be conclusive) as to the number and kind of securities or
other property (including cash) subject to, and the exercise price of, this
Option.
9. SUBJECT TO PLAN.
The Option and the Option Shares granted and issued pursuant to
this Agreement have been granted and issued under, and are subject to the
terms of, the Plan. The terms of the Plan are incorporated by reference in
this Agreement in their entirety, and the Optionee, by execution of this
Agreement, acknowledges having received a copy of the Plan. The provisions of
this Agreement will be interpreted as to be consistent with the Plan, and any
ambiguities in this
4
<PAGE>
Agreement will be interpreted by reference to the Plan. In the event that any
provision of this Agreement is inconsistent with the terms of the Plan, the
terms of the Plan will prevail.
10. INCENTIVE STOCK OPTION LIMITATIONS.
10.1 LIMITATION ON AMOUNT. To the extent that the aggregate Fair
Market Value (determined as of the date of grant) of the shares of
Subordinate Voting Stock with respect to which incentive stock options
(within the meaning of Section 422 of the Code) are exercisable for the first
time by the Optionee during any calendar year (under the Plan and any other
incentive stock option plans of the Company or any subsidiary or parent
corporation of the Company (within the meaning of the Code)) exceeds $100,000
(or such other amount as may be prescribed by the Code from time to time),
such excess incentive stock options will be treated as non-statutory stock
options in the manner set forth in the Plan.
10.2 LIMITATION ON EXERCISABILITY; DISPOSITION OF OPTION SHARES .
Any incentive stock option that remains unexercised more than one year
following termination of employment by reason of Disability or more than
three months following termination for any reason other than death or
Disability will thereafter be deemed to be a non-statutory stock option. In
addition, in the event that a disposition (as defined in Section 424(c) of
the Code) of shares of Subordinate Voting Stock acquired pursuant to the
exercise of an incentive stock option occurs prior to the expiration of two
years after its date of grant or the expiration of one year after its date of
exercise (a "disqualifying disposition"), such incentive stock option will,
to the extent of such disqualifying disposition, be treated in a manner
similar to a non-statutory stock option.
10.3 NO REPRESENTATION OR WARRANTY. Section 422 of the Code and the
rules and regulations thereunder are complex, and neither the Plan nor this
Agreement purports to summarize or otherwise set forth all of the conditions
that need to be satisfied in order for this Option to qualify as an incentive
stock option. In addition, this Option may contain terms and conditions that
allow for exercise of this Option beyond the periods permitted by Section 422
of the Code, including, without limitation, the periods described in Section
10.2 of this Agreement. Accordingly, the Company makes no representation or
warranty regarding whether the exercise of this Option will qualify as the
exercise of an incentive stock option, and the Company recommends that the
Optionee consult with the Optionee's own advisors before making any
determination regarding the exercise of this Option or the sale of the Option
Shares.
11. MISCELLANEOUS.
11.1 BINDING EFFECT. This Agreement will be binding upon the heirs,
executors, administrators and successors of the parties to this Agreement.
11.2 GOVERNING LAW. This Agreement and all rights and obligations
under this Agreement will be construed in accordance with the Plan and
governed by the laws of the State of Wyoming, without regard to conflicts of
laws provisions. Any legal proceeding related to this Agreement will be
brought in an appropriate Illinois court, and the parties to this Agreement
consent to the exclusive jurisdiction of the court for this purpose.
11.3 ENTIRE AGREEMENT. This Agreement and the Plan set forth the
entire agreement and understanding of the parties to this Agreement with
respect to the grant and exercise of this
5
<PAGE>
Option and the administration of the Plan and supersede all prior agreements,
arrangements, plans and understandings relating to the grant and exercise of
this Option and the administration of the Plan.
11.4 AMENDMENT AND WAIVER. Other than as provided in the Plan, this
Agreement may be amended, waived, modified or canceled only by a written
instrument executed by the parties to this Agreement or, in the case of a
waiver, by the party waiving compliance.
The parties to this Agreement have executed this Agreement
effective the day and year first above written.
BEN-ABRAHAM TECHNOLOGIES INC.
By /s/ Phillip B. Donenberg
---------------------------------
Its CFO
----------------------------
By execution of this Agreement, OPTIONEE
the Optionee acknowledges having
received a copy of the Plan. /s/ Stephen M. Simes
-----------------------------------
(Signature)
1173 RFD
-----------------------------------
(Name and Address)
-----------------------------------
LONG GROVE, IL 60047
-----------------------------------
6
<PAGE>
INCENTIVE STOCK OPTION AGREEMENT
THIS AGREEMENT is entered into and effective as of this 8TH day of
DECEMBER, 1998 (the "Date of Grant"), by and between Ben-Abraham Technologies
Inc., a Wyoming corporation (the "Company"), and STEPHEN M. SIMES (the
"Optionee").
A. The Company has adopted the Ben-Abraham Technologies Inc. 1998
Stock Option Plan (the "Plan") authorizing the Board of Directors of the
Company, or a committee as provided for in the Plan (the Board or such a
committee to be referred to as the "Committee"), to grant incentive stock
options to employees of the Company and its Subsidiaries (as defined in the
Plan).
B. The Company desires to give the Optionee an inducement to acquire
a proprietary interest in the Company and an added incentive to advance the
interests of the Company by granting to the Optionee an option to purchase
shares of subordinate voting stock of the Company pursuant to the Plan.
Accordingly, the parties agree as follows:
1. GRANT OF OPTION.
The Company hereby grants to the Optionee the right, privilege, and
option (the "Option") to purchase 600,000 shares (the "Option Shares") of the
Company's subordinate voting stock, no par value (the "Subordinate Voting
Stock"), according to the terms and subject to the conditions hereinafter set
forth and as set forth in the Plan. Subject to Section 10 of this Agreement,
the Option is intended to be an "incentive stock option," as that term is
used in Section 422 of the Internal Revenue Code of 1986, as amended (the
"Code").
2. OPTION EXERCISE PRICE.
The per share price to be paid by Optionee in the event of an
exercise of the Option will be $0.29 (US$).
3. DURATION OF OPTION AND TIME OF EXERCISE.
3.1 INITIAL PERIOD OF EXERCISABILITY. The Option will become
exercisable with respect to the Option Shares IMMEDIATELY WITH RESPECT TO 10%
OF THE TOTAL OPTION GRANT AND TWELVE QUARTERLY INSTALLMENTS THEREAFTER. The
following table sets forth the initial dates of exercisability of each
installment and the number of Option Shares as to which this Option will
become exercisable on such dates:
<TABLE>
<CAPTION>
Initial Date of Number of Option Shares
Exercisability Available for Exercise
-------------- ----------------------
<S> <C>
01/21/98 100,000
04/21/98 QUARTERLY THROUGH 01/21/01 41,667
</TABLE>
<PAGE>
The foregoing rights to exercise this Option will be cumulative with
respect to the Option Shares becoming exercisable on each such date,
but in no event will this Option be exercisable after, and this Option
will become void and expire as to all unexercised Option Shares at,
5:00 p.m. (Lincolnshire, Illinois time) on APRIL 20, 2003 (the "Time of
Termination").
3.2 TERMINATION OF EMPLOYMENT.
(a) TERMINATION DUE TO DEATH, DISABILITY OR RETIREMENT.
(i) In the event the Optionee's employment with the
Company and all Subsidiaries is terminated by reason of death
or Disability, this Option will remain exercisable, to the
extent exercisable as of the date of such termination, for a
period of six months after such termination (but in no event
after the Time of Termination).
(ii) In the event the Optionee's employment with the
Company and all Subsidiaries is terminated by reason of
Retirement, this Option will remain exercisable, to the extent
exercisable as of the date of such termination, for a period
of three months after such termination (but in no event after
the Time of Termination).
(b) TERMINATION FOR REASONS OTHER THAN DEATH, DISABILITY OR
RETIREMENT. In the event that the Optionee's employment with the
Company and all Subsidiaries is terminated for any reason other than
death, Disability or Retirement, or the Optionee is in the employ of a
Subsidiary and the Subsidiary ceases to be a Subsidiary of the Company
(unless the Optionee continues in the employ of the Company or another
Subsidiary), all rights of the Optionee under the Plan and this
Agreement will immediately terminate without notice of any kind, and
this Option will no longer be exercisable; provided, however, that if
such termination is due to any reason other than termination by the
Company or any Subsidiary for "cause" (as defined in the Plan), this
Option will remain exercisable to the extent exercisable as of such
termination for a period of three months after such termination (but in
no event after the Time of Termination).
3.3 CHANGE IN CONTROL. If a Change in Control (as defined in the
Plan) of the Company occurs, this Option will become immediately exercisable
in full and will remain exercisable until the Time of Termination, regardless
of whether the Optionee remains in the employ of the Company or any
Subsidiary.
4. MANNER OF OPTION EXERCISE.
4.1 NOTICE. This Option may be exercised by the Optionee in whole or
in part from time to time, subject to the conditions contained in the Plan
and in this Agreement, by delivery, in person, by facsimile or electronic
transmission or through the mail, to the Company at its principal executive
office in Lincolnshire, Illinois (Attention: Chief Financial Officer), of a
written notice of exercise. Such notice must be in a form satisfactory to the
Committee, must identify the Option, must specify the number of Option Shares
with respect to which the Option is being exercised, and must be signed by
the person or persons so exercising the Option. Such
2
<PAGE>
notice must be accompanied by payment in full of the total purchase price of
the Option Shares purchased. In the event that the Option is being exercised,
as provided by the Plan and Section 3.2 above, by any person or persons other
than the Optionee, the notice must be accompanied by appropriate proof of
right of such person or persons to exercise the Option. As soon as
practicable after the effective exercise of the Option, the Optionee will be
recorded on the stock transfer books of the Company as the owner of the
Option Shares purchased, and the Company will deliver to the Optionee one or
more duly issued stock certificates evidencing such ownership.
4.2 PAYMENT. At the time of exercise of this Option, the Optionee
must pay the total purchase price of the Option Shares to be purchased
entirely in cash (including a check, bank draft or money order, payable to
the order of the Company); provided, however, that the Committee, in its sole
discretion, may allow such payment to be made, in whole or in part, by tender
of a promissory note (on terms acceptable to the Committee in its sole
discretion) or a Broker Exercise Notice or Previously Acquired Shares (as
such terms are defined in the Plan), or by a combination of such methods. In
the event the Optionee is permitted to pay the total purchase price of this
Option in whole or in part with Previously Acquired Shares, the value of such
shares will be equal to their Fair Market Value on the date of exercise of
this Option.
5. RIGHTS OF OPTIONEE; TRANSFERABILITY.
5.1 EMPLOYMENT. Nothing in this Agreement will interfere with or
limit in any way the right of the Company or any Subsidiary to terminate the
employment of the Optionee at any time, nor confer upon the Optionee any
right to continue in the employ of the Company or any Subsidiary at any
particular position or rate of pay or for any particular period of time.
5.2 RIGHTS AS A SHAREHOLDER. The Optionee will have no rights as a
shareholder unless and until all conditions to the effective exercise of this
Option (including, without limitation, the conditions set forth in Sections 4
and 6 of this Agreement) have been satisfied and the Optionee has become the
holder of record of such shares. No adjustment will be made for dividends or
distributions with respect to this Option as to which there is a record date
preceding the date the Optionee becomes the holder of record of such shares,
except as may otherwise be provided in the Plan or determined by the
Committee in its sole discretion.
5.3 RESTRICTIONS ON TRANSFER. Except pursuant to testamentary will
or the laws of descent and distribution or as otherwise expressly permitted
by the Plan, no right or interest of the Optionee in this Option prior to
exercise may be assigned or transferred, or subjected to any lien, during the
lifetime of the Optionee, either voluntarily or involuntarily, directly or
indirectly, by operation of law or otherwise. The Optionee will, however, be
entitled to designate a beneficiary to receive this Option upon such
Optionee's death, and, in the event of the Optionee's death, exercise of this
Option (to the extent permitted pursuant to Section 3.2(a) of this Agreement)
may be made by the Optionee's legal representatives, heirs and legatees.
5.4 BREACH OF CONFIDENTIALITY OR NON-COMPETE AGREEMENTS.
Notwithstanding anything in this Agreement or the Plan to the contrary, in
the event that the Optionee materially breaches the terms of any
confidentiality or non-compete agreement entered into with the Company or any
Subsidiary, whether such breach occurs before or after termination of the
Optionee's employment with the Company or any Subsidiary, the Committee in
its sole
3
<PAGE>
discretion may immediately terminate all rights of the Optionee under the
Plan and this Agreement without notice of any kind.
6. SECURITIES LAW AND OTHER RESTRICTIONS.
Notwithstanding any other provision of the Plan or this Agreement,
the Company will not be required to issue, and the Optionee may not sell,
assign, transfer or otherwise dispose of, any Option Shares, unless (a) there
is in effect with respect to the Option Shares a registration statement under
the Securities Act of 1933, as amended, and any applicable state or foreign
securities laws or an exemption from such registration, and (b) there has
been obtained any other consent, approval or permit from any other regulatory
body which the Committee, in its sole discretion, deems necessary or
advisable. The Company may condition such issuance, sale or transfer upon the
receipt of any representations or agreements from the parties involved, and
the placement of any legends on certificates representing Option Shares, as
may be deemed necessary or advisable by the Company in order to comply with
such securities law or other restrictions.
7. WITHHOLDING TAXES.
The Company is entitled to (a) withhold and deduct from future
wages of the Optionee (or from other amounts that may be due and owing to the
Optionee from the Company), or make other arrangements for the collection of,
all legally required amounts necessary to satisfy any federal, state or local
withholding and employment-related tax requirements attributable to the
Option, including, without limitation, the grant or exercise of this Option
or a disqualifying disposition of any Option Shares, or (b) require the
Optionee promptly to remit the amount of such withholding to the Company
before acting on the Optionee's notice of exercise of this Option. In the
event that the Company is unable to withhold such amounts, for whatever
reason, the Optionee agrees to pay to the Company an amount equal to the
amount the Company would otherwise be required to withhold under federal,
state or local law.
8. ADJUSTMENTS.
In the event of any reorganization, merger, consolidation,
recapitalization, liquidation, reclassification, stock dividend, stock split,
combination of shares, rights offering, divestiture or extraordinary dividend
(including a spin-off), or any other similar change in the corporate
structure or shares of the Company, the Committee (or, if the Company is not
the surviving corporation in any such transaction, the board of directors of
the surviving corporation), in order to prevent dilution or enlargement of
the rights of the Optionee, will make appropriate adjustment (which
determination will be conclusive) as to the number and kind of securities or
other property (including cash) subject to, and the exercise price of, this
Option.
9. SUBJECT TO PLAN.
The Option and the Option Shares granted and issued pursuant to
this Agreement have been granted and issued under, and are subject to the
terms of, the Plan. The terms of the Plan are incorporated by reference in
this Agreement in their entirety, and the Optionee, by execution of this
Agreement, acknowledges having received a copy of the Plan. The provisions of
this Agreement will be interpreted as to be consistent with the Plan, and any
ambiguities in this
4
<PAGE>
Agreement will be interpreted by reference to the Plan. In the event that any
provision of this Agreement is inconsistent with the terms of the Plan, the
terms of the Plan will prevail.
10. INCENTIVE STOCK OPTION LIMITATIONS.
10.1 LIMITATION ON AMOUNT. To the extent that the aggregate Fair
Market Value (determined as of the date of grant) of the shares of
Subordinate Voting Stock with respect to which incentive stock options
(within the meaning of Section 422 of the Code) are exercisable for the first
time by the Optionee during any calendar year (under the Plan and any other
incentive stock option plans of the Company or any subsidiary or parent
corporation of the Company (within the meaning of the Code)) exceeds $100,000
(or such other amount as may be prescribed by the Code from time to time),
such excess incentive stock options will be treated as non-statutory stock
options in the manner set forth in the Plan.
10.2 LIMITATION ON EXERCISABILITY; DISPOSITION OF OPTION SHARES .
Any incentive stock option that remains unexercised more than one year
following termination of employment by reason of Disability or more than
three months following termination for any reason other than death or
Disability will thereafter be deemed to be a non-statutory stock option. In
addition, in the event that a disposition (as defined in Section 424(c) of
the Code) of shares of Subordinate Voting Stock acquired pursuant to the
exercise of an incentive stock option occurs prior to the expiration of two
years after its date of grant or the expiration of one year after its date of
exercise (a "disqualifying disposition"), such incentive stock option will,
to the extent of such disqualifying disposition, be treated in a manner
similar to a non-statutory stock option.
10.3 NO REPRESENTATION OR WARRANTY. Section 422 of the Code and the
rules and regulations thereunder are complex, and neither the Plan nor this
Agreement purports to summarize or otherwise set forth all of the conditions
that need to be satisfied in order for this Option to qualify as an incentive
stock option. In addition, this Option may contain terms and conditions that
allow for exercise of this Option beyond the periods permitted by Section 422
of the Code, including, without limitation, the periods described in Section
10.2 of this Agreement. Accordingly, the Company makes no representation or
warranty regarding whether the exercise of this Option will qualify as the
exercise of an incentive stock option, and the Company recommends that the
Optionee consult with the Optionee's own advisors before making any
determination regarding the exercise of this Option or the sale of the Option
Shares.
11. MISCELLANEOUS.
11.1 BINDING EFFECT. This Agreement will be binding upon the heirs,
executors, administrators and successors of the parties to this Agreement.
11.2 GOVERNING LAW. This Agreement and all rights and obligations
under this Agreement will be construed in accordance with the Plan and
governed by the laws of the State of Wyoming, without regard to conflicts of
laws provisions. Any legal proceeding related to this Agreement will be
brought in an appropriate Illinois court, and the parties to this Agreement
consent to the exclusive jurisdiction of the court for this purpose.
11.3 ENTIRE AGREEMENT. This Agreement and the Plan set forth the
entire agreement and understanding of the parties to this Agreement with
respect to the grant and exercise of this
5
<PAGE>
Option and the administration of the Plan and supersede all prior agreements,
arrangements, plans and understandings relating to the grant and exercise of
this Option and the administration of the Plan.
11.4 AMENDMENT AND WAIVER. Other than as provided in the Plan, this
Agreement may be amended, waived, modified or canceled only by a written
instrument executed by the parties to this Agreement or, in the case of a
waiver, by the party waiving compliance.
The parties to this Agreement have executed this Agreement
effective the day and year first above written.
BEN-ABRAHAM TECHNOLOGIES INC.
By /s/ Phillip B. Donenberg
----------------------------------
Its CFO
-----------------------------
By execution of this Agreement, OPTIONEE
the Optionee acknowledges having
received a copy of the Plan. /s/ Stephen M. Simes
------------------------------------
(Signature)
1173 RFD
------------------------------------
(Name and Address)
------------------------------------
LONG GROVE, IL 60047
------------------------------------
6
<PAGE>
INCENTIVE STOCK OPTION AGREEMENT
THIS AGREEMENT is entered into and effective as of this 30TH day of
MARCH, 1999 (the "Date of Grant"), by and between Ben-Abraham Technologies
Inc., a Wyoming corporation (the "Company"), and STEPHEN M. SIMES (the
"Optionee").
A. The Company has adopted the Ben-Abraham Technologies Inc. 1998
Stock Option Plan (the "Plan") authorizing the Board of Directors of the
Company, or a committee as provided for in the Plan (the Board or such a
committee to be referred to as the "Committee"), to grant incentive stock
options to employees of the Company and its Subsidiaries (as defined in the
Plan).
B. The Company desires to give the Optionee an inducement to acquire
a proprietary interest in the Company and an added incentive to advance the
interests of the Company by granting to the Optionee an option to purchase
shares of subordinate voting stock of the Company pursuant to the Plan.
Accordingly, the parties agree as follows:
1. GRANT OF OPTION.
The Company hereby grants to the Optionee the right, privilege, and
option (the "Option") to purchase 1,856,250 shares (the "Option Shares") of
the Company's subordinate voting stock, no par value (the "Subordinate Voting
Stock"), according to the terms and subject to the conditions hereinafter set
forth and as set forth in the Plan. Subject to Section 10 of this Agreement,
the Option is intended to be an "incentive stock option," as that term is
used in Section 422 of the Internal Revenue Code of 1986, as amended (the
"Code").
2. OPTION EXERCISE PRICE.
The per share price to be paid by Optionee in the event of an
exercise of the Option will be $0.23 (US$).
3. DURATION OF OPTION AND TIME OF EXERCISE.
3.1 INITIAL PERIOD OF EXERCISABILITY. The Option will become
exercisable with respect to the Option Shares pursuant to the following table
which sets forth the initial dates of exercisability of each installment and
the number of Option Shares as to which this Option will become exercisable
on such dates:
<TABLE>
<CAPTION>
Initial Date of Number of Option Shares
Exercisability Available for Exercise
-------------- ----------------------
<S> <C>
3/30/99 272,059
4/21/99 QUARTERLY THROUGH 1/21/01 51,011
6/30/99 QUARTERLY THROUGH 3/30/01 98,009
</TABLE>
<PAGE>
The foregoing rights to exercise this Option will be cumulative with
respect to the Option Shares becoming exercisable on each such date,
but in no event will this Option be exercisable after, and this Option
will become void and expire as to all unexercised Option Shares at,
5:00 p.m. (Lincolnshire, Illinois time) on MARCH 29, 2004 (the "Time of
Termination").
3.2 TERMINATION OF EMPLOYMENT.
(a) TERMINATION DUE TO DEATH, DISABILITY OR RETIREMENT.
(i) In the event the Optionee's employment with the
Company and all Subsidiaries is terminated by reason of death
or Disability, this Option will remain exercisable, to the
extent exercisable as of the date of such termination, for a
period of six months after such termination (but in no event
after the Time of Termination).
(ii) In the event the Optionee's employment with the
Company and all Subsidiaries is terminated by reason of
Retirement, this Option will remain exercisable, to the extent
exercisable as of the date of such termination, for a period
of three months after such termination (but in no event after
the Time of Termination).
(b) TERMINATION FOR REASONS OTHER THAN DEATH, DISABILITY OR
RETIREMENT. In the event that the Optionee's employment with the
Company and all Subsidiaries is terminated for any reason other than
death, Disability or Retirement, or the Optionee is in the employ of a
Subsidiary and the Subsidiary ceases to be a Subsidiary of the Company
(unless the Optionee continues in the employ of the Company or another
Subsidiary), all rights of the Optionee under the Plan and this
Agreement will immediately terminate without notice of any kind, and
this Option will no longer be exercisable; provided, however, that if
such termination is due to any reason other than termination by the
Company or any Subsidiary for "cause" (as defined in the Plan), this
Option will remain exercisable to the extent exercisable as of such
termination for a period of three months after such termination (but in
no event after the Time of Termination).
3.3 CHANGE IN CONTROL. If a Change in Control (as defined in the
Plan) of the Company occurs, this Option will become immediately exercisable
in full and will remain exercisable until the Time of Termination, regardless
of whether the Optionee remains in the employ of the Company or any
Subsidiary.
4. MANNER OF OPTION EXERCISE.
4.1 NOTICE. This Option may be exercised by the Optionee in whole or
in part from time to time, subject to the conditions contained in the Plan
and in this Agreement, by delivery, in person, by facsimile or electronic
transmission or through the mail, to the Company at its principal executive
office in Lincolnshire, Illinois (Attention: Chief Financial Officer), of a
written notice of exercise. Such notice must be in a form satisfactory to the
Committee, must identify the Option, must specify the number of Option Shares
with respect to which the Option is being exercised, and must be signed by
the person or persons so exercising the Option. Such
2
<PAGE>
notice must be accompanied by payment in full of the total purchase price of
the Option Shares purchased. In the event that the Option is being exercised,
as provided by the Plan and Section 3.2 above, by any person or persons other
than the Optionee, the notice must be accompanied by appropriate proof of
right of such person or persons to exercise the Option. As soon as
practicable after the effective exercise of the Option, the Optionee will be
recorded on the stock transfer books of the Company as the owner of the
Option Shares purchased, and the Company will deliver to the Optionee one or
more duly issued stock certificates evidencing such ownership.
4.2 PAYMENT. At the time of exercise of this Option, the Optionee
must pay the total purchase price of the Option Shares to be purchased
entirely in cash (including a check, bank draft or money order, payable to
the order of the Company); provided, however, that the Committee, in its sole
discretion, may allow such payment to be made, in whole or in part, by tender
of a promissory note (on terms acceptable to the Committee in its sole
discretion) or a Broker Exercise Notice or Previously Acquired Shares (as
such terms are defined in the Plan), or by a combination of such methods. In
the event the Optionee is permitted to pay the total purchase price of this
Option in whole or in part with Previously Acquired Shares, the value of such
shares will be equal to their Fair Market Value on the date of exercise of
this Option.
5. RIGHTS OF OPTIONEE; TRANSFERABILITY.
5.1 EMPLOYMENT. Nothing in this Agreement will interfere with or
limit in any way the right of the Company or any Subsidiary to terminate the
employment of the Optionee at any time, nor confer upon the Optionee any
right to continue in the employ of the Company or any Subsidiary at any
particular position or rate of pay or for any particular period of time.
5.2 RIGHTS AS A SHAREHOLDER. The Optionee will have no rights as a
shareholder unless and until all conditions to the effective exercise of this
Option (including, without limitation, the conditions set forth in Sections 4
and 6 of this Agreement) have been satisfied and the Optionee has become the
holder of record of such shares. No adjustment will be made for dividends or
distributions with respect to this Option as to which there is a record date
preceding the date the Optionee becomes the holder of record of such shares,
except as may otherwise be provided in the Plan or determined by the
Committee in its sole discretion.
5.3 RESTRICTIONS ON TRANSFER. Except pursuant to testamentary will
or the laws of descent and distribution or as otherwise expressly permitted
by the Plan, no right or interest of the Optionee in this Option prior to
exercise may be assigned or transferred, or subjected to any lien, during the
lifetime of the Optionee, either voluntarily or involuntarily, directly or
indirectly, by operation of law or otherwise. The Optionee will, however, be
entitled to designate a beneficiary to receive this Option upon such
Optionee's death, and, in the event of the Optionee's death, exercise of this
Option (to the extent permitted pursuant to Section 3.2(a) of this Agreement)
may be made by the Optionee's legal representatives, heirs and legatees.
5.4 BREACH OF CONFIDENTIALITY OR NON-COMPETE AGREEMENTS.
Notwithstanding anything in this Agreement or the Plan to the contrary, in
the event that the Optionee materially breaches the terms of any
confidentiality or non-compete agreement entered into with the Company or any
Subsidiary, whether such breach occurs before or after termination of the
Optionee's employment with the Company or any Subsidiary, the Committee in
its sole
3
<PAGE>
discretion may immediately terminate all rights of the Optionee under the
Plan and this Agreement without notice of any kind.
6. SECURITIES LAW AND OTHER RESTRICTIONS.
Notwithstanding any other provision of the Plan or this Agreement,
the Company will not be required to issue, and the Optionee may not sell,
assign, transfer or otherwise dispose of, any Option Shares, unless (a) there
is in effect with respect to the Option Shares a registration statement under
the Securities Act of 1933, as amended, and any applicable state or foreign
securities laws or an exemption from such registration, and (b) there has
been obtained any other consent, approval or permit from any other regulatory
body which the Committee, in its sole discretion, deems necessary or
advisable. The Company may condition such issuance, sale or transfer upon the
receipt of any representations or agreements from the parties involved, and
the placement of any legends on certificates representing Option Shares, as
may be deemed necessary or advisable by the Company in order to comply with
such securities law or other restrictions.
7. WITHHOLDING TAXES.
The Company is entitled to (a) withhold and deduct from future
wages of the Optionee (or from other amounts that may be due and owing to the
Optionee from the Company), or make other arrangements for the collection of,
all legally required amounts necessary to satisfy any federal, state or local
withholding and employment-related tax requirements attributable to the
Option, including, without limitation, the grant or exercise of this Option
or a disqualifying disposition of any Option Shares, or (b) require the
Optionee promptly to remit the amount of such withholding to the Company
before acting on the Optionee's notice of exercise of this Option. In the
event that the Company is unable to withhold such amounts, for whatever
reason, the Optionee agrees to pay to the Company an amount equal to the
amount the Company would otherwise be required to withhold under federal,
state or local law.
8. ADJUSTMENTS.
In the event of any reorganization, merger, consolidation,
recapitalization, liquidation, reclassification, stock dividend, stock split,
combination of shares, rights offering, divestiture or extraordinary dividend
(including a spin-off), or any other similar change in the corporate
structure or shares of the Company, the Committee (or, if the Company is not
the surviving corporation in any such transaction, the board of directors of
the surviving corporation), in order to prevent dilution or enlargement of
the rights of the Optionee, will make appropriate adjustment (which
determination will be conclusive) as to the number and kind of securities or
other property (including cash) subject to, and the exercise price of, this
Option.
9. SUBJECT TO PLAN.
The Option and the Option Shares granted and issued pursuant to
this Agreement have been granted and issued under, and are subject to the
terms of, the Plan. The terms of the Plan are incorporated by reference in
this Agreement in their entirety, and the Optionee, by execution of this
Agreement, acknowledges having received a copy of the Plan. The provisions of
this Agreement will be interpreted as to be consistent with the Plan, and any
ambiguities in this
4
<PAGE>
Agreement will be interpreted by reference to the Plan. In the event that any
provision of this Agreement is inconsistent with the terms of the Plan, the
terms of the Plan will prevail.
10. INCENTIVE STOCK OPTION LIMITATIONS.
10.1 LIMITATION ON AMOUNT. To the extent that the aggregate Fair
Market Value (determined as of the date of grant) of the shares of
Subordinate Voting Stock with respect to which incentive stock options
(within the meaning of Section 422 of the Code) are exercisable for the first
time by the Optionee during any calendar year (under the Plan and any other
incentive stock option plans of the Company or any subsidiary or parent
corporation of the Company (within the meaning of the Code)) exceeds $100,000
(or such other amount as may be prescribed by the Code from time to time),
such excess incentive stock options will be treated as non-statutory stock
options in the manner set forth in the Plan.
10.2 LIMITATION ON EXERCISABILITY; DISPOSITION OF OPTION SHARES .
Any incentive stock option that remains unexercised more than one year
following termination of employment by reason of Disability or more than
three months following termination for any reason other than death or
Disability will thereafter be deemed to be a non-statutory stock option. In
addition, in the event that a disposition (as defined in Section 424(c) of
the Code) of shares of Subordinate Voting Stock acquired pursuant to the
exercise of an incentive stock option occurs prior to the expiration of two
years after its date of grant or the expiration of one year after its date of
exercise (a "disqualifying disposition"), such incentive stock option will,
to the extent of such disqualifying disposition, be treated in a manner
similar to a non-statutory stock option.
10.3 NO REPRESENTATION OR WARRANTY. Section 422 of the Code and the
rules and regulations thereunder are complex, and neither the Plan nor this
Agreement purports to summarize or otherwise set forth all of the conditions
that need to be satisfied in order for this Option to qualify as an incentive
stock option. In addition, this Option may contain terms and conditions that
allow for exercise of this Option beyond the periods permitted by Section 422
of the Code, including, without limitation, the periods described in Section
10.2 of this Agreement. Accordingly, the Company makes no representation or
warranty regarding whether the exercise of this Option will qualify as the
exercise of an incentive stock option, and the Company recommends that the
Optionee consult with the Optionee's own advisors before making any
determination regarding the exercise of this Option or the sale of the Option
Shares.
11. MISCELLANEOUS.
11.1 BINDING EFFECT. This Agreement will be binding upon the heirs,
executors, administrators and successors of the parties to this Agreement.
11.2 GOVERNING LAW. This Agreement and all rights and obligations
under this Agreement will be construed in accordance with the Plan and
governed by the laws of the State of Wyoming, without regard to conflicts of
laws provisions. Any legal proceeding related to this Agreement will be
brought in an appropriate Illinois court, and the parties to this Agreement
consent to the exclusive jurisdiction of the court for this purpose.
11.3 ENTIRE AGREEMENT. This Agreement and the Plan set forth the
entire agreement and understanding of the parties to this Agreement with
respect to the grant and exercise of this
5
<PAGE>
Option and the administration of the Plan and supersede all prior agreements,
arrangements, plans and understandings relating to the grant and exercise of
this Option and the administration of the Plan.
11.4 AMENDMENT AND WAIVER. Other than as provided in the Plan, this
Agreement may be amended, waived, modified or canceled only by a written
instrument executed by the parties to this Agreement or, in the case of a
waiver, by the party waiving compliance.
The parties to this Agreement have executed this Agreement
effective the day and year first above written.
BEN-ABRAHAM TECHNOLOGIES INC.
By /s/ Phillip B. Donenberg
---------------------------------
Its CFO
----------------------------
By execution of this Agreement, OPTIONEE
the Optionee acknowledges having
received a copy of the Plan. /s/ Stephen M. Simes
------------------------------------
(Signature)
1173 RFD
------------------------------------
(Name and Address)
------------------------------------
Long Grove, IL 60047
------------------------------------
6
<PAGE>
FORM C
ESCROW AGREEMENT
(PERFORMANCE ESCROW AGREEMENT)
THIS AGREEMENT MADE IN TRIPLICATE THIS 5TH DAY OF DECEMBER, 1996.
AMONG:
BEN-ABRAHAM TECHNOLOGIES INC.
(HEREIN CALLED THE "ISSUER")
OF THE FIRST PART
- AND -
MONTREAL TRUST COMPANY OF CANADA
(HEREIN CALLED THE "ESCROW AGENT")
OF THE SECOND PART
- AND -
AVI BEN-ABRAHAM, M.D., AVINOAM BEN-ABRAHAM, CHAIM BEN-
ABRAHAM, MARGALIT LIPSKY, ANGELA HO, LOUIS W. SULLIVAN,
M.D., MARBLEGATE HOLDINGS LIMITED, WAGNER-BARTAK HOLDINGS
INC., ISLAND INVESTMENTS (SECURITIES) LTD., BRIAN MCLEAN,
M.D., JOSEPH ARSENAULT, HENRY KOREN, IAN CAMPBELL, CATHLEEN
URQUHART
(HEREIN CALLED THE "SECURITY HOLDERS")
OF THE THIRD PART
WHEREAS the Security Holders are all the holders of Class A Special Shares
and Class C Special Shares of BA Tech;
AND WHEREAS BA Tech has entered into an arrangement agreement with
Structured Biologicals Inc. ("SBI") whereby BA Tech and SBI will amalgamate to
continue as called "Ben-
<PAGE>
Abraham Technologies Inc." (the "Issuer") and BA Tech is entering into this
Agreement in order that the Issuer will be bound by this Agreement;
AND WHEREAS as a result of the amalgamation, the Security Holders will
receive, in exchange for their shares of BA Tech, that number and class of
shares of Amalco, set out in Schedule "A" attached to and forming part of this
Agreement;
AND WHEREAS in order to comply with the requirements of The Alberta Stock
Exchange (the "Exchange"), the Security Holders are desirous of depositing in
escrow certain securities in the Issuer owned or to be received by them;
AND WHEREAS the Escrow Agent has agreed to undertake and perform its duties
according to the terms and conditions hereof:
NOW THEREFORE this Agreement witnesses that, in consideration of the sum of
one dollar paid by the parties to each other, receipt of this sum being
acknowledged by each of the parties, the Security Holders jointly and severally
covenant and agree with BA Tech and with the Escrow Agent, and BA Tech and the
Escrow Agent covenant and agree with the other and with the Security Holders
jointly and severally as follows:
1. Where used in this Agreement, or in any amendment or supplement
hereto, unless the context otherwise requires, the following words and
phrases shall have the following ascribed to them below:
(a) "R&D EXPENDITURES" means expenditures made for the purpose of
research and/or development activities consistent with the
activities defined in the
2
<PAGE>
Information Booklet of SBI dated October 23, 1996, whether made
by the Issuer, its subsidiaries, affiliates or joint venture
partners, including, without limitation, (i) direct research
expenditures or expenditures on development of new technologies
and products, (ii) the purchase of assets related to and to be
used in these activities, (iii) expenditures related to the
perfection and/or commercialization of these technologies, (iv)
expenditures related to the seeking, obtaining or maintaining of
any level of governmental or industry approvals, and (v) the
direct or indirect costs of the acquisition of new technologies,
or shares of corporations with developable technologies for
further development by the Issuer;
(b) "RELATED PARTY" means promoters, officers, directors, other
insiders of the Issuer and any associates or affiliates of the
foregoing.
2. Each of the Security Holders hereby places and deposits in escrow with
the Escrow Agent those of his securities in the Issuer which are
represented by the certificates described in Schedule "A" and the
Escrow Agent hereby acknowledges receipt of those certificates. The
Security Holders agree to deposit in escrow any further certificates
representing securities in the Issuer which he may receive as a stock
dividend on securities hereby escrowed, and to deliver to the Escrow
Agent immediately on receipt thereof the certificates for any such
further securities and any replacement certificates which may at any
time be issued for any escrowed securities.
3. The Parties hereby agree that, subject to the provisions of paragraph
6 herein, the securities and the beneficial ownership of or any
interest in them and the certificate
3
<PAGE>
representing them (including any replacement securities or
certificates) shall not be sold, assigned, hypothecated, alienated,
released from escrow, transferred within escrow, or otherwise in any
manner dealt with, without the written consent of the Exchange given
to the Escrow Agent or except as may be required by reason of the
death or bankruptcy of any Security Holder, in which cases the Escrow
Agent shall hold the said certificates subject to this Agreement, for
whatever person or company shall be legally entitled to become the
registered owner thereof.
4. The Security Holders direct the Escrow Agent to retain their
respective securities and the certificates (including any replacement
securities or certificates) representing them and not to do or cause
anything to be done to release them from escrow or to allow any
transfer, hypothecation or alienation thereof, without the written
consent of the Exchange. The Escrow Agent accepts the responsibilities
placed on it by this Agreement and agrees to perform them in
accordance with the terms of this Agreement and the written consents,
orders or directions of the Exchange.
5. Any Security Holder applying to the Exchange for a consent for a
transfer within escrow shall, before applying, give reasonable notice
in writing of his intention to the Issuer and the Escrow Agent.
6.
(a) Subject to subparagraph (b) the Exchange will consent to the
release from escrow of one share of the Issuer for each U.S.
$0.50 of R&D Expenditures that the Issuer has incurred since the
date of the amalgamation, provided that if the Subordinate
4
<PAGE>
Voting Shares are listed on a recognized stock exchange or on
NASDAQ and have traded at a price of more than U.S. $3.00 the
Exchange will consent to the release from escrow of one share of
the Issuer for each U.S. $0.25 of R&D Expenditures that the
Issuer has incurred since the date of the amalgamation.
(b) No shares shall be released from escrow pursuant to clause (a)
unless either (i) the holder has first exercised his right to
acquire Subordinate Voting Shares or Class B Shares by paying to
the Issuer U.S. $0.25 per share or (ii) the Security Holder first
undertakes not to sell, assign or transfer the shares to be
released from escrow without first exercising such right (or
causing the transferee to do so immediately upon the transfer),
unless the Exchange otherwise consents.
(c) The Exchange will consent to the release from escrow of 500,000
shares upon the completion of the Subscription Agreement as
defined in the Information Booklet of SBI dated October 23, 1996.
(d) Releases under subparagraphs (a) and (c) shall be cumulative.
(e) Subject to the approval of the Exchange, nothing contained herein
shall prevent the Security Holders from depositing their escrowed
securities into a take-over bid, as such term is defined in Part
XX of the Securities Act (Ontario), as amended. The Security
Holders or any one of them may direct the Escrow Agent to tender
any or all of their respective escrowed securities to the offer
under the take-over bid by delivery of signed acceptances to the
take-over bid to the Escrow Agent in respect of any or all of the
Security Holders' escrowed securities. The
5
<PAGE>
Escrow Agent shall thereupon tender certificates for the
specified number of Security Holders' escrowed securities to the
offeror under the bid together with such signed acceptances to
such take-over bid. The tender of Security Holders' escrowed
securities by the Escrow Agent shall be subject to the escrow
herein and, if such Escrowed Securities or any part thereof are
accepted by the offeror, the Escrow Agent shall thereafter hold
such shares for the offeror in accordance with this Agreement.
(f) Any release from escrow under paragraph 6(a) shall be made
pursuant to a written application on behalf of the Issuer or the
Security Holders, which application shall be accompanied by
evidence of the R&D Expenditures incurred in a form satisfactory
to the Exchange or such other evidence of entitlement to release
as is appropriate in the circumstances. Application for release
may only be made twice per year.
(g) All shares released from escrow shall, unless otherwise directed
by the Exchange, be distributed as Avi Ben-Abraham shall
determine, until he shall no longer have any shares held in
escrow, and thereafter PRO RATA.
(h) Notwithstanding the other provisions of this paragraph 6, the
minimum number of shares to be released from escrow in any year
shall be one fifth of the original number of shares held in
escrow.
(i) Notwithstanding any other provision hereof, if there is a major
breakthrough in the development or commercialization of the
technology of the Issuer, such that
6
<PAGE>
the business or prospects of the Issuer are significantly
improved, the Security Holders may apply to the Exchange for the
release of additional shares from escrow.
(j) For the purposes of determining whether the Exchange has granted
its consent or approval, the Escrow Agent shall be entitled to
rely exclusively on written notice from the Exchange.
7. A release from escrow of all or part of the escrowed securities shall
terminate this Agreement only in respect to those securities so
released. For greater certainty this paragraph does not apply to
securities transferred within escrow.
8. The Security Holders shall, if a dividend is declared while the
Escrowed Shares or any of them continue to be held in escrow under
this Agreement, renounce and release any right to receive payment of
the dividend on the shares then held in escrow.
9. If the Issuer is wound up and any securities remain in escrow under
this Agreement at the time when a distribution of assets to holders of
securities is made by the liquidator, the Security Holders shall
assign their right to receive that part of the distribution which is
attributable to the escrowed securities to the Escrow Agent, for the
benefit of, and in trust for the persons and companies who are then
holders of free securities in the Issuer rateably in proportion to
their holdings.
7
<PAGE>
10. If the Subordinate Voting Shares cease to be listed on the Exchange
(other than as a result of suspension or involuntary delisting), this
Agreement shall terminate and any shares then remaining in escrow
shall be automatically released from escrow.
11. Notwithstanding paragraphs 6 and 10, any shares remaining in escrow on
the fifth anniversary of the date of this Agreement, unless otherwise
exempted in writing by the Exchange, shall be cancelled by the Escrow
Agent within six months following the said fifth anniversary.
12. All voting rights attached to the escrowed securities shall at all
times be exercised by the respective registered owners thereof.
13. The Issuer and each Security Holder hereby agree, jointly and
severally, to indemnify and hold harmless the Escrow Agent from and
against any liability, loss, claim, action, cost and expense,
including legal fees and disbursements (collectively, the
"Liabilities"), which may be asserted against the Escrow Agent arising
from or out of this Agreement; provided that the Issuer and each
Security Holder shall not be required to indemnify the Escrow Agent in
the event that such Liabilities are a result of the gross negligence
or willful misconduct of the Escrow Agent. This provision shall
survive the resignation or removal of the Escrow Agent or the
termination of this Agreement.
14. The Issuer hereby acknowledges the terms and conditions of this
Agreement and agrees to take all reasonable steps to facilitate its
performance. The Issuer agrees to pay the Escrow Agent's proper
charges for its services as Escrow Agent of this escrow.
8
<PAGE>
15. If the Escrow Agent should wish to resign, it shall give at least
three months' notice to the Issuer which may, with the written consent
of the Exchange, by writing appoint another Escrow Agent in its place
and such appointment shall be binding on the Security Holders, and the
new Escrow Agent shall assume and be bound by the obligations of the
Escrow Agent hereunder.
16. The covenants of the Security Holders with the Issuer in this
Agreement are made with the Issuer both in its own right and as Escrow
Agent for the holders from time to time of free securities in the
Issuer, and may be enforced not only by the Issuer but also by any
holder of free securities.
17. Any notice to be given pursuant to the provisions hereof shall be
deemed to have been validly given if reduced to writing and either
mailed by prepaid ordinary post or delivered to the party to whom the
same is to be given at the following applicable address:
(a) to the Issuer:
Ben-Abraham Technologies Inc.
372 Bay Street
Suite 302
Toronto, Ontario
M5H 2W9
Attention: President
Facsimile No. (416) 364-6725
(b) to the Escrow Agent:
Montreal Trust Company of Canada
151 Front Street West
Suite 605
Toronto, Ontario
M5J 2N1
9
<PAGE>
Attention: Manager, Corporate Trust Services
Facsimile No. (416) 981-9777
(c) to a Security Holder at the address shown for such Security
Holder on Appendix "A"
or to such other address as the parties to whom such notice or
communication is to be given shall have last designated to the party
giving the same in the manner specified in this paragraph 17.
18. The Escrow Agent shall be fully protected in acting and relying
reasonably upon any written notice, direction, instruction, order,
certificate, confirmation, request, waiver, consent, receipt,
statutory declaration or other paper or document (collectively
referred to as "Documents") furnished to it and signed by any person
required to or entitled to execute and deliver to the Escrow Agent any
such Documents in connection with this Agreement, not only as to its
due execution and the validity and effectiveness of its provisions,
but also as to the truth and accuracy of any information therein
contained, which it in good faith believes to be genuine. The Escrow
Agent will have no responsibility for the genuineness or validity of
any security, document or other thing deposited with it.
19. The Escrow Agent shall have no duties or responsibilities except as
expressly provided in this Agreement and shall have no liability or
responsibility arising under any other Agreement, including any
Agreement referred to in this Agreement, to which the Escrow Agent is
not a party.
10
<PAGE>
20. The Escrow Agent may retain legal counsel and advisors as may be
reasonably required for the purpose of discharging its duties or
determining its rights under this Agreement, and may rely and act upon
the advice of such counsel or advisor. The Issuer shall pay or
reimburse the Escrow Agent for any reasonable fees, expenses and
disbursements of such counsel or advisors.
21. This Agreement shall be governed by the laws of Ontario and the laws
of Canada applicable therein.
22. This Agreement may be executed in several parts of the same form and
the parts as so executed shall together constitute one original
agreement, and the parts, if more than one, shall be read together and
construed as if all the signing parties hereto had executed one copy
of this Agreement.
23. Whenever the singular or masculine is used, the same shall be
construed to include the plural or feminine or neuter where the
context so requires.
24. This Agreement shall inure to the benefit of and be binding on the
parties to this Agreement and each of their heirs, executors,
administrators, successors and assigns.
11
<PAGE>
IN WITNESS WHEREOF the Issuer and Escrow Agent have caused their respective
corporate seals to be hereto affixed and the Security Holders have hereto set
their respective hands and seals.
BEN-ABRAHAM TECHNOLOGIES INC.
Per: /s/ Avi Ben-Abraham, M.D.
--------------------------------------------
c/s
Per: /s/
--------------------------------------------
MONTREAL TRUST COMPANY OF CANADA
Per: /s/
--------------------------------------------
c/s
Per: /s/ M. Brady
---------------------------------------------
/s/ /s/ Avi Ben-Abraham, M.D.
- --------------------------- -------------------------------------------------
Witness to the signature of AVI-BEN-ABRAHAM, M.D.
/s/ Paul G. Findlay /s/ Avi Ben-Abraham, M.D. under Power of Attorney
- --------------------------- -------------------------------------------------
Witness to the signature of For AVINOAM BEN-ABRAHAM
/s/ Paul G. Findlay /s/ Avi Ben-Abraham, M.D. under Power of Attorney
- --------------------------- -------------------------------------------------
Witness to the signature of For CHAIM BEN-ABRAHAM
/s/ Paul G. Findlay /s/ Avi Ben-Abraham, M.D. under Power of Attorney
- --------------------------- -------------------------------------------------
Witness to the signature of For MARGALIT LIPSKY
/s/ Paul G. Findlay /s/ Avi Ben-Abraham, M.D. under Power of Attorney
- --------------------------- -------------------------------------------------
Witness to the signature of For ANGELA HO
/s/ Debra J. Francis /s/ Louis W. Sullivan, M.D.
- --------------------------- -------------------------------------------------
Witness to the signature of LOUIS W. SULLIVAN, M.D.
12
<PAGE>
MARBLEGATE HOLDINGS LIMITED
By: /s/ Bryan E.W. Gransden, Sole Director
----------------------------------------------
WAGNER-BARTAK HOLDINGS INC.
/s/ Avi Ben-Abraham, M.D. By: /s/ Claus G.J. Wagner-Bartak, Ph.D.
----------------------------------------------
ISLAND INVESTMENTS (SECURITIES) LTD.
By: /s/ Avi Ben-Abraham under Power of Attorney
----------------------------------------------
/s/ Brian McLean
/s/ Paul G. Findlay /s/ Avi Ben-Abraham under Power of Attorney
- --------------------------- -------------------------------------------------
Witness to the signature of For BRYAN MACLAIN, M.D.
/s/ Paul G. Findlay /s/ Avi Ben-Abraham under Power of Attorney
- --------------------------- -------------------------------------------------
Witness to the signature of For JOSEPH ARSENAULT
/s/ Avi Ben-Abraham /s/ Henry Koren
- --------------------------- -------------------------------------------------
Witness to the signature of HENRY KOREN
/s/ Avi Ben-Abraham /s/ Ian Campbell
- --------------------------- -------------------------------------------------
Witness to the signature of IAN CAMPBELL
/s/ Avi Ben-Abraham /s/ Cathleen Urquhart
- --------------------------- -------------------------------------------------
Witness to the signature of CATHLEEN URQUHART
13
<PAGE>
SCHEDULE "A"
to agreement dated the 5th day of December, 1996 and made among Ben-Abraham
Technologies Inc., Montreal Trust Company of Canada and some security holders of
Ben-Abraham Technologies Inc. therein called the "Security Holders."
<TABLE>
<CAPTION>
CERTIFICATE
NUMBER OF NUMBERS OF
NAME AND TYPE OF SECURITIES SECURITIES
ADDRESS SECURITIES ESCROWED ESCROWED
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Avi Ben-Abraham, Class A 17,000,000 CA-5
M.D.
Avinoam Ben- Class A 877,135 CA-6
Abraham
Chaim Ben-Abraham Class A 1,000,000 CA-7
Island Investments Class A 1,000,000 CA-9, 10, 11, 12,
(Securities) Ltd.(4) 13
Angela Ho Class C 1,000,000 CC-12
Louis W. Sullivan, Class C 1,000,000 CC-2
M.D.
Avi Ben-Abraham, Class C 800,000 CC-3
M.D.(1)
Wagner-Bartak Class C 405,715 CC-4
Holdings Inc.(2)
Brian McLean, M.D. Class C 50,000 CC-6
</TABLE>
14
<PAGE>
<TABLE>
<CAPTION>
CERTIFICATE
NUMBER OF NUMBERS OF
NAME AND TYPE OF SECURITIES SECURITIES
ADDRESS SECURITIES ESCROWED ESCROWED
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Joseph Arsenault Class C 50,000 CC-7
Henry Koren Class C 200,000 CC-8
Ian Campbell Class C 10,000 CC-9
Cathleen Urquhart Class C 7,150 CC-10
Avi Ben-Abraham, Class C 250,000 CC-11
M.D. (3) ----------
23,650,000
</TABLE>
(1) The beneficial owner is Marblegate Holdings Limited, a corporation
controlled by Bryan E.W. Gransden
(2) The beneficial owner is Dr. Claus G.J. Wagner-Bartak
(3) The beneficial owner is George Bush
(4) The beneficial owner is Michael Kadoorie
15
<PAGE>
VOTING RIGHTS LITIGATION AGREEMENT
TO: THE ALBERTA STOCK EXCHANGE
RE: BEN-ABRAHAM TECHNOLOGIES, INC.
The undersigned, being the holder of 17,000,000 Class A Special Shares of
Ben-Abraham Technologies Inc., hereby agrees that, so long as the Subordinate
Voting Shares of Ben-Abraham Technologies Inc. are listed on the Alberta Stock
Exchange, I will exercise the voting rights attaching to my Class A Special
Shares or my Class B Special Shares into which such Class A Shares are
converted, only to the extent that the holders of the Class A Special Shares and
the Class B Special Shares, in the aggregate, shall not have more than four
times the number of votes that may be exercised by the holders of all other
classes of shares of Ben-Abraham Technologies Inc.
DATED this 28th day of November, 1996.
/s/ Avi Ben-Abraham, M.D.
-----------------------------
Avi Ben-Abraham, M.D.
<PAGE>
VOTING AGREEMENT
----------------
THIS VOTING AGREEMENT ("AGREEMENT") is made and entered into as of
the 6th day of May, 1999, by and among PETER KJAER and HANS MICHAEL JEBSEN
(together, the "NOMINATORS") on the one hand and those individuals executing
this Agreement (the "INVESTOR SHAREHOLDERS") on the other hand.
WITNESSETH:
WHEREAS, the Investor Shareholders have agreed to purchase
securities from Ben-Abraham Technologies, Inc., a Wyoming corporation (the
"COMPANY"); and
WHEREAS, as a condition to the purchase of the securities, the
Company, the Investor Shareholders and certain other parties agreed to enter
into a Shareholders' Agreement dated of even date herewith (the
"SHAREHOLDERS' AGREEMENT"); and
WHEREAS, pursuant to Section 2.1(b)(iii) of the Shareholders'
Agreement, holders of a majority of the shares held by the Investor
Shareholders shall be entitled to nominate three (3) members (the "INVESTOR
DIRECTORS") of the Company's Board of Directors; and
WHEREAS, the Investor Shareholders believe that it is in their best
interests to appoint the Nominators, on behalf of the Investor Shareholders,
to select the Investor Directors to be elected to the Board of Directors of
the Company.
NOW, THEREFORE, in consideration of the premises and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged and confessed, the parties hereto hereby agree as follows:
1. APPOINTMENT. Subject to the provisions of Section 2, The
Investor Shareholders hereby appoint the Nominators to select the Investor
Directors on behalf of the Investor Shareholders, at their sole and absolute
discretion.
2. VACANCIES. Upon the death, legal incapacity or removal of or
election not to serve by either Nominator, the rights of the Nominators
hereunder shall be exercised by the remaining Nominator. In the event of the
death, legal incapacity and/or removal or and/or election not to serve by
both Nominators, the Investor Shareholders holding a majority of the Shares
of all Investor Shareholders may select one or more successors as Nominators.
Failure by the Investor Shareholders to select a successor Nominator within
sixty (60) calendar days of receiving notice of such death, legal incapacity
or Transfer shall be deemed a "TERMINATION EVENT." For the purpose hereof, a
Nominator may be removed as a Nominator for any reason upon the vote of
Investor Shareholders holding at least 75% of the Shares held by all Investor
Shareholders.
3. TERM. This Agreement shall terminate only upon the earlier to
occur of termination of Section 2.1(b)(iii) of the Shareholders' Agreement or
a Termination Event.
4. SUCCESSORS AND ASSIGNS. The terms and conditions of this
Agreement shall inure to the benefit of and be binding upon each Investor
Shareholder's respective successors, assigns,
<PAGE>
heirs, personal representatives, transferees and all future holders of the
capital stock of the Company held by the Investor Shareholders and in no
event may any Investor Shareholder transfer his Shares in any manner without
such transferee becoming a party to this Agreement.
5. AMENDMENTS. Any amendments to this Agreement shall be in
writing and shall be signed by all of the parties hereto.
6. REMEDIES FOR BREACH. The Investor Shareholders acknowledge that
the Nominators may not have an adequate remedy at law for the material breach
or threatened breach by any party of any one or more of the provisions set
forth in this Agreement and agree that, in the event of any such material
breach or threatened breach, in addition to the other remedies that may be
available to them, any of the Nominators may file a suit in equity, without
notice or bond, for specific performance or to enjoin any party from the
breach or threatened breach of such terms and conditions. In addition to all
other relief, the parties hereto shall be entitled to recover all costs and
attorneys' fees which may be incurred by them in enforcing their rights
against a party hereto that has breached or threatened to breach this
Agreement.
7. PARTIAL INVALIDITY. If any term or provision of this Agreement,
or the application thereof to any person or circumstance, shall to any extent
be invalid or unenforceable, as finally determined by a court of competent
jurisdiction, the remainder of this Agreement or the application of such term
or provision to persons or circumstances other than those as to which it is
invalid or unenforceable, shall not be affected thereby, and each term and
provision of this Agreement shall be valid and enforced to the fullest extent
permitted by applicable law.
8. COUNTERPARTS. This Agreement may be executed in counterparts,
each of which shall be deemed an original but all of which together shall be
deemed to constitute one and the same agreement.
9. WAIVER. The waiver of a breach of any provision of this
Agreement by the Company or any Shareholder party to this Agreement or the
failure of the Company or any Shareholder party to this Agreement to insist
upon the strict performance of any provision hereof shall not constitute a
waiver of any subsequent breach or of any subsequent failure to perform.
10. GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of Illinois.
11. DEFINED TERMS. Capitalized terms used and not otherwise defined
in this Agreement, shall have the meanings described in the Shareholders'
Agreement.
2
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
as of the day and year first above written.
NOMINATORS:
/s/ Peter Kjaer
_________________________________
PETER KJAER
/s/ Hans Michael Jebsen
_________________________________
HANS MICHAEL JEBSEN
INVESTOR SHAREHOLDERS:
/s/ Hans Michael Jebsen
_________________________________
/s/ King Cho Fung
_________________________________
/s/ Stanley Ho
_________________________________
3
<PAGE>
VOTING AGREEMENT
THIS VOTING AGREEMENT ("AGREEMENT") is made and entered into as of the
6th day of May, 1999, by and among VICTOR MORGENSTERN and FRED HOLUBOW
(together, the "NOMINATORS") on the one hand and those individuals executing
this Agreement (the "INVESTOR SHAREHOLDERS") on the other hand.
WITNESSETH:
WHEREAS, the Investor Shareholders have agreed to purchase securities
from Ben-Abraham Technologies, Inc., a Wyoming corporation (the "COMPANY"); and
WHEREAS, as a condition to the purchase of the securities, the Company,
the Investor Shareholders and certain other parties agreed to enter into a
Shareholders' Agreement dated of even date herewith (the "SHAREHOLDERS'
AGREEMENT"); and
WHEREAS, pursuant to Section 2.1(b)(ii) of the Shareholders' Agreement,
holders of a majority of the shares held by the Investor Shareholders shall be
entitled to nominate three (3) members (the "INVESTOR DIRECTORS") of the
Company's Board of Directors; and
WHEREAS, the Investor Shareholders believe that it is in their best
interests to appoint the Nominators, on behalf of the Investor Shareholders, to
select the Investor Directors to be elected to the Board of Directors of the
Company.
NOW, THEREFORE, in consideration of the premises and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged and confessed, the parties hereto hereby agree as follows:
1. APPOINTMENT. Subject to the provisions of Section 2, the Investor
Shareholders hereby appoint the Nominators to select the Investor Directors on
behalf of the Investor Shareholders, at their sole and absolute discretion.
2. VACANCIES. Upon the death, legal incapacity or removal of or
election not to serve by either Nominator, the rights of the Nominators
hereunder shall be exercised by the remaining Nominator. In the event of the
death, legal incapacity and/or removal or and/or election not to serve by both
Nominators, the Investor Shareholders holding a majority of the Shares of all
Investor Shareholders may select one or more successors as Nominators. Failure
by the Investor Shareholders to select a successor Nominator within sixty (60)
calendar days of receiving notice of such death, legal incapacity or Transfer
shall be deemed a "TERMINATION EVENT." For purposes hereof, a Nominator may be
removed as a Nominator for any reason upon the vote of Investor Shareholders
holding at least 75% of the Shares held by all Investor Shareholders.
3. TERM. This Agreement shall terminate only upon the earlier to
occur of termination of Section 2.1(b)(ii) of the Shareholders' Agreement or
a Termination Event.
<PAGE>
4. SUCCESSORS AND ASSIGNS. The terms and conditions of this Agreement
shall inure to the benefit of and be binding upon each Investor Shareholder's
respective successors, assigns, heirs, personal representatives, transferees and
all future holders of the capital stock of the Company held by the Investor
Shareholders and in no event may any Investor Shareholder transfer his Shares in
any manner without such transferee becoming a party to this Agreement.
5. AMENDMENTS. Any amendments to this Agreement shall be in writing and
shall be signed by all of the parties hereto.
6. REMEDIES FOR BREACH. The Investor Shareholders acknowledge that the
Nominators may not have an adequate remedy at law for the material breach or
threatened breach by any party of any one or more of the provisions set forth in
this Agreement and agree that, in the event of any such material breach or
threatened breach, in addition to the other remedies that may be available to
them, any of the Nominators may file a suit in equity, without notice or bond,
for specific performance or to enjoin any party from the breach or threatened
breach of such terms and conditions. In addition to all other relief, the
parties hereto shall be entitled to recover all costs and attorneys' fees which
may be incurred by them in enforcing their rights against a party hereto that
has breached or threatened to breach this Agreement.
7. PARTIAL INVALIDITY. If any term or provision of this Agreement, or
the application thereof to any person or circumstance, shall to any extent be
invalid or unenforceable, as finally determined by a court of competent
jurisdiction, the remainder of this Agreement or the application of such term or
provision to persons or circumstances other than those as to which it is invalid
or unenforceable, shall not be affected thereby, and each term and provision of
this Agreement shall be valid and enforced to the fullest extent permitted by
applicable law.
8. COUNTERPARTS. This Agreement may be executed in counterparts, each
of which shall be deemed an original but all of which together shall be deemed
to constitute one and the same agreement.
9. WAIVER. The waiver of a breach of any provision of this Agreement by
the Company or any Shareholder party to this Agreement or the failure of the
Company or any Shareholder party to this Agreement to insist upon the strict
performance of any provision hereof shall not constitute a waiver of any
subsequent breach or of any subsequent failure to perform.
10. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of Illinois.
11. DEFINED TERMS. Capitalized terms used and not otherwise defined in
this Agreement, shall have the meanings described in the Shareholders'
Agreement.
-2-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
NOMINATORS:
/s/ Victor Morgenstern
-----------------------------------------
VICTOR MORGENSTERN
/s/ Fred Holubow
-----------------------------------------
FRED HOLUBOW
INVESTOR SHAREHOLDERS:
/s/ Irving B. Harris Revocable Trust
-----------------------------------------
/s/ Virginia H. Polsky Trust
-----------------------------------------
/s/ Roxanne H. Frank Trust
-----------------------------------------
/s/ Couderay Partners
-----------------------------------------
/s/ Jerome Kahn, Jr. Revocable Trust
-----------------------------------------
/s/ Fred Holubow
-----------------------------------------
/s/ Morningstar Trust by Faye Morgenstern,
-----------------------------------------
Trustee
-----------------------------------------
/s/ Victor Morgenstern
-----------------------------------------
/s/ Resolute Partners by Victor
-----------------------------------------
Morgenstern
-----------------------------------------
/s/ Goldstein Asset Management
-----------------------------------------
/s/ Lawrence Goldstein
-----------------------------------------
/s/ Burton W. Ruder, Linda Ruder, Trustee
-----------------------------------------
/s/ James S. Levy Trust, James S. Levy,
-----------------------------------------
Trustee
-----------------------------------------
/s/ Ronald Nash
-----------------------------------------
-3-
<PAGE>
/s/ Edward S. Loeb Revocable Trust,
-----------------------------------
Edward S. Loeb, Trustee
-----------------------------------------
/s/ Steven J. Reid
-----------------------------------------
/s/ Gary N. Wilner
-----------------------------------------
/s/ Jarvis H. Friduss
-----------------------------------------
/s/ Anita Nagler
-----------------------------------------
/s/ JO & Co. by Ross J. Mangano, Partner
-----------------------------------------
/s/ Sherwin Zuckerman
-----------------------------------------
/s/ The Levenstein & Resnick Profit
-----------------------------------
Sharing Plan & Trust by Gary I.
-------------------------------
Levenstein, Trustee
-----------------------------------------
/s/ Mitchell I. Dolins Trust, Mitchell I.
-----------------------------------------
Dolins, Trustee
-----------------------------------------
/s/ Sheldon M. Bulwa
-----------------------------------------
/s/ Stephen M. Simes
-----------------------------------------
/s/ Howard Schraub
-----------------------------------------
-4-
<PAGE>
SHAREHOLDERS' AGREEMENT
THIS SHAREHOLDERS' AGREEMENT ("AGREEMENT") is made as of the 6th day of
May, 1999, by and among BEN-ABRAHAM TECHNOLOGIES INC., a Wyoming corporation
(the "COMPANY"), Avi Ben-Abraham ("BEN-ABRAHAM"), and those other individuals
executing this agreement as set forth on the signature page hereto.
R E C I T A L S:
A. The authorized, issued and outstanding shares of capital stock of
the Company as of the date hereof are as follows: (i) an unlimited number of
authorized subordinate voting shares, without par value (the "SUBORDINATE
SHARES"), of which 29,447,686 shares are issued and outstanding; (ii) an
unlimited number of authorized Class A special shares, without par value (the
"CLASS A SHARES"), of which 1,531,386 shares are issued and outstanding; (iii)
an unlimited number of Class B special shares, without par value, none of which
are issued and outstanding (the "CLASS B SHARES"); (iv) an unlimited number of
authorized Class C special shares, without par value (the "CLASS C SHARES"), of
which 3,276,479 are issued and outstanding; and (v) an unlimited number of
authorized preferred shares, without par value (the "PREFERRED SHARES"), none of
which are issued and outstanding. All of the currently issued and outstanding
Subordinate Shares, Class A Shares, Class B Shares, Class C Shares and Preferred
Shares, and any of the foregoing issued subsequently to the date hereof, shall
hereinafter collectively be referred to as the "SHARES."
B. Pursuant to a Securities Purchase Agreement dated the date hereof
among the Company and the Investor Shareholders (as defined below), the Investor
Shareholders have agreed to purchase from the Company on the date hereof 72.5
Units (collectively the "UNITS") (such purchase being herein referred to as the
"INVESTOR TRANSACTION" and the Shares comprising part of the Units, the
"INVESTOR PURCHASED SHARES"). Each Unit is comprised of (i) 250,000 Subordinate
Shares of the Company and (ii) one warrant ("WARRANT") to purchase 125,000
Subordinate Shares of the Company.
C. The HK Shareholders (as defined below) (i) may acquire Units on
the date hereof (the Shares comprising part of the Units, the "HK PURCHASED
SHARES") from the Company pursuant to a Securities Purchase Agreement dated the
date hereof between the Company and the HK Shareholders and (ii) will receive
2,525,000 Subordinate Shares from Ben-Abraham pursuant to settlement agreements
dated the date hereof between each HK Shareholder and Ben-Abraham. Such
transactions are hereinafter referred to together as the "HK TRANSACTIONS."
D. As of the date hereof, after giving effect to the Investor
Transaction and the HK Transactions, the Shareholders (as defined below) shall
beneficially own that number and type of Shares as set forth on EXHIBIT A
attached hereto. The Shares owned now or in the future by the HK Shareholders
and the Investor Shareholders shall hereinafter respectively be referred to as
the "HK SHARES" and the "INVESTOR SHARES."
<PAGE>
E. As a condition to the consummation of the Investor Transaction and
the HK Transactions, the parties hereto have agreed to enter into this Agreement
to maintain harmonious management and to govern other shareholder matters
relating to the Company.
A G R E E M E N T
NOW, THEREFORE, in consideration of the foregoing recitals and of the
mutual obligations between and among the parties contained herein, the parties
hereby agree as follows:
1. DEFINITIONS. Capitalized terms used herein and not otherwise defined
shall have the following meanings:
1.1 "BA SHAREHOLDER" means Ben-Abraham and any Permitted Transferee of
such person.
1.2 "FAMILY BUSINESS ENTITY" means any partnership, corporation,
limited liability company or other business entity of which each partner,
shareholder, member or other owner of an equity interest is a Family Member,
Family Trust or Original Shareholder.
1.3 "FAMILY MEMBER" means an Original Shareholder's father, mother,
spouse, natural or adopted child or other lineal descendent.
1.4 "FAMILY TRUST" shall mean a trust under which the trustee has the
discretion to distribute income to any one or more of an Original Shareholder's
Family Members, any trust under which one or more of an Original Shareholder's
Family Members has a right to the income, and any revocable trust under which an
Original Shareholder is the grantor and is the principal beneficiary during the
Original Shareholder's lifetime.
1.5 "HK SHAREHOLDER" means each individual identified on the signature
page hereto under the caption "HK SHAREHOLDERS" and any Permitted Transferee of
such person.
1.6 "INVESTOR SHAREHOLDER" means each individual identified on the
signature page hereto under the caption "INVESTOR SHAREHOLDERS" and any
Permitted Transferee of such person.
1.7 "ORIGINAL SHAREHOLDER" means any HK Shareholder or Investor
Shareholder who is a party to this Agreement on the date hereof.
1.8 "PERMITTED TRANSFEREE" means any Family Member or Family Trust of
any Original Shareholder or any Family Business Entity.
1.9 "SHAREHOLDER" means each BA Shareholder, HK Shareholder and
Investor Shareholder.
-2-
<PAGE>
1.10 "TRANSFER" means, as a noun, any voluntary or involuntary
transfer, sale, gift, pledge, hypothecation, encumbrance, or other disposition
and, as a verb, voluntarily or involuntarily to transfer, sell, give, pledge,
hypothecate, encumber or otherwise dispose of.
2. GOVERNANCE AND OPERATIONS OF THE COMPANY.
2.1. BOARD OF DIRECTORS.
(a) NUMBER. The Board of Directors of the Company shall
consist of not less than three (3) nor more than twelve (12) directors,
unless otherwise consented to by the Investor Directors (as defined
below) and the HK Directors (as defined below).
(b) NOMINATIONS, ELECTIONS AND VOTING OF SHARES.
(i) So long as Ben-Abraham holds at least ten percent
(10%) of the Shares, Ben-Abraham shall be entitled to be
nominated as a director and, at the next two (2) general
elections for directors, the HK Shareholders shall vote all the
HK Shares, subject to SECTION 4.4, and take or cause to be
taken all such action within such Shareholders' power and
authority as may be required, to elect Ben-Abraham as a
director. The provisions of this SECTION 2.1(b)(i) shall
terminate at any time that Ben-Abraham no longer holds at least
ten percent (10%) of the Shares.
(ii) The holders of a majority of the Investor Shares
shall be entitled to nominate three (3) members (each an "INVESTOR
DIRECTOR") of the Company's Board of Directors (which nominees
shall be reasonably acceptable to the Chairman and Vice Chairman
of the Board of Directors), and all the Shareholders shall vote
their Shares, subject to SECTION 4.4, and take or cause to be
taken all such action within such Shareholders' power and
authority as may be required, to elect such Investor Directors to
the Board of Directors. In the case of any vacancy in the office
of an Investor Director, including without limitation as a result
of the removal of such director with or without Cause, the holders
of a majority of the Investor Shares shall have the right to
nominate another director to fill such vacancy, and the
Shareholders shall be obligated to vote to elect such nominee.
The provisions of this SECTION 2.1(b)(ii) shall terminate
immediately prior to the later of the third general election of
directors subsequent to the date hereof or March 31, 2001.
(iii) The holders of a majority of the HK Shares shall be
entitled to nominate three (3) members (each an "HK DIRECTOR") of
the Company's Board of Directors (which nominees shall be
reasonably acceptable to the Chairman and Vice Chairman of the
Board of Directors), and all the Shareholders shall vote their
Shares, subject to SECTION 4.4, and take or cause to be taken all
such action within such Shareholders' power and authority as may
be required, to elect such HK Directors to the Board of Directors.
In the case of any vacancy in the office of an HK Director,
including without limitation as a result of the removal of such
director with or without Cause, the holders of a majority of the
HK Shares shall have the
-3-
<PAGE>
right to nominate another director to fill such vacancy, and
the Shareholders shall be obligated to vote to elect such
nominee. The provisions of this SECTION 2.1(b)(iii) shall
terminate immediately prior to the later of the third general
election of directors subsequent to the date hereof or March
31, 2001.
(c) REMOVAL OF DIRECTORS. The Shareholders agree that they
shall not vote their Shares to remove Ben-Abraham, an Investor Director
or an HK Director other than for Cause. For purposes hereof, "CAUSE"
means, with respect to any director, (i) theft, embezzlement or other
acts of dishonesty; (ii) breach of his duty of loyalty as a director;
(iii) gross negligence or willful and wanton misconduct; or (iv)
commission of an act or acts involving a Class-A-type felony or moral
turpitude.
3. TRANSFERS OF CAPITAL STOCK; RIGHT OF FIRST REFUSAL.
3.1 ALL CAPITAL STOCK AFFECTED. All Shares now or hereafter owned or
subscribed for by the Shareholders shall be subject to the terms of this
Agreement and, upon issue thereof, each certificate representing such Shares
shall be endorsed with the legend set forth in SECTION 5.2.
3.2 NO RESTRICTIONS ON TRANSFER. Except as otherwise provided in
SECTION 4.1, any Shareholder shall be permitted to Transfer his Shares in the
Company without restriction, including, without limitation, by will or by trust;
PROVIDED, HOWEVER, as a condition to such Transfer, the transferee of the Shares
shall agree to be bound by the terms and conditions of this Agreement.
3.3 RIGHT OF FIRST OFFER.
(a) NOTICE. In the event the Company proposes to sell any
additional equity securities, or any securities convertible into or
exercisable for equity securities (the "PROPOSED SECURITIES"), the
Company shall deliver a notice (a "COMPANY NOTICE") to each Original
Shareholder stating (i) its bona fide intention to sell the Proposed
Securities, (ii) a description of the Proposed Securities to be sold
and (iii) the price and terms upon which it proposes to sell the
Proposed Securities. Each such Company Notice shall be accompanied
by a copy of any term sheets, commitment letters or letters of intent
if any entered into with the proposed purchaser(s) of the Proposed
Securities and a copy of any other material information supplied or
made available to such proposed purchaser(s) in connection with its
evaluation of such investment. Each Original Shareholder shall be
responsible for transmitting the Company Notice to any Permitted
Transferee to whom such Original Shareholder's shares have been
Transferred.
(b) EXERCISE OF RIGHT. Within thirty (30) calendar days
after receipt of the Company Notice, each Original Shareholder may by
written notice elect to purchase, for himself or any Permitted
Transferee to whom such Original Shareholder's Shares have been
transferred, at the price and on the terms specified in the Company
Notice, all or any part of such Original Shareholder's or Permitted
Transferee's Proportionate Share of the Proposed Securities. If any
Original Shareholder fails to deliver a written notice within the
30-day acceptance period or elects, not to purchase his or any of his
Permitted
-4-
<PAGE>
Transferees' Proportionate Share of the Proposed Securities, the
Company shall give all of the other Original Shareholders written
notice of such fact (the "SECOND NOTICE"), identifying the number of
additional Proposed Securities as available for purchase. Each
Original Shareholder receiving a Second Notice shall be responsible
for transmitting the Second Notice to any Permitted Transferee to whom
such Original Shareholder's Shares have been Transferred. Within ten
(10) calendar days of receipt of such Second Notice, each such
Original Shareholder may by written notice elect to purchase, for
himself or any Permitted Transferee to whom such Original
Shareholder's Shares have been transferred, his or his Permitted
Transferee's Proportionate Share of such additional Proposed
Securities. For purposes hereof, the term "PROPORTIONATE SHARE" means
the number of applicable Proposed Securities proposed to be issued
multiplied by a fraction, the numerator of which is the number of
Subordinate Shares held by an Original Shareholder or his Permitted
Transferee, as the case may be, the denominator of which is the total
number of Subordinate Shares held by all Original Shareholders and
their Permitted Transferees; provided, however, that the following
Subordinate Shares shall be excluded from the calculation of
Proportionate Share: (i) any Subordinate Shares acquired on or prior
to the date hereof by the HK Shareholders other than the HK Purchased
Shares and (ii) any Subordinate Shares received by the HK Shareholders
in connection with the conversion or reclassification of any Shares
referred to in clause (i) or any stock dividend to such HK
Shareholders with respect to such Shares referred to in clause (i) or
any shares into which such Shares are converted or reclassified.
(c) CONSUMMATION OF SALE. If the Original Shareholders or
their Permitted Transferees do not elect to purchase all of the
Proposed Securities, the Company may, during the ninety (90) calendar
day period following the expiration of the acceptance period specified
in Section 3.3(b) above, consummate the sale of the remaining
unsubscribed portion of such Proposed Securities at a price not less
than, and upon terms no more favorable than, those specified in the
Company Notice. If the Company does not enter into an agreement for
the sale of the Proposed Securities within such 90-day period, or if
such agreement is not consummated within thirty (30) calendar days of
the execution thereof, the Company shall not thereafter sell any of
the Proposed Securities without first offering such Proposed
Securities to the Original Shareholders in the manner provided above.
(d) RIGHT NOT APPLICABLE. The right of first offer in this
SECTION 3.3 shall not be applicable to (i) shares issued pursuant to the
restructuring described in SECTION 4.3; (ii) equity securities issued to
employees, officers, directors or bona fide contractors, advisors or
consultants of the Company pursuant to incentive agreements or plans
approved by the Board of Directors of the Company; (iii) any securities
issuable upon conversion of the Class A and Class C Shares; (iv) any
securities issuable upon exercise of the warrants issued in connection
with the Investor Transaction and the HK Transaction; (v) shares of the
Company's capital stock issued in connection with a stock split or stock
dividend; (vi) any shares of capital stock offered in a bona fide, firmly
underwritten public offering registered under the Securities Act of 1933,
as amended, pursuant to a registration statement on Form S-1 (or a
similar successor form) (an "INITIAL
-5-
<PAGE>
PUBLIC OFFERING"); (vii) up to $50,000 of shares of subordinate voting
stock (and/or options or warrants therefor) for each issuance to a
party or parties providing the Company with equipment leases, real
property leases, loans, credit lines, guaranties of indebtedness, cash
price reductions or similar financing; (viii) securities issued
pursuant to the acquisition of another corporation or entity by the
Company, as approved by the Company's Board of Directors, by
consolidation, merger, purchase of all or substantially all of the
assets, or other reorganization in which the Company acquires, in a
single transaction or series of related transactions, all or
substantially all of the assets of such other corporation or entity or
fifty percent (50%) or more of the voting power of such other
corporation or entity or fifty percent (50%) or more of the equity
ownership of such other entity; or (ix) securities issued with the
approval of the Company's Board of Directors in connection with the
acquisition or license of a product to be developed, manufactured,
marketed, sold or otherwise distributed by the Company.
(e) TERM OF RIGHT. This SECTION 3.3 shall terminate after
twenty-four (24) months have elapsed from the date hereof.
4. OTHER AGREEMENTS AND COVENANTS.
4.1 LOCK UP OF SHARES. Notwithstanding Section 3.2, no Shareholder
may voluntarily Transfer his Shares for a period of sixteen (16) months from the
date hereof.
4.2 MAINTENANCE OF KEY MAN LIFE INSURANCE ON SIMES. For a period of
three (3) years following the date hereof, the Company shall pay to a trust
established for the benefit of the Investor Shareholders and the HK
Shareholders the premiums for a key man life insurance policy on the life of
Stephen Simes (the "SIMES POLICY"). The Simes Policy shall be issued by a
life insurance company reasonably acceptable to the Company and trustees of
the trust and shall provide for a death benefit payable to the trust in an
amount equal to the amount paid to the Company by the HK Shareholders and the
Investor Shareholders for the Units on the date hereof plus $252,500.
4.3 RESTRUCTURING. Notwithstanding the termination provisions of
SECTION 5, not later than July 31, 1999, the Company shall consummate, and the
Shareholders hereby agree to vote to approve, a financial restructuring
satisfactory to a majority of the Investor Shareholders, including, without
limitation, the conversion of all of the issued and outstanding Class A Shares
into Class C Shares.
4.4 VOTING OF HK SHARES. Prior to the consummation of the
restructuring in accordance with SECTION 4.3, each HK Shareholder agrees that he
shall abstain, except with respect to any vote in connection with the
restructuring described in SECTION 4.3, from voting ninety percent (90%) of the
votes attaching to the Class A Shares which he beneficially owns, it being
understood that in any meeting of the Shareholders, all of the HK Shares shall
be counted in determining the presence of a quorum.
-6-
<PAGE>
5. MISCELLANEOUS
5.1 STOCK SPLITS AND CONVERSIONS. This Agreement shall apply and
extend to the Shares of any class issued by the Company to the Shareholders
as a stock dividend or stock split of, or in exchange for, Shares subject to
this Agreement, whether by way of reorganization, reclassification,
conversion or other means.
5.2. LEGEND ON CERTIFICATES. Each certificate of capital stock of
the Company now or hereafter held by any Shareholder shall be endorsed on the
back thereof with legends in substantially the following form:
"This certificate of stock and the shares
represented hereby are held subject to restrictions
contained in that certain agreement by and among
certain shareholders of the Company and the Company
dated May 6, 1999, and all amendments thereto. A
copy of this agreement will be furnished by the
Company upon request."
"The securities represented by this certificate and
any securities into which they may be convertible
have not been registered under U.S. and Canadian
federal, state or provincial securities laws. The
securities may not be sold or transferred except in
compliance with the requirements of such laws."
5.3. SPECIFIC PERFORMANCE. The parties agree that they shall be
irreparably damaged in the event this Agreement is not specifically enforced.
In the event of any controversy concerning any right or obligation set forth in
this Agreement, such right or obligation shall be enforceable in a court of
equity by a decree of specific performance. The parties' remedies shall,
however, be cumulative and not exclusive, and specific performance shall be in
addition to any other remedies available to the parties.
5.4. NOTICES. Any and all notices, designations, consents, offers,
acceptances or any other communications provided for herein shall be given in
writing by overnight courier delivery or by certified or registered mail, return
receipt requested, which shall be mailed: to the Company at its principal
business address in Lincolnshire, Illinois and to a Shareholder at such address
as set forth below his name on EXHIBIT A. Any party to this Agreement may
change the address to which notice to such party shall be sent by giving written
notice of such new address to all other parties to this Agreement.
5.5. ENTIRE AGREEMENT; AMENDMENTS. This Agreement contains the entire
agreement and understanding of the parties with respect to the subject matter
hereof and no representations, promises, agreements or understandings, written
or oral, not contained herein shall be of any force or effect. No change,
modification, or waiver of any provision of this Agreement shall be valid or
binding unless it is in writing dated subsequent to the date hereof and signed
by all parties hereto holding 75% of the Investor Purchased Shares and the HK
Purchased Shares.
-7-
<PAGE>
5.6. SEVERABILITY. If any provision of this Agreement shall be held
invalid or unenforceable, the remainder nevertheless shall remain in full
force and effect. If any provision is held invalid or unenforceable with
respect to particular circumstances, it nevertheless shall remain in full
force and effect in all other circumstances.
5.7. BENEFIT. This Agreement shall be binding upon and inure to the
benefit of the each of the parties hereto, and their successors and assigns.
5.8. GENDER AND NUMBER. Wherever from the context it appears
appropriate, each term stated in either the singular or the plural shall
include the singular and the plural, and pronouns stated in either the
masculine, feminine, or the neuter gender shall include the masculine,
feminine and neuter gender.
5.9. GOVERNING LAW. This Agreement has been negotiated and executed
in the State of Illinois and the parties agree that the laws of Illinois,
without regard to conflict of law provisions thereof, shall govern its
construction and validity.
5.10 TERMINATION. This Agreement shall terminate upon an Initial
Public Offering.
[signature page attached]
-8-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the day and date written above.
BEN-ABRAHAM TECHNOLOGIES INC.
By: /s/ Stephen M. Simes
------------------------------------------------
Its: President and Chief Executive Officer
---------------------------------------------------
AVI BEN-ABRAHAM
HK SHAREHOLDERS:
/s/ Hans Michael Jebsen
---------------------------------------------------
/s/ King Cho Fung
---------------------------------------------------
/s/ Stanley Ho
---------------------------------------------------
INVESTOR SHAREHOLDERS:
/s/ Irving B. Harris Revocable Trust
---------------------------------------------------
/s/ Virginia H. Polsky Trust
---------------------------------------------------
/s/ Roxanne H. Frank Trust
---------------------------------------------------
/s/ Couderay Partners
---------------------------------------------------
/s/ Jerome Kahn, Jr. Revocable Trust
---------------------------------------------------
/s/ Fred Holubow
---------------------------------------------------
/s/ Morningstar Trust by Faye Morgenstern, Trustee
---------------------------------------------------
/s/ Victor Morgenstern
---------------------------------------------------
/s/ Resolute Partners by Victor Morgenstern
---------------------------------------------------
/s/ Goldstein Asset Management
---------------------------------------------------
-9-
<PAGE>
/s/ Lawrence Goldstein
---------------------------------------------------
/s/ Burton W. Ruder, Linda Ruder, Trustee
---------------------------------------------------
/s/ James S. Levy Trust, James S. Levy, Trustee
---------------------------------------------------
/s/ Ronald Nash
---------------------------------------------------
/s/ Edward S. Loeb Revocable Trust, Edward S.
---------------------------------------------
Loeb, Trustee
---------------------------------------------------
/s/ Steven J. Reid
---------------------------------------------------
/s/ Gary N. Wilner
---------------------------------------------------
/s/ Jarvis H. Friduss
---------------------------------------------------
/s/ Anita Nagler
---------------------------------------------------
/s/ JO & Co. by Ross J. Mangano, Partner
---------------------------------------------------
/s/ Sherwin Zuckerman
---------------------------------------------------
/s/ The Levenstein & Resnick Profit Sharing Plan &
--------------------------------------------------
Trust by Gary I. Levenstein, Trustee
---------------------------------------------------
/s/ Mitchell I. Dolins Trust, Mitchell I. Dolins,
-------------------------------------------------
Trustee
---------------------------------------------------
/s/ Sheldon M. Bulwa
---------------------------------------------------
/s/ Stephen M. Simes
---------------------------------------------------
/s/ Howard Schraub
---------------------------------------------------
-10-
<PAGE>
EXHIBIT A
NAMES / ADDRESSES OF SHAREHOLDERS;
NUMBER/TYPE OF SHARES
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
INVESTOR ADDRESS SHARES TYPE OF SHARES
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Avi-Ben-Abraham 11,967,300 Subordinate
Shares
- -------------------------------------------------------------------------------------------------------------------------------
INVESTOR SHAREHOLDERS:
- -------------------------------------------------------------------------------------------------------------------------------
Irving B. Harris Revocable Trust 2 N. LaSalle Street, Suite 400 750,000 Subordinate
Chicago, IL 60602 Shares
- -------------------------------------------------------------------------------------------------------------------------------
Virginia H. Polsky Trust 2 N. LaSalle Street, Suite 400 375,000 Subordinate
Chicago, IL 60602 Shares
- -------------------------------------------------------------------------------------------------------------------------------
Roxanne H. Frank Trust 2 N. LaSalle Street, Suite 400 500,000 Subordinate
Chicago, IL 60602 Shares
- -------------------------------------------------------------------------------------------------------------------------------
Couderay Partners 2 N. LaSalle Street, Suite 400 500,000 Subordinate
Chicago, IL 60602 Shares
- -------------------------------------------------------------------------------------------------------------------------------
Jerome Kahn, Jr. Revocable Trust 2 N. LaSalle Street, Suite 400 125,000 Subordinate
Chicago, IL 60602 Shares
- -------------------------------------------------------------------------------------------------------------------------------
Fred Holubow 2 N. LaSalle Street, Suite 400 250,000 Subordinate
Chicago, IL 60602 Shares
- -------------------------------------------------------------------------------------------------------------------------------
Morningstar Trust by Faye Morgenstern, Trustee 106 Vine Avenue 500,000 Subordinate
Highland Park, IL 60035 Shares
- -------------------------------------------------------------------------------------------------------------------------------
Victor Morgenstern 106 Vine Avenue 1,500,000 Subordinate
Highland Park, IL 60035 Shares
- -------------------------------------------------------------------------------------------------------------------------------
Resolute Partners 106 Vine Avenue 500,000 Subordinate
Highland Park, IL 60035 Shares
- -------------------------------------------------------------------------------------------------------------------------------
Goldstein Asset Management 15301 Dallas Pkwy, Suite 840 125,000 Subordinate
Dallas, TX 75248 Shares
- -------------------------------------------------------------------------------------------------------------------------------
Lawrence Goldstein 15301 Dallas Pkwy, Suite 840 125,000 Subordinate
Dallas, TX 75248 Shares
- -------------------------------------------------------------------------------------------------------------------------------
Linda Ruder, Custodian for John Ruder 2238 Egandale Road 125,000 Subordinate
Highland Park, IL 60035 Shares
- -------------------------------------------------------------------------------------------------------------------------------
Joanna Ruder 2238 Egandale Road 125,000 Subordinate
Highland Park, IL 60035 Shares
- -------------------------------------------------------------------------------------------------------------------------------
James S. Levy Trust, James S. Levy Trustee 1349 N. Thatcher Avenue 250,000 Subordinate
Highland Park, IL 60035 Shares
- -------------------------------------------------------------------------------------------------------------------------------
Ronald Nash 134 Essex Drive 250,000 Subordinate
Tenafly, NJ 07670 Shares
- -------------------------------------------------------------------------------------------------------------------------------
Edward S. Loeb Revocable Trust, Edward S. Loeb Trustee 1935A N. Hudson 250,000 Subordinate
Chicago, IL 60614 Shares
- -------------------------------------------------------------------------------------------------------------------------------
Steven J. Reid c/o Harris Associates 500,000 Subordinate
2 N. LaSalle Street Shares
Chicago, IL 60602
- -------------------------------------------------------------------------------------------------------------------------------
Gary N. Wilner 2349 Wood Path 250,000 Subordinate
Highland Park, IL 60646 Shares
- -------------------------------------------------------------------------------------------------------------------------------
-11-
<PAGE>
- -------------------------------------------------------------------------------------------------------------------------------
Jarvis H. Friduss 4447 W. Peterson Ave. 125,000 Subordinate
Suite 300 Shares
Chicago, IL 60646
- -------------------------------------------------------------------------------------------------------------------------------
Anita Nagler 2233 N. Burling 1,500,000 Subordinate
Chicago, IL 60614 Shares
- -------------------------------------------------------------------------------------------------------------------------------
JO & Co. 112 W. Jefferson Blvd. 7,500,000 Subordinate
Suite 613 Shares
South Bend, IN 46634
- -------------------------------------------------------------------------------------------------------------------------------
Sherwin and Sheri Zuckerman 1049 Bluff Rd. 750,000 Subordinate
Glencoe, IL 60022 Shares
- ------------------------------------------------------------------------------------------------------------------------------
The Levenstein & Resnick Profit Sharing Plan & Trust by Gary I. c/o Ungaretti & Harris 250,000 Subordinate
Levenstein 3500 Three First National Plaza Shares
Chicago, IL 60602
- -------------------------------------------------------------------------------------------------------------------------------
Mitchell I. Dolins Trust, Mitchell I. Dolins Trustee 427 Brierhill Rd. 375,000 Subordinate
Deerfield, IL 60015 Shares
- -------------------------------------------------------------------------------------------------------------------------------
Sheldon M. Bulwa 135 Arrowwood Drive 125,000 Subordinate
Northbrook, IL 60062 Shares
- -------------------------------------------------------------------------------------------------------------------------------
Stephen M. Simes 175 Old Half Day Rd. 250,000 Subordinate
Lincolnshire, IL 60069 Shares
- -------------------------------------------------------------------------------------------------------------------------------
Howard Schraub 8538 Ruette Monte Carlo, La 250,000 Subordinate
Jolla, CA 92037 Shares
- -------------------------------------------------------------------------------------------------------------------------------
HK SHAREHOLDERS:
- -------------------------------------------------------------------------------------------------------------------------------
Hans Michael Jebsen 31/F. Caroline Center 3,000,000 Subordinate
28 Yon Ping Road Shares
Causeway Bay, Hong Kong
- -------------------------------------------------------------------------------------------------------------------------------
1,000,000 Class A Shares
- -------------------------------------------------------------------------------------------------------------------------------
177,114 Class C Shares
- -------------------------------------------------------------------------------------------------------------------------------
Markus Jebsen 31/F. Caroline Center 750,000 Subordinate
28 Yon Ping Road Shares
Causeway Bay, Hong Kong
- -------------------------------------------------------------------------------------------------------------------------------
322,886 Class A Shares
- -------------------------------------------------------------------------------------------------------------------------------
King Cho Fung Room 2101 1,912,500 Subordinate
Lyndhurst Tower Shares
One Lyndhurst Terrace Central
Hong Kong
- -------------------------------------------------------------------------------------------------------------------------------
208,500 Class A Shares
- -------------------------------------------------------------------------------------------------------------------------------
416,500 Class C Shares
- -------------------------------------------------------------------------------------------------------------------------------
Stanley Ho 1 Repulse Bay 1,500,000 Subordinate
Hong Kong Shares
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
-12-
<PAGE>
BEN-ABRAHAM TECHNOLOGIES INC.
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement ("AGREEMENT") is entered into as of the
6th day of May, 1999 by and among BEN-ABRAHAM TECHNOLOGIES INC., a Wyoming
corporation (the "COMPANY"), and those individuals executing this Agreement
(each a "SHAREHOLDER" and collectively the "SHAREHOLDERS").
RECITALS
A. The Shareholders, pursuant to those certain Securities Purchase
Agreements (the "SECURITIES PURCHASE AGREEMENTS") dated the date hereof by and
among the Company and certain Shareholders, have agreed to purchase from the
Company on the date hereof 92.5 Units (collectively the "UNITS"). Each Unit is
comprised of (i) 250,000 Subordinate Shares (as defined below) of the Company
and (ii) one warrant ("WARRANT") to purchase 125,000 Subordinate Shares of the
Company.
B. As a condition to the purchase of the Units, the Company has agreed to
enter into this Agreement to provide the Shareholders certain registration
rights as set forth herein.
AGREEMENT
In consideration of the foregoing Recitals and the mutual promises
contained herein, the parties hereto agree as follows:
1. DEFINITIONS. Capitalized terms used herein and not otherwise defined,
shall have the following meanings:
(a) "COMMISSION" means the Securities and Exchange Commission and any
successor thereto.
(b) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
(c) "HOLDERS" means the Shareholders and any subsequent holders of
Registrable Shares to whom the rights hereunder accrue pursuant to SECTION
11 hereof. "HOLDER" means any one of the Holders.
(d) "NASDAQ" means the NASDAQ Stock Market, Inc., which is comprised
of the National Market System and the SmallCap Market.
(e) "REGISTRABLE SHARES" means (i) the Subordinate Shares purchased
pursuant to the Securities Purchase Agreement; (ii) any Subordinate Shares
issued to the Shareholders upon exercise of the Warrants; and (iii) any
other shares of capital stock issued to the Shareholders (or issuable upon
the conversion or exercise of any other
<PAGE>
warrant, right or other security which is issued) as a dividend or other
distribution with respect to, in exchange for or in replacement of the
shares referenced in SUBSECTIONS 1(e)(i) AND 1(e)(ii) immediately above;
provided, however, that outstanding Subordinate Shares shall no longer
be Registrable Shares as to the Holder thereof when they (i) shall have
been effectively registered under the Securities Act and sold by the
Holder thereof in accordance with such registration or (ii) are eligible
for sale by the Holder pursuant to paragraph (k) of Rule 144.
(f) "RULE 144" means Rule 144 as promulgated under the Securities
Act.
(g) "SECURITIES ACT" means the Securities Act of 1933, as amended,
and the rules and regulations of the Commission thereunder.
(h) "SUBORDINATE SHARES" means the subordinate voting shares of the
Company, without par value per share.
2. REGISTRATION ON REQUEST - DEMAND REGISTRATION RIGHTS. At any time
after the date that the Company becomes listed on NASDAQ, upon the written
request of the Holders holding at least twenty-five (25%) of the Registrable
Shares, the Company shall use commercially reasonable efforts to effect as
soon as reasonably practicable the registration under the Securities Act of
all Registrable Shares requested to be registered. The Company shall only be
obligated to effect two registrations under this SECTION 2 pursuant to which
Registrable Shares are offered and sold (the withdrawal of a registration
statement at the request of a Holder shall be deemed to be a registration
under this SECTION 2 unless such request for withdrawal is as a result of a
material adverse change in the financial condition of the Company). In the
event that the Company receives a request for registration pursuant to this
SECTION 2 within 90 days of the date when it is anticipated that audited
financial statements for the Company's latest fiscal year will become
available, the Company may delay the filing of a required registration for a
period of not more than 90 days. Any registration statement pursuant to this
section may include other securities of the Company whether being offered or
sold for the account of the Company or of another securityholder unless the
underwriter (or managing underwriter on behalf of all of the underwriters)
advises the Company in writing that, in its opinion, the inclusion of any
such shares in the subject registration statement will materially and
adversely affect the distribution of the Registrable Shares by such
underwriter.
3. INCIDENTAL REGISTRATION - PIGGY-BACK REGISTRATION RIGHTS.
(a) If the Company at any time proposes to register (including for
this purpose a registration effected by the Company for securityholders
other than the Holders) any of its securities under the Securities Act in
connection with the public offering of such securities (other than a
registration on Form S-4, Form S-8 or any form which does not include
substantially the same information as would be required to be included in a
registration statement covering the sale of Registrable Shares or in which
Registrable Shares cannot be included pursuant to Commission rule or
practice), the Company shall, each such time, promptly give each Holder
written notice of such registration (the "PIGGY-
2
<PAGE>
BACK NOTICE"). Upon the written request of any Holder or Holders, given
within fifteen (15) days after the Holders' receipt of such Piggy-Back
Notice from the Company, the Company shall use commercially reasonable
efforts to include in such registration statement filed with the
Commission under the Securities Act all of the Registrable Shares
requested to be included by the Holder or Holders. Notwithstanding the
foregoing, the Company shall have the right to discontinue its efforts
to register any Registrable Shares pursuant to this SECTION 3 if it
reasonably believes such action is in the best interests of the Company.
(b) If the Company proposes to distribute shares of capital stock
through an underwriting, the Holders (together with the Company and any
other securityholders distributing their securities through such
underwriting) shall enter into an underwriting agreement with the
underwriter (or underwriters) selected for underwriting by the Company.
If any of the Holders disapprove of the terms of any such underwriting,
such Holder may elect to withdraw therefrom by written notice to the
Company and the underwriter.
4. Notwithstanding any contrary provision of this Agreement:
(a) The Company shall not be required to effect more than one
registration pursuant to SECTION 2 in any twelve-month period.
(b) If any registration pursuant to SECTION 3 shall be
underwritten in whole or in part, the Company may require that the
Registrable Shares requested for inclusion pursuant to SECTION 3 be
included in the underwriting on the same terms and conditions as the
securities otherwise being sold through the underwriters. If, in the
good faith judgment of the managing underwriter of such public offering
the inclusion of all of the Registrable Shares originally covered by a
request for registration would reduce the number of shares to be offered
by the Company or interfere with the successful marketing of the shares
to be offered by the Company, the number of Registrable Shares otherwise
to be included in the underwritten public offering may be reduced pro
rata (by number of shares) among the holders thereof requesting such
registration.
5. REGISTRATION PROCEDURES. If and whenever the Company is required by
the provisions of this Agreement to use commercially reasonable efforts to
effect the registration of any of its securities under the Securities Act, the
Company will, as soon as practicable:
(a) prepare and file with the Commission a registration statement
with respect to such Registrable Shares and use commercially reasonable
efforts to cause such registration statement to become and remain effective
for the period provided in this SECTION 5;
(b) prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in
connection therewith as may be necessary to keep such registration
statement effective and to comply with the provisions
3
<PAGE>
of the Securities Act with respect to the sale or other disposition of
all securities covered by such registration statement whenever the
seller or sellers of such securities shall desire to sell or otherwise
dispose of the same;
(c) furnish to each Holder, or his or her duly authorized
underwriter, such number of copies of a prospectus, including copies of a
preliminary prospectus, prepared in conformity with the requirements of the
Securities Act, and such other documents as such Holder may reasonably
request in order to facilitate the public sale or other disposition of the
securities to be sold by such Holder;
(d) use commercially reasonable efforts to register or qualify the
securities covered by such registration statement under such state
securities or "blue sky" laws of such jurisdictions as each Holder shall
reasonably request, and do any and all other acts and things which may be
necessary under such securities or "blue sky" laws to enable such Holder to
consummate the public sale or other disposition in such jurisdictions of
the securities to be sold by such Holder; provided, however, that the
Company shall not for any such purpose be required to consent to the
general service of process in any such jurisdiction;
(e) notify each Holder at any time when a prospectus relating to the
Registrable Shares is required to be delivered under the Securities Act, of
the happening of any event as a result of which the prospectus included in
the registration statement, as then in effect, includes an untrue statement
of a material fact or omits to state any material fact required to be
stated therein or necessary to make the statements therein not misleading
in the light of the circumstances then existing;
(f) notify each Holder, promptly after the Company shall have
received notice thereof, of the time when the registration statement
becomes effective or any supplement to any prospectus forming a part of the
registration statement has been filed;
(g) notify each Holder, promptly after it shall receive notice or
obtain knowledge thereof, of the issuance of any stop order by the
Commission suspending the effectiveness of such registration statement or
the initiation or threatening of any proceeding for such purpose and
promptly use reasonable efforts to prevent the issuance of any stop order
or to obtain its withdrawal if such stop order should be issued; and
(h) provide a transfer agent and registrar for all Registrable Shares
sold under the registration statement not later than the effective date of
the registration statement;
provided, however, that notwithstanding any other provision of this Agreement,
the Company shall not in any event be required to use commercially reasonable
efforts to maintain the effectiveness of any such registration statement for a
period in excess of nine (9) months after the effective date thereof or until
the sellers have sold or otherwise disposed of their Registrable Shares
registered under such registration statement, whichever is earlier.
4
<PAGE>
6. FURTHER ASSURANCES.
(a) It shall be a condition precedent to the obligations of the
Company to take any action pursuant hereto that each Holder, having chosen
to have its Registrable Shares included for registration, shall furnish to
the Company such information regarding such Holder, the Registrable Shares
and the intended method of disposition of such securities as shall be
required to effect the registration thereof. Each Holder shall be required
to represent to the Company that all such information which is given is
complete and accurate in all material respects. Each Holder shall deliver
to the Company a statement in writing from Holder that it bona fide intends
to sell, transfer or otherwise dispose of the Registrable Shares.
(b) It shall be a condition precedent to the inclusion of the
Registrable Shares of any Holder in a registration effected pursuant to
this Agreement that such Holder shall execute such indemnities,
underwriting agreements and other documents, as the Company or the
managing underwriter shall reasonably request, in order to satisfy the
requirements applicable to such registration.
(c) Each Holder agrees that (i) he or she will comply with the
provisions of the Securities Act with respect to the disposition of its
securities covered by a registration statement required under this
Agreement, (ii) he or she will cooperate with the Company to the extent
required by the Securities Act and applicable "blue sky" or state
securities laws in its efforts to file any registration statement
required hereunder and to have it declared effective, and (iii) upon
receipt of any notice from the Company pursuant to SUBSECTION 5(e), he
or she will forthwith discontinue disposition of Registrable Shares
until he or she receives copies of the supplemented or amended
prospectus or until he or she is advised in writing by the Company that
the use of the prospectus may be resumed, and has received copies of any
additional or supplemental filings that are incorporated by reference in
the prospectus.
7. RESTRICTIONS ON PUBLIC SALE. Each Holder agrees, if requested in a
timely notice from the underwriter in an underwritten offering, not to effect
any public sale or distribution of securities of the Company (except through the
inclusion of Registrable Shares in such Offering), including a sale pursuant to
Rule 144 under the Securities Act, during the 30-day period prior to, and during
a period requested by the underwriters of up to 90 days (180 days in the case of
a registration statement for an initial public offering of the Company's
securities) subsequent to, the closing date of each underwritten offering made
pursuant to a registration statement.
8. EXPENSES.
(a) REGISTRATION EXPENSES. All expenses incurred by the Company in
effecting the registration provided for in this Agreement, including,
without limitation, all registration and filing fees, printing expenses,
reasonable fees and disbursements of counsel for the Company (including
fees and disbursements of counsel for the Company in its capacity as
counsel to the selling Holders hereunder; provided however, if the
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Company counsel does not make itself available for this purpose or if
such counsel is not reasonably acceptable to the selling Holders, the
Company will pay up to an aggregate of $10,000 of fees and disbursements
of one counsel for selling Holders), expenses of any audits incidental
to or required by any such registration, and all expenses of complying
with the securities or "blue sky" laws or any state shall be paid by the
Company.
(b) SELLING EXPENSES. All underwriting discounts, underwriters'
expense allowance, and selling commissions applicable to Registrable Shares
sold by the Holders, and all fees and disbursements of any special counsel
of the Holders shall be borne by the Holders pro-rata.
9. INDEMNIFICATION. In the event that any Registrable Shares are
included in a registration statement pursuant to this Agreement:
(a) To the extent permitted by law, the Company will indemnify and
hold harmless the Holders, the officers, directors and members of any
Holder, any underwriter (as defined in the Securities Act) for any Holder
and each person, if any, who controls a Holder or underwriter within the
meaning of the Securities Act or 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"): (A) 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; (B) 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 (C) any violation or
alleged violation by the Company of the Securities Act, the Exchange Act,
any applicable state securities law or any rule or regulation promulgated
under the Securities Act, the Exchange Act or any applicable state
securities law; and the Company will reimburse such specified persons for
any legal or other expenses reasonably incurred by them in connection with
investigating or defending any such loss, claim, damage, liability or
action; PROVIDED HOWEVER, that the indemnity agreement contained in this
subsection 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 by the Holder expressly for
use in connection with such registration; and FURTHER PROVIDED HOWEVER,
that the Company shall not be required to indemnify any such specified
person against (A) any liability arising from any untrue or misleading
statement contained in or omission from any preliminary prospectus if such
deficiency is corrected in the final prospectus and such final prospectus
is recirculated as required by law prior to confirmation of any sale
thereunder or (B) any liability which
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<PAGE>
arises out of the failure of any such specified person to deliver a
prospectus as required by the Securities Act.
(b) To the extent permitted by law, the Holders will indemnify and
hold harmless the Company, its directors, its officers, any person who
controls the Company within the meaning of the Securities Act or the
Exchange Act, any underwriter (within the meaning of the Securities Act)
for the Company and any person who controls such underwriter against any
losses, claims, damages or liabilities (joint or several) to which the
Company or any such director, officer, or underwriter or controlling person
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 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 any Holder expressly for use in connection with
such registration; and the Holders will reimburse any legal or other
expenses reasonably incurred by the Company or any such director, officer,
underwriter or controlling person thereof, in connection with investigating
or defending any such loss, claim, damage, liability or action; PROVIDED
HOWEVER, that the indemnity agreement contained in this subsection 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 Holders (which consent shall not be unreasonably withheld); and FURTHER
PROVIDED, that notwithstanding anything to the contrary contained in this
Agreement, the Holders' liability under this SECTION 9 shall be limited in
the aggregate to the amount of net proceeds actually received by the
Holders from the sale of Registrable Shares actually sold.
(c) Promptly after receipt by an indemnified party 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 hereunder, notify the indemnifying party in writing
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 notified, 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
differing interests between such indemnified party and any other party
represented by such counsel in such proceeding. The failure to notify an
indemnifying party within a reasonable time of the commencement of any such
action, to the extent prejudicial to its ability to defend such action,
shall relieve such indemnifying party of any liability to the indemnified
party hereunder, but the omission so to notify the indemnifying party will
not relieve it of any liability that it may have to any indemnified party
otherwise than under this subsection.
(d) If the indemnification provided for in this SECTION 9 is held by
a court of competent jurisdiction to be unavailable to an indemnified party
with respect to any loss,
7
<PAGE>
claim, damage or liability (or actions with respect thereof), then such
indemnifying party, in lieu of indemnifying such indemnified party
hereunder, shall contribute to the amount paid or payable by such
indemnified party as a result of loss, claim, damage or liability (or
actions with respect thereof) in such proportion as is appropriate to
reflect the relative fault of the indemnifying party on the one hand and
the indemnified party on the other in connection with the statements or
omissions which resulted in such loss, claim, damage or liability (or
actions with respect thereof), as well as any other relevant equitable
considerations. The relative fault of the indemnifying party and of the
indemnified party shall be determined by reference to, among other
things, whether the untrue or alleged untrue statement of a material
fact or the omission to state a material fact relates to information
supplied by the indemnifying party or the indemnified party and the
parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission.
10. TERMINATION OF REGISTRATION RIGHTS. Notwithstanding the foregoing
provisions of this Agreement, the rights to registration granted hereunder shall
terminate as to any particular Registrable Shares when such Registrable Shares
shall have been effectively registered under the Securities Act or otherwise
sold by the Holders thereof in a public sale in accordance with applicable law,
and such shares shall cease to be Registrable Shares for purposes hereof.
11. ASSIGNABILITY OF REGISTRATION RIGHTS. Subject to SECTION 10, the
registration rights set forth in this Agreement shall accrue to each subsequent
holder of Registrable Shares (who has executed a written consent agreeing to be
bound by the terms and conditions of this Agreement as if a party to this
Agreement) and such subsequent holder shall only have such rights to the extent
Shareholder would be entitled to hereunder prior to such transfer.
11. COMPLIANCE WITH RULE 144. In the event the Company (a) registers a
class of securities under Section 12 of the Exchange Act, or (b) commences to
file reports under Section 13 or 15(d) of the Exchange Act, then at the request
of any Holder who proposes to sell Registrable Shares in compliance with Rule
144, the Company shall, to the extent necessary to enable such Holder to comply
with such Rule,
(a) make and keep public information available as those terms are
understood and defined in Rule 144;
(b) use its best efforts to file with the Commission in a timely
manner all reports and other documents required of the Company under the
Securities Act and Exchange Act; and
(c) so long as any Holders own any Registrable Shares, and is not
eligible to sell such Registrable Shares under paragraph (k) of Rule 144,
furnish to the Holder upon reasonable request, a written statement by the
Company as to its compliance with the reporting requirements of Rule 144
and of the Securities Act and Exchange Act, a copy of its most recent
annual or quarterly report, and such other reports and documents so filed
8
<PAGE>
as Holder may reasonably request in availing himself of any rule or
regulation of the Commission allowing the Holder to sell any such
securities without registration.
12. NOTICES. All notices, requests, consents, and other communications
hereunder shall be in writing and shall be deemed to have been made when
personally delivered or three business days after sent by first class mail,
postage prepaid, to the following address or such other address as shall be
given by notice delivered hereunder: (a) to each Holder, at the address of such
Holder as shown on the registry books maintained by the Company or its transfer
agent; and (b) if to the Company, at 175 Olde Half Day Road, Lincolnshire,
Illinois 60069, Attention: Stephen M. Simes, with a copy by like means to
Ungaretti & Harris, 3500 Three First National Plaza, Chicago, Illinois 60602,
Attention: Gary I. Levenstein, Esq.
13. SEVERABILITY. Whenever possible, each provision of this Agreement
shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be prohibited
by or invalid under applicable law, such provision will be ineffective only to
the extent of such prohibition or invalidity, without invalidating the remainder
of this Agreement.
14. REMEDIES. In the event of a breach or a threatened breach by any
party to this Agreement of his or its obligations under this Agreement, any
party injured or to be injured by such breach will be entitled to specific
performance of its rights under this Agreement or to injunctive relief, as the
case may be, in addition to being entitled to exercise all rights provided in
this Agreement and granted by law. The parties agree that the provisions of
this Agreement shall be specifically enforceable, it being agreed by the parties
that the remedy at law, including monetary damages, for breach of any such
provision will be inadequate compensation for any loss and that any defense or
objection in any action for specific performance or injunctive relief that a
remedy at law would be adequate is waived.
15. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
16. DESCRIPTIVE HEADINGS. The descriptive headings of this Agreement are
inserted for convenience only and do not constitute a part of this Agreement.
17. GOVERNING LAW. The validity, meaning and effect of this Agreement
shall be determined in accordance with the laws of the State of Illinois
applicable to contracts made and to be performed in that state.
18. AMENDMENT. This Agreement may only be amended or changed by the
written consent of the Company and 75% in interest of the Holders.
[signature page attached]
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IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first set forth above.
THE COMPANY:
BEN-ABRAHAM TECHNOLOGIES INC.
a Wyoming corporation
By: /s/ Stephen M. Simes
----------------------------
Its: President & CEO
----------------------------
SHAREHOLDERS:
/s/ Irving B. Harris Revocable Trust
----------------------------------------------
/s/ Virginia H. Polsky Trust
----------------------------------------------
/s/ Roxanne H. Frank Trust
----------------------------------------------
/s/ Couderay Partners
--------------------------------------------------
/s/ Jerome Kahn, Jr. Revocable Trust
--------------------------------------------------
/s/ Fred Holubow
--------------------------------------------------
/s/ Morningstar Trust by Faye Morgenstern, Trustee
--------------------------------------------------
/s/ Victor Morgenstern
--------------------------------------------------
/s/ Resolute Partners by Victor Morgenstern
--------------------------------------------------
/s/ Goldstein Asset Management
--------------------------------------------------
/s/ Lawrence Goldstein
--------------------------------------------------
/s/ Burton W. Ruder, Linda Ruder, Trustee
--------------------------------------------------
/s/ James S. Levy Trust, James S. Levy, Trustee
--------------------------------------------------
/s/ Ronald Nash
--------------------------------------------------
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/s/ Edward S. Loeb Revocable Trust, Edward S.
--------------------------------------------------
Loeb, Trustee
--------------------------------------------------
/s/ Steven J. Reid
--------------------------------------------------
/s/ Gary N. Wilner
--------------------------------------------------
/s/ Jarvis H. Friduss
--------------------------------------------------
/s/ Anita Nagler
--------------------------------------------------
/s/ JO & Co. by Ross J. Mangano, Partner
--------------------------------------------------
/s/ Sherwin Zuckerman
--------------------------------------------------
/s/ The Levenstein & Resnick Profit Sharing Plan &
--------------------------------------------------
Trust by Gary I. Levenstein, Trustee
--------------------------------------------------
/s/ Mitchell I. Dolins Trust, Mitchell I. Dolins,
--------------------------------------------------
Trustee
--------------------------------------------------
/s/ Sheldon M. Bulwa
--------------------------------------------------
/s/ Stephen M. Simes
--------------------------------------------------
/s/ Howard Schraub
--------------------------------------------------
/s/ Hans Michael Jebsen
--------------------------------------------------
/s/ King Cho Fung
--------------------------------------------------
/s/ Stanley Ho
--------------------------------------------------
11
<PAGE>
SECURITIES PURCHASE AGREEMENT
THIS SECURITIES PURCHASE AGREEMENT (this "AGREEMENT"), dated as of May 6,
1999, by and among BEN-ABRAHAM TECHNOLOGIES INC., a Wyoming corporation (the
"COMPANY"), and each other person executing this Agreement as set forth on the
signature page hereto (each a "PURCHASER").
The Company wishes to sell to the Purchasers, and the Purchasers wish to
purchase, on the terms and subject to the conditions set forth in this
Agreement, such number of Units (collectively the "UNITS") set forth on EXHIBIT
A, each Unit being comprised of (i) 250,000 subordinate voting shares of the
Company (collectively the "SUBORDINATE SHARES"), and (ii) one warrant
(collectively the "WARRANTS") to purchase 125,000 subordinate voting shares of
the Company (collectively the "EXERCISE SHARES"). The Subordinate Shares,
Warrants and Exercise Shares are collectively referred to as the "SECURITIES."
The Company has agreed to grant certain registration rights to the
Purchaser under the Securities Act of 1933, as amended (the "SECURITIES ACT"),
pursuant to a Registration Rights Agreement of even date herewith by and between
the Company and the Purchasers (the "REGISTRATION RIGHTS AGREEMENT"). The sale
of the Units by the Company to the Purchasers will be effected in reliance upon
the exemption from securities registration afforded by the provisions of
Regulation D ("REGULATION D"), as promulgated by the Securities and Exchange
Commission (the "COMMISSION") under the Securities Act.
The Company and the Purchasers hereby agree as follows:
1. PURCHASE AND SALE OF UNITS.
1.1 AGREEMENT TO PURCHASE AND SELL. Upon the terms and subject to the
satisfaction of the conditions set forth herein, the Company agrees to sell on
the Closing Date (as defined below), and each Purchaser agrees to purchase,
severally but not jointly, such number of Units and at the purchase price
indicated opposite each Purchaser's name on EXHIBIT A hereto. Each Purchaser
shall pay the respective purchase price by wire transfer of immediately
available funds on the Closing Date.
1.2 CLOSING. The closing of the sale of the Units (the "CLOSING")
shall take place at the offices of Ungaretti & Harris, 3500 Three First National
Plaza, Chicago, Illinois 60602 at 9:00 a.m., Chicago time, on May 6, 1999, or
such other location or time as shall be mutually agreed upon by the parties (the
"CLOSING DATE").
2. REPRESENTATIONS AND WARRANTIES OF PURCHASER.
Each Purchaser hereby makes the following representations and warranties
to the Company and agrees with the Company that, as of the date of this
Agreement and as of the Closing Date:
<PAGE>
2.1 ENFORCEABILITY. This Agreement has been duly authorized by all
necessary action on the part of such Purchaser, has been duly executed and
delivered by such Purchaser and constitutes Purchaser's valid and legally
binding obligation, enforceable in accordance with its terms, except as such
enforcement may be limited by (i) applicable bankruptcy, insolvency,
reorganization or other laws of general application relating to or affecting the
enforcement of creditors' rights generally and (ii) general principles of
equity.
2.2 LOCATION OF PRINCIPAL OFFICE, QUALIFICATION AS AN ACCREDITED
INVESTOR. The state in which the Purchaser's principal office (or domicile, if
such Purchaser is an individual) is located is the state set forth in such
Purchaser's address on EXHIBIT A. The Purchaser by execution of this Agreement
hereby represents that he, she or it qualifies as an "accredited investor" for
purposes of Regulation D promulgated under the Securities Act. The Purchaser
(i) is an investor in securities of companies in the development stage and
acknowledges that he, she or it is able to fend for himself, herself or itself,
and bear the loss of the Purchaser's entire investment in the Securities, and
(ii) has such knowledge and experience in financial and business matters that
the Purchaser is capable of evaluating the merits and risks of the investment to
be made by the Purchaser pursuant to this Agreement. If other than an
individual, the Purchaser also represents it has not been organized solely for
the purpose of acquiring the Securities.
2.3 INVESTMENT INTENT. The Purchaser is acquiring the Securities
for investment purposes only and for such Purchaser's own account and not
with the view to, or for resale in connection with, any distribution or
public offering thereof. The Purchaser has no current plan or intention to
engage in a sale, exchange, transfer, distribution, redemption, reduction in
any way of such Purchaser's risk of ownership by short sale or otherwise, or
other disposition, directly or indirectly of the Securities being acquired by
such Purchaser pursuant to this Agreement. The Purchaser is able to bear the
economic risk of his, her or its investment and has the knowledge and
experience in financial and business matters that he, she or it is capable of
evaluating the merits and risks of an investment in the Securities of the
Company. Notwithstanding the foregoing, in making such representation,
Purchaser does not agree, except as otherwise provided in the Shareholders
Agreement among the Company, Avi Ben-Abraham, the Purchasers and certain
other stockholders of the Company (the "SHAREHOLDERS' AGREEMENT") and in the
Private Placement Questionnaire and Undertaking provided by Purchaser to the
Alberta Stock Exchange, to hold the Securities for any minimum or specific
term and reserves the right to sell, transfer or otherwise dispose of the
Securities at any time in accordance with the provisions of this Agreement
and with federal, provincial and state securities laws applicable to such
sale, transfer or disposition.
2.4 LIMITATIONS ON DISPOSITION. Purchaser acknowledges that,
except as provided in the Registration Rights Agreement, the Securities have
not been and are not being registered under the Securities Act or any state
securities laws by reason of their contemplated issuance in transactions
exempt from the registration requirements of the Securities Act pursuant to
Section 4(2) thereof and applicable state securities laws, and that the
reliance of the Company and others upon these exemptions is predicated in
part upon this representation by the Purchaser. The Purchaser further
understands that the Securities may not be transferred or resold without (a)
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<PAGE>
registration under the Securities Act and any applicable state securities
laws, or (b) an exemption from the requirements of the Securities Act and
applicable state securities laws. The Purchaser understands that an
exemption from such registration is not presently available pursuant to Rule
144 promulgated under the Securities Act by the Securities and Exchange
Commission (the "Commission") and that in any event the Purchaser may not
sell any Securities acquired hereunder pursuant to Rule 144 prior to the
expiration of a one-year period (or such shorter period as the Commission may
hereafter adopt) after the Purchaser has acquired such securities. Such
Purchaser understands that any sales pursuant to Rule 144 can be made only in
full compliance with the provisions of Rule 144.
2.5 LEGEND. Purchaser understands that the certificates representing
the Securities may bear at issuance a restrictive legend in substantially the
following form:
"The securities represented by this certificate have not been
registered under the Securities Act of 1933, as amended (the
"Securities Act"), or the securities laws of any state, and may
not be offered or sold unless a registration statement under the
Securities Act and applicable state securities laws shall have
become effective with regard thereto, or an exemption from
registration under the Securities Act and applicable state
securities laws is available in connection with such offer or
sale. The securities represented by this certificate may not be
traded in Alberta until one year after issuance except as
permitted by the Securities Act (Alberta) and the rules made
thereunder. Such securities are issued subject to the provisions
of a Securities Purchase Agreement, dated as of May ______, 1999,
by and between the Company and the purchasers named therein
("Purchasers"), a Registration Rights Agreement, dated as of
May ______, 1999, by and between the Company and Purchasers, and a
Shareholders' Agreement, dated May ___, 1999, among the Company
and certain stockholders of the Company."
The Company shall make a notation regarding the restrictions on transfer of
the Securities in its books and the Securities shall be transferred on the
books of the Company only if transferred or sold pursuant to an effective
registration statement under the Securities Act covering the securities to be
transferred or an opinion of counsel satisfactory to the Company that such
registration is not required.
2.6 INFORMATION. The Company has provided Purchaser with a copy of
the Confidential Private Placement Memorandum dated March 19, 1999 and other
information regarding the business, operations and financial condition of the
Company, and has granted to Purchaser the opportunity to ask questions of and
receive answers from representatives of the Company, its officers, directors,
employees and agents concerning the Company and materials relating to the
terms and conditions of the purchase and sale of the Units hereunder.
Neither such information nor any other investigation conducted by Purchaser
or any of its representatives shall modify, amend or otherwise affect
Purchaser's right to rely on the Company's representations and warranties
contained in this Agreement.
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<PAGE>
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company hereby makes the following representations and warranties to
the Purchasers and agrees with the Purchasers that, as of the date of this
Agreement and as of the Closing Date:
3.1 ORGANIZATION, GOOD STANDING AND QUALIFICATION. Each of the
Company and its Subsidiaries is duly organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation or organization
and has all requisite corporate power and authority to carry on its business as
now conducted. Each of the Company and its Subsidiaries is duly qualified to
transact business and is in good standing as a foreign corporation in each
jurisdiction in which the failure so to qualify would have a Material Adverse
Effect.
3.2 AUTHORIZATION; CONSENTS. The Company has the requisite corporate
power and authority to enter into and perform its obligations under (i) this
Agreement, (ii) the Registration Rights Agreement, (iii) the Warrants, (iv) the
Shareholders' Agreement and (v) all other agreements, documents, certificates or
other instruments executed and delivered by or on behalf of the Company at the
Closing (the instruments described in (i) through (v) inclusive being
collectively referred to herein as the "TRANSACTION DOCUMENTS"), and to issue
and sell the Units to the Purchasers in accordance with the terms hereof. All
corporate action on the part of the Company by its officers, directors and
stockholders necessary for the authorization, execution and delivery of, and the
performance by the Company of its obligations under, the Transaction Documents
has been taken, and, except as disclosed in SCHEDULE 3.2, no further consent or
authorization of the Company, its Board, its stockholders, any governmental
agency or organization (other than as may be required under the federal and
applicable state securities laws in respect of the Registration Rights
Agreement), or any other person or entity is required.
3.3 ENFORCEMENT. The Transaction Documents when executed and
delivered will be valid and legally binding obligations of the Company,
enforceable in accordance with their respective terms, except as such
enforcement may be limited by (i) applicable bankruptcy, insolvency,
reorganization or other laws of general application relating to or affecting the
enforcement of creditors' rights generally and (ii) general principles of
equity.
3.4 MINUTE BOOKS. The minute books of the Company contain in all
material respects a complete and correct summary of all meetings of the Board
and the Company's stockholders since the time of incorporation of the Company.
The minute books of each Subsidiary contain in all material respects a complete
and correct summary of all meetings of the Board of Directors of such Subsidiary
and such Subsidiary's stockholders since the time of formation of such
Subsidiary.
3.5 VALID ISSUANCE. The Subordinate Shares are duly authorized and,
when issued, sold and delivered in accordance with the terms hereof, (i) will be
duly and validly issued, fully paid and nonassessable, free and clear of any
taxes, liens, claims, preemptive or similar rights or encumbrances imposed by or
through the Company, (ii) based in part upon the representations of
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<PAGE>
the Purchasers in this Agreement, will be issued, sold and delivered in
compliance with all applicable federal, provincial and state securities laws
and (iii) will be free of restrictions on transfer other than restrictions on
transfer under this Agreement and the other Transaction Documents and under
applicable federal, provincial and state securities laws. The Exercise
Shares are duly authorized and reserved for issuance and, when issued upon
exercise of the Warrants in accordance with the terms thereof, shall be duly
and validly issued, fully paid and nonassessable, free and clear of any
taxes, liens, claims, preemptive or similar rights or encumbrances imposed by
or through the Company, and will be free of restrictions on transfer other
than restrictions on transfer under this Agreement and the other Transaction
Documents and under applicable federal, provincial and state securities laws.
3.6 NO CONFLICT WITH OTHER INSTRUMENTS. Neither the Company nor
any of its Subsidiaries is in violation of any provisions of its charter,
By-laws or any other governing document as amended and in effect on and as of
the date hereof or in default (and no event has occurred which, with notice
or lapse of time or both, would constitute a default) under any provision of
any instrument or contract to which it is a party or by which it is bound, or
of any provision of any federal or state judgment, writ, decree, order,
statute, rule or governmental regulation applicable to the Company, which
would have a Material Adverse Effect. The (i) execution, delivery and
performance of this Agreement and the other Transaction Documents, and (ii)
consummation of the transactions contemplated hereby and thereby (including
without limitation, the issuance of the Units) will not result in any such
violation or be in conflict with or constitute, with or without the passage
of time and giving of notice, either a default under any such provision,
instrument or contract or an event which results in the creation of any lien,
charge or encumbrance upon any assets of the Company or any of its
subsidiaries which would have a Material Adverse Effect or the triggering of
any preemptive or anti-dilution rights or rights of first refusal or first
offer on the part of holders of the Company's securities.
3.7 CAPITALIZATION.
(a) The capitalization of the Company as of the date hereof,
including its authorized capital stock, the number of shares issued
and outstanding, the number of shares issuable and reserved for
issuance pursuant to the Company's stock option plans, the number of
shares issuable and reserved for issuance pursuant to securities
exercisable for, or convertible into or exchangeable for any shares of
capital stock of the Company is set forth on SCHEDULE 3.7(a) hereto.
All of such outstanding shares of capital stock have been, or upon
issuance will be, validly issued, fully paid and non-assessable. No
shares of the capital stock of the Company are subject to preemptive
rights or any other similar rights of the stockholders of the Company
or any liens or encumbrances created by or through the Company.
Except as disclosed on SCHEDULE 3.7(a), or as contemplated herein,
there are no outstanding options, warrants, scrip, rights to subscribe
to, calls or commitments of any character whatsoever relating to, or
securities or rights convertible into or exercisable or exchangeable
for, any shares of capital stock of the Company, or arrangements by
which the Company is or may become bound to issue additional shares of
capital stock of the Company.
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(b) Each Subsidiary's authorized capital stock is as set
forth on SCHEDULE 3.7(b). As of the Closing Date, there shall be no
declared but unpaid dividends or undeclared dividend arrearages on any
shares of capital stock of any of the Subsidiaries. The Company owns
of record and beneficially all shares of capital stock issued and
outstanding of each Subsidiary and no Subsidiary has any shares of
capital stock reserved for issuance or committed to be issued. There
are no outstanding preemptive, conversion or other rights, options,
warrants or agreements granted or issued by or binding upon any
Subsidiary for the purchase or sale of any shares of its capital
stock. All outstanding securities of each Subsidiary were issued in
compliance with all federal, state and foreign securities laws. None
of the Subsidiaries has any stock appreciation rights, phantom stock
plan or similar rights outstanding.
3.8 FINANCIAL STATEMENTS. The Company has furnished the Purchasers
with (a) consolidated balance sheets (the balance sheet dated as of December
31, 1998, the "BALANCE SHEET") of the Company and its Subsidiaries as of
December 31, 1997 and 1998, together with the consolidated statement of
operations and consolidated statement of cash flows for the years ended
December 31, 1997 and 1998 (the "FINANCIAL STATEMENTS"). The Financial
Statements of the Company, together with the notes thereto, have been
prepared in accordance with GAAP. The Financial Statements fairly and
accurately present in all material respects the financial position of the
Company and its Subsidiaries, and the results of their operations, as of, and
for the periods, specified therein. The Financial Statements are accompanied
by audit reports of Deloitte & Touche, which reports have been delivered to
the Purchasers.
3.9 EVENTS SUBSEQUENT TO DATE OF BALANCE SHEET. Except as
otherwise reflected on SCHEDULE 3.9, since the date of the Balance Sheet, the
Company has not (i) issued any stock, bond or other corporate security, (ii)
borrowed any amount or incurred or become subject to any liability (absolute,
accrued or contingent), except as contemplated hereby, immaterial amounts and
current liabilities incurred and liabilities under contracts entered into in
the ordinary course of business, (iii) discharged or satisfied any lien or
encumbrance or incurred or paid any obligation or liability (absolute,
accrued or contingent) other than as contemplated hereby, immaterial amounts
and current liabilities shown on the Balance Sheet and current liabilities
incurred since the date of the Balance Sheet in the ordinary course of
business, (iv) declared or made any payment or distribution to stockholders
or purchased or redeemed any share of its capital stock or other security,
(v) mortgaged, pledged or subjected to lien any of its assets, tangible or
intangible, other than liens of current real property taxes not yet due and
payable and except in the ordinary course of business, (vi) sold, assigned or
transferred any of its material tangible assets except in the ordinary course
of business, or canceled any debt or claim, (vii) sold, assigned, transferred
or granted any exclusive license with respect to any patent, trademark, trade
name, service mark, copyright, trade secret or other intangible asset, (viii)
suffered any material loss of property or waived any right of substantial
value whether or not in the ordinary course of business, (ix) made any
material change in officer compensation except in the ordinary course of
business and consistent with past practice, (x) made any material change in
the manner of business or operations of the Company, (xi) entered into any
material transaction except in the ordinary course of business or as
otherwise contemplated hereby or (xii) entered into any material commitment
(contingent or otherwise) to do any of the foregoing.
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3.10 TAXES. The Company and each of its Subsidiaries has filed all
foreign, federal, state and local tax reports and returns required by any law
or regulation to be filed by it, and such returns are true and correct in all
material aspects. The Company and each of its Subsidiaries has paid all
taxes, interest and penalties, if any, reflected on such tax returns or
otherwise due and payable by it. The reserves, if any, for taxes reflected
on the balance sheets included in the Financial Statements are adequate in
amount for the payment of all liabilities for all taxes (whether or not
disputed) of the Company and its Subsidiaries accrued through the dates of
such balance sheets. Any deficiencies proposed as a result of any
governmental audits of such tax returns have been paid or settled, and there
are no present disputes or audits as to taxes payable by the Company or any
of its Subsidiaries. The Company and each of its Subsidiaries have withheld
and paid over to the appropriate taxing authority all taxes which it is
required to withhold and pay over from amounts paid or owing to any employee,
stockholder or holder of any other type of equity interest in the Company,
any Subsidiary, creditor or third party.
3.11 LITIGATION. Except as set out in SCHEDULE 3.11, there is no
material claim, litigation or administrative proceeding pending, or, to the
Company's knowledge, threatened or contemplated, against the Company or any
of its Subsidiaries, or against any officer, director or, in connection with
such person's employment therewith, employee of the Company or any
Subsidiary. Neither the Company nor any of its Subsidiaries is a party to or
subject to the provisions of, any order, writ, injunction, judgment or decree
of any court or government agency or instrumentality which could reasonably
be expected to have a Material Adverse Effect.
3.12 TITLE TO PROPERTIES. The Company has good and marketable title
to all of its properties and assets. All such properties and assets are free
and clear of mortgages, pledges, security interests, liens, charges, claims,
restrictions and other encumbrances, except for liens for current taxes not
yet due and payable and minor imperfections of title, if any, not material in
nature or amount and not materially detracting from the value or impairing
the use of the property subject thereto or impairing the operations or
proposed operations of the Company.
3.13 LEASEHOLD INTERESTS. Each lease or agreement to which the
Company is a party under which it is a lessee of any property, real or
personal, is a valid agreement without any material default of the Company
thereunder and, to the best of the Company's knowledge, without any material
default thereunder of any other party thereto. No event has occurred and is
continuing which, with due notice or lapse of time or both, would constitute
a material default or event of default by the Company under any such lease or
agreement or, to the best of the Company's knowledge, by any other party
thereto. The Company's possession of such property has not been disturbed
and, to the best of the Company's knowledge, no claim has been asserted
against the Company adverse to its rights in such leasehold interests.
3.14 MATERIAL AGREEMENTS. SCHEDULE 3.14 sets forth a list of all
material agreements of any nature to which the Company is a party or by which
it is bound, including without limitation (a) each agreement which requires
future expenditures by the Company in excess of $25,000, (b) all employment
and consulting agreements, employee benefit, bonus, pension, profit sharing,
stock option, stock purchase and similar plans and arrangements, and
distributor and sales representative agreements, and (c) any agreement to
which any stockholder, officer or director of the Company, or
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any "affiliate" or "associate" of such persons (as such terms are defined in
the rules and regulations promulgated under the Securities Act), is presently
a party, including without limitation any agreement or other arrangement
providing for the furnishing of services by, rental of real or personal
property from, or otherwise requiring payments to, any such person or entity.
Except as set forth in SCHEDULE 3.14, the Company, and to the best of
the Company's knowledge, each other party thereto have in all material
respects performed all the obligations required to be performed by them to
date, have received no notice of default and are not in default in any
material respect (with due notice or lapse of time or both) under any
material lease, agreement or contract now in effect to which the Company is a
party or by which it or its property may be bound. The Company has no
present expectation or intention of not fully performing all its material
obligations under each such material lease, contract or other agreement, and
the Company has no knowledge of any breach or anticipated breach by the other
party to any contract or commitment to which the Company is a party. The
Company is in full compliance with all of the terms and provisions of its
charter and By-laws.
3.15 PATENTS, TRADEMARKS, ETC. SCHEDULE 3.15 contains a list and
brief description of all patents, patent rights, patent applications,
trademarks, trademark applications, service marks, service mark applications,
trade names and copyrights, and all applications for such which are in the
process of being prepared, owned by or registered in the name of the Company,
or of which the Company is a licensor or licensee or in which the Company has
any right, and in each case a brief description of the nature of such right.
The Company owns or possesses adequate licenses or other rights to use all
patents, patent applications, trademarks, trademark applications, service
marks, service mark applications, trade names, copyrights, manufacturing
processes, formulae, trade secrets and know how (collectively, "INTELLECTUAL
PROPERTY") necessary to the conduct of its business as conducted and no claim
is pending or, to the best of the Company's knowledge, threatened to the
effect that the operations of the Company infringe upon or conflict with the
asserted rights of any other Person under any Intellectual Property, and to
the best knowledge of the Company, there is no basis for any such claim
(whether or not pending or threatened). No claim is pending or, to the best
knowledge of the Company, threatened to the effect that any such Intellectual
Property owned or licensed by the Company, or which the Company otherwise has
the right to use, is invalid or unenforceable by the Company, and to the best
knowledge of the Company, there is no basis for any such claim (whether or
not pending or threatened). To the best of the Company's knowledge, all
technical information developed by and belonging to the Company which has not
been patented has been kept confidential. Except as set forth in SCHEDULE
3.15, the Company has not granted or assigned to any other person or entity
any right to manufacture, have manufactured, assemble or sell the products or
proposed products or to provide the services or proposed services of the
Company.
3.16 EMPLOYEE SALARIES. SCHEDULE 3.16 contains a true, correct and
complete list setting forth (i) the names and current salaries of the
employees of the Company or any of its Subsidiaries whose current annual
compensation and/or estimated annual compensation is $50,000 or more and (ii)
the names of independent contractors who render services on a regular basis
to the Company or any of its Subsidiaries whose current annual compensation
and/or estimated annual compensation is $50,000 or more. The Company is not
aware of any employee of the Company or any of its Subsidiaries that is
obligated under any contract (including licenses, covenants or commitments of
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any nature) or other agreement or arrangement, or subject to any judgment,
decree or order of any court or administrative agency, that would interfere
with the use of his or her best efforts to promote the interest of the
Company and its Subsidiaries or that would conflict with the business of the
Company or any of its Subsidiaries as conducted or as proposed to be
conducted or that would prevent any such employee from assigning inventions
to the Company or any of its Subsidiaries. The Company does not believe that
it is or will be necessary for the Company or any of its Subsidiaries to
utilize any inventions of its employees (or Persons the Company or any of its
Subsidiaries currently intends to hire) made prior to their employment by the
Company or any of its Subsidiaries except for inventions that have been
assigned to the Company.
3.17 PERSONNEL CONTRACTS, AGREEMENTS, PLANS AND ARRANGEMENTS. Except
for agreements listed in SCHEDULE 3.14 and the Company's stock option plans,
neither the Company nor any of its Subsidiaries is a party to or obligated in
connection with their business, with respect to any (a) material contracts with
employees, agents, consultants, advisers, salesmen or agents (b) collective
bargaining agreements or contracts or contracts with any labor union or other
representative of employees or any employee benefits provided for by any such
agreement. No strike, union organizational activity, allegation, charge or
complaint of employment discrimination or other similar occurrence occurred
during the past five completed fiscal years, or is pending or, to the Company's
knowledge, threatened against the Company or any of its Subsidiaries that has
had or may have a Material Adverse Effect, nor does the Company know any basis
for any such allegation, charge or complaint. Except as set forth in SCHEDULE
3.17, the Company is not aware that any officer or key employee, or that any
group of key employees, intends to terminate their employment with the Company,
nor does the Company have a present intention to terminate the employment of any
of the foregoing. Except as set forth on SCHEDULE 3.17, the employment of each
officer and employee of the Company is terminable at the will of the Company,
and no severance pay is due in connection with any such termination. To the
best of its knowledge, the Company has complied in all material respects with
all applicable federal and state equal employment opportunity and other laws
related to employment.
3.18 RELATED-PARTY TRANSACTIONS. No employee, officer or director
of the Company or member of his or her immediate family is indebted to the
Company, nor is the Company indebted (or committed to make loans to or extend
or guarantee credit) to any of them. Except as set forth in SCHEDULE 3.18,
to the best of the Company's knowledge, none of such Persons has any direct
or indirect ownership interest in any firm or company with which the Company
is affiliated or with which the Company has a business relationship, or any
firm or corporation that competes with the Company, except that employees,
officers or directors of the Company and members of their immediate families
may own stock in publicly traded companies that may compete with the Company.
No member of the immediate family of any officer or director of the Company
is directly or indirectly interested in any material contract with the
Company.
3.19 INSURANCE. The Company and its Subsidiaries carry insurance
with financially sound reputable insurance companies, in such amounts, with
such deductibles and covering such risks as are customarily carried by
companies engaged in similar businesses.
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3.20 SOFTWARE. The Company and each of its Subsidiaries has
conducted an analysis of, and developed a compliance program (the "COMPLIANCE
PROGRAM") with respect to the effect of Year 2000 (including the correct
processing and calculation of dates prior to, during and after the Year 2000)
upon the software, tradeware, telecommunications and automated processes of
the Company and its Subsidiaries. The Compliance Program adequately and
fully resolves the Year 2000 issues and the Compliance Program will be
implemented in a timely manner so that the Year 2000 will not have a Material
Adverse Effect.
3.21 ENVIRONMENTAL AND SAFETY LAWS. To the best of its knowledge,
the Company is not in violation of any applicable statute, law or regulation
relating to the environment or occupational health and safety which would
have a Material Adverse Effect, and to the best of its knowledge, no material
expenditures are or will be required in order to comply with any such
existing statute, law or regulation.
3.22 REGISTRATION RIGHTS; RIGHTS OF PARTICIPATION. Except as
provided in the Transaction Documents or in SCHEDULE 3.22, the Company has
not granted or agreed to grant to any person or entity any rights (including
"piggy-back" registration rights) to have any securities of the Company
registered with the Commission or any other governmental authority which has
not been satisfied and no person or entity, including, but not limited to,
current or former stockholders of the Company, underwriters, brokers, agents
or other third parties, has any right of first refusal, preemptive right,
right of participation, or any similar right to participate in the
transactions contemplated by this Agreement or the other Transaction
Documents which has not been waived.
3.23 FEES. The Company is not obligated to pay any compensation or
other fee, cost or related expenditure to any underwriter, broker, agent or
other representative in connection with the transactions contemplated hereby.
3.24 TRADING ON ALBERTA STOCK EXCHANGE. The subordinate voting
shares of the Company are listed on the Alberta Stock Exchange and trading in
such shares on such market has not been suspended. The Company is in full
compliance with the continued listing criteria of the Alberta Stock Exchange,
and does not reasonably anticipate that the subordinate voting shares will be
delisted from the Alberta Stock Exchange, whether by reason of the
transactions contemplated by this Agreement or the other Transaction
Documents and is not aware of any inquiry by or received any notice from the
Alberta Stock Exchange regarding any failure or alleged failure by the
Company to comply with such requirements which has not been favorably
resolved prior to the date hereof.
3.25 REGULATORY PERMITS. The Company and its Subsidiaries possess
all material certificates, authorizations and permits issued by the
appropriate federal, state or foreign regulatory authorities necessary to
conduct their respective businesses, and neither the Company nor any such
Subsidiary has received any notice of proceedings relating to the revocation
or modification of any such certificate, authorization or permit.
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3.26 DISCLOSURE. Neither this Agreement nor any Schedule or Exhibit
to this Agreement contains an untrue statement of a material fact or omits a
material fact necessary to make the statements contained herein or therein
not misleading. None of the statements, documents, certificates or other
items prepared or supplied by the Company with respect to the transactions
contemplated hereby contains an untrue statement of a material fact or omits
a material fact necessary to make the statements contained therein not
misleading. There is no fact which the Company has not disclosed to the
Purchasers and, if applicable, their counsel in writing and of which the
Company is aware which materially and adversely affects or could materially
and adversely affect the business, financial condition, operations, property
or affairs of the Company.
4. COVENANTS OF THE COMPANY.
Subject to the provisions of SECTION 6, the Company covenants and
agrees as follows:
4.1 CORPORATE EXISTENCE. The Company shall maintain its corporate
existence in good standing and shall pay all taxes owed by it when due except
for taxes which the Company reasonably disputes and for which it maintains
adequate reserves.
4.2 FINANCIAL STATEMENTS. The Company shall provide each Purchaser:
(i) as soon as practicable after the end of each fiscal year
of the Company, and in any event within one hundred forty (140) days
thereafter (provided, however, that if any Person other than the
Purchasers is entitled to receive the information described in this
SECTION 4.2(i) any earlier than one hundred forty (140) days from the
end of each fiscal year, each Purchaser shall also be entitled to such
information within such earlier period), consolidated balance sheets
of the Company and its Subsidiaries, as of the end of such year, and
consolidated statements of operations and cash flow of the Company and
its Subsidiaries, for each such fiscal year, prepared in accordance
with GAAP and setting forth in each case in comparative form the
figures for the previous fiscal year, all in reasonable detail and
accompanied by the audit report of the Company's independent certified
public accountants; and
(ii) as soon as practicable after the end of each fiscal
quarter, other than the end of the fiscal year, of the Company, and in
any event within sixty (60) days thereafter (provided, however, that
if any Person other than the Purchasers is entitled to receive the
information described in this SECTION 4.2(ii) any earlier than sixty
(60) days from the end of each fiscal quarter, each Purchaser shall
also be entitled to such information within such earlier period),
consolidated balance sheets of the Company and its Subsidiaries, as of
the end of such quarter, and consolidated statements of operations and
cash flow of the Company and its Subsidiaries, for each such fiscal
quarter, prepared in accordance with GAAP (except for footnote
disclosure), subject to changes resulting from normal year-end audit
adjustments, all in reasonable detail.
4.3 FORM D; BLUE-SKY QUALIFICATION. The Company agrees to file a
Form D with respect to the Units as required under Regulation D and to
provide a copy thereof to the
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Purchasers promptly after such filing. The Company shall, on or before the
Closing Date, take such action as is necessary to qualify the Units for sale
under applicable state or "blue-sky" laws or obtain an exemption therefrom,
and shall provide evidence of any such action to the Purchasers at or prior
to the Closing.
4.5 USE OF PROCEEDS. The Company shall use the proceeds from the
sale of the Units for general corporate purposes only, in the ordinary course
of its business and consistent with past practice.
4.6 TRANSACTIONS WITH AFFILIATES. The Company agrees that any
transaction or arrangement between it or any of its subsidiaries and any
affiliate or employee of the Company shall be effected on an arms' length
basis in accordance with customary commercial practice and shall be approved
by a majority of the Company's outside directors.
5. CONDITIONS TO CLOSING.
5.1 CONDITIONS TO PURCHASERS' OBLIGATIONS AT CLOSING. Each
Purchaser's obligations at the Closing, including without limitation its
obligation to purchase Units, are conditioned upon the fulfillment (or waiver
by such Purchaser) of each of the following events as of the Closing Date:
5.1.1 REPRESENTATIONS AND WARRANTIES. The representations and
warranties of the Company set forth in this Agreement shall be true and
correct in all material respects as of such date as if made on such date.
5.1.2 PERFORMANCE. The Company shall have complied with or
performed in all material respects all of the agreements, obligations and
conditions set forth in this Agreement that are required to be complied
with or performed by the Company on or before the Closing.
5.1.3 COMPLIANCE CERTIFICATE. The Company shall have delivered
to such Purchaser a certificate, signed by an officer of the Company,
certifying that the conditions specified in paragraphs 5.1.1, 5.1.2 and
5.1.11 have been fulfilled as of the Closing.
5.1.4 SECRETARY'S CERTIFICATE. The Company shall have delivered
to such Purchaser a certificate, signed by the Secretary of the Company,
attaching a copy of the Articles of Incorporation and By-laws of the
Company currently in effect and a copy of the resolutions of the Board
authorizing the transactions contemplated hereby, and certifying that
such copies are true and correct as of the Closing Date and that such
resolutions have not been modified or rescinded since the date of their
adoption by the Company's Board.
5.1.5 LEGAL OPINION. The Company shall have delivered to
Purchaser an opinion of counsel for the Company, dated as of such date,
in form reasonably acceptable
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to the Purchasers, and covering such additional matters as may
reasonably be requested by the Purchasers.
5.1.6 CERTIFICATES. The Company shall have delivered duly
executed certificates representing the Subordinate Shares being purchased
by such Purchaser.
5.1.7 WARRANTS. The Company shall have executed and delivered to
such Purchaser the applicable Warrant in the form of EXHIBIT B hereto.
5.1.8 REGISTRATION RIGHTS AGREEMENT. The Company shall have
executed and delivered to such Purchaser the Registration Rights
Agreement in the form of EXHIBIT C hereto.
5.1.9 SHAREHOLDERS AGREEMENT. The Company, Avi Ben-Abraham and
the other stockholders shall have executed and delivered to such
Purchaser the Shareholders' Agreement in the form of EXHIBIT D hereto.
5.1.10 ALBERTA STOCK EXCHANGE. The Alberta Stock Exchange shall
have accepted notice of the issuance of the Units. The subordinate
voting shares of the Company shall be quoted on the Alberta Stock
Exchange and trading in such shares on such exchange shall not have been
suspended.
5.1.11 NO MATERIAL ADVERSE CHANGE. There shall have been no
Material Adverse Change since the date of the Balance Sheet.
5.1.12 EMPLOYMENT AGREEMENTS. The Company and each of Stephen
Simes ("SIMES") and Phillip Donenberg ("DONENBERG") shall have entered
into amendments to Simes' and Donenberg's Employment Agreements dated
January 21, 1998 and June 11, 1998, respectively, in the forms of EXHIBIT
E-1 AND E-2 hereto.
5.2 CONDITIONS TO COMPANY'S OBLIGATIONS AT CLOSING. The Company's
obligations at the Closing are conditioned upon the fulfillment (or waiver by
the Company) of each of the following events as of the Closing Date:
5.2.1 REPRESENTATIONS AND WARRANTIES. The representations and
warranties of each Purchaser shall be true and correct in all material
respects as of such date as if made on such date.
5.2.2 PERFORMANCE. The Purchasers shall have complied with or
performed all of the agreements, obligations and conditions set forth in
this Agreement that are required to be complied with or performed by the
Purchasers on or before the Closing.
5.2.3 PRIVATE PLACEMENT QUESTIONNAIRE. Each Purchaser shall have
executed and delivered to the Company a Private Placement Questionnaire
and Undertaking as required by the Alberta Stock Exchange.
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5.2.4 NO LITIGATION OR LEGISLATION. No statute, rule,
regulations, decree, ruling or injunction shall have been enacted or
entered, and no litigation, proceeding government inquiry or
investigation shall be pending, which challenges, prohibits, restricts,
or seeks to prohibit or restrict, the consummation of the transactions
contemplated by this Agreement or other agreements referred to herein, or
restricts or impairs the ability of the Purchasers to own an equity
interest in the Company.
6. TERMINATION OF CERTAIN COVENANTS:
The obligations of the Company under SECTION 4 of this Agreement,
notwithstanding any provisions hereof apparently to the contrary, shall
terminate and shall be of no further force or effect on the closing date of a
bona fide, firmly underwritten public offering of the Company's capital stock,
registered under the Securities Act pursuant to a registration statement on Form
S-1 (or a similar successor form). Furthermore, the obligations of the Company
under SECTION 4 of this Agreement shall terminate and shall be of no further
force or effect on the date that the Purchasers or any of them sell or transfer
any shares of capital stock if, following such sale or transfer, the Purchasers
(and any Permitted Transferees (as defined in the Shareholders' Agreement) and
entities controlled by them), in the aggregate, own less than ten percent (10%)
of the outstanding shares of capital stock originally issued or issuable
pursuant to this Agreement and the Warrants.
7. DEFINITIONS.
7.1 DEFINITIONS. In addition to the capitalized terms defined
elsewhere in this Agreement, the following capitalized terms have the following
meanings when used in this Agreement:
"AFFILIATE" means, as applied to any Person, (i) any other Person, directly or
indirectly controlling, controlled by, or under common control with, that
Person, (ii) any other Person that owns or controls (A) ten percent (10%) or
more of any class of equity securities of that Person or any of its Affiliates
or (B) ten percent (10%) or more of any class of equity securities (including
equity securities issuable upon the exercise of any option or convertible
security) of that Person or any of its Affiliates or (iii) any director,
executive officer or relative of such Person. The term "control" (including,
with correlative meanings, the terms "controlling," "controlled by" and "under
common control with"), as applied to any Person, means the possession, directly
or indirectly, of the power to direct or cause the direction of the management
and policies of that Person, whether through ownership of voting securities, by
contract or otherwise. For purposes of this Agreement, each Subsidiary of the
Company shall be deemed an "Affiliate" of the Company.
"BOARD" means the Board of Directors of the Company.
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"BUSINESS DAY" means any day on which the Alberta Stock Exchange and
commercial banks in the City of Chicago, Illinois are open for business.
"GAAP" means generally accepted accounting principles, consistently applied.
"MATERIAL ADVERSE EFFECT" means a material adverse effect on the business,
assets or condition (financial or otherwise) of the Company and its
Subsidiaries, taken as a whole.
"PERSON" means an individual, a partnership, a corporation, a limited liability
company, an association, a joint stock company, a trust , a joint venture, an
unincorporated organization or a governmental entity or any department, agency
or political subdivision thereof.
"SUBSIDIARY" means any corporation, association or other entity of which
securities or other ownership interests representing more than fifty percent
(50%) of the ordinary voting power are, at the time as of which any
determination is being made, owned or controlled by the Company and/or any one
or more Subsidiaries of the Company.
7.2 RULES OF CONSTRUCTION. The following provisions shall be applied
wherever appropriate herein:
(a) "herein," "hereby," "hereunder," "hereof" and other
equivalent words shall refer to this Agreement as an entirety and not
solely to the particular portion of this Agreement in which any such word
is used;
(b) all definitions set forth herein shall be deemed applicable
whether the words defined are used herein in the singular or the plural;
(c) wherever used herein, any pronoun or pronouns shall be
deemed to include both the singular and plural and to cover all genders;
(d) all accounting terms not specifically defined herein shall
be construed in accordance with GAAP;
(e) all references herein to "Dollars" or "$" shall refer to
currency of the United States of America;
(f) neither this Agreement nor any other agreement, document or
instrument referred to herein or executed and delivered in connection
herewith shall be construed against either party as the principal
draftsperson hereof or thereof;
(g) all references or citations in this Agreement to statutes
or regulations or statutory or regulatory provisions shall generally be
considered citations to such statutes, regulations or provisions as in
effect on the date hereof, except that when the context otherwise
requires, such references shall be considered citations to such statutes,
regulations or provisions as in effect from time to time, including any
successor statutes,
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regulations or provisions directly or indirectly superseding such
statutes, regulations or provisions;
(h) any references herein to a particular Section, Part,
Exhibit or Schedule means a Section or Part of, or an Exhibit or Schedule
to, this Agreement unless another agreement is specified; and
(i) the Exhibits and Schedules attached hereto are incorporated
herein by reference and shall be considered part of this Agreement.
8. MISCELLANEOUS.
8.1 SURVIVAL; SEVERABILITY. The representations, warranties,
covenants and indemnities made by the parties herein shall survive the Closing
notwithstanding any due diligence investigation made by or on behalf of the
party seeking to rely thereon. In the event that any provision of this
Agreement becomes or is declared by a court of competent jurisdiction to be
illegal, unenforceable or void, this Agreement shall continue in full force and
effect without said provision; provided that in such case the parties shall
negotiate in good faith to replace such provision with a new provision which is
not illegal, unenforceable or void, as long as such new provision does not
materially change the economic benefits of this Agreement to the parties.
8.2 SUCCESSORS AND ASSIGNS. The terms and conditions of this
Agreement shall inure to the benefit of and be binding upon the respective
successors of the parties. Nothing in this Agreement, express or implied, is
intended to confer upon any party other than the parties hereto or their
respective successors any rights, remedies, obligations or liabilities under or
by reason of this Agreement, except as expressly provided in this Agreement.
This Agreement may not be assigned by any party hereto without the express
written consent of all other parties hereto.
8.3 GOVERNING LAW; JURISDICTION. This Agreement shall be governed by
and construed under the laws of the State of Illinois without regard to the
conflict of laws provisions thereof. Each party hereby irrevocably submits to
the non-exclusive jurisdiction of the state and federal courts sitting in the
City of Chicago, Illinois, for the adjudication of any dispute hereunder or in
connection herewith or with any transaction contemplated hereby or discussed
herein, and hereby irrevocably waives, and agrees not to assert in any suit,
action or proceeding, any claim that is not personally subject to the
jurisdiction of any such court, that such suit, action or proceeding is brought
in an inconvenient forum or that the venue of such suit, action or proceeding is
improper. Each party hereby irrevocably waives personal service of process and
consents to process being served in any such suit, action or proceeding by
mailing a copy thereof to such party at the address in effect for notices to it
under this Agreement and agrees that such service shall constitute good and
sufficient service of process and notice thereof. Nothing contained herein
shall be deemed to limit in any way any right to serve process in any manner
permitted by law.
8.4 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original, and all of which
together shall constitute one and the same instrument.
-16-
<PAGE>
8.5 HEADINGS. The headings used in this Agreement are used for
convenience only and are not to be considered in construing or interpreting this
Agreement.
8.6 NOTICES. Any notice, demand or request required or permitted to
be given by any party to any other party pursuant to the terms of this Agreement
shall be in writing and shall be deemed given (i) when delivered personally or
by verifiable facsimile transmission (with an original to follow) on or before
5:00 p.m., Chicago time, on a Business Day or, if such day is not a Business
Day, on the next succeeding Business Day, (ii) on the next Business Day after
timely delivery to a nationally-recognized overnight courier and (iii) on the
third Business Day after deposit in the U.S. mail (certified or registered mail,
return receipt requested, postage prepaid), addressed to the parties as follows:
If to the Company:
Ben-Abraham Technologies, Inc.
175 Olde Half Day Road
Lincolnshire, Illinois 60069
Attn: Stephen M. Simes
Tel: 847-793-2434
Fax: 847-793-2435
with a copy to:
Borden & Elliot
Scotia Plaza, Suite 4100
40 King Street West
Toronto, Canada M5H 3Y4
Attn: Paul Findlay
Tel: 416-367-6191
Fax: 416-361-7083
and if a Purchaser, to such address as indicated on EXHIBIT A
hereto
with a copy to:
Ungaretti & Harris
3500 Three First National Plaza
Chicago, Illinois 60602
Attn: Gary I. Levenstein
Tel: 312-977-4108
Fax: 312-977-4405
8.8 EXPENSES. The Company and the Purchasers each shall pay all costs
and expenses that they incur in connection with the negotiation, execution,
delivery and performance of this
-17-
<PAGE>
Agreement; provided, however, that the Company shall reimburse the Purchasers
for all reasonable legal fees and expenses incurred by the Purchasers in
connection with its due diligence investigation of the Company and the
negotiation, preparation, execution, delivery and performance of this
Agreement and the other Transaction Documents in an amount not to exceed (i)
twenty-five thousand dollars ($25,000) if any Purchaser does not purchase
Units and (ii) seventy-five thousand dollars ($75,000) if any Purchaser does
purchase Units.
8.9 ENTIRE AGREEMENT; AMENDMENTS. This Agreement and the other
Transaction Documents constitute the entire agreement between the parties with
regard to the subject matter hereof and thereof, superseding all prior
agreements or understandings, whether written or oral, between or among the
parties. Except as expressly provided herein, neither this Agreement nor any
term hereof may be amended except pursuant to a written instrument executed by
the Company and the Purchasers, and no provision hereof may be waived other than
by a written instrument signed by the party against whom enforcement of any such
waiver is sought.
[signature page attached]
-18-
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of
the date first-above written.
BEN-ABRAHAM TECHNOLOGIES INC.
By: /s/ Stephen M. Simes
------------------------------------------
Stephen M. Simes, President and
Chief Executive Officer
/s/ Irving B. Harris Revocable Trust
------------------------------------------
/s/ Virginia H. Polsky Trust
------------------------------------------
/s/ Roxanne H. Frank Trust
------------------------------------------
/s/ Couderay Partners
------------------------------------------
/s/ Jerome Kahn, Jr. Revocable Trust
------------------------------------------
/s/ Fred Holubow
------------------------------------------
/s/ Morningstar Trust by Faye Morgenstern,
Trustee
------------------------------------------
/s/ Victor Morgenstern
------------------------------------------
/s/ Resolute Partners by Victor Morgenstern
------------------------------------------
/s/ Goldstein Asset Management
------------------------------------------
/s/ Lawrence Goldstein
------------------------------------------
/s/ Burton W. Ruder, Linda Ruder, Trustee
------------------------------------------
/s/ James S. Levy Trust, James S. Levy,
Trustee
------------------------------------------
/s/ Ronald Nash
------------------------------------------
/s/ Edward S. Loeb Revocable Trust,
Edward S. Loeb, Trustee
------------------------------------------
/s/ Steven J. Reid
------------------------------------------
-19-
<PAGE>
/s/ Gary N. Wilner
------------------------------------------
/s/ Jarvis H. Friduss
------------------------------------------
/s/ Anita Nagler
------------------------------------------
/s/ JO & Co. by Ross J. Mangano,
Partner
------------------------------------------
/s/ Sherwin Zuckerman
------------------------------------------
/s/ The Levenstein & Resnick Profit
Sharing Plan & Trust by Gary I. Levenstein,
Trustee
------------------------------------------
/s/ Mitchell I. Dolins Trust, Mitchell
I. Dolins, Trustee
------------------------------------------
/s/ Sheldon M. Bulwa
------------------------------------------
/s/ Stephen M. Simes
------------------------------------------
/s/ Howard Schraub
------------------------------------------
/s/ Hans Michael Jebsen
------------------------------------------
/s/ King Cho Fung
------------------------------------------
/s/ Stanley Ho
------------------------------------------
-20-
<PAGE>
EXHIBIT A
TO SECURITIES PURCHASE AGREEMENT
<TABLE>
<CAPTION>
TOTAL
PURCHASE
STARBOW INVESTORS ADDRESS UNITS PRICE
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Irving B. Harris Revocable Trust 2 N. LaSalle Street, Suite 400 3.0 $141,811
Chicago, IL 60602
- --------------------------------------------------------------------------------------------------------------
Virginia H. Polsky Trust 2 N. LaSalle Street, Suite 400 1.5 70,905
Chicago, IL 60602
- --------------------------------------------------------------------------------------------------------------
Roxanne H. Frank Trust 2 N. LaSalle Street, Suite 400 2.0 94,541
Chicago, IL 60602
- --------------------------------------------------------------------------------------------------------------
Couderay Partners 2 N. LaSalle Street, Suite 400 2.0 94,541
Chicago, IL 60602
- --------------------------------------------------------------------------------------------------------------
Jerome Kahn, Jr. Revocable Trust 2 N. LaSalle Street, Suite 400 0.5 23,635
Chicago, IL 60602
- --------------------------------------------------------------------------------------------------------------
Fred Holubow 2 N. LaSalle Street, Suite 400 1.0 47,270
Chicago, IL 60602
- --------------------------------------------------------------------------------------------------------------
Morningstar Trust by Faye Morgenstern, Trustee 106 Vine Avenue 2.0 94,541
Highland Park, IL 60035
- --------------------------------------------------------------------------------------------------------------
Victor Morgenstern 106 Vine Avenue 6.0 283,622
Highland Park, IL 60035
- --------------------------------------------------------------------------------------------------------------
Resolute Partners 106 Vine Avenue 2.0 94,541
Highland Park, IL 60035
- --------------------------------------------------------------------------------------------------------------
Goldstein Asset Management 15301 Dallas Pkwy, Suite 840 0.5 23,635
Dallas, TX 75248
- --------------------------------------------------------------------------------------------------------------
Lawrence Goldstein 15301 Dallas Pkwy, Suite 840 0.5 23,635
Dallas, TX 75248
- --------------------------------------------------------------------------------------------------------------
Linda Ruder, Custodian for John Ruder 2238 Egandale Road 0.5 23,635
Highland Park, IL 60035
- --------------------------------------------------------------------------------------------------------------
Joanna Ruder 2238 Egandale Road 0.5 23,635
Highland Park, IL 60035
- --------------------------------------------------------------------------------------------------------------
James S. Levy Trust, James S. Levy Trustee 1349 N. Thatcher Avenue 1.0 47,270
Highland Park, IL 60035
- --------------------------------------------------------------------------------------------------------------
Ronald Nash 134 Essex Drive 1.0 47,270
Tenafly, NJ 07670
- --------------------------------------------------------------------------------------------------------------
Edward S. Loeb Revocable Trust, Edward S. Loeb 1935A N. Hudson 1.0 47,270
Trustee Chicago, IL 60614
- --------------------------------------------------------------------------------------------------------------
Steven J. Reid c/o Harris Associates 2.0 94,541
2 N. LaSalle Street, Suite 500
Chicago, IL 60602
- --------------------------------------------------------------------------------------------------------------
Gary N. Wilner 2349 Wood Path 1.0 47,270
Highland Park, IL 60646
- --------------------------------------------------------------------------------------------------------------
Jarvis H. Friduss 4447 W. Peterson Ave. 0.5 23,635
Suite 300
Chicago, IL 60646
- --------------------------------------------------------------------------------------------------------------
Anita Nagler 2233 N. Burling 6.0 283,622
Chicago, IL 60614
- --------------------------------------------------------------------------------------------------------------
JO & Co. 112 W. Jefferson Blvd. 30.0 1,418,108
Suite 613
South Bend, IN 46634
- --------------------------------------------------------------------------------------------------------------
Sherwin and Sheri Zuckerman 1049 Bluff Rd. 3.0 141,811
Glencoe, IL 60022
- --------------------------------------------------------------------------------------------------------------
The Levenstein & Resnick Profit Sharing Plan & Trust c/o Ungaretti & Harris 1.0 47,270
by Gary I. Levenstein 3500 Three First National Plaza
Chicago, IL 60602
- --------------------------------------------------------------------------------------------------------------
Mitchell I. Dolins Trust, Mitchell I. Dolins Trustee 427 Brierhill Rd. 1.5 70,905
Deerfield, IL 60015
- --------------------------------------------------------------------------------------------------------------
Sheldon M. Bulwa 135 Arrowwood Drive 0.5 23,635
Northbrook, IL 60062
- --------------------------------------------------------------------------------------------------------------
Stephen M. Simes 175 Old Half Day Rd. 1.0 47,270
Lincolnshire, IL 60069
- --------------------------------------------------------------------------------------------------------------
Howard Schraub 8538 Ruette Monte Carlo 1.0 47,270
La Jolla, CA 92037
- --------------------------------------------------------------------------------------------------------------
TOTAL 72.5 $3,427.094
- --------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
EXHIBIT A
TO SECURITIES PURCHASE AGREEMENT
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
TOTAL
PURCHASE
HONG KONG INVESTORS ADDRESS UNITS PRICE
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Hans Michael Jebsen 31/F. Caroline Center 6.0 283,622
28 Yon Ping Road
Causeway Bay, Hong Kong
- --------------------------------------------------------------------------------------------------------------
Markus Jebsen 31/F. Caroline Center 2.0 94,540
28 Yon Ping Road
Causeway Bay, Hong Kong
- --------------------------------------------------------------------------------------------------------------
King Cho Fung Room 2101 6.0 283,622
Lyndhurst Tower
One Lyndhurst Terrace Central
Hong Kong
- --------------------------------------------------------------------------------------------------------------
Stanley Ho 1 Repulse Bay 6.0 283,622
Hong Kong
- --------------------------------------------------------------------------------------------------------------
TOTAL 20 $945,406
- --------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
EXHIBIT B
TO SECURITIES PURCHASE AGREEMENT
FORM OF WARRANT
See Tab No. 9
<PAGE>
EXHIBIT C
TO SECURITIES PURCHASE AGREEMENT
FORM OF REGISTRATION RIGHTS AGREEMENT
See Tab No. 5
<PAGE>
EXHIBIT D
TO SECURITIES PURCHASE AGREEMENT
FORM OF SHAREHOLDERS' AGREEMENT
See Tab No. 4
<PAGE>
EXHIBIT E-1 AND E-2
TO SECURITIES PURCHASE AGREEMENT
FORM OF AMENDED EMPLOYMENT AGREEMENT
OF
STEPHEN SIMES
AND
PHILLIP DONENBERG
See Tab No. 10
<PAGE>
HIGHLANDS PARK ASSOCIATES
C/O BAKER-DENNARD CO.
PLAZA SQUARE NORTH
SUITE 450
4360 CHAMBLEE-DUNWOODY ROAD
ATLANTA, GEORGIA 30341
HIGHLANDS PARK ASSOCIATES
LEASE AGREEMENT
THIS LEASE, made this 15 day of September, 1997, by and between HIGHLANDS
PARK ASSOCIATES, a Georgia general partnership (hereafter called "Landlord"),
and Ben-Abraham Technologies, Inc. (a Wyoming Corporation) (hereinafter called
"Tenant");
WITNESSETH:
PREMISES
1. Landlord, for and in consideration of the rents, covenants,
agreements, and stipulations hereinafter mentioned, provided for and contained
to be paid, kept and performed by Tenant, leases and rents unto Tenant, and
Tenant hereby leases and takes upon the terms and conditions which hereinafter
appear, the following described property (hereinafter called the "Premises"), to
wit:
Approximately 11,840 square feet of rentable space in a multi tenant business
park building,
and being known as 4600-A & B Highlands Parkway, Smyrna, Georgia 30082. No
easement for light or air is included in the Premises.
Except as otherwise provided in any Special Stipulations attached to this
Lease, Tenant accepts the Premises in their present condition "AS IS" and as
suited for the purposes intended by Tenant.
TERM
2. Tenant shall have and hold the Premises for a term beginning on the 1
day of November, 1997, and ending on the 31 day of October, 2003, at midnight,
unless sooner terminated as hereinafter provided.
RENT
3. (a) Tenant agrees to pay to Landlord at the address set forth above,
without demand, deduction or set off, annual rent of $55,056.00 payable in equal
monthly installments of $4,588.00 in advance on the first day of each calendar
month during the term hereof ("Minimum Base Rent"). Upon execution of this
Lease, Tenant shall pay to Landlord the first full month's rent due hereunder.
Monthly Minimum Base Rent for any period during the term hereof which is
<PAGE>
for less than one month shall be a pro-rated portion of the monthly installment
due. Tenant shall pay a monthly installment of Minimum Base Rent to Landlord in
the amount provided herein (as such amount may be increased from time to time
pursuant to Section 3(b) below).
(b) Upon each Lease Anniversary (as hereinafter defined) the amount of
each monthly installment of Minimum Base Rent which shall be due from Tenant to
Landlord on such Lease Anniversary and on the first day of each succeeding
calendar month (prior to the next Lease Anniversary) shall increase by three and
one-half percent (3.5%). For purposes of this Section 3, the term "Lease
Anniversary" shall refer to the anniversary during each year of the term of this
Lease of the first day of the calendar month during which the Lease hereunder
commenced.
LATE CHARGES
4. If Landlord fails to receive any monthly installment of Minimum Base
Rent within ten (10) days after it becomes due, Tenant shall pay Landlord, as
additional rental, a late charge equal to ten percent (10%) of the overdue
amount. The parties agree that such late charge represents a fair and reasonable
estimate of the costs Landlord will incur by reason of such late payment.
SECURITY DEPOSIT
5. Tenant shall deposit with Landlord upon execution of this Lease
$9,176.00 as a security deposit which shall be held by Landlord, without
liability to Tenant for any interest thereon, as security for the full and
faithful performance by Tenant of each and every term, covenant and condition of
this Lease of Tenant. If any of the rents or other charges or sums payable by
Tenant to Landlord shall be over-due and unpaid or should Landlord make payments
on behalf of Tenant, or should Tenant fail to perform any of the terms of this
Lease, then Landlord may, at its option, appropriate and apply the security
deposit, or so much thereof as may be necessary to compensate Landlord toward
the payment of Minimum Base Rent, additional rents, charges or other sums due
from Tenant, or towards any loss, damage or expense sustained by Landlord
resulting from such default on the part of Tenant; and in such event Tenant
shall upon demand restore the security deposit to the original sum deposited. In
the event Tenant furnishes Landlord with proof that all utility bills have been
paid through the date of Lease termination, and performs all of Tenant's other
obligations under this Lease, the security deposit shall be returned in full to
Tenant within thirty (30) days after the date of the expiration or sooner
termination of the term of this Lease and the surrender of the Premises by
Tenant in compliance with the provisions of this Lease.
UTILITY BILLS
6. Tenant shall pay all utility bills, including, but not limited to
water, sewer, gas, electricity, fuel, light and heat bills for the Premises and
Tenant shall pay all charges for garbage collection or other sanitary services.
If water and sewer service for the Premises is provided through a meter which
measures water provided to users in addition to Tenant, Tenant shall pay
2
<PAGE>
its pro-rated share of such charges (as such amount shall be determined by
Landlord) together with its monthly installment of Minimum Base Rent. If Tenant
does not pay any of the same, Landlord may pay the same and such payment shall
be added to the rental of the Premises as additional rent which shall become due
and payable at the time the next monthly installment of Minimum Base Rent is due
and payable.
USE OF PREMISES
7. The Premises shall be used for office/warehouse/ and laboratory
research & development purposes only and no other. The Premises shall not be
used for any illegal purposes, nor in any manner to create any nuisance or
trespass, nor in any manner to vitiate the insurance or increase the rate of
insurance on the Premises.
ABANDONMENT OF THE PREMISES
8. Tenant agrees not to abandon or vacate the Premises during the term of
this Lease and agrees to use the Premises for the purposes herein leased until
the expiration hereof.
COMMON AREA MAINTENANCE CHARGE ("CAM")
9. Landlord shall maintain the grounds surrounding the building in which
the Premises are located, including the mowing of grass, care of shrubs and
general landscaping and shall keep the parking areas, driveways and alleys clean
and in good repair (including resealing and restriping from time to time).
Notwithstanding the above, Tenant shall be responsible for keeping all exterior
areas free of trash, scraps, or any materials and products pertaining to
Tenant's business. Tenant shall pay to Landlord, on a monthly basis as
additional rent, Tenant's pro rata share of the costs of illuminating the common
area and of maintaining the same. Landlord shall notify Tenant of the amount of
Tenant's pro rata share of such costs which shall be due from Tenant as
additional monthly rent, as herein provided. After the calendar year in which
the term of this Lease commences, the amount of such monthly payment which shall
be due from Tenant shall not change more frequently than once each calendar
year. This additional rent shall be paid in the same manner as Minimum Base Rent
required in Section 3 herein and any default in such payment shall be treated in
the same manner as a default in the payment of rent hereunder. The amount of the
monthly payment required to be made by Tenant pursuant to this Section 9 during
the calendar year in which the term of this Lease commences is $217. 07.
TAX AND INSURANCE ESCALATION
10. Tenant shall pay upon demand as additional rent during the term of
this Lease, and any extension or renewal thereof, the amount by which all taxes
(including but not limited to, ad valorem taxes, special assessments and any
other governmental charges) on the Premises for each tax year exceed all taxes
on the Premises for the tax year 1997. In the event the Premises are less than
the entire property assessed for such taxes for any such tax year, then the tax
for any such year applicable to the Premises shall be determined by proration on
the basis that the rentable floor area of the Premises bears to the rentable
floor area of the entire property
3
<PAGE>
assessed. If the final year of the Lease term fails to coincide with the tax
year, then any excess for the tax year during which the term ends shall be
reduced by the pro rata part of such tax year beyond the Lease term. If such
taxes for the year in which the Lease terminates are not ascertainable before
payment of the last month's installment of Minimum Base Rent and additional rent
then due, then the amount of such taxes assessed against the property for the
previous tax year shall be used as a basis for determining the pro rata share,
if any, to be paid by Tenant for that portion of the last Lease Year. Tenant
shall further pay, upon demand, its pro rata share of the excess cost of fire
and extended coverage insurance including any and all public liability insurance
over the cost for the first year of the Lease term for each subsequent year
during the term of this Lease. Tenant's pro rata portion of increased taxes or
share of excess cost of fire and extended coverage and public liability
insurance, as provided herein, shall be payable within fifteen (15) days after
receipt of notice from Landlord or Agent as to the amount due.
INDEMNITY; INSURANCE
11. Tenant agrees to and hereby does indemnify and save Landlord harmless
against all claims for damages to persons or property by reason of Tenant's use
or occupancy of the Premises, and all expenses incurred by Landlord because
thereof, including attorney's fees and court costs. Supplementing the foregoing
and in addition thereto, Tenant shall during all times of this Lease and any
extension or renewal thereof, and at Tenant's sole cost and expense, maintain in
full force and effect comprehensive general liability insurance with limits of
$500,000 per person and $1,000,000.00 per accident, and property damage limits
of $100,000.00, which insurance shall contain a special endorsement recognizing
and insuring any liability accruing to Tenant under the first sentence of this
paragraph 11, and naming Landlord as additional insured. Tenant shall provide
evidence of such insurance to Landlord prior to the commencement of the term of
this Lease. Landlord and Tenant each hereby release and relieve the other, and
waive their respective rights of recovery, for loss or damage arising out of or
incident to the perils insured against which perils occur in, or about the
Premises, whether due to the negligence of Landlord or Tenant or their agents,
employees, contractors and/or invitees, to the extent that such loss or damage
is within the policy limits of said comprehensive general liability insurance.
Landlord and Tenant shall, upon obtaining the policies of insurance required,
give notice to the insurance carrier or carriers that the foregoing mutual
waiver of subrogation is contained in this Lease.
REPAIRS BY LANDLORD
12. Landlord agrees to keep in good repair the roof, foundations and
exterior walls of the Premises (exclusive of all glass and exclusive of all
exterior doors) and underground utility and sewer pipes outside the exterior
walls of the building, except repairs rendered necessary by the negligence or
intentional wrongful acts of Tenant, its agents, employees or invitees. Tenant
shall promptly report in writing to Landlord any defective condition known to
Tenant which Landlord is required to repair, and failure so to report such
conditions shall make Tenant responsible to Landlord for any liability incurred
by Landlord by reasons of such conditions. Landlord shall be under no
obligation to inspect the Premises.
4
<PAGE>
REPAIRS BY TENANT
13. Tenant shall, throughout the initial term of this Lease, and any
extension or renewal thereof, at its expense, maintain in good order and repair
the Premises, including heating and air conditioning equipment and all exterior
signage located on the building forming a part of the Premises, except only for
those repairs expressly required to be made by Landlord hereunder. Tenant
agrees to return the Premises to Landlord at the expiration, or prior to
termination of this Lease, in as good condition and repair as when first
received, natural wear and tear, damage by storm, fire, lightning, earthquake or
other casualty alone excepted. Prior to November 1, 1997, Landlord shall supply
Tenant with a letter from Wellborn & Co., Heating & Air Contractors, stating
that the existing HVAC systems are in proper working condition.
ALTERATIONS
14. Tenant shall not make any alterations, additions, or improvements to
the Premises without Landlord's prior written consent. Tenant shall promptly
remove any alterations, improvements constructed in violation of this Section 14
upon Landlord's written request. All approved alterations, additions, and
improvements will be accomplished in a good and workmanlike manner, in
conformity with all applicable laws and regulations, and by a contractor
approved by Landlord, free of any liens or encumbrances. Landlord may require
Tenant to remove any alterations, additions or improvements (whether or not made
with Landlord's consent) at the termination of this Lease and to restore the
Premises to its prior condition, all at Tenant's expense. All alterations,
additions and improvements which Landlord has not required Tenant to remove
shall become Landlord's property and shall be surrendered to Landlord upon the
termination of this Lease, except that Tenant may remove any of Tenant's
machinery or equipment which can be removed without material damage to the
Premises. Tenant shall repair, at Tenant's expense, any damage to the Premises
caused by the removal of any such machinery or equipment.
REMOVAL OF FIXTURES
15. Tenant may (if not in default hereunder) prior to the expiration of
this Lease, or any extension or renewal thereof, remove all fixtures and
equipment which Tenant has placed in the Premises, provided Tenant repairs all
damage to the Premises caused by such removal.
DESTRUCTION OF OR DAMAGE TO PREMISES
16. If the Premises are totally destroyed by storm, fire, lightning,
earthquake or other casualty, this Lease shall terminate as of the date of such
destruction and Minimum Base Rent and additional rent owed for CAM, taxes,
insurance and other charges in accordance with this Lease (collectively, "Rent")
shall be accounted for as between Landlord and Tenant as of that date. If the
Premises are damaged but not wholly destroyed by any such casualties, Rent shall
abate in such proportion as use of the Premises has been destroyed and Landlord
shall restore
5
<PAGE>
Premises to substantially the same condition as before damage as speedily as is
practicable, whereupon full rental shall recommence.
GOVERNMENTAL ORDERS
17. Tenant agrees, at his own expense, to comply promptly with all
requirements of any legally constituted public authority made necessary by
reason of Tenant's use and occupancy of the Premises. Landlord agrees to comply
promptly with any such requirements if not made necessary by reason of Tenant's
use and occupancy. It is mutually agreed, however, between Landlord and Tenant,
that if in order to comply with such requirements, the cost to Landlord or
Tenant, as the case may be, shall exceed a sum equal to one year's rent, then
Landlord or Tenant, whoever is obligated to comply with such requirements
hereunder, may terminate this Lease by giving written notice of termination to
the other party by registered mail, which termination shall become effective
sixty (60) days after receipt of such notice and which notice shall eliminate
the necessity of compliance with such requirements by the party giving such
notice unless the party receiving such notice of termination shall, before
termination becomes effective, pay to the party giving notice all cost of
compliance in excess of one year's Minimum Base Rent, or secure payment of said
sum in manner satisfactory to the party giving notice.
CONDEMNATION
18. If the whole of the Premises, or such portion thereof as will make the
Premises unusable for the purposes herein leased, are condemned by any legally
constituted authority for any public use or purpose, then in either of said
events, the term hereby granted shall cease from the date when possession
thereof is taken by public authorities, and Rent shall be accounted for as
between Landlord and Tenant as of said date. Such termination, however, shall
be without prejudice to the rights of either Landlord or Tenant to recover
compensation and damage caused by condemnation from the condemnor. Landlord
shall be entitled to receive the entire award in any proceeding with respect to
any taking provided for in this Section 18, without deduction therefrom for any
estate vested in Tenant by this Lease, if any, and Tenant shall receive no part
of such award. Nothing herein contained shall be deemed to prohibit Tenant from
making a separate claim against the condemning authority, to the extent required
by law, for the value of Tenant's movable trade fixtures, machinery, moving
expenses and loss of business or business interruption, provided that the making
of such claim shall not and does not adversely affect or diminish Landlord's
award. It is further understood and agreed that neither the Tenant nor Landlord
shall have any rights in any award made to the other by any condemnation
authority notwithstanding the termination of the Lease as herein provided.
ASSIGNMENT AND SUBLETTING
19. Tenant shall not, without the prior written consent of Landlord,
assign this Lease or any interest hereunder (by operation of law or otherwise),
or sublet the Premises or any part thereof, or permit the use of the Premises by
any party other than Tenant. Consent by Landlord to any assignment or sublease
shall not destroy this provision, and all subsequent assignments or subleases
shall be made likewise only on the prior written consent of Landlord. Assignee
of
6
<PAGE>
Tenant, at option of Landlord, shall become directly liable to Landlord for all
obligations of Tenant hereunder.
EVENTS OF DEFAULT
20. (a) The occurrence of any of the following events shall be constitute
an "Event of Default" of Tenant under this Lease:
(i) If Tenant fails to pay Minimum Base Rent or any additional
rent hereunder as and when such rent become due and such failure shall continue
for more than fourteen (14) days after receipt of written notice from Landlord
of such failure;
(ii) If Tenant fails to pay Minimum Base Rent or any additional
rent as required by this Lease on time more than four times in any period of
twelve (12) months, notwithstanding that such payments have been made within the
applicable cure period;
(iii) If the Premises become vacant, deserted or abandoned;
(iv) If Tenant permits to be done anything which creates a lien
upon the Premises and fails to discharge, bond such lien or post security with
Landlord acceptable to Landlord within thirty (30) days after receipt by Tenant
of written notice thereof;
(v) If Tenant fails to maintain in force all policies of
insurance required by this Lease and such failure shall continue for more than
ten (10) days after Landlord gives Tenant notice of such failure;
(vi) If any petition is filed by or against Tenant or any
guarantor of this Lease under any present or future section or chapter of the
Bankruptcy Code, or under any similar laws or statute of the United States or
any state thereof (which, in the case of an involuntary proceeding, is not
permanently discharged, dismissed, stayed, or vacated, as the case may be,
within sixty (60) days of commencement), or if any order for relief shall be
entered against Tenant or any guarantor of this Lease in any such proceedings;
(vii) If Tenant or any guarantor of this Lease becomes insolvent
or makes a transfer in fraud of creditors or makes an assignment of the benefit
of creditors;
(viii) If a receiver, custodian, or trustee is appointed for the
Premises or for all or substantially all of the assets of Tenant or of any
guarantor of this Lease, which appointment is not vacated within sixty (60) days
following the date of such appointment; or
(ix) If Tenant fails to perform or observe any other term of
this Lease and such failure shall continue for more than thirty (30) days after
the Landlord gives Tenant notice of such failure, or, if such failure cannot be
corrected within such thirty (30) day period, if Tenant does not promptly
commence to correct such default within said thirty (30) day period and
thereafter diligently prosecute the correction of same to completion within a
reasonable time.
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(b) Upon the occurrence of any one or more Events of Default,
Landlord may, at Landlord's option, without any demand or notice whatsoever
(except as expressly required in this Section 20):
(i) Terminate this Lease by giving Tenant notice of
termination, in which event this Lease shall expire and terminate on the date
specified in such notice of termination and all rights of Tenant under this
Lease and in and to the Premises shall terminate. Tenant shall remain liable
for all obligations under this Lease arising up to the date of such termination,
and Tenant shall surrender the Premises to Landlord on the date specified in
such notice; or
(ii) Terminate this Lease as provided in Section 20(b)(i)
hereof and recover from Tenant all damages Landlord may incur by reasons of
Tenant's default, including, without limitation, a sum which, at the date of
such termination, represents the value of the excess, if any, of (1) Minimum
Base Rent, additional rent provided for in this Lease and all other sums which
would have been payable hereunder by Tenant for the period commencing with the
day following the date of such termination and ending with the expiration date
had this Lease not been terminated, over (2) the aggregate reasonable rental
value of the Premises for the period commencing with the day following the date
of such termination and ending with the expiration date had this Lease not been
terminated, plus (3) the costs of recovering possession of the Premises and all
other expenses incurred by Landlord due to Tenant's default, including, without
limitation, reasonable attorney's fees, plus (4) unpaid Minimum Base Rent and
additional rent as provided for in this Lease earned as of the date of
termination plus any interest and late fees due hereunder, plus other sums of
money and damages owing on the date of termination by Tenant to Landlord under
this Lease or in connection with the Premises, all of which excess sums shall be
deemed immediately due and payable; PROVIDED, HOWEVER, that such payments shall
not be deemed a penalty but shall merely constitute payment of liquidated
damages, it being understood and acknowledged by Landlord and Tenant that actual
damages to Landlord are extremely difficult, if not impossible, to ascertain.
The excess, if any, of subparagraph (ii)(l) over subparagraph (ii)(2) herein
shall be discounted to present value at an annual rate of ten percent (10%). In
determining the aggregate reasonable rental value pursuant to subparagraph
(ii)(2) above, the parties hereby agree that, at the time Landlord seeks to
enforce this remedy, all relevant factors should be considered, including, but
not limited to, (a) the length of time remaining in the Term, (b) the then
current market conditions in the general area in which the Premises are located,
(c) the likelihood of reletting the Premises for a period of time equal to the
remainder of the Term, (d) the net effective rental rates then being obtained by
landlords for similar type space of similar size in similar type buildings in
the general area in which the Premises are located, (e) the vacancy levels in
the general area in which the Building is located, (f) current levels of new
construction that will be completed during the remainder of the Term and how
this construction will likely affect vacancy rates and rental rates and (g)
inflation; or
(iii) Without terminating this Lease, Landlord may, in its own
name but as agent for Tenant, enter into and upon and take possession of the
Premises or any part thereof. Any property remaining in the Premises may be
removed and stored in a warehouse or elsewhere
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at the cost of, and for the account of Tenant without Landlord being deemed
guilty of trespass or becoming liable for any loss or damage which may be
occasioned thereby. Thereafter, Landlord may, but shall not be obligated to,
lease to a third party the Premises or any portion thereof as the agent of
Tenant upon such term and conditions as Landlord may deem necessary or desirable
in order to relet the Premises. The remainder of any rentals received by
Landlord from such reletting, after the payment of any indebtedness due
hereunder from Tenant to Landlord, and the payment of any costs and expenses of
such reletting, shall be held by Landlord to the extent of and for application
in payment of future rent owed by Tenant, if any, as the same may become due and
payable hereunder. If such rentals received from such reletting shall at any
time or from time to time be less than sufficient to pay to Landlord the entire
sums then due from Tenant hereunder, Tenant shall pay any such deficiency to
Landlord. Notwithstanding any such reletting without termination, Landlord may
at any time thereafter elect to terminate this Lease for such previous default
provided same has not been cured; or
(iv) Without terminating this Lease, and with or without notice
to Tenant, Landlord may enter into and upon the Premises and without being
liable for prosecution or any claim for damages thereof, maintain the Premises
and repair or replace any damage thereto or do anything or make any payment for
which Tenant is responsible hereunder. Tenant shall reimburse Landlord
immediately upon demand for any expenses which Landlord incurs in thus effecting
Tenant's compliance under this Lease and Landlord shall not be liable to Tenant
for any damages with respect thereto; or
(v) Without liability to Tenant or any other party, and
without constituting a constructive or actual eviction, suspend or discontinue
furnishing or rendering to Tenant any property, material, labor utilities or
other service, wherever Landlord is obligated to furnish or render the same, as
long as Tenant is in default under this Lease; or
(vi) With or without terminating this Lease, allow the Premises
to remain unoccupied and collect rent from Tenant as it comes due; or provided
however, Landlord must act in a commercially reasonable manner.
(vii) Pursue such other remedies as are available at law or
equity.
(c) If this Lease shall terminate as a result of or while there
exists an Event of Default hereunder, any funds of Tenant held by Landlord may
be applied by Landlord to any damages payable by Tenant (whether provided for
herein or by law) as a result of such termination or default.
(d) Neither the commencement of any action or proceeding, nor the
settlement thereof, nor entry or judgment thereon shall bar Landlord from
bringing subsequent actions or proceedings from time to time, nor shall the
failure to include in any action or proceeding any sum or sums then due be a bar
to the maintenance of any subsequent actions or proceedings of the recovery of
such sum or sums so omitted.
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(e) No agreements to accept a surrender of the Premises and no act or
omission by Landlord or Landlord's agents during the Term shall constitute an
acceptance or surrender of the Premises unless made in writing and signed by
Landlord. No re-entry or taking possession of the Premises by Landlord shall
constitute an election by Landlord to terminate this Lease unless a written
notice of such intention is given to Tenant. No provision of this Lease shall
be deemed to have been waived by either party unless such waiver is in writing
and signed by the party making such waiver. Landlord's acceptance of Minimum
Base Rent or additional rent in full or in part following an Event of Default
hereunder shall not be construed as a waiver of such Event of Default. No
custom or practice which may grow up between the parties in connection with
terms of this Lease shall be construed to waive or lessen either party's right
to insist upon strict performance of the terms of this Lease, without a written
notice thereof to the other party.
(f) If an Event of Default shall occur, Tenant shall pay to Landlord,
on demand, all expenses incurred by Landlord as a result thereof, including
reasonable attorney's fees, court costs and expenses actually incurred.
(g) Landlord shall not be considered to be under any duty by reason
of any provision herein to take any action to mitigate damages by reason of
Tenant's default. Tenant acknowledges that the Premises are to be used for
commercial purposes and Tenant expressly waives the protections and rights set
forth in the Official Code of Georgia Annotated Sections 44-7-31 and 44-7-32.
LENDER'S RIGHTS
21. (a) For purposes of this Lease:
(i) "Lender" as used herein means the current holder of a
Mortgage;
(ii) "Mortgage" as used herein means any or all mortgages, deeds
to secure debt, deeds of trusts or other instruments in the nature thereof which
may now or hereafter affect or encumber Landlord's title to the Premises, and
any amendments, modification, extension or renewal thereof.
(b) This Lease and all rights of Tenant hereunder are and shall be
subject and subordinate to the lien and security title of any Mortgage.
(c) Tenant shall, in confirmation of the subordination set forth in
subsection (b) immediately above and notwithstanding the fact that such
subordination is self-operative, and no further instrument or subordination
shall be necessary upon demand, at any time or times, execute acknowledge, and
deliver to Landlord or Lender any and all instruments requested by either of
them to evidence such subordination, and to verify the status of this Lease and
the existence of any default by either party hereto.
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LANDLORD'S RIGHT OF ENTRY
22. Tenant agrees to permit Landlord and the authorized representatives of
Landlord to enter upon the Premises at all reasonable times for the purposes of
inspecting the Premises and Tenant's compliance with this Lease, and making any
necessary repairs thereto or to Landlord's adjoining property; provided that,
except in the case of any emergency, Landlord shall give Tenant reasonable prior
written notice of Landlord's intended entry upon the Premises. Landlord may
card the Premises "For Rent" or "For Sale" sixty (60) days before the
termination of this Lease. Landlord also shall have the right to enter the
Premises at all reasonable times to exhibit the Premises to any prospective
purchaser, mortgagee or tenant thereof.
QUIET ENJOYMENT
23. So long as Tenant observes and performs the covenants and agreements
contained herein, it shall at all times during the lease term peacefully and
quietly have and enjoy possession of the Premises, but always subject to the
terms hereof.
NO ESTATE IN LAND
24. This Lease shall create the relationship of Landlord and Tenant
between the parties hereto. No estate shall pass out of Landlord. Tenant has
only a usufruct, not subject to levy and sale, and not assignable by Tenant
except with Landlord's consent.
HOLDING OVER
25. If Tenant remains in possession of Premises after expiration of the
term hereof, with Landlord's acquiescence and without any express agreement of
parties, Tenant shall be a tenant at will at the Minimum Base Rent rate which is
in effect at end of this Lease (subject to applicable annual increases) and
there shall be no renewal of this Lease by operation of Law. If Tenant remains
in possession of the Premises after the expiration of the term hereof without
Landlord's acquiescence, Tenant shall be a tenant at sufferance and commencing
on the date following the date of such expiration, the monthly Minimum Base Rent
payable under Section 3 above shall for each month, or fraction thereof during
which Tenant so remains in possession of the premises, be twice the monthly
Minimum Base Rent otherwise payable under Section 3 above. Any payments of
additional rent shall continue to be made in accordance with this Lease
irrespective of Tenant's status as a tenant at will or tenant at sufferance.
LANDLORD LIABILITY
26. No owner of the Premises, whether or not named herein, shall have
liability hereunder after it ceases to hold title to the Premises, except for
obligations which may have theretofore accrued. Neither Landlord nor any
officer, director, shareholder, partner or principal of Landlord, whether
disclosed or undisclosed, shall be under any personal liability with respect to
any of the provisions of this Lease. In the event Landlord is in breach or
default with respect to Landlord's obligations or otherwise under this Lease,
Tenant shall look solely to the equity of
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Landlord in the office/warehouse development of which the Premises are a part
for the satisfaction of Tenant's remedies. It is expressly understood and
agreed that Landlord's liability under the terms, covenants, conditions,
warranties and obligations of this Lease shall in no event exceed the loss of
Landlord's equity interest in the office/warehouse development of which the
Premises are a part.
RELOCATION
27. In the event that the total number of square feet of leasable space
contained within the Premises is less than 6,001 square feet, then upon sixty
(60) days advance written notice from Landlord to Tenant, Tenant agrees to
relocate to other space in the office/warehouse development of which the
Premises are a part designated by Landlord (the "New Space") provided: (i) the
New Space is at least of equal size and similar configuration to the Premises;
(ii) Landlord shall pay all reasonable out-of-pocket expenses in moving Tenant,
its property and equipment into the New Space; and (iii) Landlord shall, at its
sole cost, renovate or alter the New Space to conform substantially with the
Premises. If Landlord moves Tenant to the New Space, every term and condition
of this Lease shall remain in full force and effect, and the New Space shall
thereafter be deemed to be the Premises as though Tenant had entered into an
express written amendment to this Lease with respect thereto.
RIGHTS CUMULATIVE; WAIVER OF RIGHTS
28. All rights, powers and privileges conferred upon Landlord herein shall
be cumulative and not restrictive to those given by law. No failure of Landlord
to exercise any power given Landlord hereunder, or to insist upon strict
compliance by Tenant of its obligation hereunder, and no custom or practice of
the parties at variance with the terms hereof shall constitute a waiver of
Landlord's right to demand strict compliance with the terms hereof.
AGENCY DISCLOSURE
29. Landlord and Tenant hereby acknowledge that KING INDUSTRIAL REALTY,
INC. ("Procuring Agent") has acted as an agent for Tenant and COLLIERS CAUBLE &
COMPANY ("Listing Agent") has acted as an agent for Landlord (Procuring Agent
and Listing Agent sometimes hereinafter being referred to collectively as
"Agents") in this transaction. Procuring Agent will be paid a real estate
commission by Landlord in accordance with Section 30 below. Listing Agent will
be paid a real estate commission in accordance with a separate agreement with
the Landlord. Neither Landlord nor Tenant has engaged any brokers or agents who
would be entitled to any commission or fee based on the execution of the Lease,
other than Agents set forth in this Section 29. Landlord and Tenant hereby
indemnify each other against and from any claims for any brokerage commissions
or similar fees (except those payable to Agents above) and all costs, expenses
and liabilities in connection therewith, including, without limitation,
reasonable attorneys' fees and expenses, for any breach of the foregoing. The
foregoing indemnification shall survive the termination of this Lease for any
reason.
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PROCURING AGENT'S COMMISSION
30. Landlord agrees to pay to Procuring Agent compensation for services
rendered in procuring this Lease, the first month's installment of Minimum Base
Rent hereunder and, in addition thereto, five percent (5%) of all payments of
Minimum Base Rent thereafter paid by Tenant under this Lease. Landlord, with
consent of Tenant, hereby assigns to Procuring Agent the first month's
installment of Minimum Base Rent hereunder and five percent (5%) of all payments
of Minimum Base Rent paid under this Lease. Landlord agrees if this Lease is
extended, or if a new lease is entered into between Landlord and Tenant covering
the Premises, or any part thereof, and provided that Tenant has authorized
Procuring Agent to represent Tenant in connection with the negotiation of such
extension or new lease, then Landlord agrees to pay the Procuring Agent five
percent (5%) of all Minimum Base Rent installments paid to Landlord by Tenant
under such extension or new lease. In no event shall Landlord be liable for the
payment of any compensation to any one or more procuring agents or procuring
brokers in connection with any extension of this Lease or any new lease covering
the Premises in excess of five percent (5%) of the Minimum Base Rent
Installments which shall be paid to Landlord by Tenant under such extension or
new lease. CASH OUT OPTION: The Procuring Agent agrees that, provided Landlord
has paid to Procuring Agent the first month's installment, Landlord at any time
during this Lease may at its sole discretion make a one-time payment to the
Procuring Agent of four percent (4%) of the remaining aggregate Minimum Base
Rent installments accruing to Landlord under this Lease ("cash-out commission")
as full satisfaction of Landlord's obligation to the Procuring Agent under this
Lease; provided, however, that if this Lease is extended, or if a new lease is
entered into between Landlord and Tenant covering the Premises subsequent to the
date as of which the amount of such cash-out commission shall have been
computed, then, Landlord, in consideration of the Procuring Agent having
procured Tenant hereunder, agrees to pay the Procuring Agent two percent (2%) of
the aggregate Minimum Base Rent installments accruing to Landlord under such
extension or new lease. In no event will the cash-out commission be calculated
on Minimum Base Rent accruing to Landlord after Tenant's tenth year of occupancy
of the Premises.
Agents each agree that, in the event Landlord sells the Premises, and upon
Landlord's furnishing Agents with an agreement signed by Purchaser assuming
Landlord's obligations to Agents under this Lease and under Landlord's separate
agreement with the Listing Agent, Agents will release original Landlord from any
further obligations to Agents hereunder. Agents are parties to this Lease
solely for the purpose of enforcing their respective rights under this Section
30 and it is understood by all parties hereto that Listing Agent is acting
solely in the capacity as agent for Landlord, to whom Tenant must look as
regards all covenants, agreements, and warranties herein contained, and
Procuring Agent is acting solely as agent for Tenant in finding the Premises for
Tenant's particular leasing needs, and that Agents shall never be liable to
Tenant in regard to any matter which may arise by virtue of this Lease.
Voluntary cancellation of this Lease shall not nullify Agents' right to collect
the commission due for the remaining term of this Lease. All commission
calculations described herein shall apply to Minimum Base Rent under this Lease
and not to additional rent.
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ENVIRONMENTAL MATTERS
31. (a) For purposes of this Lease:
(i) "Contamination" as used herein means the uncontained or
uncontrolled presence of or release of Hazardous Substances (as hereinafter
defined) into any environmental media from, upon, within, below, into or on any
portion of the Premises or the office/warehouse development of which the
Premises is a part as to require remediation, cleanup or investigation under any
applicable Environmental Law (as hereinafter defined).
(ii) "Environmental Laws" as used herein means all federal,
state, and local laws, regulations, orders, permits, ordinances or other
requirements, concerning protection of human health, safety and environment, all
as may be amended from time to time.
(iii) "Hazardous Substances" as used herein means any hazardous
or toxic substance, material, chemical pollutant, contaminate or waste as those
terms are defined by any applicable Environmental Laws (including, without
limitation, the Comprehensive Environmental Response, Compensation and Liability
Act, 42 U.S.C. 6901 et seq. ["RCRA"]) and any solid wastes, polychlorinated
biphenyls, urea formaldehyde, asbestos, radioactive materials, radon,
explosives, petroleum products and oil.
(b) Tenant represents that all its activities on the Premises, the
building, and the office/warehouse development of which the Premises is a part
during the course of this Lease will be conducted in compliance with
Environmental Laws. Tenant warrants that it is currently in compliance with all
applicable Environmental Laws and that there are no pending or threatened
notices of deficiency, notices of violation, orders, or judicial or
administrative actions involving alleged violations by Tenant of any
Environmental Laws. Tenant at Tenant's sole cost and expense, shall be
responsible for obtaining all permits or licenses or approvals under
Environmental Laws necessary for Tenant's operation of its business on the
Premises and shall make all notifications and registrations required by any
applicable Environmental Laws. Tenant, at Tenant's sole cost and expense, shall
at all times comply with the terms and conditions of such permits, licenses,
approvals, notifications and registrations and with any other applicable
Environmental Laws. Tenant warrants that it has obtained all such permits,
licenses or approvals and made all such notifications and registrations required
by any applicable Environmental Laws necessary for Tenant's operation of its
business on the Premises.
(c) Tenant shall not cause or permit any Hazardous Substances to be
brought upon, kept or used in or about the Premises, the building in which the
Premises are located, or office/warehouse development of which the Premises is a
part without the prior written consent of Landlord, which consent shall not be
unreasonably withheld. For purposes of this Section 31, Landlord shall be
deemed to have reasonably withheld consent if Landlord determines that the
presence of such Hazardous Substance within the Premises could result in a risk
of harm to person or property or otherwise negatively affect the value or
marketability of the Premises, the building in which the Premises are located or
the office/warehouse development of which the Premises is a part.
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(d) Tenant shall not cause or permit the release of any Hazardous
Substances by Tenant or its agents, contractors, employees or invitees into any
environmental media such as air, water or land, or into or on the Demised
Premises, the Building or the Project in any manner that violates any
Environmental Laws. If such release shall occur, Tenant shall (i) take all
steps reasonably necessary to contain such release and any associated
Contamination, (ii) clean up or otherwise remedy such release and any associated
Contamination to the extent required by, and take any and all other actions
required under, applicable Environmental Laws and (iii) notify and keep Landlord
reasonably informed of such release and response.
(e) Regardless of any consents granted by landlord pursuant to
Section 31(d) Tenant shall under no circumstances whatsoever (i) cause or permit
any activity on the Premises which would cause the Premises to become subject to
regulation as a hazardous waste treatment, storage or disposal facility under
RCRA or the regulations promulgated thereunder, (ii) discharge Hazardous
Substances into the sanitary or storm sewer system serving the office/warehouse
development of which the Premises is a part; or (iii) install any underground
storage tank or underground piping on or under the Premises.
(f) Tenant shall and hereby does indemnify Landlord and hold Landlord
harmless from and against any and all expense, loss, and liability suffered by
Landlord (with the exception of those expenses, losses, and liabilities arising
from Landlord's own negligence or willful act), by reason of Tenant's improper
storage, generation, handling, treatment, transportation, disposal, or
arrangement for transportation or disposal, of any Hazardous Substances (whether
accidental, intentional, or negligent) or by reason of Tenant's breach of any of
the provisions of this Section 31. Such expenses, losses and liabilities shall
include, without limitation, (i) any and all expenses that Landlord may incur to
comply with any Environmental Laws as a result of Tenant's failure to comply
therewith; (ii) any and all costs that Landlord may incur in studying or
remedying any Contamination at or arising from the Demised Premises, the
Building, or the Project; (iii) any and all costs that Landlord may incur in
studying, removing disposing or otherwise addressing any Hazardous Substances;
(iv) any and all fines, penalties or other sanctions assessed upon Landlord by
reason of Tenant's failure to comply with Environmental Laws; and (v) any and
all legal and professional fees and costs incurred by landlord in connection
with the foregoing. The indemnity contained herein shall survive the
termination or expiration of this Lease.
(g) Landlord shall have the right, but not obligation, to enter the
Premises at reasonable times throughout the Term to audit and inspect the
Premises for Tenant's compliance with this Section 31.
CONSUMER PRICE INDEX ("CPI")
32. For the purposes of this Lease, where applicable, CPI refers to the
Consumer Price Index for ALL URBAN CONSUMERS, UNITED STATES, ALL ITEMS, 1982-
84=100, as provided by the U.S. Department of Labor, or any index which shall
replace the CPI during the term of this Lease.
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ATTORNEY'S FEES AND HOMESTEAD
33. If any rent owing under this Lease is collected by or through any
attorney at law, Tenant agrees to pay fifteen percent (15%) thereof as
attorney's fees. Tenant waives all homestead rights and exemptions which Tenant
may have under any law as against any obligation owing under this Lease. Tenant
hereby assigns to Landlord all of Tenant's homestead and exemption.
TIME OF ESSENCE
34. Time is of the essence of this Lease.
DEFINITIONS
35. "Landlord" as used in this Lease shall include the undersigned, its
heirs, representatives, assigns and successors in title to Premises. "Tenant"
shall include the undersigned, its heirs and representatives, assigns and
successors, and if this Lease shall be validly assigned or sublet in accordance
with the terms hereof, shall include also Tenant assignees or sublessees, as to
Premises covered by such assignment or sublease. "Agents," shall include the
undersigned, their successors, assigns, heirs and representatives. "Landlord,"
"Tenant" and "Agents," include male and female, singular and plural,
corporation, partnership or individual, as may fit the particular parties.
NOTICES
36. All notices required or permitted under this Lease shall be in writing
and shall be personally delivered or sent by U.S. Certified Mail, return receipt
requested, postage prepaid. Notices to Tenant shall be delivered or sent to the
address shown below, except that upon Tenant's taking possession of the
Premises, then Premises shall be Tenant's address for notice purposes. Notices
to Landlord and Agents shall be delivered or sent to the addresses hereinafter
stated, to wit:
Landlord: Highlands Park Associates Tenant: Ben-Abraham Technologies, Inc.
c/o Baker-Dennard Co. 4600-A & B Highlands Parkway
Plaza Square North Smyrna, GA 30082
Suite 450 Attn:Dr. Claus Wagner-Bartak
4360 Chamblee-Dunwoody Road
Atlanta, Georgia 30341
Procuring Agent: King Industrial Listing Agent: Colliers, Cauble &
Realty, Inc. Company
1920 Monroe Dr., NE 1355 Peachtree St., NE
Atlanta, GA 30324 Suite 500
Attn: Bill Johnston Atlanta, GA 30309
ATTN: Henry Sawyer
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All notices shall be effective upon delivery. Any party may change his notice
address upon written notice to the other parties given in accordance with this
Section 36.
RECORDATION OF LEASE
37. Under no circumstances shall Tenant or Agents have the right to record
this Lease in the real property records of any state or local governmental
authority without the express, prior, written consent of Landlord. Landlord and
Tenant each agree to execute, upon request of the other, a memorandum of this
Lease in recordable form, and the requesting party shall pay the costs and
charges for the preparation and recording of the memorandum.
ENTIRE AGREEMENT
38. This Lease contains the entire agreement of the parties hereto, and no
representations, inducements, promises or agreements, oral or otherwise, between
the parties, not embodied herein shall be of any force or effect.
AMENDMENT
39. This Lease may not be modified, amended or supplemented in any manner
except by an agreement in writing, signed by the parties after the date hereof;
provided, however, that Agents' signatures shall not be required for any such
agreement unless the terms of Section 30 are being modified, amended or
supplemented or in effect will be modified, amended or supplemented by a change
in Minimum Base Rent other than an increase in accordance with Section 3 of this
Lease.
GOVERNING LAW
40. This Lease shall be governed by and construed in accordance with the
laws of the State of Georgia.
AUTHORITY
41. The persons executing this Lease on behalf of Tenant represent and
warrant that this Lease has been duly authorized by Tenant and properly executed
and delivered by them on behalf of Tenant and constitutes the valid and binding
agreement of Tenant in accordance with the terms hereof.
RULES AND REGULATIONS
42. Tenant shall comply with and observe all rules and regulations which
Landlord may promulgate from time to time in connection with the Premises and
the office/warehouse development of which the Premises are a part and of which
Tenant has been notified in writing. Tenant agrees to comply with and observe
all rules and regulations currently affecting the
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Premises as specified on Exhibit A hereto, which Exhibit is incorporated herein
and made a part hereof, and as the same may be amended or supplemented from time
to time by Landlord. Tenant's failure to keep and observe all rules and
regulations as amended or supplemented from time to time by Tenant, shall
constitute an Event of Default under Section 20 above.
SPECIAL STIPULATIONS
43. Any special stipulations are set forth in the attached Exhibit B. In
so far as said Special Stipulations conflict with any of the foregoing
provisions, said Special Stipulations shall control.
IN WITNESS WHEREOF, the parties herein have hereunto set their hands and
seals, in triplicate, the date and year first above written.
LANDLORD:
HIGHLANDS PARK ASSOCIATES
By: Dennard Cobb Properties, Inc.
Managing General Partner
By: /s/ Don W. Dennard
------------------------------------
Don W. Dennard
President
TENANT: Ben-Abraham Technologies, Inc.
/s/ (SEAL)
--------------------------------------------
By
Chief Operating Officer (SEAL)
--------------------------------------------
Title:
PROCURING AGENT: King Industrial
Realty, Inc.
/s/ (SEAL)
--------------------------------------------
Vice President
LISTING AGENT: Colliers Cauble &
Company
/s/ (SEAL)
--------------------------------------------
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EXHIBIT "A"
RULES AND REGULATIONS
Tenants shall at all times comply with the following rules and regulations:
(a) Tenants shall load and unload materials, merchandise or other goods
only in the areas, and through the entrances, designed for such
purposes by Landlord.
(b) Tenants shall not act in any way so as to obstruct the loading areas
of other tenants of the building.
(c) Tenants shall not store materials, merchandise, or other goods outside
of the leased premises.
(d) Tenants shall not park, or permit to be parked, abandoned vehicles
outside of the leased premises.
(e) With the exception of loading and unloading, Tenants' business
functions shall be carried out within the demised premises and not in
the yards, parking lots, loading areas, or other common areas of the
building.
(f) Tenants shall keep the area around its loading dock and its garbage
containers clean and free of garbage and refuse. The cost of garbage
removal shall be borne by the Tenants.
(g) Tenants shall not penetrate the roof, floor, or exterior walls of the
building without first obtaining written consent from the Landlord.
(h) Tenants shall not use loud speakers, televisions, phonographs, radios
or other devises in a manner so as to be heard or seen outside of the
leased premises without written consent of the Landlord.
(i) Tenants shall keep the walkways and entrances immediately adjoining
the premises clean and free from snow, ice, dirt and rubbish.
(j) Tenants shall keep the leased premises at a temperature sufficiently
high to prevent freezing of water in pipes and fixtures.
(k) Tenants shall not use the plumbing facilities for any other purpose
than that for which they are constructed, and no foreign substance of
any kind shall be thrown therein, and the expense of any breakage,
stoppage or damage resulting from a violation of this provision shall
be borne by Tenants.
19
<PAGE>
(l) Tenants shall not burn any materials of any kind in or about the
leased premises or the surrounding areas, except in the premises in
accordance with Tenant's laboratory use.
(m) Tenants shall not make noises, cause disturbances, or create odors
which are offensive to other tenants of the building.
(n) Tenants shall not park buses, trucks or trailers in any areas
designated for automobile parking or in any handicapped parking
facilities or areas reserved for handicapped access.
(o) Tenants shall place no signs upon the outside walls, canopies,
windows, or roof of the premises or in the yards or driveways of the
development except with the written consent of Landlord. Any and all
signs placed on the premises by Tenants shall be installed and
maintained in compliance with all governmental rules and regulations
governing such signs and Tenants shall be responsible to Landlord for
any damage caused by installation, use, or maintenance of said signs
and all damage incident to such removal.
(p) Tenants shall be responsible and pay for extermination of pests and
insects in the premises.
20
<PAGE>
EXHIBIT B
TO LEASE DATED SEPTEMBER 15TH, 1997 BY AND BETWEEN
BEN-ABRAHAM TECHNOLOGIES, INC.
AND HIGHLANDS PARK ASSOCIATES ("LEASE")
________________________________________________
SPECIAL STIPULATIONS
44. DELIVERY OF PREMISES. Landlord shall deliver the Premises to Tenant
upon full execution of this Lease for the purpose of beginning the
Approved Alterations (below).
45. APPROVED ALTERATIONS. Prior to January 1, 1998, Tenant, at its cost,
shall substantially complete the alterations to the Premises shown on
the attached Exhibit D and occupy the Premises for its intended use.
Final plans shall be completed by Tenant and subject to approval by
Landlord which approval shall not be unreasonably withheld or delayed.
46. TENANT IDENTIFICATION SIGN. Within 15 days of occupancy of the
Premises, Tenant shall install an identification sign, at its cost, on
the sign band on the building above the front entrance to the
Premises.
47. OPTION TO RENEW LEASE. Tenant shall have one option to renew this
Lease for one additional term of four (4) years provided that: (1)
Tenant notifies Landlord of its intent to exercise such option on or
before ninety (90) days before the expiration of the Term of the
Lease, and (2) An Event of Default in Section 20 is not then in
occurrence. The Minimum Base Rental during the option period shall be
the market rental for similar business park space in North Metro
Atlanta which space shall have an office component of approximately
17%. During the option period all other terms and conditions of the
Lease shall remain the same.
48. PARTIAL SECURITY DEPOSIT REFUND. Upon request by Tenant, at any time
after November 1, 1999, Landlord shall return Four Thousand Five
Hundred Eighty-Eight and 00/100ths Dollars ($4,588.00) of the Security
Deposit to Tenant, provided however that an Event of Default in
Section 20 is not then in occurrence at the time of the request. If
an Event of Default is in occurrence at the time of the request, then
Tenant shall have the applicable period to satisfy such Event of
Default in order to receive the aforementioned refund.
49. RESTORATION IMPROVEMENTS. Upon notice of request by Landlord to
Tenant at any time prior to thirty (30) days before the expiration of
the Term of the Lease, Tenant, at its cost, shall restore (or cause to
be restored) the Premises to the condition as described on the
attached Exhibit E. Such Restoration Improvements shall be completed
prior to the expiration of the Term of the Lease.
21
<PAGE>
EXHIBIT C
TO LEASE DATED SEPTEMBER 15TH, 1997 BY AND BETWEEN
BEN-ABRAHAM TECHNOLOGIES, INC.
AND HIGHLANDS PARK ASSOCIATES ("LEASE")
________________________________________________
GUARANTY
This Exhibit intentionally left blank.
22
<PAGE>
EXHIBIT D
TO LEASE DATED SEPTEMBER 15TH, 1997 BY AND BETWEEN
BEN-ABRAHAM TECHNOLOGIES, INC.
AND HIGHLANDS PARK ASSOCIATES ("LEASE")
________________________________________________
APPROVED ALTERATIONS
23
<PAGE>
EXHIBIT D-1
TO LEASE DATED SEPTEMBER 15TH, 1997 BY AND BETWEEN
BEN-ABRAHAM TECHNOLOGIES, INC.
AND HIGHLANDS PARK ASSOCIATES ("LEASE")
________________________________________________
SITE PLAN
24
<PAGE>
EXHIBIT E
TO LEASE DATED SEPTEMBER 15TH, 1997 BY AND BETWEEN
BEN-ABRAHAM TECHNOLOGIES, INC.
AND HIGHLANDS PARK ASSOCIATES ("LEASE")
________________________________________________
RESTORATION IMPROVEMENTS
The area shaded in yellow shall remain in its original condition (which was a
part of the Approved Alterations), natural wear and tear excepted, subject to
the changes as noted below. The balance of the Premises shall be restored to
warehouse use, which includes the existing concrete floor, the existing concrete
block walls, open ceiling, strip fluorescent lighting, and ceiling hung
heater(s). All restoration improvements shall be completed in good and
workmanlike manner, in conformity with all applicable laws and regulations and
free of any liens and encumbrances.
25
<PAGE>
CONFIDENTIAL
January 21, 1998
Mr. Stephen M. Simes
1173 RFD
Long Grove, IL 60047
Dear Stephen:
I am pleased to confirm our agreement with you concerning your
employment by Ben-Abraham Technologies, Inc. (the "Company"), which is subject
to review, approval, and ratification by the Company's Board of Directors.
I. EMPLOYMENT. Subject to the terms and conditions described in this
Employment Agreement (the "Agreement"), the Company agrees to employ
you as the President, Chief Operating Officer, and Executive Vice
Chairman of the Company, and you accept this employment on the
following terms and conditions.
II. DUTIES.
1. You agree to spend substantially all of your business hours
on the Company's business. You will diligently perform the
duties of your position, within guidelines to be determined by
Avi Ben-Abraham, who is the Company's Chief Executive Officer
and the Chairman of the Board of Directors. In particular, you
will actively manage the day-to-day business of the Company
and shall set corporate policies, under the direction of the
Board of Directors. More particularly, your duties shall
include the day-to-day responsibility for running and
administering the Company. Said responsibilities shall
include, but not be limited to, the following specific areas:
shareholder relations, fundraising, Nasdaq listing, direction
of R&D, licensing and other business development activities,
budgeting and fiscal controls, and all personnel matters. You
will report to Dr. Ben-Abraham, who will be responsible for
evaluating your job performance in accordance with the
Company's annual performance review process. The Company
agrees that during the term of this Agreement, as it may be
extended, no one other than Dr. Ben-Abraham shall serve as
CEO, except you.
2. During the term of this Agreement, you will also serve as a
Director of the Company and will perform all such duties
incident to such service. Towards this end, the Company shall
nominate you as a nominee for director and solicit proxies for
your election for so long as this Agreement is in effect.
3. While you are employed by the Company, except as otherwise
permitted by the Company's Conflict of Interest policy or this
Agreement, you will not engage in any business activity or
outside employment that conflicts with the Company's interests
or adversely affect the performance of your duties for the
Company.
<PAGE>
Mr. Stephen M. Simes
January 21, 1998
Page 2
CONFIDENTIAL
4. You shall be based at, and shall perform your duties at an
office located in, Chicago, Illinois, or the surrounding
suburban area, where the corporate headquarters of the Company
shall also be located. The Company agrees that the other
officers and executives of the Company (except for those who
are directly involved in the research and development
activities of the Company that are currently conducted in
Atlanta, Georgia) shall also be located in the same corporate
headquarters. However, you shall also travel to other
locations at such times as may be appropriate for the
performance of your duties under this Agreement.
III. TERM. This Agreement is effective January 20, 1998 (the "Effective
Date"), and will terminate on December 31, 2000, unless earlier
terminated pursuant to Section V of this Agreement (the "Base Term").
Commencing January 1, 2001, and on each January 1st thereafter, the
term of your employment will be automatically extended for three (3)
additional years unless on or before October 1st immediately preceding
any such extension, either party gives written notice to the other of
the cessation of further extensions, in which case no further automatic
extensions will occur. In the event that the Company elects not to
renew this Agreement other than for "cause" as defined herein, you will
be paid the amount described in Section V.C.2 below.
IV. COMPENSATION.
A. BASE SALARY. The Company agrees to pay you an annual base
salary of Two Hundred Thirty Thousand Dollars ($230,000) in
accordance with the Company's standard payroll practices
("Base Salary"). Beginning January 20, 1999 or sooner if you
raise Two Million Dollars ($2,000,000), your Base Salary shall
be increased to Two Hundred and Fifty Thousand Dollars
($250,000). In subsequent years, the Board of Directors shall
have the sole discretion to establish your Base Salary, except
that, at a minimum, it shall be adjusted upward consistent
with changes to the Consumer Price Index.
B. ANNUAL BONUS. You will be eligible to receive an annual
performance bonus not to exceed 50% of your Base Salary in
effect during the year under review. The amount of said bonus
shall be determined in the sole discretion of the Compensation
Committee and approved by the Board of Directors.
C. OPTIONS.
1. Upon execution of this Agreement, the Company will
grant you six hundred thousand (600,000) stock
options at the lowest permissible price when this
agreement is executed, one hundred thousand of which
shall vest at the time of the grant. The remainder
shall vest in twelve equal quarterly installments
over the Initial Term of this Agreement. The
remaining unvested options shall vest immediately
upon a termination without cause by the Company.
<PAGE>
Mr. Stephen M. Simes
January 21, 1998
Page 3
CONFIDENTIAL
2. You shall also be eligible to receive a combination
of an additional four hundred thousand (400,000)
shares and/or stock options during the Initial Term
of this Agreement at the lowest permissible price
when this agreement is executed. Receipt of these
options shall be subject to the stock price being
equal to or greater than One Dollar ($1.00) per share
at the time the options and/or shares vest. If this
condition precedent is satisfied, then these options
shall vest in twelve equal quarterly installments
over the Initial Term of this Agreement.
3. In the event of any reorganization, merger,
consolidation, recapitalization, liquidation,
reclassification, stock dividend, reverse stock
split, combination of shares, rights offering,
extraordinary dividend or divestiture (including a
spin-off) or any other change in the corporate
structure or shares of the Company, (or, if the
Company is not the surviving corporation in any such
transaction, the board of directors of the surviving
corporation), in order to prevent dilution or
enlargement of your rights, the Company (or the board
of the surviving corporation) shall make appropriate
adjustment (which determination shall be conclusive)
as to the number, kind and exercise price of
securities subject to this Option.
In the event that your employment is terminated by the Company
other than for justifiable cause (as hereinafter defined), or
if the Company elects not to renew this Agreement, or if you
are not nominated by the Company for reelection to the Board
of Directors other than for justifiable cause (as hereinafter
defined), all outstanding stock options and shares that are
held by you or your estate will immediately become exercisable
and all restrictions against disposition, if any, which have
not otherwise lapsed shall immediately lapse, and the period
within which they may be exercised will be one year following
such termination of employment.
D. BENEFITS. In addition to the other compensation to be paid
under this Section IV, you will be entitled to participate in
all benefit plans available to all full-time, eligible
employees hereafter established by the Company, in accordance
with the terms and conditions of such plans, which the Company
shall adopt promptly following the date hereof. These plans
shall include, but not be limited to, the following: a 401(k)
plan; group hospitalization, health, dental, disability (for
which the Company agrees to obtain the maximum long-term
disability insurance benefit allowed by applicable law), and
term life insurance (in the amount of $1.1 million); and
supplementary long-term disability insurance.
E. REIMBURSEMENT OF BUSINESS EXPENSES. In addition to payment of
compensation under this Section IV, the Company agrees to
reimburse you for all reasonable out-of-pocket business
expenses incurred by you on behalf of the Company, provided
that you properly account to the Company for all such expenses
in accordance with the rules and regulations of the Internal
Revenue Service promulgated under the Internal Revenue Code of
1986, as amended, and in
<PAGE>
Mr. Stephen M. Simes
January 21, 1998
Page 4
CONFIDENTIAL
accordance with the standard policies of the Company relating
to reimbursement of business expenses.
F. AUTOMOBILE ALLOWANCE. The Company shall provide you with a
monthly stipend of One Thousand Dollars ($1,000.00) for your
automobile use.
G. VACATION. You are entitled to four (4) weeks of paid vacation
per calendar year.
V. TERMINATION.
A. EARLY TERMINATION. Subject to the respective continuing
obligations of the parties pursuant to Sections VI, VII and
VIII, this Section sets forth the terms for early termination
of this Agreement.
B. TERMINATION FOR CAUSE. The Company may terminate this
Agreement and your employment immediately for cause. For this
purpose, "cause" means any of the following: (1) fraud, (2)
theft or embezzlement of the Company's assets, (3) a violation
of law involving moral turpitude, (4) your repeated and
willful failure to follow instructions of the Board provided
that the conduct has not ceased or the offense cured within
thirty (30) days following written warning from the Company
that sets forth in reasonable detail the facts claimed to
provide the basis for such termination. In the event of
termination for cause pursuant to this Section V.B, you will
be paid at the usual rate your annual Base Salary, car
allowance, and any out-of-pocket expenses, through the date of
termination specified in any notice of termination and any
amounts to which you are entitled under any Company benefit
plan in accordance with the terms of such plan.
C. TERMINATION WITHOUT CAUSE. Either you or the Company may
terminate this Agreement and your employment without cause on
thirty (30) days written notice. In the event of termination
of this Agreement and of employment pursuant to this Section
V.C, compensation will be paid as follows:
1. if the termination is by you without cause, you will
be paid at the usual rate of your annual Base Salary,
car allowance, and any out-of-pocket expenses
incurred on behalf of the Company and accounted for
pursuant to Section IV.E through the date of
termination specified in such notice (but not to
exceed thirty (30) days from the date of such
notice); or
2. Notwithstanding any provision to the contrary
contained herein, in the event your employment is
terminated by the Company at any time for any reason
other than justifiable cause, disability or death,
the Company shall:
(i) pay you a severance benefit, in a lump
sum payable no later than the fifth business day
following the date of termination, an amount equal to
your total compensation over the preceding twelve
months, including the car allowance;
<PAGE>
Mr. Stephen M. Simes
January 21, 1998
Page 5
CONFIDENTIAL
(ii) continue to provide you, at the
Company's expense, with term life insurance, as
provided herein until the earlier of (A) the
expiration of the "Severance Period" (which shall
mean the longer of these two periods: one year from
the date of termination or the remaining term of this
Agreement), or (B) your obtaining full-time
employment;
(iii) continue to allow you to participate,
at the Company's expense, in the Company's group
hospitalization, health, dental and disability
insurance programs until the earlier of (A) the
expiration of the Severance Period, or (B) your
becoming eligible to participate in another
employer's corresponding group insurance and
disability plans;
(iv) provide you with outplacement services
at a qualified agency selected by you and the use of
an office and reasonable secretarial support for one
year (unless you become otherwise employed within
such period);
(v) reimburse out-of-pocket expenses
incurred by you on behalf of the Company and
accounted pursuant to Section IV.E; and
(vi) reimburse you for any and all unused
vacation days accrued to the date of such
termination.
D. TERMINATION FOR GOOD REASON. You may terminate this Agreement
upon thirty (30) days written notice to the Company for good
reason. For this purpose, "good reason" means: (i) the
assignment to you of any duties inconsistent with your
positions, duties, responsibilities and status with the
Company as of the date hereof, or a change in your reporting
responsibilities, titles or offices, or any removal of you
from or any failure to re-elect you to any of such positions;
(ii) the failure of the Company to continue in effect any
fringe benefit or compensation plan, retirement plan, life
insurance plan, health or disability plan in which you were
participating (except as such change is prompted in good faith
by a change in the law), or the taking of any action by the
Company, which could reasonably be expected to adversely
affect your participation in or materially reduce your
benefits under any such plans or deprive you of any material
fringe benefit enjoyed by you, (iii) the reduction of your
salary or car allowance or failure to increase such salary as
is provided in Section IV.A above, or any other breach of this
Agreement by the Company; or (iv) the occurrence of a Change
in Control as defined in Section IX. In any such case the
Company will pay you the amounts, and provide you the
benefits, all as set forth in Section V.C.2 above.
E. TERMINATION IN THE EVENT OF DEATH OR PERMANENT DISABILITY.
This agreement and your employment will terminate in the event
of your death or permanent disability.
1. In the event of your death, Base Salary and car
allowance will be terminated as of the end of the
month in which death occurs.
<PAGE>
Mr. Stephen M. Simes
January 21, 1998
Page 6
CONFIDENTIAL
2. For the purposes of this Agreement, the term
"disability" shall mean your inability, due to
illness, accident or any other physical or mental
incapacity, to substantially perform your duties for
a period of four (4) consecutive months or for a
total of six (6) months (whether or not consecutive)
in any twelve (12) month period during the term of
this Agreement.
3. Upon your "disability", the Company shall have the
right to terminate your employment. Notwithstanding
any inability to perform your duties, you shall be
entitled to receive your compensation (including
bonuses, if any) as provided herein until the later
of (i) the date of your termination of employment for
disability in accordance with this Agreement, or (ii)
the date upon which you begin to receive long-term
disability insurance benefits under the policy
provided by the Company pursuant to this Agreement.
Any termination pursuant to Section V.E.2 shall be
effective on the date thirty (30) days after which
you shall have received written notice of the
Company's election to terminate.
F. ENTIRE TERMINATION PAYMENT.
1. The compensation provided for in Sections V.B, V.C,
V.D and V.E for early termination of this Agreement
will constitute your sole remedy for such
termination. You will not be entitled to any other
termination or severance payment which might
otherwise be payable to you under any other agreement
between you and the Company or under any policy of
the Company. This Section will not have any effect on
distributions to which you may be entitled at
termination from any qualified tax plan or any other
plan (other than a severance payment or similar
plan).
2. Notwithstanding any other provisions of this
Agreement or any other agreement, contract or
understanding heretofore or hereafter entered into
between you and the Company, if any "payments"
(including, without limitation, any benefits or
transfers of property or the acceleration of the
vesting of any benefits) in the nature of
compensation under any arrangement that is considered
contingent on a Change in Control for purposes of
Section 280G of the Internal Revenue Code of 1986, as
amended (the "Code"), together with any other
payments that you have the right to receive from the
Company or any corporation that is a member of an
"affiliated group" (as defined in Section 1504(a) of
the Code without regard to Section 1504(b) of the
Code) of which the Company is a member, would
constitute a "parachute payment" (as defined in
Section 280G of the Code), such payments will be
reduced to the largest amount as will result in no
portion of such payments being subject to the excise
tax imposed by Section 4999 of the Code; provided,
however, that you will be entitled to designate those
payments that will be reduced or eliminated in order
to comply with the foregoing provision.
<PAGE>
Mr. Stephen M. Simes
January 21, 1998
Page 7
CONFIDENTIAL
G. REQUIRED RESIGNATIONS UPON EARLY TERMINATION OR EXPIRATION.
You agree that upon any termination of your employment with
the Company or expiration of this Employment Agreement, such
termination or expiration under this Agreement will
automatically and without further action be deemed to
constitute your simultaneous resignation from all director,
officer, trustee, agent and any other positions within the
Company, all of its affiliates (including but not limited to
any entity that is a shareholder of the Company and any
subsidiaries and any parent of the Company), the Company's
employee benefit plans, trusts and foundations (charitable or
otherwise) or any other similar position associated with the
Company. Simultaneously upon such termination of employment or
expiration of this employment agreement, you agree to execute
and deliver to the Company any and all documents, agreements,
certificates, letters or other written instruments confirming
all such resignations.
VI. INVENTIONS.
A. You agree that all Inventions (as defined below) you make,
conceive, reduce to practice or author (either alone or with
others) during or within one year after the term of this
Agreement will be the Company's sole and exclusive property.
You will, with respect to any such Invention: (i) keep
current, accurate, and complete records, which will belong to
the Company and be kept and stored on the Company's premises
while you are employed by the Company; (ii) promptly and fully
disclose the existence and describe the nature of the
Invention to the Company in writing (and without request);
(iii) assign (and you do hereby assign) to the Company all of
your rights to the Invention, any applications you make for
patents or copyrights in any country, and any patents or
copyrights granted to you in any country; and (iv) acknowledge
and deliver promptly to the Company any written instruments,
and perform any other acts necessary in the Company's opinion
to preserve property rights in the Invention against
forfeiture, abandonment, or loss and to obtain and maintain
patents and/or copyrights on the Invention and to vest the
entire right and title to the Invention in the Company.
B. "Inventions," as used in this Section, means any discoveries,
improvements, creations, ideas and inventions, including
without limitation software and artistic and literary works
(whether or not they are described in writing or reduced to
practice) or other works of authorship (whether or not they
can be patented or copyrighted) that: (i) relate directly to
the Company's business or the Company's research or
development during the term of this Agreement; (ii) result
from any work you perform for the Company; (iii) use the
Company's equipment, supplies, facilities or trade secret
information; or (iv) you develop during any time that Section
II above obligates you to perform your employment duties.
The requirements of this Section do not apply to an Invention
for which no equipment, supplies, facility or trade secret
information of the Company was used and which was developed
entirely on your own time, and which neither (1) relates
directly to the Company's business or to the Company's actual
or demonstrably
<PAGE>
Mr. Stephen M. Simes
January 21, 1998
Page 8
CONFIDENTIAL
anticipated research or development, nor (2) results from
any work you performed for the Company. Except as
previously disclosed to the Company in writing, you do not
have, and will not assert, any claims to or rights under
any Inventions as having been made, conceived, authored or
acquired by you prior to your employment by the Company.
VII. PROPRIETARY INFORMATION.
A. Except as required in your duties to the Company, you will
never, either during or after your employment by the Company,
use or disclose Proprietary Information to any person not
authorized by the Company to receive it. When your employment
with the Company ends, you will promptly turn over to the
Company all records and any compositions, articles, devices,
apparatus and other items that disclose, describe or embody
Proprietary Information, including all copies, reproductions
and specimens of the Proprietary Information in your
possession, regardless of who prepared them.
B. "Proprietary Information," as used in this Section VII, means
any nonpublic information concerning the Company, including
information relating to the Company's research, product
development, engineering, purchasing, product costs,
accounting, leasing, servicing, manufacturing, sales,
marketing, administration and finances. This information
includes, without limitation: (i) trade secret information
about the Company and its products; (ii) "Inventions," as
defined in Section VI.B; (iii) information concerning any of
the Company's past, current or possible future products.
Proprietary Information or confidential information also
includes any information which is not generally disclosed and
which is useful or helpful to the Company and/or which would
be useful or helpful to competitors. More specific examples
include financial data, sales figures for individual projects
or groups of projects, planned new projects or planned
advertising programs, areas where the Company intends to
expand, lists of suppliers, lists of customers, wage and
salary data, capital investment plans, projected earnings,
changes in management or policies of the Company, testing
data, manufacturing methods, suppliers' prices to us, or any
plans we may have for improving any of our products. This
information is confidential or Proprietary Information
regardless of its form, e.g. oral, written, electronic or
other, and whether or not it is labeled as "proprietary" or
"confidential." The Company's Proprietary Information or
confidential information includes our information and that of
our affiliates and third parties concerning or relating to us.
VIII. COMPETITIVE ACTIVITIES.
A. You agree that during your employment with the Company, you
will not alone, or in any capacity with another person or
entity, (i) directly or indirectly engage in any employment or
activity that competes with the Company's business at the time
your employment with the Company ends, within any state in the
United
<PAGE>
Mr. Stephen M. Simes
January 21, 1998
Page 9
CONFIDENTIAL
States or within Canada, (ii) interfere with the Company's
relationships with any of its current or potential
customers.
B. You also agree that for a period of one year after the
termination of this Agreement for any one of the following
reasons: (i) for "cause" as defined above, (ii) voluntarily by
you without "good reason" as defined above; or (iii) in the
event of a non-renewal of the Agreement by you other than for
"good reason", you will abide by clauses (ii) and (iii) of
Section VIII.A above.
IX. CHANGE IN CONTROL.
A. For purposes of this Agreement, a "Change in Control" of the
Company will mean the following:
(i) the sale, lease, exchange or other transfer,
directly or indirectly, of substantially all of the
assets of the Company (in one transaction or in a
series of related transactions) to a person or entity
that is not controlled by the Company;
(ii) the approval by the shareholders of the Company
of any plan or proposal for the liquidation or
dissolution of the Company;
(iii) a change in control of the Company of a nature
that would be required to be reported in response to
Item 5(f) of Schedule 14A of Regulation 14A or to
Item 1 of Form 8-K promulgated under the Securities
Exchange Act of 1934, as amended (the "Act"),
provided that, without limitation, a Change in
Control shall be deemed to have occurred if (i) any
"person" (as such term is used in Sections 13(d) and
14(d)(2) of the Act) is or shall become the
beneficial owner, directly or indirectly, of
securities of the Company representing 30% or more of
the Company's then outstanding securities; or (ii)
during any period of twenty-four (24) consecutive
months, individuals who at the beginning of such
period constitute the entire Board of Directors shall
cease for any reason to constitute a majority thereof
unless the election, or the nomination for election
by the Company's stockholders, of each new director
was approved by a vote of at least two-thirds of the
directors then still in office who were directors at
the beginning of the period.
B. If a Change in Control occurs, the Option will become
immediately exercisable in full and will remain exercisable
for the remainder of its term, regardless of whether you
remain in the employ or service of the Company.
C. For purposes of this Section IX, you shall be entitled to the
severance benefits provided in Section V.D if the date of
termination occurs either (i) while there is to the Company's
knowledge actively pending a proposed transaction, which, if
consummated, could reasonably be expected to result within one
(1) year in a Change in Control, or (ii) within two (2) years
following a Change in Control;
<PAGE>
Mr. Stephen M. Simes
January 21, 1998
Page 10
CONFIDENTIAL
unless, in the case of either (i) or (ii), your employment
is terminated or this Agreement is not renewed because of
death or disability or by the Company for "cause" or
voluntarily by you other than for "good reason".
X. MISCELLANEOUS.
A. NO ADEQUATE REMEDY. You understand that if you fail to fulfill
your obligations under this Agreement, the damages to the
Company would be very difficult to determine. Therefore, in
addition to any other rights or remedies available to the
Company at law, in equity, or by statute, you hereby consent
to the specific enforcement of this Agreement by the Company
through an injunction or restraining order issued by an
appropriate court.
B. GOVERNING LAW. The laws of Illinois will govern the validity,
construction, and performance of this Agreement.
C. ARBITRATION. Any and all disputes which arise concerning the
rights, duties or obligations of either party under any
provision of this Agreement shall be resolved exclusively by
binding arbitration in accordance with the following terms and
conditions. The party seeking arbitration shall commence a
proceeding in arbitration in Chicago, Illinois under the Rules
of the American Arbitration Association. Within one month from
one of the party's request for arbitration, the party
requesting arbitration shall appoint one arbitrator and within
one month of the date of such appointment, the other party
shall appoint an arbitrator. Within three weeks of the date
that the second arbitrator is appointed, and prior to any
examination of the merits of the case, the two arbitrators
shall mutually select a third arbitrator. If either of the
parties fails to appoint an arbitrator or if the two
arbitrators fail to appoint the third arbitrator within the
periods referred to above, one shall be appointed in
accordance with the Rules within fifteen (15) days of the
expiry date of the respective period referred to above. The
three arbitrators so selected shall constitute the arbitral
panel. The arbitral panel shall make its decisions by the
majority of its members. The arbitral panel shall render its
decision and award in writing within ninety (90) days from its
final constitution. There shall be no appeal from the decision
and award of the arbitral panel, which shall be final and
binding on the parties and may be entered in any court having
jurisdiction thereof.
D. RIGHTS IN THE EVENT OF DISPUTE. If, with respect to any
alleged failure by the Company to comply with any of the terms
of this Agreement, you hire legal counsel with respect to this
Agreement or institute any negotiations or institute or
respond to legal action to assert or defend the validity of,
enforce your rights under, or recover damages for breach of
this Agreement, the Company shall pay, as they are incurred,
your actual expenses for attorneys' fees and disbursements,
together with such additional payments, if any, as may be
necessary so that the net-after-tax payments to you equal such
fees and disbursements, provided that such payments shall be
reimbursed by you to the Company if the Arbitration
<PAGE>
Mr. Stephen M. Simes
January 21, 1998
Page 11
CONFIDENTIAL
panel rules in favor of the Company and further decides
that such reimbursement is appropriate. Further, pending
the resolution of any such claim or dispute, you shall not
be deemed terminated for purposes of this Agreement.
E. MITIGATION. You are not required to mitigate the amount of any
payments to be made pursuant to this Agreement by seeking
other employment or otherwise, nor shall the amount of any
payments provided for in this Agreement be reduced by any
compensation earned by you as the result of your
self-employment or your employment by another employer after
the date of termination of your employment with the Company.
F. CONSTRUCTION. Wherever possible, each provision of this
agreement will be interpreted so that it is valid under the
applicable law. If any provision of this agreement is to any
extent invalid under the applicable law, that provision will
still be effective to the extent it remains valid under the
applicable law. The remainder of this agreement also will
continue to be valid, and the entire agreement will continue
to be valid in other jurisdictions.
G. WAIVERS. No failure or delay by either the Company or you in
exercising any right or remedy under this agreement will waive
any provision of the agreement. Nor will any single or partial
exercise by either the Company or you of any right or remedy
under this agreement preclude either the Company or you from
otherwise or further exercising these rights or remedies, or
any other rights or remedies granted by any law or any related
document.
H. ENTIRE AGREEMENT. This Agreement is the entire agreement
between the parties and replaces all other oral negotiations,
commitments, writings and understandings between the parties
concerning the matters in this agreement. This Agreement can
only be modified by mutual written consent of the parties. You
acknowledge that you have been advised to seek legal counsel
to review this Agreement with you before you sign it.
I. SUCCESSORS AND ASSIGNS. Except as otherwise provided in
Section IX, this Agreement will be binding upon and inure to
the benefit of the successors and assigns of the Company
whether by way of merger, consolidation, operation of law,
purchase or other acquisition of substantially all of the
assets or business of the Company, and any such successor or
assign will absolutely and unconditionally assume all of the
Company's obligations under this Agreement.
J. NOTICES. All notices, requests and demands given to or made
pursuant hereto will, except as otherwise specified herein, be
in writing and be delivered or mailed to any such party at its
address which:
<PAGE>
Mr. Stephen M. Simes
January 21, 1998
Page 12
CONFIDENTIAL
1. In the case of the Company will be:
Ben-Abraham Technologies
225 Peachtree Street, NE
Suite 1400, South Tower
Atlanta, GA 30303
Attention: Avi Ben-Abraham, CEO
2. In the case of employee will be:
Stephen M. Simes
1173 RFD
Long Grove, IL 60047
Any party may, by notice to the other party, designate a changed
address. Any notice, if mailed properly addressed, postage prepaid,
registered or certified mail, will be deemed dispatched on the
registered date or that date stamped on the certified mail receipt, and
will be deemed received within the second business day thereafter or
when it is actually received, whichever is sooner.
K. CAPTIONS. The various headings or captions in this agreement
are for convenience only and will not affect the meaning or
interpretation of this agreement.
Would you please confirm that this agreement is in accordance with your
understanding and that you have received a copy of this letter by signing an
dating it where indicated below, and returning an executed copy for our records.
Very truly yours,
BEN-ABRAHAM TECHNOLOGIES, INC.
/s/ Avi Ben-Abraham
- ---------------------------
*By: Avi Ben-Abraham, M.D.
Its: Chief Executive Officer
Agreed to and confirmed as of January 21, 1998:
/s/ Stephen M. Simes
- --------------------
Stephen M. Simes
*Subject to approval by the Company's Board of Directors.
/s/ ABA
<PAGE>
CONFIDENTIAL
April 15, 1999
Mr. Stephen M. Simes
1173 RFD
Long Grove, IL 60047
Dear Stephen:
As you are aware, Ben-Abraham Technologies, Inc. (the "Company") has
agreed to sell securities (the "Transaction") to certain investors on the
date hereof pursuant to a Private Placement Memorandum dated March 19, 1999
and certain Securities Purchase Agreements (the "Securities Purchase
Agreements") with such purchasers (the "Purchasers"). The Securities Purchase
Agreements specify, as a condition to closing, that (i) the certain letter
agreement dated as of January 21, 1998 between you and the Company regarding
your employment (the "Employment Agreement") be amended; and (ii) you waive
certain rights you may have under such Employment Agreement. Terms not
defined herein shall have the meanings ascribed to such terms in the
Employment Agreement.
1. The first two sentences of SECTION 11.1 of the Employment
Agreement are hereby amended in their entirety to read as follows:
"You agree to devote, on a full-time basis, all of your
business house to the Company's business. You will diligently
perform the duties of your position within guidelines to be
determined by the Board of Directors."
2. SECTION IV.C.3 of the Employment Agreement is hereby amended
in its entirety to read as follows:
"In the event the Company issues a stock dividend, or
effectuates a stock split or exchange of any shares of the
Company, whether by way of reorganization, reclassification,
conversion or other means, the Company shall make appropriate
adjustments to the terms of the Option in order to prevent
dilution or enlargement of your rights."
Notwithstanding the foregoing, the Company has agreed to issue to you
concurrently with the closing of the Transaction additional options to
purchase that number of subordinate voting shares of the Company equal to the
product of (i) five percent (5%) multiplied by (ii) the number of subordinate
voting shares sold in the Transaction (excluding any shares issuable pursuant
to warrants). You acknowledge that any future sales of securities by the
Company will not entitle you to additional options.
<PAGE>
3. In the event the Transaction would be deemed a "Change of
Control", or cause a "Change of Control" to have occurred, as such term is
defined in SECTION IX.A of the Employment Agreement, you hereby agree to
waive, only with respect to any deemed "Change of Control" arising out of or
related to the Transaction (which, for greater certainty, includes the change
in constitution of the Board of Directors), any rights you have under SECTION
IX.B, including without limitation the right for the Option to become
immediately exercisable.
4. Except as otherwise specifically set forth herein, the
Employment Agreement shall remain in full force and effect.
You hereby acknowledge that the Company and the Purchasers are entering into the
Securities Purchase Agreements in reliance upon on this letter. Please indicate
your agreement to the foregoing by signing the enclosed copy of this letter
where indicated and returning such executed copy to the Company.
Very truly yours,
Ben-Abraham Technologies, Inc.
By: /s/ Louis W. Sullivan
-----------------------------------
Its: Chairman, Board of Directors and
Chairman, Compensation Committee
ACCEPTED AND AGREED:
/s/ Stephen M. Simes
- -------------------------
Stephen M. Simes
Dated: 4/15/99
-------------------
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