AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 30, 1999
REGISTRATION NO. ______________
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
----------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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EMPYREAN BIOSCIENCE, INC.
----------------------------------------------------
(Exact Name of Registrant as Specified in Its Charter)
NEVADA 5122 83-0212682
- ------------------------ ---------------------------- ----------------------
(State of Incorporation) (Primary Standard Industrial (I.R.S. Employer
Classification Code Number) Identification Number)
2238 West Lone Cactus Drive, Suite 200
Phoenix, Arizona 85027-2613
(623) 879-6935
------------------------------------------------------------------------
(Address, Including Zip Code, and Telephone Number, Including Area Code,
of Registrant's Principal Executive Offices)
Stephen D. Hayter
Director, President and Chief Executive Officer
2238 West Lone Cactus Drive, Suite 200
Phoenix, Arizona 85027-2613
(623) 879-6935
-------------------------------------------------------------------
(Name, Address, Including Zip Code, and Telephone Number, Including
Area Code, of Agent For Service)
COPIES OF ALL COMMUNICATIONS, INCLUDING ALL COMMUNICATIONS
SENT TO THE AGENT FOR SERVICE, SHOULD BE SENT TO:
Steven D. Pidgeon
Snell & Wilmer L.L.P.
One Arizona Center
Phoenix, Arizona 85008
(602) 382-6000
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
<PAGE>
If the securities being registered on this form are being offered in connection
with the formation of a holding company and there is compliance with General
Instruction G, check the following box. [ ]
If this form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(d) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
----------
CALCULATION OF REGISTRATION FEE
================================================================================
TITLE OF PROPOSED
EACH CLASS OF MAXIMUM
SECURITIES AGGREGATE AMOUNT OF
TO BE OFFERING REGISTRATION
REGISTERED PRICE FEE
- --------------------------------------------------------------------------------
Common Stock,
$.001 par value $23,458,393(1) $6,521.43
================================================================================
(1) Estimated under Rule 457(f)(1) solely for the purpose of calculating
the amount of registration fee.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
================================================================================
<PAGE>
[COMPANY LOGO]
ANNUAL MEETING OF STOCKHOLDERS
EMPYREAN BIOSCIENCE, INC.
WE ARE MOVING TO NEVADA AND REGISTERING OUR SHARES:
We develop microbicidal products and currently market and distribute a hand
sanitizer and antiseptic skin protectant. We are reincorporating from Wyoming to
Nevada and in the process are registering all of our common stock shares under
the federal securities laws.
We cannot complete the reincorporation unless stockholders holding a
majority of our outstanding common stock approve the merger of our Wyoming and
Nevada companies. We have scheduled an annual meeting for our stockholders to
vote on the merger.
WE ARE ELECTING DIRECTORS:
We also plan to elect five directors each to serve a one year term.
Whether or not you plan to attend our meeting, please take the time to vote
by completing and mailing the enclosed proxy card to us. If you sign, date and
mail your proxy card without indicating how you want to vote, we will count your
proxy as a vote in favor of the merger proposal submitted at the meeting and for
each of the director nominees identified in this document. Failure to return
your proxy card or vote in person at the meeting will effectively result in a
vote against the merger.
YOUR VOTE IS VERY IMPORTANT.
The date, time and place of the meeting are as follows:
DATE: October 15, 1999
TIME: 10:00 a.m., Local Time
PLACE: 2238 West Lone Cactus Drive, Suite 200
Phoenix, Arizona 85027-2613
This Joint Proxy Statement/Prospectus provides you with detailed
information about the proposed merger and election of directors, as well as
information about us. We encourage you to read this entire document carefully.
/s/ Stephen D. Hayter
Stephen D. Hayter
Director, President, and Chief Executive Officer
Empyrean Bioscience, Inc.
WE URGE YOU TO CONSIDER THE RISKS DESCRIBED IN "RISK FACTORS" BEGINNING ON PAGE
4 OF THIS JOINT PROXY STATEMENT/PROSPECTUS. NEITHER THE SECURITIES AND EXCHANGE
COMMISSION NOR ANY STATE SECURITIES REGULATOR HAS APPROVED THE EMPYREAN
BIOSCIENCE, INC. COMMON STOCK WE ARE ISSUING IN THE MERGER OR HAS DETERMINED IF
THIS JOINT PROXY STATEMENT/PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
Joint Proxy Statement/Prospectus dated __________, 1999 and first mailed to
stockholders on ___________, 1999.
<PAGE>
EMPYREAN BIOSCIENCE, INC.
2238 WEST LONE CACTUS DRIVE, SUITE 200
PHOENIX, ARIZONA 85027-2613
----------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON OCTOBER 15, 1999
----------
Dear Stockholder:
We will hold an annual meeting of stockholders on October 15, 1999, at
10:00 a.m. local time, at 2238 West Lone Cactus Drive, Suite 200, Phoenix,
Arizona 85027-2613. We are holding the meeting for the following purposes:
(a) To approve reincorporation to Nevada through a merger between our
Nevada and Wyoming companies.
(b) To elect five directors, each to serve for a one year term; and
(c) To transact other business that may properly come before the annual
meeting.
These items are more fully described in the enclosed joint proxy
statement/prospectus.
You may vote at the meeting if you are a stockholder of record at the close
of business on ___________________, 1999.
If you are entitled to vote, you may dissent from the adoption of the
merger agreement. We have attached a copy of the merger agreement as Annex A and
the dissenters' rights statute as Annex B.
We have enclosed a proxy card to assist you in the voting process. We look
forward to seeing you on October 15, 1999.
YOUR VOTE IS IMPORTANT.
By Order of the Board of Directors:
Secretary
Phoenix, Arizona
, 1999
- -----------------
TO VOTE YOUR SHARES, PLEASE COMPLETE, DATE AND SIGN THE ENCLOSED PROXY CARD
AND MAIL IT PROMPTLY IN THE ENCLOSED RETURN ENVELOPE.
<PAGE>
SUBJECT TO COMPLETION, DATED JULY 30, 1999
THE INFORMATION CONTAINED IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE
CHANGED. NO ONE MAY SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED
WITH SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN
OFFER TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
EMPYREAN BIOSCIENCE, INC.
27,926,659 Shares of Common Stock
We develop microbicidal products and currently market and distribute a hand
sanitizer and antiseptic skin protectant. We are moving to Nevada and in the
process are registering your shares. We will become a public reporting company.
Our common stock is traded on the OTC Bulletin Board and is not listed on any
exchange or on NASDAQ. The last reported price of our common stock was $0.84 on
July 28, 1999.
----------
Before making an investment in our securities, you should carefully
consider certain risks described in "Risk Factors" beginning on page 4.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
----------
, 1999
-------------------
<PAGE>
TABLE OF CONTENTS
PAGE
----
SUMMARY .................................................................. 2
RISK FACTORS............................................................... 4
OUR ANNUAL MEETING......................................................... 13
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS......................... 27
BUSINESS .................................................................. 33
EXECUTIVE COMPENSATION..................................................... 49
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT......................................... 50
DESCRIPTION OF OUR CAPITAL STOCK........................................... 51
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS............................. 53
LEGAL MATTERS.............................................................. 54
EXPERTS .................................................................. 54
WHERE YOU CAN FIND MORE INFORMATION........................................ 54
<PAGE>
SUMMARY
THIS SUMMARY CONTAINS BASIC INFORMATION ABOUT US AND OUR REINCORPORATION.
BECAUSE IT IS A SUMMARY, IT DOES NOT CONTAIN ALL OF THE INFORMATION THAT IS
IMPORTANT TO YOU. YOU SHOULD READ CAREFULLY THIS ENTIRE DOCUMENT AND THE
DOCUMENTS TO WHICH WE HAVE REFERRED YOU.
OUR BUSINESS
We develop products that prevent sexually transmitted diseases known as
microbicidal products. We currently market and distribute a hand sanitizer and
antiseptic skin protectant. We have licensing rights to a spermicidal gel and a
hand sanitizer and antiseptic skin protectant, and are developing a line of
related products such as an antiseptic surface spray and baby wipes.
REINCORPORATING IN NEVADA
We are reincorporating in Nevada and in the process are registering your
shares. We are currently a Wyoming company. The management of our new Nevada
company will be identical to the current management of our Wyoming company. The
reincorporation will not affect our ongoing business. We are reincorporating
because we believe that Nevada has a more stable, modern and flexible corporate
law than Wyoming. We are registering your shares to facilitate secondary trading
of your shares and ongoing disclosure to our stockholders. You will receive one
share of our Nevada company for every share of the current Wyoming company and a
warrant or option for every warrant or option you currently own.
ELECTION OF DIRECTORS
We are electing five directors for a one year term. The five directors are
Stephen D. Hayter, Raymond E. Dean, Andrew J. Fishleder, M.D., Robert G.J. Burg
II and Michael Cicak.
VOTES REQUIRED
To approve the merger, a majority of the outstanding shares of our common
stock must vote in favor of the merger proposal. To approve the election of a
director a plurality of votes must be cast for that director. As of July 8,
1999, our directors, executive officers, and their affiliates owned
approximately 4% of our outstanding common stock entitled to vote (excluding
shares issuable upon exercise of the warrants or options held by them).
DISSENTERS' RIGHTS
Our stockholders may dissent from the merger and receive the "fair value"
of their common stock. Wyoming law requires each dissenting stockholder to meet
strict requirements to dissent properly. You should consult your legal advisor
for a full understanding of your right to dissent. We have attached as Annex B a
copy of the Wyoming statute that provides for your appraisal rights, including
the procedures that must be followed by you to properly exercise these rights.
FORWARD-LOOKING STATEMENTS MAY PROVE INACCURATE
We have made forward-looking statements in this document that are subject to
risks and uncertainties. Forward-looking statements include the information
concerning our possible or assumed future results of operations, including the
cost savings from the merger and market opportunities for our current and
planned products. Also, when we use words such as "believes," "expects,"
"anticipates" or similar expressions, we are making forward-looking statements.
You should understand that factors identified in the section of this document
titled "Risk Factors" could affect our future financial results and stock price,
in addition to those factors discussed elsewhere in this joint proxy
statement/prospectus, and could cause results to differ materially from those
expressed in our forward-looking statements.
2
<PAGE>
SUMMARY HISTORICAL FINANCIAL DATA
<TABLE>
<CAPTION>
Years Ended December 31, Three-Months Ended March 31,
---------------------------- ----------------------------
(unaudited)
1997 1998 1998 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
SELECTED CONSOLIDATED STATEMENTS
OF OPERATIONS DATA:
Net sales .................................. $ 13,018 $ 9,815 $ -- $ 52,510
Cost of sales .............................. 2,623 3,436 -- 17,023
Gross profit .......................... 10,395 6,379 -- 35,487
Research and development ................... 137,349 31,425 1,980 5,000
Selling, general and administrative
expenses.................................. 1,875,020 2,360,536 492,662 1,653,600
Write-down of inventory .................... 458,800 28,516 -- --
Write-down of receivables .................. 105,000 -- -- --
Operating loss ........................ (2,565,774) (2,414,098) (494,642) (1,623,113)
Other income (expense), net ................ (29,772) (180,782) 3,945 (37,379)
Net loss ................................... (2,595,546) (2,594,880) (490,697) (1,660,492)
Net loss per share ......................... (0.14) (0.11) (0.03) (0.06)
Weighted average shares outstanding ........ 18,213,790 22,883,937 18,736,133 26,812,156
<CAPTION>
At December 31, 1998 At March 31, 1999
-------------------- -----------------
<S> <C> <C>
SELECTED CONSOLIDATED BALANCE SHEET DATA:
Cash ....................................... $ 62,793 $ 81,104
Working capital ............................ (182,030) (761,198)
Total assets ............................... 313,825 560,762
Long term obligations ...................... -- --
Stockholders' equity ....................... (124,908) (705,361)
</TABLE>
3
<PAGE>
RISK FACTORS
YOU SHOULD CONSIDER CAREFULLY THE FOLLOWING FACTORS TOGETHER WITH ALL OF
THE OTHER INFORMATION INCLUDED IN THIS PROSPECTUS BEFORE YOU DECIDE TO VOTE ON
OUR MERGER AND REINCORPORATION.
RISKS RELATING TO THE MERGER:
FAILURE TO CONSUMMATE THE MERGER WILL PREVENT OR DELAY OUR EFFORTS TO BECOME A
REPORTING COMPANY UNDER THE EXCHANGE ACT
The primary purpose of the merger is to reincorporate Empyrean into Nevada
and to satisfy the registration requirements of the Securities Exchange Act of
1934. The benefits of registering under the Exchange Act include possibly
reducing or eliminating the trading restrictions associated with the stock of
non-reporting companies, improving our chances to eventually list our common
stock on NASDAQ, and enhancing our ability to raise capital in the future. If
the merger is not consummated for any reason, Empyrean's shareholders will be
prevented or delayed from realizing these benefits and will continue to own
securities in a non-reporting company. Because a number of factors that may
affect the merger are not within our control, we cannot assure you that the
merger will be consummated.
REINCORPORATING IN NEVADA MAY RESTRICT SHAREHOLDERS' RIGHTS WHICH MAY NEGATIVELY
IMPACT THE STOCK PRICE
If the merger is consummated, Empyrean will become a Nevada corporation
subject to the corporation laws of that state, which are different than the
corporate laws of Wyoming where Empyrean currently is incorporated. As a result,
our shareholders may lose some rights they would have been entitled to under
Wyoming law or become subject to some obligations they were not subject to under
Wyoming law. In addition, under Nevada law and Empyrean's new articles of
incorporation and bylaws, it may be more difficult or less advantageous for
another person or entity to attempt or complete a hostile acquisition of
Empyrean. All of these factors may have a negative impact on our stock price.
EMPYREAN MAY ISSUE PREFERRED STOCK WITH RIGHTS AND PREFERENCES SENIOR TO THOSE
OF COMMON STOCK IF THE MERGER IS SUCCESSFUL
If the merger is completed, Empyrean will be governed by articles of
incorporation substantially in the form attached to this prospectus as Exhibit
3.1(a). These new articles of incorporation, unlike Empyrean's existing
articles, contain a provision providing for serial or "blank check" preferred
stock. This provision will enable Empyrean's Board of Directors, without a vote
of its common stockholders, to issue separate classes or series of preferred
stock with rights and preferences that may be senior to those of its common
stock with respect to voting, dividends, rights upon liquidation, dissolution or
acquisition, and redemption. As a result, preferred stock may be issued that
could adversely affect the economic or voting rights of Empyrean's common
stockholders and the common stockholders will not be permitted to vote on this
matter.
4
<PAGE>
RISKS RELATING TO EMPYREAN'S BUSINESS:
WE MAY NOT BE ABLE TO OBTAIN SUFFICIENT CAPITAL TO FUND OUR OPERATIONS
We will need significant additional capital in the near future, and we
cannot assure you that funding of our operations will be available on favorable
terms, if at all. If adequate funds are not available, we may be required to cut
back or discontinue one or more of our product development, marketing or
distribution programs or plans, reduce operating expenses, or attempt to obtain
funds through strategic alliances that may require us to relinquish rights to
one or more of our technologies or products.
Our future capital requirements will depend on many factors, including:
* the progress of our product development, sales, marketing and
distribution efforts;
* the scope and results of clinical trials related to our products;
* the progress in filing for and obtaining regulatory approvals;
* the rate of technological advances;
* the market acceptance of our products;
* the levels of administrative and legal expenses; and
* competitive products.
In addition, future financing may be increasingly difficult to obtain due
to our limited operating history and results, the level of risk associated with
our business and business plans, increases in our vulnerability to general
economic conditions, and increased stockholder dilution. Additional debt
financing, if available, may have several negative effects on our future
operations including:
* a portion of our cash flow from operations will be dedicated to
payment of principal and interest and this would reduce the funds
available for operations and capital expenditures;
* increased debt burdens will substantially increase our vulnerability
to adverse changes in general economic and competitive conditions; and
* we may be subject to restrictive debt covenants and other conditions
in our debt instruments that may limit our capital expenditures, limit
our expansion or future acquisitions, and restrict our ability to
pursue our business strategies.
Additional equity financing will lead to increased dilution to
stockholders.
ONE OF OUR PRIMARY LICENSES MAY BE ADVERSELY AFFECTED BY CURRENT LITIGATION AND
WE COULD LOSE A PORTION OF OUR RIGHTS TO MAKE OR SELL OUR PRIMARY PRODUCTS
A third party claims a prior licensing and marketing right which could
materially adversely affect our rights to license and market our product and
5
<PAGE>
future products developed by us. Geda, our licensor, has filed a suit against
the third party seeking a declaratory judgment that the third party has no
rights in the product line, but we cannot assure you that it will succeed. If
Geda does not succeed, we may not be able to market and sell our current product
in the same manner in which we currently are marketing and selling.
WE EXPECT TO INCUR LOSSES FOR THE FORESEEABLE FUTURE
We expect to incur a net loss at least through the end of 1999. We have
incurred a net loss in each year of our existence. We incurred operating losses
of $2,007,172, $2,595,546, and $2,594,880 for the years 1996, 1997 and 1998,
respectively, and $1,660,492 in the quarter ending March 31, 1999. We cannot
assure you that we will ever make a profit. Such losses are due in part to
expenses associated with our sales and marketing, overhead, research and
development, and regulatory compliance. As a result, our accumulated deficit has
increased from $12,628,792 at December 31, 1996 to $19,479,710 at March 31,
1999.
EXISTING OR POTENTIAL MARKETS MAY NOT ACCEPT OUR PRODUCTS
Our success depends significantly on obtaining and increasing penetration
of existing and new markets and the acceptance of our products in these markets.
We cannot assure you that any of our products will achieve or maintain market
acceptance or that we will be successful in increasing our market share with
respect to any of our current products. Market acceptance will depend, in large
part, upon our ability to educate health care providers and other institutional
or consumer end users as to the distinctive characteristics and benefits of our
products. Failure of some or all of our preventative products to achieve
significant market acceptance could have a material adverse effect on our
business, financial condition, and results of operations.
WE HAVE LIMITED SALES, MARKETING AND DISTRIBUTION CAPABILITIES AND RELY
EXTENSIVELY ON THIRD PARTIES TO MARKET AND DISTRIBUTE OUR PRODUCTS
We rely extensively on third party marketing and distribution companies and
have little internal capabilities in these areas. Accordingly, our ability to
effectively market and distribute our products is dependent in large part on the
strength and financial condition of others, the expertise and relationships of
our distributors and marketers with customers and the interest of these parties
in selling and marketing our products. Our marketing and distribution parties
also market and distribute the products of other companies. Our failure to
generate substantial sales through our distributors would have a material
adverse effect on our business, financial condition and results of operations.
If our relationships with our third party marketing and distribution partners
were to terminate we would need to either develop alternative relationships or
develop our own internal sales and marketing forces to continue to sell our
products. Even if we were able to develop these capabilities internally, these
efforts would require significant cash and other resources that would be
diverted from other uses (if available at all) and could cause delays or
interruptions in our product supply to customers, which could result in the loss
of significant sales or customers.
WE HAVE NO INTERNAL MANUFACTURING CAPABILITY AND DEPEND HEAVILY UPON THIRD PARTY
SUPPLIERS
We have a single contract manufacturer for our current product who
purchases raw materials used in the manufacture of our product from various
suppliers. There can be no assurance that our contract manufacturer or any of
our suppliers will be able to supply our product in a timely or cost effective
6
<PAGE>
manner or in accordance with applicable regulatory requirements or our
specifications. In 1999, we do not anticipate that we will be able to establish
additional or replacement suppliers and manufacturers for this product. A delay
or interruption in the supply of these components or finished products would
significantly impair our ability to compete and would have a material adverse
effect on our business, financial condition and results of operations.
WE ARE SUBJECT TO INTENSE COMPETITION AND PRICING PRESSURES FROM SUBSTANTIALLY
LARGER COMPETITORS
The consumer products industry in which we compete is intensely
competitive. Among our more significant competitors are large and well
established companies, including the Dial Corporation, GoJo Industries,
Colgate-Palmolive Company, Reckitt & Coleman, Inc., and others. All of these
companies have significantly greater financial resources than us and are willing
to commit significant resources to protecting their market shares or to capture
market share. As a result, it will be difficult for us to successfully capture
market share from these competitors, promote and advertise our products
effectively against the products of these competitors, and develop product
innovations in response to market demands and opportunities. There can be no
assurance that we will be able to successfully compete against these companies,
even if our products have recognized superior qualities.
In addition, consumer products, particularly those that we offer or plan to
offer, are subject to significant price competition. From time to time, we may
need to engage in price cutting initiatives for some of our products to respond
to competitive and consumer pressures. Our failure to increase sales volumes as
a result of price reductions could have a material adverse affect on our
financial performance.
WE DEPEND ON KEY EMPLOYEES FOR OUR SUCCESS AND THE LOSS OF OUR KEY EMPLOYEES
COULD LIMIT OUR SUCCESS
Our future success will depend in large part on our ability to attract and
retain highly qualified managerial and technical personnel. The competition for
qualified personnel in our industry is intense and, accordingly, we cannot
assure you that we will be able to hire or retain necessary personnel. We are
presently highly dependent upon the efforts of Mr. Stephen D. Hayter, a Director
and the President and Chief Executive Officer of our company and Mr. Raymond E.
Dean, our Chief Operations Officer and a Director. The loss of the services of
Mr. Hayter or Mr. Dean could have a material adverse effect on our business and
prospects. We do not have a "key man" life insurance policy on the lives of
either Mr. Hayter or Mr. Dean.
GOVERNMENT REGULATION OF OUR PRODUCTS MAY PREVENT US FROM LAUNCHING OR SELLING
THE PRODUCT OR MAY RESULT IN DELAYS IN LAUNCHING OR SELLING PRODUCTS, MAY LIMIT
PRODUCT CLAIMS WE CAN MAKE AND CAN SIGNIFICANTLY INCREASE OUR COSTS
The testing, manufacture, labeling, distribution, advertising, marketing,
and sale of our products is subject to extensive international and domestic
regulation. To sell some or all of our drug products within the United States,
we will have to obtain premarket approval from the Food and Drug Administration.
The FDA approval process is expensive, time consuming, and uncertain, and we
cannot assure you that our products will obtain FDA approval on a timely basis,
if at all. Foreign regulatory requirements differ from jurisdiction to
jurisdiction. We cannot assure you that we will have sufficient resources to
complete the required testing and regulatory review process for our products
currently under development. In addition, approvals that have been or may be
7
<PAGE>
granted are subject to continual review, and later discovery of previously
unknown problems may result in product labeling restrictions or withdrawal of
products from the market. In addition, we may be restricted or prohibited from
making certain product claims that may limit our ability to successfully market
our products or reduce the prices that consumers are willing to pay for our
products.
Most over-the-counter ("OTC") drug products marketed in the United States
are not subjected to the Federal Food, Drug, and Cosmetic Act's (the "Food and
Drug Act") premarket approval requirements. In 1972, the FDA instituted the
ongoing OTC Drug Review to evaluate the safety and effectiveness of OTC drugs
then on the market. Through this process, the FDA issues monographs
(regulations) that set forth the specific active ingredients, dosages,
indications and labeling statements for OTC drugs that the FDA will consider
generally recognized as safe and effective and not misbranded and therefore not
subject to premarket approval. For certain categories of OTC drugs not yet
subject to a final regulation, the FDA usually will not take regulatory action
against such a product unless failure to do so poses a potential health hazard
to consumers. OTC drugs not covered by proposed or final OTC regulations,
however, are subject to premarket review and approval by the FDA through the new
drug application ("NDA") or abbreviated NDA process.
The active ingredient in our hand sanitizer and antiseptic skin protectant
product, benzalkonium chloride, is included in the FDA's proposed regulation for
OTC first aid antiseptic drug products, but with different claims than ours.
There can be no assurance that benzalkonium chloride will be included in the
final regulation or that the permitted claims will be the same as ours. Further,
the FDA declined to include benzalkonium chloride in its proposed regulation for
health care antiseptic drug products, which include antiseptic handwash or
health-care personnel handwash drug products. We intend to ask the FDA to reopen
the record of the proceeding to consider additional safety and effectiveness
data (which we plan to supply), but we cannot assure you that the FDA will
reopen the record or that if it does, it will include benzalkonium chloride in
the final regulation or that the permitted claims will be the same as ours. If
benzalkonium chloride is not covered by the final regulation, or if benzalkonium
chloride is included but for different claims than ours, we will not be
permitted to market the hand sanitizer and antiseptic skin protectant product
without premarket approval by the FDA.
Also, we cannot assure you that the FDA will not take regulatory action
against our hand sanitizer and antiseptic skin protectant product as now
formulated and with its current claims. We are aware that the FDA issued a
warning letter to Andrew Jergens Co. dated April 22, 1999 for its antiseptic
lotion containing benzalkonium chloride. The letter maintains that as formulated
and labeled the lotion is not covered by the OTC Drug Review, that
representations that the lotion makes for prophylactic antimicrobial use are not
described in any of the FDA's regulation-making proceedings under the Review,
that the lotion may not be legally marketed in the U.S. without an NDA approved
by the agency, and that the lotion is also misbranded under the Food and Drug
Act because the adequacy of the product's directions for use has not been
determined. We cannot assure you that the FDA will not assert the same or
similar positions respecting our hand sanitizer and antiseptic skin protectant
product, nor can we tell you how we would respond to such assertions or how they
would affect the marketability of our product.
Finally, failure to comply with applicable requirements for testing,
manufacturing, labeling, distributing, advertising, marketing, and selling drugs
may subject us or our distributors or manufacturers to administrative or
court-imposed sanctions such as product recalls or seizures, injunctions against
production, distribution, sales and marketing, delays in obtaining marketing
approvals or the refusal of the government to grant such approvals, suspensions
and withdrawals of previous approvals, and criminal prosecution of us or our
officers or employees.
8
<PAGE>
THE PROTECTION OF OUR PROPRIETARY RIGHTS TO OUR PRODUCTS MAY NOT BE COMPLETE
Our ability to effectively compete may be materially dependent upon the
proprietary nature of the products that we license from third parties.
Currently, there are no patents or patent applications pending with respect to
our products. We depend primarily on confidentiality provisions in our written
agreements with third parties and on trade secret laws, which vary from
jurisdiction to jurisdiction and are subject to interpretation. We cannot assure
you that we will be able to obtain any key patents or other protection or that
our licensors will be able to obtain similar protection for our products. Nor
can we assure you that our existing proprietary rights will be sufficient to
protect our products, will not be invalid in the future, or will provide
significant commercial benefits. Although we do not believe that our products
infringe on the patent rights or proprietary rights of others, we cannot assure
you in this regard.
WE HAVE A LIMITED PRODUCT LINE AND OUR INABILITY TO SUCCESSFULLY MARKET OUR
PRODUCTS COULD HAVE SIGNIFICANT ADVERSE EFFECTS ON OUR OPERATING RESULTS
Nearly all of our revenues from product sales in 1998 and thus far in 1999
have been derived from our hand sanitizer and antiseptic skin protectant
product. We anticipate that our contraceptive gel will not be available for
sales and marketing and distribution efforts in the United States unless and
until a NIH Phase III study is initiated and completed and successfully
demonstrates its safety and effectiveness as a contraceptive and a sexually
transmitted disease preventative and FDA approval of the product is obtained.
Neither successful completion of the study nor FDA approval can be assured. We
expect that most of our revenue in the foreseeable future will continue to be
derived from sales of the hand sanitizer and antiseptic skin protectant and
possibly some of our preventative products currently under development. As a
result of our lack of product diversification, any failure to successfully
develop and market our existing or near-term future products will have a
significant negative impact on our operating results and financial condition.
WE ARE INVOLVED IN TWO SECURITIES LITIGATION MATTERS WHICH COULD RESULT IN
MATERIAL AMOUNTS OF DAMAGES
We have been named in a case involving several claims based on alleged
securities fraud violations and misrepresentations by a company called Pinnacle
Diagnostics and one of its former officers. The plaintiff claims that such
violations and misrepresentations led it to invest in Pinnacle Diagnostics and
claims damages of approximately $500,000 plus punitive damages. We have been
joined as co-defendants. A second case involving alleged securities law
violations and misrepresentations has been filed by two individuals who invested
in the plaintiff in the first case. We have been named as a defendant in this
case as well.
We cannot assure you that either of these cases will be resolved in our
favor. If we lose or settle either of these lawsuits and are required to pay the
damages claimed and punitive damages, such judgments would have a material
adverse effect on our financial condition and results of operations.
ADVERSE PRODUCT PUBLICITY AND PRODUCT RECALLS OF OTHER PRODUCTS MAY HAVE A
NEGATIVE EFFECT ON THE SALES OR ACCEPTANCE OF OUR PRODUCTS
Certain recent news broadcasts by major television and radio networks have
focused on the use of anti-bacterial agents to kill germs on various surfaces.
In addition, anti-bacterial products containing triclosan as the active
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ingredient, which is not used in our products, have been the focus of adverse
publicity and some product recalls due to its side effects and its
ineffectiveness in killing germs. Although our products do not use triclosan
and, we believe, are superior to other anti-bacterial sanitizing products, there
can be no assurance that the adverse publicity stemming from broadcasts of
problems with or recalls of other products will not adversely affect the sales
of our products.
In addition, although we believe that our products are safe, there can be
no assurance that personal injury or property damage will not occur as a result
of the use or misuse of our products. If that were to occur, we could be subject
to significant product liability claims and litigation. Currently, we maintain
limited product liability insurance. There can be no assurance that any claims
relating to our products, even if non-meritorious, will not exceed our existing
insurance coverages and assets. If this were to occur, it could have a material
adverse effect on our financial condition and results of operations.
WE HAVE LIMITED RESEARCH AND DEVELOPMENT RESOURCES AND OUR SUCCESS DEPENDS IN
PART ON OUR RESEARCH AND DEVELOPMENT EFFORTS
Due to the early developmental stage of our business, we have expended only
limited amounts on research and development of disease preventative products in
1998 and 1999. Currently, we have very limited resources to devote to research
and development of our currently planned future products and technologies. Since
our only product on the market to date is our hand sanitizer and antiseptic skin
protectant product, our success depends heavily on our ability to develop
innovative additional products utilizing our core proprietary product
formulation. Unless we are able to obtain and devote resources to our research
and development efforts, we may only be able to develop limited product
offerings in the future and our ability to achieve market acceptance or to
leverage that acceptance through the introduction of follow-on products may be
limited. As a result, we may fail to achieve significant growth in revenues or
profitability in the future.
OUR INABILITY TO MANAGE GROWTH MAY HAVE A NEGATIVE IMPACT ON OUR RESULTS OF
OPERATIONS
We anticipate additional growth in the number of people we employ and in
the scope and geographic areas of our operations as current and new products are
developed and commercialized. This growth, if achieved, will result in an
increase in responsibilities for both existing and new management personnel. Our
ability to manage growth effectively will require us to continue to implement
and improve our operating, financial and management information systems and to
train and motivate our current and new employees. There can be no assurance that
we will be able to manage any expansion effectively, and a failure to do so
could have a material adverse effect on our business, financial condition and
results of operations.
OUR LACK OF YEAR 2000 COMPLIANCE MAY ADVERSELY AFFECT OUR FINANCIAL CONDITION
AND OPERATING RESULTS
We recognize the need to ensure that our operations will not be adversely
affected by Year 2000 hardware and software issues. We believe that our critical
internal systems and software, which consists primarily of off-the-shelf,
commercially available software programs not customized for our business, are
Year 2000 compliant. Our evaluation of the compliance of our operating and
non-operating systems with the Year 2000 conversion has not been exhaustive and
we have not yet completed a review of our suppliers or other third party
business partners to determine whether the systems employed by these parties are
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Year 2000 compliant. In addition, we have not developed an internal contingency
plan to deal with the Year 2000 issues that may affect our business. As a
result, there can be no assurance that we will not experience disruptions in our
ability to conduct business because of the Year 2000 problems experienced by us
or our distributors or vendors. Accordingly, these problems remain a possibility
and could have an adverse effect on our results of operations and financial
condition. To the extent that our key distributors or vendors experience
problems relating to achieving Year 2000 compliance, we could suffer
unanticipated additional costs and possible revenue losses. We may also be
subject to unanticipated and significant litigation resulting from any lack of
Year 2000 compliance by us or our vendors or distributors.
INTERNATIONAL SALES OF OUR PRODUCTS EXPOSE US TO CURRENCY FLUCTUATIONS AND OTHER
SPECIAL RISKS
We are currently attempting to expand the sale of our current products and
to introduce new products under development in several foreign countries. Our
international sales efforts are subject to several customary risks of doing
business abroad, including regulatory requirements, political and economic
instability, trade barriers, foreign taxes and tariff restrictions, restrictions
on the ability to transfer funds, and export licensing requirements. In
addition, although our limited foreign transactions to date have been U.S.
dollar denominated, there can be no assurance that foreign customers will not
later require us to receive payment in foreign currency. Fluctuations in the
value of foreign currencies relative to the U.S. dollar could have an adverse
impact on the price of our products in foreign markets.
RISKS RELATING TO OUR STOCK:
THE LACK OF A MATURE TRADING MARKET FOR OUR COMMON STOCK MAY CAUSE OUR STOCK
PRICE TO DECLINE OR FLUCTUATE SIGNIFICANTLY AND LIQUIDITY OF OUR COMMON STOCK IS
LIMITED
We do not meet the listing requirements for the listing or quotation of our
common stock on any national or regional securities exchange or on NASDAQ.
Currently, our common stock is traded on the OTC Bulletin Board. As a result,
accurate current quotations as to the value of our common stock are not
available and it is more difficult for investors to dispose of our common stock.
The lack of current quotations and liquidity can cause our stock price to
decline or be generally lower than the prices that may normally prevail if our
securities were listed or quoted on an exchange or on NASDAQ, and our stock
price can experience significant fluctuation or volatility due to trading
activity or other factors unrelated to our operating results or financial
condition.
OUR COMMON STOCK IS SUBJECT TO THE "PENNY STOCK" RULES OF THE SEC AND THE
TRADING MARKET IN OUR SECURITIES IS LIMITED
Since our common stock is not listed or quoted on any exchange or on
NASDAQ, and no other exemptions currently apply, trading in our common stock on
the OTC Bulletin Board is subject to the "penny stock" rules of the SEC. These
rules require, among other things, that any broker engaging in a transaction in
our securities provide its customers with a risk disclosure document, disclosure
of market quotations, if any, disclosure of the compensation of the broker and
its salespersons in the transaction, and monthly account statements showing the
market values of our securities held in the customer's accounts. The bid and
offer quotations and compensation information must be provided prior to
effecting the transaction and must be contained on the customer's confirmation.
Generally, brokers subject to the "penny stock" rules when transacting in our
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securities may be less willing to do so. This may make it more difficult for
investors to dispose of our common stock. In addition, the information required
to be provided to the customers of brokers is prepared by and is the
responsibility of such brokers, and not Empyrean, and there can be no assurance
that such information is accurate, complete or current.
THERE ARE A LARGE NUMBER OF SHARES UNDERLYING OUR WARRANTS AND OPTIONS THAT MAY
BE AVAILABLE FOR FUTURE SALE AND THE SALE OF THESE SHARES MAY DEPRESS THE MARKET
PRICE OF OUR COMMON STOCK
We have 27,926,659 shares of common stock outstanding (as of July 30, 1999)
and available for sale in the public market, and we have outstanding warrants
and options to purchase an additional 8,671,367 shares at various times. Most of
the shares (including some of the shares issuable upon exercise of our warrants
and options), may be sold without restriction (except for approximately
3,985,024 shares owned or currently issuable to "affiliates" of Empyrean). The
future sale of these shares may adversely affect the market price of our common
stock. The issuance of shares upon exercise of our outstanding warrants and
options will also cause immediate and substantial dilution to our existing
stockholders. In addition, as long as these warrants and options remain
outstanding, our ability to obtain additional capital might be adversely
affected.
WE DO NOT ANTICIPATE THAT WE WILL EVER PAY DIVIDENDS
We have never paid, and do not anticipate that we will ever pay, dividends
on our common stock, and may in the future be prohibited from doing so under any
debt agreements that we may enter into. Accordingly, investors are highly
unlikely to ever receive dividends on our common stock.
OUR STOCK PRICE MAY BE VOLATILE DUE TO FACTORS BEYOND OUR CONTROL
In addition to the factors described above, the securities markets have
from time to time experienced significant price and volume fluctuations that can
be unrelated to the operating performance or financial condition of any
particular company, including Empyrean. This is especially true with respect to
emerging companies like Empyrean and companies in our industry. Announcements of
technology innovations or new products by other companies, release of reports by
securities analysts, regulatory developments, economic or other external
factors, as well as quarterly fluctuation in our or in our competitors'
operating results, can have a significant impact on our stock price.
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OUR ANNUAL MEETING
GENERAL
We are furnishing this joint proxy statement/prospectus to our stockholders
as part of the solicitation of proxies by our Board for use at our annual
meeting of stockholders to be held on October 15, 1999, at 10:00 a.m. local
time, at 2238 West Lone Cactus Drive, Suite 200, Phoenix, Arizona 85027-2613.
We are first mailing this joint proxy statement/prospectus on the enclosed
form of proxy to our stockholders on or about _____________________, 1999.
The purpose of our meeting is:
(a) To consider and vote upon a proposal to approve a merger agreement and
merger between Empyrean Bioscience, Inc., a Wyoming corporation and
Empyrean Bioscience, Inc., a Nevada corporation. Under the merger
agreement (1) Empyrean Wyoming will be merged into Empyrean Nevada
which will continue as the surviving corporation and (2) each
outstanding share of Empyrean Wyoming common stock will be converted
into and become exchangeable for one share of Empyrean Nevada common
stock;
(b) To elect five directors, each to serve for a one year term; and
(c) To transact other business that may properly come before the annual
meeting.
A form of proxy for use at the annual meeting accompanies each copy of this
joint proxy statement/prospectus mailed to our common stockholders.
The Board unanimously recommends that stockholders vote FOR the approval of
the merger proposal and the election of directors proposal.
RECORD DATE AND VOTING
We have fixed the close of business on ___________________, 1999 as the
record date for determining our stockholders entitled to vote at the annual
meeting. Accordingly, only holders of record for common stock on the record date
will be entitled to vote at the annual meeting. As of the record date, there
were outstanding and entitled to vote 27,926,659 shares of our common stock
(constituting all of our outstanding voting stock), which shares were held by
approximately 2,600 holders of record. Each holder of record of shares of our
common stock on the record date is entitled to one vote per share, which may be
cast either in person or by properly executed proxy, at our annual meeting. A
quorum for the annual meeting consists of the presence of the holders of a
majority of the outstanding shares of our common stock. Approval of the merger
proposal discussed above requires the affirmative vote of holders of at least a
majority of the shares of our common stock outstanding and entitled to vote on
the record date. Election of a director requires a plurality of votes cast for
that director.
Shares of our common stock represented in person or by proxy will be
counted for purposes of determining whether a quorum is present at our annual
meeting. Shares which abstain from voting as to a particular matter will be
treated as shares that are present and entitled to vote at the annual meeting
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for purposes of determining whether a quorum exists, but abstentions will have
the same effect as votes against such matter. Brokers or nominees holding shares
of record for customers generally will not be entitled to vote on the proposals
unless they receive voting instructions from their customers. Because the
proposals are the only matters for which specific approval is being solicited,
any shares held by brokerage nominees for which no instructions are given by the
beneficial owners will not be voted. This means that such shares will not count
toward determining whether a quorum exists or be voted in any manner on the
proposals and will have the same effect as votes against the proposals.
As of the record date for the annual meeting, our directors and executive
officers and their affiliates may be deemed to be beneficial owners of
approximately 4% of the outstanding shares of our common stock (excluding shares
issuable upon exercise of outstanding options and warrants) and have expressed
their intent to vote their shares in favor of the merger proposal and the
election of the director nominees.
VOTING AND REVOCATION OF PROXIES
All shares of our common stock that are entitled to vote and are
represented at our annual meeting by properly executed proxies received prior to
or at such meeting and not revoked, will be voted at the meeting in accordance
with the instructions indicated on the proxies. If no instructions are
indicated, proxies will be voted for approval of the proposals.
The only business which may be conducted at the annual meeting is business
that is brought before such meeting pursuant to our notice of the annual
meeting. If any other matters are properly presented at the annual meeting for
consideration, such as consideration of a motion to adjourn such meeting, the
persons named in the enclosed forms of proxy generally will have discretion to
vote on such matters in accordance with their best judgment. Proxies voting
against a specific proposal may not be used by the persons named in the proxies
to vote for adjournment of the meeting to give management additional time to
solicit votes for approval of such proposal.
Any proxy given pursuant to this solicitation may be revoked by the person
giving it at any time before it is voted. Proxies may be revoked by:
* Filing with our secretary at or before the taking of the vote at the
annual meeting a written notice of revocation bearing a date later
than the proxy;
* Duly executing a later dated proxy relating to the same shares and
delivering it to our secretary before the taking of the vote at our
meeting; or
* Attending our annual meeting and voting in person although attendance
alone will not constitute revocation.
Any written notice of revocation or subsequent proxy should be sent to 2238
West Lone Cactus Drive, Suite 200, Phoenix, Arizona 85027-2613, Attention:
Secretary, or hand delivered to the Secretary of Empyrean at or before the
taking of the vote at the annual meeting. Stockholders that have instructed a
broker to vote their shares must follow directions received from such broker to
change their vote or to vote at the annual meeting.
We will bear all expenses of our solicitation of proxies for the annual
meeting. In addition to solicitation by use of mail, proxies may be solicited
from our stockholders by directors, officers, and employees in person or by
telephone, facsimile, or other means of communication. Our directors and
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officers and employees will not be additionally compensated, but may be
reimbursed for reasonable out-of-pocket expenses in connection with such
solicitation. We will make arrangements with brokerage houses, custodians,
nominees, and fiduciaries for forwarding of proxy solicitation materials to
beneficial owners of shares held of record by such brokerage houses, custodians,
nominees, and fiduciaries. We will reimburse such institutions for their
reasonable expenses incurred in connection with the solicitation.
DISSENTERS' RIGHTS
Our stockholders have the right to dissent from the merger and receive
payment of the "fair value" of their shares. Proposal No. 2, Nevada
Reincorporation, below discusses dissenters' rights more fully.
STOCKHOLDERS SHOULD NOT SEND THE STOCK CERTIFICATES WITH THEIR PROXIES.
EMPYREAN WYOMING COMMON STOCK CERTIFICATES WILL BE EXCHANGED FOR EMPYREAN NEVADA
COMMON STOCK FOLLOWING CONSUMMATION OF THE MERGER IN ACCORDANCE WITH THE
INSTRUCTIONS TO BE SENT TO HOLDERS OF OUR COMMON STOCK AFTER THE MERGER.
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PROPOSAL NO. 1 ELECTION OF DIRECTORS
Five directors will be elected at the meeting for a one year term. Unless
you specify otherwise, the enclosed proxy will be voted in favor of electing as
directors the nominees listed below. If any nominee should be unable to serve,
the proxy will be voted for a substitute nominee selected by our Board of
Directors.
The name, principal occupation, business experience since at least 1993,
tenure, and age of each nominee for election as a director are as set forth
below.
STEPHEN D. HAYTER
DIRECTOR, PRESIDENT, AND CHIEF EXECUTIVE OFFICER
Mr. Hayter, 60, was appointed as our Director and President in August 1996.
Mr. Hayter has over twenty years experience in the health care industry,
specifically in biotechnology, and has an extensive network of contacts
throughout North America, Europe and Japan. For the two years prior to August
1996, Mr. Hayter served as President of Sedona Biotechnology, a consulting
practice with clients such as Fisher Scientific USA, Colby Group International
Japan and Durimport Marine Canada. Prior to 1996, Mr. Hayter was the Executive
Vice President of Centocor, Inc. responsible for the Diagnostics Division. In
1987, Mr. Hayter founded ADI Diagnostics Inc., a fully integrated diagnostics
company specializing in infectious disease and oncology testing, and was its
President until 1993. In 1991, ADI Diagnostics, Inc. merged with Cambridge
Biotech. Mr. Hayter served in the Diagnostics Division of Abbott Laboratories
for thirteen years with his last position being the Executive Vice-President and
Representative Director of Abbott's joint venture, Dainabot KK. Mr. Hayter
currently resides in Phoenix, Arizona.
RAYMOND E. DEAN
DIRECTOR, SECRETARY, AND CHIEF OPERATIONS OFFICER
Mr. Dean, 51, was appointed our Chief Operations Officer in August 1997 and
as Secretary and a director on November 20, 1998. Mr. Dean has twenty years
experience in the health care industry, specifically in the biotech sector. He
was employed by Abbott Diagnostics for thirteen years in various positions in
the United States, Japan and Taiwan. Mr. Dean's last position was Director of
Marketing and Sales for KMC Systems of New Hampshire, a private label, design,
development and manufacturing company of medical devices.
ANDREW J. FISHLEDER, M.D.
DIRECTOR
Dr. Fishleder, 46, was appointed a director on November 20, 1998. Dr.
Fishleder has been the Chairman of the Division of Education of the Cleveland
Clinic Foundation since 1991 and currently serves on the institution's Board of
Governors and Medical Executive Committee. Dr. Fishleder is a pathologist and
has been a member of the staff of the Cleveland Clinic Department of Clinical
Pathology since 1982.
ROBERT G.J. BURG II
DIRECTOR
Mr. Burg, 42, was appointed a director on November 20, 1998. Mr. Burg has
over twenty-years experience in sales and marketing. Since January 1998 Mr. Burg
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has been the President of Profile Sports. Between 1990 and 1998, Mr. Burg
was employed by Royal Grip, Inc./Roxxi Caps, which manufacturers and distributes
golf grips and sports headwear, and was its President between February 1995 and
January 1998. Mr. Burg has been a director of Royal Precision, Inc. since June,
1998.
MICHAEL CICAK
DIRECTOR
Mr. Cicak, 63, was appointed a director on May 26, 1999. Mr. Cicak is
currently the president of Solar Cells, Inc. and was the president and CEO of
GlassTech, Inc. from 1983 to 1993. He is currently a member of the Board of
Directors of the University of Findlay in Ohio and serves on several corporate
boards including First Solar, LLC and Autom.
The Directors have served in their respective capacities since their
election or appointment and will serve until the next annual shareholders
meeting or until a successor is duly elected, unless the office is vacated in
accordance with our Articles of Incorporation. The executive officers are
appointed by the Board of Directors to serve until the earlier of their
resignation or removal with or without cause by the directors.
There are no family relationships between any two or more directors or
executive officers. There are no arrangements or understandings regarding
election between any two or more directors or executive officers.
BOARD COMMITTEES
The Board of Directors has an Audit Committee and a Compensation Committee.
No committee meetings occurred in 1998. Dr. Fishleder and Mr. Burg each serve on
our Audit Committee and Compensation Committee.
MEETING ATTENDANCE
The Board of Directors had one meeting in 1998. All of the directors
attended the meeting.
DIRECTOR COMPENSATION
Non-employee directors receive:
* a quarterly retainer of $2,500, plus $500 per committee meeting
attended;
* an annual grant of stock options to purchase 100,000 shares of our
common stock; and
* reimbursement for out-of-pocket expenses associated with attending
Board and committee meetings.
Employee directors receive no additional compensation for serving on the Board.
The stock options granted to non-employee directors are granted at an
exercise price equal to the fair market value of the common stock on the date of
grant, are fully vested at date of grant, and expire ten years from the date of
grant.
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PROPOSAL NO. 2 -- NEVADA REINCORPORATION
INTRODUCTION
The Board of Directors believe that changing the state of our incorporation
or "reincorporating" from Wyoming to Nevada will be in your best interests. You
are urged to read carefully the following sections of this joint proxy
statement/prospectus before voting on the proposed reincorporation.
With your approval, we will complete the reincorporation through a merger
agreement. Under the merger agreement, Empyrean Wyoming will merge with Empyrean
Nevada, and Empyrean Nevada will continue as the surviving corporation. Each
outstanding share of Empyrean Wyoming Common Stock will automatically convert
into one share of Empyrean Nevada Common Stock on the merger effective date.
Any stockholder may, as an alternative to voting to approve the proposed
reincorporation, dissent from the right to vote and obtain the fair value of his
or her shares. We provide a more detailed discussion of dissenters' rights and
the concept of fair value below.
PRINCIPAL REASONS FOR THE PROPOSED REINCORPORATION
Nevada follows a policy of encouraging incorporation in that state. As part
of this policy, Nevada has adopted comprehensive, flexible corporate laws
responsive to the needs of Nevada corporations. Our Board of Directors believes
that the Nevada corporate laws should be less volatile and interpreted more
predictably than Wyoming corporate laws. We believe we can better protect your
interests if the corporate law governing our activities is both more stable and
predictable, on one hand, and permits greater flexibility, on the other hand. In
addition, although Wyoming corporations have in recent years reincorporated in
Delaware, the cost of maintaining a corporation as a Nevada corporation is
significantly less than for a Delaware corporation, and Nevada law provides much
of the same stability, predictability, and flexibility as Delaware. Other
corporations have also initially chosen Nevada for their state of incorporation
or have subsequently changed their corporate domicile to Nevada in a similar
manner to Empyrean's proposed reincorporation.
ANTITAKEOVER IMPLICATIONS
Nevada, like many other states, permits a corporation to adopt measures
designed to reduce a corporation's vulnerability to unsolicited takeover
attempts. In addition, like other states, Nevada has default antitakeover
statutes which apply unless a company opts out of the statutory scheme. For
example, Nevada law generally restricts "combinations" such as mergers or
acquisitions with "interested stockholders" for three years following the date
that a person becomes an interested stockholder. Interested stockholders are
generally stockholders who hold more than 10% of the voting stock of the
corporation. Exceptions to this section include Board of Directors approval of
the combination or Board of Directors preapproval of the transaction that made a
stockholder an "interested stockholder." Even after the three-year period,
Nevada restricts these combinations unless the combination meets statutory
tests. Empyrean Nevada intends to affirmatively "opt out" of those default legal
provisions, such as the provisions limiting combinations with interested
stockholders, that in our judgment have an antitakeover effect.
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Despite our Board of Directors' belief that the proposed reincorporation
will benefit stockholders, such proposal may discourage a future takeover
attempt that is not approved by the Board of Directors, but which a majority of
the stockholders may consider to be in their best interests. Nevada law may
allow the Board of Directors to reject a takeover attempt despite a suitor's
offer of a premium payment to stockholders above the common stock market price.
In addition, to the extent that Nevada law enables the Board of Directors to
resist a takeover or a change in control of Empyrean, the Board could make it
more difficult to change the existing Board and management. Note that we are not
proposing reincorporation to prevent a change in control nor to respond to any
present attempt to acquire control of Empyrean, to obtain Board of Directors
representation, or to take significant action that affects Empyrean.
NO CHANGE IN THE BOARD MEMBERS, BUSINESS, MANAGEMENT, OR LOCATION OF PRINCIPAL
FACILITIES OF EMPYREAN
We will change our legal domicile and make other changes of a legal nature
through the proposed reincorporation. The proposed reincorporation will not
result in any change in the business, management, fiscal year, assets or
liabilities, or location of our principal facilities. The current five directors
of Empyrean Wyoming will continue as the directors of Empyrean Nevada. All of
the employee benefit and stock option plans of Empyrean Wyoming, including the
1998 Empyrean Diagnostics, Ltd. Stock Plan, will be continued by Empyrean Nevada
and each outstanding option to purchase shares of Empyrean Wyoming stock will
automatically be converted into an option to purchase an equivalent number of
shares of Empyrean Nevada stock on the same terms and subject to the same
conditions. Our name will remain Empyrean Bioscience, Inc.
OUR CHARTER AND BYLAWS
The provisions of the Empyrean Nevada Articles of Incorporation are similar
to those of the Empyrean Wyoming Articles of Incorporation in most respects. We
initially created the Empyrean Wyoming Articles of Incorporation to meet British
Columbia, Canada legal requirements. We did not amend the Articles of
Incorporation when we reincorporated from Canada to Wyoming. Those Articles of
Incorporation have acted as our bylaws as well. We have modified these Articles
of Incorporation to meet the requirements of Nevada law. In particular, Empyrean
Nevada will have separate Articles of Incorporation and Bylaws. We describe
below the material changes between the Empyrean Wyoming Articles of
Incorporation and Bylaws and the Empyrean Nevada Articles of Incorporation and
Bylaws.
AUTHORIZED STOCK
Empyrean Wyoming's Articles of Incorporation authorize the Board of
Directors to issue shares of capital stock with terms and for consideration that
the Board considers proper. The Board of Directors has authorized 300,000,000
shares of capital stock, of which 100,000,000 shares are designated Common
Stock, no par value, and 200,000,000 shares are designated Preferred Stock with
par values ranging from $0 to $50 per share. The Articles of Incorporation of
Empyrean Nevada authorize 300,000,000 shares of capital stock, no par value, of
which 100,000,000 shares are designated Common Stock and 200,000,000 shares are
designated Preferred Stock.
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INDEMNIFICATION
The indemnification provisions of Empyrean Wyoming's Articles of
Incorporation are substantially similar to the indemnification provisions of
Empyrean Nevada's Articles of Incorporation and Bylaws. These provisions state
that Empyrean will indemnify directors, officers, employees and agents against
all costs, charges and expenses in connection with any action or proceeding if
the person acted in their position with Empyrean honestly, in good faith, with
the best interest of the corporation and with the care, diligence and skill of a
reasonably prudent person. As discussed in the next section, Nevada permits
liability to be limited to a greater extent than does Wyoming law.
SIGNIFICANT DIFFERENCES BETWEEN THE CORPORATION LAWS OF WYOMING AND NEVADA
The corporate laws of Wyoming and Nevada differ in many respects. It is not
practical to summarize all differences in this joint merger/proxy statement, but
the principal differences that could materially affect the rights of
stockholders are discussed below.
DISSENTERS' RIGHTS
Wyoming and Nevada law may grant a stockholder of a corporation
participating in a major corporate transaction dissenters' rights. Dissenters'
rights allow a stockholder to receive the fair value of his or her shares
instead of the amount he or she would otherwise receive in the transaction. Fair
value may not necessarily be the market price of the common stock prior to
reincorporation. Both Wyoming and Nevada law limit the availability of
dissenters' rights where the state law does not require a stockholder vote to
approve the corporate transaction.
Under Nevada law, dissenters' rights are generally not available in a
merger or share exchange if the stockholders' shares were either listed on a
national securities exchange or held by at least 2,000 stockholders of record.
However, the articles of incorporation of the corporation may provide for
appraisal rights. Also, Nevada law makes appraisal rights available if the plan
of merger or share exchange provides that stockholders receive anything other
than cash, shares of the surviving corporation, shares of a publicly traded or
widely held corporation, or a combination of these.
Wyoming does not have the same limitations on dissenters' rights. Empyrean
stockholders do have dissenters' rights related to the proposed reincorporation.
Wyoming law requires that you follow its statutory procedures to exercise your
rights. We have attached to this joint merger/proxy statement as Annex B the
pertinent sections of the Wyoming law. We urge you to consult with your legal
advisor and follow the procedural steps under Wyoming law to exercise your
dissenters' rights.
BUSINESS COMBINATIONS
In the last several years, a number of states, including Nevada, have
adopted special laws designed to make certain kinds of "unfriendly" corporate
takeovers, or other transactions involving a corporation and one or more of its
significant stockholders, more difficult.
Nevada law prohibits a Nevada corporation from engaging in a "combination"
with an "interested stockholder" for three years following the date that the
person becomes an interested stockholder. Nevada law places restrictions on
these combinations even after the expiration of the three-year period.
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Generally, an interested stockholder is a person or group that owns 10% or more
of the corporation's outstanding voting power. Nevada defines the term
"combination" broadly to include the following:
* mergers of the corporation or its subsidiaries with the interested
stockholder
* asset dispositions to the interested stockholder equal to 5% of the
aggregate value of all corporation assets, 5% of the value of all
outstanding corporation shares, or 10% of the corporation's earning
power or net income
* share issuances or transfers equal to 5% of the value of all
outstanding shares of the corporation to the interested stockholder
* transactions that increase the proportionate ownership of the
interested stockholder or
* interested stockholder loans, advances, guarantees, pledges, or other
financial assistance or tax advantages disproportionately provided
through the corporation.
These prohibitions also apply to affiliates and associates of the interested
stockholders.
The three-year moratorium on business combinations would not apply if
before a stockholder becomes an interested stockholder, the board of directors
approves either the combination or the transaction that resulted in the person
becoming an interested stockholder.
Even after expiration of the three-year period, the moratorium on
combinations continues to apply unless the transaction meets one of the
following requirements:
* before the stockholder becomes an interested stockholder the board of
directors approves either the business combination or the transaction
that resulted in the person becoming an interested stockholder
* a majority of the voting power not beneficially owned by the
interested stockholder or its affiliates or associates approves the
transaction at a meeting called for that purpose
* the combination is for a fair price as determined by statute
The "combination" provisions only apply to Nevada corporations that have
200 or more stockholders and, unless the articles of incorporation provide
otherwise, have a class of voting shares registered under Section 12 of the
Securities Exchange Act of 1934. The Empyrean Nevada common stock would meet
these criteria after reincorporation. A Nevada corporation may elect not to be
governed by the combination provisions in its articles of incorporation or an
amendment to the articles of incorporation although such amendment is not
effective until 18 months after the vote. Empyrean Nevada has elected not to be
governed by these provisions. Wyoming does not have an equivalent business
combination statute.
CONTROL SHARES
Nevada also regulates "unfriendly" corporate takeovers through control
share provisions which provide that an "acquiring person" can only obtain voting
rights in his or her purchased "control shares" to the extent approved by the
other stockholders at a stockholders meeting. Generally, an acquiring person is
a person who acquires or offers to acquire a "controlling interest" in the
corporation. A controlling interest is one-fifth or more of the corporation's
voting power. Control shares include shares the acquiring person acquires or
offers to acquire to gain a controlling interest and all shares acquired by the
acquiring person during the preceding 90 days. The statute covers not only the
acquiring person but also any persons acting in association with the acquiring
person. Wyoming does not have a control shares statute.
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In addition, a Nevada corporation can provide in its articles of
incorporation or bylaws that the corporation can redeem all of the control
shares at the average price paid for the control shares if either the acquiring
person has not delivered an "offeror's statement" to the corporation within ten
days after acquisition of the control shares or the other stockholders do not
accord full voting rights to the control shares.
Unless the articles of incorporation or bylaws provide otherwise, on the
tenth day following acquisition of a controlling interest, if the stockholders
accord control shares full voting rights and the acquiring person has acquired a
majority of the voting power, then any stockholder of record who did not vote in
favor of authorizing such voting rights can demand payment for the fair value of
his or her shares.
The control share provisions apply only to Nevada corporations that have
200 or more stockholders, at least 100 of whom are stockholders of record and
are resident in Nevada, and do business in Nevada directly or through an
affiliated corporation. A corporation may elect to opt out of the control share
provisions if the articles of incorporation or bylaws in effect on the tenth day
following the acquisition provide that the control share provisions do not
apply.
Empyrean Nevada will opt out of the control share provisions. If Empyrean
did not opt out of the control share provisions, it would not likely be subject
to the control share provisions, because it does not do business in the state of
Nevada.
ELIMINATION OF ACTIONS BY WRITTEN CONSENT OF STOCKHOLDERS
Under Wyoming and Nevada law, stockholders may execute an action by written
consent in lieu of a stockholder meeting. While Nevada law permits a corporation
to eliminate such actions by written consent in its articles of incorporation or
bylaws, Empyrean Nevada's articles and bylaws do not currently prohibit actions
by stockholders written consent. The Board of Directors could amend the bylaws
to prohibit written consents. The Board of Directors' ability to limit or
eliminate stockholders written consents may make it more difficult to change the
existing Board of Directors and management.
INTERESTED DIRECTOR TRANSACTIONS
Under both Wyoming and Nevada law, certain contracts or transactions in
which one or more of a corporation's directors have an interest are not void or
voidable because of such interest provided that certain conditions, such as
obtaining the required approval and fulfilling the requirements of good faith
and full disclosure, are met. The conditions are similar under Wyoming and
Nevada law. Under Wyoming and Nevada law, contracts or transactions with a
director are not void if any of the following are true:
* the disinterested board members approve the contract in good faith
* the stockholders approve the contract in good faith
* the contract is fair to the corporation at the time it is approved
Under Wyoming law, if the corporation seeks stockholder approval, the
corporation cannot count the director's votes as a shareholder, while Nevada law
requires that a corporation count an interested director's votes.
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Nevada law also provides that the transaction is not void or voidable if
the fact of the interested director does not know about his or her interest at
the time of board action. Nevada law addresses not only interested directors but
also transactions with interested officers.
Wyoming law also limits loans or guarantees to directors except stockholder
approved or board approved loans. In the latter case, the board must determine
that the loan or guarantee benefits the corporation.
LIMITATION OF LIABILITY AND INDEMNIFICATION
Both Wyoming and Nevada permit a corporation to limit the personal
liability of a director to the corporation or its stockholders for money damages
for breach of the director's duties. Wyoming does not allow a corporation to
limit director liability when the director:
* receives benefits to which he or she is not entitled
* intentionally inflicts harm on the corporation or its stockholders
* votes for an unlawful distribution
* intentionally violates criminal law
Nevada does not allow a corporation to limit director liability when the
director:
* acts or omits to act resulting in intentional misconduct, fraud, or a
knowing violation of law
* makes un unlawful distribution payment
Limitation of liability provisions may not limit a director's or officer's
liability for violation of state securities laws nor affect the availability of
nonmonetary remedies such as injunctive relief or rescission. Limitation of
liability provisions also will not limit Empyrean Nevada's liability for
violation of any laws.
Empyrean Wyoming's Articles of Incorporation limit director, officer, or
employee liability for any loss, damage or expense related to execution of their
duties unless the loss, damage or expense arises through the person's willful
act or default, through negligence, through a breach of trust or through a
breach of duty. Empyrean Nevada's Articles of Incorporation eliminate director
and officer liability to the fullest extent permissible under Nevada law as it
exists or may be amended in the future.
Both Nevada and Wyoming law permit indemnification when a director or
officer:
* conducted himself in good faith
* reasonably believed his conduct was not opposed to the corporation's
best interest
* in a criminal proceeding, had no reasonable cause to believe his
conduct was unlawful
Nevada law provides that the articles of incorporation or bylaws or an
agreement made by a corporation may provide that the expenses of directors and
officers incurred in defending an action must be paid by the corporation in
advance. The appropriate document must require the director or officer to
promise to repay the amount if a court ultimately determines that the
corporation may not indemnify the director or officer. The Articles of
Incorporation and the Bylaws of Empyrean Nevada provide that Empyrean Nevada
will indemnify directors and officers to the fullest extent permitted under
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Nevada law, and that Empyrean Nevada will pay all expenses incurred in defending
an action in advance. The Bylaws of Empyrean Nevada also permit indemnification
and advancement of expenses to Empyrean employees and agents. Each current
Empyrean officer and director will enter into an indemnification agreement with
Empyrean Nevada that conforms to Nevada law and allows indemnification to the
fullest extent of Nevada law.
As under Wyoming law, Nevada law further provides that a corporation may
purchase and maintain insurance or make other financial arrangements on behalf
of any director, officer, employee, or agent of the corporation. These other
financial arrangements may include the following:
* a trust fund
* self-insurance
* securing the corporation's obligation by granting a security interest
or other lien
* establishing a letter of credit, guaranty, or surety
No financial arrangement may provide protection for intentional misconduct,
fraud, or a knowing violation of law except when a corporation advances expenses
or a court orders the corporation to indemnify the individual. In the absence of
fraud:
* the board of directors' decision whether it is proper to insure or
make other financial arrangements is conclusive
* the insurance or other financial arrangement is not void or voidable
* the insurance or other financial arrangement does not subject any
director approving it to personal liability even if he is a
beneficiary of the insurance or other financial arrangement.
The Bylaws of Empyrean Nevada permit Empyrean to purchase and maintain insurance
and make other financial arrangements.
POWER TO CALL SPECIAL STOCKHOLDERS' MEETINGS
Under Wyoming law, a annual meeting of stockholders may be called by the
following:
* the board of directors
* the chairman of the board
* the president
* the holders of shares entitled to cast not less than ten percent of
the votes at the meeting
* any additional persons authorized by the articles of incorporation or
the bylaws
Under Nevada law, the articles of incorporation or bylaws determine who may call
a annual meeting of stockholders. The Articles of Incorporation of Empyrean
Nevada authorize the Board of Directors to call a annual meeting of
stockholders.
REMOVAL OF DIRECTORS
Under Wyoming law, any director or the entire board of directors may be
removed, with or without cause, by the stockholders. However, no individual
director may be removed if the number of votes cast against such removal would
be sufficient to elect the director under cumulative voting. If the corporation
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authorizes cumulative voting, the director cannot be removed if the votes cast
against removal would be sufficient to elect the director under cumulative
voting. If the corporation has not authorized cumulative voting, the director
cannot be removed if the votes cast against removal are greater than the votes
cast for removal.
Under Nevada law, any director may be removed from office, with or without
cause, by a stockholders' vote. Unlike Wyoming, Nevada requires a vote of not
less than two-thirds of the voting power of the class or series of stock of the
corporation entitled to elect such director. However, if a Nevada corporation's
articles of incorporation provide for cumulative voting, a director may not be
removed except by the vote of stockholders owning sufficient voting power to
have prevented the director's election in the first instance. Also, the articles
of incorporation may provide for a larger percentage than two-thirds of the
voting stock. The Articles of Incorporation of Empyrean Nevada do not provide
for cumulative voting, but do specify that any director or the entire board of
directors may be removed, with or without cause, by the affirmative vote of a
two-thirds of the outstanding shares entitled to vote.
STOCKHOLDER VOTING
Nevada law generally requires that a majority of stockholders of both the
acquiring and target corporations approve statutory mergers. Wyoming law, by
contrast, generally requires that a plurality of stockholders of both the
acquiring and target corporations approve statutory mergers. Unless the
corporation provides otherwise in its articles of incorporation, Nevada and
Wyoming law do not require a stockholder vote of the surviving corporation in a
merger if all of the following are true:
* the surviving corporation's articles of incorporation will not change after
the merger
* each stockholder of the surviving corporation whose shares were outstanding
before the merger will hold the same number of shares with identical
designations, preferences, limitations, and relative rights after the
merger, and
* the number of shares outstanding post-merger plus the number of voting
shares issuable post-merger as a result of derivative securities issued in
the merger do not exceed by more than 20 percent the total number of voting
shares of the surviving corporation
Nevada law also requires that a majority of the voting shares of the
corporation approve a sale of all or substantially all of the assets of that
corporation. Wyoming law only requires a plurality of the voting shares.
FEDERAL INCOME TAX CONSEQUENCES
In this section, we discuss federal income tax consequences to Empyrean
Wyoming capital stockholders who receive Empyrean Nevada capital stock in
exchange for their Empyrean Wyoming capital stock as a result of the proposed
reincorporation. We do not address state, local, or foreign tax consequences in
this section.
This discussion does not address all the tax consequences of the proposed
reincorporation that may be relevant to particular Empyrean Wyoming
stockholders. We urge you to consult with your own tax advisor as to the
specific tax consequences to you of the proposed reincorporation, including the
applicability of federal, state, local, or foreign tax laws.
Empyrean has not requested a ruling from the Internal Revenue Service or an
opinion of counsel on the federal income tax consequences of the proposed
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reincorporation under the Internal Revenue Code of 1986. We believe, however,
that the following are true of the reincorporation:
* the proposed reincorporation will constitute a tax-free reorganization
under Section 368(a) of the federal tax code
* no gain or loss will be recognized by Empyrean Wyoming capital
stockholders when they receive Empyrean Nevada capital stock under the
proposed reincorporation
* the aggregate tax basis of Empyrean Nevada capital stock received by a
stockholder will be the same as the aggregate tax basis of the
Empyrean Wyoming capital stock held by the same stockholder as a
capital asset at the time of the proposed reincorporation and
* the holding period of Empyrean Nevada capital stock received by each
Empyrean Wyoming stockholder will include the period the stockholder
held the exchanged Empyrean Wyoming capital stock as a capital asset
A successful IRS challenge to the tax-free status of the proposed
reincorporation would result in a stockholder recognizing gain or loss on each
share of Empyrean Wyoming capital stock surrendered. State, local, or foreign
income tax consequences to stockholders may vary from the federal tax
consequences described above. Stockholders should consult their own tax advisors
as to the effect of the proposed reincorporation under applicable federal,
state, local, or foreign income tax laws.
Empyrean should not recognize gain or loss for federal income tax purposes
as a result of the proposed reincorporation, and Empyrean Nevada should succeed
without adjustment to the federal income tax attributes of Empyrean Wyoming.
VOTE REQUIRED FOR THE PROPOSED REINCORPORATION
Approval of the proposed reincorporation, which includes approval of the
merger agreement, requires the affirmative vote of the holders of a majority of
the outstanding shares of Empyrean Wyoming common stock.
The Board of Directors recommends that stockholders vote "FOR" the proposed
reincorporation. An abstention or a failure to vote will have the same effect as
a vote "AGAINST" the proposed reincorporation.
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MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis provides information regarding
Empyrean's financial position and its results of operations for the periods
shown. This discussion should be read in conjunction with Empyrean's
Consolidated Financial Statements and related Notes thereto included elsewhere
in this document.
INTRODUCTION
Prior to April 1997, we distributed and marketed diagnostic products such
as the HIV and PEMVIEW diagnostic test kits. In April 1997, in connection with a
change in our management team, we shifted our focus from marketing and
distributing diagnostic test kits to marketing and distributing preventative
products. This shift in focus coincided with our acquisition of certain rights
to use a microbicide formulation utilized in a number of our preventative
products, including PREVENTX(TM) Hand Sanitizer and Antiseptic Skin Protectant,
PREVENTX(TM) Vaginal Contraceptive Gel, and PREVENTX(TM) Antiseptic Surface
Spray. Since that time, we are no longer actively marketing our diagnostic
products. The decision to discontinue active marketing of our prior line of
diagnostic products and the limited revenues and substantial start-up costs
associated with introducing our new line of preventative products have
significantly affected our current financial condition and operations. We are
actively seeking to obtain additional funds through private financing to meet
current operating expenses and intend to significantly increase sales of our
preventative products through increased marketing and sales efforts.
We have limited revenues and have sustained substantial losses from
operations in recent years, have a negative stockholders equity, and at December
31, 1998, had current liabilities in excess of current assets. As a result,
Empyrean's auditors issued a going concern opinion in connection with the audit
of our 1998 financial statements. (See Note 2 to Empyrean's Consolidated
Financial Statements.) We expect to generate substantially all of our revenues
in the future from increased sales of our current product and future line of
preventative products.
In addition to costs of goods sold, which vary somewhat proportionately
with our level of sales, significant cost and expense items include salaries and
benefits, management fees and consulting, royalties and distribution rights,
office and administration, advertising, and legal and accounting, each of which
significantly exceeded our total revenue for the year ended December 31, 1998,
primarily as a result of our limited revenues. Accordingly, we do not believe
comparing costs as a percentage of revenues from year to year is meaningful.
RESULTS OF OPERATIONS
COMPARISON OF QUARTERS ENDED MARCH 31, 1999 AND MARCH 31, 1998
Our total revenues in the quarter ended March 31, 1999 were $52,510
compared to no revenues in the quarter ended March 31, 1998. Revenues in first
quarter of 1999 consisted primarily of sales from the Preventx(TM) antiseptic
and skin protectant product introduced in late February 1999.
We incurred a net loss in the quarter ended March 31, 1999 of $1,660,492
compared to a net loss of $490,697 in the quarter ended March 31, 1998. The
losses in 1999 and 1998 were due primarily to limited revenues (or no revenues
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in 1998) that were substantially exceeded by our costs of operation. Our net
loss per share for the quarter ended March 31, 1999 was $0.06 compared to a net
loss per share of $0.03 in the quarter ended March 31, 1998.
Selling, general and administrative expenses increased to $1,653,600 in the
quarter ended March 31, 1999 from $492,662 in the quarter ended March 31, 1998
due to the following:
* Management fees and consulting expenses increased to $956,950 in the
quarter ended March 31, 1999 from $58,156 in the quarter ended March 31,
1998. This increase resulted primarily from the granting of stock options
to consultants in the first quarter of 1999 for services. This increase
also resulted from a greater reliance on contract employees in the quarter
ended March 31, 1999 for sales and product launch activities.
* Administrative fees relating to our relationship with Integrated
Commercialization Solutions (ICS), a division of Bergen Brunswig
Corporation, were $160,000 in the quarter ended March 31, 1999 and we did
not incur these fees in the quarter ended March 31, 1998. Empyrean entered
into a letter of intent on October 7, 1998 with ICS to provide
infrastructure services including order entry, warehousing, billing,
customer service and marketing services.
* Expenses for royalties and distribution rights increased to $195,085 in the
quarter ended March 31, 1999 from $61,250 in the quarter ended March 31,
1998, an increase of 218%. This increase was due in large part to an
increase in the guaranteed minimum royalty payment of $122,500 in the
quarter ended March 31, 1999 compared to $61,250 in the quarter ended March
31, 1998. Additionally, we incurred a $70,000 distribution right expense in
the quarter ended March 31, 1999 due to the purchase of rights to
distribute Preventx(TM) in Canada.
* We incurred advertising expenses of $138,762 in the quarter ended March 31,
1999 compared to $4,569 in the quarter ended March 31, 1998. The
advertising expenses incurred in 1999 were primarily due to our emphasis on
marketing and selling our hand sanitizer and antiseptic skin protectant .
COMPARISON OF YEARS ENDED 1998 AND 1997
Our total revenues in 1998 were $9,815 compared to total revenues in 1997
of $13,018. The 1998 amount was attributable primarily to sales of our
preventative products. As a result of the shift in focus in April 1997 to
developing, marketing and distributing only disease preventative products, we do
not believe a comparison of our revenues for the fiscal years ended December 31,
1998 and 1997 are meaningful or that a comparison is indicative of any future
trend in our financial performance.
We incurred a net loss in 1998 of $2,594,880 compared to a net loss of
$2,595,546 in 1997. These losses were due primarily to limited revenues that
were substantially less than our costs of operation. Our net loss per share in
1998 was $0.11 compared to a net loss per share of $0.14 in 1997.
Selling, general and administrative expenses increased to $2,360,536 in the
year ended December 31, 1998 from $1,875,020 in the year ended December 31, 1997
due to the following:
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* Costs associated with salaries and benefits declined to $710,137 in 1998
from $805,642 in the prior year. This decline was primarily due to staff
turnover associated with shifting the organization from an R&D based
organization to an emphasis on sales and marketing.
* Management fees and consulting expenses increased to $296,923 in 1998 from
$118,744 in 1997. This increase resulted from a greater reliance on
independent contractors in 1998 compared to 1997 due to use of contract
sales representatives and product launch consultants.
* Expenses for royalties and distribution rights increased to $518,250 in
1998 from $275,492 in 1997, an increase of approximately 88% over the prior
year. This increase was due in large part to a $245,000 guaranteed minimum
payment in 1998 versus a guaranteed minimum payment of $0 in 1997. Our
agreement with Geda International Marketing Co., Ltd., pursuant to which we
acquired the rights to market and distribute our current line of
preventative products, provides for future minimum guaranteed payments that
increase significantly in each year of the contract. See Note 8 to
Empyrean's Consolidated Financial Statements. As a result, we expect our
expenses for royalties and distribution rights to continue to increase
significantly on an annual basis. Unless we are successful in generating
substantial additional sales of our preventative products, we are also
likely to continue to generate substantial losses from operations.
* As a result of consolidating operations into one leased facility in March
1998, total rent expense, net of sublease income received, declined to
$57,894 in 1998 from $91,912 in 1997.
* Office and administration expenses, which consist primarily of day-to-day
operational expenses, increased to $182,390 in 1998 from $164,096 in 1997.
This increase was due primarily to product launch related expenses.
* We incurred advertising expenses of $154,765 in 1998. No advertising
expenses were recorded in 1997. The advertising expenses incurred in 1998
were primarily due to our emphasis on marketing and selling our new line of
preventative products in order to generate increased sales. We anticipate
that advertising expenses will increase substantially in 1999 as a result
of our increased efforts to market and distribute our new line of
preventative products.
Research and development expenses decreased to $31,425 in 1998 from
$137,349 in 1997, representing a decline of approximately 77%. This decline
represents our shift in focus from research and development of new diagnostic
test kit products to sales and marketing of our new line of preventative
products.
We reported a $28,516 loss on inventory obsolescence in 1998 versus a
$458,800 loss in the prior year. The loss recorded in 1998 primarily reflects a
write-off of PEMVIEW Trichomonas test kits while the loss recorded in 1997
primarily reflects a write-off of HIV test kit components.
We incurred a $209,972 loss on fixed asset disposal in 1998. This loss was
due to a one-time noncash charge for a write-off of certain fixed assets used in
manufacturing and research associated with our discontinued line of diagnostic
products. We recorded a $30,693 loss on fixed asset disposal in 1997 due to
write-offs of abandoned leasehold improvements.
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COMPARISON OF YEARS ENDED 1997 AND 1996
Our revenue increased from $4,693 in 1996, relating to sales of our HIV
diagnostic test kits, to $13,018 in 1997, most of which was due to sales of
PEMVIEW Trichonomas test kits. As discussed above, we have discontinued active
marketing of our diagnostic product line. As a result, the increase in revenues
from 1996 to 1997 is not an indication of future revenue trends due to our shift
in focus from our diagnostic product line to our disease preventative products.
We incurred a net loss in 1997 of $2,595,546 compared to a net loss of
$2,007,172 in 1996. These losses were due primarily to revenues that were
substantially less than our costs of operation. Total expenses increased to
$2,609,485 in 1997 from $2,025,734 in 1996, primarily as a result of recording
two non-cash charges. These charges in 1997 were the write-offs of $458,800 of
HIV test kit inventory components and an uncollectible advance in the amount of
$105,000. Primarily as a result of these charges, our net loss per share
increased to $0.14 in 1997 from $0.13 in 1996.
Management fees and consulting expenses decreased to $118,744 in 1997 from
$308,906 in 1996, representing a 62% decrease from the prior year. This decrease
was due primarily to the employment of a financial controller in 1997 who
assumed the duties previously carried out by a financial consultant in 1996.
Expenses for royalties and distribution rights in 1997 were $275,492,
$200,000 of which represented the purchase of Preventx(TM) distribution rights
from Geda International Marketing Co., Ltd.
Research and development expenses decreased to $137,349 in 1997 from
$177,187 in 1996, representing a decline of approximately 22%. This decline also
reflects our shift in focus from research and development of new diagnostic test
kit products to sales and marketing of our new line of preventative products.
Total rent expense, net of sublease income received, declined to $91,912 in
1997 from $135,577 in 1996 and office and administration expenses decreased to
$164,096 in 1997 from $232,717 in 1996, a decrease of 29%. The decline in office
and administration expenses from 1996 to 1997 was due to the discontinuance of
the use of outside inventory warehouses.
Travel expenses increased to $101,465 in 1997 from $77,812 in 1996, an
increase of 30%, primarily due to increased travel by our chief executive
officer to negotiate distribution rights of new product lines, to obtain
strategic alliance partners for the preventative products line, and to identify
and create alliances with foreign business partners.
LIQUIDITY AND FINANCIAL POSITION
We have been unable to date to generate significant cash flows from our
business operations. As a result, we have funded our operations through investor
financing, including private placements of common stock, convertible debentures,
warrants and options. Until such time as we are able to generate significant
cash flow from operations through increased sales of our products, we will be
required to continue our reliance on investor financing to fund our operations.
In 1998, net cash flow from financing activities decreased by 7% due to
decreased funding from private placements of common stock and exercises of stock
warrants and options. We have pursued additional financing opportunities to fund
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the costs associated with acquiring and marketing our new line of preventative
products. We raised $1,803,039 in 1998 and $1,940,851 in 1997 through financing
activities to fund operations.
At December 31, 1998, cash and cash equivalents totaled $62,793, an
increase of $15,497 from 1997, and at March 31, 1999, cash and cash equivalents
totaled $81,104. Also as of December 31, 1998, current liabilities, consisting
of accounts payable and accrued liabilities, exceeded current assets by
$182,030. Since December 31, 1998, we have funded our operations through private
offerings of securities and a six month bridge loan.
We anticipate incurring a substantial increase in cash outlays associated
with increased marketing and sales of our PREVENTX(TM) preventative product
line. These cash outlays could include, but are not limited to, product
registration costs, advertising, inventory purchases and a sales and marketing
campaign. To maintain our current expenses of approximately $2-3 million per
year and meet the costs associated with our increased marketing and sales
efforts, we will need to raise substantial additional capital during 1999. If we
are unsuccessful in raising the required funds to meet these expenses, we are
likely to be unable to complete the steps necessary to significantly increase
our sales. In that case, our financial condition and results of operations will
deteriorate and our business may ultimately fail.
At March 31, 1999, Empyrean had negative working capital of $761,198 and a
current ratio of 0.40 to 1 as compared to negative working capital of $182,030
and a current ratio of 0.59 to 1 at December 31, 1998. On February 15, 1999,
Empyrean entered into six-month promissory notes with various investors in the
total principal amount of $800,000, payable August 15, 1999. We do not have
existing capital resources or credit lines available that are sufficient to fund
our operations and capital requirements as presently planned over the next
twelve months.
During the three months ended March 31, 1999, net cash used in operating
activities was $991,707 which primarily resulted from a net loss from continuing
operations of $1,660,492 and inventory purchases amounting to $249,764, offset
by non-cash expenses of $681,730 for the granting of stock options to
consultants.
Net cash provided by financing activities for the three months ended March
31, 1999, was $1,011,733 resulting from issuance of short-term promissory notes
totaling $800,000 and $211,733 resulting from issuing common stock and warrants
to various investors in a private placement.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
No recently issued accounting standards have impacted our financial
statements or are currently expected to have a material impact on our financial
statements in the future.
YEAR 2000 COMPLIANCE
The following Year 2000 discussion contains various forward-looking
statements that represent Empyrean's beliefs or expectations regarding future
events. When used in the Year 2000 discussion, the words "believe", "expects",
"estimates" and other similar expressions are intended to identify
forward-looking statements. Forward-looking statements include, without
limitation, Empyrean's expectations as to when it and its significant
distributors, customers and suppliers will complete the implementation and
compliance phases of the Year 2000 Plan, as well as its Year 2000 contingency
plans; and Empyrean's belief that its internal systems and equipment are Year
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2000 compliant. All forward-looking statements involve a number of risks and
uncertainties that could cause actual results to differ materially from the
projected results. Factors that may cause these differences include, but are not
limited to, the availability of qualified personnel and other information
technology resources and the actions of independent third-parties with respect
to Year 2000 problems.
The Year 2000 problem refers to the inability of software to process date
information later than December 31, 1999. Date codes in many software programs
are abbreviated to allow only two digits for the year. Software with
date-sensitive functions that is not Year 2000 compliant may not be able to
distinguish whether "00" means 1900 or 2000. When that happens, some software
will not work at all and other software will suffer critical calculation and
other processing errors. Hardware and other products with embedded chips may
also experience problems.
Empyrean believes that its critical internal systems, including versions of
Quickbooks, Microsoft Exchange and Microsoft Office products, are Year 2000
compliant. In addition, Empyrean tracks the version and updates when available
for these products to ensure Year 2000 compliance.
Empyrean and its service provider, Integrated Commercialization Solutions,
have completed an evaluation of Empyrean's internal systems and equipment that
addresses both information technology systems ("IT") (i.e., business systems and
the software development environment) and non-IT systems (i.e., building
security and HVAC systems) including hardware and software. In addition, we have
completed the upgrade of certain critical systems to meet Year 2000
requirements. Empyrean believes that any future internal Year 2000 costs will be
immaterial.
Empyrean has contacted its manufacturer, Jedmon, who has confirmed that it
is Year 2000 compliant. However, if there is interruption of the manufacturing
process due to Year 2000 computer malfunctions, Empyrean will have no way to
manufacture its product until the problem is corrected or another manufacturer
can be obtained.
Due to Empyrean's Year 2000 analysis, Empyrean has determined that an
internal contingency plan is unnecessary. Empyrean also is in the process of
conducting a review of its suppliers to determine whether the suppliers'
operations and the products and services they provide are Year 2000 compliant.
Empyrean has no practical means to verify the information provided by these
third parties and will pursue those secondary distributors and vendors who have
not yet responded. Based upon these assessments and where practicable, Empyrean
will attempt to mitigate its risks with respect to any suppliers that may not
meet the requirements, including seeking alternative suppliers. However, there
can be no assurance that Empyrean will not experience disruptions in its ability
to conduct business because of the Year 2000 problems experienced by its
distributors or vendors. As a result, these problems remain a possibility and
could have an adverse impact on Empyrean's results of operations and financial
condition. To the extent that its key distributors or vendors experience
problems relative to achieving Year 2000 compliance, Empyrean could suffer
unanticipated additional costs and possible revenue losses.
Some independent sales representatives that Empyrean uses may have
applications that are not Year 2000 compliant. Empyrean does not believe this is
a material concern since product orders currently are either manually written
and submitted verbally or by fax.
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Some commentators have predicted significant litigation regarding Year 2000
compliance issues. Because of the unprecedented nature of such litigation, it is
uncertain whether, or to what extent, Empyrean may be affected.
BUSINESS
OVERVIEW
We develop innovative personal care products that are intended to prevent
the spread of infectious disease. Our current product, the hand sanitizer and
antiseptic skin protectant, as well as those under development, are intended to
be sold over-the-counter in the retail markets and also to various institutional
customers. Our current product is marketed as a hand sanitizer and antiseptic
skin protectant product sold under our Preventx(TM) name. We are also utilizing
the proprietary formula used in our innovative hand sanitizer and antiseptic
skin protectant product to develop a variety of other products utilizing similar
chemical formulations as well as other formulations, including a contraceptive
gel designed to prevent pregnancy and sexually transmitted diseases (STDs), a
disinfectant surface spray to be marketed to the retail markets and also to the
food service, hotel and other industries, and a baby wipe product.
The contraceptive gel has been accepted by the National Institutes of
Health (NIH) to undergo phase III clinical trials to prove its safety and its
effectiveness against STDs and as a contraceptive. The first two phases of the
multi-million dollar, three phase clinical trials have been completed with
seemingly positive results from the standpoint of safety and in vitro
effectiveness. The results of the Phase I and II studies, which were not
conducted by the NIH, have been confirmed by the NIH. The Phase III study and
the confirmations of the Phase I and Phase II studies have and will continue to
be funded by the NIH.
We believe that our preventative technology will be shown to be both safer
and more effective as an antimicrobicide than existing competitive products in
the market and offers us a platform to leverage our expertise into other areas
of the infectious disease market such as treatment and curative products. Future
products could include deodorant, shaving cream, moist towelettes, toothpaste
and mouthwash products.
The spread of infectious disease has become a major concern in many
industries, including the health care, food service and public accommodation
industries. Bacterial contamination has become an issue of heightened public
concern as well. This concern is fueled by the prevalence or re-emergence of
several deadly diseases in recent years, including HIV, the causative agent of
acquired immune deficiency syndrome ("AIDS"), Hepatitis, and other diseases.
A major source for transmission of infection is by the bacterial flora on
the skin, primarily the hands. Skin has two types of microbial flora, resident
(or colonizing) flora and transient (or contaminating) flora. Resident flora is
relatively stable and is not readily removed, although it can be inactivated by
antiseptics. Transient flora, on the other hand, can be acquired by contact,
does not colonize, and is easier to remove by physical or chemical means.
Infections can arise from either group. The primary means to avoid the spread of
contamination of microorganisms is through regular hand washing and the use of
barriers such as latex gloves. Poor compliance with normal hand washing
protocols and the porous nature of protective gloves limit their effectiveness.
In addition, many effective antiseptics cannot be used on skin or other surfaces
because they are too toxic for routine use or lead to undesirable side effects.
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We believe that the proprietary formulation used in our existing hand
sanitizer and antiseptic skin protectant product and in our other disease
preventative products under development has the potential to offer several
unique advantages over other products currently available in the market, in that
our formulation (i) may protect skin and surfaces from a broader range of
harmful microorganisms and infectious diseases, (ii) may be longer lasting and
more effective, (iii) is alcohol and triclosan free, and as a result may be
relatively non-irritating and may avoid safety concerns such as flammability,
and (iv) may be virtually non-toxic and safer for use around children and in
food preparation and medical applications. Our basic product formulation
utilizes benzalkonium chloride as its active ingredient, which has been
recognized to be effective at killing harmful microorganisms and, we believe, is
safe and offers greater versatility in assisting the healing of minor cuts and
abrasions.
We will attempt to capture a significant percentage of the infectious
disease preventative markets in which we compete by developing superior products
based on our proprietary compounds in large or rapidly growing market segments,
by developing brand awareness for our products, and by leveraging our name and
product recognition into compatible consumer product applications and into other
products intended to treat or cure infectious disease. We believe that by
offering unique products that may offer increased protection against infectious
disease, while at the same time eliminating many of the discomforts and side
effects caused by existing products on the market, we can increase the demand
for over-the-counter disease preventative products and position ourselves to
benefit from this expansion.
Our hand sanitizer and antiseptic skin protectant product is intended to be
sold to retailers and to various institutional customers such as health care
personnel (physicians and dentists, nurses, laboratory technicians and emergency
medical staff, among others), hotels, airlines, food service companies and
restaurants, cruise lines, banks, casinos and other money handling entities,
police departments, emergency response, correctional facilities and other city
services industries. Our contraceptive gel will be marketed primarily to
retailers and to contraceptive product manufacturers. Our disinfectant spray
product will be marketed to consumers and to many of the same institutions and
other customers to whom our hand sanitizer and antiseptic skin protectant
products are currently being marketed. Our primary focus in developing and
marketing our products is to create brand awareness among consumers and to
establish relationships with wholesalers and volume buying organizations (such
as health maintenance organizations, hospital buying groups, hotel and
restaurant chains, and municipal service agencies).
We market and distribute our current product, and intend to market and
distribute our products currently under development, primarily through third
party distributors and marketing partners, and through our own internal sales
and sales support efforts. We currently have a marketing and distribution
relationship with Integrated Commercialization Solutions, a division of Bergen
Brunswig Corporation ("ICS"). ICS provides product marketing and a variety of
logistical services for us and also distributes our products in the United
States and abroad. We also have distribution relationships with 27 other third
party distributors in the United States and twelve foreign countries who
together employ approximately 500 sales people.
INDUSTRY BACKGROUND
SANITIZER MARKET
Sales of hand sanitizer and antiseptic skin protectants were estimated to
be approximately $400 million in the United States and $800 million worldwide in
1998. It is estimated in some industry studies that the market for hand
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sanitizer and antiseptic skin protectants will grow to approximately $1 billion
in annual sales worldwide by 2000, $600 million of which will be in the United
States. We believe that the growth in the sanitizer market will be driven by the
availability of effective products that are also both safe and free of
undesirable side effects.
The dominant products in the sanitizer market today are topically applied
hand sanitizing lotions or creams containing alcohol. These products are sold
primarily in the over-the-counter market, typically in plastic bottles ranging
from two to sixteen ounces each, and in larger volume or bulk forms in
industrial and institutional settings, such as large pump dispensers and wall
mounted dispensers.
Currently marketed hand sanitizer and antiseptic skin protectants or
antimicrobial lotions are designed to protect the skin against various disease
causing microorganisms, including E. COLI, SALMONELLA, STAPH AUREAS,
K-PNEUMONIA, AND PSEUDOMONAS AERUGINOSA. These products typically are not
intended as a cleaner, like soap products, but are intended solely to kill germs
on contact. Sanitizer products can be used in a number of situations where the
spread of disease is a particular concern, such as in the food service, health
care and public accommodation industries, and in settings where water or
facilities are not available for conventional hand or body washing. The market
for personal sanitizing (or antimicrobial) products has increased rapidly in
recent years due in part to increasing concerns and public awareness and media
reports of dangerous and sometimes deadly bacterial or viral contaminations in
common or frequently populated areas.
Of the hand sanitizer and antiseptic skin protectant products currently on
the market today, most use as their active ingredient either alcohol or
triclosan. The typical alcohol concentration in these product is over 60%.
Institutional use hand sanitizer and antiseptic skin protectants may also
utilize chloroxylenol or nonoxynol-9 as active ingredients. Products based on
these active ingredients can cause a number of undesirable side effects,
including dry skin conditions and other skin irritations such as burning,
itching and stinging. Many of these products, including all alcohol based
products, are flammable until dry, which can lead to limitations on use and to
risks of serious personal injury, and are also painful when applied to existing
cuts, burns, or abrasions. Products using alcohol and triclosan also have
limited effectiveness, as the range of infectious disease-causing germs with
which they react are more limited, and often do not include STDs. This can lead
to a false sense of continued disease protection in periods after application.
In fact, due primarily to their drying effect, products containing alcohol or
triclosan can actually increase vulnerability to infection after repeated use.
Triclosan based products also must be compounded with a form of alcohol or
organic solvent because they are not water soluble and the presence of water can
prevent the release of bactericidal potency in them. This can lead to the
development of environments where bacteria can mutate and the re-growth of
antiseptic tolerant bacteria can occur. In recent years, there have been at
least three product recalls of triclosan-based products, two of which were the
result of PSEUDOMONAS found growing in the product.
Current products in the surface spray category include well known brand
names such as Lysol and Dial. It is a large market with no one product
dominating the segment. Our disinfectant surface spray, which is identical to
our hand sanitizer and antiseptic skin protectant except for the viscosity of
the product, is designed to be used in personal spray-size applications. It can
be used on surface areas typically containing large amounts of bacterial or
other contamination such as public telephones, toilet areas, and diaper changing
areas. It can also be used in institutional applications for surface areas such
as medical patient care areas, food service preparation areas (sinks and counter
tops), and similar locations.
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Existing sales of disinfectant type surface sprays were approximately $2.3
billion in the United States and $5 billion worldwide in 1998, according to
MMR/IRI magazine. We also believe that our surface spray product can increase
the market for these types of products due to its non-toxic qualities, which
make it available for more extensive use in the food service and health care
industries, among others.
CONTRACEPTIVE PRODUCTS
The contraceptive market consists of two general categories, oral
contraceptives (available only through prescription) and over-the-counter
contraceptive products such as gels, condoms and similar products that do not
require a prescription. Sales of oral contraceptives were approximately $1.5
billion in 1998 in the United States. Sales of over-the-counter contraceptive
products were approximately $690 million worldwide in 1998, with approximately
$261 million of that in the United States. We expect to compete and expand in
the over-the-counter segment of the contraceptive market with our vaginal
contraceptive and disease preventative gel, which has completed the first two of
three-phases of clinical trials to determine its safety and effectiveness as a
contraceptive and against the prevention of STDs in order to seek regulatory
approval in the United States and in various foreign countries.
To our knowledge, all over-the-counter (and prescription) contraceptive
products on the market today are effective only as a spermicide and are not
designed or claim to act as a barrier against STDs or other infectious diseases.
Some reports have suggested that the use of nonoxynol-9, the common active
ingredient in many contraceptive gel products, may actually increase the risk of
STD transmission.
It has been widely reported that the United States, like many other
countries, is experiencing an epidemic of STDs, including the HIV virus,
Gonorrhea, Syphilis, Chlamydia, Trichomonas vaginalis, and Herpes. According to
statistics compiled by the World Health Organization in 1997 and by the United
States Center for Disease Control in 1998, approximately 16 million new cases of
HIV infection, 170 million new cases of Trichomonas, 150 million new cases of
Chlamydia, 55 million new cases of Gonorrhea, 7 million new cases of Syphilis
and 40 million new cases of genital Herpes are experienced worldwide each year,
and one in five adults in the United States now has genital Herpes. In the
September 10, 1998 edition of the NEW ENGLAND JOURNAL OF MEDICINE, it was
reported that 9.2% of 13,204 female U.S. Army recruits tested were found to be
infected with Chlamydia, a disease that can lead to infertility. In the December
14, 1998 issue of U.S. NEWS AND WORLD REPORT, it was reported that according to
a leading public health study, at least one in every eight sexually active
people will contract an STD by the age of 24. The estimates of the number of
people contracting STDs are thought by many experts to be conservative, since it
is believed that many people either choose not to discuss these diseases with
their physicians or are unaware of them. The latter problem is particularly
acute with respect to the two STDs that together are thought to account for up
to two-thirds of all new STD infections each year, TRICHOMONIASIS VAGINALIS and
the human PAPILLOMA virus. STDs can cause a variety of serious complications,
including cancers, infertility, ectopic pregnancy, spontaneous abortions, still
birth, low birth weight, and even death.
The most common front-line defense against STDs among over-the-counter
alternatives is the condom. Condoms do not kill STDs or other infectious
disease, but can act as a barrier against disease transmission and are often
purchased by consumers for that purpose. However, studies show that condoms are
only successful about two-thirds of the time in preventing disease transmission,
and the rate of use in the general population has never exceeded 50%. Condoms
are relatively porous, containing pore sizes ranging from 5 to 70 microns in
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size. In contrast, an HIV particle is typically as small as .005 microns in size
and can easily penetrate condom surfaces, as can many other STDs.
Other over-the-counter gels and salves have recently been introduced which
are intended to kill bacteria and viruses that cause certain STDs, primarily the
HIV virus. Currently, most of these products utilize nonoxynol-9 as an active
ingredient. Recent studies have indicated that although products containing
nonoxynol-9 have been shown to kill HIV and other STDs IN VITRO, nonoxynol-9 may
not have the same effect IN VIVO and might actually increase the risk of
contracting HIV. At certain doses, nonoxynol-9 also can cause ulcerations,
lesions, and other uncomfortable irritations. As a result of current research
findings, the New York State Health Department is reconsidering its prior
endorsement of nonoxynol-9, and the United States Center for Disease Control and
Prevention currently does not endorse the use of nonoxynol-9 without a condom
for protection from HIV.
MARKET OPPORTUNITIES
Infectious disease is the leading health problem in the world, leading to
more deaths and serious health conditions than any other high profile disease,
including heart disease and cancer. In 1997, there were over 2.4 million
infections and 30,000 deaths in the United States alone resulting from
nosocomial contamination (infections contracted at a hospital or doctor's office
which are unrelated to the purpose of a patient's visit) and another 80 million
cases of food poisoning in the United States, 10,000 of which resulted in death.
According to industry studies, in the United States the average cost of treating
nosocomial infections was $2,300 per incident, or $8 billion in annual direct
costs. The total cost of food-borne illnesses in the United States was $20
billion in 1997. Developing inexpensive, effective and safe solutions to these
diseases will, we believe, satisfy a large unmet market need that is being
driven by the frequency and seriousness of public reports of infectious disease
contamination in common public venues, such as hotels, public restrooms, and
food service establishments. In addition, the development of a contraceptive gel
that also prevents STDs has become a high priority of the United States and many
other state and foreign governments and public health groups, and by the
industry. According to a December 1998 report of the American Social Health
Association, there are approximately 15 million new cases of STDs in the U.S.
annually. The direct medical cost of treating these STDs and their complications
is reported to be $8.4 billion annually.
THE EMPYREAN SOLUTION
Most of our preventative products utilize the same active ingredient,
benzalkonium chloride, and have the potential to provide exceptional safety and
efficacy qualities lacking in most competitive products, while at the same time
addressing certain limitations of competitive products. Our contraceptive gel
will utilize octoxynol-9 and benzalkonium chloride as its active ingredients (if
the NIH phase III clinical trial is initiated and successfully completed and
shows the safety and effectiveness of the product as a contraceptive and against
STDs, and a new drug application is filed with and approved by the FDA).
Octoxynol-9 is a detergent-like chemical that attacks the outer membrane of
microorganisms allowing benzalkonium chloride to reduce harmful microorganisms.
Most microorganisms are reduced after application or contact with the
product. Our product formulation does not utilize alcohol, triclosan or other
organic solvents, which are commonly used in competitive products. Our alcohol
and triclosan-free products do not appear to cause many of the skin conditions
and side effects of competitive products, such as dry skin and burning and
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itching irritations. Our products may offer protection against the spread of
nearly all harmful microorganisms on the skin. In addition, our products are
non-flammable, allowing for use in many settings otherwise unsuitable for
competitive products. All of our products under development, and all of the
product innovations planned for development in the future, will be based on our
existing basic product and manufacturing formulations, thus creating an
opportunity for faster entry into compatible market opportunities.
BUSINESS STRATEGY
Our goal is to achieve a position in the retail and institutional markets
for over-the-counter disease preventative and contraceptive products, and to
leverage our position to enter other markets for infectious disease therapeutic
and curative products. We intend to pursue this goal by increasing the demand
for effective and safe disease preventative products and by increasing the
number of our products used to prevent infectious disease. Our business strategy
consists of the following key elements:
* DEVELOP BRAND AWARENESS AND MARKET ACCEPTANCE FOR PREVENTX(TM). We believe
that we can develop brand awareness and market acceptance of our unique
antimicrobial products among consumers and institutional customers. We
intend to develop brand awareness and acceptance by offering superior
products that are both more effective in protecting against infectious
disease and safer with more pleasing qualities than competitive products.
We also intend to develop brand awareness and market acceptance of our
products by expanding our network of United States and international
distributors and by entering into strategic relationships with other
parties who can increase significantly marketing, sales and distribution
resources.
* APPLY CORE FORMULATIONS TO ADDITIONAL PRODUCT APPLICATIONS. Almost all of
our infectious disease preventative products are based on a common product
formulation, which is proprietary and licensed exclusively to us by third
parties. Our contraceptive gel has octoxynol-9 and benzalkonium chloride as
its active ingredients. We intend to continue to leverage the brand
awareness and market acceptance of our hand sanitizer and antiseptic skin
protectant product to create market demand for our complementary baby
wipes, surface spray product and our contraceptive gel product, all of
which will be developed using manufacturing and packaging variations. We
intend to leverage the future success of these products through the
introduction of a variety of compatible personal care product formulations,
such as deodorant, shaving cream, moist towelettes, toothpaste and
mouthwash products.
* DEVELOP NEW TECHNOLOGIES. We intend to utilize our expertise in the
research and development of infectious disease to develop products and
technologies that address other aspects of infectious disease. We believe
that our expertise and the market acceptance of our infectious disease
preventative products will result in additional product and strategic
opportunities that will fill other unmet needs in the market.
* LEVERAGE RESOURCES THROUGH STRATEGIC RELATIONSHIP AND ACQUISITIONS. We
intend to build our business in part through the acquisition of
complementary technologies, products and businesses and by entering into
strategic collaborations, including additional licensing and marketing
arrangements, with other biotechnology companies and research institutions.
We believe that these acquisitions and relationships will better enable us
to enter markets more quickly and extensively. We also believe that
significant acquisition and strategic partnering opportunities exist in the
infectious disease industry. We are not currently in active discussions
with possible acquisition or strategic partnering candidates.
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PRODUCTS AND TECHNOLOGIES
To date, we have introduced one product, the Preventx(TM) hand sanitizer
and antiseptic skin protectant. We are developing three additional preventative
products, our surface spray disinfectant, baby wipes, and our contraceptive gel,
each of which will be undergoing clinical trials and for each of which we will
have to obtain regulatory approval prior to marketing. Each of these products is
described below.
CURRENT DISEASE PREVENTATIVE PRODUCTS
PREVENTX(TM) HAND SANITIZER AND ANTISEPTIC SKIN PROTECTANT
Our hand sanitizer and antiseptic skin protectant product was launched in
the United States in March 1999 and we expect to launch it in consumer markets
in Western Europe, Japan and in certain other Far Eastern countries in the third
quarter of 1999. We recently entered into an exclusive distribution agreement
for Southeast Asia with Durstrand International Limited. The agreement includes
minimum product purchase requirements that must be met in order to retain
exclusivity, as well as sub-licensing payment requirements. We expect that our
product will be launched in Southeast Asian countries upon receipt of required
regulatory approvals.
Our hand sanitizer and antiseptic skin protectant is commonly applied in
small quantities and rubbed into the hands. We also recommend use of the product
in the medical and food service industries along with latex gloves as a
secondary barrier against infection. Our product decreases the risks associated
with glove degradation, tears or cuts, and large latex pore sizes. Because our
formula may be virtually non-toxic, it can be used safely in food preparation
areas and around medical patients. Our hand sanitizer and antiseptic skin
protectant will not damage latex gloves or other products.
Our hand sanitizer and antiseptic skin protectant product, unlike most
competitive products, does not include as its active ingredient alcohol,
triclosan, or other organic solvents. The benefits of utilizing an alcohol free
and triclosan free formulation are many, and include:
* Our hand sanitizer and antiseptic skin protectant provides a protective
skin barrier. In contrast, alcohol and triclosan based products typically
lose effectiveness after drying, which typically lasts approximately
fifteen seconds. Thus, our product requires less frequent re-application.
* Our formulation does not dry out the skin and does not cause any decreased
germ resistance. Alcohol and triclosan based products have been shown to
actually increase the risk of infectious disease after repeated use, as the
drying nature of these ingredients can strip skin of its natural barrier
and cause microscopic cracks in the skin, which act as an environment for
disease-causing germs that colonize the skin. In addition, triclosan based
products have been found to cause decreased resistance to bacteria and the
mutation of some germs.
* Our product is non-flammable and thus reduces the personal injury risks
associated with alcohol-based products and increases the institutional and
consumer settings where a hand sanitizer and antiseptic skin protectant
product can safely and conveniently be applied and stored. Alcohol-based
products are highly flammable at the concentrations used (minimum
concentrations of 60%) until dry, at which time they lose effectiveness.
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* Our hand sanitizer and antiseptic skin protectant not only alleviates dry
skin conditions caused by alcohol or triclosan based products, it actually
helps nourish, moisturize, and heal damaged skin and does not cause many of
the skin irritations associated with competitive products, including
itching, stinging and burning. We incorporate aloe vera into our hand
sanitizer and antiseptic skin protectant product to further promote its
soothing effects. In addition, our product helps to heal minor cuts, burns,
and abrasions, in contrast to alcohol based products which can cause
painful discomfort when in contact with minor skin injuries. Our hand
sanitizer and antiseptic skin protectant also does not cause irritation to
mucosal tissues in the nose and eyes, unlike alcohol and triclosan based
products.
Our hand sanitizer and antiseptic skin protectant is sold at retail in 2
and 8 ounce plastic bottles, and in the institutional markets in 2, 8, 16 and 32
ounce bottles. We will also provide a bulk refillable dispenser that dispenses
pre-measured lotion.
DISEASE PREVENTATIVE PRODUCTS UNDER DEVELOPMENT
BABY WIPES
Utilizing the same active ingredient as the hand sanitizer and antiseptic
skin protectant, we are developing a non-toxic, long lasting baby wipe for the
retail market. We believe that FDA regulatory approval of a benzalkonium
chloride-containing baby wipe product as a prevention for diaper rash, if sought
and obtained, would give the Preventx(TM) baby wipe a significant advantage over
alcohol-based wipes on the market today.
SURFACE SPRAY DISINFECTANT
We have developed a surface spray disinfectant which utilizes the same key
active ingredient formulation as our hand sanitizer and antiseptic skin
protectant product. Our surface spray disinfectant does not contain the
thickening and aloe vera additives contained in our hand sanitizer and
antiseptic skin protectant, making it suitable for a pump spray application. The
pump spray will be packaged in smaller dispensers for personal use applications
around common dangerous germ concentrations such as public telephones, public
restrooms, and diaper changing areas, and for institutional applications such as
food service surfaces, hotel facilities, and surfaces where medical services are
performed. The spray will be marketed in 2 and 8 ounce sizes.
Our disinfectant surface spray has all of the same advantages as our hand
sanitizer and antiseptic skin protectant product, and is particularly suited for
uses in the food service, medical and hotel industries where safety and toxicity
are major concerns. Current competitive products include a variety of caustic
household or industrial surface cleaning products, all of which are toxic and
generally cannot be used in contact with food preparation or medical care areas
without caution. In addition, our disinfectant pump spray product is not harmful
to common surfaces such as sinks, counters, trays, furniture, or other objects.
We expect to launch our surface spray disinfectant product in the United
States after obtaining approval from the Environmental Protection Agency (EPA).
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MICROBICIDAL CONTRACEPTIVE GEL
Our gel has been developed and we anticipate initiation of a Phase III
clinical trial with the National Institute of Allergy and Infectious Disease
(NIAID) of the National Institutes of Health. The clinical trial, if conducted,
will determine whether the gel effectively kills a host of STDs and other
infectious diseases, in addition to its contraceptive properties, and is safe.
We are aware of no other approved competitive products that make both claims,
which would, if successful, make the gel a unique product in the
over-the-counter contraceptive market. Upon initiation and successful completion
of the Phase III clinical trial and results showing safety and effectiveness, we
will file a new drug application ("NDA") with the FDA for its approval. We
cannot assure you of any of the following:
* the NIH study will either be initiated or successfully completed,
* the study's results will be positive,
* we will file an NDA for the product, or
* any NDA we do file will be approved by the FDA.
The gel would be marketed primarily in the retail, over-the-counter market
in 120 ml tubes, and in single use, pre-filled applicators. We would market the
product in bulk quantities to condom manufacturers to be used as a coating
inside the condom wrapper, thus enhancing the effectiveness of condoms as a
disease preventative and enabling condom manufacturers to make additional
product claims.
As with competing hand sanitizer and antiseptic skin protectant products,
existing contraceptive gel products utilize active ingredients (typically
nonoxynol-9) that can cause lesions, ulcerations, and other skin irritations.
These irritations can in turn facilitate infections. Our gel's active
ingredients act synergistically as a microbicide and spermicide. In addition,
only small amounts are needed, limiting the possibility of skin irritations. In
pre-clinical safety studies, our gel was found to cause no damage to squamous or
columnar mucosa cells. The gel is compatible with latex condoms.
The introduction of an effective and safe microbicidal contraceptive gel is
a high priority for many governmental agencies and public health care advocacy
groups. We believe that if the NIH studies are successfully completed and FDA
approval is obtained, we will be able to offer a product that can capture
significant market share and also increase the market for non-prescription
contraceptive products. We expect to launch our contraceptive gel product if we
receive FDA approval, although no assurance can be given that we will ever
achieve such approval. The gel is currently approved for sale in Canada as a
contraceptive; however, no claims are made by us regarding the microbicidal
properties of the product at this time.
ADDITIONAL PRODUCTS UNDER CONSIDERATION
We are investigating the use of our proprietary product formulation as a
platform to develop a variety of common personal care products. These products
may include deodorants, shaving creams, moist towelettes, toothpastes and
mouthwashes.
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SALES AND MARKETING
We market our products in the United States, Canada, Southeast Asia,
Mexico, Russia and Turkey to both the retail over-the-counter market through
third party distributors, and to institutional customers through the use of
distributors and sales agents and through our internal sales efforts. Our direct
sales and executive management personnel lend sales support to our distributors
and third party sales agents by making direct sales calls on large buying
organizations such as municipal or other governmental service providers, HMOs
and hospital buying groups, physician and school districts, airlines and cruise
lines, and wholesale buyers and mass merchandisers.
Within the United States our existing product is sold through ICS and
third-party distributors that collectively employ approximately 500 sales
representatives. We will attempt to distribute our products under development,
upon obtaining regulatory approval, through multiple distributor networks.
Internationally, we are represented by five third party distributors in multiple
foreign countries who collectively employ approximately 500 sales
representatives. Our foreign distributors are generally granted exclusive rights
in designated territories and are responsible for obtaining and maintaining
required foreign regulatory approvals for our products.
We typically sell inventories to third party distributors against
forecasted sales volumes at negotiated transfer prices, and the products are
then re-sold by the distributors to end users or other sub-distributors. Our
independent distributors are generally free to sell other products that do not
compete directly with our products.
Upon launch of our products, we undertake a high volume direct marketing
program, in cooperation with our dealers, consisting of direct mailings of
product announcements and introductory buying programs, pricing sheets, and
other product offers, followed by sales calls and other written and verbal
contacts that are targeted to specific types of buyers. We also provide product
samples and seek to create product awareness through trade show presentations,
participation in public health studies, and through direct contact with various
media outlets. We also operate an Internet web site which provides useful
information about our current products and those under development, as well as
about us and our management. Information on our web site is not part of this
joint proxy statement/prospectus.
STRATEGIC RELATIONSHIPS
GEDA LICENSE
We currently license on an exclusive basis our proprietary product and
manufacturing formulations used in our disease preventative products from Geda
International Marketing Co., Ltd., a Bahamian company ("Geda"). The license
agreement allows us to make, use, and sell the products formulated on this
technology and to sub-license others to do so. The license agreement requires us
to pay licensor royalties and a portion of certain sub-licensing fees and other
payments collected by us from joint venture relationships. The license agreement
covers the world except for Hong Kong, Taiwan, Africa, Mexico, the Dominion
Republic and, as to the sale of the anti microbial hand lotion, the United
States (we have subsequently acquired sub-licensing rights in the U.S.). The
term of the license extends to April 29, 2007, subject to various renewal
options for additional 10 year terms. Under the license agreement, we are
required to pay certain minimum royalties in order to maintain exclusivity. The
agreement also grants to us a right of first refusal to acquire the licensed
technology if the licensor decides to sell it.
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We are involved in certain litigation concerning this license, the adverse
outcome of which could have a material adverse effect on our business. See "Risk
Factors -- One of Our Primary Licenses May Be Adversely Affected by Current
Litigation And We Could Lose A Portion of Our Rights to Make or Sell Our Primary
Products," and "Business -- Legal Proceedings."
PREVENT-X LICENSE
In July 1998, we entered into a sub-license agreement with Prevent-X, Inc.,
a Miami, Florida based marketing company. This agreement provides us with
exclusive rights to make, market, and sell our hand sanitizer and antiseptic
skin protectant product in the United States (which rights were previously
licensed to Prevent-X by Geda). This licensing agreement also licenses us to use
the Preventx(TM) trade name, marks and logos. We acquired these rights in
exchange for up-front payments of our common stock, cash, and continuing royalty
payments. The initial term of the agreement is ten years, based on Empyrean
meeting the conditions of the agreement.
ICS ALLIANCE
In October 1998, we entered into a letter of intent with Integrated
Commercialization Solutions ("ICS"), a division of Bergen Brunswig Corporation.
ICS provides us with a portfolio of outsourcing and marketing resources
including finished goods warehousing, customer service, order processing and
distribution, invoicing and accounts receivable management. ICS has also
provided us with product sampling and other marketing assistance. The
arrangement covers all of our disease preventive products. In exchange for its
services, we will pay various fees to ICS, some of which will be paid as a
percentage of product sales. We are currently negotiating a definitive agreement
with ICS.
DURSTRAND INTERNATIONAL LIMITED
On April 28, 1999, we entered into a distribution agreement with Durstrand
International Limited, a British Virgin Islands company with offices throughout
the world. The agreement provides Durstrand with exclusive rights for three
years and automatic renewal for two additional ten-year terms if the agreement's
provisions are met by both parties, to distribute the Preventx Hand Sanitizer
and Antiseptic Skin Protectant and, when approved by the appropriate regulatory
bodies, our contraceptive gel in The Phillippines, Singapore, Thailand,
Indonesia, Malaysia, Cambodia, Myanmar and Vietnam. Durstrand paid $600,000 for
the exclusive rights to the Preventx Hand Sanitizer and Antiseptic Skin
Protectant and will pay $600,000 for the contraceptive gel 120 days following
approval of certain claims by the FDA. Durstrand has agreed to purchase a
minimum of $4,400,000 of either product over the three-year term.
MANUFACTURING AND QUALITY CONTROL
PREVENTATIVE PRODUCTS
The manufacturing of our hand sanitizer and antiseptic skin protectant,
contraceptive gel, and disinfectant surface spray has and will be performed to
our specifications by a contract manufacturer, Canadian Custom Packaging
("CCP"), a Canadian entity located in Toronto, Ontario. CCP performs production
and filling of product into tubes and bottles, labeling and packaging. All of
the raw materials used in the formulation are acquired by CCP to our
specifications. We believe that the raw materials for our products are readily
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obtainable from a variety of sources and we have experienced no difficulties or
unexpected costs to date in acquiring the raw materials. CCP's manufacturing
facility is required to meet, and currently meets, good manufacturing practices
("GMP") including regulations adopted by the FDA and is subject to periodic
inspection by the agency. It is also ISO 9001 certified. There can be no
assurance that CCP will continue to meet these requirements, and the failure to
meet current governmental regulations regarding manufacturing of our products
could cause significant disruptions and costs to be incurred by us, and could
cause a material loss of sales and customers. Our use of contract manufacturing
poses other significant risks. See "Risk Factors -- We Have No Internal
Manufacturing Capability and Depend Heavily Upon Third Party Suppliers."
RESEARCH AND DEVELOPMENT
We currently focus all of our limited research and development resources
and efforts on our PREVENTX(TM) antimicrobial and contraceptive products. In
addition to our internal research and development, we intend to pursue strategic
relationships with biotechnology companies and research institutions with
respect to further research and development of our product variations and future
products, and to seek funding from such partners.
PROPRIETARY RIGHTS
We license all of the proprietary product and manufacturing formulas used
in our disease preventative products from third parties. To date, we hold no
patents on our products and formulas. These products utilize common compounds in
a formula that we believe are difficult to copy and manufacture. Our proprietary
formulas are primarily protected by trade secret protections and through
contractual confidentiality obligations, when obtainable, of our employees,
contracting parties, independent contractors and other collaborators. We rely on
trade secret protection, confidentiality obligations, know-how, and continuing
technological innovations and licensing opportunities to develop and maintain
our competitive position. We are reviewing the feasibility of obtaining future
patent protection with respect to some of our proprietary rights. Without
adequate trade secret or patent protection, competitors may be able to produce
products competing with our products without infringing on our proprietary
rights. The lack of patent protection poses certain risks to us. See "Risk
Factors -- The Protection Of Our Proprietary Rights To Our Products May Not Be
Complete."
GOVERNMENT REGULATION
The products we market and intend to market are subject to regulatory
approval in both the United States and in foreign countries. The following
discussion outlines the various kinds of reviews to which our products may be
subjected to prior to receiving approval for marketing in the United States and
abroad. Certain of our collaborative partners in foreign countries will be
responsible for preparing and processing regulatory submissions for countries
located in their respective territories.
REQUIREMENTS IN THE UNITED STATES
The production, distribution and marketing of our products and our research
and development activities are subject to regulation for safety, effectiveness
and quality by numerous governmental authorities in the United States and other
countries. In the United States, drugs are subject to extensive federal
regulation, ordinarily including the requirement of approval by the FDA before
marketing may begin, and, to a lesser extent, state regulation. The Federal
Food, Drug, and Cosmetic Act (the "Food and Drug Act") and the regulations
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promulgated thereunder, and other federal and state statutes and regulations
govern, among other things, the testing, manufacture, safety, efficacy,
labeling, distribution, storage, record keeping, approval, advertising,
marketing, and sale of our products. Product development and approval within the
regulatory scheme, if successful, will take a number of years and involve the
expenditure of substantial resources.
The standard process required by the FDA before a drug may be marketed in
the United States includes (i) preclinical laboratory and animal tests; (ii)
submission to the FDA of an application for an investigational new drug, which
must become effective before testing of the drug in people may begin; (iii)
preliminary testing of the drug in people to evaluate the drug and its manner of
use; and (iv) adequate and well-controlled testing of the drug in people to
establish the safety and effectiveness of the drug for its intended indication.
If the product is regulated as a prescription drug, or in some cases as an
over-the-counter ("OTC") drug, the Food and Drug Act ordinarily requires the
submission and approval of a New Drug Application ("NDA") or an abbreviated NDA
(for duplicate versions of "pioneer" drug products) before commercial marketing
may begin. As part of the NDA process, the manufacturer is required to
accumulate, and submit to the FDA for review and approval in the form of an NDA,
a significant amount of safety and effectiveness data from laboratory/animal
testing and clinical studies; detailed information concerning product
composition, stability, and manufacturing; and other information including
proposed labeling. Abbreviated NDAs do not require their own clinical safety and
effectiveness data. Each domestic and foreign manufacturing establishment
including contract manufacturers for us must also be registered with the FDA and
pass an inspection by the FDA prior to approval for commercial distribution.
Domestic and foreign manufacturing establishments are subject to
inspections by the FDA and by other federal agencies and by state and local
agencies, and must comply with current good manufacturing practice ("GMP")
requirements. If violations of applicable requirements are noted by the FDA or
other agencies during an inspection, distribution of clinical materials for
investigational use or production lots for commercial use may be halted and,
possibly, other sanctions imposed. Commercial marketing of perhaps all of our
products, depending on ingredients, claims, and the outcome of the FDA's OTC
Drug Review, may occur only after approval of NDAs following the submission of a
complete application. The NDA internal review process frequently takes two to
four years to complete, or longer and the FDA may require us to perform
additional studies to gain approval which may take several years to complete.
There can be no assurance of FDA approval at the end of such time, or ever, and
stringent requirements, violation of which may result in severe civil and
criminal penalties, continue to apply even after approval. See "Risks Factors --
Risks Relating to Empyrean's Business -- Government Regulation."
Moreover, we are, or may become, subject to various federal, state and
local laws, regulations and recommendations relating to safe working conditions,
laboratory and manufacturing practices, the experimental use of animals and the
use, storage, handling and disposal of waste and hazardous substances used in
conjunction with our research work.
Most OTC drug products marketed in the United States are not subjected to
the Food and Drug Act's premarket approval requirements. In 1972, the FDA
instituted the ongoing OTC Drug Review to evaluate the safety and effectiveness
of OTC drugs then on the market. Through this process, the FDA issues monographs
(regulations) that set forth the specific active ingredients, dosages,
indications and labeling statements for OTC drugs that the FDA will consider
generally recognized as safe and effective and not misbranded and therefore not
subject to premarket approval. For certain categories of OTC drugs not yet
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subject to a final regulation, the FDA usually will not take regulatory action
against such a product unless failure to do so poses a potential health hazard
to consumers. OTC drugs not covered by proposed or final OTC regulations,
however, are subject to premarket review and approval by the FDA through the NDA
or abbreviated NDA process.
Our active ingredient, benzalkonium chloride, is included in the FDA's
proposed regulation for first aid antiseptic drug products, but with different
claims than ours. There can be no assurance that benzalkonium chloride will be
included in the final regulation or that the permitted claims will be the same
as ours. Further, the FDA declined to include benzalkonium chloride in its
proposed regulation for health care antiseptic drug products, which include
antiseptic handwash or health-care personnel handwash drug products. Even though
we intend to ask the FDA to reopen the record of the proceeding to consider
additional safety and effectiveness data (which we have completed and plan to
supply), we cannot assure you that the FDA will reopen the record or that if it
does, it will include benzalkonium chloride in the final regulation or that the
permitted claims will be the same as ours. If benzalkonium chloride is not
covered by the final regulation, or if benzalkonium chloride is included but for
different claims than ours, we will not be permitted to market the hand
sanitizer and antiseptic skin protectant product without premarket approval by
the FDA.
Also, we cannot assure you that the FDA will not take regulatory action
against our hand sanitizer and antiseptic skin protectant product as now
formulated and with its current claims. We are aware that the FDA issued a
warning letter to Andrew Jergens Co. dated April 22, 1999 for its antiseptic
lotion containing benzalkonium chloride. The letter maintains that as formulated
and labeled the lotion is not covered by the OTC Drug Review, that
representations that the lotion makes for prophylactic antimicrobial use are not
described in any of the FDA's regulation-making proceedings under the Review,
that the lotion may not be legally marketed in the U.S. without an NDA approved
by the agency, and that the lotion is also misbranded under the Food and Drug
Act because the adequacy of the product's directions for use has not been
determined. We cannot assure you that the FDA will not assert the same or
similar positions respecting our hand sanitizer and antiseptic skin protectant
product, nor can we tell you how we would respond to such assertions or how they
would affect the marketing of the marketability of our product.
We are subject to federal, state and local environmental laws. We believe
that we are in material compliance with applicable environmental laws in
connection with our current operations.
REQUIREMENTS IN FOREIGN COUNTRIES
There is a wide variation in the approval or clearance requirements
necessary to market products in foreign countries. The requirements range from
virtually no requirements to a level comparable to those of the FDA. For
example, many countries in South America have minimal regulatory requirements,
while many developed countries, such as Japan, have conditions as stringent as
those of the FDA. Many lesser developed countries, including many countries in
Africa, allow products evaluated and accepted by the World Health Organization
("WHO") to be sold. WHO acceptance must be requested by a country before the WHO
will evaluate the product. FDA acceptance is not a substitute for foreign
governmental approval or clearance. As in the United States, there is no
guarantee that the applicable governmental approval or clearance for any of our
products will be quickly obtained or that it will be obtained at all.
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COMPETITION
PREVENTATIVE PRODUCTS
PREVENTX(TM) VAGINAL CONTRACEPTIVE GEL
There are a number of microbicidal devices that are in various stages of
development, and none of which to our knowledge are in Phase III clinical trials
at this time. Our gel has been accepted by the National Institutes of Health
(NIH) to undergo a Phase III clinical trial to prove its safety and its
effectiveness against sexually transmitted diseases (STDs) and as a
contraceptive. The first two phases of the multi-million dollar clinical trials
have been completed with seemingly positive results from the standpoint of
safety (effectiveness has not been evaluated in these studies). The third phase
of the clinical trials will be funded by the NIH. Most competitive products
recommend the use of a condom or diaphragm with their product. These products do
not include claims that they kill STDs or other infectious disease.
PREVENTX(TM) HAND SANITIZER AND ANTISEPTIC SKIN PROTECTANT
There are a number of competitors in the consumer hand sanitizer and
antiseptic skin protectant market, including Dial Corporation, GoJo Industries,
Colgate-Palmolive Company and Reckitt & Coleman, Inc. Most current products use
a 60% concentration (or higher) of either alcohol or triclosan as their active
ingredients. In the institutional market, our current competitors include
SyDerma, Woodward Laboratories and Bio-Safe. Some of the competitive products
have formulas similar to PREVENTX(TM).
PREVENTX(TM) DISINFECTANT SURFACE SPRAY
There are numerous competitors in the surface cleaning market, both in the
United States and worldwide, including Reckitt & Coleman (the Lysol brand) and
Dial.
EMPLOYEES
As of July 30, 1999, we employed seven full time personnel. These employees
are involved in executive, corporate administration, operations, and sales and
marketing functions.
FACILITIES
Our corporate facility is located in Phoenix, Arizona and consists of
approximately 4,200 square feet of executive office and warehouse space. We
lease this facility for a monthly base rent of $3,363. The lease expires in
March 2001. We believe that our facilities are adequate for our needs for the
foreseeable future.
LEGAL PROCEEDINGS
We are currently involved in legal proceedings with Mercury and Geda, which
involve, among other things, plaintiff's alleged prior right to license,
acquire, and market the technologies currently licensed by us from Geda and
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others and used in our disease preventative products. If we do not prevail in
this litigation, we may not be able to market and sell our current product in
the same manner in which it is currently marketed and sold. In addition, we may
incur significant liabilities to other parties with whom we have entered into or
will enter into contracts.
We are also involved in two other related legal matters as follows:
a) Focus Profile, LLC, a limited liability corporation v. Empyrean Diagnostics
Ltd., Empyrean Diagnostics Inc., Daniel S. Bland, Garnell Bland, an
individual; Pinnacle Diagnostics Inc., fka Empyrean Diagnostics USA, Inc.,
and Renaissance Financial Securities Corporation. This action is pending in
the Superior Court of California, Santa Clara County, Case Number CV 64455.
This action was filed on February 28, 1997 and alleges a number of
securities fraud violations and misrepresentations by Daniel Bland and
Pinnacle Diagnostics (formerly known as Empyrean Diagnostics USA, Inc.).
Plaintiffs claim economic damages in amount of $538,750, plus interest.
Plaintiff also requests punitive damages. We have been joined as defendants
on a theory that Pinnacle's investment in us declined as a result in
misrepresentations and omissions by former management and that we are
purportedly liable to Pinnacle's investors as an "alter- ego" of Pinnacle.
We have denied all allegations in this action and intend to vigorously
defend the suit. Trial is scheduled for October 1999.
b) Dr. Peter D. Maroshek and Agnes Maroshek v. Richard Rankin; Christopher
Rankin; Focus Profile, LLC, Focus Profile International Investments;
Empyrean Diagnostics Ltd., Empyrean Diagnostics Inc, Daniel S. Bland,
Garnell Bland, Pinnacle Diagnostics, Inc., formerly known as Empyrean USA,
Inc., Renaissance Financial Securities Corporation, George Murphy; March H.
Klee, C.F.A., American Fund Advisors, Inc., and The Renaissance Group, Ltd.
This case is pending in the South Carolina Court of Common Pleas, Beaufort
County, Case number 97-07-1448 and was filed on September 2, 1997. The case
revolves around the plaintiffs' $250,000 investment in Focus Profile, LLC.
Focus Profile, LLC subsequently purchased Pinnacle Diagnostics, Inc. stock
in its own name. Plaintiff alleges a number of securities violations and
misrepresentations with respect to that investment. Plaintiffs seek
economic damages of $250,000 plus interest, as well as punitive damages.
Plaintiff's counsel has agreed to a proposed Order of Dismissal which
would, if adopted by the Court, terminate the proceedings against us. We
have denied all allegations made against us in this litigation and intend
to vigorously defend the action. We have requested summary judgment in this
case.
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EXECUTIVE COMPENSATION
The following table is a summary of the compensation paid to our Chief
Executive Officer and each executive officer who earned over $100,000 in total
salary and bonus for each of our three most recently completed fiscal years.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
------------------- ------------
SECURITIES UNDER
OTHER ANNUAL OPTIONS ALL OTHER
NAME AND PRINCIPAL BONUS COMPENSATION GRANTED/SARS COMPENSATION
POSITION YEAR SALARY ($) ($) ($) GRANTED (#) ($)
- ------------------ ---- ---------- ----- ------------ ---------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Stephen D. Hayter 1998 $ 186,923 0 0 1,400,000 0
President and Chief 1997 $ 189,539 0 0 300,000 0
Executive Officer 1996 $ 60,000 0 0 600,000 0
Raymond E. Dean 1998 $ 135,000 0 0 700,000 0
Secretary and Chief 1997 $ 40,500 0 0 300,000 0
Operations Officer(1)
</TABLE>
- ----------
(1) Mr. Dean joined Empyrean in August, 1997 and therefore no compensation
information for 1996 is provided.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
NUMBER OF % OF TOTAL
SECURITIES OPTIONS/SARS
UNDERLYING GRANTED TO
OPTIONS/SARS EMPLOYEES IN EXERCISE OR BASE
NAME GRANTED # FISCAL YEAR PRICE ($/SECURITY) EXPIRATION DATE
---- ---------- ------------ ------------------ ---------------
Stephen D. Hayter 1,400,000 62.5% $ 0.95 April 28, 2001
Raymond E. Dean 700,000 31.3% $ 0.95 April 28, 2001
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION/SAR VALUES
NUMBER OF
SECURITIES VALUE OF
UNDERLYING UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS/SARS AT OPTIONS/SARS AT
SHARES FISCAL YEAR-END FISCAL YEAR-END
ACQUIRED EXERCISABLE/ EXERCISABLE/
NAME ON EXERCISE VALUE REALIZED UNEXERCISABLE UNEXERCISABLE
---- ----------- -------------- ------------- -------------
Stephen D. Hayter 25,000 $8,450 1,350,570/ $3,500/
854,372 0
Raymond E. Dean 0 0 747,719/ 0/
427,186 0
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SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth as of July 8, 1999 information about the
amount and nature of beneficial ownership of the common stock held by:
* Each person who we know is a beneficial owner of more than 5% of our
outstanding common stock;
* Each person who is a director or executive officer of Empyrean; and
* All of our directors and executive officers as a group.
NAME AND ADDRESS OF AMOUNT AND NATURE OF PERCENT OF
BENEFICIAL OWNER (1) BENEFICIAL OWNERSHIP (2)(3) CLASS (4)
- -------------------- --------------------------- ---------
Mike Cicak 1,385,000(5) 5.0%
Stephen D. Hayter 1,557,305(6) 5.6%
Raymond E. Dean 749,719(7) 2.7%
Dr. Andrew J. Fishleder 163,000(8) *
Robert G.J. Burg II 130,000(9) *
Directors and executive officers
as a group (five persons) 3,985,024 14.3%
- ----------
* less than 1%
(1) The business address of each person listed is c/o Empyrean Bioscience,
Inc., 2238 West Lone Cactus Drive, Suite 200, Phoenix, Arizona 85027-2613.
(2) Beneficial ownership is determined in accordance with the rules of the SEC
and includes generally voting powers and/or investment power with respect
to securities. We believe that each individual named has sole investment
and voting power with respect to shares of common stock indicated as
beneficially owned by him, subject to community property laws, where
applicable, except where otherwise noted.
(3) Calculated pursuant to Rule 13d-3(d) of the Securities Exchange Act of
1934. Shares subject to unexercised options, warrants, rights or conversion
privileges exercisable within 60 days of July 30, 1999 are deemed
outstanding for the purpose of calculating the number and percentage owned
by such person, but not deemed outstanding for the purpose of calculating
the percentage owned by each other person listed.
(4) Based on 27,926,659 common shares issued and outstanding as of July 30,
1999.
(5) Includes 100,000 vested options to purchase common stock and 480,000
warrants to purchase common stock.
(6) Includes 1,350,570 vested options to purchase common stock and 50,000
warrants to purchase common stock.
(7) Includes 747,719 options to purchase common stock.
(8) Includes 100,000 vested options to purchase common stock and 40,000 vested
warrants to purchase common stock.
(9) Includes 100,000 vested options to purchase common stock.
As of the date of this Joint Proxy Statement/Prospectus, to our knowledge,
there are no arrangements the operation of which may at a subsequent date result
in a change in control of Empyrean.
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DESCRIPTION OF OUR CAPITAL STOCK
The following is a summary description of our capital stock. For a more
complete description of the rights and other terms of our capital stock, we
direct you to our Articles of Incorporation and Bylaws.
COMMON STOCK
Our authorized common stock consists of 100,000,000 shares of common stock
without par value. The holders of common stock are entitled to dividends, pro
rata, as and when declared by the Board of Directors, to one vote per share at a
meeting of shareholders and, upon winding up or liquidation, to receive those of
our assets that are distributable to the holders of the common stock upon
winding up or liquidation. No common stock has been issued subject to call or
assessment. There are no preemptive or conversion rights and no provisions for
redemption, purchase for cancellation, surrender or sinking funds. Provisions as
to the modification or variation of such rights or such provisions are contained
in the Wyoming Business Corporation Act. As of July 30, 1999, there were
27,926,659 issued and outstanding shares of common stock.
PREFERRED STOCK
Our authorized shares of Class "A" Preferred Stock consists of 100,000,000
shares with a par value of $10 per share. Our authorized Class "B" Preferred
Stock consists of 100,000,000 shares with a par value of $50 per share. All
Class "A" and Class "B" Preferred Stock rank equally within their respective
classes as to dividends or return of capital on winding-up or otherwise. Neither
Class "A" nor Class "B" Preferred Stock are entitled to vote at any general
meeting of shareholders unless expressly provided as a special right. Our
directors are authorized by our Articles to issue Class "A" and Class "B"
Preferred Stock in one or more series each and to create and attach special
rights and restrictions to a series of shares. In the event of the liquidation,
dissolution or winding-up of Empyrean or any distribution of our assets for the
purpose of winding-up our affairs, the holders of Class "A" and Class "B"
Preferred Stock are entitled, unless otherwise provided in the special rights
and restrictions attached to such shares, after the payment of unpaid dividends,
to be paid pari passu the amount of capital paid up per share (or as otherwise
provided by the special rights and restrictions attached thereto) from our
assets in priority to the common stock. No shares of either Class "A" Preferred
Stock or Class "B" Preferred Stock have been issued.
There are no provisions in our Articles which would have an effect of
delaying, deferring or preventing a change in control of Empyrean.
ESCROW SHARES
An additional 710,000 shares of our common stock were issued and are held
in escrow pursuant to the terms of an Escrow Agreement dated July 9, 1998 among
Empyrean, Kaplan Gottbertter & Levenson, LLP and the purchasers of our
convertible debentures.
WARRANTS
Set forth below is a table showing the number of warrants currently
outstanding to purchase our common stock, the exercise prices payable upon an
election to exercise, and the term of each of these warrants:
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WARRANTS
ORIGINAL ISSUANCE CURRENTLY
DATE OUTSTANDING EXERCISE PRICE/SH EXPIRATION
- ----------------- ----------- ----------------- ----------
September 2, 1997 451,750 $0.83(1) August 29, 1999
July 15, 1998 (2) 795,492 $0.9051(3) July 9, 2001
January 25, 1999 250,000 $0.01 January 25, 2001
February 15, 1999(4) 320,000 $0.10 February 15, 2001
March 17, 1999 1,330,000 $0.60(5) March 17, 2001
May 27, 1999 630,000 $0.60(6) May 26, 2001
---------
Total 3,777,242
=========
- ----------
(1) The exercise price of the warrants is converted using a $0.66 per Canadian
dollar exchange rate as of July 23, 1999.
(2) These warrants were issued to purchasers of debentures of Empyrean issued
in a private placement on the same date.
(3) The exercise price per share of the warrants is $0.90510 from July 10, 1999
until July 9, 2000, and increases to $1.05595 from July 10, 2000 to July 9,
2001.
(4) These warrants were issued to purchasers of our promissory notes issued in
a private placement on the same date.
(5) The exercise price per share of the warrants is $0.60 from the date of
issue (March 17, 1999) to March 17, 2000, and increases to $0.75 per share
from March 18, 2000 to March 17, 2001.
(6) The exercise price per share of the warrants is $0.60 from the date of
issue (May 27, 1999) to May 26, 2000, and increases to $0.75 per share from
May 27, 2000 to May 26, 2001.
1998 EMPYREAN DIAGNOSTICS, LTD. STOCK PLAN
We believe the Plan is necessary to attract, compensate, and motivate our
employees, officers, directors, and consultants. Under the Plan, we may grant
incentive stock options and non-qualified stock options to our employees,
officers, directors, and consultants. The Board administers the Plan. The Board
determines eligibility, the types and sizes of options, the price and timing of
options, and any vesting, including acceleration of vesting, of options.
An aggregate of 6,000,000 shares of our common stock are available for
grant under the Plan. The Board may terminate or amend the Plan to the extent
shareholder approval is not required by law. Termination or amendment will not
adversely affect options previously granted under the Plan.
REGISTRAR AND TRANSFER AGENT
The registrar and transfer agent of our common stock is Jersey Transfer and
Trust Company, 201 Bloomfield Avenue, P.O. Box 36, Verona New Jersey 07044.
52
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During the last two fiscal years we have entered into the following
transactions with our directors, officers, holders of 5% or more of our common
stock, or their affiliates:
STUART C. MCNEILL
Mr. McNeill was our Secretary and a director from November 9, 1995 to
November 20, 1998. We entered into an oral agreement with McNeill & Associates
Financial Consultants, Inc. ("M&A") which is a private British Columbia company
controlled by Mr. McNeill. M&A, pursuant to the agreement, provided us with
accounting, office and administrative services. We paid M&A $120,534 in 1996 and
$15,346 in 1997 for its services. The agreement was terminated on February 1,
1997.
DAVID TEWS
Mr. Tews was one of our directors between January 27, 1997 and November 20,
1998. We entered into a Consulting Services Agreement with International Trade
Group, Inc. ("ITC") which is a private company controlled by Mr. Tews. ITC,
pursuant to the agreement, provides consulting services to us with respect to
strategic planning and business development for a monthly fee of $6,000 and
250,000 stock options exercisable for three years at $0.83 per share. The
agreement is for a term of three years starting June 16, 1998.
ANDREW POLLET
Mr. Pollet was one of our directors between March 24, 1997 and November 20,
1998. Pollet Law, a law firm which Mr. Pollet founded and is the principal
shareholder, has provided us with legal services. We paid Pollet Law $127,329,
$93,975 and $126,775 in 1998, 1997 and 1996, respectively for legal services.
Pollet Law continues to provide legal services.
INDEBTEDNESS OF MANAGEMENT AND OTHERS TO THE COMPANY
In 1997 Mr. Stephen D. Hayter, our President, Chief Executive Officer, and
a Director, delivered to us a promissory note in the original principal amount
of $120,873 with interest at 8.5% per annum, as payment for the exercise of
200,000 stock options. The promissory note was paid in full during the first
quarter of 1998.
PRICE OF COMMON STOCK
Our common stock is publicly traded on the over-the-counter bulletin board
under the ticker symbol "EMDG." The following table presents the high and low
bid prices of the common stock.
HIGH LOW
---- ---
1999
First Quarter $1.03 $0.35
1998
Fourth Quarter $1.00 $0.30
Third Quarter $1.00 $0.50
Second Quarter $1.50 $0.59
First Quarter $0.94 $0.44
1997
Fourth Quarter(1) $1.00 $0.55
- ----------
(1) We began trading on the OTC bulletin board on December 16, 1997.
53
<PAGE>
LEGAL MATTERS
The validity of the Empyrean Bioscience, Inc. shares to be issued in
connection with the merger will be passed upon by Snell & Wilmer L.L.P.
EXPERTS
Grant Thornton LLP, independent auditors, have audited our consolidated
financial statements as of and for the years ended December 31, 1997 and 1998,
as set forth in their report thereon, which financial statements and report are
included elsewhere in this Joint Proxy Statement/Prospectus. These consolidated
financial statements are included in reliance on their report, given on their
authority as experts in accounting and auditing.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the Securities and Exchange Commission ("SEC") a
registration statement on Form S-4 ( the "Registration Statement") under the
Securities Act of 1933, as amended (the "Securities Act") with respect to the
securities offered by this Joint Proxy Statement/Prospectus. This Joint Proxy
Statement/Prospectus, which is a part of the Registration Statement, does not
contain all of the information in the Registration Statement because certain
parts are omitted in accordance with the rules and regulations of the SEC. For
further information with respect to us and the offering described in this
document, reference is made to the entire Registration Statement.
We are not subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and accordingly are not
obligated to file reports, proxy statements, information statements, and other
information with the SEC in accordance with the Exchange Act. However, we intend
to begin filing such reports after the effective date of this Joint Proxy
Statement/Prospectus. The Registration Statement we have filed and any reports,
proxy statements, information statements, and other information we later file
with the SEC pursuant to the Exchange Act may be inspected and copied at the
public reference facilities of the SEC at Room 1024, Judiciary Plaza, 450 Fifth
Street N.W., Washington, D.C. 20549 and at the SEC's regional offices at Seven
World Trade Center, 13th Floor, New York, New York 10048, and Citicorp Center,
500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of these
materials can be obtained from the Public Reference Section of the SEC at 450
Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates, and can also be
obtained electronically through the SEC's Electronic Data Gathering, Analysis
and Retrieval System at the SEC's Internet web site (http://www.sec.gov).
54
<PAGE>
EMPYREAN BIOSCIENCE, INC.
Consolidated Financial Statements And Report
of Independent Certified Public Accountants
December 31, 1997 and 1998
C O N T E N T S
Page
----
Report of Independent Certified Public Accountants..........................F-2
CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Balance Sheet............................................F-3
Consolidated Statements of Operations.................................F-4
Consolidated Statement of Stockholders' Equity (Deficit)..............F-5
Consolidated Statements of Cash Flows.................................F-6
Notes to Consolidated Financial Statements............................F-7
Consolidated Financial Statements
for the Three Month Period Ending March 31, 1999
Consolidated Balance Sheet............................................F-14
Consolidated Statements of Operations.................................F-15
Consolidated Statements of Cash Flows.................................F-16
Notes to Consolidated Financial Statements............................F-17
F-1
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors and Stockholders
Empyrean Bioscience, Inc.
We have audited the accompanying consolidated balance sheet of Empyrean
Bioscience, Inc., and its wholly-owned subsidiary as of December 31, 1998, and
the related consolidated statements of operations, stockholders' equity
(deficit) and cash flows for each of the two years then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Empyrean
Bioscience, Inc., and subsidiary as of December 31, 1998, and the consolidated
results of their operations and their cash flows for each of the two years then
ended in conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that
Empyrean Bioscience, Inc., will continue as a going concern. As shown in the
financial statements, Empyrean Bioscience, Inc., incurred a net loss of
$2,594,880 during the year ended December 31, 1998, and, as of that date
Empyrean Bioscience, Inc. has a deficit in stockholders' equity of $124,908.
These factors, among others, as discussed in Note 2 to the financial statements,
raise substantial doubt about Empyrean Bioscience, Inc.'s ability to continue as
a going concern. Management's plans in regard to these matters are also
described in Note 2. The financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
GRANT THORNTON LLP
San Francisco, California
February 11, 1999
F-2
<PAGE>
EMPYREAN BIOSCIENCE, INC.
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1998
ASSETS
CURRENT ASSETS
Cash and cash equivalents ................................. $ 62,793
Prepaid expenses and deposits ............................. 167,913
Raw materials inventory ................................... 16,386
Due from an employee ...................................... 9,305
Other ..................................................... 306
------------
Total current assets ................................... 256,703
EQUIPMENT AND IMPROVEMENTS .................................... 57,122
------------
$ 313,825
============
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES
Accounts payable and accrued liabilities .................. $ 438,733
COMMITMENTS AND CONTINGENCIES ................................. --
STOCKHOLDERS' DEFICIT
Common stock, authorized 100,000,000 shares, without par
value; 26,399,824 shares issued and outstanding ......... 17,694,310
Accumulated deficit ....................................... (17,819,218)
------------
(124,908)
------------
$ 313,825
============
See accompanying notes to financial statements.
F-3
<PAGE>
EMPYREAN BIOSCIENCE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31,
1997 1998
------------ ------------
Net sales ...................................... $ 13,018 $ 9,815
Cost of sales .................................. 2,623 3,436
------------ ------------
Gross profit ............................ 10,395 6,379
Selling, general and administrative expenses ... 1,875,020 2,360,536
Research and development expense ............... 137,349 31,425
Write-down of inventory ........................ 458,800 28,516
Write-down of receivables ...................... 105,000 --
------------ ------------
2,576,169 2,420,477
------------ ------------
Loss from operations .................... (2,565,774) (2,414,098)
Other income (expense)
Loss on disposal of fixed assets ........... (30,693) (209,972)
Other, net ................................. 921 29,190
------------ ------------
(29,772) (180,782)
NET LOSS $ .............................. (2,595,546) $ (2,594,880)
============ ============
BASIC AND DILUTED LOSS PER SHARE ............... $ (.14) $ (.11)
============ ============
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING .. 18,213,790 22,883,937
============ ============
See accompanying notes to financial statements.
F-4
<PAGE>
EMPYREAN BIOSCIENCE, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
YEARS ENDED DECEMBER 31, 1997 AND 1998
<TABLE>
<CAPTION>
Common Stock
---------------------- Paid-in Accumulated
Shares Amount Capital Deficit Total
------ ------ ------- ----------- -----
<S> <C> <C> <C> <C> <C>
Balances, January 1, 1997 .................... 15,712,580 $12,633,185 $ 368,004 $(12,628,729) $ 372,397
Common stock issued for cash .............. 1,542,889 549,329 -- -- 549,329
Common stock issued for subscription ...... 1,008,773 368,004 (368,004) -- --
Stock option exercised by directors ....... 584,155 205,162 -- -- 205,162
Stock option exercised by contractors ..... 120,139 49,594 -- -- 49,594
Stock option exercised for notes receivable 215,845 120,873 -- -- 120,873
Warrant exercised by directors ............ 251,766 125,511 -- -- 125,511
Warrant exercised by investors ............ 1,410,081 1,011,255 -- -- 1,011,255
Common stock issued for debt .............. 260,728 262,237 -- -- 262,237
Common stock issued for finder's fee ...... 25,000 28,878 -- -- 28,878
Common stock issued for license rights .... 95,000 75,492 -- -- 75,492
Net loss .................................. -- -- -- (2,595,546) (2,595,546)
---------- ----------- --------- ------------ -----------
Balances, December 31, 1997 .................. 21,226,956 15,429,520 -- (15,224,338) 205,182
Common stock issued for cash .............. 2,680,322 1,078,000 -- -- 1,078,000
Stock options exercised by directors ...... 125,000 57,766 -- -- 57,766
Stock options exercised by others ......... 7,500 4,178 -- -- 4,178
Warrants exercised by directors ........... 186,370 84,955 -- -- 84,955
Warrants exercised by investors ........... 1,480,506 578,140 -- -- 578,140
Common stock issued for debt .............. 197,247 124,265 -- -- 124,265
Common stock issued for expenses .......... 170,923 114,236 -- -- 114,236
Common stock issued for license rights .... 325,000 223,250 -- -- 223,250
Net loss .................................. -- -- -- (2,594,880) (2,594,880)
---------- ----------- --------- ------------ -----------
Balances, December 31, 1998 .................. 26,399,824 $17,694,310 $ -- $(17,819,218) $ (124,908)
========== =========== ========= ============ ===========
</TABLE>
See accompanying notes to financial statements.
F-5
<PAGE>
EMPYREAN BIOSCIENCE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31,
<TABLE>
<CAPTION>
1997 1998
----------- -----------
<S> <C> <C>
Cash flows from operating activities
Net loss ................................................. $(2,595,546) $(2,594,880)
Adjustments to reconcile net loss to net cash used in
operating activities
Depreciation .......................................... 90,120 80,132
Loss on write-downs and adjustments ................... 610,795 212,804
Issuance of common stock for expenses ................. -- 337,486
Changes in operating assets and liabilities
Prepaid expenses and deposits ...................... (14,899) (153,014)
Inventory .......................................... (56,511) 31,425
Accounts payable and accrued liabilities ........... (71,971) 297,106
Deposits ........................................... 149,985 --
----------- -----------
Net cash used by operating activities .............. (1,888,027) (1,820,366)
Cash flows from investing activities
Payments on note receivable .............................. 70,112 50,761
Proceeds from sale of capital assets ..................... -- 3,320
Purchase of capital assets ............................... (66,244) (40,644)
Proceeds from (advances to) employee and other receivables (12,672) 19,386
----------- -----------
Net cash provided by (used in) investing activities (8,804) 32,823
Cash flows from financing activities
Proceeds from issuance of common stock ................... 1,940,851 1,803,039
----------- -----------
NET INCREASE IN CASH AND CASH EQUIVALENTS ............. 44,020 15,497
Cash and cash equivalents at beginning of year ............... 3,276 47,296
----------- -----------
Cash and cash equivalents at end of year ..................... $ 47,296 $ 62,793
=========== ===========
Noncash financing and investing activities
Issuance of common shares for debt and other costs ....... $ 366,607 $ 124,265
Issuance of common shares to director for note receivable $ 120,873 $ --
</TABLE>
See accompanying notes to financial statements.
F-6
<PAGE>
EMPYREAN BIOSCIENCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Empyrean Bioscience, Inc. (the "Company"), previously known as Empyrean
Diagnostics Ltd., was originally a Canadian entity, which in 1995 was a fully
operational organization. The Company became a Wyoming corporation during
1997. The Company through its subsidiary distributes and markets products
designed to prevent and diagnose diseases. The Company is identifying
strategic corporate partners to both fund and distribute the PrevenTx Hand
Sanitizer and Antiseptic Skin Protectant and Vaginal Contraceptive Gel in the
United States.
The Company's summary of significant accounting policies applied in the
preparation of these financial statements follows:
* PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiary. All intercompany accounts and
transactions are eliminated in consolidation.
* FOREIGN CURRENCY TRANSACTIONS
Gains and losses that arise from changes in foreign currency exchange
rates are recognized in income in the period they occur.
* CASH EQUIVALENTS
The Company considers all highly liquid investments with a maturity of
three months or less at the date of acquisition to be cash equivalents.
* RAW MATERIALS INVENTORY
Raw materials are recorded at the lower of cost (average cost) or market.
* EQUIPMENT AND IMPROVEMENTS
Equipment and improvements are recorded at cost. Depreciation is provided
from the dates the assets are placed in service on a declining balance
basis at the following rates:
Lab and manufacturing equipment - 25% declining balance
Office equipment and furniture - 20% declining balance
Leasehold improvements - lesser of 5 years or the term
of the lease
* REVENUE RECOGNITION
The Company recognizes revenues when the right of return no longer exists.
This policy has been adopted due to the nature of the terms associated
with sales.
* ADVERTISING
The Company recognizes advertising expenses as they are incurred.
F-7
<PAGE>
EMPYREAN BIOSCIENCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND 1997
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
* INCOME TAXES
The Company accounts for income taxes on the liability method, as provided
by Statement of Financial Accounting Standards No. 109, "Accounting for
Income Taxes."
* EARNINGS (LOSS) PER SHARE
Loss per share has been calculated using the weighted average number of
shares outstanding. The effect of options, warrants and contingent share
issuances are excluded from the calculation when the effects are
anti-dilutive.
* USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions. These estimates and assumptions affect the reported amounts
of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
* FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107, "Disclosures about
Fair Value of Financial Instruments," requires disclosure of the estimated
fair value of an entity's financial instrument assets and liabilities.
These assets and liabilities consist of, based on the short-term nature of
such instruments, cash, cash equivalents and payables. The balance sheet
carrying amounts of these instruments approximate the estimated fair
values.
NOTE 2 - GOING CONCERN
The accompanying financial statements have been prepared in conformity with
generally accepted accounting principles, which contemplate continuation of
the Company as a going concern. However, the Company has sustained
substantial losses from operations in recent years and has a deficit in
stockholders' equity.
In view of the matter described in the preceding paragraph, recoverability of
a major portion of the recorded asset amounts shown in the accompanying
balance sheet is dependent upon continued operations of the Company, which in
turn is dependent upon the Company's ability to meet its financing
requirements on a continuing basis, to maintain present financing, and to
succeed in its future operations. The financial statements do not include any
adjustments relating to the recoverability and classification of recorded
asset amounts or amounts and classification of liabilities that might be
necessary should the Company be unable to continue in existence.
Management has taken the following steps to revise its operating and
financial requirements which it believes are sufficient to continue in
existence. The Company has assessed its position in the marketplace as a
manufacturer/distributor, and has redirected its efforts to promotion of and
finding distributors for its line of contraceptive gels and antiseptic
lotions.
NOTE 3 - PREPAID EXPENSES AND DEPOSITS
During 1998 the Company placed an order with a manufacturer for approximately
$424,000. As of December 31, 1998, the Company had advanced the manufacturer
$150,000 on the order. The terms of the prepaid purchase was freight on board
shipping point. As of December 31, 1998, no goods had been shipped by the
manufacturer.
F-8
<PAGE>
EMPYREAN BIOSCIENCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND 1997
NOTE 4 - EQUIPMENT AND IMPROVEMENTS
Equipment and improvements are comprised of the following:
Furniture and office equipment............................ $107,376
Leasehold improvements.................................... 9,455
--------
116,831
Accumulated depreciation.................................. (59,709)
--------
$ 57,122
NOTE 5 - STOCKHOLDERS' EQUITY
The Company's authorized preferred stock consists of 100,000,000 shares of
Class "A" with a par value of $10 and 100,000,000 shares of Class "B" with a
par value of $50. As of December 31, 1998, no preferred stock is issued or
outstanding.
The 1997 Stock Option Plan, which is accounted for under APB Opinion No. 25
and related interpretations, provides that up to 6,000,000 stock options may
be granted to employees, board members and persons providing services to the
Company. The stock options may be exercised at the rate of 25% semi-annually,
on a cumulative basis during a vesting period of two years and generally
expire three years after the grant date. The stock options are exercisable
during involvement with the Company and up to thirty days after involvement
has ceased, if the Board of Directors so approve. The options are exercisable
at not less than the market value of the Company's stock on the date of the
grant. Accordingly, no compensation cost has been recognized for grants from
the plan. Had compensation cost for the plan been determined based on the
fair value of the options at the grant dates consistent with Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation," the Company's net loss and loss per share would have been
increased to the pro forma amounts indicated below.
1997 1998
----------- -----------
Net loss
As reported................................. $(2,595,546) $(2,594,880)
Pro forma................................... (3,166,866) (3,379,705)
Loss per share
As reported................................. (.14) (.11)
Pro forma................................... (.17) (.15)
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes options-pricing model with the following weighted-average
assumptions: dividend yield of 0%; a risk-free interest rate of 6%, expected
lives of 2 years; and volatility of 96%.
F-9
<PAGE>
EMPYREAN BIOSCIENCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND 1997
NOTE 5 - STOCKHOLDERS' EQUITY (CONTINUED)
A summary of the status of the Company's stock options as of December 31,
1997 and 1998, and changes during the years ending on those dates is
presented below.
1997 1998
-------------------- --------------------
Weighted Weighted
Average Average
Exercise Exercise
Shares Price Shares Price
------ ----- ------ -----
Outstanding at beginning of year.. 1,055,139 $ .41 2,390,000 $ .64
Granted........................ 2,255,000 .68 2,490,000 .79
Exercised...................... (920,139) .41 (132,500) .47
Expired........................ -- -- (212,500) .55
--------- ---------
Outstanding at end of year........ 2,390,000 .64 4,535,000 .73
========= =========
Weighted-average fair value of
options granted during the year $ .44 $ .54
The following table summarizes information concerning options outstanding at
December 31, 1998:
Options Outstanding Options Exercisable
------------------------------------------------ --------------------
Weighted
Average Weighted Weighted
Remaining Average Average
Exercise Number Contractual Exercise Stock Exercise
Price Outstanding Life Price Options Price
----- ----------- ---- ----- ------- -----
$.38 - .40 635,000 1.9 $ .39 635,000 $ .39
.55 - .67 1,010,000 1.8 .57 480,000 .57
.80 - .95 2,890,000 2.0 .95 760,000 .95
--------- ---------
4,535,000 .73 1,875,000 .66
========= =========
F-10
<PAGE>
EMPYREAN BIOSCIENCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND 1997
NOTE 5 - STOCKHOLDERS' EQUITY (CONTINUED)
The Company generally issues one warrant for the purchase of one share of
common stock with each share of common stock that it issues. The following
table summarizes the status of warrants at December 31, 1997 and 1998 and for
the years then ended.
1997 1998
-------------------- --------------------
Weighted Weighted
Average Average
Exercise Exercise
Warrants Price Warrants Price
-------- ----- -------- -----
Outstanding at beginning of year.. 2,670,500 $ .72 2,636,645 $ .46
Issued......................... 2,551,662 .48 1,045,492 .57
Exercised...................... (1,661,847) .62 (1,666,876) .40
Expired........................ (923,670) 1.02 -- --
---------- ----------
Outstanding at end of year........ 2,636,645 .46 2,015,261 .57
========== ==========
NOTE 6 - INCOME TAXES
Deferred tax assets consist of the following at December 31, 1998:
Net operating loss carryover........................... $ 5,615,000
Other.................................................. 17,000
Intangible asset - tax basis .......................... 1,094,000
-----------
6,726,000
-----------
Less valuation allowance............................... (6,726,000)
-----------
$ --
===========
The change in the valuation allowance was $1,092,000 in both 1997 and 1998.
Cumulative net operating losses of approximately $14,589,000 in 1998 are
being carried forward for Federal tax return purposes. The earliest
carryforwards begin to expire in 2007.
F-11
<PAGE>
EMPYREAN BIOSCIENCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND 1997
NOTE 6 - INCOME TAXES (CONTINUED)
The following is a reconciliation between the federal statutory rate and the
effective rate used for the Company's income tax benefit.
1997 1998
----------- ----------
Loss before income tax benefit................... $ 2,595,546 $ 2,594,880
=========== ===========
Tax benefit at statutory federal income
tax rate (34%)................................. $ 882,000 $ 882,000
State franchise tax benefit...................... 210,000 210,000
Change in valuation allowance.................... (1,092,000) (1,092,000)
----------- -----------
$ -- $ --
=========== ===========
NOTE 7 - RELATED PARTY TRANSACTIONS
Included in expenses are the following amounts paid to directors or companies
controlled by directors:
1997 1998
--------- ---------
Salaries and benefits.............................. $ 189,539 $ 186,923
Consulting fees.................................... 15,346 --
Legal fees......................................... 93,975 127,329
--------- ---------
$ 298,860 $ 314,252
========= =========
NOTE 8 - COMMITMENTS AND CONTINGENCIES
The Company conducts its business primarily in leased facilities. One of the
leases was a net lease which required the payment of such costs as property
taxes, additional rent, common area maintenance, and other operating costs.
This lease was terminated October 1, 1998. On March 26, 1998, the Company
entered into a commercial lease for 4,343 square feet in Phoenix, Arizona.
This lease ends on March 31, 2001.
The Company is a co-signer on leased office space in Vancouver, B.C.,
occupied by a director. All payments associated with this lease are paid
directly to the landlord by the director.
The schedule of minimum future rental payments and future sublease income
follows:
Future
Minimum Future
Year ending Rental Sublease
December 31 Payments Income
----------- --------- --------
1999 ....................................... $ 65,606 $ 25,778
2000 ....................................... 65,606 25,778
2001 ....................................... 10,032 --
--------- --------
$ 141,244 $ 51,556
========= ========
Total rent expense, net of sublease income received, was $91,912 and $57,894
for the years ended December 31, 1997 and 1998, respectively.
F-12
<PAGE>
EMPYREAN BIOSCIENCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND 1997
NOTE 8 - COMMITMENTS AND CONTINGENCIES (CONTINUED)
The Company entered into an agreement on April 29, 1997, and subsequently
amended in February 1998 with Geda International Marketing Co. Ltd.
("Geda"), whereby the Company obtained the marketing and distribution
rights to Geda's products worldwide with the exception of the territories
of Hong Kong and Taiwan and the countries of Canada, Africa, Mexico, the
Dominican Republic and, as to the sale of the Geda Lotion only, the United
States. Geda manufactures a microbicide lotion for use with medical gloves,
as well as other uses, for stopping the transmission of all communicable
diseases through bodily contact. As consideration, the Company paid to Geda
the aggregate sum of $200,000 in 1997 for these rights. For the period of
April 29, 1997 through April 29, 2007, the Company is required to pay the
greater of 2% of net sales or $1.35 per liter manufactured of the Geda
products. The Company is required to pay guaranteed minimum amounts
comprised of all license fees, royalties and joint venture royalties, as
follows.
Future
Minimum
Year ending Guaranteed
December 31, Payments
------------ ------------
1999..................................................... $ 490,000
2000..................................................... 735,000
2001..................................................... 915,000
2002..................................................... 1,215,000
2003..................................................... 1,458,000
Thereafter............................................... 9,334,000
------------
$ 14,147,000
============
The lotion licensed from Geda is used in a number of products, including
PrevenTx Vaginal Contraceptive Gel, PrevenTx Hand Sanitizer and Antiseptic
Skin Protectant, and PrevenTx Antiseptic Surface Spray. The Company has been
contacted by a third party claiming that Geda granted a prior license in the
lotion to the third party. The Company has been advised by Geda that Geda has
filed suit against the third party seeking a declaratory judgement to the
effect that the third party has no rights to the lotion. The Company has not
been named in this litigation. Although Geda has represented that it has the
exclusive right and authority to license the formula to the Company, and has
agreed to pay any legal fees incurred by the Company arising out of the
Company's investigation and any defense of this matter, there can be no
assurance as to the outcome of this matter or that it will not materially or
adversely impact the Company.
The Company is a defendant in lawsuits where the plaintiffs are seeking a
total of approximately $800,000 plus punitive damages. In the opinion of
management, based upon advice of counsel, it is not currently feasible to
predict or determine the outcome of these proceedings.
F-13
<PAGE>
EMPYREAN BIOSCIENCE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
March 31, December 31,
1999 1998
------------ ------------
(unaudited)
ASSETS
Current Assets:
Cash and cash equivalents ................... $ 81,104 $ 62,793
Accounts receivable ......................... 49,697 --
Prepaid expenses and deposits ............... 115,471 167,913
Inventory ................................... 249,798 16,386
Other assets ................................ 8,855 9,611
------------ ------------
Total current assets ...................... 504,925 256,703
Equipment and improvements ..................... 55,837 57,122
------------ ------------
Total assets .............................. $ 560,762 $ 313,825
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued liabilities .... $ 553,555 $ 438,733
Short-term note payable ..................... 712,568 --
------------ ------------
Total current liabilities ................. 1,266,123 438,733
STOCKHOLDERS' EQUITY (DEFICIT)
Common stock, authorized 100,000,000 shares,
without par value; issued and outstanding
(1999: 26,926,874; 1998: 26,399,824) ......... 18,774,349 17,694,310
Accumulated deficit ............................ (19,479,710) (17,819,218)
------------ ------------
Total stockholders' deficit ............... (705,361) (124,908)
------------ ------------
Total liabilities and shareholders' deficit $ 560,762 $ 313,825
============ ============
See accompanying notes to financial statements.
F-14
<PAGE>
EMPYREAN BIOSCIENCE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three months ended
---------------------------
March 31, March 31,
1999 1998
------------ ------------
Net revenues ..................................... $ 52,510 $ --
Cost of sales .................................... 17,023 --
------------ ------------
Gross profit ................................ 35,487 --
Selling, general and administrative .............. 1,653,600 492,662
Research and development ......................... 5,000 1,980
------------ ------------
1,658,600 494,642
------------ ------------
Operating loss .............................. (1,623,113) (494,642)
Other income (expenses)
Other, net ................................... (4,267) 3,794
Interest expense ............................. (33,325) --
Interest income .............................. 213 151
------------ ------------
(37,379) 3,945
------------ ------------
Net loss .................................... $ (1,660,492) $ (490,697)
============ ============
Loss per share .............................. $ (0.06) $ (0.03)
============ ============
Weighted average number of shares outstanding
used in computing per share information ... 26,812,156 18,736,133
============ ============
See accompanying notes to financial statements.
F-15
<PAGE>
EMPYREAN BIOSCIENCE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Three months ended
------------------------
March 31, March 31,
1999 1998
----------- ---------
Cash flows from operating activities:
Net cash used by operating activities .......... $ (991,707) $(326,828)
Cash flows from investing activities:
Payments on note receivable .................... -- 50,761
Purchase of capital assets ..................... (1,715) (10,801)
----------- ---------
Net cash provided (used) by investing
activities ................................. (1,715) 39,960
Cash flows from financing activities:
Issuance of common stock ....................... 211,733 242,437
Short-term note payable proceeds ............... 800,000 --
----------- ---------
Net cash provided by financing activities .... 1,011,733 242,437
----------- ---------
Net increase (decrease) in cash and cash
equivalents ................................ 18,311 (44,431)
Cash and cash equivalents at beginning of period ... 62,793 47,296
----------- ---------
Cash and cash equivalents at end of period ......... $ 81,104 $ 2,865
=========== =========
See accompanying notes to financial statements.
F-16
<PAGE>
EMPYREAN BIOSCIENCE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 - BASIS OF PRESENTATION
The financial information included herein for the quarterly periods ended
March 31, 1999 and 1998, and the financial information as of March 31, 1999,
is unaudited; however, such information reflects all adjustments, consisting
of normal recurring adjustments, which are, in the opinion of management,
necessary for the fair presentation of the financial position, results of
operations and cash flows for the interim periods. The interim financial
statements and the notes thereto should be read in conjunction with the
annual audited financial statements as of December 31, 1998. The results of
operations for the interim periods presented are not necessarily indicative
of the results to be expected for the full year.
The accompanying condensed consolidated financial statements include Empyrean
Bioscience, Inc., and its wholly-owned subsidiary, Empyrean Diagnostics, Inc.
("EDI"). All significant intercompany balances and transactions have been
eliminated in consolidation.
NOTE 2 - INVENTORIES
Inventories consist of the following:
March 31, December 31,
1999 1998
--------- ------------
Diagnostic Kits-Raw Materials................... $ -- $ 16,386
Preventx-Finished Goods......................... 249,798 --
--------- --------
$ 249,798 $ 16,386
========= ========
NOTE 3 - SHORT-TERM NOTES PAYABLE
In February 1999, the Company entered into promissory note agreements in the
aggregate amount of $800,000 with various investors. The promissory notes are
due and payable six months from the loan date and have a fixed interest rate
of 10%, payable monthly. The Company also issued 320,000 warrants to the
promissory note holders, exercisable for two years expiring February 15,
2001, at an exercise price of $0.10. The fair value of the warrants was
estimated on the date of grant using the Black-Scholes options princing model
to be $116,576. As of March 31, 1999, the unamortized fair value of the
warrants was $87,432. The fair value of the warrants is being amortized as
interest expense over the life of the promissory notes.
NOTE 4 - LEGAL PROCEEDINGS
The lotion licensed from Geda is used in a number of products, including
PrevenTx Vaginal Contraceptive Gel and PrevenTx Hand Sanitizer and Antiseptic
Skin Protectant. The Company has been contacted by a third party
claiming that Geda granted a prior license in the lotion to the third party.
The Company has been advised by Geda that Geda has filed suit against the
third party seeking a declaratory judgement to the effect that the third
party has no rights to the lotion. Although Geda has represented that it is
has the exclusive right and authority to license the formula to the Company,
and has agreed to pay any legal fees incurred by the Company arising out of
the Company's investigation and any defense of this matter, there can be no
assurance as to the outcome of this matter or that it will not materially or
adversely impact the Company.
The Company is a defendant in lawsuits where the plaintiffs are seeking a
total of approximately $800,000 plus punitive damages from all the named
parties in the suits. In the opinion of management, based on the advice of
counsel, it is not currently feasible to predict or determine the outcome of
these proceedings.
F-17
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Each director or former director and their heirs and personal
representatives are indemnified by Empyrean against all costs, charges and
expenses, including an amount paid to settle an action or satisfy a judgment,
actually and reasonably incurred by him or them in a civil, criminal or
administrative action or proceeding to which he is or they are made a party by
reason of his being or having been a director of Empyrean.
II-1
<PAGE>
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
2.1 Agreement and Plan of Merger, dated as of ___________, 1999, between
Empyrean Bioscience, Inc. and Empyrean Bioscience, Inc. (Included as
Annex A to the proxy statement/prospectus forming a part of this
Registration Statement and incorporated herein by reference.)*
3.1(a) Articles of Incorporation of Empyrean Nevada.*
3.1(b) Articles of Incorporation and Bylaws of Empyrean Wyoming.
3.2 Bylaws of Empyrean Nevada.*
4.2(a) Form of "Series H" Warrant Agreement and Specimen of Warrant between
Empyrean and the Purchasers thereof.
4.2(b) Form of Warrant Agreement and Specimen of Warrant between Empyrean and
the Purchasers thereof.*
4.3(c) Form of Debenture and Debenture Agreement dated July 15, 1998 between
Empyrean and the Purchasers thereof.
4.3(d) Form of "Series J" Warrant Agreement and Specimen of Warrant dated
January 25, 1999 between Empyrean and the Purchasers thereof.*
4.3(e) Form of Warrant Agreement and Specimen of Warrant between Empyrean and
the Purchasers thereof.
4.3(f) Form of Promissory Note between Empyrean and the Purchasers thereof.
4.3(g) Form of "Series K" Warrant Agreement and Specimen of Warrant
dated March 17, 1999 between Empyrean and the Purchasers thereof.
4.3(h) Form of "Series L" Warrant Agreement and Specimen of Warrant between
Empyrean and the Purchasers thereof.
5.1 Opinion of Snell & Wilmer L.L.P. as to the legality of the Empyrean
common stock being registered hereby.*
10.1 License Agreement dated as of February 21, 1998 between Empyrean and
Geda International Marketing Co., Ltd.
10.2 Sub-license Agreement dated as of July 20, 1998 between Empyrean and
Prevent-X, Inc.
10.3 Agreement and Assignment of Distribution Rights, between GEDA
International Marketing Co., Ltd., Farida Darbar, Empyrean Diagnostics
Inc., and Empyrean Diagnostics, Ltd., dated August 31, 1998
10.4(a) Stock Option Plan and Form of Stock Option Agreement
10.5 Real Property Lease dated February 20, 1998 between Empyrean and Remcon
II, LLC.
21.1 Subsidiaries of Empyrean
23.1 Consent of Grant Thornton LLP
23.2 Consent of Snell & Wilmer L.L.P. (included as part of its opinion filed
as Exhibit 5.1 and incorporated herein by reference.)*
27.1 Financial Data Schedule*
99.1 Form of Proxy*
- ----------
* To be filed by amendment.
II-2
<PAGE>
ITEM 22. UNDERTAKINGS.
(1) The undersigned registrant hereby undertakes as follows: that prior to any
public reoffering of the securities registered hereunder through use of a
prospectus which is a part of this registration statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c),
the issuer undertakes that such reoffering prospectus will contain the
information called for by the applicable registration form with respect to
reofferings by persons who may be deemed underwriters, in addition to the
information called for by the other items of the applicable form.
(2) The registrant undertakes that every prospectus: (i) that is filed pursuant
to paragraph (1) immediately preceding, or (ii) that purports to meet the
requirements of Section 10(a)(3) of the Act and is used in connection with
an offering of securities subject to Rule 415, will be filed as a part of
an amendment to the registration statement and will not be used until such
amendment is effective, and that, for purposes of determining any liability
under the Securities Act of 1933, each such post-effective amendment shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial BONA FIDE offering thereof.
(3) The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant
to Item 4, 10(b), 11, or 13 of this form, within one business day of
receipt of such request, and to send the incorporated documents by first
class mail or other equally prompt means. This includes information
contained in documents filed subsequent to the effective date of the
registration statement through the date of responding to the request.
(4) The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
(5) Insofar as indemnification for liabilities under the Securities Act of 1933
may be permitted to directors, officers and controlling persons of the
registrant pursuant to the provisions described in Item 20 above, or
otherwise, the registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act and is therefore unenforceable.
If a claim of indemnification against such liabilities (other than the
payment by the registrant of expenses incurred or paid by a director,
officer or controlling person of the registrant in a successful defense of
any action, suit or proceeding) is asserted by such director, officer, or
controlling person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against
public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has duly
caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the city of Phoenix, State of
Arizona, on July 30, 1999.
Empyrean Bioscience, Inc..
By /s/ Stephen D. Hayter
----------------------------------
Stephen D. Hayter
Director
President and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
/s/ Stephen D. Hayter Director, President, Chief July 30, 1999
- ---------------------------- Executive Officer (Principal
Stephen D. Hayter Financial Officer and Principal
Accounting Officer)
/s/ Raymond E. Dean Director and July 30, 1999
- ---------------------------- Chief Operations Officer
Raymond E. Dean
/s/ Dr. Andrew J. Fishleder Director July 30, 1999
- ----------------------------
Dr. Andrew J. Fishleder
/s/ Robert G. J. Burg II Director July 30, 1999
- ----------------------------
Robert G.J. Burg II
/s/ Michael Cicak Director July 30, 1999
- ----------------------------
Michael Cicak
II-4
PROVINCE OF BRITISH COLUMBIA
COMPANY ACT
(R.S.B.C. 1979, Chapter 59)
1.2
ARTICLES
By-Laws as Amended
OF
MR BUILD INDUSTRIES INC.
PART 1
INTERPRETATION
1.01 In these Articles :
(a) "directors" means the directors of the Company for the time
being;
(b) "Company Act " means the British Columbia Company Act from
time to time in force and all amendments thereto'
(c) "Registered Address" of a member means his address as recorded
in the register of members; and
(d) "Registered Address" of a director means his address as
recorded in the company's register of directors to be kept
pursuant to the Company Act.
1.02 Words importing the singular include the plural and vice versa; and words
importing a male person include a female person and a corporation.
1.03 The definitions in the Company Act on the date of incorporation of creation
by amalgamation of the Company shall, with the necessary changes, apply to these
Articles.
PART 2
SHARES
2.01 The Allotment and issuance of shares shall be under the control of
directors who may allot ans issue of grant options to purchase shares at such
times and to such persons or class of persons and such manner and upon such
terms as they think proper and, without limiting the generality of the
foregoing, the directors may grant options to purchase shares to directors,
officers or employees for such consideration and at such price or prices and
upon such terms as the directors may determine.
2.02 Shares without par value may be allotted and issued at such prices and for
such consideration as the directors may determine.
2.03 Shares may be allotted and issued as consideration for any property
acquired by or work done for or obligation undertaken for the Company.
<PAGE>
2.04 The Company may at any time pay a commission or allow a discount to any
person in consideration of his subscribing or agreeing to subscribe, whether
absolutely or conditionally, or agreeing to subscribe, whether absolutely or
conditionally, or procuring or agreeing to procure subscriptions, whether
absolutely or conditionally, for any of its shares, but the commission and
discount in the aggregate shall not exceed 25% of the subscription price. The
Commission or discount may be paid or satisfied in cash or in shares.
PART 3
SHARE CERTIFICATES
3.01 If a share certificate is defaced, lost or destroyed, it may be replaced on
payment of such fee, not exceeding $2.00 and on such terms as to evidence and
indemnity as the directors think fit.
PART 4
REGISTER OF MEMBERS
4.01 The directors may make such provisions as they may think fit respecting the
keeping of the register of members or any branch register and for the
appointment of registrars and transfer agents for the purpose of issuing,
countersigning, registering, transferring and certifying the shares of the
Company.
4.02 The Company may cause one or more branch registers of members to be kept
outside British Columbia.
4.03 Except as required by law, no person shall be recognized by the Company as
holding any share upon any trust,
PART 6
PURCHASE OF SHARES
6.01 Subject to the special rights and restrictions attached to any class of
shares, of shares, the Company may, by a resolution of the directors, purchase
any of its shares at the price and upon the terms specified in such resolution.
Part 7
ALTERATION OF CAPITAL AND SHARES
7.01 Except as otherwise provided by conditions imposed at the time of creation
of any new shares or by these Articles, any addition to the authorized capital
resulting from the creation of new shares shall be subject to the provisions of
these Articles.
PART 8
BORROWING POWERS
8.01 The directors may from time to time at their discretion authorize the
Company to borrow any sum of money for the purposes of the Company and may raise
or secure the repayment of that sum in such manner and upon such terms and
conditions, in all respects, as they think fit, and in particular, and without
limiting the generality of the foregoing, by the issue of bonds or debentures or
any mortgage or charge, whether specific or floating, or other security on the
undertaking or the whole or any part of the property of the Company, both
present and future.
<PAGE>
8.02 The directors may make any debentures, bonds or other debt obligations
issued by the Company assignable free from any equities between the Company and
the person the whom they may be issued, or any other person who lawfully
acquires the same
8.03 The directors may authorize the issue of any debentures, bonds or other
debt obligations of the Company at a discount, premium or otherwise , and with
special or other rights or privileges as to redemption, surrender, drawings,
allotment of or conversion into shares, attending at general meetings of the
Company and otherwise as the directors may determine at or before the time of
issue.
8.04 If any director or any other person becomes personally liable for the
payment of any sum primarily due from the Company, the directors may execute or
cause to be executed any mortgage, charge or security over or affecting the
whole or any part of the assets of the Company by way of indemnity to secure
such director or person from any loss in respect of such liability.
PART 9
GENERAL AND CLASS MEETINGS
9.01 The general meetings of the Company shall be held at such time and place as
the directors appoint.
9.02 Every general meeting, other than an annual general meeting, shall be
called an extraordinary general meeting.
9.03 The directors may, whenever they think fit, convene an extraordinary
general meeting.
9.04 Notice of a general meeting shall specify the place, the day and the hour
of meeting, and, in case of special business, the general nature of that
business. The accidental omission to give notice of any meeting to, or the
non-receipt of any notice by, any of the members entitled to receive notice
shall not invalidate any proceedings at that meeting.
9.05 If any special business includes the presenting, considering, approving,
ratifying or authorizing the execution of any document, the portion of any
notice relating to that document is sufficient if it states that a copy of the
document or proposed document is or will be available for inspection by members
at an office of the Company in the Province of British Columbia or at one or
more designated places in the Province during business hours on any specified or
unspecified working day or days prior to the date of the meeting and at the
meeting.
9.06 The provisions of these Articles relating to the call and conduct of
general meetings apply, with the necessary changes and so far as are applicable,
to class meetings and to series meetings, except that the quorum for a class
meeting or a series meeting of the Company shall be one member present in person
or by proxy or ( being a corporation) represented in accordance with Section 33
of the Company Act, holding not less than one-third of the shares affected.
<PAGE>
PART 10
PROCEEDINGS AT GENERAL MEETINGS
10.01 The following business at a general meeting shall be deemed to be special
business:
(a) All business at an extraordinary general meeting;
(b) All business that is transacted at an annual general meeting,
with the exception of the consideration of the financial
statement and the report of the directors and auditors, the
election of directors, the appointment of the auditors, and
such other business as, under these Articles ought to be
transacted at an annual general meeting, or any business which
is brought under consideration by the report of the directors
issued with the notice convening the meeting.
10.02 No business, other than the election of a chairman and the adjournment or
termination of the meeting, shall be conducted at any general meeting, at any
time when quorum is not present. If at anytime during a general meeting there
ceases to be a quorum present, any business then in progress shall be suspended
until there is quorum present or until the meeting is adjourned or terminated,
as the case may be. A quorum shall be one member present is person or by proxy
or (being a corporation) represented in accordance with section 33 of the
Company Act, holding not less than one voting share of the Company.
10.3 If within a half an hour from the time appointed for a general meeting a
quorum is not present, the meeting, if convened upon the requisition of members,
shall be terminated; but in any other case, it shall stand adjourned to the same
day in the next week, at the same time and place, and if, at the adjourned
meeting, a quorum is not present within half an hour from the time appointed for
the meeting, if the quorum for the meeting is one member holding or representing
one voting share, the meeting shall b be terminated, or, if the quorum is
greater than as aforesaid the members present shall be a quorum.
10.4 Subject to Article 10.05, the chairman of the Board, or in his absence, the
President of the Company, or in his absence one of the directors present shall
preside as chairman of every general meeting.
10.5 If at any general meeting there is no such officer or director present
within fifteen minutes after the time appointed for holding the meeting or if
the chairman of the Board and the President and all the directors present are
unwilling to act as
PART 11
VOTES OF MEMBERS
11.01 Subject to any rights or restrictions for the time being attached to any
class or classes of shares, on a shoe hands every member present in person has
one vote, and on a poll every member, present in person or by proxy, has one
vote for each share he holds.
11.02 Any person who is not registered as a member but is entitled to vote at
any general meeting in respect of a share may vote the share in the same manner
as if he were a member; but, unless the directors have previously admitted his
right to vote at that meeting in respect of the share, he shall satisfy the
directors of his right to vote the share before the time for holding the
meeting, or adjourned meeting, as the case may be, at which he proposes to vote
11.03 Where there are joint members registered in respect of any share, any one
of the joint members may vote at any meeting, either personally or by proxy, in
respect of the share as if he were soley entitled to it. If more than one of the
joint members is present at any meeting, personally or by proxy, the joint
member present whose name stands first on the register in respect of the share
shall alone be entitled to vote in respect of that share. Several executors or
administrators of a deceased member in whose sole name any share stands shall ,
for the purpose of this Article, be deemed joint members.
<PAGE>
11.04 Subject to Section 183 of the Company Act, a corporation which is a member
may vote by its duly authorized representative who is entitled to speak and
vote, either in person or by proxy, and in all other respects exercise the
rights of a member and that representative shall be reckoned as a member for all
purposes in connection with any meeting of the company.
11.05 A member for whom a committee has been duly appointed may vote, whether on
a show of hands or on a poll, by his committee and that committee may appoint a
proxy holder.
11.06 Unless the directors otherwise determine, the instrument appointing a
proxy holder and the power of attorney or other authority, if any, under which
it is signed or a notarially certified copy thereof shall be deposited at a
place specified for the purpose in the notice convening the meeting, not less
than forty-eight hours before the time for holding the meeting at which the
proxy holder purposes to vote
11.07 A vote given in accordance with the terms of an or incapability of the
member of revocation of the proxy or if the authority under which the proxy was
executed, or the transfer of the share in respect of which the proxy is given,
provided no intimation in writing of the death, incapability, revocation or
transfer has been received at the registered office of the Company or by the
chairman of the meeting or adjourned meeting before the vote is given.
11.08 Unless, in the circumstances, the Company Act requires any other form of
proxy, and instrument appointing a proxy holder, whether for a specified meeting
or otherwise, shall be in common form, or in any other form that the directors
shall approve.
PART 12
DIRECTORS
12.01 The directors may exercise all such powers and do all such acts and thins
as the Company may exercise and do, and which are not by these Articles or by
statute or otherwise lawfully directed or required to be exercised or done by
the Company in general meeting, but subject, nevertheless, to the provisions of
all laws affecting the Company and of these Articles and to any rules, not being
inconsistent with thee Articles, which are made from time to time by the Company
in general meeting; but no rule made by the Company in general meeting shall
invalidate any prior act of the directors that would have been valid if that
rule had not been made.
12.02 The number of directors shall be not less than one (or, if the Company is
a reporting Company, not less than three) and not more than fifteen. The number
of directors my be determined from time to time by ordinary resolution
12.03 A director is not required to have any share qualification.
PART 13
RETIREMENT AND ELECTION OF DIRECTORS
13.01 Upon the termination of the first annual general meeting of the Company
after its incorporation or formation by amalgamation, and upon the termination
of every succeeding annual general meeting, all the directors shall retire. At
every annual general meeting the members shall fill up the offices to be vacated
by electing a like number of directors and whenever the number of retiring
directors is less than the maximum number for the time being required by or
determined pursuant to Article 12.02, they may also elect such further number of
directors if any, as the Company then determines, but the total number of
directors elected shall not exceed that maximum.
<PAGE>
13.02 If, at any general meeting at which an election of directors ought to take
place, the places of the retiring directors are not filled up, such of the
retiring directors as may be requested by the newly-elected directors shall, if
willing , continue in office until further new directors are elected either at
an extraordinary general meeting specially convened for that purpose or at the
annual general meeting in the next or some subsequent year, unless it is
determined to reduce the number of directors.
13.03 If the Company removes any director before the expiration of his period of
office and appoints another person in his stead, the person so appointed shall
hold office only during such time as the director in whose place he is appointed
would have held the office if he had not been removed.
13.04 The directors have the power at any time and from time to time to appoint
any person as a director to fill a casual vacancy in the directors. The
directors shall have the power at any time and from time to time to appoint one
or more additional directors; but the number of additional directors shall not
at any time exceed one-third of the number of directors elected or appointed at
te last annual general meeting of the Company. Any director so appointed holds
office only until the conclusion of the next following annual general meeting of
the Company, but is eligible for re-election at that meeting.
13.05 A director may, with the approval of the directors, appoint any person,
whether a member of the Company or not, and whether a director of the Company or
not, to serve as his alternate director and as such to attend and vote in his
stead at meetings of directors, and such alternate director shall, if present,
be included in the count for a quorum, and if he is a director, he shall be
entitled to two votes, one as director and the other as an alternate director.
If the appointing director so directs, notice of meetings of directors shall be
sent to the alternate director and not to the appointing director. An alternate
director shall ipso facto vacate office as an alternate director if and when the
appointing director vacates office as a director or removes the appointee from
office as alternate director, and any appointment or removal under this Article
shall be made in writing under the hand of the director making the same.
PART 14
PROCEEDINGS OF DIRECTORS
14.01 The directors may meet at such places as they think fit, adjourn and
otherwise regulate their meetings and proceedings as the see fit. The directors
may from time to time fix the quorum necessary for the transaction of business
and unless so fixed the quorum shall be a majority of the directors then in
office. Any director who is interested in a proposed contact or transaction with
the Company shall be counted in the quorum. Any director who is interested in a
proposed contract or transaction with the Company shall be counted in the
quorum. The Chairman of the Board, or in his absence the President of the
Company. Shall be chairman of all meetings of the directors; but it at any
meeting the Chairman of Board or the President is not present with thirty
minutes after the time appointed for holding the meeting, the directors present
may choose some of their number to be chairman at that meeting. Any two
directors may at any time and the Secretary, upon the request of any two
directors, shall, convene a meeting of the directors.
14.02 The directors, or any committee of directors, may take any action required
or permitted to be taken by them and may exercise any of the authorities, powers
and discretions for the time being vested in or exercisable by them by
resolution either passed at a meeting at which a quorum is present or consented
to in writing under Section 149 of the Company Act.
<PAGE>
14.03 A director may participate in a meeting of directors or of any committee
of the directors by means of conference telephones or other communications
facilities by means of which all directors participating in the meeting can hear
each other and provided that all such directors agree to such participation. A
director participating in a meeting in accordance with this Article shall be
deem to the present at the meeting and to have so agreed and shall be counted in
the quorum therefore and be entitled to speak and vote thereat.
14.04 For the first meeting of the directors to be held immediately following
the appointment or election of a director or directors at an annual or other
general meeting of shareholders, or for a meeting of the directors at which a
director is appointed to fill a vacancy in the directors, it is not necessary to
give notice of the meeting to the newly-elected or appointed director or
directors for the meeting to be duly constituted, if quorum of the directors is
present.
14.05 Any director of the Company who may be temporarily absent from the
province of British Columbia may file, at the registered office of the Company,
a written waiver of notice, which may be by letter, telegram, telex or cable, of
any meeting of the directors and may, at any time, withdraw the waiver, and
until the waiver is withdrawn, not notice of meetings of directors shall be sent
to that director, and all meetings of the directors of the Company, notice of
which has not been given to that director, shall, provided a quorum of the
directors is present, be valid and effective.
14.06 Questions arising at any-meeting of the directors shall be decided by a
majority of votes. In case of an equality of votes, the chairman has second or
casting vote.
14.07 No resolution proposed at a meeting of directors need be seconded and the
chairman of any meeting is entitled to move or propose a resolution
14.08 A resolution in writing , signed by each director shall be a valid and
effectual as if it had been passed at a meeting of directors duly called and
held. Such resolution may be in one or more counterparts each signed by one or
more directors which together shall be deemed to constitute one resolution in
writing.
14.09 Not less than forty-eight hours' notice of a meeting of the directors
shall be given in writing by delivery by hand or by telegraph or by mail (it it
is mailed by prepaid post at least three clear days in advance exclusive of any
Saturday or holiday) but any director may in writing waive notice of accept
shorter notice. The directors may, by resolution, fix a regular time and place
for meetings, and in that case notice shall be given of such resolution or
resolution or resolutions and there after no further notice need be given of
such meetings.
PART 15
DIRECTORS - MISCELLANEOUS PROVISIONS
15.01 The remuneration of the directors may from time to time be determined by
the directors.
15.02 The directors shall be reimbursed such reasonable travelling, hotel and
other expenses as they may incur in and about the business of the Company and if
any director shall be required to perform extra services or should otherwise be
specially occupied about the Company's business, he shall be entitled to receive
a remuneration to be fixed by the Board or, at the option of such director, by
the Company in general meeting, and such remuneration may be either in addition
to or in substitution for any other remuneration he may be entitled to receive,
and the same shall be charged as part of the ordinary expenses.
<PAGE>
15.03 Inasmuch as the directors of the Company are likely to be connected with
other companies, corporations or associations with which from time to time the
Company must or may have business dealings, no contract or other transaction
between the Company and any other company, corporation or association shall be
affected by the fact that directors of the Company are interested in or are
shareholders, directors or officers of such other company, corporation or
association.
PART 16
EXECUTIVE AND OTHER COMMITTEES
16.01 The directors may after the annual general meeting of the Company and from
time to time as vacancies occur. Elect from among their members an Executive
Committee. The executive Committee shall consist of not less than two members
but the number of members may be increased or decreased from time to time by
resolution of the directors. The Executive Committee shall advise and aid the
officers of the Company in all matters concerning its interests and the
management of its business and affairs and may( subject to any regulations or
restrictions which the directors may from time to time make or impose) exercise
any and all powers of the directors while the latter are not in session except
the power to do any act which must by law be performed by the directors
themselves provided, however, that a report of all acts and proceedings of the
Executive Committee done or had in the interval between meetings of the
directors for the information thereof. The executive Committee shall meet at
such times and at such place or places as shall be determined by the Executive
Committee and in accordance with such rules as may be provided by resolution of
the directors. A majority of the members of the Executive Committee shall
constitute a quorum for the transaction of business, provided that in the event
of there being no quorum present at any meeting of the Executive Committee, any
director or directors of the Company who is or are requested by the chairman of
such meeting to attend such meeting shall have the right to attend and shall
thereupon be a member or members of the Executive Committee for such meeting.
16.02 The members of the Executive Committee shall be entitled to receive such
remuneration for acting as members of the Executive Committee as the directors
may from time to time determine.
16.03 The directors may delegate any, but not all, of their powers to committees
(other than the Executive Committee) consisting of such director or directors as
they think fit. Any committee so formed in the exercise of the powers so
delegated shall conform to any rules that may be from time to time be imposed on
it by the directors, and shall report every act or thing done in exercise of
those powers to the earliest meeting of the directors to be held next after it
has been done.
16.04 A committee may elect a chairman of its meetings; if no chairman is
elected, or if at any meeting the chairman is not present within thirty minutes
after the time appointed for holding the meeting, the directors present who are
members of the committee may choose one of their number to be chairman shall
have a second or casting vote.
16.05 The members of a committee may meet and adjourn as the think proper.
Questions arising at any meeting shall be determined by a majority of votes of
the members present and in case of an equality of votes the chairman shall have
a second or casting vote.
<PAGE>
PART 17
OFFICERS
17.01 The directors shall elect from among their members a President and, if
they see fit, may elect a Chairman of the Board and may elect a Vice-Chairman of
the Board and may elect a Vice Chairman, either of whom may also be the
President, all or any whom shall hold office until their successors are elected.
Vacancies occurring from time to time in these offices may be filled by the
directors from among their members.
17.02 The directors may designate the Chairman of the Board or the
Vice-Chairman, if any, or the President to be the chief executive officer.
Failing such designation the Chairman of the Board of. If there is none, the
Vice- Chairman or, if there is none the President, shall be the chief executive
officer. The chief executive officer shall, subject to the control of the
directors, have and execute general supervision over the management and control
of the business and affairs of the Company, its officers and employees.
17.03 The directors, from time to time, shall appoint a Secretary and may
appoint one or more Vice-Presidents, one of whom may be the chief financial
officer, and such other officers as the directors may determine, so including
one or more assistants to any of the officers so appointed of the directors, in
the absence of a written agreement to the contrary, may remove or suspend them.
One person may hold more than one such office.
PART 18
EXECUTION OF INSTRUMENTS
18.01 The directors may provide a common seal for the Company and for its use
and they shall have power from time to time to destroy the same and substitute a
new seal in place of the seal destroyed.
18.02 The directors may provide an official seal for use in any other province,
state, territory or country.
18.03 The directors shall provide for the safe custody of the common seal of the
Company which shall not be affixed to any instrument except in the presence of:
(a) any two of the Chairman of the Board or the Vice-Chairman ( if
any) or the President or a Vice- President or the Directors or
the Secretary; or
(b) such other officers or persons as may be prescribed form time
to time by resolution of the directors;
and such officers, directors, and persons shall sign every instrument to which
the seal of the Company is affixed in their presence.
18.04 To enable the seal of the Company to be affixed to any bonds, debentures,
share certificates, share warrants or other securities of the Company, whether
in definitive interim form on which facsimiles of the respective signatures of
Chairman of the Board, Vice-Chairman, or the President, or Vice-President, and
the Secretary are mechanically reproduced there may be delivered to the firm or
company employed to engrave, lithograph or print such definitive or interim
bonds, debentures, share certificates, share warrants or other securities one or
more unmounted dies reproducing the Company's seal and the President or a
Vice-President and the Secretary may by writing authorize such firm or company
to cause the Company's seal to be affixed to such definitive or interim bonds,
debentures, share Certificates, share warrants or other securities by the use of
such dies. Bonds, debentures, share certificates, share warrants or other
securities to which the Company's seal has been so affixed shall for all
purposes be deemed to be under and to bear the Company's seal as if it had
actually been affixed thereto and be valid and binding on the Company and this
notwithstanding that any person whose signature is so engraved, lithographed or
printed as that of the Chairman of the Board, Vice-Chairman, President,
Vice-President or Secretary may have ceased to hold such office at the date of
the issue thereof.
<PAGE>
PART 19
DIVIDENDS
19.01 The directors may declare dividends and fix the date of record therefor
and the date for payment thereof.
19.02 Subject to the terms of shares with special rights or restrictions, all
dividends shall be declared according to the number of shares held.
19.03 Dividends may be declared to be payable out of the profits of the Company.
No dividends shall bear interest against the Company.
19.04 A resolution declaring a dividend may direct payment of the dividend
wholly or partly by the distribution of specific assets or of paid-up shares,
bonds debentures or other debt obligations of the Company, or in any one or more
of those ways, and, where any difficulty arises in regard to the distribution,
the directors may settle the same as they think expedient, and in particular may
fix the value for distribution of specific assets, and may determine that cash
payments shall be made to a member upon the basis of value so fixed in place of
fractional shares, bonds, debentures or other debt obligations in order to
adjust the rights of all parties, and may vest any of those specific assets in
trustees upon such trusts for the persons entitled as may seem expedient to the
directors.
19.05 Any dividend or other moneys payable in cash in respect of a share may be
paid by check sent through the post to the member in a prepaid letter, envelope
or wrapper addressed to the member at his registered address, or in the case of
joint members, to the registered address of the joint member who is first named
on the register, or to such person and to such address as the number or joint
members, as the case may be, in writing direct. Any one of two or more joint
members may give effectual receipts for any dividend or other moneys payable or
assets distributable in respect of a share held by them.
19.06 Where the dividend to which a member is entitled includes a fraction of
one cent such shall be disregarded in making payment thereof and such payment
shall be deemed to be payment in full
19.07 No notice of the declaration of a dividend need be given to any member.
19.08 The directors may, before declaring a dividend, set aside out of the
profits of the Company such sums as they think proper as a reserve or reserves
which shall, at the discretion of the directors, be applicable for meeting
contingencies, or for equalizing dividends, or for any other purpose to which
the profits of the Company may be properly applied, and pending that application
may, at the like discretion, either be employed in the business of the Company
or be invested in such investments, other than shares of the Company, as the
directors may from time to time think fit.
<PAGE>
PART 20
ACCOUNTS
20.01 The directors shall cause records and books of accounts to be kept as
necessary to record properly the financial affairs and condition of the Company
and to comply with provisions of statutes applicable to the Company.
20.02 Unless the directors determine otherwise, or unless otherwise determined
by an ordinary resolution, no member of the Company shall be entitled to inspect
the accounting records of the Company.
Part 21
INDEMNIFICATION
21.01 The Company shall indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action
proceeding, whether or not brought by the Company or by a Corporation or other
legal entity or enterprise as hereinafter mentioned and whether civil, criminal
or administrative, by reason of the fact that he is or was director, officer,
employee or agent of the Company or is or was director, officer, employee, or
agent of the Company or is or was serving at the request of the Company as a
director, officer, employee or agent of another corporation, a partnership,
joint venture, trust or other enterprise, against all cost, charges and
expenses, including legal fees and any amount paid to settle the action or
proceeding or satisfy a judgement, if he acted honestly and in good faith with a
view to the best interest of the corporation or other legal entity or enterprise
as aforesaid of which he is or was a director, officer, employee or agent, as
the case may be, and exercised the care, diligence and skill of a reasonably
prudent person, and with respect to any criminal or administrative, action or
proceeding, he had reasonable grounds for believing that his conduct was lawful
but the Company shall not be bond to indemnify any such person, other than a
director, officer or an employee of the Company ( who shall be deemed to have
notice of this Article and to have contracted with the Company in terms hereof
solely by virtue of his acceptance of such office or employment), if in acting
as agent for the Company corporation or other legal entity or enterprise as
aforesaid, he does so by written request of the Company containing an express
reference to this Article and no indemnification of a director or former
director or officer or of the Company, of a corporation in which the Company is
or was a shareholder, shall be made except to the extent approved by the Court
pursuant to the Company Act or any other statute. The determination of any
action, suite or proceeding by judgement, order, settlement, conviction or
otherwise shall not, of itself, create a presumption that the person did not act
honestly and in good faith and in the best interests of the Company and did not
exercise the care, diligence and skill of a reasonable prudent person and, with
respect to any criminal action or proceeding, did not have reasonable grounds to
believe that his conduct was lawful.
21.2 The Company shall indemnify any person other than a director in respect of
any loss, damage, costs or expenses whatsoever incurred by him while acting as
an employee or agent for the Company unless such loss, damage, costs, or
expenses shall arise out of failure to comply with instructions, or willful act
or default or fraud by such person in any of which events the Company shall only
indemnify such person it the directors, in their absolute discretion, so decide
or the Company by ordinary resolution shall so direct.
21.02 The indemnification provided by this part shall not be deemed exclusive of
any other part, or any valid and lawful agreement, vote of members or
disinterested directors or otherwise, both as to action in his official capacity
and as to action in another capacity while holding such office, and shall
continue as to a person who has ceased to be a director, officer, employee, or
agent and shall ensure to the benefit of the heirs, executors and administrators
of such person. The indemnification provided by this Part shall not be exclusive
of any powers, rights, agreements or undertakings which may be legally
permissible or authorized by or under any applicable law. Notwithstanding any
other provisions set forth in this Part the indemnification authorized by this
Part shall be applicable only to the extent that any such indemnification shall
not duplicate indemnity or reimbursement which that person has received or shall
receive otherwise than under this Part.
<PAGE>
21.03 The directors are authorized from time to time to cause the Company to
give indemnities to any director, officer, employee, agent or other person who
has undertaken or is about to undertake any liability on behalf of the Company
or any corporation controlled by it.
21.04 No director or officer of employee for the time being of the Company shall
be liable for the acts, receipts, neglects or defaults of any other director of
officer or employee, agent or other person who has undertaken or is about to
undertake any liability on behalf of the Company or any corporation controlled
by it.
21.05 No director or officer or employee for the time being of the Company 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 act for conformity, or for
any loss, damage or expense happening to the Company through the insufficiency
of deficiency of title to any property acquired by order of the Board for the
Company, or for the insufficiency or deficiency of any security in or upon which
any of the moneys of or belonging to the Company shall be invested or for any
loss or damages arising from the bankruptcy, insolvency, or tortious act of any
person, firm or corporation with whom or which any moneys, securities or effects
shall be lodged or deposited or for any loss occasioned by any error of
judgement or oversight on his part or for any other loss, damage or misfortune
whatever which may happen in the execution of the duties of his respective
office or trust or in relation thereto unless the same shall happen by or
through his own willful act or default, negligence, breach of trust or breach of
duty
21.06 Directors may rely upon the accuracy of any statement of fact represented
by an officer of the Company to be correct or upon statements in a written
report of the auditor of the Company and shall not be responsible or held liable
for any loss or damage resulting from the paying of any dividends or otherwise
acting in good faith upon any such statement.
21.07 The directors may cause the Company to purchase and maintain, insurance
for the benefit of any person who is or was a director, officer, employee or
agent of the Company or is or was serving at the request of the Company as a
director, officer, employee, or agent of another Corporation, a partnership,
joint venture, trust or other enterprise against any liability incurred by him
as a director, officer, employee or agent.
PART 22
NOTICES
22.01 Except as otherwise provided in these Articles, a notice may be given to
any member or director, either personally or by sending it by post to him in a
prepaid letter, envelope or wrapper addressed to the member or director at his
Registered address.
22.02 A notice may be given by the Company to joint members in respect of a
share registered in their names by giving the notice to the joint member first
named in the register of members in respect of that share.
22.03 A notice may be given by the Company to the persons entitled to a share in
consequence of the death or bankruptcy of a member by sending it through the
post in a prepaid letter, envelope or wrapper addressed to them by name, or by
the title of representatives of the deceased, or trustee of the bankrupt, or by
any like description, at the address, if any, supplied for the purpose by the
persons claiming to be so entitled, or, until that address has been so supplied,
by giving the notice in any manner in which the same might have been given if
the death or bankruptcy has not occurred.
<PAGE>
22.04 Any notice or document sent by post to, or left at, the registered address
of, any member, shall, notwithstanding that member is then deceased, and whether
or not the Company has notice of his death, be deemed to have been duly served
in respect of any registered shares, whether held solely or jointly with other
persons by that deceased member, until some other person is registered in his
stead as the member or joint member is respect of those shares, and that service
shall for all purposes be deemed a sufficient service of such notice of document
on his personal representatives and all persons, if any, jointly interested with
him in those shares.
22.05 Any notice sent by post shall be deem to have served on the day, Saturdays
and holidays excepted, following that on which the letter, envelope or wrapper
containing the same is posted, and in probing service it is sufficient to prove
that the letter, envelope or wrapper containing the notice was properly
addressed and put in a Canadian Government post office, postage prepaid.
22.06 Notice of every general meeting shall be given in any manner hereinbefore
authorized to :
(a) every member holding a share or shares carrying the right to
vote at such meetings on the record date or if record date was
established by the directors, on the date of the mailing
notice;
(b) every person upon whom the ownership of a share devolves by
reason of his being a legal personal representative or a
trustee in bankruptcy of a member where the member but for his
death bankruptcy would be entitled to receive notice of the
meeting
No other person is entitled to receive notice of general meetings.
PART 23
SPECIAL RIGHTS AND RESTRICTIONS
23.01 The Class "A" Preference shares and the Class "B" Preference shares of the
Company shall have the rights and shall be subject to the restrictions and
limitations as follows:
(a) The directors may issue Class "A" Preference shares in one or
more series;
(b) The directors may alter by resolution the Memorandum of the
Company to fix the number of shares in, and to determine the
designation of the shares of, each series of Class "A"
Preference shares, by resolution;
(c) The directors may alter by resolution the Memorandum of the
Company or these Articles or both to create, define and attach
special rights and restrictions to the shares of each series
of Class "A" Preference shares, subject to the special rights
and restrictions attached to the Class "A" Preference shares
by this Part'
(d) Where the Class "A" Preference shares or one or more series of
Class "A" Preference shares are entitled to cumulative
dividends, and where cumulative dividends in respect of the
Class "A" Preference shares or a series of Class "A"
Preference shares are not paid in full, the Class "A"
Preference shares and all series of Class "A" entitled to
cumulative dividends shall participate rateably in respect of
accumulated dividends in accordance with the amounts that
would be payable on those shares if all the accumulated
dividends were paid in full;
<PAGE>
(e) Where amounts payable on a winding-up, or on the occurrence of
any other event as a result of which the holders of the shares
of the Class "A" Preference shares and all series of Class "A"
Preference shares are then entitled to return of capital, are
not paid in full, the class "A" Preference shares shall
participate rateably in a return of capital in respect of
Class "A" Preference shares in accordance with the amounts
that would be payable on the return of capital if all amounts
so payable were paid in full;
(f) No special rights or restrictions attached to a series of
Class "A" Preference shares all confer on the series priority
over another series of Class "A" Preference Shares the
outstanding respecting:
(i) dividends, or
(ii) a return of capital:
(A) on winding-up or
(B) on the occurrence of another event that
would result in the holders of all series of
Class "A" Preference shares being entitled
to a return of capital;
(g) A director's resolution pursuant to paragraphs (a), (b) or (c)
may only be passed prior to the issue of shares of the series
to which the resolution relates. and after the issue of shares
of that series, the number of shares in, the designation of
and the special rights and restrictions attached to, that
series may be added to, altered, varied or abrogated only
pursuant to sections 248, 249, 254, or 255 of the Company Act,
as the case may;
(g) Except as expressly provided in the special rights, or
restrictions which the directors may create, define or attach
to any series of Class "A" Preference shares, Class "A"
Preference shares and any series of Class "A" Preference
Shares shall not confer on the holders thereof any right to
notice of or to be present or to vote, either in person or by
proxy, at any general meeting other than a separate meeting of
the holders of the Class "A" Preference shares, or of the
holders of shares of a series of the Class "A" Preference
shares as the case may be:
(h) All of the provisions of this Part with respect to the Class"
A" Preference shares shall apply. Mutatis mutandis, to the
Class " B" Preference shares, as if set out here in full;
(i) All of the provisions of this Part with respect to the Class
"A" Preference shars shall apply, mutatis mutandis, to the
Class "B" Preference shares, as if set out here in full;
(j) Except as expressly provided in the special rights or
restrictions which the directors may create, define or attach
to any series of Class "A" Preference shares only or with
respect to any series of Class "A" Preference shares only or
with respect to any combination of two or more such Classes or
series of classes only.
23.02 Except as hereinafter provided, in the event of the liquidation,
dissolution or winding-up of the Company or any distribution of its assets for
the purpose of winding-up its affairs, after the payment of dividends declared
but unpaid, the holders of the Class "A" Preference shares and the Class "B"
Preference shares shall be entitled pari passu to be paid such amount as the
special rights and restrictions attaching to such shares shall provide, and in
the absence of any express provision with respect thereto the amount of capital
paid up in respect thereof per share for each Class "A" Preference share and
each Class "B" Preference share held by them, out of the assets of the Company
in preference to and with priority over any payment of distribution of any
capital asset or monies among the holders any common shares of the company, and
after payment to the holders of the Class "A" Preference shares and Class "B"
Preference shares of the amount so payable to them they shall not be entitled to
share in any other distribution of the property or assets of the Company. The
foregoing provisions of this Article 23.02 shall apply to all Class "A"
Preference shares and Class "B" Preference shares, except as expressly provided
in the special rights and restrictions which the directors may create, define or
attach to any series of Class "A" Preference shares of Class "B" Preference
shares.
<PAGE>
PART 24
PROHIBITIONS
24.01 No shares may be transferred except with the prior approval of the
directors, who may in their absolute discretion refuse to register the transfer
of any share, such approval to be evidenced by resolution of the directors.
24.02 There shall not be any invitation to the public to subscribe for any
shares or debt obligations of the Company.
24.03 The provisions of this Part shall only apply if the Company is not a
reporting company.
Dated at Vancouver, British Columbia, this 2nd day of September 1986.
Signature of the Subscriber
To the Memorandum:
----------------------------------------
Stephen F. X. O'Neill
NO. ___ OF ___
THE SHARES TO BE ISSUED UPON THE EXERCISE OF THESE WARRANTS ARE SUBJECT TO A
HOLD PERIOD AND MAY NOT BE TRADED IN BRITISH COLUMBIA UNTIL AUGUST 29, 1999
EXCEPT AS PERMITTED BY THE SECURITIES ACT (BRITISH COLUMBIA) AND REGULATIONS
UNDER THE ACT.
______ WARRANTS VOID AFTER AUGUST 29, 1999
SERIES "H" SHARE PURCHASE WARRANT
EMPYREAN DIAGNOSTICS LTD.
THIS IS TO CERTIFY THAT for value received, ______________________ (the "Warrant
Holder"), of ___________________________________________________________________
shall have the right to purchase from EMPYREAN DIAGNOSTICS LTD. (the "Company"),
upon and subject to the terms and conditions hereinafter referred to, at any
time up to 4:00 p.m. (Vancouver time) on August 29, 1999 (the "Expiry Time") one
fully paid and non-assessable common share of the Company for each Series "H"
share purchase warrant represented hereby at the price of $0.80 per share until
August 29, 1998 and at the price of $1.25 per share until August 29, 1999. After
the Expiry time this warrant certificate and all rights conferred hereby shall
be void and of no value.
The right to purchase common shares of the Company may only be exercised by the
Warrant Holder within the time hereinbefore set out by:
(a) duly completing and executing the subscription form attached hereto,
in the manner therein indicated;
(b) surrendering this warrant certificate to the Company's Registrar and
Transfer Agent, THE MONTREAL TRUST COMPANY OF CANADA, at 510 Burrard
Street, Vancouver, British Columbia, V6C 3B8; and
(c) paying the appropriate purchase price for the common shares of the
Company subscribed for together, either in cash or by certified
cheque.
Upon said surrender and payment, the Company will issue to the Warrant Holder
the number of common shares subscribed for. Within three business days of said
surrender and payment, the Company will mail to the Warrant Holder a certificate
evidencing the common shares subscribed for. If the Warrant Holder subscribes
for a lesser number of common shares than the number of shares permitted by this
warrant certificate, the Company shall forthwith cause to be delivered to the
Warrant Holder a further warrant certificate in respect of common shares
referred to in this warrant certificate but not subscribed for.
THE WARRANTS REPRESENTED HEREBY AND ALL RIGHTS HEREUNDER ARE NON-TRANSFERABLE.
<PAGE>
-2-
In the event of any subdivision of the common shares of the Company as such
shares are constituted on the date hereof, at any time while this warrant
certificate is outstanding, into a greater number of common shares, the Company
will thereafter deliver at the time or times of purchase of shares hereunder, in
addition to the number of shares in respect of which the right to purchase is
then being exercised, such additional number of shares as result from such
subdivision or subdivisions without any additional payment or other
consideration therefor.
In the event of any consolidation or consolidations of the common shares of the
Company, as said common shares are constituted on the date hereof, at any time
while this warrant certificate is outstanding, into a lesser number of common
shares, the number of shares represented by this warrant certificate shall
thereafter be deemed to be consolidated in like manner and any subscription by
the Warrant Holder for shares hereunder shall be deemed to be a subscription for
shares of the Company as consolidated.
In the event of reclassification of the common shares of the Company at any time
while this warrant certificate is outstanding, the Company shall thereafter
deliver at the time of purchase of shares hereunder the number of shares of the
appropriate class resulting from the reclassification as the Warrant Holder
would have been entitled to receive in respect of the number of shares so
purchased had the right to purchase been exercised before such reclassification.
IF the Company at any time while this warrant certificate is outstanding shall
pay any stock dividend upon the common shares of the Company in respect of which
the right to purchase is herein given, the Company shall thereafter deliver, at
the time of purchase of shares hereunder, in addition to the number of shares in
respect of which the right to purchase is then being exercised, the additional
number of shares as would have been issued on the record date for the payment of
the stock dividend had the right to purchase shares hereunder been exercised by
the Warrant Holder before payment of stock dividend.
The holding of this warrant certificate or the warrants represented hereby shall
not constitute the Warrant Holder a member of the Company.
Time shall be of the essence hereof.
IN WITNESS WHEREOF the Company has caused this Warrant to be issued by its duly
authorized signatory.
EMPYREAN DIAGNOSTICS LTD. MONTREAL TRUST COMPANY OF CANADA
by: by:
------------------------------ ------------------------------
Authorized Signatory Authorized Signatory
<PAGE>
-3-
FORM OF SUBSCRIPTION
TO: EMPYREAN DIAGNOSTICS LTD.
AND TO;: Montreal Trust Company of Canada
Dear Sirs:
The undersigned hereby exercises the right to purchase and hereby subscribes for
__________________ common shares in the capital stock of EMPYREAN DIAGNOSTICS
LTD. referred to in the warrant certificate surrendered herewith according to
the terms thereof and herewith makes payment by cash or certified cheque of the
purchase price in full for the said shares.
Please issue a certificate for the shares being purchased as follows in the name
of the undersigned.
NAME:
--------------------------------------------------------------
[please print]
ADDRESS:
--------------------------------------------------------------
--------------------------------------------------------------
--------------------------------------------------------------
Please deliver a warrant certificate in respect of the common shares referred to
in the warrant certificate surrendered herewith but not presently subscribed
for, to the undersigned.
DATED this ________ day of ___________________________, 199_____.
- ------------------------------
per:
- ----------------------------------------
EMPYREAN DIAGNOSTICS LTD. SERIES "J" WARRANT CERTIFICATE
- --------------------------------------------------------------------------------
NO: _____
EMPYREAN DIAGNOSTICS LTD.
SERIES "J" WARRANT CERTIFICATE
================================================================================
Name of Holder................... ____________________________________________
Address of Holder................ ____________________________________________
Number of Shares................. ____________________________________________
Purchase Price per Share......... $ 0.01 U.S.
Warrant Expiration Date.......... January 25, 2001
Warrant Effective Date........... January 25, 1999
================================================================================
NEITHER THIS SERIES "J" WARRANT OR THE SHARES OF COMMON STOCK PURCHASABLE
UPON EXERCISE OF THIS WARRANT (COLLECTIVELY, "THE SECURITIES REPRESENTED BY
THIS CERTIFICATE") HAVE BEEN REGISTERED WITH THE UNITED STATES SECURITIES
AND EXCHANGE COMMISSION (THE "COMMISSION") UNDER SECTION 5 OF THE UNITED
STATES SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), IN
RELIANCE UPON ONE OR MORE EXEMPTIONS FROM REGISTRATION OR QUALIFICATION
AFFORDED BY THE SECURITIES ACT AND/OR RULES PROMULGATED BY THE COMMISSION
PURSUANT THERETO. THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE ALSO
NOT BEEN REGISTERED OR QUALIFIED (AS THE CASE MAY BE) UNDER THE SECURITIES
LAWS OF ANY STATE OR TERRITORY OF THE UNITED STATES (THE "BLUE SKY LAWS"),
IN RELIANCE UPON ONE OR MORE EXEMPTIONS FROM REGISTRATION OR QUALIFICATION
QUALIFIED (AS THE CASE MAY BE) AFFORDED UNDER SUCH SECURITIES LAWS. NEITHER
THE COMMISSION NOR ANY SECURITIES REGULATORY AGENCY OF ANY STATE OR
TERRITORY OF THE UNITED STATES HAVE REVIEWED OR PASSED UPON OR ENDORSED THE
MERITS OF AN INVESTMENT IN THE SECURITIES REPRESENTED BY THIS CERTIFICATE,
AND ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE SECURITIES REPRESENTED BY THIS CERTIFICATE MUST BE ACQUIRED FOR THE
HOLDER'S OWN ACCOUNT FOR INVESTMENT PURPOSES ONLY AND NOT WITH A VIEW FOR
RESALE OR DISTRIBUTION. THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE
"RESTRICTED SECURITIES" WITHIN THE MEANING OF RULE 144 PROMULGATED UNDER
THE SECURITIES ACT. THE SECURITIES REPRESENTED BY THIS CERTIFICATE MAY NOT
BE NOT BE SOLD, TRANSFERRED, ASSIGNED OR HYPOTHECATED, OR OFFERED FOR SALE,
TRANSFER, ASSIGNMENT OR HYPOTHECATION, WITHIN THE UNITED STATES OR ANY OF
ITS TERRITORIES OR TO A UNITED STATES PERSON, UNLESS: (i) SUCH SECURITIES
ARE REGISTERED UNDER SECTION 5 OF THE SECURITIES ACT AND/OR REGISTERED OR
QUALIFIED PURSUANT TO ANY APPLICABLE BLUE SKY LAWS; OR (ii) THE PROPOSED
TRANSACTION IS EXEMPT FROM THE REGISTRATION AND PROSPECTUS DELIVERY
<PAGE>
EMPYREAN DIAGNOSTICS LTD. SERIES "J" WARRANT CERTIFICATE
- --------------------------------------------------------------------------------
REQUIREMENTS OF THE SECURITIES ACT AND THE REGISTRATION AND QUALIFICATION
PROVISIONS OF ANY APPLICABLE BLUE SKY LAWS. THE TRANSFER AGENT (OR THE
COMPANY IF THEN ACTING AS ITS TRANSFER AGENT) WILL REFUSE TO TRANSFER THE
SECURITIES REPRESENTED BY THIS CERTIFICATE UNLESS PRESENTED WITH A WRITTEN
OPINION SATISFACTORY TO LEGAL COUNSEL FOR THE COMPANY (OR A NO-ACTION OR
INTERPRETIVE LETTER FROM THE COMMISSION AND/OR SECURITIES REGULATORY
AGENCIES OF ANY APPLICABLE STATE OR TERRITORY OF THE UNITED STATES) TO THE
EFFECT THAT SUCH REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS UNDER
THE SECURITIES ACT AND SUCH REGISTRATION OR QUALIFICATION REQUIREMENTS
UNDER THE BLUE SKY LAWS ARE NOT REQUIRED UNDER THE CIRCUMSTANCES OF SUCH
SALE, TRANSFER, ASSIGNMENT OR HYPOTHECATION. AS A RESULT, THE SECURITIES
REPRESENTED BY THIS CERTIFICATE ARE SUITABLE ONLY FOR CERTAIN SOPHISTICATED
AND QUALIFIED INVESTORS WHO CAN BEAR THE FINANCIAL RISK OF AN INVESTMENT IN
THESE SECURITIES FOR AN INDEFINITE PERIOD OF TIME.
- --------------------------------------------------------------------------------
EMPYREAN DIAGNOSTICS, LTD., a Wyoming corporation (the "COMPANY"), whose
principal executive office is located at 2238 West Lone Cactus Drive, Suite 200,
Phoenix, Arizona 85027, hereby certifies that, for valuable consideration,
receipt of which consideration is hereby acknowledged, the Holder identified on
the cover page hereof (the "HOLDER") is entitled to purchase from the Company a
number of unregistered shares (the "SHARES") of the Company's Common Stock, no
par value (the "COMMON STOCK") designated on the cover page hereof, at the
Purchase Price per Share designated on the cover page hereof (the "PURCHASE
PRICE"), subject to the following terms and conditions.
1. EXERCISE
(a) TIME OF EXERCISE. This Warrant may be exercised in whole or in part
(but not as to fractional shares) at the executive office of the
Company, at any time or from time to time, PROVIDED, HOWEVER, that
this Series "J" Warrant (the "WARRANT") shall expire and be null and
void and of no further force or effect if not exercised in the manner
herein provided, by 5:00 p.m., Pacific Time, on or before the Warrant
Expiration Date designated above.
(b) MANNER OF EXERCISE. This Warrant is exercisable at the Purchase Price
per Share, subject to adjustment as provided in section 5 hereof.
Exercise of this Warrant shall be effectuated solely by the surrender
of this Warrant with the annexed Notice of Exercise duly executed,
together with payment of the Purchase Price for the Shares purchased
(and any applicable transfer taxes) at the Company's principal
executive offices (as currently identified above). Payment shall be
made by cash, by cashier's check payable to the order of the Company,
or by other immediately available funds, all in U.S. dollars,
PROVIDED, HOWEVER, the Company may, in its sole discretion and without
any obligation to do so, accept any of the following forms of
consideration in full or partial payment for the Shares in lieu of the
foregoing: (i) shares of Common Stock owned by the Holder duly
endorsed for transfer to the Company, with a fair market value (as
determined by the Company) on the date of delivery equal to the
aggregate Purchase Price of the Shares with respect to which this
Warrant or portion is thereby exercised; (ii) the surrender or
relinquishment of options, warrants or other rights to acquire Common
Stock held by the Holder, with a fair market value (as determined by
the Company) on the date of delivery equal to the aggregate Purchase
Price of the Shares with respect to which this Warrant or portion is
thereby exercised; (iii) a full recourse promissory note bearing
interest at a rate as shall then preclude the imputation of interest
-2-
<PAGE>
EMPYREAN DIAGNOSTICS LTD. SERIES "J" WARRANT CERTIFICATE
- --------------------------------------------------------------------------------
under the Internal Revenue Code of 1986, as amended, and payable upon
such terms as may be prescribed by the Company and secured by such
property as may be prescribed by the Company (notwithstanding the
foregoing, no Warrant may be exercised by delivery of a promissory
note or by a loan from the Company if such loan or other extension of
credit is prohibited by law at the time of exercise of this Warrant or
does not comply with the provisions of Regulation G promulgated by the
Federal Reserve Board with respect to "margin stock" if the Company
and the Holder are then subject to such Regulation); and/or (iv)
property of any kind which constitutes good and valuable
consideration.
(c) DELIVERY OF STOCK CERTIFICATES. As soon as practicable, but not
exceeding thirty (30) days, after complete or partial exercise of this
Warrant and all required deliveries by the Holder, the Company, at its
expense, shall cause to be issued in the name of the Holder a
certificate or certificates for the number of fully paid and
nonassessable shares of Common Stock to which the Holder shall be
entitled upon such exercise, together with such other stock or
securities or property or combination thereof to which the Holder
shall be entitled upon such exercise, determined in accordance with
section 5 hereof.
(d) RECORD DATE OF TRANSFER OF SHARES. Irrespective of the date of
issuance and delivery of certificates for any shares of Common Stock
or other securities issuable upon the exercise of this Warrant, each
person (including a corporation or partnership) in whose name any such
certificate is to be issued shall for all purposes be deemed to have
become the holder of record of the Common Stock or other securities
represented thereby immediately prior to the close of business on the
date on which payment of the Purchase Price with annexed Notice of
Exercise duly executed is received by the Company.
2. NAMED HOLDER DEEMED OWNER
The Company, any conversion agent, and any registrar for this Warrant may deem
and treat the Holder hereinabove named as the absolute owner of this Warrant;
PROVIDED, HOWEVER, in the event the Holder hereinabove named (or any successor
thereto in accordance with the terms of this section 2) shall have delivered to
the Company at its principal executive office written notice requesting the
Transfer of this Warrant (as such term is defined in section 9) or any portion
thereof, the Company shall, so long as the requirements for transfer described
in section 9 hereof have been satisfied, treat the assignee or transferee as the
Holder for the purpose of exercise hereof and for all other purposes, and
neither the Company nor any conversion agent nor any registrar shall be affected
by any notice to the contrary.
3. NO STOCKHOLDER RIGHTS
The Holder shall not be, nor have any of the rights or privileges of, a
stockholder of the Company with respect to this Warrant or any unexercised
Shares including, by way of example and not limitation, the right to vote for
the election of directors or upon any matter submitted to stockholders at any
meeting thereof, or to give or withhold consent to any corporate action, or to
receive notice of meetings or other actions affecting stockholders (except as
expressly provided in this Warrant), or to receive dividends, distributions,
subscription rights or otherwise (except as expressly provided in this Warrant),
unless and until all conditions for exercise of this Warrant shall be satisfied,
and this Warrant is duly exercised and the purchased Shares are duly issued and
delivered, at which time the Holder shall become a stockholder of the Company
with respect to such issued Shares and, in such capacity, shall thereafter be
fully entitled to receive dividends (if any are declared and paid), to vote, and
to exercise all other rights of a stockholder with respect to such issued
Shares.
-3-
<PAGE>
EMPYREAN DIAGNOSTICS LTD. SERIES "J" WARRANT CERTIFICATE
- --------------------------------------------------------------------------------
4. RIGHT TO NOTICE OF CERTAIN EVENTS
The Company shall give written notice of the following events to the Holder of
this Warrant in the event this Warrant has not expired and has not been fully
exercised by the Holder:
(a) The Company shall fix a record date of the holders of its shares of
Common Stock for the purpose of entitling them to receive a dividend
or distribution; or
(b) A merger or consolidation or stock exchange or divisive reorganization
(i.e., spin-off, split-off or split-up) or other reorganization in
which the Company and/or its stockholders are to be a party; or the
sale, transfer, exchange or other disposition by the Company of fifty
percent (50%) or more of its assets in a single or series of related
transactions; or the sale, transfer, exchange or other disposition of
fifty percent (50%) or more of the capital stock of the Company in a
single or series of related transactions, WITH THE EXCEPTION, in each
of the above cases, of a transaction whose principal purpose is to
change the State in which the Company is incorporated, or to form a
holding company, or to effect a similar reorganization as to form of
entity without change of beneficial ownership.
(c) The sale, transfer, exchange or other disposition of all or
substantially all of the assets of the Company in complete liquidation
or dissolution of the Company, with the exception of a transaction
whose principal purpose is to change the State in which the Company is
incorporated, or to form a holding company, or to effect a similar
reorganization as to form of entity without change of beneficial
ownership, whereupon this Warrant will be assumed by the successor
entity.
In the case of the occurrence of any of the events described in this section 4,
the Company shall give written notice of such event to the Holder of this
Warrant at least fifteen (15) days prior to the date fixed as a record date or
the date of closing the transfer books for the determination of the shareholders
entitled to receive such dividend, distribution, convertible or exchangeable
securities or subscription rights described in subsection (a), or entitled to
vote on such proposed transactions described in subsections (b) and (c). Such
notice shall specify such record date or the date of closing the transfer books,
as the case may be. Failure to give such notice or any defect therein shall not
affect the validity of any action taken in connection with the declaration or
payment of any such dividend or the issuance of any convertible or exchangeable
securities, or any subscription rights, options or warrants described in
subsection (a) or any proposed transactions described in subsections (b) and
(c).
5. ADJUSTMENTS
(a) COMMON STOCK RECAPITALIZATION OR RECLASSIFICATION; COMBINATION OR
REVERSE STOCK SPLIT; FORWARD STOCK SPLIT. If (i) outstanding shares of
Common Stock are subdivided into a greater number of shares by reason
of recapitalization or reclassification, or (ii) a dividend in Common
Stock shall be paid or distributed in respect of the Common Stock,
then the number of Shares which a Holder is entitled to purchase under
this Warrant, and the Purchase Price for such Shares, in effect
immediately prior to such subdivision or at the record date of such
dividend shall, simultaneously with the effectiveness of such
subdivision or immediately after the record date of such dividend, be
proportionately increased and reduced, respectively. If outstanding
-4-
<PAGE>
EMPYREAN DIAGNOSTICS LTD. SERIES "J" WARRANT CERTIFICATE
- --------------------------------------------------------------------------------
shares of Common Stock are combined into a lesser number of shares by
reason of combination or reverse stock split, then the number of
Shares which a Holder is entitled to purchase under this Warrant, and
the Purchase Price for such Shares, in effect immediately prior to
such combination shall, simultaneously with the effectiveness of such
combination, be proportionately reduced and increased, respectively.
(b) CONSOLIDATION OR MERGER; EXCHANGE OF SECURITIES; DIVISIVE
REORGANIZATION; OTHER REORGANIZATION OR RECLASSIFICATION. In case of
(i) the consolidation, merger, combination or exchange of shares of
capital stock with another entity, or (ii) the divisive reorganization
of the Company (i.e., split-up, spin-off or split-off), or (iii) any
capital reorganization or any reclassification of Common Stock (other
than a recapitalization or reclassification described above in
subsection (a)), the Holder shall thereafter be entitled upon exercise
of this Warrant to purchase the kind and number of shares of capital
stock or other securities or property of the Company (or its
successor{s}) receivable upon such event by a holder of the number of
Shares which this Warrant entitles the Holder to purchase from the
Company immediately prior to such event. In every such case, the
Company may appropriately adjust the number of Shares which may be
issued under this Warrant, the Purchase Price therefore, and any and
all other matters deemed appropriate by the Company.
(c) ADJUSTMENTS DETERMINED IN SOLE DISCRETION OF COMPANY. All adjustments
to be made pursuant to the foregoing subsection shall be made in such
manner as the Company shall deem equitable and appropriate, the
determination of the Company shall be final, binding and conclusive.
(d) NO OTHER RIGHTS TO HOLDER. Except as expressly provided in this
section 5: (i) the Holder shall have no rights by reason of any
subdivision or consolidation of shares of capital stock of any class
or the payment of any stock dividend or any other increase or decrease
in the number of shares of stock of any class, and (ii) the
dissolution, liquidation, merger, consolidation or divisive
reorganization or sale of assets or stock to another corporation
(including any Approved Corporate Transactions as such term is defined
in section 6), or any issue by the Company of shares of capital stock
of any class, or warrants or options or rights to purchase securities
(including securities convertible into shares of capital stock of any
class), shall not affect, and no adjustment by reason thereof shall be
made with respect to, the number of, or the Purchase Price for, the
Shares. The sale of this Warrant shall not in any way affect or impede
the right or power of the Company to make adjustments,
reclassifications, reorganizations or changes of its capital or
business structure or to merge, consolidate, dissolve or liquidate, or
to sell or transfer all or any part of its business or assets.
6. APPROVED CORPORATE TRANSACTIONS
In the event of the occurrence of any Approved Corporate Transaction (as defined
below), or in the event of any change in applicable laws, regulations or
accounting principles, the Company in its discretion is hereby authorized to
take any one or more of the following actions whenever the Company determines
that such action is appropriate in order to facilitate such Approved Corporate
Transactions or to give effect to changes in laws, regulations or principles:
-5-
<PAGE>
EMPYREAN DIAGNOSTICS LTD. SERIES "J" WARRANT CERTIFICATE
- --------------------------------------------------------------------------------
(a) PURCHASE OR REPLACEMENT OF WARRANT. In its sole and absolute
discretion, and on such terms and conditions as it deems appropriate,
the Company may provide by action taken prior to the occurrence of
such transaction or event and either automatically or upon the
Holder's request, for any one or combination of the following: (1) the
purchase of this Warrant for an amount of cash equal to the amount
that could have been attained upon the exercise of this Warrant, or
realization of the Holder's rights had this Warrant been currently
exercisable or payable or fully vested; and/or (ii) the replacement of
this Warrant with other rights or property (which may or may not be
securities) selected by the Company in its sole discretion
(b) ACCELERATION OF EXPIRATION DATE. In its sole and absolute discretion,
and on such terms and conditions as it deems appropriate, the Company
may provide, by action taken prior to the occurrence of such
transaction or event, that this Warrant may not be exercised after the
occurrence of such event; PROVIDED, HOWEVER, the Holder must be given
the opportunity, for a specified period of time prior to the
consummation of such transaction, to exercise this Warrant as to all
Shares covered thereby.
(c) ASSUMPTION OR SUBSTITUTION. In its sole and absolute discretion, and
on such terms and conditions as it deems appropriate, the Company may
provide, by action taken prior to the occurrence of such transaction
or event, that this Warrant be assumed by the successor or survivor
corporation, or a parent or subsidiary thereof, or shall be
substituted for by similar warrants covering the capital stock of the
successor or survivor corporation, or a parent or subsidiary thereof,
with appropriate adjustments as to the number and kind of shares and
prices.
7. PAYMENT OF TAXES
All Shares issued upon the exercise of this Warrant shall be validly issued,
fully paid and nonassessable and the Company shall pay all taxes and other
governmental charges (other than income tax) that may be imposed in respect of
this issue or delivery thereof. The Company shall not be required, however, to
pay any tax or other charge imposed in connection with any Transfer attributable
to the issue of any certificate for shares in any name other than that of the
Holder, and in such case the Company shall not be required to issue or deliver
any stock certificate until such tax or other charge has been paid or it has
been established to the Company's satisfaction that no tax or other charge is
due
8. LEGEND
The Shares issuable upon the exercise of this Warrant shall bear the legend set
forth on the first page of this Warrant (except that such legend shall refer to
"SHARES" instead of "SECURITIES") or a legend of similar import, PROVIDED,
HOWEVER, that that the Company, without any obligation to do so, may permit such
legend to be removed from this Warrant, or in the case of the certificate or
other instrument representing the Shares, may permit such legend not be placed
upon, or may permit such legend to be removed from, such certificate, as the
case may be, in the event such legend is no longer necessary to assure
compliance with the Securities Act.
9. TRANSFER CONDITIONS
This Warrant shall be registered in the Holder's name on the books of the
Company at the Company Office in accordance with section 2. No sale, transfer,
assignment, pledge, hypothecation or other disposition of this Warrant (a
-6-
<PAGE>
EMPYREAN DIAGNOSTICS LTD. SERIES "J" WARRANT CERTIFICATE
- --------------------------------------------------------------------------------
"TRANSFER") shall be valid unless made at the Company Office by the registered
Holder hereof or by his, her or its attorney duly authorized in writing and
similarly noted hereon. No Transfer shall be effective unless it has satisfied
the following pre-conditions:
(a) The Transfer of any portion of this Warrant may only be made (to the
extent possible) in increments of outstanding principal in whole share
increments.
(b) Prior to the Transfer, the Holder has, at his, her or its' expense,
either: (i) furnished the Company with an opinion of the Holder's
counsel in form and substance satisfactory to the Company to the
effect that the Transfer is exempted from and therefore will not
require registration of this Warrant under the Securities Act or the
securities laws of the state in which the Holder then resides, and
counsel for the Company shall have concurred in such opinion and the
Company shall have advised the Holder of such concurrence; OR (ii)
satisfied the Company that a registration statement on Form S-1 under
the Securities Act (or any other form appropriate for the purpose
under the Securities Act or any form replacing any such form) with
respect to this Warrant shall be then effective, and that such
disposition shall have been appropriately qualified or registered in
accordance with the applicable securities law of the state the Holder
is then resident.
(c) The Company shall have given prior written consent to such Transfer,
which consent the Company shall not unreasonably withhold. The Company
shall not be deemed to have withheld its reasonable consent should it
refuse to permit the Holder to Transfer of this Warrant to (i) a
direct or indirect competitor of the Company, or (ii) to any Person
(other than a stockholder of the Company) involved in an actual or
potential dispute with the Company.
(d) The proposed transferee (i) shall have represented to the Company that
he, she or it has been informed and understands the investment risks
associated with the purchase of this Warrant, and (ii) covenants to
hold the Company harmless with respect to any matter concerning the
proposed transferee's acquisition of this Warrant including, without
limitation, any claims that the transferor and/or the Company failed
to fully disclose or misrepresented material facts.
Upon satisfaction of the foregoing conditions, the Company shall register this
Warrant under the name of the proposed assignee or transferee.
The term "TRANSFER" means any transfer or alienation of this Warrant which would
directly or indirectly change the legal or beneficial ownership thereof, whether
voluntary or by operation of law, regardless of payment or provision of
consideration, including, by way of example and not limitation: (i) the sale,
assignment, bequest or gift of this Warrant; (ii) any transaction that creates
or grants an option, warrant, or right to obtain an interest in this Warrant;
(iii) any transaction that creates a form of joint ownership in this Warrant
between the Holder and one or more other Persons; (iv) any Transfer of this
Warrant to a creditor of the Holder, including the hypothecation, encumbrance or
pledge of this Warrant or any interest therein, or the attachment or imposition
of a lien by a creditor of the Holder on this Warrant or any interest therein
which is not released within thirty (30) days after the imposition thereof; (v)
any distribution by a Holder which is an entity to its stockholders, partners,
co-venturers or members, as the case may be; or (vi) any distribution by a
Holder which is a fiduciary such as a trustee or custodian to its settlors or
beneficiaries.
-7-
<PAGE>
EMPYREAN DIAGNOSTICS LTD. SERIES "J" WARRANT CERTIFICATE
- --------------------------------------------------------------------------------
10. MUTILATED, DESTROYED, LOST OR STOLEN WARRANTS
(a) MUTILATED WARRANT. This Warrant, if mutilated, may be surrendered to
the Company and thereupon the Company shall execute and deliver in
exchange therefor a new Warrant of like tenor and principal amount.
(b) DESTRUCTION, LOSS OR THEFT OF WARRANT. If there be delivered to the
Company (i) evidence to the satisfaction of the Company of the
destruction, loss or theft of this Warrant, and (ii) such security or
indemnity as may be required by the Company to save it harmless, then,
in the absence of notice to the Company that this Warrant has been
assigned or transferred pursuant to section 9, the Company shall
execute and deliver in lieu of this Warrant, a new Warrant of like
tenor and principal amount.
(c) TAXES. Upon issuance of any new Warrant under this section 10, the
Company may require the payment of a sum sufficient to cover any tax
or other governmental charge that may be imposed in relation thereto
and any other expenses connected therewith.
(d) LEGAL AFFECT. The provisions of this section 10 are exclusive and
shall preclude (to the extent lawful) all other rights and remedies
with respect to the replacement and/or exercise of this Warrant if
mutilated, destroyed, lost or stolen.
11. RESERVATION OF COMMON STOCK
The Company shall at all times reserve and keep available out of its authorized
but unissued shares of Common Stock, solely for the purpose of issuance upon the
exercise of this Warrant, such number of shares of Common Stock as shall be
issuable upon the exercise hereof. The Company covenants and agrees that, upon
exercise of this Warrant and payment of the Purchase Price thereof, all shares
of Common Stock issuable upon such exercise shall be duly and validly issued,
fully paid and non-assessable.
12. NO IMPAIRMENT
The Company will not, by amendment to its Certificate of Incorporation or
through any other voluntary action, avoid or seek to avoid the observance or
performance of any of the terms of this Warrant, but will at all times, in good
faith, assist all such action as may be necessary or appropriate in order to
protect the rights of the Holder against dilution or other impairment. Without
limiting the generality of the foregoing, the Company will take all such action
as may be necessary or appropriate in order that the Company may validly and
legally issue fully paid and nonassessable stock upon the exercise of this
Warrant.
13. RIGHT TO NOTICE OF CERTAIN EVENTS
If at any time prior to the expiration of this Warrant and prior to its
exercise, any of the following events shall occur:
(a) The Company shall fix a record date of the holders of its shares of
Common Stock for the purpose of entitling them to receive a dividend
or distribution; or
(b) The Company shall offer to the holders of its Common Stock any
additional shares of capital stock of the Company or securities
-8-
<PAGE>
EMPYREAN DIAGNOSTICS LTD. SERIES "J" WARRANT CERTIFICATE
- --------------------------------------------------------------------------------
convertible into or exchangeable for shares of capital stock of the
Company, or any option (except for options to be granted to the
Company's employees pursuant to a stock option plan approved by the
Company's Board of Directors), right or warrant, to subscribe
therefor; or
(c) A merger, consolidation, dissolution, liquidation or winding up of the
Company or a sale of all or substantially all of its property, assets
and business as an entirety shall be proposed;
then the Company shall give written notice of such event to the Holder of this
Warrant at least fifteen (15) days prior to the date fixed as a record date or
the date of closing the transfer books for the determination of the shareholders
entitled to receive such dividend, distribution, convertible or exchangeable
securities or subscription rights, or entitled to vote on such proposed
dissolution, liquidation, winding up or sale. Such notice shall specify such
record date or the date of closing the transfer books, as the case may be.
Failure to give such notice or any defect therein shall not affect the validity
of any action taken in connection with the declaration or payment of any such
dividend or the issuance of any convertible or exchangeable securities, or
subscription rights, options or warrants or any proposed dissolution,
liquidation, winding up or sale.
14. HOLDER'S REGISTRATION RIGHTS
(a) REGISTRATION BY COMPANY. Whenever the Company proposes to register any
Common Stock under the Securities Act for a public offering through an
independent underwriter(s), whether as a primary or secondary offering
(or pursuant to registration rights granted to holders of other
securities of the Company), the Company shall cause to be included in
such registration all of the shares which may be issued upon exercise
of this Warrant (the "Warrant Shares"); PROVIDED, HOWEVER, Holder
shall, as a condition of such registration if requested by the
underwriter(s), agree to subject the Warrant Shares to a lock-up
provision for a period not to exceed twenty-four months from the
effective date of such registration statement.
(b) SALE OF SHARES AS PART OF PUBLIC OFFERING. The Company shall have no
obligation to require the underwriter(s) in any underwritten public
offering of the Common Stock to sell any Warrant Shares as part of
such public offering. In the event the underwriter(s) sell the Warrant
Shares as part of such public offering, the Company will afford Holder
the right to participate as a selling stockholder as part of such
Offering, subject to any priority selling rights previously given by
the Company to any other stockholders. Subject to such priority
selling rights, if the total number of shares of stock which all
selling stockholders of the Company request be sold as part of such
public offering exceeds the number of shares which the underwriter(s)
allow to be sold, then the shares so included shall be apportioned pro
rata among the electing selling stockholders according to the total
number of shares of Common Stock requested to be included in such
public offering by said selling stockholders, or in such other
proportions as shall be mutually agreed to by such selling
stockholders.
(c) FURNISH INFORMATION. It shall be a condition precedent to the
obligations of the Company to take any action pursuant to this section
14 that Holder shall furnish to the Company in writing such
information regarding Holder, the Warrant Shares held by Holder, and
the intended method of disposition thereof as the Company shall
reasonably request and as shall be required in connection with the
action to be taken by the Company.
-9-
<PAGE>
EMPYREAN DIAGNOSTICS LTD. SERIES "J" WARRANT CERTIFICATE
- --------------------------------------------------------------------------------
(d) REGISTRATION EXPENSES. The Company shall bear all registration and
qualification fees and expenses to register the shares; PROVIDED,
HOWEVER, in the event Holder sells Warrant Shares as part of such
public offering, they shall, if requested by the Company, bear such
portion of the underwriting commissions paid to the underwriter(s) as
the number of shares of Common Stock sold as part of such public
offering by such selling Holders bear to the total number of shares of
Common Stock sold in such Offering. In addition, each Holder selling
Warrant Shares as part of such public offering shall bear the fees and
cost of his, her or its own counsel.
(E) DELAY OF REGISTRATION. So long as the Company complies with
sub-sections (a) and (b) of this section 14, Holder shall have no
right to take any action to restrain, enjoin or otherwise delay any
registration as the result of any controversy which might arise with
respect to the interpretation or implementation of this section 14.
15. MODIFICATION OF WARRANT TO COMPLY WITH LAWS OR RULES
The Company may, at any time or from time-to-time, without receiving further
consideration from, or paying any consideration to, the Holder, modify or amend
this Warrant to the extent deemed necessary by the Company to comport with
changes in securities, tax or other laws or rules, regulations or regulatory
interpretations thereof applicable to this Warrant or to comply with the rules
or requirements of any stock exchange or Nasdaq.
16. NON-LIABILITY FOR DEBTS
This Warrant shall not be liable for satisfaction of the debts, contracts, or
engagements of the Holder, or the Holder's successors in interest as permitted
under this Warrant, or be subject to involuntary Transfer for the benefit of a
creditor of the Holder by judgment, levy, attachment, garnishment, or any other
legal or equitable proceeding (including bankruptcy), and any attempted
disposition thereof shall be null and void AB INITIO and of no further force and
effect.
17. MISCELLANEOUS
(a) PREPARATION OF WARRANT CERTIFICATE. This Warrant Certificate was
prepared by the Company solely on behalf of the Company. Each party
acknowledges that: (i) he, she or it had the advice of, or sufficient
opportunity to obtain the advice of, legal counsel separate and
independent of legal counsel for any other party hereto; (ii) the
terms of the transaction contemplated by this Warrant Certificate are
fair and reasonable to such party; and (iii) such party has
voluntarily entered into the transaction contemplated by this Warrant
Certificate without duress or coercion. Each party further
acknowledges such party was not represented by the legal counsel of
any other party hereto in connection with the transaction contemplated
by this Warrant Certificate, nor was such party under any belief or
understanding that such legal counsel was representing his, her or its
interests. Each party agrees that no conflict, omission or ambiguity
in this Warrant Certificate, or the interpretation thereof, shall be
presumed, implied or otherwise construed against the Company or any
other party to this Warrant Certificate on the basis that such party
was responsible for drafting this Warrant Certificate.
-10-
<PAGE>
EMPYREAN DIAGNOSTICS LTD. SERIES "J" WARRANT CERTIFICATE
- --------------------------------------------------------------------------------
(b) COOPERATION. Each party agrees, without further consideration, to
cooperate and diligently perform any further acts, deeds and things,
and to execute and deliver any documents that may be reasonably
necessary or otherwise reasonably required to consummate, evidence,
confirm and/or carry out the intent and provisions of this Warrant
Certificate, all without undue delay or expense.
(c) INTERPRETATION.
(i) SURVIVAL. All representations and warranties made by any party
in connection with any transaction contemplated by this Warrant
Certificate shall, irrespective of any investigation made by or
on behalf of any other party hereto, survive the execution and
delivery of this Warrant Certificate and the performance or
consummation of any transaction described in this Warrant
Certificate.
(ii) ENTIRE AGREEMENT/NO COLLATERAL REPRESENTATIONS. Each party
expressly acknowledges and agrees that this Warrant
Certificate, together with and subject to the Unit Purchase
Agreement pursuant to which this Warrant was sold to the
Holder,: (1) is the final, complete and exclusive statement of
the agreement of the parties with respect to the subject matter
hereof; (2) supersedes any prior or contemporaneous agreements,
proposals, commitments, guarantees, assurances, communications,
discussions, promises, representations, understandings,
conduct, acts, courses of dealing, warranties, interpretations
or terms of any kind, whether oral or written (collectively and
severally, the "PRIOR AGREEMENTS"), and that any such prior
agreements are of no force or effect except as expressly set
forth herein; and (3) may not be varied, supplemented or
contradicted by evidence of prior agreements, or by evidence of
subsequent oral agreements. No prior drafts of this Warrant
Certificate, and no words or phrases from any prior drafts,
shall be admissible into evidence in any action or suit
involving this Warrant Certificate.
(iii) AMENDMENT; WAIVER; FORBEARANCE. Except as expressly provided
otherwise herein, neither this Warrant Certificate nor any of
the terms, provisions, obligations or rights contained herein
may be amended, modified, supplemented, augmented, rescinded,
discharged or terminated (other than by performance), except by
a written instrument or instruments signed by all of the
parties to this Warrant Certificate. No waiver of any breach of
any term, provision or agreement contained herein, or of the
performance of any act or obligation under this Warrant
Certificate, or of any extension of time for performance of any
such act or obligation, or of any right granted under this
Warrant Certificate, shall be effective and binding unless such
waiver shall be in a written instrument or instruments signed
by each party claimed to have given or consented to such waiver
and each party affected by such waiver. Except to the extent
that the party or parties claimed to have given or consented to
a waiver may have otherwise agreed in writing, no such waiver
shall be deemed a waiver or relinquishment of any other term,
provision, agreement, act, obligation or right granted under
this Warrant Certificate, or any preceding or subsequent breach
thereof. No forbearance by a party to seek a remedy for any
noncompliance or breach by another party hereto shall be deemed
to be a waiver by such forbearing party of its rights and
-11-
<PAGE>
EMPYREAN DIAGNOSTICS LTD. SERIES "J" WARRANT CERTIFICATE
- --------------------------------------------------------------------------------
remedies with respect to such noncompliance or breach, unless
such waiver shall be in a written instrument or instruments
signed by the forbearing party.
(iv) REMEDIES CUMULATIVE. The remedies of each party under this
Warrant Certificate are cumulative and shall not exclude any
other remedies to which such party may be lawfully entitled, at
law or in equity.
(v) SEVERABILITY. If any term or provision of this Warrant
Certificate or the application thereof to any person or
circumstance shall, to any extent, be determined to be invalid,
illegal or unenforceable under present or future laws, then,
and in that event: (1) the performance of the offending term or
provision (but only to the extent its application is invalid,
illegal or unenforceable) shall be excused as if it had never
been incorporated into this Warrant Certificate, and, in lieu
of such excused provision, there shall be added a provision as
similar in terms and amount to such excused provision as may be
possible and be legal, valid and enforceable; and (2) the
remaining part of this Warrant Certificate (including the
application of the offending term or provision to persons or
circumstances other than those as to which it is held invalid,
illegal or unenforceable) shall not be affected thereby, and
shall continue in full force and effect to the fullest extent
provided by law.
(vi) PARTIES IN INTEREST. Notwithstanding anything else to the
contrary herein, nothing in this Warrant Certificate shall
confer any rights or remedies under or by reason of this
Warrant Certificate on any persons other than the parties
hereto and their respective successors and assigns, if any, as
may be permitted under the Plan or hereunder, nor shall
anything in this Warrant Certificate relieve or discharge the
obligation or liability of any third person to any party to
this Warrant Certificate, nor shall any provision give any
third person any right of subrogation or action over or against
any party to this Warrant Certificate.
(vii) NO RELIANCE UPON PRIOR REPRESENTATION. Each party acknowledges
that: (i) no other party has made any oral representation or
promise which would induce them prior to executing this Warrant
Certificate to change their position to their detriment, to
partially perform, or to part with value in reliance upon such
representation or promise; and (ii) such party has not so
changed its position, performed or parted with value prior to
the time of the execution of this Warrant Certificate, or such
party has taken such action at its own risk.
(viii) HEADINGS; REFERENCES; INCORPORATION; "PERSON"; GENDER;
STATUTORY REFERENCES. The headings used in this Warrant
Certificate are for convenience and reference purposes only,
and shall not be used in construing or interpreting the scope
or intent of this Warrant Certificate or any provision hereof.
References to this Warrant Certificate shall include all
amendments or renewals thereof. All cross-references in this
Warrant Certificate, unless specifically directed to another
agreement or document, shall be construed only to refer to
provisions within this Warrant Certificate, and shall not be
construed to be referenced to the overall transaction or to any
other agreement or document. Any Exhibit referenced in this
Warrant Certificate shall be construed to be incorporated in
-12-
<PAGE>
EMPYREAN DIAGNOSTICS LTD. SERIES "J" WARRANT CERTIFICATE
- --------------------------------------------------------------------------------
this Warrant Certificate by such reference. As used in this
Warrant Certificate, the term "PERSON" is defined in its
broadest sense as any individual, entity or fiduciary who has
legal standing to enter into this Warrant Certificate such as,
by way of example and not limitation, individual or natural
persons and trusts. As used in this Warrant Certificate, each
gender shall be deemed to include the other gender, including
neutral genders appropriate for entities, if applicable, and
the singular shall be deemed to include the plural, and vice
versa, as the context requires. Any reference to statutes or
laws will include all amendments, modifications, or
replacements of the specific sections and provisions concerned.
(d) ENFORCEMENT.
(i) APPLICABLE LAW. This Warrant Certificate and the rights and
remedies of each party arising out of or relating to this
Warrant Certificate (including, without limitation, equitable
remedies) shall (with the exception of the Securities Act and
the Blue Sky Laws) be solely governed by, interpreted under,
and construed and enforced in accordance with the laws (without
regard to the conflicts of law principles) of the State of
Wyoming, as if this Warrant Certificate were made, and as if
its obligations are to be performed, wholly within the State of
Wyoming.
(ii) CONSENT TO JURISDICTION; SERVICE OF PROCESS. Any "action or
proceeding" (as such term is defined below) arising out of or
relating to this Warrant Certificate shall be filed in and
heard and litigated solely before the state courts of
California located within the County of Los Angeles. Each party
generally and unconditionally accepts the exclusive
jurisdiction of such courts and venue therein; consents to the
service of process in any such action or proceeding by
certified or registered mailing of the summons and complaint in
accordance with the notice provisions of this Warrant
Certificate; and waives any defense or right to object to venue
in said courts based upon the doctrine of "FORUM NON
CONVENIENS." The term "ACTION OR PROCEEDING" is defined as any
and all claims, suits, actions, hearings, arbitrations or other
similar proceedings, including appeals and petitions therefrom,
whether formal or informal, governmental or non-governmental,
or civil or criminal.
(iii) WAIVER OF RIGHT TO JURY TRIAL. Each party hereby waives such
party's respective right to a jury trial of any claim or cause
of action based upon or arising out of this Warrant
Certificate. Each party acknowledges that this waiver is a
material inducement to each other party hereto to enter into
the transaction contemplated hereby; that each other party has
already relied upon this waiver in entering into this Warrant
Certificate; and that each other party will continue to rely on
this waiver in their future dealings. Each party warrants and
represents that such party has reviewed this waiver with such
party's legal counsel, and that such party has knowingly and
voluntarily waived its jury trial rights following consultation
with such legal counsel.
(e) SUCCESSORS AND ASSIGNS. Subject to section 9 governing Transfers, all
of the representations, warranties, covenants, conditions and
provisions of this Warrant Certificate shall be binding upon and shall
-13-
<PAGE>
EMPYREAN DIAGNOSTICS LTD. SERIES "J" WARRANT CERTIFICATE
- --------------------------------------------------------------------------------
inure to the benefit of each party and such party's respective
successors and permitted assigns, spouses, heirs, executors,
administrators, and personal and legal representatives.
(f) NOTICES. Unless otherwise specifically provided in this Warrant
Certificate, all notices, demands, requests, consents, approvals or
other communications (collectively and severally called "NOTICES")
required or permitted to be given hereunder, or which are given with
respect to this Warrant Certificate, shall be in writing, and shall be
given by: (i) personal delivery (which form of notice shall be deemed
to have been given upon delivery), (ii) by telegraph or by private
airborne/overnight delivery service (which forms of notice shall be
deemed to have been given upon confirmed delivery by the delivery
agency), (iii) by electronic or facsimile or telephonic transmission,
provided the receiving party has a compatible device or confirms
receipt thereof (which forms of notice shall be deemed delivered upon
confirmed transmission or confirmation of receipt), or (iv) by mailing
in the United States mail by registered or certified mail, return
receipt requested, postage prepaid (which forms of notice shall be
deemed to have been given upon the fifth {5th} business day following
the date mailed). Notices shall be addressed at the addresses first
hereinabove set forth in this Warrant Certificate or to such other
address as the receiving party shall have specified most recently by
like notice, with a copy to the other parties hereto. Any notice given
to the estate of a party shall be sufficient if addressed to the party
as provided in this section. Any party may, at any time by giving five
(5) days' prior written notice to the other parties, designate any
other address in substitution of the foregoing address to which such
notice will be given.
WHEREFORE, the Company has for purposes of this Warrant Certificate executed
this Warrant Certificate in the City of Phoenix, State of Arizona, effective as
of the Warrant Effective Date first set forth above.
COMPANY:
EMPYREAN DIAGNOSTICS LTD.,
a Wyoming corporation
By:
--------------------------------
President
ATTEST:
[SEAL (Optional)]
By:
--------------------------------
Secretary
-14-
<PAGE>
EMPYREAN DIAGNOSTICS LTD. SERIES "J" WARRANT CERTIFICATE
- --------------------------------------------------------------------------------
Attachment
to
Series "J" Warrant Certificate
NOTICE OF EXERCISE OF SERIES "J" WARRANT
----------------------------------------------------------
[To be signed by the Holder only upon exercise of Warrant]
TO: Secretary
Empyrean Diagnostics, Ltd.
2238 West Lone Cactus Drive
Suite 200
Phoenix, Arizona 85027
The undersigned, the holder of Warrants under that certain Series "J"
Warrant Certificate (the "Warrant") with an Effective Warrant Date of May 1,
1998 between Empyrean Diagnostics, Ltd., a Wyoming corporation (the "COMPANY")
and the undersigned (the "HOLDER"), hereby irrevocably elects to exercise the
undersigned's Warrant to purchase
_______________________________________________ (______________)(1) unregistered
shares of the common stock, no par value ("COMMON STOCK") of the Company
(collectively and severally, the "SHARES"), for the aggregate
purchase price of ______________________________________________________________
($______________)(2).
(1) Insert number of Shares as specified in the Warrant Certificate which
the Holder is purchasing.
(2) Number of Shares to be purchased as specified above multiplied by the
Purchase Price per Share as set forth on the Warrant Certificate
($______________ per share).
(Signature must conform in all respects to name of the Holder, unless the
undersigned is the Holder's successor, in which case the undersigned must submit
appropriate proof of the right of the undersigned to exercise this Warrant)
Signature:
---------------------------------
Print Name:
---------------------------------
Address:
---------------------------------
Date:
---------------------------------
-15-
NEITHER THIS WARRANT, NOR THE SECURITIES ISSUABLE UPON EXERCISE HEREOF, HAVE
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"), OR ANY APPLICABLE STATE SECURITIES LAW. SUCH SECURITIES MAY NOT BE SOLD
OR OTHERWISE TRANSFERRED UNLESS (I) A REGISTRATION STATEMENT UNDER THE
SECURITIES ACT AND SUCH APPLICABLE STATE SECURITIES LAWS SHALL HAVE BECOME
EFFECTIVE WITH REGARD THERETO OR (II) IN THE OPINION OF COUNSEL REASONABLY
ACCEPTABLE TO THE COMPANY, REGISTRATION UNDER THE SECURITIES ACT AND SUCH
APPLICABLE STATE SECURITIES LAWS IS NOT REQUIRED IN CONNECTION WITH A PROPOSED
SALE OR TRANSFER.
WARRANT
TO PURCHASE _________ SHARES OF COMMON STOCK
VOID AFTER 5:00 P.M.
ARIZONA TIME, FEBRUARY 15, 2001
EMPYREAN DIAGNOSTICS, LTD.
INCORPORATED UNDER THE LAWS
OF THE STATE OF WYOMING
This certifies that, for value received, ________________, the
registered holder hereof or assigns (the "Warrantholder"), is entitled to
purchase from Empyrean Bioscience, Inc., a Wyoming corporation (the "Company"),
at any time during the period commencing at 9:00 a.m., Arizona time, on February
15, 1999 and before 5:00 p.m., Arizona time, on February 15, 2001, at the
purchase price (the "Warrant Price") of $0.10 per Share, the number of shares of
Common Stock of the Company set forth above. The number of shares purchasable
upon exercise of each Warrant evidenced hereby shall be subject to adjustment
from time to time as set forth below.
In case the Company (i) declares or pays a dividend or makes a
distribution on the Common Stock payable in shares of Common Stock, (ii)
subdivides the outstanding shares of the Common Stock into a greater number of
shares, or (iii) combines the outstanding shares of the Common Stock into a
smaller number of shares, the Warrant Price in effect immediately prior to such
action shall be adjusted so that the Warrantholder may receive upon exercise of
this Warrant and payment of the same aggregate consideration the number of
shares of Common Stock of the Company which the Warrantholder would have owned
immediately following such action if the Warrantholder had exercised this
Warrant immediately prior to such action. Such adjustment shall be made
successively whenever any event listed above shall occur.
<PAGE>
The Company hereby grants the Warrantholder the right to have the
shares of Common Stock underlying the Warrant be registered for resale as
follows: (1) subject to any prior, senior registration rights, and to a managing
underwriter's discretion to reduce the number of shares available for sale so as
not to impair the sale of shares by the Company or any holder of prior senior
rights, Warrantholder is hereby granted the right to include in any registration
statement filed under the Securities Act of 1933 by the Company for the sale of
equity securities all or a portion of the shares underlying the Warrant held by
the Warrantholder; notice of its desire to have the shares so registered shall
be provided by the Warrantholder within ten (10) days after notification by the
Company of its proposal to file a registration statement; and (2) on or after
180 days from the initial public offering by the Company of equity securities
after the date hereof (and excluding a Rule 504 offering as a public offering),
the right to demand the filing of a registration statement relating to the
shares of Common Stock underlying the Warrant, provided that at least fifty
percent (50%) in interest of all of the Warrants exercise such demand. All costs
and expenses of either type of registration shall be borne by the Company,
except for any selling expenses, commissions, or fees of separate counsel for
the Warrantholder or other security holders. These rights shall terminate upon
the earlier of (a) three years from the date hereof, (b) registration of all of
the shares underlying the Warrant, or (c) the date on which Warrantholder is
able to sell the shares underlying the Warrant pursuant to Rule 144 during a
three-month period without regard to volume limitations.
The Warrants evidenced hereby may be exercised in whole or in part by
presentation of this Warrant certificate and simultaneous payment of the Warrant
Price at the principal office of the Company. Payment of such price shall be
made at the option of the Warrantholder in cash or by check.
Upon any partial exercise of the Warrants evidenced hereby, there shall
be signed and issued to the Warrantholder a new Warrant certificate in respect
of the number of shares of Common Stock as to which the Warrants evidenced
hereby shall not have been exercised. These Warrants may be exchanged at the
office of the Company by surrender of this Warrant certificate properly endorsed
for one or more new Warrants of the same aggregate number of shares of Common
Stock as are evidenced by the Warrant or Warrants exchanged. No fractional
shares of Common Stock will be issued upon the exercise of rights to purchase
hereunder, but the Company shall pay the cash value of any fraction upon the
exercise of one or more Warrants.
This Warrant certificate does not entitle any Warrantholder to any of
the rights of a stockholder of the Company.
EMPYREAN DIAGNOSTICS, LTD.
By:
------------------------------------
Stephen Hayter
Chief Executive Officer
ATTEST:
Dated:
----------------
2
PROMISSORY NOTE
Original Face Amount: $__________
Maker: EMPYREAN DIAGNOSTICS, LTD., a Wyoming corporation
Dated as of: February 26, 1999
1. PROMISE TO PAY. FOR VALUE RECEIVED, EMPYREAN DIAGNOSTICS,
LTD., a Wyoming corporation ("Maker"), promises to pay to ___________ ("Payee"),
or order, the principal sum of _______________ Dollars ($___________) with
interest from the date hereof based on a 360-day year payable as follows:
1.1 INTEREST RATE. Interest on the unpaid principal balance
outstanding from time to time shall accrue at an annual rate equal to ten
percent (10%).
1.2 INTEREST PAYMENTS. Interest shall be paid in monthly
installments on the 15th day of each calendar month commencing March 15, 1999.
1.3 MATURITY. The entire unpaid principal balance, all accrued
and unpaid interest, and any other amounts payable hereunder, shall be repaid in
full on August 15, 1999 ("MATURITY DATE") unless the Maturity Date is extended
as described in section 1.4 below.
1.4 EXTENSION OF MATURITY. Maker and Payee may extend the
Maturity Date upon mutual agreement at any time.
2. PREPAYMENTS. Maker may prepay the principal balance due
under this Note, in whole or in part, without penalty or premium.
3. PLACE AND MEANS OF PAYMENTS. All principal and interest due
hereunder is payable in U.S. Dollars in immediately available funds at Payee's
office located at __________________________ (or at such other office as may be
designated from time to time by the Payee).
4. DEFAULT.
Maker will be in default under this Note upon failure to make payment
of any of the principal hereof or any interest thereon when due, which failure
to pay has not been cured within ten (10) days, (an "Event of Default"). Upon an
Event of Default, this Note shall become immediately due and payable at the
option of the holder hereof without presentment or demand or any notice to Maker
or any other person obligated hereon.
5. SECURITY INTEREST. For the purpose of securing payment and
performance under this Note, the Maker hereby grants to the Payee a security
interest in all of Maker's inventory and accounts (and all proceeds thereof).
Payee will release such security interest upon the payment in full of principal
and interest due under this Note.
<PAGE>
6. WAIVERS. Maker, for itself and its legal representatives,
successors, and assigns, expressly waives presentment, demand, protest, notice,
and all other requirements of any kind, in connection with the enforcement or
collection of this Note.
7. ACCELERATION AND WAIVER. IT IS EXPRESSLY AGREED THAT, UPON
THE OCCURRENCE OF AN EVENT OF DEFAULT AS SPECIFIED IN SECTION 4, THE UNPAID
PRINCIPAL BALANCE OF AND ANY ACCRUED AND UNPAID INTEREST UNDER THIS NOTE MAY, BY
NOTICE IN WRITING TO MAKER, BE DECLARED TO BE IMMEDIATELY DUE AND PAYABLE
WITHOUT PRESENTMENT, DEMAND, PROTEST, NOTICE, OR OTHER REQUIREMENTS OF ANY KIND,
ALL OF WHICH ARE HEREBY EXPRESSLY WAIVED BY MAKER.
8. ATTORNEYS' FEES. In the event it should become necessary to
employ counsel to collect or enforce this Note, and upon the occurrence of an
Event of Default, Maker agrees to pay the reasonable attorneys' fees and costs
(including those of in-house counsel) of the holder hereof, irrespective of
whether suit is brought.
9. AMENDMENTS. This Note may not be changed, modified,
amended, or terminated except by a writing duly executed by Maker and the holder
hereof.
10. HEADINGS. Section headings used in this Note are solely
for convenience of reference, shall not constitute a part of this Note for any
other purpose, and shall not affect the construction of this Note.
11. GOVERNING LAW. THIS NOTE SHALL BE DEEMED TO HAVE BEEN MADE
IN THE STATE OF ARIZONA; AND THE VALIDITY OF THIS NOTE AND THE CONSTRUCTION,
INTERPRETATION AND ENFORCEMENT OF, AND THE RIGHTS OF THE PARTIES HERETO SHALL BE
DETERMINED UNDER, GOVERNED BY, AND CONSTRUCTED IN ACCORDANCE WITH THE LAWS OF
THE STATE OF ARIZONA.
12. WAIVER OF TRIAL BY JURY. MAKER AND PAYEE TO THE EXTENT
EACH MAY LEGALLY DO SO, HEREBY EXPRESSLY WAIVE ANY RIGHT TO TRIAL BY JURY OF ANY
CLAIM, DEMAND, ACTION, CAUSE OF ACTION, OR PROCEEDING ARISING UNDER OR WITH
RESPECT TO THIS NOTE, OR IN ANY WAY CONNECTED WITH, OR RELATED TO, OR INCIDENTAL
TO, THE DEALINGS OF MAKER OR PAYEE WITH RESPECT TO THIS NOTE, OR THE
TRANSACTIONS RELATED HERETO, IN EACH CASE WHETHER NOW EXISTING OR HEREAFTER
ARISING, AND IRRESPECTIVE OF WHETHER SOUNDING IN CONTRACT, TORT, OR OTHERWISE.
TO THE EXTENT EACH MAY LEGALLY DO SO, MAKER AND PAYEE HEREBY AGREE THAT ANY SUCH
CLAIM, DEMAND, ACTION, CAUSE OF ACTION, OR PROCEEDING SHALL BE DECIDED BY A
COURT TRIAL WITHOUT A JURY AND THAT EITHER PARTY MAY FILE AN ORIGINAL
COUNTERPART OR A COPY OF THIS SECTION WITH ANY COURT AS WRITTEN EVIDENCE OF THE
CONSENT OF MAKER TO WAIVER OF ITS RIGHT TO TRIAL BY JURY.
Dated as of February 26, 1999.
2
<PAGE>
EMPYREAN DIAGNOSTICS, LTD.
a Wyoming corporation
By: /s/ Stephen Hayter
------------------------------------
Name: Stephen Hayter
Title: Chief Executive Officer
3
NO. K-___
EMPYREAN BIOSCIENCE, INC.
SERIES "K" WARRANT CERTIFICATE
================================================================================
Name of Holder................... ____________________________________________
Address of Holder................ ____________________________________________
Number of Shares................. ____________________________________________
$0.60 per share if exercised on or before
March 17, 2000
Purchase Price per Share......... $0.75 per share if exercised on or before
March 17, 2001
Warrant Expiration Date.......... March 17, 2001
Warrant Effective Date........... March 17, 1999
================================================================================
NEITHER THIS SERIES "K" WARRANT OR THE SHARES OF COMMON STOCK PURCHASABLE
UPON EXERCISE OF THIS WARRANT (COLLECTIVELY, "THE SECURITIES REPRESENTED BY
THIS CERTIFICATE") HAVE BEEN REGISTERED WITH THE UNITED STATES SECURITIES
AND EXCHANGE COMMISSION (THE "COMMISSION") UNDER SECTION 5 OF THE UNITED
STATES SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), IN
RELIANCE UPON ONE OR MORE EXEMPTIONS FROM REGISTRATION OR QUALIFICATION
AFFORDED BY THE SECURITIES ACT AND/OR RULES PROMULGATED BY THE COMMISSION
PURSUANT THERETO. THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE ALSO
NOT BEEN REGISTERED OR QUALIFIED (AS THE CASE MAY BE) UNDER THE SECURITIES
LAWS OF ANY STATE OR TERRITORY OF THE UNITED STATES (THE "BLUE SKY LAWS"),
IN RELIANCE UPON ONE OR MORE EXEMPTIONS FROM REGISTRATION OR QUALIFICATION
QUALIFIED (AS THE CASE MAY BE) AFFORDED UNDER SUCH SECURITIES LAWS. NEITHER
THE COMMISSION NOR ANY SECURITIES REGULATORY AGENCY OF ANY STATE OR
TERRITORY OF THE UNITED STATES HAVE REVIEWED OR PASSED UPON OR ENDORSED THE
MERITS OF AN INVESTMENT IN THE SECURITIES REPRESENTED BY THIS CERTIFICATE,
AND ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE SECURITIES REPRESENTED BY THIS CERTIFICATE MUST BE ACQUIRED FOR THE
HOLDER'S OWN ACCOUNT FOR INVESTMENT PURPOSES ONLY AND NOT WITH A VIEW FOR
RESALE OR DISTRIBUTION. THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE
"RESTRICTED SECURITIES" WITHIN THE MEANING OF RULE 144 PROMULGATED UNDER
THE SECURITIES ACT. THE SECURITIES REPRESENTED BY THIS CERTIFICATE MAY NOT
BE NOT BE SOLD, TRANSFERRED, ASSIGNED OR HYPOTHECATED, OR OFFERED FOR SALE,
TRANSFER, ASSIGNMENT OR HYPOTHECATION, WITHIN THE UNITED STATES OR ANY OF
ITS TERRITORIES OR TO A UNITED STATES PERSON, UNLESS: (i) SUCH SECURITIES
ARE REGISTERED UNDER SECTION 5 OF THE SECURITIES ACT AND/OR REGISTERED OR
QUALIFIED PURSUANT TO ANY APPLICABLE BLUE SKY LAWS; OR (ii) THE PROPOSED
TRANSACTION IS EXEMPT FROM THE REGISTRATION AND PROSPECTUS DELIVERY
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EMPYREAN BIOSCIENCE, INC. SERIES "K" WARRANT CERTIFICATE
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REQUIREMENTS OF THE SECURITIES ACT AND THE REGISTRATION AND QUALIFICATION
PROVISIONS OF ANY APPLICABLE BLUE SKY LAWS. THE TRANSFER AGENT (OR THE
COMPANY IF THEN ACTING AS ITS TRANSFER AGENT) WILL REFUSE TO TRANSFER THE
SECURITIES REPRESENTED BY THIS CERTIFICATE UNLESS PRESENTED WITH A WRITTEN
OPINION SATISFACTORY TO LEGAL COUNSEL FOR THE COMPANY (OR A NO-ACTION OR
INTERPRETIVE LETTER FROM THE COMMISSION AND/OR SECURITIES REGULATORY
AGENCIES OF ANY APPLICABLE STATE OR TERRITORY OF THE UNITED STATES) TO THE
EFFECT THAT SUCH REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS UNDER
THE SECURITIES ACT AND SUCH REGISTRATION OR QUALIFICATION REQUIREMENTS
UNDER THE BLUE SKY LAWS ARE NOT REQUIRED UNDER THE CIRCUMSTANCES OF SUCH
SALE, TRANSFER, ASSIGNMENT OR HYPOTHECATION. AS A RESULT, THE SECURITIES
REPRESENTED BY THIS CERTIFICATE ARE SUITABLE ONLY FOR CERTAIN SOPHISTICATED
AND QUALIFIED INVESTORS WHO CAN BEAR THE FINANCIAL RISK OF AN INVESTMENT IN
THESE SECURITIES FOR AN INDEFINITE PERIOD OF TIME.
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EMPYREAN BIOSCIENCE, INC., a Wyoming corporation (the "Company"), whose
principal executive office is located at 2238 West Lone Cactus Drive, Suite 200,
Phoenix, Arizona 85027, hereby certifies that, for valuable consideration,
receipt of which consideration is hereby acknowledged, the Holder identified on
the cover page hereof (the "Holder") is entitled to purchase from the Company a
number of unregistered shares (the "Shares") of the Company's Common Stock, no
par value (the "Common Stock") designated on the cover page hereof, at the
Purchase Price per Share designated on the cover page hereof (the "Purchase
Price"), subject to the following terms and conditions.
1. EXERCISE
(a) TIME OF EXERCISE. This Warrant may be exercised in whole or in part
(but not as to fractional shares) at the executive office of the
Company, at any time or from time to time, provided, however, that
this Series "K" Warrant (the "Warrant") shall expire and be null and
void and of no further force or effect if not exercised in the manner
herein provided, by 5:00 p.m., Phoenix Time, on or before the Warrant
Expiration Date designated above.
(b) MANNER OF EXERCISE. This Warrant is exercisable at the Purchase Price
per Share, subject to adjustment as provided in section 5 hereof.
Exercise of this Warrant shall be effectuated solely by the surrender
of this Warrant with the annexed Notice of Exercise duly executed,
together with payment of the Purchase Price for the Shares purchased
(and any applicable transfer taxes) at the Company's principal
executive offices (as currently identified above). Payment shall be
made by cash, by cashier's check payable to the order of the Company,
or by other immediately available funds, all in U.S. dollars,
provided, however, the Company may, in its sole discretion and without
any obligation to do so, accept any of the following forms of
consideration in full or partial payment for the Shares in lieu of the
foregoing: (i) shares of Common Stock owned by the Holder duly
endorsed for transfer to the Company, with a fair market value (as
determined by the Company) on the date of delivery equal to the
aggregate Purchase Price of the Shares with respect to which this
Warrant or portion is thereby exercised; (ii) the surrender or
relinquishment of options, warrants or other rights to acquire Common
Stock held by the Holder, with a fair market value (as determined by
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EMPYREAN BIOSCIENCE, INC. SERIES "K" WARRANT CERTIFICATE
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the Company) on the date of delivery equal to the aggregate Purchase
Price of the Shares with respect to which this Warrant or portion is
thereby exercised; (iii) a full recourse promissory note bearing
interest at a rate as shall then preclude the imputation of interest
under the Internal Revenue Code of 1986, as amended, and payable upon
such terms as may be prescribed by the Company and secured by such
property as may be prescribed by the Company (notwithstanding the
foregoing, no Warrant may be exercised by delivery of a promissory
note or by a loan from the Company if such loan or other extension of
credit is prohibited by law at the time of exercise of this Warrant or
does not comply with the provisions of Regulation G promulgated by the
Federal Reserve Board with respect to "margin stock" if the Company
and the Holder are then subject to such Regulation); and/or (iv)
property of any kind which constitutes good and valuable
consideration.
(c) DELIVERY OF STOCK CERTIFICATES. As soon as practicable, but not
exceeding thirty (30) days, after complete or partial exercise of this
Warrant and all required deliveries by the Holder, the Company, at its
expense, shall cause to be issued in the name of the Holder a
certificate or certificates for the number of fully paid and
non-assessable shares of Common Stock to which the Holder shall be
entitled upon such exercise, together with such other stock or
securities or property or combination thereof to which the Holder
shall be entitled upon such exercise, determined in accordance with
section 5 hereof.
(d) RECORD DATE OF TRANSFER OF SHARES. Irrespective of the date of
issuance and delivery of certificates for any shares of Common Stock
or other securities issuable upon the exercise of this Warrant, each
person (including a corporation or partnership) in whose name any such
certificate is to be issued shall for all purposes be deemed to have
become the holder of record of the Common Stock or other securities
represented thereby immediately prior to the close of business on the
date on which payment of the Purchase Price with annexed Notice of
Exercise duly executed is received by the Company.
2. NAMED HOLDER DEEMED OWNER
The Company, any conversion agent, and any registrar for this Warrant may deem
and treat the Holder hereinabove named as the absolute owner of this Warrant;
provided, however, in the event the Holder hereinabove named (or any successor
thereto in accordance with the terms of this section 2) shall have delivered to
the Company at its principal executive office written notice requesting the
Transfer of this Warrant (as such term is defined in section 9) or any portion
thereof, the Company shall, so long as the requirements for transfer described
in section 9 hereof have been satisfied, treat the assignee or transferee as the
Holder for the purpose of exercise hereof and for all other purposes, and
neither the Company nor any conversion agent nor any registrar shall be affected
by any notice to the contrary.
3. NO STOCKHOLDER RIGHTS
The Holder shall not be, nor have any of the rights or privileges of, a
stockholder of the Company with respect to this Warrant or any unexercised
Shares including, by way of example and not limitation, the right to vote for
the election of directors or upon any matter submitted to stockholders at any
meeting thereof, or to give or withhold consent to any corporate action, or to
receive notice of meetings or other actions affecting stockholders (except as
expressly provided in this Warrant), or to receive dividends, distributions,
subscription rights or otherwise (except as expressly provided in this Warrant),
unless and until all conditions for exercise of this Warrant shall be satisfied,
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EMPYREAN BIOSCIENCE, INC. SERIES "K" WARRANT CERTIFICATE
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and this Warrant is duly exercised and the purchased Shares are duly issued and
delivered, at which time the Holder shall become a stockholder of the Company
with respect to such issued Shares and, in such capacity, shall thereafter be
fully entitled to receive dividends (if any are declared and paid), to vote, and
to exercise all other rights of a stockholder with respect to such issued
Shares.
4. RIGHT TO NOTICE OF CERTAIN EVENTS
The Company shall give written notice of the following events to the Holder of
this Warrant in the event this Warrant has not expired and has not been fully
exercised by the Holder:
(a) The Company shall fix a record date of the holders of its shares of
Common Stock for the purpose of entitling them to receive a dividend
or distribution; or
(b) A merger or consolidation or stock exchange or divisive reorganization
(i.e., spin-off, split-off or split-up) or other reorganization in
which the Company and/or its stockholders are to be a party; or the
sale, transfer, exchange or other disposition by the Company of fifty
percent (50%) or more of its assets in a single or series of related
transactions; or the sale, transfer, exchange or other disposition of
fifty percent (50%) or more of the capital stock of the Company in a
single or series of related transactions, with the exception, in each
of the above cases, of a transaction whose principal purpose is to
change the State in which the Company is incorporated, or to form a
holding company, or to effect a similar reorganization as to form of
entity without change of beneficial ownership.
(c) The sale, transfer, exchange or other disposition of all or
substantially all of the assets of the Company in complete liquidation
or dissolution of the Company, with the exception of a transaction
whose principal purpose is to change the State in which the Company is
incorporated, or to form a holding company, or to effect a similar
reorganization as to form of entity without change of beneficial
ownership, whereupon this Warrant will be assumed by the successor
entity.
In the case of the occurrence of any of the events described in this section 4,
the Company shall give written notice of such event to the Holder of this
Warrant at least fifteen (15) days prior to the date fixed as a record date or
the date of closing the transfer books for the determination of the shareholders
entitled to receive such dividend, distribution, convertible or exchangeable
securities or subscription rights described in subsection (a), or entitled to
vote on such proposed transactions described in subsections (b) and (c). Such
notice shall specify such record date or the date of closing the transfer books,
as the case may be. Failure to give such notice or any defect therein shall not
affect the validity of any action taken in connection with the declaration or
payment of any such dividend or the issuance of any convertible or exchangeable
securities, or any subscription rights, options or warrants described in
subsection (a) or any proposed transactions described in subsections (b) and
(c).
5. ADJUSTMENTS
(a) COMMON STOCK RECAPITALIZATION OR RECLASSIFICATION; COMBINATION OR
REVERSE STOCK SPLIT; FORWARD STOCK SPLIT. If (i) outstanding shares of
Common Stock are subdivided into a greater number of shares by reason
of recapitalization or reclassification, or (ii) a dividend in Common
Stock shall be paid or distributed in respect of the Common Stock,
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EMPYREAN BIOSCIENCE, INC. SERIES "K" WARRANT CERTIFICATE
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then the number of Shares which a Holder is entitled to purchase under
this Warrant, and the Purchase Price for such Shares, in effect
immediately prior to such subdivision or at the record date of such
dividend shall, simultaneously with the effectiveness of such
subdivision or immediately after the record date of such dividend, be
proportionately increased and reduced, respectively. If outstanding
shares of Common Stock are combined into a lesser number of shares by
reason of combination or reverse stock split, then the number of
Shares which a Holder is entitled to purchase under this Warrant, and
the Purchase Price for such Shares, in effect immediately prior to
such combination shall, simultaneously with the effectiveness of such
combination, be proportionately reduced and increased, respectively.
(b) CONSOLIDATION OR MERGER; EXCHANGE OF SECURITIES; DIVISIVE
REORGANIZATION; OTHER REORGANIZATION OR RECLASSIFICATION. In case of
(i) the consolidation, merger, combination or exchange of shares of
capital stock with another entity, or (ii) the divisive reorganization
of the Company (i.e., split-up, spin-off or split-off), or (iii) any
capital reorganization or any reclassification of Common Stock (other
than a recapitalization or reclassification described above in
subsection (a)), the Holder shall thereafter be entitled upon exercise
of this Warrant to purchase the kind and number of shares of capital
stock or other securities or property of the Company (or its
successor{s}) receivable upon such event by a holder of the number of
Shares which this Warrant entitles the Holder to purchase from the
Company immediately prior to such event. In every such case, the
Company may appropriately adjust the number of Shares which may be
issued under this Warrant, the Purchase Price therefore, and any and
all other matters deemed appropriate by the Company.
(c) ADJUSTMENTS DETERMINED IN SOLE DISCRETION OF COMPANY. All adjustments
to be made pursuant to the foregoing subsection shall be made in such
manner as the Company shall deem equitable and appropriate, the
determination of the Company shall be final, binding and conclusive.
(d) NO OTHER RIGHTS TO HOLDER. Except as expressly provided in this
section 5: (i) the Holder shall have no rights by reason of any
subdivision or consolidation of shares of capital stock of any class
or the payment of any stock dividend or any other increase or decrease
in the number of shares of stock of any class, and (ii) the
dissolution, liquidation, merger, consolidation or divisive
reorganization or sale of assets or stock to another corporation
(including any Approved Corporate Transactions as such term is defined
in section 6), or any issue by the Company of shares of capital stock
of any class, or warrants or options or rights to purchase securities
(including securities convertible into shares of capital stock of any
class), shall not affect, and no adjustment by reason thereof shall be
made with respect to, the number of, or the Purchase Price for, the
Shares. The sale of this Warrant shall not in any way affect or impede
the right or power of the Company to make adjustments,
reclassifications, reorganizations or changes of its capital or
business structure or to merge, consolidate, dissolve or liquidate, or
to sell or transfer all or any part of its business or assets.
6. APPROVED CORPORATE TRANSACTIONS
In the event of the occurrence of any Approved Corporate Transaction (as defined
below), or in the event of any change in applicable laws, regulations or
accounting principles, the Company in its discretion is hereby authorized to
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EMPYREAN BIOSCIENCE, INC. SERIES "K" WARRANT CERTIFICATE
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take any one or more of the following actions whenever the Company determines
that such action is appropriate in order to facilitate such Approved Corporate
Transactions or to give effect to changes in laws, regulations or principles:
(a) PURCHASE OR REPLACEMENT OF WARRANT. In its sole and absolute
discretion, and on such terms and conditions as it deems appropriate,
the Company may provide by action taken prior to the occurrence of
such transaction or event and either automatically or upon the
Holder's request, for any one or combination of the following: (1) the
purchase of this Warrant for an amount of cash equal to the amount
that could have been attained upon the exercise of this Warrant, or
realization of the Holder's rights had this Warrant been currently
exercisable or payable or fully vested; and/or (ii) the replacement of
this Warrant with other rights or property (which may or may not be
securities) selected by the Company in its sole discretion
(b) ACCELERATION OF EXPIRATION DATE. In its sole and absolute discretion,
and on such terms and conditions as it deems appropriate, the Company
may provide, by action taken prior to the occurrence of such
transaction or event, that this Warrant may not be exercised after the
occurrence of such event; provided, however, the Holder must be given
the opportunity, for a specified period of time prior to the
consummation of such transaction, to exercise this Warrant as to all
Shares covered thereby.
(c) ASSUMPTION OR SUBSTITUTION. In its sole and absolute discretion, and
on such terms and conditions as it deems appropriate, the Company may
provide, by action taken prior to the occurrence of such transaction
or event, that this Warrant be assumed by the successor or survivor
corporation, or a parent or subsidiary thereof, or shall be
substituted for by similar warrants covering the capital stock of the
successor or survivor corporation, or a parent or subsidiary thereof,
with appropriate adjustments as to the number and kind of shares and
prices.
7. PAYMENT OF TAXES
All Shares issued upon the exercise of this Warrant shall be validly issued,
fully paid and non-assessable and the Company shall pay all taxes and other
governmental charges (other than income tax) that may be imposed in respect of
this issue or delivery thereof. The Company shall not be required, however, to
pay any tax or other charge imposed in connection with any Transfer attributable
to the issue of any certificate for shares in any name other than that of the
Holder, and in such case the Company shall not be required to issue or deliver
any stock certificate until such tax or other charge has been paid or it has
been established to the Company's satisfaction that no tax or other charge is
due
8. LEGEND
The Shares issuable upon the exercise of this Warrant shall bear the legend set
forth on the first page of this Warrant (except that such legend shall refer to
"Shares" instead of "Securities") or a legend of similar import, provided,
however, that that the Company, without any obligation to do so, may permit such
legend to be removed from this Warrant, or in the case of the certificate or
other instrument representing the Shares, may permit such legend not be placed
upon, or may permit such legend to be removed from, such certificate, as the
case may be, in the event such legend is no longer necessary to assure
compliance with the Securities Act.
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EMPYREAN BIOSCIENCE, INC. SERIES "K" WARRANT CERTIFICATE
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9. TRANSFER CONDITIONS
This Warrant shall be registered in the Holder's name on the books of the
Company at the Company Office in accordance with section 2. No sale, transfer,
assignment, pledge, hypothecation or other disposition of this Warrant (a
"Transfer") shall be valid unless made at the Company Office by the registered
Holder hereof or by his, her or its attorney duly authorized in writing and
similarly noted hereon. No Transfer shall be effective unless it has satisfied
the following pre-conditions:
(a) The Transfer of any portion of this Warrant may only be made (to the
extent possible) in increments of outstanding principal in whole share
increments.
(b) Prior to the Transfer, the Holder has, at his, her or its' expense,
either: (i) furnished the Company with an opinion of the Holder's
counsel in form and substance satisfactory to the Company to the
effect that the Transfer is exempted from and therefore will not
require registration of this Warrant under the Securities Act or the
securities laws of the state in which the Holder then resides, and
counsel for the Company shall have concurred in such opinion and the
Company shall have advised the Holder of such concurrence; or (ii)
satisfied the Company that a registration statement on Form S-1 under
the Securities Act (or any other form appropriate for the purpose
under the Securities Act or any form replacing any such form) with
respect to this Warrant shall be then effective, and that such
disposition shall have been appropriately qualified or registered in
accordance with the applicable securities law of the state the Holder
is then resident.
(c) The Company shall have given prior written consent to such Transfer,
which consent the Company shall not unreasonably withhold. The Company
shall not be deemed to have withheld its reasonable consent should it
refuse to permit the Holder to Transfer of this Warrant to (i) a
direct or indirect competitor of the Company, or (ii) to any Person
(other than a stockholder of the Company) involved in an actual or
potential dispute with the Company.
(d) The proposed transferee (i) shall have represented to the Company that
he, she or it has been informed and understands the investment risks
associated with the purchase of this Warrant, and (ii) covenants to
hold the Company harmless with respect to any matter concerning the
proposed transferee's acquisition of this Warrant including, without
limitation, any claims that the transferor and/or the Company failed
to fully disclose or misrepresented material facts.
Upon satisfaction of the foregoing conditions, the Company shall register this
Warrant under the name of the proposed assignee or transferee.
The term "Transfer" means any transfer or alienation of this Warrant which would
directly or indirectly change the legal or beneficial ownership thereof, whether
voluntary or by operation of law, regardless of payment or provision of
consideration, including, by way of example and not limitation: (i) the sale,
assignment, bequest or gift of this Warrant; (ii) any transaction that creates
or grants an option, warrant, or right to obtain an interest in this Warrant;
(iii) any transaction that creates a form of joint ownership in this Warrant
between the Holder and one or more other Persons; (iv) any Transfer of this
Warrant to a creditor of the Holder, including the hypothecation, encumbrance or
pledge of this Warrant or any interest therein, or the attachment or imposition
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EMPYREAN BIOSCIENCE, INC. SERIES "K" WARRANT CERTIFICATE
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of a lien by a creditor of the Holder on this Warrant or any interest therein
which is not released within thirty (30) days after the imposition thereof; (v)
any distribution by a Holder which is an entity to its stockholders, partners,
co-venturers or members, as the case may be; or (vi) any distribution by a
Holder which is a fiduciary such as a trustee or custodian to its settlors or
beneficiaries.
10. MUTILATED, DESTROYED, LOST OR STOLEN WARRANTS
(a) MUTILATED WARRANT. This Warrant, if mutilated, may be surrendered to
the Company and thereupon the Company shall execute and deliver in
exchange therefor a new Warrant of like tenor and principal amount.
(b) DESTRUCTION, LOSS OR THEFT OF WARRANT. If there be delivered to the
Company (i) evidence to the satisfaction of the Company of the
destruction, loss or theft of this Warrant, and (ii) such security or
indemnity as may be required by the Company to save it harmless, then,
in the absence of notice to the Company that this Warrant has been
assigned or transferred pursuant to section 9, the Company shall
execute and deliver in lieu of this Warrant, a new Warrant of like
tenor and principal amount.
(c) TAXES. Upon issuance of any new Warrant under this section 10, the
Company may require the payment of a sum sufficient to cover any tax
or other governmental charge that may be imposed in relation thereto
and any other expenses connected therewith.
(d) LEGAL AFFECT. The provisions of this section 10 are exclusive and
shall preclude (to the extent lawful) all other rights and remedies
with respect to the replacement and/or exercise of this Warrant if
mutilated, destroyed, lost or stolen.
11. RESERVATION OF COMMON STOCK
The Company shall at all times reserve and keep available out of its authorized
but unissued shares of Common Stock, solely for the purpose of issuance upon the
exercise of this Warrant, such number of shares of Common Stock as shall be
issuable upon the exercise hereof. The Company covenants and agrees that, upon
exercise of this Warrant and payment of the Purchase Price thereof, all shares
of Common Stock issuable upon such exercise shall be duly and validly issued,
fully paid and non-assessable.
12. NO IMPAIRMENT
The Company will not, by amendment to its Certificate of Incorporation or
through any other voluntary action, avoid or seek to avoid the observance or
performance of any of the terms of this Warrant, but will at all times, in good
faith, assist all such action as may be necessary or appropriate in order to
protect the rights of the Holder against dilution or other impairment. Without
limiting the generality of the foregoing, the Company will take all such action
as may be necessary or appropriate in order that the Company may validly and
legally issue fully paid and nonassessable stock upon the exercise of this
Warrant.
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EMPYREAN BIOSCIENCE, INC. SERIES "K" WARRANT CERTIFICATE
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13. RIGHT TO NOTICE OF CERTAIN EVENTS
If at any time prior to the expiration of this Warrant and prior to its
exercise, any of the following events shall occur:
(a) The Company shall fix a record date of the holders of its shares of
Common Stock for the purpose of entitling them to receive a dividend
or distribution; or
(b) The Company shall offer to the holders of its Common Stock any
additional shares of capital stock of the Company or securities
convertible into or exchangeable for shares of capital stock of the
Company, or any option (except for options to be granted to the
Company's employees pursuant to a stock option plan approved by the
Company's Board of Directors), right or warrant, to subscribe
therefor; or
(c) A merger, consolidation, dissolution, liquidation or winding up of the
Company or a sale of all or substantially all of its property, assets
and business as an entirety shall be proposed;
then the Company shall give written notice of such event to the Holder of this
Warrant at least fifteen (15) days prior to the date fixed as a record date or
the date of closing the transfer books for the determination of the shareholders
entitled to receive such dividend, distribution, convertible or exchangeable
securities or subscription rights, or entitled to vote on such proposed
dissolution, liquidation, winding up or sale. Such notice shall specify such
record date or the date of closing the transfer books, as the case may be.
Failure to give such notice or any defect therein shall not affect the validity
of any action taken in connection with the declaration or payment of any such
dividend or the issuance of any convertible or exchangeable securities, or
subscription rights, options or warrants or any proposed dissolution,
liquidation, winding up or sale.
14. HOLDER'S REGISTRATION RIGHTS
(a) REGISTRATION BY COMPANY. Whenever the Company proposes to register any
Common Stock under the Securities Act for a public offering through an
independent underwriter(s), whether as a primary or secondary offering
(or pursuant to registration rights granted to holders of other
securities of the Company), the Company shall cause to be included in
such registration all of the shares which may be issued upon exercise
of this Warrant (the "Warrant Shares"); provided, however, Holder
shall, as a condition of such registration if requested by the
underwriter(s), agree to subject the Warrant Shares to a lock-up
provision for a period not to exceed twenty-four months from the
effective date of such registration statement.
(b) SALE OF SHARES AS PART OF PUBLIC OFFERING. The Company shall have no
obligation to require the underwriter(s) in any underwritten public
offering of the Common Stock to sell any Warrant Shares as part of
such public offering. In the event the underwriter(s) sell the Warrant
Shares as part of such public offering, the Company will afford Holder
the right to participate as a selling stockholder as part of such
Offering, subject to any priority selling rights previously given by
the Company to any other stockholders. Subject to such priority
selling rights, if the total number of shares of stock which all
selling stockholders of the Company request be sold as part of such
public offering exceeds the number of shares which the underwriter(s)
allow to be sold, then the shares so included shall be apportioned pro
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EMPYREAN BIOSCIENCE, INC. SERIES "K" WARRANT CERTIFICATE
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rata among the electing selling stockholders according to the total
number of shares of Common Stock requested to be included in such
public offering by said selling stockholders, or in such other
proportions as shall be mutually agreed to by such selling
stockholders.
(c) FURNISH INFORMATION. It shall be a condition precedent to the
obligations of the Company to take any action pursuant to this section
14 that Holder shall furnish to the Company in writing such
information regarding Holder, the Warrant Shares held by Holder, and
the intended method of disposition thereof as the Company shall
reasonably request and as shall be required in connection with the
action to be taken by the Company.
(d) REGISTRATION EXPENSES. The Company shall bear all registration and
qualification fees and expenses to register the shares; provided,
however, in the event Holder sells Warrant Shares as part of such
public offering, they shall, if requested by the Company, bear such
portion of the underwriting commissions paid to the underwriter(s) as
the number of shares of Common Stock sold as part of such public
offering by such selling Holders bear to the total number of shares of
Common Stock sold in such Offering. In addition, each Holder selling
Warrant Shares as part of such public offering shall bear the fees and
cost of his, her or its own counsel.
(e) DELAY OF REGISTRATION. So long as the Company complies with
sub-sections (a) and (b) of this section 14, Holder shall have no
right to take any action to restrain, enjoin or otherwise delay any
registration as the result of any controversy which might arise with
respect to the interpretation or implementation of this section 14.
15. MODIFICATION OF WARRANT TO COMPLY WITH LAWS OR RULES
The Company may, at any time or from time-to-time, without receiving further
consideration from, or paying any consideration to, the Holder, modify or amend
this Warrant to the extent deemed necessary by the Company to comport with
changes in securities, tax or other laws or rules, regulations or regulatory
interpretations thereof applicable to this Warrant or to comply with the rules
or requirements of any stock exchange or Nasdaq.
16. NON-LIABILITY FOR DEBTS
This Warrant shall not be liable for satisfaction of the debts, contracts, or
engagements of the Holder, or the Holder's successors in interest as permitted
under this Warrant, or be subject to involuntary Transfer for the benefit of a
creditor of the Holder by judgment, levy, attachment, garnishment, or any other
legal or equitable proceeding (including bankruptcy), and any attempted
disposition thereof shall be null and void ab initio and of no further force and
effect.
17. MISCELLANEOUS
(a) PREPARATION OF WARRANT CERTIFICATE. This Warrant Certificate was
prepared by the Company solely on behalf of the Company. Each party
acknowledges that: (i) he, she or it had the advice of, or sufficient
opportunity to obtain the advice of, legal counsel separate and
-10-
<PAGE>
EMPYREAN BIOSCIENCE, INC. SERIES "K" WARRANT CERTIFICATE
- --------------------------------------------------------------------------------
independent of legal counsel for any other party hereto; (ii) the
terms of the transaction contemplated by this Warrant Certificate are
fair and reasonable to such party; and (iii) such party has
voluntarily entered into the transaction contemplated by this Warrant
Certificate without duress or coercion. Each party further
acknowledges such party was not represented by the legal counsel of
any other party hereto in connection with the transaction contemplated
by this Warrant Certificate, nor was such party under any belief or
understanding that such legal counsel was representing his, her or its
interests. Each party agrees that no conflict, omission or ambiguity
in this Warrant Certificate, or the interpretation thereof, shall be
presumed, implied or otherwise construed against the Company or any
other party to this Warrant Certificate on the basis that such party
was responsible for drafting this Warrant Certificate.
(b) COOPERATION. Each party agrees, without further consideration, to
cooperate and diligently perform any further acts, deeds and things,
and to execute and deliver any documents that may be reasonably
necessary or otherwise reasonably required to consummate, evidence,
confirm and/or carry out the intent and provisions of this Warrant
Certificate, all without undue delay or expense.
(c) INTERPRETATION.
(i) SURVIVAL. All representations and warranties made by any party
in connection with any transaction contemplated by this Warrant
Certificate shall, irrespective of any investigation made by or
on behalf of any other party hereto, survive the execution and
delivery of this Warrant Certificate and the performance or
consummation of any transaction described in this Warrant
Certificate.
(ii) ENTIRE AGREEMENT/NO COLLATERAL REPRESENTATIONS. Each party
expressly acknowledges and agrees that this Warrant
Certificate, together with and subject to the Unit Purchase
Agreement pursuant to which this Warrant was sold to the
Holder,: (1) is the final, complete and exclusive statement of
the agreement of the parties with respect to the subject matter
hereof; (2) supersedes any prior or contemporaneous agreements,
proposals, commitments, guarantees, assurances, communications,
discussions, promises, representations, understandings,
conduct, acts, courses of dealing, warranties, interpretations
or terms of any kind, whether oral or written (collectively and
severally, the "prior agreements"), and that any such prior
agreements are of no force or effect except as expressly set
forth herein; and (3) may not be varied, supplemented or
contradicted by evidence of prior agreements, or by evidence of
subsequent oral agreements. No prior drafts of this Warrant
Certificate, and no words or phrases from any prior drafts,
shall be admissible into evidence in any action or suit
involving this Warrant Certificate.
(iii) AMENDMENT; WAIVER; FORBEARANCE. Except as expressly provided
otherwise herein, neither this Warrant Certificate nor any of
the terms, provisions, obligations or rights contained herein
may be amended, modified, supplemented, augmented, rescinded,
discharged or terminated (other than by performance), except by
a written instrument or instruments signed by all of the
parties to this Warrant Certificate. No waiver of any breach of
any term, provision or agreement contained herein, or of the
performance of any act or obligation under this Warrant
-11-
<PAGE>
EMPYREAN BIOSCIENCE, INC. SERIES "K" WARRANT CERTIFICATE
- --------------------------------------------------------------------------------
Certificate, or of any extension of time for performance of any
such act or obligation, or of any right granted under this
Warrant Certificate, shall be effective and binding unless such
waiver shall be in a written instrument or instruments signed
by each party claimed to have given or consented to such waiver
and each party affected by such waiver. Except to the extent
that the party or parties claimed to have given or consented to
a waiver may have otherwise agreed in writing, no such waiver
shall be deemed a waiver or relinquishment of any other term,
provision, agreement, act, obligation or right granted under
this Warrant Certificate, or any preceding or subsequent breach
thereof. No forbearance by a party to seek a remedy for any
noncompliance or breach by another party hereto shall be deemed
to be a waiver by such forbearing party of its rights and
remedies with respect to such noncompliance or breach, unless
such waiver shall be in a written instrument or instruments
signed by the forbearing party.
(iv) REMEDIES CUMULATIVE. The remedies of each party under this
Warrant Certificate are cumulative and shall not exclude any
other remedies to which such party may be lawfully entitled, at
law or in equity.
(v) SEVERABILITY. If any term or provision of this Warrant
Certificate or the application thereof to any person or
circumstance shall, to any extent, be determined to be invalid,
illegal or unenforceable under present or future laws, then,
and in that event: (1) the performance of the offending term or
provision (but only to the extent its application is invalid,
illegal or unenforceable) shall be excused as if it had never
been incorporated into this Warrant Certificate, and, in lieu
of such excused provision, there shall be added a provision as
similar in terms and amount to such excused provision as may be
possible and be legal, valid and enforceable; and (2) the
remaining part of this Warrant Certificate (including the
application of the offending term or provision to persons or
circumstances other than those as to which it is held invalid,
illegal or unenforceable) shall not be affected thereby, and
shall continue in full force and effect to the fullest extent
provided by law.
(vi) PARTIES IN INTEREST. Notwithstanding anything else to the
contrary herein, nothing in this Warrant Certificate shall
confer any rights or remedies under or by reason of this
Warrant Certificate on any persons other than the parties
hereto and their respective successors and assigns, if any, as
may be permitted under the Plan or hereunder, nor shall
anything in this Warrant Certificate relieve or discharge the
obligation or liability of any third person to any party to
this Warrant Certificate, nor shall any provision give any
third person any right of subrogation or action over or against
any party to this Warrant Certificate.
(vii) NO RELIANCE UPON PRIOR REPRESENTATION. Each party acknowledges
that: (i) no other party has made any oral representation or
promise which would induce them prior to executing this Warrant
Certificate to change their position to their detriment, to
partially perform, or to part with value in reliance upon such
representation or promise; and (ii) such party has not so
changed its position, performed or parted with value prior to
the time of the execution of this Warrant Certificate, or such
party has taken such action at its own risk.
-12-
<PAGE>
EMPYREAN BIOSCIENCE, INC. SERIES "K" WARRANT CERTIFICATE
- --------------------------------------------------------------------------------
(viii) HEADINGS; REFERENCES; INCORPORATION; "PERSON"; GENDER;
STATUTORY REFERENCES. The headings used in this Warrant
Certificate are for convenience and reference purposes only,
and shall not be used in construing or interpreting the scope
or intent of this Warrant Certificate or any provision hereof.
References to this Warrant Certificate shall include all
amendments or renewals thereof. All cross-references in this
Warrant Certificate, unless specifically directed to another
agreement or document, shall be construed only to refer to
provisions within this Warrant Certificate, and shall not be
construed to be referenced to the overall transaction or to any
other agreement or document. Any Exhibit referenced in this
Warrant Certificate shall be construed to be incorporated in
this Warrant Certificate by such reference. As used in this
Warrant Certificate, the term "person" is defined in its
broadest sense as any individual, entity or fiduciary who has
legal standing to enter into this Warrant Certificate such as,
by way of example and not limitation, individual or natural
persons and trusts. As used in this Warrant Certificate, each
gender shall be deemed to include the other gender, including
neutral genders appropriate for entities, if applicable, and
the singular shall be deemed to include the plural, and vice
versa, as the context requires. Any reference to statutes or
laws will include all amendments, modifications, or
replacements of the specific sections and provisions concerned.
(d) ENFORCEMENT.
(i) APPLICABLE LAW. This Warrant Certificate and the rights and
remedies of each party arising out of or relating to this
Warrant Certificate (including, without limitation, equitable
remedies) shall (with the exception of the Securities Act and
the Blue Sky Laws) be solely governed by, interpreted under,
and construed and enforced in accordance with the laws (without
regard to the conflicts of law principles) of the State of
Wyoming, as if this Warrant Certificate were made, and as if
its obligations are to be performed, wholly within the State of
Wyoming.
(ii) CONSENT TO JURISDICTION; SERVICE OF PROCESS. Any "action or
proceeding" (as such term is defined below) arising out of or
relating to this Warrant Certificate shall be filed in and
heard and litigated solely before the state courts of Arizona
located within the County of Maricopa. Each party generally and
unconditionally accepts the exclusive jurisdiction of such
courts and venue therein; consents to the service of process in
any such action or proceeding by certified or registered
mailing of the summons and complaint in accordance with the
notice provisions of this Warrant Certificate; and waives any
defense or right to object to venue in said courts based upon
the doctrine of "forum non conveniens." The term "action or
proceeding" is defined as any and all claims, suits, actions,
hearings, arbitrations or other similar proceedings, including
appeals and petitions therefrom, whether formal or informal,
governmental or non-governmental, or civil or criminal.
(iii) WAIVER OF RIGHT TO JURY TRIAL. Each party hereby waives such
party's respective right to a jury trial of any claim or cause
of action based upon or arising out of this Warrant
-13-
<PAGE>
EMPYREAN BIOSCIENCE, INC. SERIES "K" WARRANT CERTIFICATE
- --------------------------------------------------------------------------------
Certificate. Each party acknowledges that this waiver is a
material inducement to each other party hereto to enter into
the transaction contemplated hereby; that each other party has
already relied upon this waiver in entering into this Warrant
Certificate; and that each other party will continue to rely on
this waiver in their future dealings. Each party warrants and
represents that such party has reviewed this waiver with such
party's legal counsel, and that such party has knowingly and
voluntarily waived its jury trial rights following consultation
with such legal counsel.
(e) SUCCESSORS AND ASSIGNS. Subject to section 9 governing Transfers, all
of the representations, warranties, covenants, conditions and
provisions of this Warrant Certificate shall be binding upon and shall
inure to the benefit of each party and such party's respective
successors and permitted assigns, spouses, heirs, executors,
administrators, and personal and legal representatives.
(f) NOTICES. Unless otherwise specifically provided in this Warrant
Certificate, all notices, demands, requests, consents, approvals or
other communications (collectively and severally called "notices")
required or permitted to be given hereunder, or which are given with
respect to this Warrant Certificate, shall be in writing, and shall be
given by: (i) personal delivery (which form of notice shall be deemed
to have been given upon delivery), (ii) by telegraph or by private
airborne/overnight delivery service (which forms of notice shall be
deemed to have been given upon confirmed delivery by the delivery
agency), (iii) by electronic or facsimile or telephonic transmission,
provided the receiving party has a compatible device or confirms
receipt thereof (which forms of notice shall be deemed delivered upon
confirmed transmission or confirmation of receipt), or (iv) by mailing
in the United States mail by registered or certified mail, return
receipt requested, postage prepaid (which forms of notice shall be
deemed to have been given upon the fifth {5th} business day following
the date mailed). Notices shall be addressed at the addresses first
hereinabove set forth in this Warrant Certificate or to such other
address as the receiving party shall have specified most recently by
like notice, with a copy to the other parties hereto. Any notice given
to the estate of a party shall be sufficient if addressed to the party
as provided in this section. Any party may, at any time by giving five
(5) days' prior written notice to the other parties, designate any
other address in substitution of the foregoing address to which such
notice will be given.
WHEREFORE, the Company has for purposes of this Warrant Certificate executed
this Warrant Certificate in the City of Phoenix, State of Arizona, effective as
of the Warrant Effective Date first set forth above.
COMPANY:
EMPYREAN BIOSCIENCE, INC.,
a Wyoming corporation
By:
---------------------------------
President
ATTEST:
[SEAL (Optional)]
By:
---------------------------------
Secretary
-14-
<PAGE>
EMPYREAN BIOSCIENCE, INC. SERIES "K" WARRANT CERTIFICATE
- --------------------------------------------------------------------------------
Attachment
to
Series "K" Warrant Certificate
NOTICE OF EXERCISE OF SERIES "K" WARRANT
----------------------------------------------------------
[To be signed by the Holder only upon exercise of Warrant]
TO: Secretary
Empyrean Bioscience, Inc.
2238 West Lone Cactus Drive
Suite 200
Phoenix, Arizona 85027
The undersigned, the holder of Warrants under that certain Series "K" Warrant
Certificate (the "Warrant") with an Effective Warrant Date of March 17, 1999
between Empyrean Bioscience, Inc., a Wyoming corporation (the "Company") and the
undersigned (the "Holder"), hereby irrevocably elects to exercise the
undersigned's Warrant to purchase
_______________________________________________ (______________)(1) unregistered
shares of the common stock, no par value ("Common Stock") of the Company
(collectively and severally, the "Shares"), for the aggregate purchase price of
________________________________________________________________________________
($______________)(2).
(1) Insert number of Shares as specified in the Warrant Certificate which
the Holder is purchasing.
(2) Number of Shares to be purchased as specified above multiplied by the
Purchase Price per Share as set forth on the Warrant Certificate
($______________ per share).
(Signature must conform in all respects to name of the Holder, unless the
undersigned is the Holder's successor, in which case the undersigned must submit
appropriate proof of the right of the undersigned to exercise this Warrant)
----------------------------------------
Signature
----------------------------------------
Print Name
----------------------------------------
Address
----------------------------------------
Date
-15-
NO. L-___
EMPYREAN BIOSCIENCE, INC.
SERIES "L" WARRANT CERTIFICATE
================================================================================
Name of Holder................... ____________________________________________
Address of Holder................ ____________________________________________
Number of Shares................. ____________________________________________
$0.60 per share if exercised on or before
May 26, 2000
Purchase Price per Share......... $0.75 per share if exercised on or before
May 26, 2001
Warrant Expiration Date.......... May 26, 2001
Warrant Effective Date........... May 26, 1999
================================================================================
NEITHER THIS SERIES "L" WARRANT OR THE SHARES OF COMMON STOCK PURCHASABLE
UPON EXERCISE OF THIS WARRANT (COLLECTIVELY, "THE SECURITIES REPRESENTED BY
THIS CERTIFICATE") HAVE BEEN REGISTERED WITH THE UNITED STATES SECURITIES
AND EXCHANGE COMMISSION (THE "COMMISSION") UNDER SECTION 5 OF THE UNITED
STATES SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), IN
RELIANCE UPON ONE OR MORE EXEMPTIONS FROM REGISTRATION OR QUALIFICATION
AFFORDED BY THE SECURITIES ACT AND/OR RULES PROMULGATED BY THE COMMISSION
PURSUANT THERETO. THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE ALSO
NOT BEEN REGISTERED OR QUALIFIED (AS THE CASE MAY BE) UNDER THE SECURITIES
LAWS OF ANY STATE OR TERRITORY OF THE UNITED STATES (THE "BLUE SKY LAWS"),
IN RELIANCE UPON ONE OR MORE EXEMPTIONS FROM REGISTRATION OR QUALIFICATION
QUALIFIED (AS THE CASE MAY BE) AFFORDED UNDER SUCH SECURITIES LAWS. NEITHER
THE COMMISSION NOR ANY SECURITIES REGULATORY AGENCY OF ANY STATE OR
TERRITORY OF THE UNITED STATES HAVE REVIEWED OR PASSED UPON OR ENDORSED THE
MERITS OF AN INVESTMENT IN THE SECURITIES REPRESENTED BY THIS CERTIFICATE,
AND ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE SECURITIES REPRESENTED BY THIS CERTIFICATE MUST BE ACQUIRED FOR THE
HOLDER'S OWN ACCOUNT FOR INVESTMENT PURPOSES ONLY AND NOT WITH A VIEW FOR
RESALE OR DISTRIBUTION. THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE
"RESTRICTED SECURITIES" WITHIN THE MEANING OF RULE 144 PROMULGATED UNDER
THE SECURITIES ACT. THE SECURITIES REPRESENTED BY THIS CERTIFICATE MAY NOT
BE NOT BE SOLD, TRANSFERRED, ASSIGNED OR HYPOTHECATED, OR OFFERED FOR SALE,
TRANSFER, ASSIGNMENT OR HYPOTHECATION, WITHIN THE UNITED STATES OR ANY OF
ITS TERRITORIES OR TO A UNITED STATES PERSON, UNLESS: (i) SUCH SECURITIES
ARE REGISTERED UNDER SECTION 5 OF THE SECURITIES ACT AND/OR REGISTERED OR
QUALIFIED PURSUANT TO ANY APPLICABLE BLUE SKY LAWS; OR (ii) THE PROPOSED
TRANSACTION IS EXEMPT FROM THE REGISTRATION AND PROSPECTUS DELIVERY
<PAGE>
EMPYREAN BIOSCIENCE, INC. SERIES "L" WARRANT CERTIFICATE
- --------------------------------------------------------------------------------
REQUIREMENTS OF THE SECURITIES ACT AND THE REGISTRATION AND QUALIFICATION
PROVISIONS OF ANY APPLICABLE BLUE SKY LAWS. THE TRANSFER AGENT (OR THE
COMPANY IF THEN ACTING AS ITS TRANSFER AGENT) WILL REFUSE TO TRANSFER THE
SECURITIES REPRESENTED BY THIS CERTIFICATE UNLESS PRESENTED WITH A WRITTEN
OPINION SATISFACTORY TO LEGAL COUNSEL FOR THE COMPANY (OR A NO-ACTION OR
INTERPRETIVE LETTER FROM THE COMMISSION AND/OR SECURITIES REGULATORY
AGENCIES OF ANY APPLICABLE STATE OR TERRITORY OF THE UNITED STATES) TO THE
EFFECT THAT SUCH REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS UNDER
THE SECURITIES ACT AND SUCH REGISTRATION OR QUALIFICATION REQUIREMENTS
UNDER THE BLUE SKY LAWS ARE NOT REQUIRED UNDER THE CIRCUMSTANCES OF SUCH
SALE, TRANSFER, ASSIGNMENT OR HYPOTHECATION. AS A RESULT, THE SECURITIES
REPRESENTED BY THIS CERTIFICATE ARE SUITABLE ONLY FOR CERTAIN SOPHISTICATED
AND QUALIFIED INVESTORS WHO CAN BEAR THE FINANCIAL RISK OF AN INVESTMENT IN
THESE SECURITIES FOR AN INDEFINITE PERIOD OF TIME.
- --------------------------------------------------------------------------------
EMPYREAN BIOSCIENCE, INC., a Wyoming corporation (the "Company"), whose
principal executive office is located at 2238 West Lone Cactus Drive, Suite 200,
Phoenix, Arizona 85027, hereby certifies that, for valuable consideration,
receipt of which consideration is hereby acknowledged, the Holder identified on
the cover page hereof (the "Holder") is entitled to purchase from the Company a
number of unregistered shares (the "Shares") of the Company's Common Stock, no
par value (the "Common Stock") designated on the cover page hereof, at the
Purchase Price per Share designated on the cover page hereof (the "Purchase
Price"), subject to the following terms and conditions.
1. EXERCISE
(a) TIME OF EXERCISE. This Warrant may be exercised in whole or in part
(but not as to fractional shares) at the executive office of the
Company, at any time or from time to time, provided, however, that
this Series "L" Warrant (the "Warrant") shall expire and be null and
void and of no further force or effect if not exercised in the manner
herein provided, by 5:00 p.m., Phoenix Time, on or before the Warrant
Expiration Date designated above.
(b) MANNER OF EXERCISE. This Warrant is exercisable at the Purchase Price
per Share, subject to adjustment as provided in section 5 hereof.
Exercise of this Warrant shall be effectuated solely by the surrender
of this Warrant with the annexed Notice of Exercise duly executed,
together with payment of the Purchase Price for the Shares purchased
(and any applicable transfer taxes) at the Company's principal
executive offices (as currently identified above). Payment shall be
made by cash, by cashier's check payable to the order of the Company,
or by other immediately available funds, all in U.S. dollars,
provided, however, the Company may, in its sole discretion and without
any obligation to do so, accept any of the following forms of
consideration in full or partial payment for the Shares in lieu of the
foregoing: (i) shares of Common Stock owned by the Holder duly
endorsed for transfer to the Company, with a fair market value (as
determined by the Company) on the date of delivery equal to the
aggregate Purchase Price of the Shares with respect to which this
Warrant or portion is thereby exercised; (ii) the surrender or
relinquishment of options, warrants or other rights to acquire Common
Stock held by the Holder, with a fair market value (as determined by
-2-
<PAGE>
EMPYREAN BIOSCIENCE, INC. SERIES "L" WARRANT CERTIFICATE
- --------------------------------------------------------------------------------
the Company) on the date of delivery equal to the aggregate Purchase
Price of the Shares with respect to which this Warrant or portion is
thereby exercised; (iii) a full recourse promissory note bearing
interest at a rate as shall then preclude the imputation of interest
under the Internal Revenue Code of 1986, as amended, and payable upon
such terms as may be prescribed by the Company and secured by such
property as may be prescribed by the Company (notwithstanding the
foregoing, no Warrant may be exercised by delivery of a promissory
note or by a loan from the Company if such loan or other extension of
credit is prohibited by law at the time of exercise of this Warrant or
does not comply with the provisions of Regulation G promulgated by the
Federal Reserve Board with respect to "margin stock" if the Company
and the Holder are then subject to such Regulation); and/or (iv)
property of any kind which constitutes good and valuable
consideration.
(c) DELIVERY OF STOCK CERTIFICATES. As soon as practicable, but not
exceeding thirty (30) days, after complete or partial exercise of this
Warrant and all required deliveries by the Holder, the Company, at its
expense, shall cause to be issued in the name of the Holder a
certificate or certificates for the number of fully paid and
non-assessable shares of Common Stock to which the Holder shall be
entitled upon such exercise, together with such other stock or
securities or property or combination thereof to which the Holder
shall be entitled upon such exercise, determined in accordance with
section 5 hereof.
(d) RECORD DATE OF TRANSFER OF SHARES. Irrespective of the date of
issuance and delivery of certificates for any shares of Common Stock
or other securities issuable upon the exercise of this Warrant, each
person (including a corporation or partnership) in whose name any such
certificate is to be issued shall for all purposes be deemed to have
become the holder of record of the Common Stock or other securities
represented thereby immediately prior to the close of business on the
date on which payment of the Purchase Price with annexed Notice of
Exercise duly executed is received by the Company.
2. NAMED HOLDER DEEMED OWNER
The Company, any conversion agent, and any registrar for this Warrant may deem
and treat the Holder hereinabove named as the absolute owner of this Warrant;
provided, however, in the event the Holder hereinabove named (or any successor
thereto in accordance with the terms of this section 2) shall have delivered to
the Company at its principal executive office written notice requesting the
Transfer of this Warrant (as such term is defined in section 9) or any portion
thereof, the Company shall, so long as the requirements for transfer described
in section 9 hereof have been satisfied, treat the assignee or transferee as the
Holder for the purpose of exercise hereof and for all other purposes, and
neither the Company nor any conversion agent nor any registrar shall be affected
by any notice to the contrary.
3. NO STOCKHOLDER RIGHTS
The Holder shall not be, nor have any of the rights or privileges of, a
stockholder of the Company with respect to this Warrant or any unexercised
Shares including, by way of example and not limitation, the right to vote for
the election of directors or upon any matter submitted to stockholders at any
meeting thereof, or to give or withhold consent to any corporate action, or to
receive notice of meetings or other actions affecting stockholders (except as
expressly provided in this Warrant), or to receive dividends, distributions,
subscription rights or otherwise (except as expressly provided in this Warrant),
unless and until all conditions for exercise of this Warrant shall be satisfied,
-3-
<PAGE>
EMPYREAN BIOSCIENCE, INC. SERIES "L" WARRANT CERTIFICATE
- --------------------------------------------------------------------------------
and this Warrant is duly exercised and the purchased Shares are duly issued and
delivered, at which time the Holder shall become a stockholder of the Company
with respect to such issued Shares and, in such capacity, shall thereafter be
fully entitled to receive dividends (if any are declared and paid), to vote, and
to exercise all other rights of a stockholder with respect to such issued
Shares.
4. RIGHT TO NOTICE OF CERTAIN EVENTS
The Company shall give written notice of the following events to the Holder of
this Warrant in the event this Warrant has not expired and has not been fully
exercised by the Holder:
(a) The Company shall fix a record date of the holders of its shares of
Common Stock for the purpose of entitling them to receive a dividend
or distribution; or
(b) A merger or consolidation or stock exchange or divisive reorganization
(i.e., spin-off, split-off or split-up) or other reorganization in
which the Company and/or its stockholders are to be a party; or the
sale, transfer, exchange or other disposition by the Company of fifty
percent (50%) or more of its assets in a single or series of related
transactions; or the sale, transfer, exchange or other disposition of
fifty percent (50%) or more of the capital stock of the Company in a
single or series of related transactions, with the exception, in each
of the above cases, of a transaction whose principal purpose is to
change the State in which the Company is incorporated, or to form a
holding company, or to effect a similar reorganization as to form of
entity without change of beneficial ownership.
(c) The sale, transfer, exchange or other disposition of all or
substantially all of the assets of the Company in complete liquidation
or dissolution of the Company, with the exception of a transaction
whose principal purpose is to change the State in which the Company is
incorporated, or to form a holding company, or to effect a similar
reorganization as to form of entity without change of beneficial
ownership, whereupon this Warrant will be assumed by the successor
entity.
In the case of the occurrence of any of the events described in this section 4,
the Company shall give written notice of such event to the Holder of this
Warrant at least fifteen (15) days prior to the date fixed as a record date or
the date of closing the transfer books for the determination of the shareholders
entitled to receive such dividend, distribution, convertible or exchangeable
securities or subscription rights described in subsection (a), or entitled to
vote on such proposed transactions described in subsections (b) and (c). Such
notice shall specify such record date or the date of closing the transfer books,
as the case may be. Failure to give such notice or any defect therein shall not
affect the validity of any action taken in connection with the declaration or
payment of any such dividend or the issuance of any convertible or exchangeable
securities, or any subscription rights, options or warrants described in
subsection (a) or any proposed transactions described in subsections (b) and
(c).
5. ADJUSTMENTS
(a) COMMON STOCK RECAPITALIZATION OR RECLASSIFICATION; COMBINATION OR
REVERSE STOCK SPLIT; FORWARD STOCK SPLIT. If (i) outstanding shares of
Common Stock are subdivided into a greater number of shares by reason
of recapitalization or reclassification, or (ii) a dividend in Common
Stock shall be paid or distributed in respect of the Common Stock,
-4-
<PAGE>
EMPYREAN BIOSCIENCE, INC. SERIES "L" WARRANT CERTIFICATE
- --------------------------------------------------------------------------------
then the number of Shares which a Holder is entitled to purchase under
this Warrant, and the Purchase Price for such Shares, in effect
immediately prior to such subdivision or at the record date of such
dividend shall, simultaneously with the effectiveness of such
subdivision or immediately after the record date of such dividend, be
proportionately increased and reduced, respectively. If outstanding
shares of Common Stock are combined into a lesser number of shares by
reason of combination or reverse stock split, then the number of
Shares which a Holder is entitled to purchase under this Warrant, and
the Purchase Price for such Shares, in effect immediately prior to
such combination shall, simultaneously with the effectiveness of such
combination, be proportionately reduced and increased, respectively.
(b) CONSOLIDATION OR MERGER; EXCHANGE OF SECURITIES; DIVISIVE
REORGANIZATION; OTHER REORGANIZATION OR RECLASSIFICATION. In case of
(i) the consolidation, merger, combination or exchange of shares of
capital stock with another entity, or (ii) the divisive reorganization
of the Company (i.e., split-up, spin-off or split-off), or (iii) any
capital reorganization or any reclassification of Common Stock (other
than a recapitalization or reclassification described above in
subsection (a)), the Holder shall thereafter be entitled upon exercise
of this Warrant to purchase the kind and number of shares of capital
stock or other securities or property of the Company (or its
successor{s}) receivable upon such event by a holder of the number of
Shares which this Warrant entitles the Holder to purchase from the
Company immediately prior to such event. In every such case, the
Company may appropriately adjust the number of Shares which may be
issued under this Warrant, the Purchase Price therefore, and any and
all other matters deemed appropriate by the Company.
(c) ADJUSTMENTS DETERMINED IN SOLE DISCRETION OF COMPANY. All adjustments
to be made pursuant to the foregoing subsection shall be made in such
manner as the Company shall deem equitable and appropriate, the
determination of the Company shall be final, binding and conclusive.
(d) NO OTHER RIGHTS TO HOLDER. Except as expressly provided in this
section 5: (i) the Holder shall have no rights by reason of any
subdivision or consolidation of shares of capital stock of any class
or the payment of any stock dividend or any other increase or decrease
in the number of shares of stock of any class, and (ii) the
dissolution, liquidation, merger, consolidation or divisive
reorganization or sale of assets or stock to another corporation
(including any Approved Corporate Transactions as such term is defined
in section 6), or any issue by the Company of shares of capital stock
of any class, or warrants or options or rights to purchase securities
(including securities convertible into shares of capital stock of any
class), shall not affect, and no adjustment by reason thereof shall be
made with respect to, the number of, or the Purchase Price for, the
Shares. The sale of this Warrant shall not in any way affect or impede
the right or power of the Company to make adjustments,
reclassifications, reorganizations or changes of its capital or
business structure or to merge, consolidate, dissolve or liquidate, or
to sell or transfer all or any part of its business or assets.
6. APPROVED CORPORATE TRANSACTIONS
In the event of the occurrence of any Approved Corporate Transaction (as defined
below), or in the event of any change in applicable laws, regulations or
accounting principles, the Company in its discretion is hereby authorized to
-5-
<PAGE>
EMPYREAN BIOSCIENCE, INC. SERIES "L" WARRANT CERTIFICATE
- --------------------------------------------------------------------------------
take any one or more of the following actions whenever the Company determines
that such action is appropriate in order to facilitate such Approved Corporate
Transactions or to give effect to changes in laws, regulations or principles:
(a) PURCHASE OR REPLACEMENT OF WARRANT. In its sole and absolute
discretion, and on such terms and conditions as it deems appropriate,
the Company may provide by action taken prior to the occurrence of
such transaction or event and either automatically or upon the
Holder's request, for any one or combination of the following: (1) the
purchase of this Warrant for an amount of cash equal to the amount
that could have been attained upon the exercise of this Warrant, or
realization of the Holder's rights had this Warrant been currently
exercisable or payable or fully vested; and/or (ii) the replacement of
this Warrant with other rights or property (which may or may not be
securities) selected by the Company in its sole discretion
(b) ACCELERATION OF EXPIRATION DATE. In its sole and absolute discretion,
and on such terms and conditions as it deems appropriate, the Company
may provide, by action taken prior to the occurrence of such
transaction or event, that this Warrant may not be exercised after the
occurrence of such event; provided, however, the Holder must be given
the opportunity, for a specified period of time prior to the
consummation of such transaction, to exercise this Warrant as to all
Shares covered thereby.
(c) ASSUMPTION OR SUBSTITUTION. In its sole and absolute discretion, and
on such terms and conditions as it deems appropriate, the Company may
provide, by action taken prior to the occurrence of such transaction
or event, that this Warrant be assumed by the successor or survivor
corporation, or a parent or subsidiary thereof, or shall be
substituted for by similar warrants covering the capital stock of the
successor or survivor corporation, or a parent or subsidiary thereof,
with appropriate adjustments as to the number and kind of shares and
prices.
7. PAYMENT OF TAXES
All Shares issued upon the exercise of this Warrant shall be validly issued,
fully paid and non-assessable and the Company shall pay all taxes and other
governmental charges (other than income tax) that may be imposed in respect of
this issue or delivery thereof. The Company shall not be required, however, to
pay any tax or other charge imposed in connection with any Transfer attributable
to the issue of any certificate for shares in any name other than that of the
Holder, and in such case the Company shall not be required to issue or deliver
any stock certificate until such tax or other charge has been paid or it has
been established to the Company's satisfaction that no tax or other charge is
due
8. LEGEND
The Shares issuable upon the exercise of this Warrant shall bear the legend set
forth on the first page of this Warrant (except that such legend shall refer to
"Shares" instead of "Securities") or a legend of similar import, provided,
however, that that the Company, without any obligation to do so, may permit such
legend to be removed from this Warrant, or in the case of the certificate or
other instrument representing the Shares, may permit such legend not be placed
upon, or may permit such legend to be removed from, such certificate, as the
case may be, in the event such legend is no longer necessary to assure
compliance with the Securities Act.
-6-
<PAGE>
EMPYREAN BIOSCIENCE, INC. SERIES "L" WARRANT CERTIFICATE
- --------------------------------------------------------------------------------
9. TRANSFER CONDITIONS
This Warrant shall be registered in the Holder's name on the books of the
Company at the Company Office in accordance with section 2. No sale, transfer,
assignment, pledge, hypothecation or other disposition of this Warrant (a
"Transfer") shall be valid unless made at the Company Office by the registered
Holder hereof or by his, her or its attorney duly authorized in writing and
similarly noted hereon. No Transfer shall be effective unless it has satisfied
the following pre-conditions:
(a) The Transfer of any portion of this Warrant may only be made (to the
extent possible) in increments of outstanding principal in whole share
increments.
(b) Prior to the Transfer, the Holder has, at his, her or its' expense,
either: (i) furnished the Company with an opinion of the Holder's
counsel in form and substance satisfactory to the Company to the
effect that the Transfer is exempted from and therefore will not
require registration of this Warrant under the Securities Act or the
securities laws of the state in which the Holder then resides, and
counsel for the Company shall have concurred in such opinion and the
Company shall have advised the Holder of such concurrence; or (ii)
satisfied the Company that a registration statement on Form S-1 under
the Securities Act (or any other form appropriate for the purpose
under the Securities Act or any form replacing any such form) with
respect to this Warrant shall be then effective, and that such
disposition shall have been appropriately qualified or registered in
accordance with the applicable securities law of the state the Holder
is then resident.
(c) The Company shall have given prior written consent to such Transfer,
which consent the Company shall not unreasonably withhold. The Company
shall not be deemed to have withheld its reasonable consent should it
refuse to permit the Holder to Transfer of this Warrant to (i) a
direct or indirect competitor of the Company, or (ii) to any Person
(other than a stockholder of the Company) involved in an actual or
potential dispute with the Company.
(d) The proposed transferee (i) shall have represented to the Company that
he, she or it has been informed and understands the investment risks
associated with the purchase of this Warrant, and (ii) covenants to
hold the Company harmless with respect to any matter concerning the
proposed transferee's acquisition of this Warrant including, without
limitation, any claims that the transferor and/or the Company failed
to fully disclose or misrepresented material facts.
Upon satisfaction of the foregoing conditions, the Company shall register this
Warrant under the name of the proposed assignee or transferee.
The term "Transfer" means any transfer or alienation of this Warrant which would
directly or indirectly change the legal or beneficial ownership thereof, whether
voluntary or by operation of law, regardless of payment or provision of
consideration, including, by way of example and not limitation: (i) the sale,
assignment, bequest or gift of this Warrant; (ii) any transaction that creates
or grants an option, warrant, or right to obtain an interest in this Warrant;
(iii) any transaction that creates a form of joint ownership in this Warrant
between the Holder and one or more other Persons; (iv) any Transfer of this
Warrant to a creditor of the Holder, including the hypothecation, encumbrance or
pledge of this Warrant or any interest therein, or the attachment or imposition
-7-
<PAGE>
EMPYREAN BIOSCIENCE, INC. SERIES "L" WARRANT CERTIFICATE
- --------------------------------------------------------------------------------
of a lien by a creditor of the Holder on this Warrant or any interest therein
which is not released within thirty (30) days after the imposition thereof; (v)
any distribution by a Holder which is an entity to its stockholders, partners,
co-venturers or members, as the case may be; or (vi) any distribution by a
Holder which is a fiduciary such as a trustee or custodian to its settlors or
beneficiaries.
10. MUTILATED, DESTROYED, LOST OR STOLEN WARRANTS
(a) MUTILATED WARRANT. This Warrant, if mutilated, may be surrendered to
the Company and thereupon the Company shall execute and deliver in
exchange therefor a new Warrant of like tenor and principal amount.
(b) DESTRUCTION, LOSS OR THEFT OF WARRANT. If there be delivered to the
Company (i) evidence to the satisfaction of the Company of the
destruction, loss or theft of this Warrant, and (ii) such security or
indemnity as may be required by the Company to save it harmless, then,
in the absence of notice to the Company that this Warrant has been
assigned or transferred pursuant to section 9, the Company shall
execute and deliver in lieu of this Warrant, a new Warrant of like
tenor and principal amount.
(c) TAXES. Upon issuance of any new Warrant under this section 10, the
Company may require the payment of a sum sufficient to cover any tax
or other governmental charge that may be imposed in relation thereto
and any other expenses connected therewith.
(d) LEGAL AFFECT. The provisions of this section 10 are exclusive and
shall preclude (to the extent lawful) all other rights and remedies
with respect to the replacement and/or exercise of this Warrant if
mutilated, destroyed, lost or stolen.
11. RESERVATION OF COMMON STOCK
The Company shall at all times reserve and keep available out of its authorized
but unissued shares of Common Stock, solely for the purpose of issuance upon the
exercise of this Warrant, such number of shares of Common Stock as shall be
issuable upon the exercise hereof. The Company covenants and agrees that, upon
exercise of this Warrant and payment of the Purchase Price thereof, all shares
of Common Stock issuable upon such exercise shall be duly and validly issued,
fully paid and non-assessable.
12. NO IMPAIRMENT
The Company will not, by amendment to its Certificate of Incorporation or
through any other voluntary action, avoid or seek to avoid the observance or
performance of any of the terms of this Warrant, but will at all times, in good
faith, assist all such action as may be necessary or appropriate in order to
protect the rights of the Holder against dilution or other impairment. Without
limiting the generality of the foregoing, the Company will take all such action
as may be necessary or appropriate in order that the Company may validly and
legally issue fully paid and nonassessable stock upon the exercise of this
Warrant.
-8-
<PAGE>
EMPYREAN BIOSCIENCE, INC. SERIES "L" WARRANT CERTIFICATE
- --------------------------------------------------------------------------------
13. RIGHT TO NOTICE OF CERTAIN EVENTS
If at any time prior to the expiration of this Warrant and prior to its
exercise, any of the following events shall occur:
(a) The Company shall fix a record date of the holders of its shares of
Common Stock for the purpose of entitling them to receive a dividend
or distribution; or
(b) The Company shall offer to the holders of its Common Stock any
additional shares of capital stock of the Company or securities
convertible into or exchangeable for shares of capital stock of the
Company, or any option (except for options to be granted to the
Company's employees pursuant to a stock option plan approved by the
Company's Board of Directors), right or warrant, to subscribe
therefor; or
(c) A merger, consolidation, dissolution, liquidation or winding up of the
Company or a sale of all or substantially all of its property, assets
and business as an entirety shall be proposed;
then the Company shall give written notice of such event to the Holder of this
Warrant at least fifteen (15) days prior to the date fixed as a record date or
the date of closing the transfer books for the determination of the shareholders
entitled to receive such dividend, distribution, convertible or exchangeable
securities or subscription rights, or entitled to vote on such proposed
dissolution, liquidation, winding up or sale. Such notice shall specify such
record date or the date of closing the transfer books, as the case may be.
Failure to give such notice or any defect therein shall not affect the validity
of any action taken in connection with the declaration or payment of any such
dividend or the issuance of any convertible or exchangeable securities, or
subscription rights, options or warrants or any proposed dissolution,
liquidation, winding up or sale.
14. HOLDER'S REGISTRATION RIGHTS
(a) REGISTRATION BY COMPANY. Whenever the Company proposes to register any
Common Stock under the Securities Act for a public offering through an
independent underwriter(s), whether as a primary or secondary offering
(or pursuant to registration rights granted to holders of other
securities of the Company), the Company shall cause to be included in
such registration all of the shares which may be issued upon exercise
of this Warrant (the "Warrant Shares"); provided, however, Holder
shall, as a condition of such registration if requested by the
underwriter(s), agree to subject the Warrant Shares to a lock-up
provision for a period not to exceed twenty-four months from the
effective date of such registration statement.
(b) SALE OF SHARES AS PART OF PUBLIC OFFERING. The Company shall have no
obligation to require the underwriter(s) in any underwritten public
offering of the Common Stock to sell any Warrant Shares as part of
such public offering. In the event the underwriter(s) sell the Warrant
Shares as part of such public offering, the Company will afford Holder
the right to participate as a selling stockholder as part of such
Offering, subject to any priority selling rights previously given by
the Company to any other stockholders. Subject to such priority
selling rights, if the total number of shares of stock which all
selling stockholders of the Company request be sold as part of such
public offering exceeds the number of shares which the underwriter(s)
allow to be sold, then the shares so included shall be apportioned pro
-9-
<PAGE>
EMPYREAN BIOSCIENCE, INC. SERIES "L" WARRANT CERTIFICATE
- --------------------------------------------------------------------------------
rata among the electing selling stockholders according to the total
number of shares of Common Stock requested to be included in such
public offering by said selling stockholders, or in such other
proportions as shall be mutually agreed to by such selling
stockholders.
(c) FURNISH INFORMATION. It shall be a condition precedent to the
obligations of the Company to take any action pursuant to this section
14 that Holder shall furnish to the Company in writing such
information regarding Holder, the Warrant Shares held by Holder, and
the intended method of disposition thereof as the Company shall
reasonably request and as shall be required in connection with the
action to be taken by the Company.
(d) REGISTRATION EXPENSES. The Company shall bear all registration and
qualification fees and expenses to register the shares; provided,
however, in the event Holder sells Warrant Shares as part of such
public offering, they shall, if requested by the Company, bear such
portion of the underwriting commissions paid to the underwriter(s) as
the number of shares of Common Stock sold as part of such public
offering by such selling Holders bear to the total number of shares of
Common Stock sold in such Offering. In addition, each Holder selling
Warrant Shares as part of such public offering shall bear the fees and
cost of his, her or its own counsel.
(e) DELAY OF REGISTRATION. So long as the Company complies with
sub-sections (a) and (b) of this section 14, Holder shall have no
right to take any action to restrain, enjoin or otherwise delay any
registration as the result of any controversy which might arise with
respect to the interpretation or implementation of this section 14.
15. MODIFICATION OF WARRANT TO COMPLY WITH LAWS OR RULES
The Company may, at any time or from time-to-time, without receiving further
consideration from, or paying any consideration to, the Holder, modify or amend
this Warrant to the extent deemed necessary by the Company to comport with
changes in securities, tax or other laws or rules, regulations or regulatory
interpretations thereof applicable to this Warrant or to comply with the rules
or requirements of any stock exchange or Nasdaq.
16. NON-LIABILITY FOR DEBTS
This Warrant shall not be liable for satisfaction of the debts, contracts, or
engagements of the Holder, or the Holder's successors in interest as permitted
under this Warrant, or be subject to involuntary Transfer for the benefit of a
creditor of the Holder by judgment, levy, attachment, garnishment, or any other
legal or equitable proceeding (including bankruptcy), and any attempted
disposition thereof shall be null and void ab initio and of no further force and
effect.
17. MISCELLANEOUS
(a) PREPARATION OF WARRANT CERTIFICATE. This Warrant Certificate was
prepared by the Company solely on behalf of the Company. Each party
acknowledges that: (i) he, she or it had the advice of, or sufficient
opportunity to obtain the advice of, legal counsel separate and
-10-
<PAGE>
EMPYREAN BIOSCIENCE, INC. SERIES "L" WARRANT CERTIFICATE
- --------------------------------------------------------------------------------
independent of legal counsel for any other party hereto; (ii) the
terms of the transaction contemplated by this Warrant Certificate are
fair and reasonable to such party; and (iii) such party has
voluntarily entered into the transaction contemplated by this Warrant
Certificate without duress or coercion. Each party further
acknowledges such party was not represented by the legal counsel of
any other party hereto in connection with the transaction contemplated
by this Warrant Certificate, nor was such party under any belief or
understanding that such legal counsel was representing his, her or its
interests. Each party agrees that no conflict, omission or ambiguity
in this Warrant Certificate, or the interpretation thereof, shall be
presumed, implied or otherwise construed against the Company or any
other party to this Warrant Certificate on the basis that such party
was responsible for drafting this Warrant Certificate.
(b) COOPERATION. Each party agrees, without further consideration, to
cooperate and diligently perform any further acts, deeds and things,
and to execute and deliver any documents that may be reasonably
necessary or otherwise reasonably required to consummate, evidence,
confirm and/or carry out the intent and provisions of this Warrant
Certificate, all without undue delay or expense.
(c) INTERPRETATION.
(i) SURVIVAL. All representations and warranties made by any party
in connection with any transaction contemplated by this Warrant
Certificate shall, irrespective of any investigation made by or
on behalf of any other party hereto, survive the execution and
delivery of this Warrant Certificate and the performance or
consummation of any transaction described in this Warrant
Certificate.
(ii) ENTIRE AGREEMENT/NO COLLATERAL REPRESENTATIONS. Each party
expressly acknowledges and agrees that this Warrant
Certificate, together with and subject to the Unit Purchase
Agreement pursuant to which this Warrant was sold to the
Holder,: (1) is the final, complete and exclusive statement of
the agreement of the parties with respect to the subject matter
hereof; (2) supersedes any prior or contemporaneous agreements,
proposals, commitments, guarantees, assurances, communications,
discussions, promises, representations, understandings,
conduct, acts, courses of dealing, warranties, interpretations
or terms of any kind, whether oral or written (collectively and
severally, the "prior agreements"), and that any such prior
agreements are of no force or effect except as expressly set
forth herein; and (3) may not be varied, supplemented or
contradicted by evidence of prior agreements, or by evidence of
subsequent oral agreements. No prior drafts of this Warrant
Certificate, and no words or phrases from any prior drafts,
shall be admissible into evidence in any action or suit
involving this Warrant Certificate.
(iii) AMENDMENT; WAIVER; FORBEARANCE. Except as expressly provided
otherwise herein, neither this Warrant Certificate nor any of
the terms, provisions, obligations or rights contained herein
may be amended, modified, supplemented, augmented, rescinded,
discharged or terminated (other than by performance), except by
a written instrument or instruments signed by all of the
parties to this Warrant Certificate. No waiver of any breach of
any term, provision or agreement contained herein, or of the
performance of any act or obligation under this Warrant
-11-
<PAGE>
EMPYREAN BIOSCIENCE, INC. SERIES "L" WARRANT CERTIFICATE
- --------------------------------------------------------------------------------
Certificate, or of any extension of time for performance of any
such act or obligation, or of any right granted under this
Warrant Certificate, shall be effective and binding unless such
waiver shall be in a written instrument or instruments signed
by each party claimed to have given or consented to such waiver
and each party affected by such waiver. Except to the extent
that the party or parties claimed to have given or consented to
a waiver may have otherwise agreed in writing, no such waiver
shall be deemed a waiver or relinquishment of any other term,
provision, agreement, act, obligation or right granted under
this Warrant Certificate, or any preceding or subsequent breach
thereof. No forbearance by a party to seek a remedy for any
noncompliance or breach by another party hereto shall be deemed
to be a waiver by such forbearing party of its rights and
remedies with respect to such noncompliance or breach, unless
such waiver shall be in a written instrument or instruments
signed by the forbearing party.
(iv) REMEDIES CUMULATIVE. The remedies of each party under this
Warrant Certificate are cumulative and shall not exclude any
other remedies to which such party may be lawfully entitled, at
law or in equity.
(v) SEVERABILITY. If any term or provision of this Warrant
Certificate or the application thereof to any person or
circumstance shall, to any extent, be determined to be invalid,
illegal or unenforceable under present or future laws, then,
and in that event: (1) the performance of the offending term or
provision (but only to the extent its application is invalid,
illegal or unenforceable) shall be excused as if it had never
been incorporated into this Warrant Certificate, and, in lieu
of such excused provision, there shall be added a provision as
similar in terms and amount to such excused provision as may be
possible and be legal, valid and enforceable; and (2) the
remaining part of this Warrant Certificate (including the
application of the offending term or provision to persons or
circumstances other than those as to which it is held invalid,
illegal or unenforceable) shall not be affected thereby, and
shall continue in full force and effect to the fullest extent
provided by law.
(vi) PARTIES IN INTEREST. Notwithstanding anything else to the
contrary herein, nothing in this Warrant Certificate shall
confer any rights or remedies under or by reason of this
Warrant Certificate on any persons other than the parties
hereto and their respective successors and assigns, if any, as
may be permitted under the Plan or hereunder, nor shall
anything in this Warrant Certificate relieve or discharge the
obligation or liability of any third person to any party to
this Warrant Certificate, nor shall any provision give any
third person any right of subrogation or action over or against
any party to this Warrant Certificate.
(vii) NO RELIANCE UPON PRIOR REPRESENTATION. Each party acknowledges
that: (i) no other party has made any oral representation or
promise which would induce them prior to executing this Warrant
Certificate to change their position to their detriment, to
partially perform, or to part with value in reliance upon such
representation or promise; and (ii) such party has not so
changed its position, performed or parted with value prior to
the time of the execution of this Warrant Certificate, or such
party has taken such action at its own risk.
-12-
<PAGE>
EMPYREAN BIOSCIENCE, INC. SERIES "L" WARRANT CERTIFICATE
- --------------------------------------------------------------------------------
(viii) HEADINGS; REFERENCES; INCORPORATION; "PERSON"; GENDER;
STATUTORY REFERENCES. The headings used in this Warrant
Certificate are for convenience and reference purposes only,
and shall not be used in construing or interpreting the scope
or intent of this Warrant Certificate or any provision hereof.
References to this Warrant Certificate shall include all
amendments or renewals thereof. All cross-references in this
Warrant Certificate, unless specifically directed to another
agreement or document, shall be construed only to refer to
provisions within this Warrant Certificate, and shall not be
construed to be referenced to the overall transaction or to any
other agreement or document. Any Exhibit referenced in this
Warrant Certificate shall be construed to be incorporated in
this Warrant Certificate by such reference. As used in this
Warrant Certificate, the term "person" is defined in its
broadest sense as any individual, entity or fiduciary who has
legal standing to enter into this Warrant Certificate such as,
by way of example and not limitation, individual or natural
persons and trusts. As used in this Warrant Certificate, each
gender shall be deemed to include the other gender, including
neutral genders appropriate for entities, if applicable, and
the singular shall be deemed to include the plural, and vice
versa, as the context requires. Any reference to statutes or
laws will include all amendments, modifications, or
replacements of the specific sections and provisions concerned.
(d) ENFORCEMENT.
(i) APPLICABLE LAW. This Warrant Certificate and the rights and
remedies of each party arising out of or relating to this
Warrant Certificate (including, without limitation, equitable
remedies) shall (with the exception of the Securities Act and
the Blue Sky Laws) be solely governed by, interpreted under,
and construed and enforced in accordance with the laws (without
regard to the conflicts of law principles) of the State of
Wyoming, as if this Warrant Certificate were made, and as if
its obligations are to be performed, wholly within the State of
Wyoming.
(ii) CONSENT TO JURISDICTION; SERVICE OF PROCESS. Any "action or
proceeding" (as such term is defined below) arising out of or
relating to this Warrant Certificate shall be filed in and
heard and litigated solely before the state courts of Arizona
located within the County of Maricopa. Each party generally and
unconditionally accepts the exclusive jurisdiction of such
courts and venue therein; consents to the service of process in
any such action or proceeding by certified or registered
mailing of the summons and complaint in accordance with the
notice provisions of this Warrant Certificate; and waives any
defense or right to object to venue in said courts based upon
the doctrine of "forum non conveniens." The term "action or
proceeding" is defined as any and all claims, suits, actions,
hearings, arbitrations or other similar proceedings, including
appeals and petitions therefrom, whether formal or informal,
governmental or non-governmental, or civil or criminal.
(iii) WAIVER OF RIGHT TO JURY TRIAL. Each party hereby waives such
party's respective right to a jury trial of any claim or cause
of action based upon or arising out of this Warrant
-13-
<PAGE>
EMPYREAN BIOSCIENCE, INC. SERIES "L" WARRANT CERTIFICATE
- --------------------------------------------------------------------------------
Certificate. Each party acknowledges that this waiver is a
material inducement to each other party hereto to enter into
the transaction contemplated hereby; that each other party has
already relied upon this waiver in entering into this Warrant
Certificate; and that each other party will continue to rely on
this waiver in their future dealings. Each party warrants and
represents that such party has reviewed this waiver with such
party's legal counsel, and that such party has knowingly and
voluntarily waived its jury trial rights following consultation
with such legal counsel.
(e) SUCCESSORS AND ASSIGNS. Subject to section 9 governing Transfers, all
of the representations, warranties, covenants, conditions and
provisions of this Warrant Certificate shall be binding upon and shall
inure to the benefit of each party and such party's respective
successors and permitted assigns, spouses, heirs, executors,
administrators, and personal and legal representatives.
(f) NOTICES. Unless otherwise specifically provided in this Warrant
Certificate, all notices, demands, requests, consents, approvals or
other communications (collectively and severally called "notices")
required or permitted to be given hereunder, or which are given with
respect to this Warrant Certificate, shall be in writing, and shall be
given by: (i) personal delivery (which form of notice shall be deemed
to have been given upon delivery), (ii) by telegraph or by private
airborne/overnight delivery service (which forms of notice shall be
deemed to have been given upon confirmed delivery by the delivery
agency), (iii) by electronic or facsimile or telephonic transmission,
provided the receiving party has a compatible device or confirms
receipt thereof (which forms of notice shall be deemed delivered upon
confirmed transmission or confirmation of receipt), or (iv) by mailing
in the United States mail by registered or certified mail, return
receipt requested, postage prepaid (which forms of notice shall be
deemed to have been given upon the fifth {5th} business day following
the date mailed). Notices shall be addressed at the addresses first
hereinabove set forth in this Warrant Certificate or to such other
address as the receiving party shall have specified most recently by
like notice, with a copy to the other parties hereto. Any notice given
to the estate of a party shall be sufficient if addressed to the party
as provided in this section. Any party may, at any time by giving five
(5) days' prior written notice to the other parties, designate any
other address in substitution of the foregoing address to which such
notice will be given.
WHEREFORE, the Company has for purposes of this Warrant Certificate executed
this Warrant Certificate in the City of Phoenix, State of Arizona, effective as
of the Warrant Effective Date first set forth above.
COMPANY:
EMPYREAN BIOSCIENCE, INC.,
a Wyoming corporation
By:
---------------------------------
President
ATTEST:
[SEAL (Optional)]
By:
---------------------------------
Secretary
-14-
<PAGE>
EMPYREAN BIOSCIENCE, INC. SERIES "L" WARRANT CERTIFICATE
- --------------------------------------------------------------------------------
Attachment
to
Series "L" Warrant Certificate
NOTICE OF EXERCISE OF SERIES "L" WARRANT
----------------------------------------------------------
[To be signed by the Holder only upon exercise of Warrant]
TO: Secretary
Empyrean Bioscience, Inc.
2238 West Lone Cactus Drive
Suite 200
Phoenix, Arizona 85027
The undersigned, the holder of Warrants under that certain Series "L" Warrant
Certificate (the "Warrant") with an Effective Warrant Date of March 17, 1999
between Empyrean Bioscience, Inc., a Wyoming corporation (the "Company") and the
undersigned (the "Holder"), hereby irrevocably elects to exercise the
undersigned's Warrant to purchase
_______________________________________________ (______________)(1) unregistered
shares of the common stock, no par value ("Common Stock") of the Company
(collectively and severally, the "Shares"), for the aggregate purchase price of
________________________________________________________________________________
($______________)(2).
(1) Insert number of Shares as specified in the Warrant Certificate which
the Holder is purchasing.
(2) Number of Shares to be purchased as specified above multiplied by the
Purchase Price per Share as set forth on the Warrant Certificate
($______________ per share).
(Signature must conform in all respects to name of the Holder, unless the
undersigned is the Holder's successor, in which case the undersigned must submit
appropriate proof of the right of the undersigned to exercise this Warrant)
----------------------------------------
Signature
----------------------------------------
Print Name
----------------------------------------
Address
----------------------------------------
Date
-15-
LICENSE AGREEMENT
THIS LICENSE AGREEMENT ("Agreement") is made this 21st day of February,
1998, by and between Geda International Marketing Co., Ltd., c/o Pindling & Co.,
Wave Crest House, West Bay Street, Nassau, Bahamas (the "Licensor") and Empyrean
Diagnostics, Inc., 348 Middlefield Road, Mountain View, California 94043 (the
"Licensee") based upon the following:
RECITALS
A. Licensor represents that it is the sole owner of the entire right,
title and interest in and to the formulation of the Licensed Products (as
defined below) and certain regulatory information pertinent to the Licensed
Products.
B. Licensee desires to acquire a license from Licensor to manufacture
and sell the Licensed Products in accordance with the terms and conditions of
this Agreement.
C. Licensor represents that it has the sole right to grant licenses for
the manufacture and sale of the Licensed Products.
D. Licensor and Licensee entered into that certain Requirements
Agreement dated April 29, 1997 to allow Licensee to exclusively market the
Licensed Products. The Requirements Agreement was amended and restated in full
pursuant to that certain Amended and Restated Requirements Agreement dated
August 2, 1997. By entering into this Agreement, Licensor and Licensee agree
that the Requirements Agreement and the Amended and Restated Requirements
Agreement shall be terminated and replaced in full by this Agreement.
NOW, THEREFORE, in consideration of the following terms and conditions,
Licensor and Licensee hereby agree as follows:
SECTION 1 GRANT OF LICENSE.
Licensor hereby grants the following to Licensee, subject to the terms and
conditions hereof: (i) an exclusive license to manufacture the products set
forth on Exhibit "A" to this Agreement and made a part of it (hereinafter the
"Licensed Products"); (ii) the right to use the name "Geda" in advertising the
Licensed Products; (iii) the exclusive right to distribute and sell the Licensed
Products in the "Territory", which shall be defined as the world, with the
exception of the territories of Hong Kong and Taiwan and the countries of
Canada, Africa, Mexico, the Dominican Republic and, as to the sale of the Geda
Lotion, the United States; and (iv) the right to sub-license the rights granted
pursuant to this Agreement.
SECTION 2 REPRESENTATIONS OF LICENSOR AND LICENSEE.
2.1 Licensor represents to Licensee and warrants that:
(a) Licensor is authorized to license to Licensee the rights to
manufacture and sell the Licensed Products.
<PAGE>
(b) Licensor has the authority to enter into this Agreement upon the
terms and conditions, including duration of term and establishment of royalty
contained herein.
(c) Licensor has not granted any right with respect to the manufacture
and sale of the Licensed Products which are inconsistent with the rights granted
to Licensee hereunder.
(d) To the best of our knowledge and belief the use of the name "Geda"
will not infringe upon or violate any tradename, trademark, copyright, or common
law right of any other person in countries where the "Geda" name is to be
registered. To date the name is registered in the USA, Canada, Hong Kong,
Taiwan, and possibly Mexico. It cannot be used in South Africa. An examination
of the Internet will disclose other entities that use the name Geda. No warranty
is made as to which entity may or may not have a prior right to the name.
2.2 Licensee represents to Licensor and warrants that Licensee has the
authority to enter into this Agreement upon the terms and conditions contained
herein.
SECTION 3 TERM.
3.1 The term of this Agreement shall begin on April 29, 1997 and shall
continue for a period of ten (10) years (the "Initial Term").
3.2 If, during the Initial Term and subsequent 10 year terms, the Licensee
meets or exceeds the payment of the Guaranteed Minimum Royalties as defined in
Section 5 below, then the Licensee shall have the option to renew this Agreement
for an additional period of ten (10) years. The Licensee shall exercise this
option in writing within sixty (60) days from the expiration of the Initial and
Subsequent Terms.
SECTION 4 ROYALTIES AND PAYMENTS.
4.1 For the term of this Agreement, and for as long thereafter as the
Licensee shall manufacture, distribute or sell any Licensed Products, Licensee
shall pay to Licensor: (i) a royalty which shall be computed as the greater of
an amount equal to two percent (2%) of the Net Sales (as defined in section 4.2
below) of the Licensed Products or U.S.$1.35 per liter of the Licensed Products
manufactured; (ii) License Fees as defined in section 4.3 below; and (iii) Joint
Venture Royalties as defined in section 4.4 below. License Fees and Joint
Venture Royalties shall be paid to Licensor by Licensee within thirty (30) days
after the last day of each calendar quarter. Royalties of $1.35 per liter shall
be calculated monthly by the Licensor, billed to licensee, and paid within 30
days.
4.2 "Net Sales" shall be defined as the total of gross sales of the
Licensed Products at the invoice selling price, net of normal and reasonable
cash, trade and quantity discounts and returns for credit, and without
deductions for costs incurred in manufacturing, selling, distributing or
advertising or for uncollectible accounts.
<PAGE>
(a) In the event the Royalty due under Net Sales is less than the
royalty due at $1.35 per liter, than no payment will be made by
Licensee to Licensor.
(b) In the event the Royalty due under Net Sales is greater than the
Royalty due at $1.35 per liter, then the royalty already billed
to Licensor to Licensee and already paid will be subtracted from
the amount due per Net Sales calculation and the difference will
be paid to Licensor.
4.3 License Fees shall be defined as those payments other than royalties
which are made to Licensee by a third party for the grant of a sub-license.
License Fees collected by Licensee shall be divided, 75% to Licensee and 25% to
Licensor, until Licensee is paid from said License Fees a total of U.S.$200,000.
Thereafter, except as otherwise provided in this Section, all License Fees shall
be divided equally between Licensor and Licensee.
4.4 If Licensee forms a joint venture relationship with a third party for
the sale and distribution of the Licensed Products, Licensee will require the
joint venture to pay to Licensor royalties of (a) U.S.$1.35 per liter for each
liter of the Licensed Products manufactured for the joint venture, plus (b) 50%
of any License Fees collected by the joint venture, sales as defined under 4.1
and 4.2, above, collectively, plus (c) 2% of net, these payments shall be
referred to in this Agreement, as the "Joint Venture Royalties".
4.5 Licensor and Licensee agree that it will take approximately 12 months
to obtain approvals to sell the Licensed Products in the Territory. Therefore,
Licensee shall not be required to pay royalties, License Fees or Joint Venture
Royalties during the period beginning on April 29, 1997 and ending on April 29,
1998, unless Licensed Products are manufactured and sold prior to April 29,
1998. Royalties, License Fees, and Joint Venture Royalties, if received by
Licensee prior to April 29, 1998, will be divided between Licensor and Licensee
as they agree.
4.6 Within twenty (20) days after the end of each calendar quarter,
irrespective of whether any Net Sales have been made or whether any sum is then
due to Licensor, Licensee shall deliver to Licensor a complete and accurate
written statement setting forth the amount of Licensed Products sold, the gross
price at which such Licensed Products were sold, the amount of any discount or
allowances given consistent with the terms of this Agreement, the credit for
Licensed Products allowed to be returned and other deductions allowed herein to
compute Net Sales in specific detail, so as to allow an audit of underlying
documents, together with Licensee's calculation of the amount of royalties then
due Licensor for the period covered by such report.
4.7 Licensee shall keep or cause to be kept accurate, complete and
up-to-date books of accounts separately stating by clear means records of all
sales of the Licensed Products including records pertaining to invoiced amounts
by customer and records pertaining to all freight charges, discounts,
allowances, and returns allowed by Licensee. Such books and records of account
shall reflect that a sale of the Licensed Products shall be deemed to have
occurred as of the date such Licensed Products were invoiced to Licensee's
customers.
<PAGE>
4.8 Licensor or its authorized representatives shall have the right, once
each calendar year, to inspect all such records of Licensee with respect to the
Licensed Products and to make copies of said records utilizing Licensee's
facilities without charge and shall have free and full access thereto on
reasonable notice during the normal business hours of Licensee. In the event
that such inspection or audit reveals an underpayment by Licensee of any amounts
due Licensor under this Agreement, Licensee shall immediately pay to Licensor
the balance of all such amounts found to be due pursuant to such audit or
inspection together with interest thereon at the "best commercial customer" rate
of Bank of America, plus two percent (2%) per annum from the date such amounts
first became due to Licensor until all such amounts have been paid in full.
Further, if such inspection or audit discloses that, for the annual period
reviewed or audited, Licensee has underpaid or understated its obligation under
this Agreement by ten percent (10%) or more, then Licensee shall also pay the
reasonable professional fees of the independent representatives engaged to
conduct or review such inspection or audit.
SECTION 5 GUARANTEED MINIMUM ROYALTIES.
Beginning with the second year of the Initial Term, and for each year
thereafter, Licensee shall pay to Licensor no less than the Guaranteed Minimum
Royalties set forth in the following schedule. Guaranteed Minimum Royalties
shall be comprised of all License Fees, royalties and Joint Venture Royalties
collected by Licensee and paid to Licensor.
1998 $ 245,000.00
1999 $ 490,000.00
2000 $ 735,000.00
2001 $ 915,000.00
2002 $1,215,000.00
2003 $1,458,000.00
2004 $1,758,000.00
2005 $2,108,000.00
2006 $2,508,000.00
2007 $2,960,000.00
For all years after 2007, the Minimum Guaranteed Royalties to be paid per year
shall be increased by eight (8%) per cent per year for each year the agreement
remains in effect. Minimum Guaranteed Royalties shall be paid to Licensor by
Licensee within thirty (30) days after the last day of each calendar quarter,
beginning no later than the quarter ended December 31, 1998.
<PAGE>
SECTION 6 TRANSFER OF FORMULATION.
Upon execution of this Agreement, Licensor shall immediately transfer the
formulation and manufacturing technology for the Licensed Products to Licensee
and shall use its best efforts, including providing the necessary expertise, to
allow Licensee to formulate and manufacture the Licensed Products in
approximately the same manner as Licensor had formulated and manufactured the
Licensed Products only after a satisfactory manufacturer has been chosen and
approved. Any costs associated with the transfer of the formulation and
manufacturing technology shall be paid by Licensee. The manufacturing of the
Products shall be done by a manufacturer chosen by Licensee which Licensee
believes will provide both quality and competitive pricing. The choice of
manufacturer shall be subject to the written approval of Licensor, which written
approval shall not be unreasonably withheld. However, it is understood that the
chosen manufacturer shall be of a quality, at least equivalent to an approved
FDA facility.
SECTION 7 RIGHT TO ACQUIRE.
7.1 Licensor hereby grants to Licensee a right of first refusal to purchase
or acquire the rights to own the Licensed Products (the "Rights") if Licensor
decides to transfer, sell, or assign the Rights. Licensor shall not transfer,
sell, or assign, or in any other way dispose of the formula for the Licensed
Products or any right or interest in the Licensed Products or the Rights unless
Licensor shall first have given written notice to Licensee of its intention to
do so (hereinafter "Notice") and follows the procedures hereinafter set forth.
7.2 The Notice shall be accompanied by a copy of any proposed purchase,
assignment or transfer document, or if none, a summary of the purchase,
assignment or transfer proposal (hereinafter the "Acquisition Documents") which
documents must name the proposed transferee and specify the price and the terms
of payment.
7.3 Licensee shall have the right to acquire the Rights at the lesser of
the price stated in the Acquisition Documents. If Licensee does not elect to
acquire the Rights during the 30 day period following Licensee's receipt of the
Notice and Acquisition Documents (as that period may be extended), then,
Licensor may transfer the Rights to the proposed transferee at the price and on
the terms set forth in the Acquisition Documents.
7.5 Licensor agrees that, if any distributor or licensee currently holding
rights to sell or distribute the Licensed Products in the territories of Hong
Kong and Taiwan and the countries of Canada, Mexico, the Dominican Republic, and
Africa and, as to the Geda Lotion only, the United States, substantially
breaches its or his licensing or distribution agreement with Licensor and
Licensor terminates said agreement, the rights to sell or distribute the
Licensed Products in that territory or country shall be transferred to Licensee
under the same terms and conditions as Sections 1 through 4 herein.
<PAGE>
SECTION 8 MODIFICATION OF FORMULATION.
Both Licensee and Licensor agree that it shall not alter, modify or change
the formulation of the Licensed Products without first obtaining the written
approval of the other party in writing.
SECTION 9 CONFIDENTIAL INFORMATION.
9.1 Licensee and Licensor each acknowledge that during the terms of this
Agreement, such party will learn information that the other party considers
confidential and secret, including, but not limited to, inventions, research and
development technology, formulations, methods and procedures, price lists,
marketing plans, discount sheets, trade secrets, technical information, physical
specimens, models and technical specimens and specifications related to the
Licensed Products (collectively, the "Confidential Information"). Each party
shall keep the other party's Confidential Information secret and confidential
and agrees not to disclose, furnish, communicate or make such Confidential
Information accessible to any third party unless such information is generally
known or has been published or released for circulation to the public or unless
Licensee is required to disclose such confidential information under law,
subpoena or regulatory process, in which case such disclosures shall not breach
this Agreement. Both Licensor and Licensee shall require its agents and
employees to agree to be bound by the terms of this Section 9. Each party shall
refrain from all actions and omissions that would reduce the value of the other
party's Confidential Information.
9.2 The definition of Confidential Information shall exclude information
that: (i) is in the public domain at the time of disclosure to the other party
or, without a breach of this section 9 by such party, later becomes part of the
public domain; (ii) the receiving party can verify by written records kept in
the ordinary course of business was in its lawful possession prior to its
disclosure by the other party; or (iii) is received by one party from a third
party without a breach of confidentiality owed by the third party to the other
party to this Agreement
9.3 The obligation of the parties to keep the other party's Confidential
Information confidential shall survive the termination or expiration of this
Agreement. Each of the parties shall immediately return all copies of any
written Confidential Information received by it upon expiration or termination
of this Agreement.
9.4 Each party acknowledges that its failure to maintain the other party's
Confidential Information confidential may result in immediate and irreparable
damage to the other party. Therefore, each party shall be entitled to such
equitable relief, in addition to any damages, as any court of competent
jurisdiction may deem proper to enforce the provision of this section 9.
SECTION 10 INDEMNIFICATION
10.1 Licensee hereby agrees to defend and indemnify and hold Licensor and
its officers, directors, employees and agents (collectively, the "Licensor
Indemnified Parties") harmless against any charges, damages, costs and expenses
(including reasonable attorney's fees and court costs), liability or loss
(including loss of profits), judgments, penalties, liabilities or losses of any
kind which may be sustained or suffered by any Licensor Indemnified Party by
reason of the breach of any of the covenants, representations, warranties, term
or agreement contained herein. In any action or proceeding relating to the
foregoing indemnity and brought against any Licensor Indemnified Party, the
Licensor Indemnified Party shall have the right, at Licensor's cost and expense,
to (i) participate in the defense of such action or proceeding with attorneys of
its own choosing or (ii) defend itself in any action or proceeding with
attorneys of its own choosing.
<PAGE>
SECTION 11 MISCELLANEOUS.
11.1 This Agreement shall be deemed to be made in, and in all respects
shall be interpreted, construed and governed by and in accordance with the laws
of the Bahamas.
11.2 Any action or proceeding arising out of or relating to this Agreement
shall be determined by binding arbitration or trial in such jurisdiction and by
such means (arbitration or trial) as shall be determined by the defendant. Each
party shall generally and unconditionally accept jurisdiction and venue as set
forth herein, consents to the service of process in any such action or
proceeding by certified or registered mailing of the summons and complaint in
accordance with the notice provisions of this Agreement, and waives any defense
or right to object to venue based upon the doctrine of "Forum Non Conveniens".
Each party irrevocably agrees to be bound by any judgement rendered thereby in
connection with this Agreement.
11.3 All notices, demands, requests, consents, approvals or other
communications ("Notices") given hereunder shall be in writing, and shall be
given by personal delivery or by express mail, Federal Express, DHL or other
similar form of recognized airborne/overnight delivery service (which forms of
Notice shall be deemed to have been given upon delivery), or by telex or
facsimile transmission (which forms of Notice shall be deemed delivered upon
confirmed transmission), or by mailing in the mail by registered or certified
mail, return receipt requested, postage prepaid (which forms of Notice shall be
deemed to have been given upon the fifth (5th) business day following the date
mailed). Notices shall be addressed to the parties at the addresses set forth in
the introductory section of this Agreement or to such other address as to which
any party hereto may have notified the others in writing.
11.4 The section and paragraph headings contained in this Agreement are for
reference purposes only and shall not in any way affect the meaning or
interpretation of this Agreement.
11.5 This document must be executed by original signatures, but may be in
counterparts which shall together constitute the agreement of the Parties as one
and the same instrument.
11.6 The rights under this agreement cannot be transferred to a third party
whether by merger, acquisition or sale, by the Licensee, without the written
approval of the Licensor
11.7 If any provision of this Agreement or the application thereof to any
party or circumstance shall be held invalid or unenforceable to any extent, the
remainder of this Agreement and application of such provision to the other party
or circumstances shall not be affected thereby and shall be enforced to the
greatest extent permitted by applicable law.
<PAGE>
11.8 This Agreement, including the Exhibits hereto, embodies the entire
agreement and understanding among the Parties hereto with respect to the subject
matter hereof, and supersedes all prior agreements and understandings related
thereto, and specifically the Requirements Agreement dated April 29, 1997 and
the Amended and Restated Requirements Agreement dated August 2, 1997. The
Parties hereto recognize and agree that no representations or warranties have
been made except as set forth in this Agreement and the Exhibits hereto. This
Agreement may be modified only by a written instrument signed by each of the
Parties.
IN WITNESS WHEREOF, the Parties hereto have executed or caused this
Requirements Agreement to be executed as of the date first above written.
"LICENSOR"
Geda International Marketing Co., Ltd.
By:
-----------------------------------------
David Thornburgh, M.D., President
By:
-----------------------------------------
Ricardo Sabates, M.D., Vice President
By:
-----------------------------------------
Frank Malagon, Ph.D., Chairman
"LICENSEE"
Empyrean Diagnostics Inc.
By:
-----------------------------------------
Stephen Hayter, President
<PAGE>
EXHIBIT "A"
LICENSED PRODUCTS
1. Geda Lotion is a microbicide lotion which has Aloe Vera in it for use with
medical gloves as well as all other pertinent uses of a microbicide for stopping
the transmission of communicable diseases, such as chlamydia, trichomonas,
herpes, and hepatitis B, through touch or bodily contact; its remedial ability
is to alleviate and to suppress various types of fungi, bacterial and virus
transmission to the user when applied correctly to all parts of the human body.
2. Geda+ is a vaginal contraceptive gel that destroys various sexually
transmitted microorganisms such as chlamydia, trichomonas, herpes, and hepatitis
B and effectively kills the HIV virus.
3. Any and all products developed or acquired by Licensor or its subsidiaries or
by any of the principals of Licensor.
<PAGE>
GENERAL RELEASE
The undersigned (hereinafter referred to as "RELEASOR"), for and in
consideration of TEN DOLLARS and other good and valuable consideration received
by _______________________________________ (hereinafter referred to as
"RELEASEES"), the receipt and sufficiency of which consideration is hereby
acknowledged, hereby knowingly and voluntarily from the beginning of time to
this day present, releases and forever discharges RELEASEES, RELEASEES' former,
current and future parents, predecessors, affiliates, subsidiaries, and
RELEASEES' former, current and future directors, officers, agents, persons
acting by, through or in concert with any of them, and all successors and
assignees (collectively, the "RELEASEES"), from any and all liabilities, claims,
actions, losses or any other damages, and/or from any actions for contribution
or indemnity, specifically including claims or actions arising from subrogation
which could be brought by insurer(s) of RELEASOR, which have or may arise out of
the Distribution Agreement dated March 20, 1997 (the "Distribution Agreement").
RELEASOR agrees that this General Release applies to all claims including those
of which he may not be aware and which may not be mentioned in the Distribution
Agreement. It is hereby acknowledged and understood that this is a General
Release and is irrevocable.
RELEASOR hereby acknowledges that the RELEASEES deny liability and that
the consideration acknowledged in this General Release was received in
settlement of doubtful and disputed claims and intended solely by RELEASEES to
foster and maintain their relationship with RELEASOR, and further to avoid
future litigation and buy its peace.
RELEASOR acknowledges that he understands the meaning of this General
Release and he/she freely and voluntarily enters into it with authority to do
so. RELEASOR further agrees that no fact, evidence, event or transaction
occurring before the execution of this General Release, which is currently
unknown but which may hereafter become known, shall affect in any manner the
final and unconditional nature of the releases set forth above.
This General Release constitutes the complete understanding and
agreement of the parties, except that, on a going-forward basis, the parties
specifically agree that the Distribution Agreement shall remain in full force
and effect as modified by the Sub-License Agreement between Prevent-X, Inc. and
Empyrean Diagnostics, Inc. and consented to by GIMCO.
IN WITNESS WHEREOF, the undersigned has hereunto set his/her hand to
this General Release this ______ day of ___________________, 1998.
- ---------------------------- -------------------------------------
Witness (RELEASOR)
Print name and address:
-------------------------------------
-------------------------------------
-------------------------------------
-------------------------------------
SUB-LICENSE AGREEMENT
THIS SUB-LICENSE AGREEMENT ("Agreement") is made this _______ day of
_______, 1998, by and between Prevent-X, Inc. (the "Sub-Licensor") whose address
is 4412 S..W. 74th Avenue, Miami, Florida 33155, Empyrean Diagnostics, Inc. (the
"Sub-Licensee") whose address is 2238 West Lone Cactus Drive, Suite 200,
Phoenix, Arizona 85027, as to sub-paragraphs 4.4 and 6.9 only, Empyrean
Diagnostics, LTD, (hereinafter "EDL") whose address is 2238 West Lone Cactus
Drive, Phoenix, Arizona, 85027 and as to sub-paragraph 6.10 only, GEDA
International Marketing Co. LTD., based upon the following:
RECITALS
WHEREAS, Sub-Licensor is the exclusive distributor of GEDA LOTION
("Lotion") in the United States of America, as well as all United States
Territories and Possessions, all as more specifically set forth and defined in
the Distribution Agreement between GEDA INTERNATIONAL MARKETING CO., LTD.
("GIMCO") ("The Distribution Agreement")( a copy of which is attached hereto and
incorporated herein as Exhibit "A") and Sub-Licensor dated March 20,1997; and
WHEREAS, Sub-Licensor desires to appoint Sub-Licensee as its exclusive
sub-licensee and assign its rights and delegate its duties under the
Distribution Agreement to Sub-Licensee and Sub-Licensee desires to undertake
said duties and obtain said rights from Sub-Licensor.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
set forth herein, and for other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties agree as follows:
SECTION 1 GRANT OF SUB-LICENSE/TRANSFER OF DISTRIBUTION AGREEMENT RIGHTS.
1.1 Subject to the provisions of this Agreement and the
performance of its covenants and obligations, Sub-Licensor hereby appoints
Sub-Licensee as its exclusive sub-licensee to sell, market and distribute the
Lotion in Sub-Licensor's Territory, as defined under the Distribution Agreement,
under such product name or names as are agreed to by the parties. Licensee
agrees to obtain , prior to the commencement of it sub-licensee business, all
licenses, approvals, inspections, permits or any other certification which may
be required by any competent public authority for the lawful operation of its
business and to keep the same in good standing during the Term of this
Agreement. Sub-Licensee shall also have the right to formulate and manufacture
the Lotion in the Territory in accordance with Sub-Licensee's prior agreements
with GIMCO. Sub-Licensee shall have the right to assign its rights and duties
hereunder subject to the provisions of paragraph 6.8 hereunder.
<PAGE>
1.2 So long as Sub-Licensee is not in material breach of this
Agreement on the expiration date of the Term as defined in Section 3 below, and
so long as this Agreement has not been otherwise terminated, Sub-Licensor agrees
that on the expiration of the Term, all rights it may have under the
Distribution Agreement with GIMCO shall be transferred from Sub-Licensor to
Sub-Licensee without the necessity of further documentation or consideration,
provided, however, if requested by Sub-Licensee or by GIMCO, Sub-Licensor shall
cooperate with Sub-Licensee and/or GIMCO by taking any action reasonably
required to effect such transfer.
SECTION 2 REPRESENTATIONS OF SUB-LICENSOR AND SUB-LICENSEE.
2.1 Sub-Licensor represents to Sub-Licensee and warrants that:
(a) Sub-Licensor is authorized to sub-license to Sub-Licensee
the rights to sell, market and distribute the Lotion in the Territory.
(b) Sub-Licensor has the authority to enter into this
Agreement upon the terms and conditions, including duration of term and
establishment of royalty contained herein.
(c) Sub-Licensor has not granted any right with respect to the
formulation, manufacture and sale of the Lotion which are inconsistent with the
rights granted to Sub-Licensee hereunder.
2.2 Sub-Licensee represents to Sub-Licensor and warrants that
Sub-Licensee has the authority to enter into this Agreement upon the terms and
conditions contained herein.
SECTION 3 TERM.
3.1 The term of this Agreement shall begin on the date first
set forth above and shall continue for a period of ten (10) years (the "Term").
SECTION 4 ROYALTIES AND PAYMENTS.
4.1 For the term of this Agreement, and for as long thereafter
as the Sub-Licensee shall formulate, manufacture, distribute or sell the Lotion
or any derivative hand or body lotion-type products containing Benzalkonium
Chloride and or Octoxynol-9 (hereinafter cumulatively referred to as the
"Lotion"). Sub-Licensee shall pay to Sub-Licensor a royalty which shall be
computed as five percent (5%) of Net Sales of the Lotion. Royalties shall be
paid to Sub-Licensor by Sub-Licensee within thirty (30) days after the last day
of each calendar quarter.
2
<PAGE>
4.2 "Net Sales" shall be defined as the total gross sales of
the Lotion at the invoice selling price, net of normal and reasonable cash,
trade and quantity discounts and returns for credit, and without deductions for
costs incurred in manufacturing, selling, distributing or advertising or for
uncollectible accounts.
4.3 As further consideration for entering into this Agreement,
Sub-Licensee shall pay to Sub-Licensor the sum of Fifty Thousand Dollars
($50,000) upon execution of this Agreement.
4.4 As further consideration for entering into this Agreement,
upon execution of this Agreement, EDT, which owns 100 percent of Sub-Licensee,
shall issue to Sub-Licensor's shareholders two hundred and twenty-five thousand
(225,000) unregistered shares of EDT Common Stock, no par value. Said 225,000
shares of EDT stock shall be issued in three separate certificates as follows:
123,750 shares to Joel and Tammy Meyerson; 78,750 shares to Howard and Gina
Berlin and 22,500 shares to Susan Fox. All of the shares issued to Sub-Licensee
shareholders pursuant to this paragraph shall be cumulatively referred to as the
"PX Stock" . The PX Stock shall have the following "piggy-back" registration
rights:
(A). Whenever EDT proposes to register any of its Common Stock under
the Securities Act whether for its own account, for a public offering whether as
a primary or secondary offering or pursuant to registration rights granted to
holders of other securities of EDT, EDT shall cause to be included in such
registration the PX Stock, provided however, the holders of PX Stock, as a
condition of such registration, if requested by the underwriter(s), agree to
subject the PX Stock to a lock-up provision for a period not to exceed
twenty-four months from the effective date of the registration statement,
provided that such lock-up is required by other EDT shareholders.
(B). EDT shall have no obligation to require the underwriter(s) in any
underwritten public offering of the Common Stock to sell the PX Stock as part of
such public offering. In the event the underwriter(s) agrees to sell the Common
Stock held by any other shareholder of EDT in the public offering, EDT will
afford the holders of PX Stock the right to participate as a selling stockholder
as part of such offering, subject to any priority selling rights previously
given by EDT to any other stockholders. Subject to such priority selling rights,
if the total number of shares of stock which all selling stockholders of EDT
request be sold as part of such public offering exceeds the number of shares
which the underwriter(s) allows to be sold, then the shares so included shall be
apportioned pro rata among the electing selling shareholders according to the
total number of shares of Common Stock requested to be included in such public
offering by said selling stockholders, or in such other proportions as shall be
mutually agreed to by such selling stockholders.
-3-
<PAGE>
(C). EDT shall bear all registration and qualification fees and all
expenses related to the registration of the shares, provided however, that if
the holders of PX Stock sell shares as part of such public offering, they shall,
if requested by EDT, bear such portion of the underwriting commissions paid to
the underwriter(s) as the number of shares of Common Stock sold as part of such
public offering by such selling shareholders bears to the total number of shares
of Common Stock sold in such offering. In addition, each holder of PX Stock
selling shares as part of such public offering shall bear the fees and costs of
his or her own counsel.
4.5 Within thirty (30) days after the end of each calendar
quarter, irrespective of whether any Net Sales have been made or whether any sum
is then due to Sub-Licensor, Sub-Licensee shall deliver to Sub-Licensor a
complete and accurate written statement setting forth the amount of Lotion sold,
the gross price at which the Lotion was sold, the amount of any discount or
allowances given consistent with the terms of this Agreement, and the credit for
Lotion allowed to be returned and other deductions allowed herein to compute Net
Sales in specific detail, so as to allow an audit of underlying documents,
together with Sub-Licensee's calculation of the amount of royalties then due
Sub-Licensor for the period covered by such report.
4.6 Sub-Licensee shall keep or cause to be kept accurate,
complete and up-to-date books of accounts separately stating by clear means
records of all sales of the Lotion including records pertaining to invoiced
amounts by customer and records pertaining to all freight charges, discounts,
allowances, and returns allowed by Sub-Licensee. Such books and records of
account shall reflect that a sale of the Lotion shall be deemed to have occurred
as of the date the Lotion was invoiced to Sub-Licensee's customers.
4.7 Sub-Licensor or its authorized representatives shall have
the right, once each calendar quarter, to inspect all such records of
Sub-Licensee with respect to the sales of the Lotion and to make copies of said
records utilizing Sub-Licensee's facilities without charge and shall have free
and full access thereto on reasonable notice during Sub-Licensee's normal
business hours. In the event that such inspection or audit reveals an
underpayment by Sub-Licensee of any amounts due Sub-Licensor under this
Agreement, Sub-Licensee shall immediately pay to Sub-Licensor the balance of all
such amounts found to be due pursuant to such audit or inspection together with
interest thereon at the rate of eighteen percent (18%) per annum from the date
such amounts first became due to Sub-Licensor until all such amounts have been
paid in full. Further, if such inspection or audit discloses that, for the
period reviewed or audited, Sub-Licensee has underpaid or understated its
obligation under this Agreement by ten percent (10%) or more, then Sub-Licensee
shall also pay the reasonable professional fees of the independent
representatives engaged to conduct or review such inspection or audit.
-4-
<PAGE>
SECTION 5 INDEMNIFICATION
5.1 Sub-Licensee agrees to defend and indemnify and hold
Sub-Licensor, its officers, directors, employees and agents (collectively the
"Sub-Licensor Indemnified Party") harmless against any charges, damages, costs,
expenses (including attorney's fees and court costs), liability or loss
(including loss of profits), judgments, penalties, liabilities or losses of any
kind which may be sustained or suffered by any Sub-Licensor Indemnified Party by
reason of the breach of any covenant, representation, warranty, term or
agreement contained herein. In any action or proceeding relating to the
foregoing indemnity and brought against any Sub-Licensor Indemnified Party, the
Sub-Licensor Indemnified Party shall have the right at Sub-Licensor's cost and
expense to (i) participate in the defense of such action or proceeding with
attorneys of its own choosing or (ii) defend itself in any such action or
proceeding with attorneys of its own choosing.
SECTION 6 MISCELLANEOUS.
6.1 This Agreement shall be deemed to be made in, and in all
respects shall be interpreted, construed and governed by and in accordance with
the laws of the state of Florida.
6.2 Any action or proceeding arising out of or relating to
this Agreement shall be submitted by the parties to binding arbitration before
the American Arbitration Association in Miami-Dade County, Florida. The
arbitrator shall have the authority to permit discovery upon request of a party
and shall render his decision in accordance with the law of the state of
Florida. The prevailing party in any such action shall be entitled to recover
its attorneys's fees, costs and expenses including through appeals if any of the
arbitrator's award, and this provision shall be enforced and included in any
award. The arbitration award issued by the arbitrator may be enforced in any
court having jurisdiction over the subject matter of the controversy.
6.3 All notices, demands, requests, consents, approvals or
other communications ("Notices") given hereunder shall be in writing, and shall
be given by personal delivery or by express mail, Federal Express, DHL or other
similar form of recognized airborne/overnight delivery service (which forms of
Notice shall be deemed to have been given upon delivery), or by telex or
facsimile transmission (which forms of Notice shall be deemed delivered upon
confirmed transmission), or by mailing in the mail by registered or certified
mail, return receipt requested, postage prepaid (which forms of Notice shall be
deemed to have been given upon the fifth (5th) business day following the date
mailed). Notices shall be addressed to the parties at the addresses set forth in
the introductory section of this Agreement or to such other address as to which
any party hereto may have notified the others in writing.
6.4 The section and paragraph headings contained in this
Agreement are for reference purposes only and shall not in any way affect the
meaning or interpretation of this Agreement.
-5-
<PAGE>
6.5 For the convenience of the parties to this Agreement, this
document may be executed by facsimile signatures and in counterparts which shall
together constitute the agreement of the Parties as one and the same instrument.
6.6 If any provision of this Agreement or the application
thereof to any party or circumstance shall be held invalid or unenforceable to
any extent, the remainder of this Agreement and application of such provision to
the other party or circumstances shall not be affected thereby and shall be
enforced to the greatest extent permitted by applicable law.
6.7 This Agreement, including the Exhibits hereto, embodies
the entire agreement and understanding among the Parties hereto with respect to
the subject matter hereof, and supersedes all prior agreements and
understandings related thereto. The Parties hereto recognize and agree that no
representations or warranties have been made except as set forth in this
Agreement and the Exhibits hereto. This Agreement may be modified only by a
written instrument signed by each of the Parties.
6.8 The relationship between the Parties is that of
licensor/licensee and distributor/sub-distributor. Sub-Licensor and Sub-Licensee
are not, and shall not be considered as joint ventures, partners, or agents of
each other and neither shall have the power to bind or obligate the other, other
than as set forth in this Agreement. The parties specifically agree that
application for and ownership of all approvals from the FDA or any other
governmental agency which passes on the Lotion obtained by Sub-Licensee for the
Lotion shall be in the name of the Sub-Licensee (the Intellectual Property).
Sub-Licensee shall have the authority to use the Intellectual Property in
connection with its efforts to manufacture, sell, market and distribute the
Lotion only so long as it complies with all of the terms and conditions of this
Agreement. If Licensee is in breach of this Agreement it is prohibited from
using or exploiting the Intellectual Property and upon termination of this
Agreement (other than after the conclusion of the Term) Sub-Licensee shall
surrender all of its rights to sell, market or distribute the Lotion or to
otherwise use or rely upon the Intellectual Property obtained pursuant to this
Agreement. Sub-Licensee is prohibited from assigning, transferring,
hypothecating or pledging the Intellectual Property or any of its rights and or
delegating any of its duties hereunder without the prior written consent of
Sub-Licensor which shall not be unreasonably withheld. A precondition of
Licensor's consent will be the assignee's affirmative assumption of all of
Sub-Licensee's obligations to Sub-Licensor under this Agreement including but
not limited to the provisions of paragraphs 4.1, 4.5, 4.6, 4.7 and 5.1.
-6-
<PAGE>
6.9 Sub-Licensee's failure to comply with the terms and
conditions of this Agreement and or EDT's failure to comply with the provisions
of paragraphs 4.4 (A), (B) and (C) shall constitute a breach of this Agreement.
In the event of a breach, Sub-Licensor shall provide written notice of said
breach to Sub-Licensee or EDT who shall have 20 days from the date of said
notice to cure the breach. In the event Sub-Licensee fails to cure the breach
within 20 days from the date of the notice or within such additional time as
agreed to by Sub-Licensor in writing, then in that event, Sub-Licensor shall be
entitled to pursue all remedies available under law and equity and in addition
to all of such remedies, may declare this Agreement terminated. No failure or
delay on the part of Sub-Licensor in exercising any right, power or privilege
hereunder and no course of dealing between the parties shall operate as a waiver
thereof and nor shall any single or partial exercise of any right, power or
privilege hereunder preclude any other or further exercise thereof.
6.10 By signing in the space provided below, GIMCO hereby
grants its full consent to the terms and conditions of this Agreement including
but not limited to Sub-Licensor's assignment of its rights and duties under The
Distribution Agreement of March 20,1997 ( Exhibit "A" hereto) to Sub-Licensee
and hereby agrees that pages 4 and 5 of The Distribution Agreement are hereby
deemed amended and modified by eliminating the provisions of Article V titled
"Obligations of Distributor" in their entirety.
6.11 For so long as this Agreement is in effect, Sub-Licensor
shall refrain from manufacturing, marketing or selling Lotion anywhere in the
world.
6.12 Sub-Licensor hereby assigns to Sub-Licensee all of its
right, title and interest to any and all Lotion ordered but not yet received
from GIMCO. Sub-Licensor represents that it has no other inventory-on-hand of
Lotion.
6.13 Sub-Licensor hereby assigns to Sub-Licensee all of
Sub-Licensor's rights, title and interest in and to the name "Prevent-X" and
Sub-Licensor shall cease to use the name "Prevent-X" in connection with the sale
and marketing of any product. Sub-Licensee shall have until December 31, 1999 to
decide if it wishes to use the name "Prevent-X" in connection with the sale and
marketing of the Lotion. If prior to December 31,1999 Sub-Licensee does not
affirmatively elect to utilize the name "Prevent-X" in connection with the sale
and marketing of the Lotion, all rights, title and interest in and to the name
"Prevent-X" will revert back to Sub-Licensor. Upon receipt of written notice
from Sub-Licensee of its intent to utilize the name "Prevent-X" in connection
with the sale and marketing of the Lotion, Sub-Licensor shall take whatever
action is necessary to amend its corporate charter to change its name.
-7-
<PAGE>
IN WITNESS WHEREOF, the Parties hereto have executed or caused this
Sub-License Agreement to be executed as of the date first above written.
"SUB-LICENSOR"
PREVENT-X, INC.
By:
------------------------------------
"SUB-LICENSEE"
EMPYREAN DIAGNOSTICS INC.
By:
------------------------------------
GEDA INTERNATIONAL MARKETING CO. LTD,
(ONLY AS TO PARAGRAPH 6.10)
By:
------------------------------------
EMPYREAN DIAGNOSTICS LTD.
By:
------------------------------------
-8-
AGREEMENT AND ASSIGNMENT OF
DISTRIBUTION RIGHTS
THIS AGREEMENT AND ASSIGNMENT OF DISTRIBUTION RIGHTS (the "Assignment") is
made and entered into as of the 31st day of August, 1998, by and among GEDA
International Marketing Company Limited ("GIMCO") Farida Darbar ("Assignor"),
Empyrean Diagnostics, Inc. ("Assignee") and Empyrean Diagnostic Ltd. as to
paragraph 3 only.
WITNESSETH:
WHEREAS, Assignor is the owner of certain rights to two products as
described on the attached Exhibit "A" of the GIMCO Agreement, conveyed to
Assignor by GIMCO pursuant to that certain agreement for distribution dated
April 29, 1997 (the "Distribution Agreement"),which is attached to this
Assignment as Attachment "A" and made a part of it; and
WHEREAS, Assignor desires to sell and assign, and Assignee desires to
purchase and accept, all of Assignor's interest in the Distribution Agreement
(hereinafter, the "Interest"); and
WHEREAS, GIMCO wishes to consent to this Assignment and to the transfer of
Assignor's rights in the Interest.
NOW, THEREFORE, in consideration of the premises, and for other good and
valuable consideration, the receipt of which is hereby acknowledged, the parties
hereto agree as follows;
1. ASSIGNMENT OF INTEREST. Assignor hereby sells and assigns to Assignee,
and Assignee hereby buys and accepts from Assignor, the Interest. Assignee
agrees to be bound by the terms of the Distribution Agreement and to assume the
obligations of the Assignor thereunder.
<PAGE>
2. CONSENT OF GIMCO. By executing this Assignment, GIMCO hereby consents to
the Assignment and to the transfer of Assignor's rights in the Interest and the
assumption of its obligations pursuant hereto.
3. CONSIDERATION FOR ASSIGNMENT. In consideration for the rights which
Assignee shall receive pursuant to this Assignment: (a) Empyrean Diagnostics,
Ltd, shall transfer to Assignor one hundred thousand (100,000) shares of its
restricted common stock (the "Stock"); and (b) Assignee shall pay to Assignor
five percent (5%) of all net sales of the products in Canada pursuant to the
Distribution Agreement. Royalties to be paid quarterly, 30 days after the end of
each quarter. "Net sales" shall be defined as the total gross sales of the
products to be sold pursuant to the Distribution Agreement at the invoice
selling price, net of normal and reasonable cash, trade and quantity discounts
and returns for credit, and without deductions for costs incurred in
manufacturing, selling, distributing or advertising or for uncollectible
accounts.
4. STOCK ACQUIRED FOR INVESTMENT PURPOSES. Assignor understands that the
Stock which shall be issued pursuant to this Assignment is being issued pursuant
to an exemption from registration under the Securities Act of 1933, as amended.
Assignor warrants and represents that the Stock is being acquired by Assignor
solely for Assignor's own account, for investment purposes only, and is not
being purchased and accepted with a view to or for the resale, distribution,
subdivision or fractionalization thereof. Assignor shall execute a subscription
agreement in a form substantially similar to the subscription agreement attached
hereto as Attachment "B" for the purpose of documenting Assignor's status as an
investor in the Stock.
5. SUCCESSORS AND ASSIGNS. This Assignment shall be binding upon, and shall
inure to the benefit of, the parties hereto and their respective heirs, legal
representatives, successors and assigns.
<PAGE>
6. ARBITRATION. Any action or proceeding arising out of or relating to this
Assignment shall be submitted by the parties to binding arbitration before the
American Arbitration Association in the County of Los Angeles. The arbitrator
shall have the authority to permit discovery upon request of a party and shall
render his decision in accordance with the law of the state of California. The
cost of the arbitration shall be shared equally. The arbitration award issued by
the arbitrator may be enforced in any court having jurisdiction over the subject
matter of the controversy.
7. NOTICES. All notices, demands, requests, consents, approvals or other
communications ("notices") given hereunder shall be in writing, and shall be
given by personal delivery or by express mail, Federal Express, DHL or other
similar form of recognized airborne/ overnight delivery service (which forms of
Notice shall be deemed to have been given upon delivery), or by telex or
facsimile transmission (which forms of Notice shall be deemed delivered upon
confirmed transmission), or by mailing in the mail by registered or certified
mail, return receipt requested, postage prepaid (which forms of Notice shall be
deemed to have been given upon the fifth (5th) business day following the date
mailed). Notices shall be addressed to the parties at the addresses set forth in
the signature section of this Assignment or to such other address as to which
any party hereto may have notified the others in writing.
8. HEADINGS. The section and paragraph headings contained in this
Assignment are for reference purposes only and shall not in any way affect the
meaning or interpretation of this Assignment.
9. FACSIMILE SIGNATURES/COUNTERPARTS. For the convenience of the parties to
this Assignment, this document may be executed by facsimile signatures and in
counterparts which shall together constitute the agreernent of the parties as
one and the same instrument.
<PAGE>
10. ENFORCEABILITY. If any provision of this Assignment or the application
thereof to any party or circumstance shall be held invalid or unenforceable to
any extent, the remainder of this Assignment and application of such provision
to the other party or circumstances shall not be affected thereby and shall be
enforced to the greatest extent permitted by applicable law.
11. ENTIRE AGREEMENT. This Assignment, including the Attachments hereto,
embodies the entire agreement and understanding among the parties hereto with
respect to the subject matter hereof, and supersedes all prior agreements and
understandings related thereto. The parties hereto recognize and agree that no
representations or warranties have been made except as set forth in this
Assignment and the Attachments hereto. This Assignment may be modified only by a
written instrument signed by each of the parties.
IN WITNESS WHEREOF, this Assignment is executed as of the day and year
first above written.
"GIMCO"
GEDA International Marketing Company Limited
By:
------------------------------------
Address:
"ASSIGNOR"
Farida Darbar
By:
------------------------------------
Address:
155 Leighland Avenue
Oakviile, Ontario, Canada L6H 1B3
<PAGE>
"ASSIGNEE"
Empyrean Diagnostics, Inc.
By:
------------------------------------
Address:
2238 West Lone Cactus Drive, Suite 200
Phoenix, Arizona 85027
Empyrean Diagnostics, Ltd., as to paragraph
3 only
By:
------------------------------------
Address:
885 West Georgia Street, Suite 1480,
Vancouver; British Columbia
1998 EMPYREAN DIAGNOSTICS LTD. STOCK PLAN
The Board of Directors of Empyrean Diagnostics, Ltd. (the "Company"), a
corporation organized under the laws of the State of Wyoming, hereby adopts this
1998 Empyrean Diagnostics Ltd. Stock Plan.
PURPOSE OF PLAN
WHEREAS, the success and profitability of the Company is and will remain
dependent, in significant part, upon the judgment, initiative, efforts and/or
services of employees, officers, directors and consultants;
WHEREAS, the Company desires, in order to attract, compensate and motivate
selected employees, officers, directors and consultants, and to appropriately
compensate them for their efforts, to create a stock plan which will enable it,
in its sole discretion and from time-to-time, to offer to or provide such
persons with incentives or inducements in the form of capital stock of the
Company, or rights in the form of options to acquire capital stock of the
Company, thereby affording such persons with an opportunity to share in
potential capital appreciation in the capital stock of the Company;
WHEREAS, the Company further desires that the stock plan be structured to permit
it, in its sole discretion, to offer and issue options to purchase capital stock
which are classified as incentive stock options within the meaning of Section
421 of the Internal Revenue Code of 1986, as amended;
WHEREAS, the Company further desires that the stock plan be structured to permit
it, in its sole discretion, to offer and issue capital stock or options to
acquire capital stock in reliance upon certain exemptions from registration or
qualification afforded under certain federal and state securities laws to be
selected by the Company as are or may become applicable including, by way of
example and not limitation: Rule 701 promulgated under the Securities Act of
1933, as amended (for compensatory benefit plans); Rules 504, 505 and/or 506 of
Regulation D promulgated under the Securities Act of 1933 (for private or
limited offerings); Section 44-1844 A. 1 of the Securities Act of Arizona, as
amended (for non-public offerings); and Section 44-1844 A. 14 of the Securities
Act of Arizona, as amended (for stock option and stock purchase plans conforming
with Rule 701); and
WHEREAS, should the Company's equity securities be registered at any time under
Sections 12(b) or 15(d) of the Securities and Exchange Act of 1934, the Company
further desires that the stock plan be structured to comply with the Securities
and Exchange Act of 1934.
TERMS AND CONDITIONS OF PLAN
1. DEFINITIONS
Set forth below are definitions of capitalized terms which are generally used
throughout the Plan, or references to provisions containing such definitions
(capitalized terms used only in a specific Section of the Plan are defined in
such section):
<PAGE>
-2-
(a) "AFFILIATE" is defined as any Person controlling the Company,
controlled by the Company, or under common control with the Company.
(b) "AWARD" collectively and severally refers to any Options or Grant
Shares granted or awarded under the Plan.
(c) "AWARD AGREEMENT" collectively and severally refers to (i) in the case
of the grant or award of an Option, a Stock Option Certificate in such
form as prescribed by the Plan Authority from time to time and (ii) in
the case of the grant or award of Grant Shares, a Stock Grant Agreement
in such form as prescribed by the Plan Authority from time to time;
provided, however, the Company may, in its sole discretion, (1) revise
any such form of Award Agreement to reflect or incorporate such changes
as the Company or its legal counsel may determine is appropriate
consistent with the terms of the Plan, and/or (2) evidence or confirm
the grant of an Award in a written employment or consulting agreement
in lieu of the form of any of the foregoing Award Agreements.
(d) "BOARD" means the Board of Directors of the Company, as such body may
be reconstituted from time to time.
(e) "CODE" means the Internal Revenue Code of 1986, as amended (references
herein to Sections of the Code are intended to refer to Sections of the
Code as enacted at the time of the adoption of the Plan by the Board
and as subsequently amended, or to any substantially similar successor
provisions of the Code resulting from recodification, renumbering or
otherwise).
(f) "COMMON STOCK" means the Company's common stock, no par value.
(g) "COMPANY" means Empyrean Diagnostics, Ltd. and its successors.
(h) "CONSENT OF SPOUSE" means that Consent of Spouse in such form as
prescribed by the Plan Authority from time to time.
(i) "CONSULTANT" means any Person who, in a capacity other than as an
Employee or Director, provides bona fide services to the Company or any
of its Subsidiaries and/or Affiliates.
(j) "DIRECTOR" means any Person who is voted or appointed as a member of
the Board of Directors of the Company or its Subsidiaries and/or
Affiliates, whether such Person is so engaged at the time the Plan is
adopted or becomes so engaged subsequent to the adoption of the Plan.
<PAGE>
-3-
(k) "DISABILITY" (or the related term "Disabled") shall be defined, without
limitation, as any of the following with respect to a Recipient who is
an Employee or a Director: (i) the receipt of any disability insurance
benefits by the Recipient; (ii) a declaration by a court of competent
jurisdiction that the Recipient is legally incompetent; (iii) the
Recipient's material inability due to medically documented mental or
physical illness or disabilities to fully perform the Recipient's
regular obligations as an Employee or as a Director (as the case may
be) under such office, with reasonable accommodation if then required
by applicable federal or state laws or regulations, for a three (3)
month continuous period, or for six (6) cumulative months within any
one (1) year continuous period, or the reasonable determination by the
Board that the Recipient will not be able to fully perform the
Recipient's regular obligations as an Employee or as a Director (as the
case may be), under such office, with reasonable accommodation if then
required by applicable federal or state laws or regulations, for a
three (3) month continuous period. If the Board determines that the
Recipient is Disabled under clause (iii) above, and the Recipient
disagrees with the conclusion of the Board, then the Company shall
engage a qualified independent physician reasonably acceptable to the
Recipient to examine the Recipient at the Company's sole expense. The
determination of such physician shall be provided in writing to the
parties and shall be final and binding upon the parties for all
purposes of this Agreement. The Recipient hereby consents to
examination in the manner set forth above, and waives any
physician-patient privilege arising from any such examination as it
relates to the determination of the purported disability. If the
parties cannot agree upon such physician, a physician shall be
appointed by the American Arbitration Association located in the
Phoenix, Arizona (or the County of Maricopa, Arizona, if the American
Arbitration Association does not have an office in Phoenix Arizona),
according to the rules and practices of the American Arbitration
Association from time-to-time in force.
(l) "DISPOSED" (or the equivalent terms "Disposition" or "Dispose") is
defined as any transfer or alienation of an Award which would directly
or indirectly change the legal or beneficial ownership thereof, whether
voluntary or by operation of law, regardless of payment or provision of
consideration, including, by way of example and not limitation: (i) the
sale, assignment, bequest or gift of the Award; (ii) any transaction
that creates or grants an option, warrant, or right to obtain an
interest in the Award; (iii) any transaction that creates a form of
joint ownership in the Award between the Recipient and one or more
other Persons; (iv) any Disposition of the Award to a creditor of the
Recipient, including the hypothecation, encumbrance or pledge of the
Award or any interest therein, or the attachment or imposition of a
lien by a creditor of the Recipient on the Award or any interest
therein which is not released within thirty (30) days after the
imposition thereof; (v) any distribution by a Recipient which is an
entity to its stockholders, partners, co-venturers or members, as the
case may be, or (vi) any distribution by a Recipient which is a
fiduciary such as a trustee or custodian to its settlors or
beneficiaries.
<PAGE>
-4-
(m) "ELIGIBLE PERSON" means any Person who, at the applicable time of the
grant or award of an Award under the Plan, is an Employee, a Director,
and/or a Consultant. Notwithstanding the foregoing, no Award hereunder
may be granted to any Person, even if otherwise an Eligible Person,
with respect to (i) any circumstances which would not be considered to
be either a bonus or reward for services provided, or compensation for
services rendered, or (ii) wholly or partially in connection with the
offer and sale of securities in a capital-raising transaction.
(n) "EMPLOYEE" is defined as any employee of the Company or its Affiliates,
whether such Person is so employed at the time the Plan is adopted or
becomes so employed subsequent to the adoption of the Plan.
(o) "EXCHANGE ACT" is defined as the SECURITIES AND EXCHANGE ACT OF 1934,
as amended (references herein to sections of the Exchange Act are
intended to refer to sections of the Exchange Act as enacted at the
time of the adoption of the Plan by the Board and as subsequently
amended, or to any substantially similar successor provisions of the
Exchange Act resulting from recodification, renumbering or otherwise).
(p) "FAIR MARKET VALUE" means the fair market value as of an applicable
valuation date of the Option Shares underlying an Option awarded or
granted pursuant to Section 5, or Grant Shares awarded or granted
pursuant to Section 6, or other shares of Common Stock, as the case may
be, to be valued (the "Applicable Shares"), determined in accordance
with the following principles:
(i) If the Common Stock is traded on a stock exchange on the date
in question, the Fair Market Value of the Applicable Shares
will be equal to the closing bid price of Common Stock on the
principal exchange on which the Common Stock is then trading
as reported by such exchange, or if the Common Stock is not
traded on such date, then on the next preceding trading day
during which a sale occurred;
(ii) If the Common Stock is traded over-the-counter on the Nasdaq
National Market on the date in question, then the Fair Market
Value of the Applicable Shares will be equal to the last sales
price of the Common Stock as reported by Nasdaq, or if the
Common Stock is not traded on such date, then on the next
preceding trading day;
(iii) If the Common Stock is traded over-the-counter on the Nasdaq
SmallCap Market, or on the NASD Electronic Bulletin Board or
Pink Sheets on the date in question, the Fair Market Value of
the Applicable Shares will equal the mean between the closing
representative bid and asked price for the Common Stock on
such date as reported by Nasdaq or the NASD (as the case may
be), or if the Common Stock is not traded on such date, then
on the next preceding trading day;
(iv) If the Common Stock is not publicly traded on an exchange and
is not traded over-the-counter on Nasdaq or the Electronic
Bulletin Board or Pink Sheets, the Fair Market Value of the
Applicable Shares shall be determined by the Board acting in
good faith on such basis as it deems appropriate;
(v) If the Applicable Shares are unregistered securities (whether
or not considered "restricted stock" within the meaning of
Rule 144 of the Securities Act), or if the Applicable Shares
are subject to conditions, risk of forfeiture, or repurchase
rights or rights of first refusal which impair its value
including, without limitation, those forfeiture conditions
more particularly described in Section 7, then the Fair Market
Value of the Applicable Shares shall be subject to such
discount to reflect such impairments to value as the Plan
Administrator may, in its sole discretion and without
obligation to do so, determine to be appropriate; provided,
however, in the event of the grant or award of an Incentive
Option, no discount shall be given with respect to any
impairments in value attributable to any restrictions which,
by its terms, will never lapse; and
<PAGE>
-5-
(vi) Anything in subsections (i) through (v) above to the contrary
notwithstanding, in no circumstances shall the Fair Market
Value of the Applicable Shares be less than their par value.
(q) "FORFEITABLE GRANT SHARES" is defined as Grant Shares that are subject
to restrictions set forth in Section 7 of the Plan.
(r) "GRANT SHARES" is defined as Plan Shares granted or awarded in
accordance with Section 6 of the Plan.
(s) "INCENTIVE OPTION" is defined as an Option which qualifies under
Section 422 of the Code, and is specifically granted as an Incentive
Option under the Plan in accordance with the applicable provisions of
Section 5.
(t) "NON-QUALIFIED OPTION" is defined as any Option granted under the Plan
other than an Incentive Option; provided, however, the term
Non-Qualified Option shall include any Incentive Option which, for any
reason, fails to qualify as an incentive stock option under Section 422
of the Code and the rules and regulations thereunder).
(u) "OPTION" is defined as an option to purchase Plan Shares granted or
awarded pursuant to Section 5. Unless specific reference is made
thereto, the term "Options" shall be construed as referring to both
Non-Qualified Options and Incentive Options.
(v) "OPTION PRICE" is defined in Section 5(b) of the Plan.
(w) "OPTION SHARES" is defined as any Plan Shares which an Option entitles
the holder thereof to purchase.
(x) "PERSON" is defined, in its broadest sense, as any individual, entity
or fiduciary such as, by way of example and not limitation, individual
or natural persons, corporations, partnerships (limited or general),
joint-ventures, associations, limited liability companies/partnerships
or fiduciary arrangements (such as trusts and custodial arrangements).
(y) "PLAN" is defined as this 1998 Empyrean Diagnostics Ltd. Stock Plan.
<PAGE>
-6-
(z) "PLAN AUTHORITY" refers to the Person or Persons who are administering
the Plan as described in Section 3, namely, the Board, the Plan
Committee, or any Director-Officers designated by the Board or the Plan
Committee.
(aa) "PLAN COMMITTEE" is defined as that Committee comprised of members of
the Board that may be appointed by the Board to administer and
interpret the Plan as more particularly described in Section 3 of the
Plan.
(bb) "PLAN SHARES" refers to shares of Common Stock issuable in connection
with Awards in accordance with Section 4(a) of the Plan, including both
Option Shares and Grant Shares.
(cc) "RECIPIENT" is defined as any Eligible Person who, at a particular
time, receives the grant of an Award.
(dd) "RECIPIENT'S REPRESENTATIVE'S LETTER" is defined as that letter from an
independent investment advisor of a Recipient in such form as
prescribed by the Plan Authority from time to time.
(ee) "REPORTING COMPANY" is defined as a corporation which registers its
equity securities under Sections 12(b) or 15(d) of the Exchange Act.
(ff) "SECURITIES ACT" is defined as the Securities Act of 1933, as amended
(references herein to Sections of the SECURITIES Act are intended to
refer to Sections of the Securities Act as enacted at the time of the
adoption of the Plan by the Board and as subsequently amended, or to
any substantially similar successor provisions of the Securities Act
resulting from recodification, renumbering or otherwise).
(gg) "SECURITIES ACT OF ARIZONA" is defined as the SECURITIES ACT OF
ARIZONA, as amended (references herein to sections of the SECURITIES
ACT OF ARIZONA are intended to refer to sections of the SECURITIES ACT
OF ARIZONA as enacted at the time of the adoption of the Plan by the
Board and as subsequently amended, or to any substantially similar
successor provisions of the SECURITIES ACT OF ARIZONA resulting from
recodification, renumbering or otherwise).
(hh) "SUBSIDIARY" shall mean any "majority owned subsidiary" of the Company,
as such term is defined by or interpreted under Rule 701 promulgated
under the Securities Act, including any such subsidiary which is a
corporation, partnership, limited partnership or limited liability
company to the extent permitted under Rule 701.
(ii) "TEN PERCENT STOCKHOLDER" means a Person who owns, either directly or
indirectly, at the time such Person is granted an Award, stock of the
Company possessing more than ten percent (10%) of the total combined
voting power or value of all classes of stock of the Company and/or of
its parent or subsidiaries.
(jj) "TERMINATION BY COMPANY FOR CAUSE" is defined as the occurrence of the
following events (unless attributable to the Recipient's death or
Disability):
<PAGE>
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(i) EMPLOYEE-RECIPIENT. In the case of a Recipient who is an
Employee, the Board determines that:
(1) The Recipient's representations or warranties in
connection with the grant of the Award (or the
subsequent exercise of an Option, if the Award is an
Option) are not materially true, accurate and
complete;
(2) The Recipient intentionally and continually breaches
or wrongfully fails to fulfill or perform: (A) the
Recipient's obligations, promises or covenants under
the underlying Award Agreement; or (B) any of the
representations, warranties, obligations, promises or
covenants in any agreement (other than the Award
Agreement) entered into between the Company and the
Recipient, without cure, if any, as provided in such
agreement;
(3) The Recipient intentionally demonstrates or commits
such acts of gross negligence, willful misconduct,
dishonesty, fraud or misrepresentation, racism,
sexism or other discrimination as would tend to bring
the Company into public scandal, ridicule, or would
otherwise result in material harm to the Company's
business or reputation;
(4) The Recipient intentionally breaches the Recipient's
fiduciary duties to the Company;
(5) The Recipient intentionally causes the Company to be
convicted of a crime or to incur criminal penalties
in material amounts;
(6) The Recipient repeatedly and intemperately uses
alcohol or drugs to an extent that such use: (A)
interferes with or is likely to interfere with the
Recipient's ability to perform the Recipient's duties
to the Company; and/or (B) such use endangers or is
likely to endanger the life, health, safety, or
property of the Recipient, the Company, or any other
person, as the case may be;
(7) The Recipient is convicted by final action of any
court of any offense involving moral turpitude which
is punishable as a felony; and/or
(8) The Recipient engages in other conduct constituting
legal cause for termination.
(ii) DIRECTOR-RECIPIENT. With respect to a Recipient who is a
Director, the occurrence of the following events:
(1) The Board votes to remove the Recipient as a member
of the Board for "cause" as such term is defined or
interpreted by the Memorandum of the Company, the
laws of the State of the Company's organization, or
breach of the Recipient's statutory or common law
duties as a Director;
<PAGE>
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(2) The Recipient's refusal or inability to be nominated
for a position on the Board, including the
Recipient's failure to request cumulative voting for
such election (if applicable) and the Recipient's
failure to vote all of the Recipient's shares of
Common Stock for the Recipient's election to the
Board; and/or
(3) Any event described above in clauses (1) through (8)
of subsection 1(jj)(i).
(iii) CONSULTANT-RECIPIENT. In the case of any Recipient who is a
Consultant, any event described above in clauses (1), (2),
(3), (5) and/or (7) of subsection 1(jj)(i).
All decisions by the Board shall be by a majority vote, except that the
Recipient, if then a member of the Board and the Person whose
termination is being voted upon by the Board, shall abstain from
voting.
No act, nor failure to act, on the Recipient's part shall be considered
"intentional" unless the Recipient has acted, or failed to act, with a
lack of good faith and with a lack of reasonable belief that the
Recipient's action or failure to act was in the best interests of the
Company. In the event the Recipient is both Disabled and the provisions
of clause (6) of Section 1(jj)(i) are applicable with respect to the
Recipient, the Company shall nevertheless have the right to deem such
event as a Termination By Company For Cause.
In the event any of the events described above in clauses (2)(A) or (6)
of Section 1(jj)(i) occurs with respect to any Recipient, and such
event is reasonably susceptible of being cured, the Recipient shall be
entitled to a grace period of thirty (30) days following receipt of
written notice of such event to cure such event to the reasonable
satisfaction of the Company; such grace period shall not apply to any
other event described in this Subsection.
(kk) "TERMINATION BY RECIPIENT FOR GOOD REASON" is defined as, as the case
may be, as follows:
(i) EMPLOYEE-RECIPIENT. With respect to any Recipient who is an
Employee, the occurrence of any of the following events:
(1) The Company's representations or warranties in the
Award Agreement are not materially true, accurate and
complete;
(2) The Company intentionally and continually breaches or
wrongfully fails to fulfill or perform: (A) its
obligations, promises or covenants under the Award
Agreement; or (B) any of the representations,
warranties, obligations, promises or covenants in any
agreement (other than the Award Agreement) entered
into between the Company and the Recipient, without
cure, if any, as provided in such agreement;
<PAGE>
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(3) The Company intentionally requires the Recipient to
commit or participate in any felony or other serious
crime; and/or
(4) The Company engages in other conduct constituting
legal cause for termination.
(ii) DIRECTOR-RECIPIENT. With respect to any Recipient who is a
Director, the occurrence of any of the following events:
(1) The Company removes or fails to reappoint or re-elect
the Recipient as a Director (unless such action is
attributable to an event considered to constitute
Termination By Company For Cause); or
(2) The occurrence of any of the events described above
in clauses (1) through (4) of Section 1(kk)(i).
(iii) CONSULTANT-RECIPIENT. With respect to any Recipient who is a
Consultant, the occurrence of any of the events described
above in clauses (1) through (4) of subsection 1(kk)(i).
In the event any of the events described above in this subsection (kk)
occurs with respect to any Recipient, and such event is reasonably
susceptible of being cured, the Company shall be entitled to a grace
period of thirty (30) days following receipt of written notice of such
event to cure such event to the reasonable satisfaction of the
Recipient.
(ll) "TERMINATION OF RECIPIENT" is defined, as the case may be, as follows:
(i) EMPLOYEE-RECIPIENT. With respect to a Recipient who is an
Employee, the time when the employee-employer relationship
between the Recipient and the Company (or Subsidiary and/or an
Affiliate) is terminated for any reason whatsoever, whether
voluntary or involuntary (including death or Disability), or
with or without good cause, including, but not by way of
limitation, termination by resignation, discharge, retirement,
or leave of absence, but excluding terminations where (1) the
Recipient remains employed by the Company (if such termination
relates to the Recipient's employment with a Subsidiary and/or
an Affiliate) or by a Subsidiary and/or an Affiliate (if such
termination relates to the Recipient's employment with the
Company), or (2) there is simultaneous reemployment of the
Recipient by the Company or transfer of the Recipient from or
to the Company and Subsidiary and/or an Affiliate or between
Subsidiary and/or an Affiliate to another Subsidiary or
Affiliate.
<PAGE>
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(ii) DIRECTOR-RECIPIENT. With respect to a Recipient who is a
Director, the time when the Recipient's status as a Director
is terminated for any reason whatsoever, whether voluntary or
involuntary (including death or Disability), or with or
without good cause.
(iii) CONSULTANT-RECIPIENT. With respect to a Recipient who is a
Consultant, the time when the Recipient's relationship as a
Consultant to the Company or any Subsidiary or Affiliate is
terminated for any reason whatsoever, whether voluntary or
involuntary (including death or Disability), or with or
without good cause.
2. TERM OF PLAN
(a) EFFECTIVE DATE FOR PLAN; TERMINATION DATE FOR PLAN. The Plan
shall be effective as of such time and date as the Plan is
adopted by the Board, and the Plan shall terminate on the
first business day prior to the ten (10) year anniversary of
the date the Plan became effective. No Awards shall be granted
awarded under the Plan before the date the Plan becomes
effective or after the date the Plan terminates; provided,
however: (i) all Awards granted pursuant to the Plan prior to
the effective date of the Plan shall not be affected by the
termination of the Plan; and (ii) all other provisions of the
Plan shall remain in effect until the terms of all outstanding
Awards have been satisfied or terminated in accordance with
the Plan and the terms of such Awards.
(b) FAILURE OF STOCKHOLDERS TO APPROVE PLAN. In the event the Plan
is not approved by the holders of a majority of the shares of
Common Stock of the Company (excluding shares of Common Stock
derived from Option or Grant Shares issued under the Plan)
before, or within twelve (12) months after, the date the Plan
becomes effective, then any Incentive Options granted under
the Plan shall be reclassified as Non-Qualified Options
retroactive to the date of grant.
3. PLAN ADMINISTRATION
(a) GENERAL. The Plan shall be administered exclusively by the
Board and/or, to the extent authorized pursuant to this
Section 3, the Plan Committee or Director-Officers
(collectively, the "Plan Authority").
(b) DELEGATION TO PLAN COMMITTEE. Subject to the authority granted
to the Board under the Articles of Incorporation and the
Bylaws of the Company, the Board may, in its sole discretion
and at any time, establish a committee comprised of two (2) or
more members of the Board (the "Plan Committee") to administer
the Plan either in its entirety or to administer such
functions concerning the Plan as delegated to such Committee
by the Board. Members of the Plan Committee may resign at any
time by delivering written notice to the Board. Vacancies in
the Plan Committee shall be filled by the Board. The Plan
Committee shall act by a majority of its members in office.
The Plan Committee may act either by vote at a meeting or by a
memorandum or other written instrument signed by a majority of
the Plan Committee.
<PAGE>
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Notwithstanding the foregoing, in the event and commencing at
such time as this Company becomes a Reporting Company, or is
otherwise required to register its equity securities under
Section 12(g) of the Exchange Act, any matter concerning a
grant or award of an Award under the Plan to any Director, any
"Executive Officer" of the Company or any Affiliate (defined
pursuant to Rule 16a-1(f) promulgated under the Exchange Act),
or Ten Percent Stockholder, shall be made only by: (i) the
Board: (ii) the Plan Committee, provided it is comprised
solely of "Non-Employee Directors" within the meaning of Rule
16b-3(b)(3) promulgated under the Exchange Act; or (iii) a
special committee of the Board, or subcommittee of the Plan
Committee, comprised solely of two (2) or more members of the
Board who are non-Employee Directors.
(c) DELEGATION TO DIRECTOR-OFFICERS. Subject to the authority
granted to the Board under the Articles of Incorporation and
the Bylaws of the Company, (i) the Board may, in its sole
discretion and at any time, and (ii) subject to the authority
granted to it by the Board, the Plan Committee may, in its
sole discretion and at any time, delegate all or a portion of
their authority described below under subsections (i) through
(iii) of Section 3(d) to one or more Directors who are also
Director-Officers, provided that the Board or the Plan
Committee (as the case may be) ratifies such actions by such
designated Director-Officers. Notwithstanding the foregoing,
in the event the Company is then a Reporting Company, no
authority shall be delegated to the aforesaid
Director-Officers with respect to any matter concerning a
grant or award of an Award under the Plan to any Director,
Executive Officer or Ten Percent Stockholder.
(d) POWER TO MAKE AWARDS. Subject to any limitations prescribed by
the Articles of Incorporation and Bylaws of the Company and
further subject to the express terms, conditions, limitations
and other provisions of the Plan, the Plan Authority shall
have the full and final authority, in its sole discretion at
any time and from time-to-time, to do any of the following:
(i) Designate and/or identify the Persons or classes of
Persons who are considered Eligible Persons;
(ii) Grant Awards to such selected Eligible Persons or
classes of Eligible Persons in such form and amount
as the Plan Authority shall determine;
(iii) Impose such limitations, restrictions and conditions
upon any Award as the Plan Authority shall deem
appropriate and necessary including, without
limitation, the term of Options and any vesting
conditions attached thereto pursuant to Section 5,
and any vesting and repurchase conditions placed upon
grants or awards of Grant Shares pursuant to Sections
6 or 7; and
(iv) Interpret the Plan, adopt, amend and rescind rules
and regulations relating to the Plan, and make all
other determinations and take all other action
necessary or advisable for the implementation and
administration of the Plan.
<PAGE>
-12-
In determining the recipient, form and amount of Awards, the
Plan Authority shall consider any factors deemed relevant,
such as, by way of example and not limitation or obligation,
the recipient's functions, responsibilities, value of services
to the Company and past and potential contributions to the
Company's profitability and sound growth.
(e) POWER TO INTERPRET PLAN; BINDING EFFECT OF ALL DETERMINATIONS.
The Plan Authority shall, in its sole and absolute discretion,
interpret and determine the effect of all matters and
questions relating to the Plan including, without limitation,
Termination Of Recipient. All interpretations and
determinations of the Plan Authority under the Plan
(including, without limitation, determinations pertaining to
the eligibility of Persons to receive Awards, the form, amount
and timing of Awards, the methods of payment for Awards, the
restrictions and conditions placed upon Awards, and the other
terms and provisions of Awards and the certificates or
agreements evidencing same) need not be uniform and may be
made by the Plan Authority selectively among Persons who
receive, or are eligible to receive, Awards under the Plan,
whether or not such Persons are similarly situated. All
actions taken and all interpretations and determinations made
under the Plan in good faith by the Plan Authority shall be
final and binding upon the Recipient, the Company, and all
other interested Persons. No member of the Plan shall be
personally liable for any action taken or decision made in
good faith relating to the Plan, and all Persons constituting
the Plan Authority shall be fully protected and indemnified to
the fullest extent permitted under applicable law by the
Company in respect to any such action, determination, or
interpretation.
(f) COMPENSATION; ADVISORS. Members of the Plan Authority shall
receive such compensation for their services as members of the
Plan Authority as may be determined by the Board. All expenses
and liabilities incurred by members of the Plan Authority in
connection with the administration of the Plan shall be borne
by the Company. The Plan Authority may employ attorneys,
consultants, accountants, appraisers, brokers, or other
Persons, at the cost of the Company. The Plan Authority shall
be entitled to rely upon the advice, opinions, or valuations
of any such Persons.
4. SHARES OF COMMON STOCK ISSUABLE UNDER PLAN
(a) MAXIMUM NUMBER OF SHARES AUTHORIZED UNDER PLAN. Plan Shares
which may be issued or granted under the Plan shall be
authorized and unissued or treasury shares of Common Stock.
The aggregate maximum number of Plan Shares which may be
issued, whether upon exercise of Options or as a grant of
Grant Shares, shall not exceed six million (6,000,000);
provided, however, that such number shall be increased by the
following:
(i) Any shares of Common Stock tendered by a Recipient as
payment for Option Shares or Grant Shares;
(ii) Any shares of Common Stock underlying any options,
warrants or other rights to purchase or acquire
Common Stock which options, warrants or rights are
surrendered by a Recipient as payment for Option
Shares (in connection with the exercise of the
associated Option) or Grant Shares;
<PAGE>
-13-
(iii) Any shares of Common Stock subject to an Option which
for any reason is terminated unexercised or expires;
and
(iv) Any Forfeitable Grant Shares which for any reason are
forfeited by the holders thereof.
(b) CALCULATION OF SHARES AVAILABLE FOR AWARDS. For purposes of
calculating the maximum number of Plan Shares which may be
issued under the Plan, the following rules shall apply:
(i) When Options are exercised, and when cash is used as
full payment for Option Shares issued upon exercise
of such Options, all Option Shares issued in
connection with such exercise (including Option
Shares, if any, withheld for tax withholding
requirements) shall be counted;
(ii) When Options are exercised, and when shares of Common
Stock are used as full or partial payment for Option
Shares issued upon exercise of such Options, the net
Option Shares issued in connection with such exercise
(including Option Shares, if any, withheld for tax
withholding requirements) shall be counted; and
(iii) When Grant Shares are granted, and when shares of
Common Stock are used as full or partial payment
therefore, the net Grant Shares issued (including
Grant Shares, if any, withheld for tax withholding
requirements) shall be counted.
(c) DATE OF AWARD. The date an Award is granted shall mean the
date selected by the Plan Authority as of which the Plan
Authority allots a specific number of Plan Shares to a
Recipient with respect to such Award pursuant to the Plan.
5. OPTIONS (TO PURCHASE OPTION SHARES)
(a) GRANT. The Plan Authority may from time to time, and subject
to the provisions of the Plan and such other terms and
conditions as the Plan Authority may prescribe, grant to any
Eligible Person one or more options ("Options") to purchase
the number of Plan Shares allotted by the Plan Authority
("Option Shares"), which Options shall be designated as a
Non-Qualified Options or Incentive Options; provided, however,
no Incentive Option shall be granted to any Person who is not
an employee of the Company or any parent or subsidiary of the
Company within the meaning of Section 422(a)(2) of the Code.
All Options shall be Non-Qualified Options unless expressly
stated by the Plan Authority to be an Incentive Option, even
if the Option otherwise meets the terms and conditions of
Section 422 of the Code. No Incentive Option may be granted in
tandem with any other Option. The grant of an Option shall be
evidenced by a written Stock Option Certificate, executed by
the Company and the Recipient, stating (i) whether the Option
is an Incentive Option, if applicable, (ii) the number of
Option Shares subject to the Option, and (iii) all terms and
conditions of such Option.
<PAGE>
-14-
(b) OPTION PRICE. The purchase price per Option Share deliverable
upon the exercise of an Option (the "Option Price") shall be
such price as may be determined by the Plan Authority;
provided, however:
(i) If the Option is an Incentive Option, the Option
Price may not be less than the Fair Market Value of
the underlying Option Shares as of the date of the
grant, as determined by taking Incentive Options into
account in the order in which they were granted
unless the Recipient of the Option is a Ten Percent
Stockholder at the time of grant, in which case, the
Option Price may not be less than one hundred ten
percent (110%) of the Fair Market Value of the
underlying Option Shares on the date the Option is
granted;
(ii) The Option Price per Option Share shall not be less
than that allowed under the Applicable Laws;
(iii) Under no circumstances shall the Option Price per
Option Share be less than the current par value per
share of the Common Stock; and
(iv) If the Common Stock is traded on a stock exchange or
over-the-counter on Nasdaq, the minimum price
permitted by such stock exchange or Nasdaq.
(c) OPTION TERM; EXPIRATION. The term of each Option shall
commence at the grant date for such Option as determined by
the Plan Authority, and shall expire, unless an earlier
expiration date is expressly provided in the underlying Stock
Option Certificate or another Section of the Plan, on the
first business day prior to the ten (10) year anniversary of
the date of grant thereof; provided, however, notwithstanding
the foregoing, any Incentive Options granted to a Ten Percent
Stockholder shall terminate on the first business day prior to
the five (5) year anniversary of the date of grant thereof.
(d) EXERCISE DATE. Unless a later exercise date is expressly
provided in the underlying Stock Option Certificate or another
Section of the Plan, each Option shall become exercisable on
the date of its grant as determined by the Plan Authority. No
Option shall be exercisable after the expiration of its
applicable term as set forth in Section 5(c). Subject to the
foregoing, each Option shall be exercisable in whole or in
part during its applicable term unless expressly provided
otherwise in the underlying Stock Option Certificate.
(e) VESTING CONDITIONS.
<PAGE>
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(i) SCOPE. The Plan Authority may, in its sole
discretion, subject any Options granted to such
vesting conditions as the Plan Authority, in its sole
discretion, determines are appropriate, such as, by
way of example and not obligation, (1) the attainment
of goals by the Recipient, (2) in the case of a
Recipient who is an Employee, the continued provision
of employment services by such Recipient to the
Company or any Subsidiary or Affiliate, (3) in the
case of a Recipient who is a Director, the continued
service by such Recipient as a Director to the
Company or any Subsidiary or Affiliate, or (4) in the
case of a Recipient who is a Consultant, the
continued provision of consulting services by such
Recipient to the Company or any Subsidiary or
Affiliate. PROVIDED, HOWEVER, notwithstanding the
foregoing, no Option granted in reliance upon the
exemption afforded by Section 44-1844-A.14 of the
Securities Act of Arizona shall provide for the
vesting of Option Shares for a period of time which
exceeds five (5) years from date of grant of the
Option, and which do not vest at least fifty percent
(50%) per year on a cumulative basis from date of
grant (i.e., 0% upon grant, 25% after six months, 50%
after one year,). If no vesting is expressly provided
in the underlying Stock Option Certificate, the
Option Shares shall be deemed fully vested upon date
of grant.
(ii) VESTING CONDITIONS RELATING TO CONTINUED PERFORMANCE
OF SERVICES. In the event the vesting conditions are
based upon continued performance of services to the
Company, then, unless otherwise expressly provided in
the underlying Stock Option Certificate, in the event
of Termination of Recipient, the following rules
shall apply:
(1) Only upon approval of a majority of the
Board of Directors of the Company, unvested
Options shall immediately vest upon
Termination Of Recipient in the event: (A)
such termination is made by the Recipient
and constitutes Termination By Recipient For
Good Reason; or (B) such termination is made
by the Company but does not constitute
Termination By Company For Cause.
(2) The expiration date for vested Options shall
be the following applicable date if earlier
than the expiration date specified in
Section 5(c):
(A) Thirty (30) days after the
effective date of Termination Of
Recipient in the event: (A) such
termination is made by the
Recipient and does not constitute
Termination By Recipient For Good
Reason; or (B) such termination is
made by the Company and constitutes
Termination By Company For Cause
(other than death or Disability of
the Recipient); or
(B) Six (6) months after the effective
date of Termination Of Recipient in
the event: (A) such termination is
made by the Recipient and
constitutes Termination By
Recipient For Good Reason; or (B)
such termination is made by the
Company but does not constitute
Termination By Company For Cause;
or (C) such termination is made by
the Company by reason of the
Disability of the Recipient; or (D)
such termination is attributable to
the death of the Recipient.
<PAGE>
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(3) The expiration date for unvested Options
shall be upon Termination Of Recipient if
earlier than the expiration date specified
in Section 5(c) in the event: (A) such
termination is made by the Recipient but
does not constitute Termination By Recipient
For Good Reason; or (B) such termination is
made by the Company and constitutes
Termination By Company For Cause.
(f) MANNER OF EXERCISE AND PAYMENT. An exercisable Option, or any
exercisable portion thereof, may be exercised solely by
delivery of all of the following to the Secretary of the
Company at its principal executive offices prior to the time
when such Option (or such portion) becomes unexercisable under
this Section 5:
(i) NOTICE. A Notice of Exercise of Stock Option in the
form attached to the underlying Stock Option
Certificate, duly signed by the Recipient or other
Person then entitled to exercise the Option or
portion thereof, stating the number of Option Shares
to be purchased by exercise of the associated Option.
(ii) CONSENT OF SPOUSE. A Consent of Spouse from the
spouse of the Recipient, if any, duly signed by such
spouse.
(iii) PAYMENT. Full payment for the Option Shares to be
purchased by exercise of the associated Option as
follows (or any combination of the following):
(1) Immediately available funds, in U.S.
dollars; and/or
(2) If expressly permitted in the underlying
Stock Option Certificate, or if otherwise
consented to by the Plan Authority in
writing:
(A) Shares of Common Stock owned by the
Recipient duly endorsed for
transfer to the Company, with a
Fair Market Value on the date of
delivery equal to the aggregate
Option Price of the Option Shares
with respect to which the Option or
portion is thereby exercised;
(B) The surrender or relinquishment of
options, warrants or other rights
to acquire Common Stock held by the
Recipient, with a Fair Market Value
on the date of delivery equal to
the aggregate Option Price of the
Option Shares with respect to which
the Option or portion is thereby
exercised; or
<PAGE>
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(C) A full recourse promissory note
bearing interest at a rate as shall
then preclude the imputation of
interest under the Code, and
payable upon such terms as may be
prescribed by the Plan Authority.
The Plan Authority shall prescribe
the form of such note and the
security to be given for such note.
Notwithstanding the foregoing, no
Option may be exercised by delivery
of a promissory note or by a loan
from the Company if such loan or
other extension of credit is
prohibited by law at the time of
exercise of this Option or does not
comply with the provisions of
Regulation G promulgated by the
Federal Reserve Board with respect
to "margin stock" if the Company
and the Recipient are then subject
to such Regulation.
(iv) PROOF OF AUTHORITY. In the event that the Option or
portion thereof shall be exercised by any Person
other than the Recipient, appropriate proof of the
right of such person or persons to exercise the
Option or portion thereof.
(v) ADDITIONAL DOCUMENTS. Such documents, representations
and undertakings as the Plan Authority, in its
absolute discretion, deems necessary or advisable
pursuant to Section 9(a).
(g) NON-ASSIGNABILITY.
(i) DURING RECIPIENT'S LIFETIME. Options may not be
Disposed by a Recipient during the Recipient's
lifetime (if the Recipient is a natural Person), nor
exercised by any Person other than a Recipient. Any
Disposition or exercise of an Option in violation of
the foregoing shall be null and void AB INITIO and of
no further force and effect.
(ii) UPON DEATH OF RECIPIENT. Upon the death of the
Recipient, vested Options may be transferred to a
Recipient's successors pursuant to will or the laws
of descent or distribution by reason of the death of
the Recipient (the "Recipient's Successors"), and may
thereafter be exercised by the Recipient's
Successors. Vested Options so transferred shall not
be further Disposed by the Recipient's Successors
except pursuant to will or the laws of descent and
distribution, nor exercised by any Person other than
the Recipient's Successors. Any Disposition or
exercise of an Option so transferred in violation of
the foregoing shall be null and void AB INITIO and of
no further force and effect.
(iii) CERTAIN CASES. Notwithstanding the foregoing, in the
case of Options other than (i) Incentive Options;
(ii) Options granted or awarded pursuant the
exemption from registration or qualification afforded
under Rule 701 of the Securities Act and/or Section
44-1844 A.14 of the Securities Act of Arizona; or
(iii) Options registered with the Commission on Form
S-8, the Company may, in its sole discretion and
without any obligation to do so, permit such Options
to be assigned and/or exercised by a Person other
than the Recipient or the Recipient's Successors
provided the exemption from registration or
qualification to be relied upon under applicable
federal and state securities laws permits such
action.
<PAGE>
-18-
(h) NO STOCKHOLDER RIGHTS. The Recipient shall not be, nor have
any of the rights or privileges of, a stockholder of the
Company with respect to the Options or the underlying Option
Shares unless and until all conditions for exercise of the
Option and the issuance of certificates for the Option Shares
shall be satisfied, at which time the Recipient shall become a
stockholder of the Company with respect to such issued Option
Shares and, in such capacity, shall thereafter be fully
entitled to receive dividends (if any are declared and paid),
to vote, and to exercise all other rights of a stockholder
with respect to such issued Option Shares.
(i) CONDITIONS TO ISSUANCE OF OPTION SHARES. The Company shall not
be required to issue or deliver any certificate or
certificates representing the Option Shares purchased upon
exercise of any Option or any portion thereof prior to
fulfillment of all of the following conditions: (i) the
delivery of the documents described in section 5(f); (ii) the
receipt by the Company of full payment for such Option Shares,
together with payment in satisfaction of any applicable
Withholding Taxes; and (iii) the lapse of such reasonable
period of time following the exercise of the Option as the
Plan Administrator may establish from time-to-time for
administrative convenience.
(j) NOTICE OF DISPOSITION OF OPTION SHARES ACQUIRED BY EXERCISE OF
INCENTIVE OPTIONS. The Plan Administrator may require any
Recipient who is an Employee who acquires any Option Shares
pursuant to the exercise of an Incentive Option to give the
Company prompt notice of any "disposition" (within the meaning
of Section 422(a)(1) of the Code) of such Option Shares within
(i) two (2) years from the date of grant of the underlying
Incentive Option, or (ii) one (1) year after the issuance of
such Option Shares to such Employee. The Plan Administrator
may direct that the certificates evidencing such Option Shares
refer to such requirement to give prompt notice.
6. GRANT SHARES
(a) GRANT. The Plan Authority may from time to time, and subject
to the provision of the Plan and such other terms and
conditions as the Plan Authority may prescribe, grant to any
Eligible Person one or more Plan Shares allotted by the Plan
Authority ("Grant Shares"). The grant of Grant Shares or grant
of the right to receive Grant Shares shall be evidenced by a
written Stock Grant Agreement, executed by the Company and the
Recipient on or before the time of the grant of such Grant
Shares, setting (i) the number of Grant Shares granted, and
(ii) all other terms and conditions of such grant.
(b) CONSIDERATION (PURCHASE PRICE). The Plan Authority, in its
sole discretion, may grant or award Grant Shares in any of the
following instances:
<PAGE>
-19-
(i) AS BONUS/REWARD. AS A "bonus" or "reward" for
services previously rendered and otherwise fully
compensated, in which case the recipient of the Grant
Shares shall not be required to pay any consideration
for such Grant Shares, and the value of such Grant
Shares shall be the Fair Market Value of such Grant
Shares on the date of grant.
(ii) AS COMPENSATION. As "compensation" for the previous
performance or future performance of services or
attainment of goals, in which case the recipient of
the Grant Shares shall not be required to pay any
consideration for such Grant Shares (other than the
performance of his services), and the value of such
Grant Shares received (together with the value of
such services or attainment of goals attained by the
Recipient), shall be the Fair Market Value of such
Grant Shares on the date of grant.
(iii) AS PURCHASE PRICE CONSIDERATION. In "consideration"
for the payment of a purchase price for each of such
Grant Shares (the "Stock Grant Purchase Price") in an
amount established by the Plan Authority, provided,
however:
(1) The Stock Grant Purchase Price may not be
less than one hundred percent (100%) of the
Fair Market Value of such Grant Shares as of
the date of grant of such purchase right or
the consummation of such purchaser;
(2) The Stock Grant Purchase Price shall not be
less than that allowed under the exemption
from registration under the applicable Blue
Sky Laws of the state or territory in which
the Recipient then resides as selected by
the Company in its sole discretion; and
(3) If the Common Stock is traded on a stock
exchange or over-the-counter on Nasdaq, the
purchase price may not be less than the
minimum price permitted by such stock
exchange or Nasdaq.
(c) DELIVERIES; MANNER OF PAYMENT. The Grant Shares may be
purchased solely by delivery of all of the following to the
Secretary of the Company at the principal executive offices at
the Company prior to the time when the Grant Shares becomes
purchasable under this section 6:
(i) STOCK GRANT AGREEMENT. The Stock Grant Agreement for
the Grant Shares, duly signed by the Recipient.
(ii) CONSENT OF SPOUSE. A Consent of Spouse from the
spouse of the Recipient, if any, duly signed by such
spouse.
(iii) PAYMENT. Full payment for the Grant Shares to be
purchased (where payment thereof is required), made
as follows (or in any combination of the following):
<PAGE>
-20-
(1) Immediately available funds, in U.S.
dollars; and/or
(2) If expressly permitted in the underlying
Stock Grant Agreement, or if otherwise
consented to by the Plan Authority in
writing:
(A) Shares of Common Stock owned by the
Recipient duly endorsed for
transfer to the Company with a Fair
Market Value on the date of
delivery equal to the aggregate
purchase price of the Grant Shares;
(B) The surrender or relinquishment of
options, warrants or other rights
to acquire Common Stock owned by
the Recipient, with a Fair Market
Value on the date of delivery equal
to the aggregate purchase price of
the Grant Shares; or
(C) A full recourse promissory note
bearing interest at a rate not less
than a rate as shall then preclude
the imputation of interest under
the Code, and payable upon such
terms as may be prescribed by the
Plan Authority. The Plan Authority
shall prescribe the form of such
note and the security to be given
for such note. Notwithstanding the
foregoing, no Grant Shares may be
purchased by delivery of a
promissory note or by a loan from
the Company if such loan or other
extension of credit is prohibited
by law at the time of purchase of
the Grant Shares or does not comply
with the provisions of Regulation G
promulgated by the Federal Reserve
Board with respect to "margin
stock" if the Company and the
Recipient are then subject to such
Regulation.
(iv) ADDITIONAL DOCUMENTS. Such documents, representations
and undertakings as the Plan Authority, in its
absolute discretion, deems necessary or advisable
pursuant to Section 9(a).
7. FORFEITURE CONDITIONS PLACED UPON GRANT SHARES
(a) VESTING CONDITIONS; FORFEITURE OF UNVESTED GRANT SHARES. The
Plan Authority may subject or condition Grant Shares granted
or awarded (hereinafter referred to as "Forfeitable Grant
Shares") to such vesting conditions based upon continued
provision of services or attainment of goals subsequent to
such grant of Forfeitable Grant Shares as the Plan Authority,
in its sole discretion, may deem appropriate. In the event the
Recipient does not satisfy any vesting conditions, the Company
may require the Recipient, subject to the payment terms of
Section 7(b), to forfeit such unvested Forfeitable Grant
Shares to the Company. All vesting conditions imposed on the
grant of Forfeitable Grant Shares, including payment terms
complying with Section 7(b), shall be set forth in a written
Stock Grant Agreement, executed by the Company and the
Recipient on or before the time of the grant of such
Forfeitable Grant Shares, stating the number of said
Forfeitable Grant Shares subject to such conditions, and
further specifying the vesting conditions. If no vesting
conditions are expressly provided in the underlying Stock
Grant Agreement, the Grant Shares shall not be deemed to be
Forfeitable Grant Shares, and will not be subject to
forfeiture. Any grant of Forfeitable Grant Shares shall be
subject to the following limitations:
<PAGE>
-21-
(i) In no case shall the Recipient be required to forfeit
any vested Forfeitable Grant Shares;
(ii) If the vesting conditions are based upon continued
performance of services to the Company, then, unless
otherwise expressly provided in the underlying Stock
Grant Agreement, unvested Forfeitable Grant Shares
shall:
(1) Upon the approval of a majority of the Board
of Directors, immediately vest (i.e., become
non-forfeitable) upon Termination Of
Recipient in the event such termination (A)
is made by the Recipient and constitutes
Termination By Recipient For Good Reason (as
such term is defined in the Plan), or (B)
such termination is made by the Company but
does not constitute Termination By Company
For Cause; and
(2) Be immediately forfeited upon Termination Of
Recipient in the event such termination: (A)
is made by the Recipient but does not
constitute Termination By Recipient For Good
Reason, or (B) such termination is made by
the Company and constitutes Termination By
Company For Cause;
(iii) In the event the Forfeitable Grant Shares are granted
or awarded in reliance upon the exemption afforded by
Section 44-188 A.14 of the Securities Act of Arizona,
and the Recipient is an Employee, such vesting
conditions shall comply with Section 7(b)(i)(2)
below.
(b) Repurchase of Forfeitable Grant Shares Which Are Forfeited.
(i) REPURCHASE RIGHTS AND PRICE. In the event a Recipient
does not satisfy applicable vesting conditions placed
upon unvested Forfeitable Grant Shares, and the
Company exercises its right to require the Recipient
to forfeit any or all of such unvested Forfeitable
Grant Shares, the Company shall be required to pay
the Recipient, for each unvested Forfeitable Grant
Share which the Company requires the Recipient to
forfeit, the amount per Forfeitable Grant Share set
forth in the Stock Grant Agreement, provided,
however:
(1) The price per Forfeitable Grant Share in any
event may not be less that the higher of (A)
the original purchase price for such
Forfeitable Grant Shares to be forfeited, or
(B) the "book value" (as such term is
defined below) of such Forfeitable Grant
Shares to be forfeited; and
<PAGE>
-22-
(2) If such vesting conditions are based upon
Termination Of Recipient as an Employee, and
if the Forfeitable Grant Shares to be
forfeited were issued in reliance upon the
exemption afforded by Section 44-1844 A. 14
of the Securities Act of Arizona, then,
based upon the Company's election:
(A) The vesting conditions for the
group of Forfeitable Grant Shares
(of which the Grant Shares to be
forfeited are a part) must lapse at
the rate of at least fifty percent
(50%) per year over five (5) years
from the date of purchase (i.e., 0%
upon grant, 25% after six months,
50% after one year, etc.); or
(B) The purchase price for the
Forfeitable Grant Shares to be
forfeited may not be less than the
"fair value" of such Forfeitable
Grant Shares if such price is
greater than the original price per
share for such shares.
The "book value" per Forfeitable Grant Share is
defined as the difference between the Company's total
assets and total liabilities as of the close of
business on the last day of the calendar month
preceding the date of forfeiture, divided by the
total number of shares of Common Stock then
outstanding. The book value per Forfeitable Grant
Share shall be determined by the independent
certified public accountant regularly engaged by the
Company. The determination shall be conclusive and
binding and made in accordance with generally
accepted accounting principles applied on a basis
consistent with those previously applied by the
Company.
(ii) FORM OF PAYMENT. The payments to be made by the
Company to a Recipient for forfeited Forfeitable
Grant Shares shall be in the form of cash or
cancellation of purchase money indebtedness with
respect to the purchase of said Forfeitable Grant
Shares by the Recipient, if any, and must be paid no
later than ninety (90) days of the date of
termination.
(c) RESTRICTIVE LEGEND. Until such time as all conditions placed
upon Forfeitable Grant Shares lapse, the Plan Authority may
place a restrictive legend on the share certificate
representing such Forfeitable Grant Shares which evidences
said restrictions in such form and subject to such stop
instructions as the Plan Authority shall deem appropriate,
including the following legend:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT
TO FORFEITURE IN THE EVENT CERTAIN VESTING CONDITIONS
BASED UPON THE CONTINUED PROVISION OF SERVICES TO THE
COMPANY BY THE HOLDER HEREOF ARE NOT SATISFIED. THIS RISK
OF FORFEITURE AND UNDERLYING VESTING CONDITIONS ARE SET
FORTH IN FULL IN THAT CERTAIN STOCK GRANT AGREEMENT
BETWEEN THE HOLDER OF THIS CERTIFICATE AND THE COMPANY
DATED THE ____ DAY OF ____________, 19____ AND THAT
CERTAIN 1998 EMPYREAN DIAGNOSTICS LTD. STOCK PLAN DATED
__________________, 1998, A COPY OF WHICH MAY BE INSPECTED
BY AUTHORIZED PERSONS AT THE PRINCIPAL OFFICE OF THE
COMPANY AND ALL THE PROVISIONS OF WHICH ARE INCORPORATED
BY REFERENCE IN THIS CERTIFICATE.
<PAGE>
-23-
The conditions shall similarly apply to any new, additional or
different securities the Recipient may become entitled to
receive with respect to such Forfeitable Grant Shares by
virtue of a stock split or stock dividend or any other change
in the corporate or capital structure of the Company.
The Plan Authority shall also have the right, should it elect
to do so, to require the Recipient to deposit the share
certificate for the Forfeitable Grant Shares with the Company
or its agent, endorsed in blank or accompanied by a duly
executed irrevocable stock power or other instrument of
transfer, until such time as the conditions lapse. The Company
shall remove the legend with respect to any Forfeitable Grant
Shares which become vested.
(d) STOCKHOLDER RIGHTS. The Recipient of Forfeitable Grant Shares
shall have all rights or privileges of a stockholder of the
Company with respect to the Forfeitable Grant Shares
notwithstanding the terms of this Section 7 (with the
exception of subsection (e) hereof) and, as such, shall be
fully entitled to receive dividends (if any are declared and
paid), to vote and to exercise all other rights of a
stockholder with respect to the Forfeitable Grant Shares.
(e) NON-ASSIGNABILITY. Except as expressly provided in the
underlying Stock Grant Agreement, unvested Forfeitable Grant
Shares may not be Disposed by the Recipient, and any such
purported Disposition shall be null and void ab initio and of
no force and effect.
8. REPORTS TO RECIPIENTS OF AWARDS
(a) FINANCIAL STATEMENTS. The Company shall provide each Recipient
with the Company's financial statements at least annually.
(b) INCENTIVE STOCK OPTION REPORTS. The Company shall provide,
with respect to each holder of an Incentive Option who has
exercised such Incentive Option, on or before January 31st of
the year following the year of exercise of such Incentive
Option, a statement containing the following information: (i)
the Company's name, address, and taxpayer identification
number; (ii) the name, address, and taxpayer identification
number of the Person to whom Option Shares were transferred by
the Company upon exercise of the Incentive Option; (iii) the
date the Incentive Option was granted; (iv) the date the
Option Shares underlying the Incentive Option were transferred
pursuant to the exercise of the Incentive Option; (v) the Fair
Market Value of the Option Shares on date of exercise; (vi)
the number of Option Shares transferred upon exercise of the
Incentive Option; (vii) a statement that the Incentive Option
was an incentive stock option, and (viii) the total cost of
the Option Shares.
<PAGE>
-24-
9. COMPLIANCE WITH APPLICABLE SECURITIES LAWS
(a) REGISTRATION OR EXEMPTION FROM REGISTRATION. Unless expressly
stipulated in the underlying Award Agreement, in no event
shall the Company be required at any time to register any
securities issued under or derivative from the Plan, including
any Option, Option Shares or Grant Shares awarded or granted
hereunder (the "Plan Securities"), under the Securities Act
(including, without limitation, as part of any primary or
secondary offering, or pursuant to Form S-8) or to register or
qualify the Plan Securities under the securities laws of any
state or territory.
In the event the Company does not register or qualify the Plan
Securities, the Plan Securities shall be issued in reliance
upon such exemptions from registration or qualification under
federal and state securities laws, as the case may be, that
the Company and its legal counsel, in their sole discretion,
shall determine to be appropriate with respect to any
particular offer or sale of securities under the Plan
including, without limitation:
(i) In the case of federal securities laws, any of the
following if available: (1) Section 3(a)(11) of the
Securities Act for intrastate offerings and Rule 147
promulgated thereto; (2) Section 3(b) of the
Securities Act for limited offerings and Rule 701
promulgated thereto and/or Rules 504 and/or 505 of
Regulation D promulgated thereto, and/or (3) Section
4(2) of the Securities Act for private offerings and
Rule 506 of Regulation D promulgated thereto; and
(ii) In the case of such state securities laws as may be
applicable, the requirements of any applicable
exemptions from registration or qualification
afforded by such securities laws including, in the
case of a Recipient residing in the State of Arizona,
Section 44-1844 A. 1 of the Securities Act of
Arizona.
In the event the Company is unable to obtain, without undue
burden or expense, such consents or approvals that may be
required from any applicable regulatory authority (or may be
deemed reasonably necessary or advisable by legal counsel for
the Company) with respect to the applicable exemptions from
federal or state registration or qualification which the
Company is reasonably relying upon, the Company shall have no
obligation under this Agreement to issue or sell the Plan
Securities until such time as such consents or approvals may
be reasonably obtained without undue burden or expense, and
the Company shall be relieved of all liability.
(b) PROVISION OF OTHER DOCUMENTS, INCLUDING RECIPIENT'S
REPRESENTATIVE'S LETTER. If requested by the Company, the
Recipient shall provide such further representations or
documents as the Company or its legal counsel, in their
reasonable discretion, deem necessary or advisable in order to
effect compliance with the conditions of any and all of the
aforesaid exemptions from federal or state registration or
qualification which it is relying upon, or with all applicable
rules and regulations of any applicable securities exchanges.
If required by the Company, the Recipient shall provide a
Recipient's Representative's Letter from a purchaser
representative with credentials reasonably acceptable to the
Company to the effect that such purchaser representative has
reviewed the Recipient's proposed investment in the Plan
Securities and has determined that an investment in the Plan
Securities: (A) is appropriate in light of the Recipient's
financial circumstances, (B) that the purchaser representative
and, if applicable, the Recipient, have such knowledge and
experience in financial and business matters that such persons
are capable of evaluating the merits and risks of an
investment in the Plan Securities, and (C) that the purchaser
representative and, if applicable, the Recipient, have such
business or financial experience to be reasonably assumed to
have the capacity to protect the Recipient's interests in
connection with the purchase of the Plan Securities.
<PAGE>
-25-
(C) LEGEND. In the event the Company delivers unregistered Plan
Shares, the Company reserves the right to place the following
legend or such other legend as its deems necessary on the
share certificate or certificates to comply with the
Securities Act and any state and territory securities laws or
any exemption from registration or qualification thereunder
which is being relied upon by the Company.
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT
BEEN (1) REGISTERED UNDER THE UNITED STATES SECURITIES ACT
OF 1933, AS AMENDED, IN RELIANCE UPON AN EXEMPTION FROM
REGISTRATION AFFORDED BY SUCH ACT INCLUDING, WITHOUT
LIMITATION, RULE 701 TO SECTION 3(b) OF THE SECURITIES ACT
OF 1933, OR (2) REGISTERED OR QUALIFIED, AS THE CASE MAY
BE, UNDER THE SECURITIES LAWS OF ANY STATE OR TERRITORY OF
THE UNITED STATES WHICH MAY BE APPLICABLE, IN RELIANCE
UPON AN EXEMPTION FROM REGISTRATION OR QUALIFICATION, AS
THE CASE MAY BE, AFFORDED BY SUCH STATE OR TERRITORIAL
SECURITIES LAWS THESE SECURITIES HAVE BEEN ACQUIRED FOR
THE HOLDER'S OWN ACCOUNT FOR INVESTMENT PURPOSES AND NOT
WITH A VIEW FOR RESALE OR DISTRIBUTION. THESE SECURITIES
MAY NOT BE SOLD OR TRANSFERRED UNLESS (A) THEY HAVE BEEN
REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933
AS WELL AS UNDER THE SECURITIES LAWS OF ANY STATE OR
TERRITORY OF THE UNITED STATES AS MAY THEN BE APPLICABLE,
OR (B) THE TRANSFER AGENT (OR THE COMPANY IF THEN ACTING
AS ITS TRANSFER AGENT) IS PRESENTED WITH EITHER A WRITTEN
OPINION SATISFACTORY TO COUNSEL FOR THE COMPANY OR A
NO-ACTION OR INTERPRETIVE LETTER FROM THE UNITED STATES
SECURITIES AND EXCHANGE COMMISSION AND ANY APPLICABLE
STATE OR TERRITORIAL SECURITIES REGULATORY AGENCY TO THE
EFFECT THAT SUCH REGISTRATION OR QUALIFICATION, AS THE
CASE MAY BE, IS NOT REQUIRED UNDER THE CIRCUMSTANCES OF
SUCH SALE OR TRANSFER.
10. ADJUSTMENTS.
(a) SUBDIVISION OR STOCK DIVIDEND. If outstanding shares of Common
Stock shall be subdivided into a greater number of shares by
reason of recapitalization or reclassification, the number of
Plan Shares, if any, available for issuance in under the Plan,
and the Option Price of any outstanding Options in effect
immediately prior to such subdivision or at the record date of
such dividend shall, simultaneously with the effectiveness of
such subdivision or immediately after the record date of such
dividend, be proportionately reduced, and conversely, if the
outstanding shares of Common Stock shall be combined into a
smaller number of shares, the number of Plan Shares, if any,
available for issuance under the Plan, and the Option Price of
any outstanding Option in effect immediately prior to such
combination shall, simultaneously with the effectiveness of
such combination, be proportionately increased.
<PAGE>
-26-
(b) ADJUSTMENT TO OPTION PRICE. When any adjustment is required to
be made in the Option Price, the number of Option Shares
purchasable upon the exercise of any outstanding Option shall
be adjusted to that number of Option Shares determined by: (i)
multiplying an amount equal to the number of Option Shares
purchasable upon the exercise of the Option immediately prior
to such adjustment by the Option Price in effect immediately
prior to such adjustment, and then (ii) dividing that product
by the Option Price in effect immediately after such
adjustment. Provided, however, no fractional Option Shares
shall be issued, and any fractional Option Shares resulting
from the computations pursuant to this section 10 shall be
eliminated from the Option.
(c) CAPITAL REORGANIZATION OR RECLASSIFICATION; CONSOLIDATION OR
MERGER. In case of any capital reorganization or any
reclassification of Common Stock (other than a
recapitalization described below in Section 10(e), or the
consolidation, merger, combination or exchange of shares of
capital stock with another entity, or the divisive
reorganization of the Company, the Recipient shall thereafter
be entitled upon exercise of the Option to purchase the kind
and number of shares of stock or other securities or property
of the Company (or its successor{s}) receivable upon such
event by a Recipient of the number of Option Shares which such
Option entitles the Recipient to purchase from the Company
immediately prior to such event. In every such case, the
Company may appropriately adjust the number of Option Shares
which may be issued under the Plan, the number of Option
Shares subject to Options theretofore granted under the Plan,
the Option Price of Options theretofore granted under the
Plan, and any and all other matters deemed appropriate by the
Plan Authority.
(d) ADJUSTMENTS DETERMINED IN SOLE DISCRETION OF BOARD. To the
extent that the foregoing adjustments relate to stock or
securities of the Company, such adjustments shall be made by
the Plan Authority, whose determination in that respect shall
be final, binding and conclusive.
(e) NO OTHER RIGHTS TO RECIPIENT. Except as expressly provided in
this Section 10, (i) the Recipient shall have no rights by
reason of any subdivision or consolidation of shares of
capital stock of any class or the payment of any stock
dividend or any other increase or decrease in the number of
shares of stock of any class, and (ii) the dissolution,
liquidation, merger, consolidation or divisive reorganization
or sale of assets or stock to another corporation, or any
issue by the Company of shares of capital stock of any class,
or securities convertible into shares of capital stock of any
class, shall not affect, and no adjustment by reason thereof
shall be made with respect to, the number of, or the Option
Price for, the Option Shares. The grant of an Award pursuant
to the Plan shall not any way affect or impede the right or
power of the Company to make adjustments, reclassifications,
reorganizations or changes of its capital or business
structure or to merge, consolidate, dissolve or liquidate, or
to sell or transfer all or any part of its business or assets.
<PAGE>
-27-
11. PERFORMANCE ON BUSINESS DAY
In the event the date on which a party to the Plan is required to take any
action under the terms of the Plan is not a business day, the action shall,
unless otherwise provided herein, be deemed to be required to be taken on the
next succeeding business day.
12. EMPLOYMENT STATUS
In no event shall the granting of an Award be construed as granting a continued
right of employment to a Recipient if such Person is employed by the Company,
nor effect any right which the Company may have to terminate the employment of
such Person, at any time, with or without cause, except to the extent that such
Person and the Company have agreed otherwise in writing.
13. NON-LIABILITY FOR DEBTS; RESTRICTIONS AGAINST TRANSFER
No Options or unvested Forfeitable Grant Shares granted hereunder, or any part
thereof, (i) shall be liable for the debts, contracts, or engagements of a
Recipient, or such Recipient's successors in interest as permitted under this
Plan, or (ii) shall be subject to disposition by transfer, alienation, or any
other means whether such disposition be voluntary or involuntary or by operation
of law, by judgment, levy, attachment, garnishment, or any other legal or
equitable proceeding (including bankruptcy), and any attempted disposition
thereof shall be null and void AB INITIO and of no further force and effect.
14. AMENDMENT AND DISCONTINUATION OF PLAN; MODIFICATION OF AWARDS
(a) AMENDMENT, MODIFICATION OR TERMINATION OF PLAN. The Board may
amend or modify the Plan or suspend or discontinue the Plan at
any time or from time-to-time; provided, however:
(i) No such action may adversely alter or impair any
Award previously granted under the Plan without the
consent of each Recipient affected thereby, and
(ii) No action of the Board will cause Incentive Options
granted under the Plan not to comply with Section 422
of the Code unless the Board specifically declares
such action to be made for that purpose.
(b) MODIFICATION OF TERMS OF OUTSTANDING OPTIONS. Subject to the
terms and conditions and within the limitations of the Plan,
the Plan Authority may modify, extend or renew outstanding
Options granted under the Plan, including vesting conditions,
or accept the surrender of outstanding Options (to the extent
not theretofore exercised) and authorize the granting of new
Options in substitution therefor (to the extent not
theretofore exercised). Notwithstanding the foregoing,
however, no modification of any outstanding Option may,
without the consent of the Recipient affected thereby,
adversely alter or impair such Recipients rights under such
Option.
<PAGE>
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(c) MODIFICATION OF VESTING CONDITIONS PLACED ON FORFEITABLE GRANT
SHARES. Subject to the terms and conditions and within the
limitations of the Plan, including vesting conditions, the
Plan Authority may modify the conditions placed upon the grant
of any Forfeitable Grant Shares, provided, however, no
modification of any conditions placed upon Forfeitable Grant
Shares may, without the consent of the Recipient thereof,
adversely alter or impair such Recipient's rights with respect
to such Forfeitable Grant Shares.
(d) COMPLIANCE WITH LAWS. The Plan Authority may, at any time or
from time-to-time, without receiving further consideration
from, or paying any consideration to, any Person who may
become entitled to receive or who has received the grant of an
Award hereunder, modify or amend Awards granted under the Plan
as required to: (i) comport with changes in securities, tax or
other laws or rules, regulations or regulatory interpretations
thereof applicable to the Plan or Awards thereunder or to
comply with stock exchange rules or requirements and/or (ii)
ensure that the Plan is and remains exempt from the
application of any participation, vesting, benefit accrual,
funding, fiduciary, reporting, disclosure, administration or
enforcement requirement of either the Employee Retirement
Income Security Act of 1974, as amended ("ERISA"), or the
corresponding provisions of the Internal Revenue Code of 1986,
as amended (Subchapter D of Title A, Chapter 1 of the Code
{encompassing Sections 400 to 420 of the Code}).
15. WITHHOLDING OF EMPLOYMENT TAXES
As a condition of the grant of any Award and/or exercise of any Option, as the
case may be, the Company shall have the right to require the Recipient to remit
to the Company an amount sufficient to satisfy any federal, state and/or local
withholding tax requirements incident to such grant or exercise. Provided,
however, whenever the Company is delivering any Plan Shares the Company may, in
its sole discretion, but without obligation to do so, issue or transfer such
Plan Shares net of the number of Plan Shares sufficient to satisfy any
withholding tax requirements incident to such issuance or transfer. For
withholding tax purposes, Plan Shares shall be valued on the date the
withholding obligation is incurred.
The undersigned hereby certifies that the foregoing 1998 Empyrean Diagnostics
Ltd. Stock Plan was approved by the shareholders of Empyrean Diagnostics Ltd. on
the 20th day of November, 1998.
----------------------------------------
STEPHEN HAYTER, PRESIDENT
<PAGE>
STOCK OPTION CERTIFICATE
Empyrean Diagnostics Ltd.
[To be prepared by the Company and signed by the Recipient]
THE SECURITIES OFFERED HEREBY HAVE NOT BEEN REGISTERED OR QUALIFIED WITH, OR
APPROVED OR DISAPPROVED BY, THE UNITED STATES SECURITIES AND EXCHANGE COMMISSION
OR ANY STATE OR TERRITORIAL SECURITIES REGULATORY AGENCY, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE OR TERRITORIAL SECURITIES REGULATORY AGENCY
REVIEWED OR PASSED UPON OR ENDORSED THE MERITS OF THE OFFERING CONTEMPLATED BY
THIS STOCK OPTION CERTIFICATE OR THE ACCURACY OR ADEQUACY OF ANY OFFERING
MATERIALS, INCLUDING THE COMPANY'S STOCK OPTION PLAN. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE. THESE SECURITIES ARE SPECULATIVE AND INVOLVE A
HIGH DEGREE OF RISK AND SUBSTANTIAL AND IMMEDIATE DILUTION. THERE IS NO PUBLIC
MARKET FOR THE SALE OF THESE SECURITIES BY THE RECIPIENT. THESE SECURITIES MAY
NOT BE SOLD OR TRANSFERRED UNLESS REGISTERED OR QUALIFIED, OR THE RECIPIENT
PROVIDES THE COMPANY AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY, OR ITS
LEGAL COUNSEL, THAT SUCH REGISTRATION OR QUALIFICATION IS NOT REQUIRED BY REASON
OF AN EXEMPTION OR OTHERWISE. AS A RESULT, THESE SECURITIES ARE SUITABLE ONLY
FOR CERTAIN SOPHISTICATED AND QUALIFIED INVESTORS WHO CAN BEAR THE FINANCIAL
RISK OF AN INVESTMENT IN THESE SECURITIES FOR AN INDEFINITE PERIOD OF TIME.
================================================================================
Name of Recipient......................... ____________________________________
Legal Address/Domicile of Recipient....... ____________________________________
Citizenship of Recipient.................. [X] United States [ ] Other
Number of Option Shares................... ____________________________________
Option Price per Option Share............. ____________________________________
Classification of Option.................. [ ] Non-Qualified Option
[ ] Incentive Option
Vesting................................... [ ] Subject to Vesting
(see section 3)
[ ] Fully Vested
Option Expiration Date.................... April 28, 2001
------------------------------------
Option Effective Date..................... April 28, 1998
------------------------------------
U.S. Federal Exemption to be Relied Upon [ ] Rule 701 [ ] Regulation D
at Other Rule 504 the Time of Grant or [ ] Rule 504
Exercise (as the case Rule 505 may be).... [ ] Other ________ [ ] Rule 505
[ ] Rule 506
<PAGE>
Blue Sky Exemption to be Relied Upon at [X] [ ] Other ________
the Time of Grant or Exercise (as the case
may be)................................... [ ] ______________ ______________
================================================================================
This Stock Option Certificate is entered into between Empyrean Diagnostics Ltd.,
a Wyoming corporation (the "Company"), whose principal executive office is
located at 2238 West Lone Cactus Drive, Suite 200, Phoenix, Arizona 85027, and
the Recipient identified above (the "Recipient"), pursuant to that certain Stock
Option Plan deemed effective August 25, 1997 as amended on April 27, 1998 (the
"Plan"), as such Plan may be amended and/or restated from time to time. Subject
to the terms of this Stock Option Certificate, the Recipient's rights to
purchase the Option Shares are governed by the Plan, the terms of which are
incorporated herein by this reference. Defined terms in this Stock Option
Certificate shall have the same meaning as defined terms in the Plan.
1. GRANT OF OPTION: This Stock Option Certificate certifies that the Company has
granted to the Recipient, pursuant to the terms of the Plan, a stock option (the
"Option") to purchase, in whole or in part, the number of Option Shares
designated above (collectively and severally, the "Option Shares"), representing
shares of the common stock, no par value (the "Common Stock") of the Company, at
the exercise or Option Price per Option Share designated above (the "Option
Price"), subject to the following terms and conditions.
2. CAPACITY OF RECIPIENT: This Option is granted to the Recipient in the
following capacity:
(i) [ ] An Employee who is an Executive Officer* of the Company and/or
its Affiliates.
(ii) [X] An Employee other than an Executive Officer* of the Company
and/or its Affiliates.
(iii) [ ] A Director of the Company and/or its Affiliates.
(iv) [ ] A Consultant to the Company and/or its Affiliates.
* An "Executive Officer" is defined as the president, any vice president
in charge of a principal business unit, division or function (such as
sales, administration or finance), any other officer who performs a
policy making function, or any other person who performs similar
policy makings functions for the Company.
3. VESTING CONDITIONS: If the Option Shares are subject to vesting then, subject
to section 7(b) of the Plan, the Option Shares will be subject to vesting based
upon continued performance of services in the capacity indicated above as
follows:
CUMULATIVE VESTED
VESTED NUMBER OF PERCENTAGE OF OPTION
DATE OPTION SHARES SHARES
---------------------- -------------------- ----------------------
-------------------- ----------------------
==================== ======================
-2-
<PAGE>
4. EXPIRATION OF OPTION: The right to exercise the Options granted by this Stock
Option Certificate shall expire and be null and void ab initio and of no further
force or effect to the extent not exercised by 5:00 p.m. (Phoenix Time), on the
Option Expiration Date designated above (the "Option Expiration Date");
provided, however, if the Option Shares are subject to vesting by reason of the
vesting designation set forth in section 3 of this Stock Option Certificate,
then pursuant to section 7(d) of the Plan, in the event of termination of
Recipient, the expiration date shall be accelerated to thirty (30) days after
the effective date of termination of Recipient.
NOTE: SHOULD THE RECIPIENT FAIL TO EXERCISE THIS OPTION (TO THE
EXTENT PERMITTED BY ITS TERMS) THE RECIPIENT SHALL NOT BE
ENTITLED TO THE INCOME TAX BENEFITS OF SECTION 422 OF THE CODE
(ASSUMING THIS OPTION IS AN INCENTIVE OPTION), AND THIS
OPTION, AND THE GRANT AND EXERCISE THEREOF, SHALL BE TREATED,
FOR INCOME TAX PURPOSES, AS IF IT WERE A NON-QUALIFIED OPTION.
5. DELIVERIES; MANNER OF EXERCISE AND PAYMENT: This Option shall be exercised by
delivery of the following to the Secretary of the Company at the Company's
principal executive offices:
(a) STOCK OPTION CERTIFICATE: This Stock Option Certificate, duly signed
by the Recipient.
(b) NOTICE: A Notice of Exercise of Stock Option in the form attached to
the underlying Stock Option Certificate, duly signed by the Recipient
or other Person then entitled to exercise the Option or portion
thereof, stating the number of Option Shares to be purchased by
exercise of the associated Option.
(c) PAYMENT: Full payment for the Option Shares to be purchased in
immediately available funds in U.S. dollars.
(d) PROOF OF AUTHORITY: In the event that the Option or portion thereof
shall be exercised by any person other than the Recipient pursuant to
section 7(c) of the Plan, appropriate proof of the right of such
person or persons to exercise the Option or portion thereof.
6. TRANSFER OF OPTION
(a) EXERCISE: Options may only be exercised by the original Recipient
thereof or, to the extent a Transfer is permitted and has been
consummated pursuant to subsection 6(b) below, by a permitted
transferee of such Options.
(b) TRANSFER: Options may not be Transferred by a Recipient except upon
and following the death of a Recipient, but only to the Recipient's
successors as provided in section 7(c) of the Plan.
-3-
<PAGE>
Any Transfer or exercise of an Option so Transferred in violation of this
section 6 shall be null and void ab initio and of no further force and effect.
7. REPRESENTATIONS, WARRANTIES AND COVENANTS: The Recipient hereby represents,
warrants and covenants to the Company, each of which is deemed to be a separate
representation, warranty and covenant, whichever the case may be, that:
(a) DOMICILE: The Recipient's permanent legal residence and domicile, if
the Recipient is an individual, or permanent legal executive offices
and principal place of business, if the Recipient is an Entity, was
and is in the State or territory designated above at both the time of
the "offer" and the time of the "sale" of this Option and the Option
Share to the Recipient.
(b) AGE: The Recipient, if a natural person, is age eighteen (18) or over.
(c) RECEIPT AND REVIEW OF PLAN AND PLAN SUMMARY: The Recipient has
received a copy of the Plan and has read and understood the Plan.
(d) RESTRICTIONS ON TRANSFERABILITY OF OPTION SHARES The Recipient has
been informed and understands and agrees as follows: (i) there are
substantial restrictions on the transferability of the Option Shares
as set forth in the Plan, (ii) as a result of such restrictions, (1)
it may not be possible for the Recipient to sell or otherwise
liquidate the Option Shares in the case of emergency and/or other
need, and the Recipient must therefore be able to hold the Option
Shares until the lapse of said restrictions, (2) the Recipient must
have adequate means of providing for the Recipient's current needs and
personal contingencies, and (3) the Recipient must have no need for
liquidity in an investment in the Option Shares; and (iii) the
Recipient has evaluated the Recipient's financial resources and
investment position in view of the foregoing; and the Recipient is
able to bear the economic risk of an investment in the Option Shares.
Each representation, warranty and covenant of the Recipient shall be deemed made
at the time of grant of this Option, shall be deemed remade at any time the
Recipient exercises this Option, and shall survive the date of closing with
respect to the exercise of the last Option hereunder.
8. MISCELLANEOUS
(a) PREPARATION OF STOCK OPTION CERTIFICATE; COSTS AND EXPENSES: This
Stock Option Certificate was prepared by the Company solely on behalf
of the Company. Each party acknowledges that: (i) he, she or it had
the advice of, or sufficient opportunity to obtain the advice of,
legal counsel separate and independent of legal counsel for any other
party hereto; (ii) the terms of the transaction contemplated by this
Stock Option Certificate are fair and reasonable to such party; and
(iii) such party has voluntarily entered into the transaction
contemplated by this Stock Option Certificate without duress or
coercion. Each party further acknowledges such party was not
represented by the legal counsel of any other party hereto in
connection with the transaction contemplated by this Stock Option
Certificate, nor was such party under any belief or understanding that
-4-
<PAGE>
such legal counsel was representing his, her or its interests. Except
as expressly set forth in this Stock Option Certificate, each party
shall pay all legal and other costs and expenses incurred or to be
incurred by such party in negotiating and preparing this Stock Option
Certificate; in performing due diligence or retaining professional
advisors; in performing any transactions contemplated by this Stock
Option Certificate; or in complying with such party's covenants,
agreements and conditions contained herein. Each party agrees that no
conflict, omission or ambiguity in this Stock Option Certificate, or
the interpretation thereof, shall be presumed, implied or otherwise
construed against the Company or any other party to this Stock Option
Certificate on the basis that such party was responsible for drafting
this Stock Option Certificate.
(b) COOPERATION: Each party agrees, without further consideration, to
cooperate and diligently perform any further acts, deeds and things,
and to execute and deliver any documents that may be reasonably
necessary or otherwise reasonably required to consummate, evidence,
confirm and/or carry out the intent and provisions of this Stock
Option Certificate, all without undue delay or expense.
(c) INTERPRETATION
(i) SURVIVAL: All representations and warranties made by any
party in connection with any transaction contemplated by
this Stock Option Certificate shall, irrespective of any
investigation made by or on behalf of any other party
hereto, survive the execution and delivery of this Stock
Option Certificate and the performance or consummation of
any transaction described in this Stock Option Certificate.
(ii) ENTIRE AGREEMENT/NO COLLATERAL REPRESENTATIONS: Each party
expressly acknowledges and agrees that this Stock Option
Certificate, together with and subject to the Plan and the
Plan Summary: (1) is the final, complete and exclusive
statement of the agreement of the parties with respect to
the subject matter hereof; (2) supersedes any prior or
contemporaneous agreements, proposals, commitments,
guarantees, assurances, communications, discussions,
promises, representations, understandings, conduct, acts,
courses of dealing, warranties, interpretations or terms of
any kind, whether oral or written (collectively and
severally, the "prior agreements"), and that any such prior
agreements are of no force or effect except as expressly
set forth herein; and (3) may not be varied, supplemented
or contradicted by evidence of prior agreements, or by
evidence of subsequent oral agreements. No prior drafts of
this Stock Option Certificate, and no words or phrases from
any prior drafts, shall be admissible into evidence in any
action or suit involving this Stock Option Certificate.
(iii) AMENDMENT; WAIVER; FORBEARANCE: Except as expressly
provided otherwise herein, neither this Stock Option
Certificate nor any of the terms, provisions, obligations
or rights contained herein may be amended, modified,
supplemented, augmented, rescinded, discharged or
terminated (other than by performance), except as provided
-5-
<PAGE>
in the Plan or by a written instrument or instruments
signed by all of the parties to this Stock Option
Certificate. No waiver of any breach of any term, provision
or agreement contained herein, or of the performance of any
act or obligation under this Stock Option Certificate, or
of any extension of time for performance of any such act or
obligation, or of any right granted under this Stock Option
Certificate, shall be effective and binding unless such
waiver shall be in a written instrument or instruments
signed by each party claimed to have given or consented to
such waiver and each party affected by such waiver. Except
to the extent that the party or parties claimed to have
given or consented to a waiver may have otherwise agreed in
writing, no such waiver shall be deemed a waiver or
relinquishment of any other term, provision, agreement,
act, obligation or right granted under this Stock Option
Certificate, or any preceding or subsequent breach thereof.
No forbearance by a party to seek a remedy for any
noncompliance or breach by another party hereto shall be
deemed to be a waiver by such forbearing party of its
rights and remedies with respect to such noncompliance or
breach, unless such waiver shall be in a written instrument
or instruments signed by the forbearing party.
(iv) REMEDIES CUMULATIVE: The remedies of each party under this
Stock Option Certificate are cumulative and shall not
exclude any other remedies to which such party may be
lawfully entitled, at law or in equity.
(v) SEVERABILITY: If any term or provision of this Stock Option
Certificate or the application thereof to any person or
circumstance shall, to any extent, be determined to be
invalid, illegal or unenforceable under present or future
laws, then, and in that event: (1) the performance of the
offending term or provision (but only to the extent its
application is invalid, illegal or unenforceable) shall be
excused as if it had never been incorporated into this
Stock Option Certificate, and, in lieu of such excused
provision, there shall be added a provision as similar in
terms and amount to such excused provision as may be
possible and be legal, valid and enforceable; and (2) the
remaining part of this Stock Option Certificate (including
the application of the offending term or provision to
persons or circumstances other than those as to which it is
held invalid, illegal or unenforceable) shall not be
affected thereby, and shall continue in full force and
effect to the fullest extent provided by law.
(vi) PARTIES IN INTEREST: Notwithstanding anything else to the
contrary herein, nothing in this Stock Option Certificate
shall confer any rights or remedies under or by reason of
this Stock Option Certificate on any persons other than the
parties hereto and their respective successors and assigns,
if any, as may be permitted under the Plan or hereunder,
nor shall anything in this Stock Option Certificate relieve
or discharge the obligation or liability of any third
person to any party to this Stock Option Certificate, nor
shall any provision give any third person any right of
subrogation or action over or against any party to this
Stock Option Certificate.
-6-
<PAGE>
(vii) NO RELIANCE UPON PRIOR REPRESENTATION: Each party
acknowledges that: (i) no other party has made any oral
representation or promise which would induce them prior to
executing this Stock Option Certificate to change their
position to their detriment, to partially perform, or to
part with value in reliance upon such representation or
promise; and (ii) such party has not so changed its
position, performed or parted with value prior to the time
of the execution of this Stock Option Certificate, or such
party has taken such action at its own risk.
(viii) HEADINGS; REFERENCES; INCORPORATION; "PERSON"; GENDER;
STATUTORY REFERENCES: The headings used in this Stock
Option Certificate are for convenience and reference
purposes only, and shall not be used in construing or
interpreting the scope or intent of this Stock Option
Certificate or any provision hereof. References to this
Stock Option Certificate shall include all amendments or
renewals thereof. All cross-references in this Stock Option
Certificate, unless specifically directed to another
agreement or document, shall be construed only to refer to
provisions within this Stock Option Certificate, and shall
not be construed to be referenced to the overall
transaction or to any other agreement or document. Any
Exhibit referenced in this Stock Option Certificate shall
be construed to be incorporated in this Stock Option
Certificate by such reference. As used in this Stock Option
Certificate, the term "person" is defined in its broadest
sense as any individual, entity or fiduciary who has legal
standing to enter into this Stock Option Certificate such
as, by way of example and not limitation, individual or
natural persons and trusts. As used in this Stock Option
Certificate, each gender shall be deemed to include the
other gender, including neutral genders appropriate for
entities, if applicable, and the singular shall be deemed
to include the plural, and vice versa, as the context
requires. Any reference to statutes or laws will include
all amendments, modifications, or replacements of the
specific sections and provisions concerned.
(d) ENFORCEMENT
(i) APPLICABLE LAW: This Stock Option Certificate and the
rights and remedies of each party arising out of or
relating to this Stock Option Certificate (including,
without limitation, equitable remedies) shall (with the
exception of the Securities Act and the Blue Sky Laws) be
solely governed by, interpreted under, and construed and
enforced in accordance with the laws (without regard to the
conflicts of law principles) of the State of Arizona, as if
this Stock Option Certificate were made, and as if its
obligations are to be performed, wholly within the State of
Arizona.
(ii) CONSENT TO JURISDICTION; SERVICE OF PROCESS: Any "action or
proceeding" (as such term is defined below) arising out of
or relating to this Stock Option Certificate shall be filed
-7-
<PAGE>
in and heard and litigated solely before the state courts
of Arizona located within the County of Maricopa. Each
party generally and unconditionally accepts the exclusive
jurisdiction of such courts and venue therein; consents to
the service of process in any such action or proceeding by
certified or registered mailing of the summons and
complaint in accordance with the notice provisions of this
Stock Option Certificate; and waives any defense or right
to object to venue in said courts based upon the doctrine
of "forum non conveniens." The term "action or proceeding"
is defined as any and all claims, suits, actions, hearings,
arbitrations or other similar proceedings, including
appeals and petitions therefrom, whether formal or
informal, governmental or non-governmental, or civil or
criminal.
(iii) WAIVER OF RIGHT TO JURY TRIAL: Each party hereby waives
such party's respective right to a jury trial of any claim
or cause of action based upon or arising out of this Stock
Option Certificate. Each party acknowledges that this
waiver is a material inducement to each other party hereto
to enter into the transaction contemplated hereby; that
each other party has already relied upon this waiver in
entering into this Stock Option Certificate; and that each
other party will continue to rely on this waiver in their
future dealings. Each party warrants and represents that
such party has reviewed this waiver with such party's legal
counsel, and that such party has knowingly and voluntarily
waived its jury trial rights following consultation with
such legal counsel.
(e) SUCCESSORS AND ASSIGNS: All of the representations, warranties,
covenants, conditions and provisions of this Stock Option Certificate
shall be binding upon and shall inure to the benefit of each party and
such party's respective successors and permitted assigns, spouses,
heirs, executors, administrators, and personal and legal
representatives.
(f) NOTICES: Except as otherwise specifically provided in this Stock
Option Certificate, all notices, demands, requests, consents,
approvals or other communications (collectively and severally called
"notices") required or permitted to be given hereunder shall be given
in accordance with the notice provisions in the Plan.
(g) COUNTERPARTS: This Stock Option Certificate may be executed in
counterparts, each of which shall be deemed an original, and all of
which together shall constitute one and the same instrument, binding
on all parties hereto. Any signature page of this Stock Option
Certificate may be detached from any counterpart of this Stock Option
Certificate and reattached to any other counterpart of this Stock
Option Certificate identical in form hereto by having attached to it
one or more additional signature pages.
WHEREFORE, the parties hereto have executed this Stock Option Certificate in the
City of Phoenix, State of Arizona, effective as of the Option Effective Date
first set forth above.
-8-
<PAGE>
COMPANY:
EMPYREAN DIAGNOSTICS LTD.
a Wyoming corporation
By:
----------------------------------
STEPHEN HAYTER, PRESIDENT
RECIPIENT:**
- --------------------------------------
** By execution hereof, the Recipient acknowledges prior receipt of the Stock
Option Plan.
-9-
<PAGE>
Attachment
to
Stock Option Certificate
NOTICE OF EXERCISE OF STOCK OPTION
[To be signed by the Recipient only upon exercise of Option]
TO: Secretary
Empyrean Diagnostics Ltd.
2238 West Lone Cactus Drive
Suite 200
Phoenix, AZ 85027
The undersigned, the holder of Options under that certain Stock Option
Certificate dated effective the _______ day of _____________, 1998 between
Empyrean Diagnostics Ltd., a Wyoming corporation (the "Company") and the
undersigned (the "Recipient"), hereby irrevocably elects, in accordance with the
terms and conditions of that certain Stock Option Plan deemed effective as of
August 27, 1997 as it may be amended from time to time (the "Plan"), under which
the Stock Option Certificate was granted, to exercise the undersigned's Option
under the Plan to purchase _____________________________________________
(_____________)(1) shares of the common stock, no par value ("Common Stock") of
the Company (collectively and severally, the "Option Shares"), for the aggregate
purchase price of __________________________________________________________
($______________)(2).
(1) Insert number of Option Shares as specified in the Stock Option
Certificate which are vested Option Shares (as defined by the Plan)
which the Recipient is exercising the Recipient's Option to purchase.
(2) Number of Option Shares to be exercised as specified above multiplied
by the Option Price per share ($____ per share).
The Recipient hereby remakes, reaffirms and reacknowledges all agreements,
representations, warranties and covenants set forth in the Stock Option
Certificate as of the date of the Recipient's notice, all of which shall survive
the Closing with respect to the shares of Common Stock purchased hereby.
If the Option (i) is a Non-Qualified Option, (ii) was granted to the Recipient
as an Employee, and (iii) the Recipient is an Employee as of the date of his,
her or its exercise of the Option, the Recipient acknowledges that the Company
shall withhold from the compensation of the Recipient such amounts as may be
sufficient to satisfy any federal, state and/or local withholding tax
requirements incident to such exercise and the Recipient shall remit to the
Company any additional amounts which may be required.
The Recipient hereby acknowledges that the following legend (or any variation
thereof determined appropriate by the Company) will be placed on the share
certificate or certificates for the Option Shares to comply with applicable
federal, state or territorial securities laws.
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN (1)
REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED, IN
RELIANCE UPON AN EXEMPTION FROM REGISTRATION AFFORDED BY SUCH ACT
<PAGE>
INCLUDING, WITHOUT LIMITATION, RULE 701 TO SECTION 3(b) OF THE SECURITIES
ACT OF 1933, OR (2) REGISTERED OR QUALIFIED, AS THE CASE MAY BE, UNDER THE
SECURITIES LAWS OF ANY STATE OR TERRITORY OF THE UNITED STATES WHICH MAY
BE APPLICABLE, IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION OR
QUALIFICATION, AS THE CASE MAY BE, AFFORDED BY SUCH STATE OR TERRITORIAL
SECURITIES LAWS. THESE SECURITIES HAVE BEEN ACQUIRED FOR THE HOLDER'S OWN
ACCOUNT FOR INVESTMENT PURPOSES AND NOT WITH A VIEW FOR RESALE OR
DISTRIBUTION. THESE SECURITIES MAY NOT BE SOLD OR TRANSFERRED UNLESS (A)
THEY HAVE BEEN REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933
AS WELL AS UNDER THE SECURITIES LAWS OF ANY STATE OR TERRITORY OF THE
UNITED STATES AS MAY THEN BE APPLICABLE, OR (B) THE TRANSFER AGENT (OR THE
COMPANY IF THEN ACTING AS ITS TRANSFER AGENT) IS PRESENTED WITH EITHER A
WRITTEN OPINION SATISFACTORY TO COUNSEL FOR THE COMPANY OR A NO-ACTION OR
INTERPRETIVE LETTER FROM THE UNITED STATES SECURITIES AND EXCHANGE
COMMISSION AND ANY APPLICABLE STATE OR TERRITORIAL SECURITIES REGULATORY
AGENCY TO THE EFFECT THAT SUCH REGISTRATION OR QUALIFICATION, AS THE CASE
MAY BE, IS NOT REQUIRED UNDER THE CIRCUMSTANCES OF SUCH SALE OR TRANSFER.
------------------------------------
Signature
------------------------------------
Print Name
------------------------------------
Address
------------------------------------
Date
(SIGNATURE MUST CONFORM IN ALL RESPECTS TO NAME OF THE RECIPIENT, UNLESS THE
UNDERSIGNED IS THE RECIPIENT'S SUCCESSOR, IN WHICH CASE THE UNDERSIGNED MUST
SUBMIT APPROPRIATE PROOF OF THE RIGHT OF THE UNDERSIGNED TO EXERCISE THE OPTION)
<PAGE>
NON-QUALIFIED STOCK OPTION AGREEMENT
EMPYREAN DIAGNOSTICS LTD.
[To be prepared by the Company and signed by the Recipient]
THE OPTION RIGHTS REPRESENTED BY THIS OPTION AGREEMENT DO NOT CONSTITUTE A
SECURITY WHICH IS REQUIRED TO BE REGISTERED UPON THE GRANT OF THESE OPTION
RIGHTS (AND THEREFORE HAVE NOT BEEN REGISTERED) WITH THE SECURITIES AND EXCHANGE
COMMISSION UNDER THE SECURITIES ACT OF 1933, AS AMENDED, INSOFAR AS THE OPTIONEE
HAS NOT AND WILL NOT BE REQUIRED TO PAY OR GIVE ANY CONSIDERATION WITH RESPECT
TO THE GRANT OF THESE OPTION RIGHTS, NOR HAS THE SECURITIES AND EXCHANGE
COMMISSION REVIEWED OR PASSED UPON THE ACCURACY OR ADEQUACY OF THIS OPTION
AGREEMENT. THE OPTION RIGHTS REPRESENTED BY THIS OPTION AGREEMENT CONSTITUTE A
SECURITY WHICH HAS NOT BEEN QUALIFIED WITH THE ARIZONA CORPORATION COMMISSION
NOR HAS THE ARIZONA CORPORATION COMMISSION REVIEWED OR PASSED UPON THE ACCURACY
OR ADEQUACY OF THIS OPTION AGREEMENT.
This Non-Qualified Stock Option Agreement (hereinafter the "Option Agreement"),
dated as of the ______ day of _______________, 1998 (hereinafter the "Grant
Date"), is entered into by and between Empyrean Diagnostics, Ltd., a Wyoming
corporation, whose address is 2238 West Lone Cactus Drive, Suite 200, Phoenix,
Arizona 85027 (hereinafter the "Company"), and ________________, an individual,
whose address is __________________________________________ (hereinafter the
"Optionee"), with reference to the following facts:
RECITALS
WHEREAS, the Optionee is an officer and a member of the Board of Directors
(hereinafter the "Board") of the Company; and
WHEREAS, as an incentive for Optionee to continue to render service to the
Company as an officer and as a member of its Board, the Company has determined
that it is in its best interests to grant an option to the Optionee to purchase
the Company's common stock, no par value (hereinafter, "Common Stock") under and
in accordance with the terms and conditions of this Option Agreement; and
WHEREAS, the Board adopted this Option Agreement on the _________ day of
_______________________, 1998 (hereinafter the "Grant Date").
NOW, THEREFORE, in consideration of the mutual covenants and promises contained
herein, and for valuable consideration, the receipt and sufficiency of which are
hereby mutually acknowledged and confessed, the parties to this Option Agreement
(hereinafter collectively called the "parties" and individually a "party") agree
as follows:
<PAGE>
AGREEMENT
1. DEFINITIONS.
Set forth below are definitions of capitalized terms which are generally used
throughout this Option Agreement and have not been defined elsewhere:
(a) "ACT" - The term "Act" is defined as the Securities Act of 1933, as
amended.
(b) "CODE" - The term "Code" is defined as the Internal Revenue Code of
1986, as amended.
(c) "DISPOSED OF" - The term "Disposed Of" (or the equivalent terms
"Disposition Of" or "Dispose Of") is defined as any of the following:
(i) the transfer, sale, assignment and/or gift of the Option, (ii) the
granting of an option or any rights with respect to the Option, (iii)
the hypothecation, encumbrance or pledge of the Option, or (iv) the
attachment or imposition of a lien by a creditor of the Optionee on
the Option which is not released within thirty (30) days after the
imposition thereof.
(d) "EXCHANGE ACT" - The term "Exchange Act" is defined as the Securities
and Exchange Act of 1934, as amended.
(e) "EXPIRATION DATE" - The term "Expiration Date" shall mean 5:00 p.m.
(Phoenix Time) on the business day immediately preceding the
____________ (_____th) annual anniversary of the vesting date.
(f) "FAIR MARKET VALUE" - The term "Fair Market Value" is defined as the
fair market value of a share of the Company's Common Stock as of a
given date determined as follows:
(i) The closing bid price of a share of the Company's stock on
the principal exchange on which shares of the Company's
stock are then trading, if any, on such date, or, if shares
were not traded on such date, then on the next preceding
trading day during which a sale occurred; or
(ii) If such stock is not traded on an exchange but is quoted on
NASDAQ or a successor quotation system, (1) the last sales
price (if the stock is then listed as a National Market
Issue under the NASD National Market System) or (2) the
mean between the closing representative bid and asked price
(in all other cases) for the stock on such date as reported
by NASDAQ or such successor quotation system; or
(iii) If such stock is not publicly traded on an exchange and not
quoted on the NASDAQ or a successor quotation system, the
fair market value established by the Board or any Committee
established by the Board acting in good faith (without
taking into consideration any restrictions placed on the
underlying stock with the exception of those which, by
their terms, will never lapse).
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(g) "NOTICE OF EXERCISE" - The term "Notice of Exercise" is defined as
that Notice Of Exercise Of Stock Option in the form of Exhibit "1"
attached hereto and incorporated herein by this reference.
(h) "OPTIONEE'S SUCCESSORS" - The term "Optionee's Successors" is defined
as the Optionee's successors by bequest or inheritance or by reason of
death of the Optionee.
(i) "QUALIFIED CODE PROVISIONS" - The term "Qualified Code Provisions" is
defined as Subchapter D of Title A, Chapter 1 of the Code (presently
encompassing Sections 400 to 420 of the Code), as such Subchapter may
be amended from time to time.
2. GRANT OF OPTION
Subject to the terms, conditions and limitations provided herein, the Company
hereby grants a stock option (hereinafter the "Option") to the Optionee to
purchase (without obligation to do so), in whole or in part, [____] shares of
the Common Stock (hereinafter, collectively and severally, the "Option Shares")
at a purchase price of [____] ($ [____]) per share (hereinafter, per share and
in the aggregate, the "Option Price").
3. VESTING OF OPTION SHARES
The Option shall be fully vested as of the Grant Date.
OR
The Option Shares will be subject to vesting based upon continued performance of
services in the capacity indicated above as follows:
CUMULATIVE VESTED
VESTED NUMBER OF PERCENTAGE OF OPTION
DATE OPTION SHARES SHARES
---------------------- -------------------- ----------------------
-------------------- ----------------------
TOTAL 0 100%
==================== ======================
[________]
4. ASSIGNMENT OF OPTIONS
Options may not be Disposed Of by the Optionee during his lifetime, nor
exercised by any person other than the Optionee, without the prior written
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consent of the Company, which consent the Company may withhold in its sole and
absolute discretion, and such Options shall, upon the Disposition Of or exercise
of such Options without the Company's prior written consent, terminate and be
null and void and of no further force and effect. Notwithstanding the foregoing,
Options may, upon the death of the Optionee, be transferred to the Optionee's
Successors, and may thereafter be exercised by the Optionee's Successors.
Provided, however, Options so transferred shall not be further Disposed Of by
the Optionee's Successors, nor exercised by any person other than the Optionee's
Successors, and the Option so Disposed Of or exercised shall, upon any such
Disposition Of or exercise without the Company's prior written consent,
terminate and be null and void and of no further force and effect. The Company
shall have no obligation, whether express or implied, to consent to any
Disposition Of the Option except as hereinabove expressly provided.
5. OPTION EXPIRATION DATE
(a) ORDINARY EXPIRATION. Options shall expire and be null and void and of
no further force or effect to the extent not exercised by 5:00 p.m.
(Phoenix Time) on the business day immediately preceding the
___________ (___) annual anniversary of the Grant Date.
6. EXERCISE AND PAYMENT
An Option shall be exercised, in whole or in part, solely by delivery by the
Optionee of all of the following to the Secretary of the Company at such
person's office at the Company prior to the Expiration Date:
(a) The Notice of Exercise, duly executed by the Optionee (or the
Optionee's Successors if permitted pursuant to the terms of Paragraph
4 of this Option Agreement), stating the Optionee's intent to exercise
such Option and the number of Option Shares to be purchased by such
exercise (hereinafter, collectively and severally, the "Purchased
Option Shares").
(b) Full payment for the Option Shares to be purchased by exercise of this
Option as follows:
(i) In good funds (in U.S. Dollars) by cash or by check
(PROVIDED, HOWEVER, if the aggregate Option Price for the
Option Shares to be purchased results in fractions of
cents, the Option Price shall be rounded down); or
(ii) If consented to in writing by the Board (with no obligation
to do so) immediately prior to the time of exercise of this
Option, shares of the Common Stock owned by the Optionee
duly endorsed for transfer to the Company with a Fair
Market Value on the date of delivery equal to the aggregate
Option Price of the Option Shares to be purchased by
exercise of this Option; or
(iii) Unless prohibited by law, if consented to in writing by the
Board (with no obligation to do so) immediately prior the
time of exercise of this Option, and subject to the
provisions of Regulation G promulgated by the Federal
Reserve Board with respect to "Margin Stock" if the Company
and the Optionee are then subject to such Regulation, by
(A) a full recourse
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promissory note bearing interest (at a rate as shall then
be determined by the Board which shall not, in any event,
be less than a rate as shall preclude the imputation of
interest under the Code or any successor provision) and
payable upon such terms as may be prescribed by the Board
and (B) secured by such security as then prescribed by the
Board; or
(iv) To the extent the Board consents to consideration pursuant
to the foregoing Subsections (ii) and (iii), any
combination of the consideration provided in the foregoing
Subsections (i), (ii), and (iii) as applicable.
(c) In the event that an Option shall be exercised by the Optionee's
Successors, appropriate proof of the right of such person or persons
to exercise such Option.
7. CERTIFICATES; REGISTRATION; LEGENDS
(a) ISSUANCE OF CERTIFICATES: As soon as practicable after complete and
timely delivery of the Notice Of Exercise and the Option Price with
respect to Options, the Company shall deliver to the Optionee a
certificate or certificates for the Purchased Option Shares.
(b) EXEMPTIONS FROM REGISTRATION AND REGULATORY APPROVALS AND CONSENTS:
The Purchased Option Shares shall be issued in reliance upon such
exemptions from registration or qualification under federal and state
securities laws, as the case may be, that the Company, in its
reasonable discretion, shall determine to be appropriate, including,
without limitation:
(i) In the case of federal securities laws, any of the
following: Rule 701 of the Securities Act for Employee
Benefit Plans, Section 3(a)(11) of the Securities Act and
Rule 147 promulgated thereto for Intrastate Offerings,
Section 3(b) of the Securities Act for Limited Offerings
and Rule 505 of Regulation D promulgated thereto, and/or
Section 4(2) of the Securities Act for private offerings
and Rule 506 of Regulation D promulgated thereto, and
(ii) The requirements of any applicable exemptions from
registration or qualification afforded by the securities
laws of such state in which the Optionee is then a resident
of and/or domiciled within.
If requested by the Company, the Optionee shall provide such further
representations or documents as the Company or its legal counsel, in
their reasonable discretion, deem necessary or advisable in order to
effect compliance with the conditions of any and all of the aforesaid
exemptions from federal or state registration or qualification which
it is relying upon, or with all applicable rules and regulations of
any applicable securities exchanges.
In the event the Company is unable to obtain, without undue burden or
expense, such consents or approvals that may be required from any
applicable regulatory authority (or may be deemed reasonably necessary
or advisable by counsel for the Company) with respect to the
applicable exemptions from federal or state registration or
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<PAGE>
qualification which the Company is reasonably relying upon, the
Company shall have no obligation under this Option Agreement to issue
or sell the Purchased Option Shares until such time as such consents
or approvals may be reasonably obtained without undue burden or
expense, and the Company shall be relieved of all liability with
respect to its inability to issue or sell the Purchased Option Shares.
The Company shall not be required to register the Purchased Option
Shares under the Securities Act or to register or qualify the
Purchased Option Shares under the securities laws of any state or
territory.
(c) LEGEND: In the event the Company delivers unregistered shares,
the Company reserves the right to place the following legend or
such other legend as its deems necessary on the certificate or
certificates to comply with the Securities Act and any state and
territory securities laws or any exemption from registration or
qualification thereunder which is being relied upon by the
Company.
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION UNDER
SECTION 5 OF THE SECURITIES ACT OF 1933.
Any new, additional or different securities the Optionee may
become entitled to receive with respect to such Option Shares by
virtue of a stock split or stock dividend or any other change in
the corporate or capital structure of the Company shall also bear
such legend.
8. SALE OF PURCHASED OPTION SHARES
(a) SECURITY LAW REQUIREMENTS FOR SALE: The Optionee acknowledges that he
has been informed of the following requirements which must be
satisfied in order to sell any Purchased Option Shares:
(i) With respect to federal securities laws, unless the
Purchased Option Shares are registered or, if not
registered, another exemption is available which will
permit an earlier sale, transfer, assignment or other
disposition of the Purchased Option Shares or any of them
by the Optionee, the Optionee will be subject to the
following restrictions:
(1) In the event the Company, without any obligation to
do so, claims any exemption under Regulation D to
the Securities Act, the Company will not permit the
sale, transfer, assignment or other disposition of
the Purchased Option Shares or any of them except as
permitted by Rule 144 of the Securities Act
pertaining to restricted securities.
(2) In the event the Company, without obligation to do
so, claims the Intrastate Offering Exemption
pursuant to Section 3(a)(11) of the Securities Act,
the Company will not permit the sale, transfer,
assignment or other disposition of the
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Purchased Option Shares or any of them except as
permitted by Rule 144 to any person who is not a
resident of the State of Arizona for a period of
twelve (12) months from the date of exercise of the
Option.
(ii) For so long as any restrictions placed upon the Option
Shares pursuant to the terms of this Option Agreement are
applicable, the Board may require that the share
certificates representing the Option Shares bear a
restrictive legend evidencing said restrictions in such
form and subject to such stop instructions as the Board
shall deem appropriate. The restrictions shall also apply
to any new, additional or different securities the Optionee
may become entitled to receive with respect to such Option
Shares by virtue of a stock split or stock dividend or any
other change in the corporate or capital structure of the
Company. The Board shall also have the right, should it
elect to do so, to require the Optionee to deposit the
share certificate with the Company or its agent, endorsed
in blank or accompanied by a duly executed irrevocable
stock power or other instrument of transfer, until such
time as the restrictions lapse.
(b) AGREEMENT TO REFRAIN FROM RESALE: Without in any way limiting the
representations and warranties in this Option Agreement, the Optionee
shall, prior to any sale, transfer, assignment, pledge, hypothecation
or other disposition of the Purchased Option Shares, either:
(i) Furnish the Company with a detailed explanation of the proposed
disposition and an opinion of the Optionee's counsel in form and
substance satisfactory to the Company to the effect that such
disposition is exempted from and therefore will not require
registration of the Purchased Option Shares under the Act or
qualification or registration under the securities law of any
state or territory; and counsel for the Company shall have
concurred in such opinion and the Company shall have advised the
Optionee of such concurrence; or
(ii) Satisfy the Company that a registration statement on Form S-1
under the Act (or any other form appropriate for the purpose
under the Act or any form replacing any such form) with respect
to the Purchased Option Shares proposed to be so disposed of
shall be then effective; and that such disposition shall have
been appropriately qualified or registered in accordance with any
applicable state or territorial securities laws.
(c) COMPANY MAY REFUSE TO TRANSFER: Notwithstanding the foregoing, if in
the opinion of counsel for the Company, the Optionee has acted in a
manner inconsistent with the promises, conditions or representations
and warranties in this Option Agreement, the Company may refuse to
transfer the Purchased Option Shares until such time as counsel for
the Company is of the opinion that such transfer (i) will not require
registration of the Purchased Option Shares under the Act or
registration or qualification of the Purchased Option Shares under the
applicable securities laws of any state or territory, or (ii) has
complied with the Act or the securities laws of any state or territory
with respect to the sale or transfer of the Purchased Option Shares by
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<PAGE>
the Optionee. The Optionee understands and agrees that the Company may
refuse to acknowledge or permit any disposition of the Purchased
Option Shares that is not in all respects in compliance with this
Option Agreement and the Company intends to make an appropriate
notation in its records to that effect.
(d) SECTION 162(m) ADVISEMENT: Section 162(m) of the Code states in
pertinent part, "In the case of any publicly held corporation, no
deduction shall be allowed under this chapter for applicable employee
remuneration with respect to any covered employee to the extent that
the amount of such remuneration for the taxable year with respect to
such employee exceeds $1,000,000." If the Optionee receiving this
Option is the Chief Executive Officer of the Company or an individual
acting in that capacity or if his compensation is required to be
reported to the shareholders under the Securities Exchange Act of 1934
because he is among the 4 highest compensated individuals to whom
remuneration is payable, he shall be considered an "applicable
employee" within the meaning of section 162(m).
9. AMENDMENT OF OPTION AGREEMENT
The Board may at any time or from time-to-time, without consent by or payment of
consideration to the Optionee, modify or amend this Option Agreement in order to
(i) comport with changes in securities, tax or other laws or rules, regulations
or regulatory interpretations thereof applicable to this Option Agreement or to
comply with stock exchange rules or requirements or (ii) to ensure that this
Option Agreement is and remains or shall become exempt from the application of
any participation, vesting, benefit accrual, funding, fiduciary, reporting,
disclosure, administration or enforcement requirement of either ERISA or the
Qualified Code Provisions.
10. INTERPRETATION OF AGREEMENT
The Board shall, in its sole and absolute discretion, determine the effect of
all matters and questions relating to this Option Agreement including, without
limitation, any matters and questions pertaining to Termination As A Director.
All actions taken and all interpretations and determinations made under this
Option Agreement in good faith by the Board shall be final and binding upon the
Optionee, the Company, and all other interested persons. No member of the Board
shall be personally liable for any action taken or decision made in good faith
relating to this Option Agreement, and all members of the Board shall be fully
protected by the Company in respect to any such action, determination, or
interpretation.
11. TAX MATTERS
(a) INCOME TAX CONSEQUENCES: The Optionee acknowledges that he has been
informed and understands that the Option is a "non-qualified" stock
option which is subject to taxation under Section 83 of the Code. As
such the Optionee will be required, in the year of exercise of the
Option, to recognize as compensation income (taxable at ordinary
income tax rates) an amount equal to the difference between the fair
market value of the Purchased Option Shares as of the date of exercise
and the exercise price for the Purchased Option Shares. When the
Optionee later sells or disposes of the Purchased Option Shares he
will recognize, as capital gain income (assuming he has held the
Purchased Option Shares for the requisite period of time and
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investment purposes) an amount equal to the difference between his
amount realized for such Purchased Option Shares and his basis for
such Purchased Option Shares (which will correspond with the fair
market value of the Purchased Option Shares as of the date of
exercise).
The Optionee also understands that Section 83(b) of the Code, which
would ordinarily permit a taxpayer to elect to accelerate taxation to
the year of grant, in order to avoid taxation on future appreciation
in the fair market value of the underlying stock at ordinary income
tax rates, will not be available with respect to the Purchased Option
Shares due to the unascertainable value of the Option as of the date
of grant. See Section 83(e)(3) of the Code and Treasury Regulation
Sections 1.83-8(a)(iii) and 1.83-7(b)(i).
(b) TAX WITHHOLDING: As a condition of the grant of this Option and/or the
issuance or transfer of any certificate or certificates for the
Purchased Option Shares upon exercise of a Vested Option, as the case
may be, the Company shall have the right to report compensation income
to the Optionee pursuant to Section 83 of the Code in the year of
exercise of the Option and, in order for the Company to claim a
deduction pursuant to Section 83(h) of the Code in connection
therewith, to require the Optionee to remit to the Company an amount
sufficient to satisfy any Federal, state and/or local withholding tax
requirements incident to exercise. For withholding tax purposes, the
Purchased Option Shares shall be valued on the date the withholding
obligation is incurred.
(c) RELIANCE UPON INDEPENDENT ADVISORS: THE OPTIONEE ACKNOWLEDGES THAT THE
OPTIONEE HAS CONSULTED WITH AND IS RELYING SOLELY UPON THE ADVICE OF
THE OPTIONEE'S OWN TAX ADVISORS WITH RESPECT TO THE TAX CONSEQUENCES
OF THE GRANT AND EXERCISE OF THIS OPTION AND THE SUBSEQUENT
DISPOSITION OF THE PURCHASED OPTION SHARES AND THE EFFECT OF SAME UPON
THE OPTIONEE'S PERSONAL FINANCIAL CIRCUMSTANCES. THE OPTIONEE
ACKNOWLEDGES AND AGREES THAT THIS PARAGRAPH IS INTENDED MERELY TO
GENERALLY POINT OUT THE COMPLEXITY OF FEDERAL TAX LAW WITH RESPECT TO
THE TAX TREATMENT OF NON-QUALIFIED STOCK OPTIONS AND IS NOT INTENDED
AS A COMPREHENSIVE OR DETAILED SUMMARY OR ANALYSIS OF FEDERAL TAX LAW
AS IT APPLIES TO NON-QUALIFIED STOCK OPTIONS, AND THEREFORE SHALL NOT
BE DEEMED TO CONSTITUTE A REPRESENTATION OR WARRANTY BY THE COMPANY OR
ANY OF ITS OFFICERS, DIRECTORS AND AGENTS WITH RESPECT TO SUCH TAX
CONSEQUENCES, AND SHOULD NOT BE RELIED UPON BY THE OPTIONEE.
12. SHAREHOLDER RIGHTS
The Optionee shall not be, nor have any of the rights or privileges of, a
shareholder of the Company with respect to the Purchased Option Shares unless
and until all conditions for exercise of the Option and the issuance of
certificates for the Purchased Option Shares shall be satisfied, at which time
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the Optionee shall become a shareholder of the Company with respect to the
Purchased Option Shares and as such shall thereafter be fully entitled to
receive dividends (if any are declared and paid), to vote and to exercise all
other rights of a shareholder with respect to the Purchased Option Shares.
13. ADJUSTMENTS
(a) SUBDIVISION OR STOCK DIVIDEND. If outstanding shares of the Common
Stock of the Company shall be subdivided into a greater number of
shares, or a dividend in Common Stock shall be paid in respect of the
Common Stock, the Option Price of the outstanding Options in effect
immediately prior to such subdivision or at the record date of such
dividend shall, simultaneously with the effectiveness of such
subdivision or immediately after the record date of such dividend, be
proportionately reduced, and conversely, if the outstanding shares of
the Common Stock of the Company shall be combined into a smaller
number of shares, the Option Price of any outstanding Option in effect
immediately prior to such combination shall, simultaneously with the
effectiveness of such combination, be proportionately increased.
(b) ADJUSTMENT TO OPTION PRICE: When any adjustment is required to be made
in the Option Price, the number of shares purchasable upon the
exercise of any outstanding Option shall be adjusted to that number of
shares determined by (i) multiplying an amount equal to the number of
shares purchasable upon the exercise of the Option immediately prior
to such adjustment by the Option Price in effect immediately prior to
such adjustment, and then (ii) dividing that product by the Option
Price in effect immediately after such adjustment. PROVIDED, HOWEVER,
no fractional shares shall be issued, and any fractional shares
resulting from the computations pursuant to this Paragraph 13 shall be
eliminated from the Option.
(c) CAPITAL REORGANIZATION OR RECLASSIFICATION; CONSOLIDATION OR MERGER:
In case of any capital reorganization or any reclassification of the
Common Stock of the Company (other than a recapitalization hereinabove
described in Subparagraph (a) of this Paragraph 13), or the
consolidation or merger of the Company with another entity, the
Optionee shall thereafter be entitled upon exercise of the Option to
purchase the kind and number of shares of stock or other securities or
property of the Company receivable upon such event by a holder of the
number of shares of the Common Stock of the Company which such Option
entitles the holder to purchase from the Company immediately prior to
such event. In every such case, appropriate adjustment shall be made
in the application of the provisions set forth in this Option
Agreement with respect to the rights and interests thereafter of the
Optionee, to the end that the provisions set forth in this Option
Agreement (including the specified changes and other adjustments to
the Option Price) shall thereafter be applicable in relation to any
shares or other property thereafter purchasable upon exercise of the
Option.
(d) DISSOLUTION OR LIQUIDATION OF COMPANY: Subject to Paragraph 3(b)
above, a dissolution or liquidation of the Company shall cause the
outstanding Option to terminate.
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(e) ADJUSTMENTS DETERMINED IN SOLE DISCRETION OF BOARD: To the extent that
the foregoing adjustments relate to stock or securities of the
Company, such adjustments shall be made by the Board, whose
determination in that respect shall be final, binding and conclusive.
(f) NO OTHER RIGHTS TO OPTIONEE: Except as expressly provided in this
Paragraph 13, (i) the Optionee shall have no rights by reason of any
subdivision or consolidation of shares of stock of any class or the
payment of any stock dividend or any other increase or decrease in the
number of shares of stock of any class, and (ii) the dissolution,
liquidation, merger, consolidation or split-up or sale of assets or
stock to another corporation, or any issue by the Company of shares of
stock of any class, or securities convertible into shares of stock of
any class, shall not affect, and no adjustment by reason thereof shall
be made with respect to, the number of, or the Option Price for, the
shares. The grant of an Option pursuant to this Option Agreement shall
not affect in any way the right or power of the Company to make
adjustments, reclassifications, reorganizations or changes of its
capital or business structure or to merge, consolidate, dissolve or
liquidate, or to sell or transfer all or any part of its business or
assets.
14. PERFORMANCE ON BUSINESS DAY
In the event the date on which a party is required to take any action under the
terms of this Option Agreement is not a business day, the action shall be deemed
to be required to be taken on the next succeeding business day.
15. NON-LIABILITY FOR DEBTS
The Options, and each and every interest or right therein or part thereof, shall
not be liable for the debts, contracts, or engagements of the Optionee or the
Optionee's heirs, successors and assigns.
16. ADOPTION OF ARTICLES AND BYLAWS
The Optionee hereby adopts, accepts and agrees to be bound by all the terms and
provisions of the Certificate of Incorporation and Bylaws of the Company and to
perform all obligations therein imposed upon a holder with respect to the
Purchased Option Shares.
17. MISCELLANEOUS
(a) PREPARATION: It is acknowledged by each party that such party either
had separate and independent advice of counsel or the opportunity to
avail itself of same. In light of these facts it is acknowledged that
no party shall be construed to be solely responsible for the drafting
hereof, and therefore any ambiguity shall not be construed against any
party as the alleged draftsman of this Option Agreement.
(b) COOPERATION: Each party agrees, without further consideration, to
cooperate and diligently perform any further acts, deeds and things
and to execute and deliver any documents that may from time to time be
reasonably required to consummate, evidence, confirm and/or carry out
the intent and provisions of this Option Agreement, all without undue
delay or expense.
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(c) INTERPRETATION:
(i) ENTIRE AGREEMENT/NO COLLATERAL REPRESENTATIONS: Each party
expressly acknowledges and agrees that this option
agreement, including all exhibits attached hereto: (1) is
the final, complete and exclusive statement of the
agreement of the parties with respect to the subject matter
hereof, (2) supersedes any prior or contemporaneous
promises, assurances, guarantees, representations,
understandings, conduct, proposals, conditions,
commitments, acts, course of dealing, warranties,
interpretations or terms of any kind, oral or written
(hereinafter collectively called the "prior agreements"),
and that any such prior agreements are of no force or
effect except as expressly set forth herein, and (3) may
not be varied, supplemented or contradicted by evidence of
such prior agreements, or by evidence of subsequent oral
agreements. Any agreement hereafter made shall be
ineffective to modify, supplement or discharge the terms of
this Option Agreement, in whole or in part, unless such
agreement is in writing and signed by the party against
whom enforcement of the modification, supplement or is
sought.
(ii) WAIVER: No breach of any agreement or provision herein
contained, or of any obligation under this Option
Agreement, may be waived, nor shall any extension of time
for performance of any obligations or acts be deemed an
extension of time for performance of any other obligations
or acts contained herein, except by written instrument
signed by the party to be charged or as otherwise expressly
authorized herein. No waiver of any breach of any agreement
or provision herein contained shall be deemed a waiver of
any preceding or succeeding breach thereof, or a waiver or
relinquishment of any other agreement or provision or right
or power herein contained.
(iii) REMEDIES CUMULATIVE: The remedies of each party under this
Option Agreement are cumulative and shall not exclude any
other remedies to which such party may be lawfully
entitled.
(iv) SEVERABILITY: If any term or provision of this Option
Agreement or the application thereof to any person or
circumstance shall, to any extent, be determined to be
invalid, illegal or unenforceable under present or future
laws effective during the term of this Option Agreement,
then and, in that event: (A) the performance of the
offending term or provision (but only to the extent its
application is invalid, illegal or unenforceable) shall be
excused as if it had never been incorporated into this
Option Agreement, and, in lieu of such excused provision,
there shall be added a provision as similar in terms and
amount to such excused provision as may be possible and be
legal, valid and enforceable, and (B) the remaining part of
this Option Agreement (including the application of the
offending term or provision to persons or circumstances
other than those as to which it is held invalid, illegal or
unenforceable) shall not be affected thereby and shall
continue in full force and effect to the fullest extent
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provided by law. Anything in the preceding sentence to the
contrary notwithstanding, should any aspect of this Option
Agreement be determined by any Court of law or by any
regulatory agency having jurisdiction over this Option
Agreement not to be exempt from the application of the
participation, vesting, benefit accrual, funding,
fiduciary, reporting, disclosure, administration or
enforcement requirement of either (1) ERISA or (2) the
Qualified Code Provisions, then this entire Option
Agreement shall, at the election of the Company (without
obligation to make such election), be null and void and of
no further force or effect. PROVIDED, HOWEVER, the Company
shall not be entitled to make such election in the event
(A) the Company made application to such Court of law or
regulatory agency to find or determine this Option
Agreement to be subject to application of any of the
participation, vesting, benefit accrual, funding,
fiduciary, reporting, disclosure, administration or
enforcement requirements of either ERISA or the Qualified
Code Provisions, or (B) the actions or participation of the
Optionee or Optionee's agents were not directly or
indirectly involved in or a factor of such Court of law or
regulatory agency considering or pursuing such action.
(v) TIME IS OF THE ESSENCE: It is expressly understood and
agreed that time of performance is strictly of the essence
with respect to each and every term, condition, obligation
and provision hereof and that the failure to timely perform
any of the terms, conditions, obligations or provisions
hereof by any party shall constitute a material breach of
and a non-curable (but waivable) default under this Option
Agreement by the party so failing to perform.
(vi) NO THIRD PARTY BENEFICIARY: Notwithstanding anything else
herein to the contrary, the parties specifically disavow
any desire or intention to create a "third party"
beneficiary contract, and specifically declare that no
person or entity, save and except for the parties or their
successors, shall have any rights hereunder nor any right
of enforcement hereof.
(vii) NO RELIANCE UPON PRIOR REPRESENTATION: Each party
acknowledges that no other party has made any oral
representation or promise to such party which
representation or promise would induce such party prior to
executing this Option Agreement to change its position to
its detriment, partially perform, or part with value in
reliance upon such representation or promise; such party
acknowledges that it has taken such action at its own risk;
and such party represents that it has not so changed its
position, performed or parted with value prior to the time
of its execution of this Option Agreement.
(viii) HEADINGS; REFERENCES; INCORPORATION; GENDER: The headings
used in this Option Agreement are for convenience and
reference purposes only, and shall not be used in
construing or interpreting the scope or intent of this
Option Agreement or any provision hereof. References to
this Option Agreement shall include all amendments or
renewals thereof. All cross-references in this Option
Agreement, unless specifically directed to another
13
<PAGE>
agreement or document, shall be construed only to refer to
provisions within this Option Agreement, and shall not be
construed to be referenced to the overall transaction or to
any other agreement or document. Any Exhibit referenced as
attached to this Option Agreement shall be construed to be
incorporated to this Option Agreement by such referenced.
As used in this Option Agreement, each gender shall be
deemed to include each other gender, including neutral
genders or genders appropriate for entities, if applicable,
and the singular shall be deemed to include the plural, and
vice versa, as the context requires.
(d) ENFORCEMENT
(i) APPLICABLE LAW: This option agreement and the rights and
remedies of each party arising out of or relating to this
option agreement (including, without limitation, equitable
remedies) shall be solely governed by, interpreted under,
and construed and enforced in accordance with the internal
laws of the State of Arizona, without regard to conflicts
of laws principles as if this option agreement were made,
and as if its obligations are to be performed, wholly
within the State of Arizona.
(ii) CONSENT TO JURISDICTION: Any action or proceeding arising
out of or relating to this option agreement shall be filed
in and heard and litigated solely before the state courts
of Arizona. Each party generally and unconditionally
accepts the exclusive jurisdiction of such courts and
waives any defense or right to object to venue in said
courts based upon the doctrine of "forum non conveniens".
Each party irrevocably agrees to be bound by any judgement
rendered thereby in connection with this option agreement.
(e) SUCCESSORS AND ASSIGNS: Subject to the terms of this Option Agreement
prohibiting the assignment of Options, all of the representations,
warranties, covenants, conditions and provisions of this Option
Agreement shall be binding upon and shall inure to the benefit of each
party and such party's respective heirs, executors, administrators,
legal representatives, successors and/or assigns, whichever the case
may be.
(f) NOTICES: Unless otherwise specifically provided in this Option
Agreement, all notices, demands, requests, consents, approvals or
other communications (collectively and severally called "Notices")
required or permitted to be given hereunder, or which are given with
respect to this Option Agreement, shall be in writing, and shall be
given by: (A) personal delivery (which form of Notice shall be deemed
to have been given upon delivery), (B) by telegraph or by private
airborne/overnight delivery service (which forms of Notice shall be
deemed to have been given upon confirmed delivery by the delivery
agency), (C) by electronic or facsimile or telephonic transmission,
provided the receiving party has a compatible device or confirms
receipt thereof (which forms of Notice shall be deemed delivered upon
confirmed transmission or confirmation of receipt), or (D) by mailing
in the United States mail by registered or certified mail, return
receipt requested, postage prepaid (which forms of Notice shall be
14
<PAGE>
deemed to have been given upon the fifth {5th} business day following
the date mailed). Notices shall be addressed to the Company and the
Optionee at the addresses hereinabove set forth in the introductory
paragraph of this Option Agreement, or to such other address as the
receiving party shall have specified most recently by like Notice,
with a copy to the other parties hereto. Any Notice given to the
estate of a party shall be sufficient if addressed to the party as
provided in this Paragraph.
(g) COUNTERPARTS: This Option Agreement may be executed in two (2) or more
counterparts, each of which shall be deemed an original, and all of
which together shall constitute but one and the same instrument,
binding on all parties hereto. Any signature page of this Option
Agreement may be detached from any counterpart of this Option
Agreement and reattached to any other counterpart of this Option
Agreement identical in form hereto but having attached to it one or
more additional signature pages.
(h) EXECUTION BY ALL PARTIES REQUIRED TO BE BINDING: This Option Agreement
shall not be construed to be an offer and shall have no force and
effect until this Option Agreement is fully executed by all parties
hereto.
IN WITNESS WHEREOF, the Company has caused its duly authorized officers to
execute and attest this Option Agreement, and to apply the corporate seal
hereto, and the Optionee has placed his signature hereon, at the City of
Phoenix, County of Maricopa, State of Arizona, effective as of the Grant Date.
COMPANY:
EMPYREAN DIAGNOSTICS, LTD.,
a Wyoming corporation
By:
---------------------------------
STEPHEN HAYTER, PRESIDENT
OPTIONEE:
- -----------------------------------------
15
<PAGE>
EXHIBIT "1"
TO
NON-QUALIFIED STOCK OPTION AGREEMENT
NOTICE OF EXERCISE OF STOCK OPTION
<PAGE>
INITIALS: OPTIONEE:
NOTICE OF EXERCISE OF STOCK OPTION
(To be signed by Optionee only upon exercise of Option)
TO: Secretary
Empyrean Diagnostics, Ltd.
2238 West Lone Cactus Drive, Suite 200
Phoenix, Arizona 85027
The undersigned, the Optionee under that certain Non-Qualified Stock Option
Agreement dated _____________ _____, 1998 (hereinafter the "Option Agreement"),
between Empyrean Diagnostics, Ltd., a Wyoming corporation (hereinafter the
"Company") and the undersigned, hereby irrevocably elects, in accordance with
the terms and conditions of the Option Agreement, to exercise the undersigned's
Option (as such term is defined by Paragraph 2 of the Option Agreement) to
purchase _________________________(1) shares of the Common Stock, No Par Value
("Common Stock") of the Company, and encloses herewith good funds in the amount
of $___________________ (2) in full payment therefor(3).
(1) Insert number of Vested Option Shares (as defined by Paragraph 2 of
the Option Agreement) which Optionee is exercising his Option to
purchase.
(2) Number of Option Shares multiplied by the Option Price per share set
forth in Paragraph 2 of the Option Agreement ($________ per share).
(3) Unless the Company permits payment pursuant to the alternatives set
forth in Paragraph 6 of the Option Agreement.
The undersigned hereby remakes all representations, warranties and covenants set
forth in the Option Agreement as of the date of this Notice, all of which shall
survive the Closing with respect to the shares of Common Stock purchased hereby.
------------------------------------
Signature
------------------------------------
Print Name
------------------------------------
Address
------------------------------------
Date
(SIGNATURE MUST CONFORM IN ALL RESPECTS TO NAME OF OPTIONEE AS SPECIFIED ON THE
OPTION AGREEMENT, UNLESS THE UNDERSIGNED IS OPTIONEE'S PERMITTED SUCCESSOR, IN
WHICH CASE THE UNDERSIGNED MUST SUBMIT APPROPRIATE PROOF OF THE RIGHT OF THE
UNDERSIGNED TO EXERCISE THE OPTION)
AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION
STANDARD ESTOPPEL CERTIFICATE - BY LESSEE
TO WHOM IT MAY CONCERN:
RE: Lease ("Lease") dated FEBRUARY 20, 1998, by and between REMCON II L.L.C.
as Lessor, and EMPYREAN DIAGNOSTICS, LTD as Lessee, concerning the real property
known as: 2238 W. LONE CACTUS, SUITE 200 ("Premises"), which Lease was amended
NONE and guaranteed by NONE ("Guarantor(s)") (it will be presumed no amendments
or guarantees exist unless they are specified above).
Lessee hereby certifies as follows:
1. True copies of the above referenced Lease as amended and the
guarantees, if any, are attached hereto marked Exhibit "1" (Attach a
copy of Lease, all amendments and guarantees.)
2. The Lease term commenced on FEBRUARY 23, 1998 end expires on MARCH 31,
2001
3. The current monthly rent and expense pass-through, if any, are as
follows:
AMOUNT DAY OF MONTH DUE PAID UP THROUGH
------ ---------------- ---------------
Rent $ 3, 257.25 First Current, 1999
Pass through $ As specified in Lease , 19
No rents or pass-throughs have been prepaid except as reflected in the Lease.
(It will be presumed that no expense pass-throughs are currently required unless
set forth above.)
4. The current amount of security deposit held by Lessor is $6,000.00
5. The Lease has not been modified, orally or in writing, since its
execution, except as hereinabove identified. The Lease is in full force and
effect and contains the entire agreement between Lessor and Lessee, except (if
there are no exceptions, write "NONE"): AS SPECIFIED IN LEASE.
6. The improvements and space required to be provided by Lessor have been
furnished and completed in all respects to the satisfaction of Lessee, and all
promises of an inducement nature by Lessor have been fulfilled except (if there
are no exceptions, write "NONE"): NONE
7. Lessee has no knowledge of any uncured defaults by Lessor or Lessee
under the Lease, except (if there are no exceptions, write "NONE"): NONE
8. There are no disputes between Lessor and Lessee concerning the Lease,
the Premises or the improvements therein or thereon, except (if there are no
exceptions, write "NONE"): NONE
9. Lessee Is In full and complete possession of the Premises and has not
assigned or sublet any portion of the Premises, except (if there are no
exceptions, write "NONE"): NONE
10. Lessee has no knowledge of any prior sale, transfer, assignment or
encumbrance of the Lessor's interest in the Lease, except (if there are no
exceptions, vote "NONE"): NONE
11. Lessee has made no alterations or additions to the Premises, except (if
there are no exceptions, write "NONE"): NONE
If alterations or additions have been made by Lessee, Lessee represents
that to the best of its knowledge, all such alterations and additions were done
in accordance with the terms of the Lease and in compliance with all applicable
laws, rules and regulations, except (if there are no exceptions, write "NONE"):
None
12. The guarantees of the Guarantors named above are still in full force
and effect, except (if there are no oxcoptton6, write "NONE"): NONE
13. Lessee is not currently the subject of a bankruptcy proceeding and to
the best of its knowledge neither Lessor nor any Guarantor is involved in such a
proceeding, except (if there are no exceptions, write "NONE"): NONE
14. Lessee is aware that buyers, lenders and others will rely upon the
statements made in this Estoppel Certificate, and has therefore adjusted the
language hereof as necessary to make it an accurate statement of the current
facts concerning the Lease. If no such adjustments have been made, said parties
may rely upon the statements in this form as printed.
15. Additional items (if there are no additional items, write "NONE"):
OPTION TO PURCHASE HAS EXPIRED AND IS NO LONGER IN EFFECT. FURTHERMORE TENANT
HAS 1 TWO-YEAR OPTION TO RENEW LEASE AT THAT DAY' S PREVAILING RATE WITH 90 DAY
WRITTEN NOTICE; ONE HALF OF SECURITY DEPOSIT SHALL BE REFUNDED TO TENANT AFTER
COMPLETING 18 MONTHS OF TENANCY IN GOOD STANDING; RENT INCREASES $0.01/S.F.
EACH FEBRUARY 1 OF LEASE; ALL AS MORE PARTICULARLY DESCRIBED IN THE LEASE.
LEASEE AGREES TO COPY ACCIPITER COMMUNICATION, INC. WITH ANY AND ALL NOTICES IT
GIVES TO LESSOR AFTER EXECUTING THIS ESTOPPED CERTIFICATE.
DATE: JANUARY 1999
(Fill in date of execution) EMPYREAN DIAGNOSTICS, LTD.
By:
Name Printed: Raymond E. Dean
Title: C.O.O.
For this form, write: American Industrial Real Estate Association, 700 S. Flower
Street, Suite 600, Los Angeles, Calif. 90017
1996 - American Industrial Real Estate Association REVISED FORM TSER-0-12/96E
<PAGE>
STANDARD INDUSTRIAL REAL ESTATE ASSOCIATION
STANDARD ESTOPPEL CERTIFICATE - BY LESSEE
1. BASIC PROVISIONS ("BASIC PROVISIONS").
1.1 PARTIES: This lease ("Lease") dated for reference purposes only, February
20, 1998, is made by and between Remcon II, L.L.C. ("Lessor"), and Empyrean
Diagnostics ("Lessee"), (collectively the "Parties," or individually a "Party").
1.2(a) PREMISES: That certain portion of the Building, including all
improvements therein or to be provided by Lessor under the terms of this Lease,
commonly known by the street address of: 2238 W. Lone Cactus, Suite 200, located
in the City of Phoenix County of Maricopa, State of Arizona, with zip code 8 5 0
2 7, as outlined on Exhibit _____ attached hereto ("Premises"). The "Building"
is that certain building containing the Premises and generally described as
(describe briefly the nature of the Building): Approximately 4,343 sq. ft. as
part of a multi-tenant industrial building. In addition to Lessee's rights to
use and occupy the Premises as hereinafter specified, Lessee shall have
non-exclusive rights to the Common Areas (as defined in Paragraph 2.7 below) as
hereinafter specified, but shall not have any rights to the roof, exterior wails
or utility raceways of the Building or to any other buildings in the Industrial
Center. The Premises, the Building, the Common Areas, the land upon which they
are located, along with all other buildings and improvements thereon, are herein
collectively referred to as the "INDUSTRIAL Center." (Also see Paragraph 2.)
1.2 (b) PARKING: - 0 - unreserved vehicle parking spaces ("Unreserved Parking
Spaces"); and 14 reserved vehicle parking spaces ("RESERVED PARKING SPACES").
(Also see Paragraph 2.6.)
1.3 TERM: 3 years and -0- months ("ORIGINAL TERM") commencing February 23, 1998
("COMMENCEMENT DATE") and ending March 31, 2001 ("EXPIRATION DATE"). (Also see
Paragraph 3.)
1.4 EARLY POSSESSION: upon execution of lease ("EARLY POSSESSION DATE"). (Also
see Paragraphs 3.2 and 3.3.)
1.5 BASE RENT: $3,257.25 + Rental tax $61.89 per month ("Base Rent"), payable on
the first day of each month commencing February 23, l998 (Also see Paragraph 4.)
[X] If this box is checked, the Lease provides for the Base Rent to be adjusted
per Addendum ___________, attached hereto.
1.6(a) BASE RENT PAID UPON EXECUTION: $4,204.64 as Base Rent for the period
February 23 through March 31, 1998.
1.6(b) "LESSEE'S SHARE OF COMMON AREA OPERATING EXPENSES: n/a percent ( %)
("LESSEE'S SHARE") as determined by [ ] prorata square footage of the Premises
as compared to the total square footage of the Building or [ ] other criteria as
described in Addendum _______.
1.7 SECURITY DEPOSIT: $6,000.00 ("SECURITY DEPOSIT") (Also see Paragraph 5.)
1.8 PERMITTED USE: General office administration and the manufacturing and
development of medical diagnostic products. _______________ ("PERMITTED USE")
(Also see Paragraph 6.)
1.9 INSURING PARTY. Lessor is the "INSURING PARTY." (Also see Paragraph 8.)
1.10(a) REAL ESTATE BROKERS. The following real estate broker(s) (collectively,
the "BROKERS") and brokerage relationships exist in this transaction and are
consented to by the Parties (check applicable boxes):
[X] Johnson Commercial Real Estate represents Lessor exclusively ("LESSOR'S
BROKER");
[X] Core Jackson represents Lessee exclusively ("LESSEE'S BROKER"); or
[ ] represents both Lessor and Lessee ("DUAL AGENCY"); (Also see Paragraph 15.)
1.10(b) PAYMENT TO BROKERS. Upon the execution of this Lease by both Parties,
Lessor shall pay to said Broker(s) jointly, or in such separate shares as they
may mutually designate in wrong, a fee as set forth in a separate written
agreement between Lessor and said Broker(s) (or in the event there is no
separate written agreement between Lessor and said Broker(s), the sum of
$5,984.65 for brokerage services rendered by said Broker(s) in connection with
this transaction.
1.11 GUARANTOR. The obligations of the Lessee under this Lease are to be
guaranteed by _________________ ("GUARANTOR"). (Also see Paragraph 37.)
1.12 ADDENDA AND EXHIBITS. Attached hereto is an Addendum or Addenda consisting
of Paragraphs _________ through ___________, and Exhibits __________through
__________, all of which constitute a part of this Lease.
2. PREMISES, PARKING AND COMMON AREAS.
2.1 LETTING. Lessor hereby leases to Lessee, and Lessee herein leases from
Lessor, the Premises, for the term, at the rental, and upon all of the terms,
covenants and conditions set forth in this Lease. Unless otherwise provided
herein, any statement of square footage set forth in this I ease, or that may
have been used in calculating rental and/or Common Area Operating Expenses, is
an approximation which Lessor and Lessee agree is reasonable and the rental and
Lessee's Share (as defined in Paragraph 1.6(b)) based thereon is not subject to
revision whether or not the actual square footage is more or less.
2.2 CONDITION. Lessor shall deliver the Premises to Lessee clean and free
of debris on the Commencement Date and warrants to Lessee that the existing
plumbing, electrical systems, fire sprinkler system, lighting, air conditioning
and heating systems and loading doors, if any, in the Premises, other than those
constructed by Lessee, shall be in good operating condition on the Commencement
Date. If a non-compliance with said warranty exists as of the Commencement Date,
Lessor shall, except as otherwise provided in this Lease, promptly after receipt
of written notice from Lessee seeing forth with specificity the nature and
extent of such non-compliance, rectify same at Lessor's expense. If Lessee does
not give Lessor written notice of a noncompliance with this warranty within
thirty (30) days after the Commencement Date, correction of that non-compliance
shall be the obligation of Lessee at Lessee's sole cost and expense.
2.3 COMPLIANCE WITH COVENANTS, RESTRICTIONS AND BUILDING CODES. Lessor
warrants that any improvements (other than those constructed by Lessee or at
Lessee's direction) on or in the Premises which have been constructed or
installed by Lessor or with Lessor's consent or at Lessor's direction shall
comply with all applicable covenants or restrictions of record and applicable
building codes, regulations and ordinances in effect on the Commencement Date.
Lessor furry warrants to Lessee that Lessor has no knowledge of any claim having
been made by any governmental agency that a violation or violations of
applicable building codes, regulations, or ordinances exist with regard to the
Premises as of the Commencement Date. Said warranties shall not apply to any
Alterations or Utility Installations (defined in Paragraph 7.3(a)) made or to be
made by Lessee. If the Premises do not comply with said warranties, Lessor
shall, except as otherwise provided in this Lease, promptly after receipt of
written notice from Lessee given within six (6) months following the
Commencement Date and seeing forth with specificity the nature and extent of
such non-compliance, take such action, at Lessor's expense, as may be reasonable
or appropriate to rectify the non-compliance. Lessor makes no warranty that the
Permitted Use in Paragraph 1.8 is permitted for the Premises under Applicable
Laws (as defined in Paragraph 2.4).
2.4 ACCEPTANCE OF PREMISES. Lessee hereby acknowledges: (a) that It has
been advised by the Broker(s) to satisfy itself with respect to the condition of
the Premises (including but not limited to the electrical and fire
sprinkler-systems, security, environmental aspects, seismic and earthquake
requirements, and compliance with the Americans with Disabilities Act and
applicable zoning, municipal, county, state and federal laws ordinances and
regulations and any covenants or restrictions of record (collectively,
"APPLICABLE LAWS") and me present and future suitability of the Premises to;
Lessee's intended use, (b) that Lessee has made with investigation as it deems
necessary with reference to such makers, is satisfied: with reference thereto,
and assumes all responsibility therefore as the same relate to Lessee's
occupancy of the Premises and/or the terms of this Lease; and (c) that neither
Lessor, nor any of Lessor's agents, has made any oral or written representations
or wan antics with respect to said makers other than as set forth in this Lease.
2.5 LESSEE AS PRIOR OWNER/OCCUPANT. The warranties made by Lessor in This
Paragraph 2 shall be of no force or effect N immediately prior to the date set
forth in Paragraph 1.1 Lessee was the owner or occupant of the Premises. In such
event, Lessee shall, at Lessee's sole cost and expense, correct any
non-compliance of the Premises with said warranties.
Initials: _________
MULTI-TENANT - GROSS
American Industrial Real Estate Association 1993
<PAGE>
2.6 VEHICLE PARKING. Lessee shall be entitled to use the number of
Unreserved Parking Spaces and Reserved Parking Spaces specified in Paragraph
1.2(b) on those portions of the Common Areas designated from time to time by
Lessor for parking. Lessee shall not use more parking spaces than said number.
Said parking spaces shall be used for parking by vehicles no larger than
full-size passenger automobiles or pick-up trucks, herein called "PERMITTED SIZE
VEHICLES." Vehicles other than Permitted Size Vehicles shall be parked and
loaded or unloaded as directed by Lessor in the Rules and Regulations (as
defined in Paragraph 40) issued by Lessor. (Also see Paragraph 2.9.)
(a) Lessee shall not permit or allow any vehicles that belong to or are
controlled by Lessee or Lessee's employees, suppliers, shippers, customers,
contractors or invitees to be loaded, unloaded, or parked in areas other than
those designated by Lessor for such activities.
(b) If Lessee permits or allows any of the prohibited activities described
in this Paragraph 2.6, then Lessor shall have the right, without notice, In
addition to such other rights and remedies that it may have, to remove or tow
away the vehicle involved and charge the cost to Lessee, which cost shall be
immediately payable upon demand by Lessor.
(c) Lessor shall at the Commencement Date of this Lease, provide the
parking facilities required by Applicable Law.
2.7 COMMON AREA-DEFINITION. The term "COMMON AREAS" is defined as all areas
and facilities outside the Premises and within the exterior boundary line of the
Industrial Center and interior utility raceways within the Premises that are
provided and designated by the Lessor from time to time for the general
non-exclusive use of Lessor, Lessee and other lessees of the Industrial Center
and their respective employees, suppliers, shippers, customers, contractors and
invitees, including parking areas, loading and unloading areas, trash areas,
roadways, sidewalks, walkways, parkways, driveways and landscaped areas.
2.8 COMMON AREAS-LESSEE'S RIGHTS. Lessor hereby grants to Lessee, for the
benefit of Lessee and Its employees, suppliers, shippers, contractors, customers
and invitees, during the term of this Lease, the non-exclusive right to use, in
common with others entitled to such use, the Common Areas as they exist from
time to time, subject to any rights, powers, and privileges reserved by Lessor
under the terms hereof or under the terms of any rules and regulations or
restrictions governing the use of the Industrial Center. Under no circumstances
shall the right herein granted to use the Common Areas be deemed to include the
right to store any property, temporarily or permanently, in the Common Areas.
Any such storage shall be permitted only by the prior written consent of Lessor
or Lessor's designated agent, which consent may be revoked at any time. In the
event that any unauthorized storage shall occur then Lessor shall have the right
without notice, in addition to such other rights and remedies that it may have,
to remove the property and charge the cost to Lessee, which cost shall be
immediately payable upon demand by Lessor.
2.9 COMMON AREAS - RULES AND REGULATIONS. Lessor or such other person(s) as
Lessor may appoint shall have the exclusive control and management of the Common
Areas and shall have the right, from time to time, to establish, modify, amend
and enforce reasonable Rules and Regulations with respect thereto in accordance
with Paragraph 40. Lessee agrees to abide by and conform to all such Rules and
Regulations, and to cause its employees, suppliers, shippers, customers,
contractors and invitees to so abide and conform. Lessor shall not be
responsible to Lessee for the non-compliance with said rules and regulations by
other lessees of the Industrial Center.
2.10 COMMON AREAS-CHANGES. Lessor shall have the right, in Lessor's sole
discretion, from time to time:
(a) To make changes to the Common Areas, including, without limitation,
changes in the location, size, shape and number of dnveways, entrances parking
spaces, parking areas, loading and unloading areas, ingress, egress, direction
of traffic, landscaped areas, walkways and utility raceways;
(b) To dose temporarily any of the Common Areas for maintenance purposes so
long as reasonable access to the Premises remains available;
(c) To designate other land outside the boundaries of the Industrial Center
to be a part of the Common Areas;
(d) To add additional buildings and improvements to the Common Areas;
(e) To use the Common Areas while engaged in making additional
improvements, repairs or alterations to the Industrial Center, or any portion
thereof; and
(f) To do and perform such other acts and make such other changes in, to or
with respect to the Common Areas and Industrial Center as Lessor may, in the
exercise of sound business judgment, deem to be appropriate.
3. TERM.
3.1 TERM. The Commencement Date, Expiration Date and Original Term of this
Lease are as specified in Paragraph 1.3.
3.2 EARLY POSSESSION. If an Early Possession Date is specified in Paragraph
1.4 and if Lessee totally or partially occupies the Premises after the Early
Possession Date but prior to the Commencement Date, the obligation to pay Base
Rent shall be abated for the period of such early occupancy. All other terms of
this Lease, however, (including but not limited to the obligations to pay
Lessee's Share of Common Area Operating Expenses and to carry the insurance
required by Paragraph 8) shall be in effect during such period. Any such early
possession shall not affect nor advance the Expiration Date of the Original
Term.
3.3 DELAY IN POSSESSION. If for any reason Lessor cannot deliver possession
of the Premises to Lessee by the Early Possession Date, if one is specified in
Paragraph 1.4, or if no Early Possession Date is specified, by the Commencement
Date, Lessor shall not be subject to any liability therefor, nor shall such
failure affect the validity of this Lease, or the obligations of Lessee
hereunder, or extend the term hereof, but In such case, Lessee shall not, except
as otherwise provided herein, be obligated to pay rent or perform any other
obligation of Lessee under the terms of this Lease until Lessor delivers
possession of the Premises to Lessee. If possession of the Premises is not
delivered to Lessee within sixty (60) days after the Commencement Date, Lessee
may, at its option by notice in writing to Lessor within ten (10) days after the
end of said sixty (60) day period, cancel this Lease, in which event the panics
shall be discharged from all obligations hereunder, provided further, however,
that if such written notice of Lessee is not received by Lessor within said ten
(10) day period, Lessee's right to cancel this Lease hereunder shall terminate
and be of no further force or effect. Except as may be otherwise provided, and
regardless of when the Original Term actually commences, if possession is not
tendered to Lessee when required by this Lease and Lessee does not terminate
this Lease, as aforesaid, the period free of the obligation to pay Base Rent, if
any, that Lessee would otherwise have enjoyed shall nun from the date of
delivery of possession and continue for a period equal to the period during
which the Lessee would have otherwise enjoyed under the terms hereof, but minus
any days of delay caused by the acts, changes or omissions of Lessee.
4. RENT
4.1 BASE RENT. Lessee shall pay Base Rent and other rent or charges, as the
same may be adjusted from time to time, to Lessor in lawful money of the United
States, without offset or deduction, on or before the day on which it is due
under the terms of this Lease. Base Rent and all other rent and charges for any
period during the term hereof which is for less than one full month shall be
prorated based upon the actual number of days of the month involved. Payment of
Base Rent and other charges shall be made to Lessor at its address stated herein
or to such other persons or at such other addresses as Lessor may from time to
time designate in writing to Lessee.
4.2 COMMON AREA OPERATING EXPENSES. Lessee shall pay to Lessor during the
term hereof, in addition to the Base Rent, Lessee's Share (as specified in
Paragraph 1.6(b)) of all Common Area Operating Expenses, as hereinafter defined,
during each calendar year of the term of this Lease, in accordance with the
following provisions:
(a) "COMMON AREA OPERATING EXPENSES" are defined, for purposes of this
Lease, as all costs incurred by Lessor relating to the ownership and operation
of the Industrial Center, Including, but not limited to, the following:
(i) The operation, repair and maintenance, in neat, clean, good order
and condition, of the following:
(aa) The Common Areas, including parking areas, loading and
unloading areas, trash areas, roadways, sidewalks, walkways, parkways,
driveways, landscaped areas, striping, bumpers, irrigation systems, Common Area
lighting facilities, fences and gates, elevators and roof.
(bb) Exterior signs and any tenant directories.
(cc) Fire detection and sprinkler systems.
(ii) The cost of water, gas, electricity and telephone to service the
Common Areas.
(iii) Trash disposal, property management and security services and the
costs of any environmental inspections.
(iv) Reserves set aside for maintenance and repair of Common Areas.
(v) Any increase above the Base Real Property Taxes (as defined in
Paragraph 1 0.2(b)) for the Building and the Common Areas.
(vi) Any "Insurance Cost lncrease" (as defined in Paragraph 8.1).:
(vii) The cost of insurance carried by Lessor with respect to the
Common Areas.
(viii) Any deductible portion of an insured loss concerning the
Building or the Common Areas.
(ix) Any other services to be provided by Lessor that are stated
elsewhere in this Lease to be a Common Area Operating Expense.
(b) Any Common Area-Operating Expenses and Real Property Taxes that are
specifically attributable to the Building or to any other building in the
Industrial Center or to the operation, repair and maintenance thereof, shall be
allocated entirely to the Building or to such other building. However, any
Common Area Operating Expenses and Real Property Taxes that are not specifically
attributable to the Building or to any other building or to the operation,
repair and maintenance thereof, shall be equitably allocated by Lessor to all
buildings in the Industrial Center.
(c) The inclusion of the improvements, facilities and services set forth in
Subparagraph 4.2(a) shall not be deemed to impose an obligation upon Lessor to
either have said improvements or facilities or to provide those services unless
the Industrial Center already has the same. Lessor already provides the
services, or Lessor has agreed elsewhere in this Lease to provide the same or
some of them.
(d) Lessee's Share of Common Area Operating Expenses shall be payable by
Lessee within ten (10) days after a reasonably detailed statement of actual
expenses is presented to Lessee by Lessor. At Lessor's option, however, an
amount may be estimated by Lessor from time to time of Lessee's Share of annual
Common Area Operating Expenses and the same shall be payable monthly or
quarterly' as Lessor shall designate, during each 12-month period of the Lease
term, on the same day as the Base Rent is due hereunder. Lessor shall deliver to
Lessee within sixty (60) days after the expiration of each calendar year a
reasonably detailed statement showing Lessee's Share of the actual Common Area
Operating Expenses incurred during the preceding year. If Lessee's payments
under this Paragraph 4.2f(d) during sate preceding year exceed Lessee's Share as
Indicated on said statement, Lessee shall be credited the amount of such
overpayment against Lessee's Share of Common Area Operating Expenses next
becoming due. If Lessee's payments under this Paragraph 4.2(d) during said
preceding year were less than Lessee's Share as indicated on said statement,
Lessee shall pay to Lessor of the deficiency within ten (10) days after delivery
by Lessor to Lessee of said statement.
5. SECURITY DEPOSIT. Lessee shall deposit with Lessor upon Lessee's execution
hereof the Security Deposit set forth in Paragraph 1.7 as security for Lessee's
faithful performance of Lessee's obligations under this Lease. If Lessee fails
to pay Base Rent or other rent or charges due hereunder, or otherwise Defaults
under this Lease (as defined in Paragraph 13.1), Lessor may use, apply or retain
all or any portion of said Security Deposit for the payment of any amount due
Lessor or to reimburse or compensate Lessor for any liability, cost, expense,
loss or damage (including attorneys' fees) which Lessor may suffer or incur by
reason thereof. If Lessor uses or applies all or any portion of said Security
Deposit, Lessee shall within ten (10) days after written request therefore
deposit monies with Lessor sufficient to restore said Security Deposit to the
full amount required by this Lease. Any time the Base Rent increases during the
term of this Lease, Lessee shall, upon written request from Lessor, deposit
additional monies with Lessor as an addition to the Security Deposit so that the
total amount of the Security Deposit shall at all times bear the same proportion
to the then current Base Rent as the initial Security Deposit bears to the
initial Base Rent set forth in Paragraph 1.5. Lessor shall not be required to
keep all or any part of the Security Deposit separate from its general accounts.
Lessor shall, at the expiration or earlier termination of the term hereof and
after Lessee has vacated the Premises, return-to Lessee (or, at Lessor's option,
to the last assignee, if any, of Lessee's interest herein), that portion of the
Security Deposit not used or applied by Lessor. Unless otherwise expressly
agreed in writing by Lessor, no pan of the Security Depose shall be considered
to be held in trust, to bear interest or other increment for its use, or to be
prepayment for any monies to be paid by Lessee under this Lease.
6. USE.
6.1 PERMITTED USE.
(a) Lessee shall use and occupy the Premises only for the Permitted Use set
forth in Paragraph 1.8, or any other legal use which is reasonably comparable
thereto, and for no other purpose. Lessee shall not use or permit the use of the
Premises in a manner that is unlawful, creates waste or a nuisance, or that
disturbs owners and/or occupants of, or causes damage to the Premises or
neighboring premises or properties.
(b) Lessor hereby agrees to not unreasonably withhold or delay its consent
to any whiten request by Lessee, Lessee's assignees or subtenants, and by
prospective assignees and subtenants of Lessee, its assignees and subtenants,
for a modification of said Permitted Use, so long as the same will not impair
the structural integrity of the improvements on the Premises or in the Building
or the mechanical or electrical systems therein, does not conflict with uses by
other lessees, is not significantly more burdensome to the Premises or the
Building and the improvements thereon, and is otherwise permissible pursuant to
this Paragraph 6. If Lessor elects to withhold such consent, Lessor shall within
five (5) business days after such request give a written notification of same,
which notice shall include an explanation of Lessor's reasonable objections to
the change in use.
6.2 HAZARDOUS SUBSTANCES.
(a) REPORTABLE USES REQUIRE CONSENT. The term "HAZARDOUS SUBSTANCE" as used
in this Lease shall mean any product) substance, chemical, material or waste
whose presence, nature, quantity and/or intensity of existence, use,
manufacture, disposal, transportation, spill, release or effect, either by
itself or in combination with other materials expected to be on the Premises, is
either: (i) potentially injurious to the public health, safety or welfare, the
environment, or the Premises; (ii) regulated or monitored by any governmental
authority; or (iii) a basis for potential liability of Lessor to any
governmental agency or third party under any applicable statute or common law
theory. Hazardous Substance shall include, but not be limited to, hydrocarbons,
petroleum, gasoline, crude oil or any products or by-products thereof. Lessee
shall not engage in any activity in or about the Premises which constitutes a
Reportable Use (as hereinafter defined) of Hazardous Substances without the
express prior written consent of Lessor and compliance in a timely manner (at
Lessee's sole cost and expense) with all Applicable Requirements (as defined in
Paragraph 6.3). "REPORTABLE USE" shall mean (i) the installation or use of any
above or below ground storage tank, (ii) the generation, possession, storage,
use, transportation, or disposal of a Hazardous Substance that requires a permit
from, or with respect to which a report, notice, registration or business plan
is required to be filed with, any governmental authority, and (iii) the presence
in, on or about the Premises of a Hazardous Substance with respect to which any
Applicable Laws require that a notice be given to persons entering or occupying
the premises or neighboring properties. Notwithstanding the foregoing, Lessee
may, without Lessor's prior consent, but upon notice to Lessor and in compliance
with all Applicable Requirements, use any ordinary and customary materials
reasonably required to be used by Lessee in the normal course of the Permitted
Use, so long as such use is not a Reportable Use and does not expose the
Premises or neighboring properties to any meaningful risk of contamination or
damage or expose Lessor to any liability therefor. In addition, Lessor may (but
without any obligation to do so) condition its consent to any Reportable Use of
any Hazardous Substance by Lessee upon Lessee's giving Lessor such additional
assurances as Lessor, in its reasonable discretion, deems necessary to protect
itself the public, the Premises and the environment against damage contamination
or Injury anchor liability therefor, including but not limited to the
installation (and, at Lessor's option, removal on or before Lease expiration or
earlier termination) of reasonably necessary protective modifications to the
Premises (such as concrete encasements) and/or the deposit of an additional
Security Deposit under Paragraph 5 hereof.
(b) DUTY TO INFORM LESSOR. If Lessee knows, or has reasonable cause to
believe, that a Hazardous Substance has come to be located in, on, under or
about the Premises or the Building, other than as previously consented to by
Lessor, Lessee shall immediately give Lessor written notice thereof, together
with a copy of any statement, report, notice, registration, application, permit,
business plan, license, claim, action, or proceeding given to, or received from,
any governmental authority or private party concerning the presence, spill,
release, discharge of, or exposure to, such Hazardous Substance including but
not limited to all such documents as may be involved in any Reportable Use
involving the Premises. Lessee shall not cause or permit any Hazardous Substance
to be spilled or released in, on, under or about the Premises (including,
without limitation, through the plumbing or sanitary sewer system).
(c) INDEMNIFICATION. Lessee shall indemnify, protect, defend and hold
Lessor, its agents, employees, lenders and ground lessor, if any, and the
Premises, harmless from and against any and all damages, liabilities, judgments,
costs, claims, liens, expenses, penalties, loss of permits and attorneys' and
consultants' fees arising out of or involving any Hazardous Substance brought
onto the Premises by or for Lessee or by anyone under Lessee's control. Lessee's
obligations under His Paragraph 6.2(c) shall include, but not be limited to, the
effects of any contamination or injury to person, property or the environment
created or suffered by Lessee, and the cost of investigation (including
consultants' and attorneys' fees and testing), removal, remediation, restoration
and/or abatement thereof, or of any contamination therein involved, and shall
survive the expiration or earlier termination of this Lease. No termination,
cancellation or release agreement entered into by Lessor and Lessee shall
release Lessee from its obligations under this Lease with respect to Hazardous
Substances, unless specifically so agreed by Lessor in writing at the time of
such agreement.
6.3 LESSEE 'S COMPLIANCE WITH REQUIREMENTS. Lessee shall, at Lessee's sole
cost and expense, fully, diligently and in a timely manner, comply with all
"Applicable Requirements," which term is used in this Lease to mean all laws,
rules, regulations, ordinances, directives, covenants, easements and
restrictions of record, permits, the requirements of any applicable fire
Insurance underwriter or rating bureau, and the recommendations of Lessor's
engineers and/or consultants, relating in any manner to the Premises (including
but not limited to makers pertaining to (i) industrial hygiene, (ii)
environmental conditions on, in, under or about the Premises, including soil and
groundwater conditions, and (iii) the use, generation, manufacture, production,
installation, maintenance, removal, transportation, storage, spill, or release
of any Hazardous Substance), now in effect or which may hereafter come into
effect. Lessee shall, within five (5) days after receipt of Lessor's written
request, provide Lessor with copies of all documents and Information, Including
but not limited to permits, registrations, manifests applications, reports and
certificates, evidencing Lessee's compliance with any Applicable Requirements
specified by Lessor, and shall immediately upon receipt notify Lessor in writing
(with copies of any documents involved) of any threatened or actual claim,
notice, citation, warning, complaint or report pertaining to or involving
failure by Lessee or the Premises to comply with any Applicable Requirements.
6.4 INSPECTION; COMPLIANCE WITH LAW. Lessor, Lessor's agents, employees,
contractors and designated representatives, and the holders of any mortgages,
deeds of trust or ground leases on the Premises ("Lenders") shall have the
right to enter the Premises at any time in the case of an emergency, and
otherwise at reasonable times, for the purpose of inspecting the condition of
the Premises and for verifying compliance by Lessee with this Lease and all
Applicable Requirements (as defined in Paragraph 6.3), and Lessor shall be
enticed to employ experts and/or consultants in connection therewith to advise
Lessor with respect to Lessee's activities, including but not limited to Lessees
installation, operation, use, monitoring, maintenance, or removal of any
Hazardous Substance on or from the Premises. The costs and expenses of any such
inspections shall be paid by the party requesting same, unless a Default or
Breach of this Lease by Lessee or a violation of Applicable Requirements or a
contamination, caused or materially contributed to by Lessee, Is found to exist
or to be imminent, or unless the inspection is requested or ordered by a
governmental authority as the result of any such existing or imminent violation
or contamination. In such case, Lessee shall upon request reimburse Lessor or
Lessor's Lender, as the case may be, for the costs and expenses of such
inspections.
7. MAINTENANCE, REPAIRS, UTILITY INSTALLATIONS, TRADE FIXTURES AND ALTERATIONS.
7.1 LESSEE'S OBLIGATIONS.
(a) Subject to the provisions of Paragraphs 2.2 (Condition), 2.3
(Compliance with Covenants, Restrictions and Building Code), 7.2 (Lessor's
Obligations) 9 (Damage or Destruction), and 14 (Condemnation), Lessee shall, at
Lessee's sole cost and expense and at all times, keep the Premises and every
part thereof in good order, condition and repair (whether or not such portion of
the Premises requiring repair, or the means of repairing the same, are
reasonably or readily accessible to Lessee, and whether or not the need for such
repairs occurs as a result of Lessee's use, any prior use, the elements or the
age of such portion of the Premises), including without limiting the generality
of the foregoing, all equipment or facilities specifically serving the Premises,
such as plumbing, heating, air conditioning, ventilating electrical, lighting
facilities, boilers, tired or unfired pressure vessels, fire hose connections
it within the Premises, fixtures, interior walls, interior surfaces of exterior
walls, ceilings, floors, windows, doors, plate glass, and skylights, but
excluding any items which are the responsibility of Lessor pursuant to Paragraph
7.2 below. Lessee, in keeping the Premises in good order, condition and repair,
shall exercise and perform good maintenance practices. Lessee's obligations
shall include restorations, replacements or renewals when necessary to keep the
Premises and all improvements thereon or a part thereof in good order, condition
and state of repair.
(b) Lessee shall, at Lessees sole cost and expense, procure and maintain a
contract, with copies to Lessor in customary form and substance for and with a
contractor specializing and experienced in the inspection, maintenance and
service of the heating, air conditioning and ventilation system for the
Premises. However, Lessor reserves the right, upon notice to Lessee, to procure
and maintain the contract for the heating, air conditioning and ventilating
systems, and if Lessor so elects, Lessee shall reimburse Lessor, upon demand,
for the cost thereof.
(c) If Lessee fails to perform Lessee's obligations under this Paragraph
7.1, Lessor may enter upon the Premises after ten (10) days' prior written
notice to Lessee (except in the case of an emergency, in which case no notice
shall be required), perform such obligations on Lessee's behalf, and put the
Premises In good order, condition and repair, in accordance with Paragraph 13.2
below.
7.2 LESSOR'S OBLIGATIONS - . Subject to the provisions of Paragraphs 2.2
(Condition), 2.3 (Compliance with Covenants, Restrictions and Building Code),
4.2 (Common Area Operating Expenses), 6 (Use), 7.1 (Lessee's Obligations), 9
(Damage or Destruction) and 14 (Condemnation) Lessor, subject to reimbursement
pursuant to Paragraph 4.2, Shall keep in good order, condition and repair the
foundations, exterior walls, structural condition of interior bearing walls,
exterior roof, fire sprinkler and/or standpipe and hose (if located in the
Common Areas) or other automatic fire extinguishing system including fire alarm
and/or smoke detection, systems and equipment, fire hydrants, parking lots,
walkways, parkways, driveways, landscaping, fences, signs and utility systems
serving the Common Areas and all parts thereof, as well providing the services
for which there is a Common Area Operating Expense pursuant to Paragraph 4.2.
Lessor shall not be obligated to paint the exterior or interior surfaces of
exterior walls nor shall Lessor be obligated to maintain, repair or replace
windows, doors or plate glass of the Premises. Lessee expressly waives the
benefit of any statute now or hereafter in effect which would otherwise afford
Lessee the right to make repairs at Lessor's expense or to terminate this Lease
because of Lessor's failure to keep the Building, Industrial Center or Common
Areas in good order, condition and repair.
7.3 UTILITY INSTALLATIONS, TRADE FIXTURES, ALTERATIONS.
(a) DEFINITIONS; CONSENT REQUIRED. The term "UTILITY INSTALLATIONS" is used
in this Lease to refer to all air lines, power panels, electrical distribution
security, fire protection systems, communications systems, lighting fixtures,
heating, ventilating and air conditioning equipment, plumbing, and fencing in,
on or about the Premises. The term "TRADE FIXTURES" shall mean Lessee's
machinery and equipment which can be removed without doing material damage to
the Premises. The term "ALTERATIONS" shall mean any modification of the
improvements on the Premises which are provided by Lessor under the terms of
this Lease other than Utility Installations or Trade Fixtures. "LEASES-OWNED
ALTERATIONS AND/OR UTILITY INSTALLATIONS" are defined as Alterations and/or
Utility Installations made by Lessee that are not yet owned by Lessor pursuant
to Paragraph 7.4(a). Lessee shall not make nor cause to be made any Alterations
or Utility Installations in, on, under or about the Premises without Lessor's
prior written consent. Lessee may, however, make non-structural Utility
Installations to the interior of the Premises (excluding the roof) without
Lessor's consent but upon notice to Lessor, so long as they are not visible from
the outside of the Premises, do not involve puncturing, relocating or removing
the roof or any existing walls, or changing or interfering with the fire
sprinkler or fire detection systems and the cumulative cost thereof during the
term of this Lease as extended does not exceed $2,500.00.
(b) CONSENT. Any Alterations or Utility Installations that Lessee shall
desire to make and which require the consent of the Lessor shall be presented to
Lessor in written form with detailed plans. All consents given by Lessor,
whether by virtue of Paragraph 7.3(a) or by subsequent specific consent, shall
be deemed conditioned upon: (i) Lessee's acquiring all applicable permits
required by governmental authorities; (ii) the furnishing of copies of such
permits together with a copy of the plans and specifications for the Alteration
or Utility Installation to Lessor prior to commencement of the work thereon; and
(iii) the compliance by Lessee with all conditions of said permits in a prompt
and expeditious manner. Any Alterations or Utility Installations by Lessee
during the term of this Lease shall be done in a good and workmanlike manner,
with good and sufficient materials, and be in compliance with all Applicable
Requirements. Lessee shall promptly upon completion thereof furnish Lessor with
as-built plans and specifications therefor. Lessor may, (but without obligation
to do so) condition its consent to any requested Alteration or Utility
Installation that costs $2,500.00 or more upon Lessee's providing Lessor with a
lien and completion bond in an amount equal to one and one-half times the
estimated cost of such Alteration or Utility Installation.
(c) LIEN PROTECTION. Lessee shall pay when due all claims for labor or
materials furnished or alleged to have been furnished to or for Lessee at or for
use on the Premises, which claims are or may be secured by any mechanic's or
materialmen's lien against the Premises or any interest therein. Lessee shall
give Lessor not less than ten (10) days' notice prior to the commencement of any
work in, on, or about the Premises, and Lessor shall have the right to post
notices of non-responsibility in or on the Premises as provided by law. If
Lessee shall, in good faith, contest the validity of any such lien, claim or
demand, then Lessee shall at its sole expense, defend and protect itself, Lessor
and the Premises against the same and shall pay and satisfy any such adverse
judgment that may be rendered thereon before the enforcement thereof against the
Lessor or the Premises. If Lessor shall require, Lessee shall furnish to Lessor
a surety bond satisfactory to Lessor in an amount equal to one and one-half
times the amount of such contested lien claim or demand, indemnifying Lessor
against liability for the same, as required by law for the holding of the
Premises free from the effect of such lien or claim. In addition, Lessor may
require Lessee to pay Lessor's attorneys' fees and costs in participating in
such action if Lessor shall decide it is to its best interest to do so.
7.4 OWNERSHIP, REMOVAL, SURRENDER, AND RESTORATION.
(a) OWNERSHIP. Subject to Lessor's right to require their removal and to
cause Lessee to become the owner thereof as hereinafter provided in this
Paragraph 7.4, all Alterations and Utility Installations made to the Premises by
Lessee shall be the properly of and owned by Lessee, but considered a part of
the Premises. Lessor may, at any time and at its option, elect in writing to
Lessee to be the owner of all or any specified part of the Lessee-Owned
Alterations and Utility Installations. Unless otherwise instructed per
Subparagraph 7.4(b) hereof, all Lessee-Owned Alterations and Utility
Installations shall, at the expiration or earlier termination of this Lease,
become the property of Lessor and remain upon the Premises and be surrendered
with the Premises by Lessee.
(b) REMOVAL. Unless otherwise agreed in writing, Lessor may require that
any or all Lessee-Owned Alterations or Utility Installations be removed by the
expiration or earlier termination of this Lease, notwithstanding that their
installation may have been consented to by Lessor. Lessor may require the
removal at any time of all or any part of any Alterations or Utility
Installations made without the required consent of Lessor.
(c) SURRENDER/RESTORATION. Lessee shall surrender the Premises by the end
of the last day of the Lease term or any earlier termination date, clean and
free of debris and in good operating order, condition and state of repair,
ordinary wear and tear excepted. Ordinary wear and tear shall not include any
damage or deterioration that would have been prevented by good maintenance
practice or by Lessee performing all of its obligations under this Lease. Except
as otherwise agreed or specified herein, the Premises, as surrendered, shall
include the Alterations and Utility Installations. The obligation of Lessee
shall include the repair of any damage occasioned by the installation,
maintenance or removal of Lessee's Trade Fixtures, furnishings, equipment, and
Lessee-Owned Alterations and Utility Installations, as well as the removal of
any storage tank installed by or for Lessee, and the removal, replacement, or
remediation of any soil, material or ground water contaminated by Lessee, all as
may then be required by Applicable Requirements and/or good practice. Lessee's
Trade Fixtures shall remain the property of Lessee and shall be removed by
Lessee subject to its obligation to repair and restore the Premises per this
Lease.
8. INSURANCE; INDEMNITY.
8.1 PAYMENT OF PREMIUM INCREASES.
(a) As used herein, the term "INSURANCE COST INCREASE" is defined as any
increase in the actual cost of the insurance applicable to the Building and
required to be carried by Lessor pursuant to Paragraphs 8.2(b), 8.3(a) and
8.3(b), ("REQUIRED INSURANCE"), over and above the Base Premium, as hereinafter
defined, calculated on an annual basis. "Insurance Cost Increase. shall include,
but not be limited to, requirements of the holder of a mortgage or deed of trust
covering the Premises, increased valuation of the Premises, and/or a general
premium rate increase. The term "Insurance Cost Increase" shall not, however,
include any premium increases resulting from the nature of the occupancy of any
other lessee of the Building. If the parties insert a dollar amount in Paragraph
1.9, such amount shall be considered the "Base Premium." if a dollar amount has
not been inserted in Paragraph 1.9 and if the Building has been previously
occupied during the twelve (12) month period immediately preceding the
Commencement Date, the "Base Premiums shall be the annual premium applicable to
such twelve (12) month period. If the Building was not fully occupied during
such twelve (12) month period, the Base Premium shall be the lowest annual
premium reasonably obtainable for the Required Insurance as of the Commencement
Date, assuming the most nominal use possible of the Building. in no event,
however, shall Lessee be responsible for any portion of the premium cost
attributable to liability insurance coverage in excess of $1,000,000 procured
under Paragraph 8.2(b).
(b) Lessee shall pay any Insurance Cost Increase to Lessor pursuant to
Paragraph 4.2. Premiums for policy periods commencing prior to, or extending
beyond, the term of this Lease shall be prorated to coincide with the
corresponding Commencement Date or Expiration Date.
8.2 LIABILITY INSURANCE.
(a) CARRIED BY LESSEE. Lessee shall obtain and keep in force during the
term of this Lease a Commercial General Liability policy of insurance protecting
Lessee, Lessor and any Lender(s) whose names have been provided to Lessee in
writing (as additional insureds) against claims for bodily injury, personal
injury and property damage based upon, involving or arising out of the
ownership, use, occupancy or maintenance of the Premises and all areas
appurtenant thereto. Such insurance shall be on an occurrence basis providing
single limit coverage in an amount not less than $1,000,000 per occurrence with
an Additional Insured-Managers or Lessors of Premises endorsement and contain
the "Amendment of the Pollution Exclusion" endorsement for damage caused by
heat, smoke or fumes from a hostile fire. The policy shall not contain any
intra-insured exclusions as between insured persons or organizations, but shall
include coverage for liability assumed under this Lease as an "INSURED CONTRACT"
for the performance of Lessee's indemnity obligations under this Lease. The
limits of said insurance required by this Lease or as carried by Lessee shall
not, however, limit the liability of Lessee nor relieve Lessee of any obligation
hereunder. All Insurance to be carried by Lessee shall be primary to and not
contributory with any similar insurance carried by Lessor, whose insurance shall
be considered excess insurance only.
(b) CARRIED BY LESSOR. Lessor shall also maintain liability insurance
described in Paragraph 8.2(a) above, in addition to and not in lieu of, the
insurance required to be maintained by Lessee. Lessee shall not be named as an
additional insured therein.
8.3 PROPERTY INSURANCE - BUILDING, IMPROVEMENTS AND RENTAL VALUE.
(a) BUILDING AND IMPROVEMENTS. Lessor shall obtain and keep in force during
the term of this Lease a policy or polices in the name of Lessor, with loss
payable to Lessor and to any Lender(s), insuring against loss or damage to the
Premises. Such insurance shall be for full replacement cost, as the same shall
exist from time to time, or the amount required by any Lender(s), but in no
event more than the commercially reasonable and available insurable value
thereof if, by reason of the unique nature or age of the improvements involved,
such latter amount is less than full replacement cost. Lessee-Owned Alterations
and Utility Installations, Trade Fixtures and Lessee's personal property shall
be insured by Lessee pursuant to Paragraph 8.4. It the coverage is available and
commercially appropriate Lessor's policy or policies shall insure against all
risks of direct physical loss or damage (except the perils of flood and/or
earthquake unless required by a Lender or included in the Base Premium),
including coverage for any additional costs resulting from debris removal and
reasonable amounts of coverage for the enforcement of any ordinance or law
regulating the reconstruction or replacement of any undamaged sections of the
Building required to be demolished or removed by reason of the enforcement of
any building, zoning, safety or land use laws as the result of a covered loss,
but not including plate glass insurance. Said policy or policies shall also
contain an agreed valuation provision in lieu of any co-insurance clause, waiver
of subrogation, and inflation guard protection causing an increase in the annual
property insurance coverage amount by a factor of not less than the adjusted
U.S. Department of Labor Consumer Price Index for All Urban Consumers for the
city nearest to where the Premises are located.
(b) RENTAL VALUE. Lessor shall also obtain and keep in force during the
term of this Lease a policy or policies in the name of Lessor, with loss payable
to Lessor and any Lender(s), insuring the loss of the full rental and other
charges payable by all lessees of the Building to Lessor for one year (including
all Real Property Taxes, insurance costs, all Common Area Operating Expenses and
any scheduled rental increases). Said insurance may provide that in the event
the Lease is terminated by reason of an insured loss, the period of indemnity
for such coverage shall be extended beyond the date of the completion of repairs
or replacement of the Premises, to provide for one full year's loss of rental
revenues from the date of any such loss. Said insurance shall contain an agreed
valuation provision in lieu of any co-insurance clause, and the amount of
coverage shall be adjusted annually to reflect the projected rental income, Real
Property Taxes, insurance premium costs and other expenses, if any, otherwise
payable, for the next 12-month period. Common Area Operating Expenses shall
include any deductible amount in the event of such loss.
(c) ADJACENT PREMISES. Lessee shall pay for any increase in the premiums
for the property insurance of the Building and for the Common Areas or other
buildings in the Industrial Center if said increase is caused by Lessee's acts,
omissions, use or occupancy of the Premises.
Initials: _________
MULTI-TENANT - GROSS
American Industrial Real Estate Association 1993
<PAGE>
(d) LESSEE'S IMPROVEMENTS. Since Lessor is the Insuring Party, Lessor shall
not be required to insure Lessee-Owned Alterations and Utility Installations
unless the item in question has become the property of Lessor under the terms of
this Lease.
8.4 LESSEE'S PROPERTY INSURANCE. Subject to the requirements of Paragraph
8.5, Lessee at its cost shall either by separate policy or, at Lessor's option,
by endorsement to a policy already carried, maintain insurance coverage on all
of Lessee's personal property, Trade Fixtures and Lessee-Owned Alterations and
Utility Installations in, on, or about the Premises similar in coverage to that
carried by Lessor as the Insuring Party under Paragraph 8.3(a). Such insurance
shall be full replacement cost coverage with a deductible not to exceed $1,000
per occurrence. The proceeds from any such insurance shall be used by Lessee for
the replacement of personal property and the restoration of Trade Fixtures and
Lessee-Owned Alterations and Utility Installations. Upon request from Lessor,
Lessee shall provide Lessor with written evidence that such insurance is in
force.
8.5 INSURANCE POLICIES. Insurance required hereunder shall be in companies
duly licensed to transact business in the state where the Premises are located,
and maintaining during the policy term a General Policyholders Rating" of at
least B+, V, or such other rating as may be required by a Lender, as set forth
In the most current issue of "Best's Insurance Guide." Lessee shall not do or
permit to be done anything which shall invalidate the insurance policies
referred to in this Paragraph 8. Lessee shall cause to be delivered to Lessor,
within seven (7) days after the earlier of the Early Possession Date or the
Commencement Date, certified copies of, or certificates evidencing the existence
and amounts of, the insurance required under Paragraph 8.2(a) and 8.4. No such
policy shall be cancelable or subject to modification except after thirty (30)
days' prior written notice to Lessor. Lessee shall at least thirty (30) days
prior to the expiration of such policies, furnish Lessor with evidence of
renewals or Insurance binders. evidencing renewal thereof, or Lessor may order
such insurance and charge the cost thereof to Lessee, which amount shall be
payable by Lessee to Lessor upon demand.
8.6 WAIVER OF SUBROGATION. Without affecting any other rights or remedies,
Lessee and Lessor each hereby release and relieve the other, and waive their
entire right to recover damages (whether In contract or in torts against the
other, for loss or damage to their property arising out of or incident to the
perils required to be insured against under Paragraph 8. The effect of such
releases and waivers of the right to recover damages shall not be limited by the
amount of insurance carried or required, or by any deductibles applicable
thereto. Lessor and Lessee agree to have their respective insurance companies
issuing property damage insurance waive any right to subrogation that such
companies may have against Lessor or Lessee, as the case may be, so long as the
insurance is not invalidated thereby.
8.7 INDEMNITY. Except for Lessor's negligence and/or breach of express
warranties, Lessee shall indemnity, protect, defend and hold harmless the
Premises, Lessor and its agents, Lessors master or ground lessor, partners and
Lenders, from and against any and all claims, loss of rents and/or damages,
costs, liens, judgments, penalties, loss of permits, attorneys' and consultants'
fees, expenses and/or liabilities arising out of, involving, or in connection
with, the occupancy of the Premises by Lessee, the conduct of Lessee's business,
any act, omission or neglect of Lessee, its agents, contractors, employees or
invitees and out of any Default or Breach by Lessee in the performance in a
timely manner of any obligation on Lessee's part to be performed under this
Lease. The foregoing shall include, but not be limited to, the defense or
pursuit of any claim or any action or proceeding involved therein, and whether
or not (in the case of claims made against Lessor) litigated and/or reduced to
judgment. In case any action or proceeding be brought against Lessor by reason
of any of the foregoing matters, Lessee upon notice from Lessor shall defend the
same at Lessee's expense by counsel reasonably satisfactory to Lessor and Lessor
shall cooperate with Lessee in such defense. Lessor need not have first paid any
such claim in order to be so indemnified.
8.8 EXEMPTION OF LESSOR FROM LIABILITY. Lessor shall not be liable for
injury or damage to the person or goods, wares, merchandise or other property of
Lessee, Lessee's employees, contractors, invitees, customers, or any other
person in or about the Premises, whether such damage or injury is caused by or
results from fire, steam, electricity, gas, water or rain, or from the breakage,
leakage, obstruction or other detects of pipes, fire sprinklers, wires,
appliances, plumbing, air conditioning or lighting fixtures, or from any other
cause, whether said injury or damage results from conditions arising upon the
Premises or upon other portions of the Building of which the Premises are a
part, from other sources or places, and regardless of whether the cause of such
damage or injury or the means of repairing the same is accessible or not. Lessor
shall not be liable for any damages arising from any act or neglect of any other
lessee of Lessor nor from the failure by Lessor to enforce the provisions of any
ocher lease in the Industrial Center. Notwithstanding Lessors negligence or
breach of this Lease, Lessor shall under no circumstances be liable for Injury
to Lessee's business or for any loss of income or profit therefrom.
9. DAMAGE OR DESTRUCTION.
9.1 DEFINITIONS.
(a) "PREMISES PARTIAL DAMAGE" shall mean damage or destruction to the
Premises, other than Lessee-Owned Alterations and Utility Installations, the
repair cost of which damage or destruction is less than tiny percent (50%) of
the then Replacement Cost (as defined in Paragraph 9.1 (d)) of the Premises
(excluding Lessee-Owned Alterations and Utility Installations and Trade
Fixtures) Immediately prior to such damage or destruction.
(b) "PREMISES TOTAL DESTRUCTION" shall mean damage or destruction to the
Premises, other than Lessee-Owned Alterations and Utility Installations the
repair cost of which damage or destruction is fifty percent (50%) or more of the
then Replacement Cost of the Premises (excluding Lessee-Owned Alterations and
Utility Installations and Trade Fixtures) immediately prior to such damage or
destruction. In addition, damage or destruction to the Building, other than
Lessee-Owned Alterations and Utility Installations and Trade Fixtures of any
lessees of the Building, the cost of which damage or destruction is tiny percent
(50%) or more of the then Replacement Cost (excluding Lessee-Owned Alterations
and Utility Installations and Trade Fixtures of any lessees of the Building) of
the Building shall, at the option of Lessor, be deemed to be Premises Total
Destruction.
(c) "INSURED LOSS - " shall mean damage or destruction to the Premises,
other than Lessee-Owned Alterations and Utility Installations and Trade
Fixtures, which was caused by an event required to be covered by the insurance
described in Paragraph 8.3(a) irrespective of any deductible amounts or coverage
limits involved.
(d) "REPLACEMENT COST" shall mean the cost to repair or rebuild the
improvements owned by Lessor at the time of the occurrence to their condition
existing immediately prior thereto, including demolition, debris removal and
upgrading required by the operation of applicable building codes, ordinances or
laws, and without deduction for Depreciation.
(e) "HAZARDOUS SUBSTANCE CONDITION" shall mean the occurrence or discovery
of a condition involving the presence of, or a contamination by, a Hazardous
Substance as defined in Paragraph 6.2(a), in, on, or under the Premises.
9.2 PREMISES PARTIAL DAMAGE-INSURED LOSS. If Premises Partial Damage that
is an Insured Loss occurs, then Lessor shall, at Lessor's expense, repair such
damage (but not Lessee's Trade Fixtures or Lessee-Owned Alterations and Utility
Installations) as soon as reasonably possible and this Lease shall continue in
full force and effect. In the event, however, that there is a shortage of
insurance proceeds and such shortage is due to the fact that, by reason of the
unique nature of the improvements in the Premises, full replacement cost
insurance coverage was not commercially reasonable and available, Lessor shall
have no obligation to pay for the shortage in insurance proceeds or to fully
restore the unique aspects of the Premises unless Lessee provides Lessor with
the funds to cover same, or adequate assurance thereof, within ten (10) days
following receipt of written notice of such shortage and request therefor. If
Lessor receives said funds or adequate assurance thereof within said ten (10)
day period, Lessor shall complete them as soon as reasonably possible and this
Lease shall remain in full force and effect. If Lessor does not receive such
funds or assurance within said period, Lessor may nevertheless elect by written
notice to Lessee within ten (10) days thereafter to make such restoration and
repair as is commercially reasonable with Lessor paying any shortage in
proceeds, in which case this Lease shall remain in full force and effect. If
Lessor does not receive such funds or assurance within such ten (10) day period,
and if Lessor does not so elect to restore and repair, then this Lease shall
terminate sixty (60) days following the occurrence of the damage or destruction.
Unless otherwise agreed, Lessee shall in no event have any right to
reimbursement from Lessor for any funds contributed by Lessee to repair any such
damage or destruction. Premises Partial Damage due to flood or earthquake shall
be subject to Paragraph 9.3 rather than Paragraph 9.2, notwithstanding that
there may be some insurance coverage, but the net proceeds of any such insurance
shall be made available for the repairs it made by either Party.
9.3 PARTIAL DAMAGE-UNINSURED LOSS. If Premises Partial Damage that is not
an Insured Loss occurs, unless caused by a negligent or willful act of Lessee
(in which event Lessee shall make the repairs at Lessee's expense and this Lease
shall continue in full force and effect), Lessor may at Lessor's option, either
(i) repair such damage as soon as reasonably possible at Lessor's expense, in
which event this Lease shall continue in full force and effect, or (ii) give
written notice to Lessee within thirty (30) days after receipt by Lessor of
knowledge of the occurrence of such damage of Lessor's desire to terminate this
Lease as of the date sixty (60) days following the date of such notice. In the
event Lessor elects to give such notice of Lessor's intention to terminate this
Lease, Lessee shall have the right within ten (10) days after the receipt of
such notice to give written notice to Lessor of Lessee's commitment to pay for
the repair of such damage totally at Lessee's expense and without reimbursement
from Lessor. Lessee shall provide Lessor with the required funds or satisfactory
assurance thereof within thirty (30) days following such commitment from Lessee.
In such event this Lease shall continue in full force and effect, and Lessor
shall proceed to make such repairs as soon as reasonably possible after the
required funds are available. If Lessee does not give such notice and provide
the funds or assurance thereof within the times specified above, this Lease
shall terminate as of the date specified in Lessors notice of termination.
9.4 TOTAL DESTRUCTION. Notwithstanding any other provision hereof, if
Premises Total Destruction occurs (including any destruction required by any
authorized public authority), this Lease shall terminate sixty (60) days
following the date of such Premises Total Destruction, whether or not the damage
or destruct/on is an Insured Loss or was caused by a negligent or willful act of
Lessee. In the event, however, that the damage or destruction was caused by
Lessee, Lessor shall have the right to recover Lessor's damages from Lessee
except as released and waived in Paragraph 9.7.
9.5 DAMAGE NEAR END OF TERM. If at any time during the last six (6) months
of the term of this Lease there is damage for which the cost to repair exceeds
one month's Base Rent, whether or not an Insured Loss, Lessor may, at Lessor's
option, terminate this Lease effective sixty (60) days following the date of
occurrence of such damage by giving written notice to Lessee of Lessor's
election to do so within shiny (30) days after the date of occurrence of such
damage. Provided, however, if Lessee at that time has an exercisable option to
extend this Lease or to purchase the Premises, then Lessee may preserve this
Lease by (a) exercising such option, and (b) providing Lessor with any shortage
in Insurance proceeds (or adequate assurance thereof) needed to make the repairs
on or before the earlier of (i) the date which is ten (10) days after Lessee's
receipt of Lessor's written notice purporting to terminate this Lease, or (II)
the day prior to the date upon which such option expires. It Lessee duly
exercises such option during such period and provides Lessor with funds (or
adequate assurance thereof) to cover any shortage in insurance proceeds, Lessor
shall, at Lessor's expense repair such damage as soon as reasonably possible and
this Lease shall continue in full force and effect. If Lessee fails to exercise
such option and provide such funds or assurance during such period, then this
Lease shall terminate as of the date set forth in the first sentence of this
Paragraph 9.5.
9.6 ABATEMENT OF RENT; LESSEE'S REMEDIES.
(a) In the event of (i) Premises Partial Damage or (ii) Hazardous Substance
Condition for which Lessee is-not legally responsible, the Base Rent Common Area
Operating Expenses and other charges, it any, payable by Lessee hereunder for
the period during which such damage or condition, its repair, remediation or
restoration continues, shall be abated in proportion to the degree to which
Lessee's use of the Premises is impaired, but not in excess of proceeds from
insurance required to be carried under Paragraph 8.3(b). Except for abatement of
Base Rent, Common Area Operating Expenses and other charges it any, as
aforesaid, all other obligations of Lessee hereunder shall be performed by
Lessee, and Lessee shall have no claim against Lessor for any damage suffered by
reason of any such damage, destruction, repair, remediation or restoration.
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(b) It Lessor shall be obligated to repair or restore the Premises under
the provisions of this Paragraph 9 and shall not commence, in a substantial and
meaningful way, the repair or restoration of the Premises within ninety (90)
days after such obligation shall accrue, Lessee may, at any time prior to the
commencement of such repair or restoration, give written notice to Lessor and to
any Lenders of which Lessee has actual notice of Lessee's election to terminate
this Lease on a date not less than sixty (60) days following the giving of such
notice. If Lessee gives such notice to Lessor and such Lenders and such repair
or restoration is not commenced within thirty (30) days after receipt of such
notice, this Lease shall terminate as of the date specified in said notice. If
Lessor or a Lender commences the repair or restoration of the Premises within
thirty (30) days after the receipt of such notice, this Lease shall continue in
full force and effect. "COMMENCE" as used in this Paragraph 9.6 shall mean
either the unconditional authorization of the preparation of the required plans,
or the beginning of the actual work on the Premises, whichever occurs first.
9.7 HAZARDOUS SUBSTANCE CONDITIONS. If a Hazardous Substance Condition
occurs, unless Lessee is legally responsible therefor (in which case Lessee
shall make the investigation and remediation thereof required by Applicable
Requirements and this Lease shall continue in full force and effect, but subject
to Lessor's rights under Paragraph 6.2(c) and Paragraph 13), Lessor may at
Lessor's option either (i) investigate and rernediate such Hazardous Substance
Condition, it required, as soon as reasonably possible at Lessor's expense, in
which event this Lease shall continue in full force and effect, or (ii) if the
estimated cost to investigate and remediate such condition exceeds twelve (12)
times the then monthly Base Rent or $100,000 whichever is greater, give written
notice to Lessee within thirty (30) days after receipt by Lessor of knowledge of
the occurrence of such Hazardous Substance Condition of Lessor's desire to
terminate this Lease as of the date sixty (60) days following the data of such
notice. In the event Lessor elects to give such notice of Lessor's Intention to
terminate this Lease, Lessee shall have the right within ten (10) days after the
receipt of such notice to give written notice to Lessor of Lessee's commitment
to pay for the excess costs of (a) Investigation and remediation of such
Hazardous Substance Condition to the extent required by Applicable Requirements,
over (b) an amount equal to twelve (12) times the then monthly Base Rent or
$100,000, whichever is greater. Lessee shall provide Lessor with the funds
required of Lessee or satisfactory assurance thereof within thirty (30) days
following said commitment by Lessee. In such event this Lease shall continue in
full force and effect, and Lessor shall proceed to make such investigation and
remediation as soon as reasonably possible after the required funds are
available. If Lessee does not give such notice and provide the required funds or
assurance thereof within the time period specified above, this Lease shall
terminate as of the date specified in Lessor's notice of termination.
9.8 TERMINATION - ADVANCE PAYMENTS. Upon termination of this Lease pursuant
to this Paragraph 9, Lessor shall return to Lessee any advance payment made by
Lessee to Lessor and so much of Lessees Security Deposit as has not been, or is
not then required to be, used by Lessor under the terms of this Lease.
9.9 WAIVER OF STATUTES. Lessor and Lessee agree that the terms of this
Lease shall govern the effect of any damage to or destruction of the Premises
and the Building with respect to the termination of this Lease and hereby waive
the provisions of any present or future statute to the extent it is inconsistent
herewith.
10. REAL PROPERTY TAXES.
10.1 PAYMENT OF TAXES. Lessor shall pay the Real Property Taxes, as defined
in Paragraph 10.2(a), applicable to the Industrial Center, and except as
otherwise provided in Paragraph 10.3, any increases In such amounts over the
Base Real Property Taxes shall be included in the calculation of Common Area
Operating Expenses in accordance with the provisions of Paragraph 4.2.
10.2 REAL PROPERTY TAX DEFINITIONS.
(a) As used herein, the term "REAL PROPERTY TAXES" shall include any form
of real estate tax or assessment, general, special, ordinary or extraordinary,
and any license tee, commercial rental tax, improvement bond or bonds, levy or
tax (other than inheritance, personal income or estate taxes) imposed upon the
Industrial Center by any authority having the direct or indirect power to tax,
including any city, state or federal government, or any school, agricultural,
sanitary, fire, street, drainage, or other improvement district thereof, levied
against any legal or equitable interest of Lessor in the Industrial Center or
any portion thereof, Lessor's right to rent or other income therefrom, and/or
Lessor's business of leasing the Premises. The term "REAL PROPERTY TAXES" shall
also include any tax, fee, levy, assessment or charge, or any increase therein
imposed by reason of events occurring, or changes in Applicable Law taking
effect, during the term of this Lease, including but not limited to a change in
the ownership of the Industrial Center or in the improvements thereon, the
execution of this Lease, or any modification, amendment or transfer thereof, and
whether or not contemplated by the Parties.
(b) As used herein, the term "BASE REAL PROPERTY TAXES" shall be the amount
of Real Property Taxes, which are assessed against the Premises Building or
Common Areas in the calendar year during which the Lease is executed. In
calculating Real Property Taxes for any calendar year, the Real Property Taxes
for any real estate tax year shall be included in the calculation of Real
Property Taxes for such calendar year based upon the number of days which such
calendar year and tax year have in common.
10.3 ADDITIONAL IMPROVEMENTS. Common Area Operating Expenses shall not
include Real Property Taxes specified in the tax assessor's records and work
sheets as being caused by additional improvements placed upon the Industrial
Center by other lessees or by Lessor for the exclusive enjoyment of such other
lessees. Notwithstanding Paragraph 10.1 hereof, Lessee shall, however, pay to
Lessor at the time Common Area Operating Expenses are payable under Paragraph
4.2, the entirety of any increase in Real Property Taxes if assessed solely by
reason of Alterations, Trade Fixtures or Utility Installations placed upon the
Premises by Lessee or at Lessee's request.
10.4 JOINT ASSESSMENT. If the Building is not separately assessed, Real
Property Taxes allocated to the Building shall be an equitable proportion of the
Real Properly Taxes for all of the land and improvements included within the tax
parcel assessed, such proportion to be determined by Lessor from the respective
valuations assigned in the assessor's work sheets or such other information as
may be reasonably available. Lessor's reasonable determination thereof, in good
faith, shall be conclusive.
10.5 LESSEE'S PROPERTY TAXES. Lessee shall pay prior to delinquency all
taxes assessed against and levied upon Lessee-Owned Alterations and Utility
Installations, Trade Fixtures, furnishings, equipment and all personal property
of Lessee contained in the Premises or stored within the Industrial Center. When
possible, Lessee shall cause its Lessee-Owned Alterations and Utility
Installations, Trade Fixtures, furnishings, equipment and all other personal
property to be assessed and billed separately from the real property of Lessor.
If any of Lessee's said property shall be assessed with Lessor's real property,
Lessee shall pay Lessor the taxes attributable to Lessee's property within ten
(10) days after receipt of a written statement setting forth the taxes
applicable to Lessee's property.
11. UTILITIES. Lessee shall pay directly for all utilities and services
supplied to the Premises, including but not limited to electricity, telephone,
security, gas and cleaning of the Premises, together with any taxes thereon. If
any such utilities or services are not separately metered to the Premises or
separately billed to the Premises, Lessee shall pay to Lessor a reasonable
proportion to be determined by Lessor of all such charges jointly metered or
billed with other premises in the Building, in the manner and within the time
periods set forth in Paragraph 4.2(d).
12. ASSIGNMENT AND SUBLETTING
12.1 LESSOR'S CONSENT REQUIRED.
(a) Lessee shall not voluntarily or by operation of law assign, transfer,
mortgage or otherwise transfer or encumber (collectively, "assigns) or sublet
all or any part of Lessee's interest in this Lease or in the Premises without
Lessor's prior written consent given under and subject to the terms of Paragraph
36.
(b) A change in the control of Lessee shall constitute an assignment
requiring Lessor's consent. The transfer, on a cumulative basis, of twenty-five
percent (25%) or more of the voting control of Lessee shall constitute a change
in control for this purpose.
(c) The involvement of Lessee or its assets in any transaction, or seines
of transactions (by way of merger, sale, acquisition, financing, refinancing,
transfer, leveraged buy-out or otherwise), whether or not a formal assignment or
hypothecation of this Lease or Lessee's assets occurs, which results or will
result in a reduction of the Net Worth of Lessee, as hereinafter defined, by an
amount equal to or greater than twenty-five percent (25%) of such Net Worth of
Lessee as it was represented to Lessor at the time of full execution and
delivery of this Lease or at the time of the most recant assignment to which
Lessor has consented, or as it exists immediately prior to said transaction or
transactions constituting such reduction, at whichever time said Net Worth of
Lessee was or is greater, shall be considered an assignment of this Lease by
Lessee to which Lessor may reasonably withhold its consent. "Net Worth of
Lessee" for purposes of this Lease shall be the net worth of Lessee (excluding
any Guarantors) established under generally accepted accounting principles
consistently applied.
(d) An assignment or subletting of Lessee's interest in this Lease without
Lessor's specific prior written consent shall, at Lessor's option, be a Default
curable after notice per Paragraph 13.1, or a non-curable Breach without the
necessity of any notice and grace period. If Lessor elects to treat such
unconsented to assignment or subletting as a non-curable Breach, Lessor shall
have the right to either: (if terminate this Lease, or (ii) upon thirty (30)
days' written notice ("LESSOR'S NOTICE"), increase the monthly Base Rent for the
Premises to the greater of the then fair market rental value of the Premises, as
reasonably deter mined by Lessor, or one hundred ten percent (110%) of the Base
Rent then in effect. Pending determination of the new fair market rental value,
if disputed by Lessee, Lessee shall pay the amount set forth in Lessor's Notice,
with any overpayment credited against the next installment(s) of Base Rent
coming due, and any underpayment for the period retroactively to the effective
date of the adjustment being due and payable immediately upon the determination
thereof. Further, in the event of such Breach and rental adjustment, (i) the
purchase price of any option to purchase the Premises held by Lessee shall be
subject to similar adjustment to the then fair market value as reasonably
determined by Lessor (without the Lease being considered an encumbrance or any
deduction for depreciation or obsolescence, and considering the Premises at its
highest and best use and in good condition) or one hundred ten percent (110%) of
the price previously in effect, (ii) any index-oriented rental or price
adjustment formulas contained in this Lease shall be adjusted to require that
the base index be determined with reference to the Index applicable to the time
of such adjustment, and (iii) any fixed rental adjustments scheduled during the
remainder of the Lease term shall be increased in the same ratio as the new
rental bears to the Base Rent in effect immediately prior to the adjustment
specified in Lessor's Notice.
(e) Lessee's remedy for any breach of this Paragraph 12.1 by Lessor shall
be limited to compensatory damages and/or injunctive relief.
12.2 TERMS AND CONDITIONS APPLICABLE TO ASSIGNMENT AND SUBLETTING.
(a) Regardless of Lessor's consent, any assignment or subletting shall not
(i) be effective without the express written assumption by such assignee or
subleases of me obligations of Lessee under this Lease, (ii) release Lessee of
any obligations hereunder, nor (iii) alter the primary liability of Lessee for
the payment of Base Rent and other sums due Lessor hereunder or for the
performance of any other obligations to be performed by Lessee under this Lease.
(b) Lessor may accept any rent or performance of Lessee's obligations from
any person other than Lessee pending approval or disapproval of an assignment.
Neither a delay in the approval or disapproval of such assignment nor the
acceptance of any rent for performance shall constitute a waiver or estoppel of
Lessor's right to exercise as remedies for the Default or Breach by Lessee of
any of the terms, covenants or conditions of this Lease.
(c) The consent of Lessor to any assignment or subletting shall not
constitute a consent to any subsequent assignment or subletting by Lessee or to
any subsequent or successive assignment or subletting by the assignee or
sublessee. However, Lessor may consent to subsequent sublettings and assignments
of the sublease or any amendments or modifications thereto without notifying
Lessee or anyone else liable under this Lease or the sublease and without
obtaining their consent, and such action shall not relieve such persons from
liability under this Lease or the sublease.
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(d) In the event of any Default or Breach of Lessee's obligation under this
Lease, Lessor may proceed directly against Lessee, any Guarantors or anyone else
responsible for the performance of the Lessees obligations under this Lease,
including any sublessee, without first exhausting Lessor's remedies against any
other person or entity responsible therefor to Lessor, or any security held by
Lessor.
(e) Each request for consent to an assignment or subletting shall be in
writing, accompanied by information relevant to Lessor's determination as to the
financial and operational responsibility and appropriateness of the proposed
assignee or sublessee, including but not limited to the intended use and/or
required modification of the Premises, it any, together with a non-refundable
deposit of $1,000 or ten percent (10%) of the monthly Base Rent applicable to
the portion of the Premises which is the subject of the proposed assignment or
sublease, whichever is greater, as reasonable consideration for Lessor's
considering and processing the request for consent. Lessee agrees to provide
Lessor with such other or additional information and/or documentation as may be
reasonably requested by Lessor.
(f) Any assignee of, or sublessee under, this Lease shall, by reason of
accepting such assignment or entering into such sublease, be deemed, for the
benefit of Lessor, to have assumed and agreed to conform and comply with each
and every term, covenant, condition and obligation herein to be observed or
performed by Lessee during the term of said assignment or sublease, other than
such obligations as are contrary to or inconsistent with provisions of an
assignment or sublease to which Lessor has specifically consented in writing.
(g) The occurrence of a transaction described in Paragraph 12.2(c) shall
give Lessor the right (but not the obligation) to require that the Security
Deposit be increased by an amount equal to six (6) times the then monthly Base
Rent, and Lessor may make the actual receipt by Lessor of the Security Deposit
increase a condition to Lessor's consent to such transaction.
(h) Lessor, as a condition to giving its consent to any assignment or
subletting, may require that me amount and adjustment schedule of me rent
payable under this Lease be adjusted to what is then the market value and/or
adjustment schedule for property similar to the Premises as then constituted, as
determined by Lessor.
12.3 ADDITIONAL TERMS AND CONDITIONS APPLICABLE TO SUBLETTING. The
following terms and conditions shall apply to any subletting by Lessee of all or
any part of the Premises and shall be deemed included in all subleases under
this Lease whether or not expressly incorporated therein:
(a) Lessee hereby assigns and transfers to Lessor all of Lessee's interest
In all rentals and income arising ffom any-sublease of all or a portion of the
Premises heretofore or hereafter made by Lessee, and Lessor may collect such
rent and income and apply same toward Lessee's obligations under this Lease
provided, however, that until a Breach (as defined in Paragraph 13.1) shall
occur in the performance of Lessee's obligations under this Lease, Lessee may,
except as otherwise provided in this Lease, receive, collect and enjoy the rents
accruing under such sublease. Lessor shall not, by reason of the foregoing
provision or any other assignment of such sublease to Lessor, nor by reason of
the collection of the rents from a sublessee, be deemed liable to the sublessee
for any failure of Lessee to perform and comply with any of Lessee's obligations
to such sublessee under such Sublease. Lessee hereby irrevocably authorizes and
directs any such sublessee, upon receipt of a written notice from Lessor stating
that a Breach exists in the performance of Lessee's obligations under this
Lease, to pay to Lessor the rents and other charges due and to become due under
the sublease. Sublessee shall rely upon any such statement and request from
Lessor and shall pay such rents and other charges to Lessor without any
obligation or right to inquire as to whether such Breach exists and
notwithstanding any notice from or claim from Lessee to the contrary. Lessee
shall have no right or claim against such sublessee, or, until the Breach has
been cured, against Lessor, for any such rents and other charges so paid by said
sublessee to Lessor.
(b) In the event of a Breach by Lessee in the performance of its
obligations under this Lease, Lessor, at its option and without any obligation
to do so, may require any sublessee to attorn to Lessor, in which event Lessor
shall undertake the obligations of the sublessor under such sublease from the
time of the exercise of said option to the expiration of such sublease:
provided, however, Lessor shall not be liable for any prepaid rents or security
deposit paid by such sublessee to such sublessor or for any other prior defaults
or breaches of such sublessor under such sublease.
(c) Any matter or thing requiring the consent of the sublessor under a
sublease shall also require the consent of Lessor herein.
(d) No sublessee under a sublease approved by Lessor shall further assign
or sublet all or any part of the Premises without Lessors prior written consent.
(e) Lessor shall deliver a copy of any notice of Default or Breach by
Lessee to the sublessee, who shall have the right to cure the Default of Lessee
within the grace period, if any, specified in such notice. The sublessee shall
have a right of reimbursement and offset from and against Lessee for any such
Defaults cured by the sublessee.
13. DEFAULT; BREACH REMEDIES $500 . 0u~ rid a-
13.1 DEFAULT, BREACH. Lessor and Lessee agree that if an attorney is
consumed by Lessor in connection with a Lessee Default or Breach (as hereinafter
defined), $500.00 is a reasonable minimum sum per such occurrence for legal
services and costs in the preparation and service of a notice of Default, and
that Lessor may include the cost of such services and costs in said notice as
rent due and payable to cure said default. A "DEFAULT" by Lessee is defined as a
failure by Lessee to observe, comply with or perform any of the terms,
covenants, conditions or rules applicable to Lessee under this Lease. A "BREACH"
by Lessee is defined as the occurrence of any one or more of the following
Defaults, and, where a grace period for cure after notice is specified herein,
the failure by Lessee to cure such Default prior to the expiration of the
applicable grace period, and shad entitle Lessor to pursue the remedies set
forth if, Paragraphs 13.2 and/or 13.3:
(a) The vacating of the Premises without the intention to reoccupy same, or
the abandonment of the Premises.
(b) Except as expressly otherwise provided in this Lease, the failure by
Lessee to make any payment of Base Rent, Lessee's Share of Common Area Operating
Expenses, or any other monetary payment required to be made by Lessee hereunder
as and when due, the failure by Lessee to provide Lessor with reasonable
evidence of insurance or surety bond required under this Lease, or the failure
of Lessee to fulfill any obligation under this Lease which endangers or
threatens life or property, where such failure continues for a period of three
(3) days following written notice thereof by or on behalf of Lessor to Lessee.
(c) Except as expressly otherwise provided in this Lease, the failure by
Lessee to provide Lessor with reasonable written evidence (in duly executed
original form, if applicable) of (i) compliance with Applicable Requirements per
Paragraph 6.3, (ii) the inspection, maintenance and service contracts required
under Paragraph 7.1(b), (iii) the rescission of an unauthorized assignment or
subletting per Paragraph 12.1, (iv) a Tenancy Statement per Paragraphs 16 or 37,
(v) the subordination or non-subordination of this Lease per Paragraph 30, (vi)
the guaranty of the performance of Lessees obligations under this Lease if
required under Paragraphs 1.11 and 37, (vii) the execution of any document
requested under Paragraph 42 (easements), or (viii) any other documentation or
information which Lessor may reasonably require of Lessee under the terms of
this lease, where any such failure continues for a period of ten (10) days
following written notice by or on behalf of Lessor to Lessee.
(d) A Default by Lessee as to the terms, covenants, conditions or
provisions of this Lease, or of the rules adopted under Paragraph 40 hereof that
are to be observed, complied with or performed by Lessee, other than those
described in Subparagraphs 13.1 (a), (b) or (c), above, where such Default
continues for a period of thirty (30) days after written notice thereof by or on
behalf of Lessor to Lessee, provided, however that if the nature of Lessee's
Default is such that more than thirty (30) days are reasonably required for its
cure, then it shall not be deemed to be a Breach of this Lease by Lessee if
Lessee commences such cure within said thirty (30) day period and thereafter
diligently prosecutes such cure to completion.
(e) The occurrence of any of the following events: (i) the making by Lessee
of any general arrangement or assignment for the benefit of creditors; (ii)
Lessee's becoming a "debtors as defined in 11 U.S. Code Section 101 or any
successor statute thereto (unless, in the case of a petition filed against
Lessee, the same is dismissed within sixty (60) days); (iii) the appointment of
a trustee or receiver to take possession of substantially all of Lessees assets
located at the Premises or of Lessee's interest in this Lease, where possession
is not restored to Lessee within thirty (30) days, or (iv) the attachment,
execution or other judicial seizure of substantially all of Lessees assets
located at the Premises or of Lessee's interest in this Lease, where such
seizure is not discharged within thirty (30) days, provided, however, in the
event that any provision of this Subparagraph 13.1 (e) is contrary to any
applicable law, such provision shall be of no force or effect, and shall not
affect the validity of the remaining provisions.
(f) The discovery by Lessor that any financial statement of Lessee or of
any Guarantor, given to Lessor by Lessee or any Guarantor, was materially false.
(g) It the performance of Lessee's obligations under this Lease is
guaranteed: (i) the death of a Guarantor, (ii) the termination of a Guarantor's
liability with respect to this Lease other than In accordance with the terms of
such guaranty, (iii) a Guarantor's becoming insolvent or the subject of a
bankruptcy filing, (iv) a Guarantor's refusal to honor the guaranty, or (v) a
Guarantor's breach of its guaranty obligation on an anticipatory breach basis,
and Lessee's failure, within sixty (60) days following written notice by or on
behalf of Lessor to Lessee of any such event, to provide Lessor with written
alternative assurances of security, which, when coupled with the then existing
resources of Lessee, equals or exceeds the combined financial resources of
Lessee and the Guarantors that existed at the time of execution of this Lease
13.2 REMEDIES. It Lessee tails to perform any affirmative duty or
obligation of Lessee under this Lease, within ten (10) days after written notice
to Lessee (or in case of an emergency, without notice), Lessor may at its option
(but without obligation to do so), perform such duty or obligation on Lessee's
behalf, including but not limited to the obtaining of reasonably required bonds,
insurance policies, or governmental licenses, permits or approvals. The costs
and expenses of any such performance by Lessor shall be due and payable by
Lessee to Lessor upon invoice therefor. It any check given to Lessor by Lessee
shall not be honored by the bank upon which it is drawn, Lessor, at its own
option, may require all future payments to be made under this Lease by Lessee to
be made only by cashier's check. In the event of a Breach of this Lease by
Lessee (as defined in Paragraph 13.1), with or without further notice or demand,
and without limiting Lessor in the exercise of any right or remedy which Lessor
may have by reason of such Breach, Lessor may:
(a) Terminate Lessee's right to possession of the Premises by any lawful
means, in which case this Lease and the term hereof shall terminate and Lessee
shall immediately surrender possession of the Premises to Lessor. In such event
Lessor shall be entitled to recover from Lessee: (i) the worth at the time of
the award of the unpaid rent which had been earned at the time of termination;
(ii) the worth at the time of award of the amount by which the unpaid rent which
would have been earned after termination until the time of award exceeds the
amount of such rental loss that the Lessee proves could have been reasonably
avoided, (iii) the worth at the time of award of the amount by which the unpaid
rent for the balance of the term after the time of award exceeds the amount of
such rental loss that the Lessee proves could be reasonably avoided; and (iv)
any other amount necessary to compensate Lessor for all the detriment
proximately caused by the Lessee's failure to perform its obligations under this
Lease or which in the ordinary course of things would be likely to result
therefrom, including but not limited to the cost of recovering possession of the
Premises, expenses of relenting, including necessary renovation and alteration
of the Premises, reasonable attorneys fees, and that portion of any leasing
commission paid by Lessor in connection with this Lease applicable to the
unexpired term of this Lease. The worth at the time of award of the amount
referred to in provision (iii) of the immediately preceding sentence shall be
computed by discounting such amount at the discount rate of the Federal Reserve
Bank of San Francisco or the Federal Reserve Bank District in which the Premises
are located at the time of award plus one percent (1%). Efforts by Lessor to
mitigate damages caused by Lessee's Default or Breach of this Lease shall not
waive Lessor's right to recover damages under this Paragraph 13.2. It
termination of this Lease is obtained through the provisional remedy of unlawful
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detainer, Lessor shall have the right to recover in such proceeding the unpaid
rent and damages as are recoverable therein, or Lessor may reserve the right to
recover all or any part thereof in a separate suit for such rent and/or damages.
If a notice and grace period required under Subparagraph 13.1(b), (c) or (d)
was not previously given, a notice to pay rent or quit, or to perform or quit,
as the case may be, given to Lessee under any statute authorizing the forfeiture
of leases for unlawful detainer shall also constitute the applicable notice for
grace period purposes required by Subparagraph 13.1(b),(c) or (d). In such case,
the applicable grace period under the unlawful detainer statue shall run
concurrently after the one such statutory notice, and the failure of Lessee to
cure the Default within the greater of the two (2) such grace periods shall
constitute both an unlawful detainer and a Breach of this Lease entitling Lessor
to the remedies provided for in this Lease and/or by said statute.
(b) Continue the Lease and Lessee's right to possession in effect (in
California under California Civil Code Section 1951.4) after Lessee's Breach and
recover the rent as it becomes due, provided Lessee has the right to sublet or
assign, subject only to reasonable limitations. Lessor and Lessee agree that the
limitations on assignment and subletting in this Lease are reasonable. Acts of
maintenance or preservation, efforts to relet the Premises, or the appointment
of a receiver to protect the Lessor's interest under this Lease, shall not
constitute a termination of the Lessee's right to possession.
(c) Pursue any other remedy now or hereafter available to Lessor under the
laws or judicial decisions of the state wherein the Premises are located.
(d) The expiration or termination of this Lease and/or the termination of
Lessee's right to possession shall not relieve Lessee from liability under any
indemnity provisions of this Lease as to matters occurring or accruing during
the term hereof or by reason of Lessee's occupancy of the Premises.
13.3 INDUCEMENT RECAPTURE IN EVENT OF BREECH. Any agreement by Lessor for
free or abated rent or other charges applicable to the Premises, or for the
giving or paying by Lessor to or for Lessee of any cash or other bonus,
inducement or consideration for Lessee's entering into this Lease, all of which
concessions are hereinafter referred to as "INDUCEMENT PROVISIONS" shall be
deemed conditioned upon Lessee's full and faithful performance of all of the
terms, covenants and conditions of this Lease to be performed or observed by
Lessee during the term hereof as the same may be extended. Upon the occurrence
of a Breach (as defined in Paragraph 13.1) of this Lease by Lessee, any such
Inducement Provision shall automatically be deemed deleted from this Lease and
of no further force or effect, and any rent, other charge, bonus, inducement or
consideration theretofore abated, given or paid by Lessor under such an
Inducement Provision shall be immediately due and payable by Lessee to Lessor,
and recoverable by Lessor, as additional rent due under this Lease,
notwithstanding any subsequent cure of said Breach by Lessee. The acceptance by
Lessor of rent or the cure of the Breach which initiated the operation of this
Paragraph 13.3 shall not be deemed a waiver by Lessor of the provisions of this
Paragraph 13.3 unless specifically so stated in writing by Lessor at the time of
such acceptance.
13.4 LATE CHARGES. Lessee hereby acknowledges that late payment by Lessee
to Lessor of rent and other sums due hereunder will cause Lessor to incur costs
not contemplated by this Lease, the exact amount of which will be extremely
difficult to ascertain. Such costs include, but are not limited to, processing
and accounting charges, and late charges which may be imposed upon Lessor by the
terms of any ground lease, mortgage or deed of trust covering the Premises.
Accordingly, it any installment of rent or other sum due from Lessee shall not
be received by Lessor or Lessor's designee within ten (10) days after such
amount shall be due, then, without any requirement for notice to Lessee, Lessee
shall pay to Lessor a late charge equal to ten percent (10%) of such overdue
amount. The parties hereby agree that such late charge represents a fair and
reasonable estimate of the costs Lessor will incur by reason of late payment by
Lessee. Acceptance of such late charge by Lessor shall in no event constitute a
waiver of Lessee's Default or Breach with- respect to such Overdue amount, nor
prevent Lessor from exercising any of the other rights and remedies granted
hereunder. In the event that a late charge is payable hereunder, whether or not
collected, for three (3) consecutive installments of Base Rent, then
notwithstanding Paragraph 4.1 or any other provision of this Lease to the
contrary, Base Rent shall, at Lessor's option, become due and payable quarterly
in advance.
13.5 BREACH BY LESSOR. Lessor shall not be deemed in breach of this Lease
unless Lessor fails within a reasonable timbre to perform an obligation required
to be performed by Lessor. For purposes of this Paragraph 13.5, a reasonable
time shall in no event be less than thirty (30) days after receipt by Lessor,
and by any Lender(s) whose name and address shall have been furnished to Lessee
in writing for such purpose, of written notice specifying wherein such
obligation of Lessor has not been performed, provided, however, that it the
nature of Lessor's obligation is such that more than thirty (30) days after such
notice are reasonably required for its performance, then Lessor shall not be in
breach of this Lease it performance is commenced within such thirty (30) day
period and thereafter diligently pursued to completion.
14. CONDEMNATION. It the Premises or any portion thereof are taken under the
power of eminent domain or sold under the threat of the exercise of said power
(all of which are herein called condemnation"), this Lease shall terminate as to
the part so taken as of the date the condemning authority takes title or
possession whichever first occurs. It more than ten percent (10%) of the floor
area of the Premises, or more than twenty-five percent (25%) of the portion of
the Common Areas designated for Lessees parking, is taken by condemnation,
Lessee may, at Lessee's option, to be exercised in writing within ten (10) days
after Lessor shall have given Lessee written notice of such taking (or in the
absence of such notice, within ten (10) days after the condemning authority
shall have taken possession) terminate this Lease as of the date the condemning
authority takes such possession. It Lessee does not terminate this Lease in
accordance with the foregoing, this Lease shall remain in full force and effect
as to the portion of the Premises remaining, except that the Base Rent shall be
reduced in she same proportion as the rentable floor area of the Premises taken
bears to the total rentable floor area of the Premises. No reduction of Base
Rent shall occur if the condemnation does not apply to any portion of the
Premises. Any award for the taking of all or any part of the Premises under the
power of eminent domain or any payment made under threat of the exercise of such
power shall be the property of Lessor, whether such award shall be made as
compensation for diminution of value of the leasehold or for the taking of the
tee, or as severance damages, provided, however, that Lessee shall be entitled
to any compensation, separately awarded to Lessee for Lessee's relocation
expenses and/or loss of Lessee's Trade Fixtures. In the event that this Lease is
not terminated by reason of such condemnation, Lessor shall to the extents its
net severance damages received, over and above Lessee's Share of the legal and
other expenses incurred by Lessor in the condemnation matter, repair any damage
to the Premises caused by such condemnation authority. Lessee shall be
responsible for the payment of any amount in excess of such net severance
damages required to complete such repair.
15. BROKERS' FEES.
15.1 PROCURING CAUSE. The Broker(s) named in Paragraph 1.10 is/are the
procuring cause of this Lease.
15.2 ADDITIONAL TERMS. Unless Lessor and Broker(s) have otherwise agreed in
writing, Lessor agrees that: (a) it Lessee exercises any Option (as defined in
Paragraph 39.1) granted under this Lease or any Option subsequently granted, or
(b) it Lessee acquires any rights to the Premises or other premises in which
Lessor has an interest, or (c) it Lessee remains in possession of the Premises
with the consent of Lessor after the expiration of the term of this Lease after
having tailed to exercise an Option, or (d) it said Brokers are the procuring
cause of any other lease or sale entered into between the Parties pertaining to
the Premises and/or any adjacent property in which Lessor has an interest, or
(e) it Base Rent is increased, whether by agreement or operation of an
escalation clause herein, then as to any of said transactions, Lessor shall pay
said Broker(s) a tee in accordance with the schedule of said Broker(s) in effect
at the time of the execution of this Lease.
15.3 ASSUMPTION OF OBLIGATIONS. Any buyer or transferee of Lessor's
interest in this Lease, whether such transfer is by agreement or by operation of
law shall be deemed to have assumed Lessor's obligation under this Paragraph 15.
Each Broker shall be an intended third party beneficiary of the provisions of
Paragraph 1.10 and of this Paragraph 15 to the extent of its interest in any
commission arising from this Lease and may enforce that right directly against
Lessor and its successors.
15.4 REPRESENTATIONS AND WARRANTIES. Lessee and Lessor each represent and
warrant to the other that it has had no dealings with any person, firm, broker
or finder other than as named In Paragraph 1.10(a) in connection with the
negotiation of this Lease and/or the consummation of the transact/on
contemplated hereby, and that no broker or other person, firm or entity other
than said named Broker(s) is entitled to any commission or finder's fee in
connection with said transaction. Lessee and Lessor do each hereby agree to
indemnity, protect, defend and hold the other harmless from and against
Liability for compensation or charges which may be claimed by any such unnamed
broker, finder or other similar party by reason of any dealings or actions of
the indemnifying Party, including any costs, expenses, and/or attorneys" fees
reasonably incurred with respect thereto.
16. TENANCY AND FINANCIAL STATEMENTS.
16.1 TENANCY STATEMENT. Each Party (as "Responding Party") shall within ten
(10) days after written notice from the other Party (the "Requesting Party")
execute, acknowledge and deliver to the Requesting Party a statement in writing
in a form similar to the then most current "Tenancy Statement" form published by
the American Industrial Real Estate Association, plus such additional
information, confirmation and/or statements as may be reasonably requested by
the Requesting Party.
16.2 FINANCIAL STATEMENT. If Lessor desires to finance, refinance, or sell
the Premises or the Building, or any part thereof, Lessee and all Guarantors
shall deliver to any potential lender or purchaser designated by Lessor such
financial statements of Lessee and such Guarantors as may be reasonably required
by such lender or purchaser, including but not limited to Lessee's financial
statements for the past three (3) years. All such financial statements shall be
received by Lessor and such lender or purchaser in confidence and shall be used
only for the purposes herein set forth.
17. LESSOR'S LIABILITY. The term "Lessor" as used herein shall mean the owner or
owners at the time in question of the fee title to the Premises. In the event of
a transfer of Lessor's title or interest in the Premises or in this Lease,
Lessor shall deliver to the transferee or assignee (in cash or by credit) any
unused Security Deposit held by Lessor at the time of such transfer or
assignment. Except as provided in Paragraph 15.3, upon such transfer or
assignment and delivery of the Security Deposit, as aforesaid, the prior Lessor
shall be relieved of all liability with respect to the obligations and/or
covenants under this Lease thereafter to be performed by the Lessor. Subject to
the foregoing, the obligations and/or covenants in this Lease to be performed by
the Lessor shall be binding only upon the Lessor as hereinabove defined.
18. SEVERABILITY. The invalidity of any provision of this Lease, as determined
by a court of competent jurisdiction, shall in no way affect the validity of any
other provision hereof.
19. INTEREST ON PAST-DUE OBLIGATIONS. Any monetary payment due Lessor hereunder,
other than late charges, not received by Lessor within ten (10) days following
the date on which it was due, shall bear interest from the date due at the prime
rate charged by the largest state chartered bank in the state in which the
Premises are located plus four percent (4%) per annum, but not exceeding the
maximum rate allowed by law, in addition to the potential late charge provided
for in Paragraph 13.4.
20. TIME OF ESSENCE. Time is of the essence with respect to the performance of
all obligations to be performed or observed by the Parties under this Lease.
21. RENT DEFINED. All monetary obligations of Lessee to Lessor under the terms
of this Lease are deemed to be rent.
22. NO PRIOR OR OTHER AGREEMENTS; BROKER DISCLAIMER. This Lease contains all
agreements between the Parties with respect to any matter mentioned herein and
no other prior or contemporaneous agreement or understanding shall be effective.
Lessor and Lessee each represents and warrants to the Brokers that it has made,
and is relying solely upon, Its own investigation as to the nature, quality,
character and financial responsibility of the other Party to this Lease and as
to the nature, quality and character of the Premises. Brokers have no
responsibility with respect thereto or with respect to any default or breach
hereof by either Party. Each Broker shall be an intended third party beneficiary
of the provisions of this Paragraph 22.
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23. NOTICES.
23.1 NOTICE REQUIREMENTS. All notices required or permitted by this Lease
shall be In writing and may be delivered in person (by hand or by messenger or
courier service) or may be sent by regular, certified or registered mail or U.S.
Postal Service Express Mail, with postage prepaid, or by facsimile transmission
during normal business hours, and shall be deemed sufficiently given if served
in a manner specified in this Paragraph 23 The addresses noted adjacent to a
Party's signature on this Lease shall be that Party's address for delivery or
mailing of notice purposes. Either Party may by written notice to the other
specify a different address for notice purposes, except that upon Lessee's
taking possession of the Premises, the Premises shall constitute Lessee's
address for the purpose of mailing or delivering notices to Lessee. A copy of
all notices required or permitted to be given to Lessor hereunder shall be
concurrently transmitted to such party or parties at such addresses as Lessor
may from time to time hereafter designate by written notice to Lessee.
23.2 DATE OF NOTICE. Any notice sent by registered or certified mail,
return receipt requested, shall be deemed given on the date of delivery shown on
the receipt card, or if no delivery date is shown, the postmark thereon. if sent
by regular mail, the notice shall be deemed given forty-eight (48) hours after
the same is addressed as required herein and mailed with postage prepaid.
Notices delivered by United States Express Mail or overnight courier mat
guarantees next day delivery shall be deemed given twenty-four (24) hours after
delivery of the same to the United States Postal Service or courier. If any
notice is transmitted by facsimile transmission or similar means, the same shall
be deemed served or delivered upon telephone or facsimile confirmation of
receipt of the transmission thereof, provided a copy is also delivered via
delivery or mail. If notice is received on a Saturday or a Sunday or a legal
holiday, It shall be deemed received on the next business day.
24. WAIVERS. No waiver by Lessor of the Default or Breach of any term, covenant
or condition hereof by Lessee, shall be deemed a waiver of any other term
covenant or condition hereof, or of any subsequent Default or Breach by Lessee
of the same or any other term, covenant or condition hereof. Lessor's consent to
or approval of, any such act shall not be deemed to render unnecessary the
obtaining of Lessor's consent to, or approval of, any subsequent or similar act
by Lessee, or be construed as the basis of an estoppel to enforce the provision
or provisions of this Lease requiring suc consent. Regardless of Lessor's
knowledge of a Default or Breach at the time of accepting rent, the acceptance
of rent by Lessor shall not be a waiver of any Default or Breach by Lessee of
any provision hereof. Any payment given Lessor by Lessee may be accepted by
Lessor on account of moneys or damages due Lessor, notwithstanding any
qualifying statements or conditions made by Lessee in connection therewith,
which such statements and/or conditions shall be of no force or effect
whatsoever unless specifically agreed to in writing by Lessor at or before the
time of deposit of such payment.
25. RECORDING. Either Lessor or Lessee shall, upon request of the other,
execute, acknowledge and deliver to the other a short form memorandum of this
Lease for recording purposes. The Party requesting recordation shall be
responsible for payment of any fees or taxes applicable thereto.
26. NO RIGHT TO HOLDOVER. Lessee has no right to retain possession of the
Premises or any part thereof beyond the expiration or earlier termination of
this Lease. In the event that Lessee holds over in violation of this Paragraph
26 then the Base Rent payable from and after the time of the expiration or
earlier termination of this Lease shall be increased to two hundred percent
(200%) of the Base Rent applicable during the month immediately preceding such
expiration or earlier termination. Nothing contained herein shall be construed
as a consent by Lessor to any holding over by Lessee.
27. CUMULATIVE REMEDIES. No remedy or election hereunder shall be deemed
exclusive but shall, wherever possible, be cumulative with all other remedies at
law or in equity.
28. COVENANTS AND CONDITIONS. All provisions of this Lease to be observed or
performed by Lessee are both covenants and conditions.
29. BINDING EFFECT; CHOICE OF LAW. This Lease shall be binding upon the Parties,
their personal representatives, successors and assigns and be governed by the
laws of the State in which the Premises are located. Any litigation between the
Parties hereto concerning this Lease shall be initiated in the county in which
the Premises are located.
30. SUBORDINATION; ATTORNMENT; NON-DISTURBANCE.
30.1 SUBORDINATION. This Lease and any Option granted hereby shall be
subject and subordinate to any ground lease, mortgage, deed of trust, or other
hypothecation or security device (collectively, "Security Device"), now or
hereafter placed by Lessor upon the real property of which the Premises are a
part, to any and all advances made on the security thereof, and to all renewals,
modifications, consolidations, replacements and extensions thereof. Lessee
agrees that the Lenders holding any such Security Device shall have no duty,
liability or obligation to perform any of the obligations of Lessor under this
Lease, but that in the event of Lessor's default with respect to any such
obligation, Lessee will give any Lender whose name and address have been
furnished Lessee in writing for such purpose notice of Lessor's default pursuant
to Paragraph 13.5. If any Lender shall elect to have this Lease and/or any
Option granted hereby superior to the lien of its Security Device and shall give
written notice thereof to Lessee, this Lease and such Options shall be deemed
prior to such Security Device, notwithstanding the relative dates of the
documentation or recordation thereof.
30.2 ATTORNMENT. Subject to the non-disturbance provisions of Paragraph
30.3, Lessee agrees to attorn to a Lender or any other party who acquires
ownership of the Premises by reason of a foreclosure of a Security Device, and
that in the event of such foreclosure, such new owner shall not: (i) be liable
for any act or omission of any prior lessor or with respect to events occurring
prior to acquisition of ownership, (ii) be subject to any offsets or defenses
which Lessee might have against any prior lessor, or (iii) be bound by
prepayment of more than one month's rent.
30.3 NON-DISTURBANCE. With respect to Security Devices entered into by
Lessor after the execution of this lease, Lessee's subordination of this Lease
shall be subject to receiving assurance (a Non-disturbance agreement") from the
Lender that Lessee's possession and this Lease, including any options to extend
the term hereof, will not be disturbed so long as Lessee Is not in Breach hereof
and attorns to the record owner of the Premises.
30.4 SELF-EXECUTING. The agreements contained in this Paragraph 30 shall be
effective without the execution of any further documents; provided, however,
that upon written request from Lessor or a Lender in connection with a sale,
financing or refinancing of Premises, Lessee and Lessor shall. execute such
further writings as may be reasonably required to separately document any such
subordination or non-subordination, attornment and/or non-disturbance agreement
as is provided for herein.
31. ATTORNEYS' FEES. If any Party or Broker brings an action or proceeding to
enforce the terms hereof or declare rights hereunder, the Prevailing Party (as
hereafter defined) in any such proceeding, action, or appeal thereon, shall be
entitled to reasonable attorneys' fees. Such fees may be awarded in the same
suit or recovered in a separate suit, whether or not such action or proceeding
is pursued to decision or judgment. The term "PREVAILING PARTY" shall include,
without limitation, a Party or Broker who substantially obtains or defeats the
relief sought, as the case may be, whether by compromise, settlement, judgment,
or the abandonment by the other Party or Broker of its claim or defense. The
attorneys' fee award shall not be computed in accordance with any court fee
schedule, but shall be such as to fully reimburse all attorneys' fees reasonably
incurred. Lessor shall be entitled to attorneys' fees, costs and expenses
incurred in preparation and service of notices of Default and consultations in
connection therewith, whether or not a legal action is subsequently commenced in
connection with such Default or resulting Breach. Broker(s) shall be intended
third party beneficiaries of this Paragraph 31.
32. LESSOR'S ACCESS; SHOWING PREMISES; REPAIRS. Lessor and Lessor's agents shall
have the right to enter the Premises at any time, in the case of an emergency,
and otherwise at reasonable times for the purpose of showing the same to
prospective purchasers, lenders, or lessees, and making such alterations,
repairs, improvements or additions to the Premises or to the Building, as Lessor
may reasonably deem necessary. Lessor may at any time place on or about the
Premises or Building any ordinary "For Sale" signs and Lessor may at any time
during the last one hundred eighty (180) days of the term hereof place on or
about the Premises any ordinary "For Lease signs. All such activities of Lessor
shall be without abatement of rent or liability to Lessee.
33. AUCTIONS. Lessee shall not conduct, nor permit to be conducted, either
voluntarily or involuntarily, any auction upon the Premises without first having
obtained Lessor's prior written consent. Notwithstanding anything to the
contrary in this Lease, Lessor shall not be obligated to exercise any standard
of reasonableness in determining whether to grant such consent.
34. SIGNS. Lessee shall not place any sign upon the exterior of the Premises or
the Building, except that Lessee may, with Lessor's prior written consent,
install (but not on the roof) such signs as are reasonably required to advertise
Lessee's own business so long as such sons are in a location designated by
Lessor and comply with Applicable Requirements and the signage criteria
established for the Industrial Center by Lessor. The installation of any sign on
the Premises by or for Lessee shall be subject to the provisions of Paragraph 7
(Maintenance, Repairs, Utility Installations, Trade Fixtures and Alterations).
Unless otherwise expressly agreed herein, Lessor reserves all rights to the use
of the roof of the Building, and the right to install advertising signs on the
Building, including the roof, which do not unreasonably Interfere with the
conduct of Lessee's business; Lessor shall be entitled to all revenues from such
advertising signs.
35. TERMINATION; MERGER. Unless specifically stated otherwise in writing by
Lessor, the voluntary or other surrender of this Lease by Lessee, the mutual
termination or cancellation hereof, or a termination hereof by Lessor for Breach
by Lessee, shall automatically terminate any sublease or lesser estate in the
Premises provided, however, Lessor shall, in the event of any such surrender,
termination or cancellation, have the option to continue any one or all of any
existing subtenancies. Lessor's failure within ten (10) days following any such
event to make a written election to the contrary by written notice to the holder
of any such lesser interest, shall constitute Lessor's election to have such
event constitute the termination of such interest.
36. CONSENTS.
(a) Except for Paragraph 33 hereof (Auctions) or as otherwise provided
herein, wherever in this Lease the consent of a Party is required to an act by
or for the other Party, such consent shall not be unreasonably withheld or
delayed. Lessor's actual reasonable costs and expenses (including but not
limited to architects', attorneys', engineers' and other consultants' fees)
incurred in the consideration of, or response to, a request by Lessee for any
Lessor consent pertaining to this Lease or the Premises, Including but not
limited to consents to an assignment a subletting or the presence or use of a
Hazardous Substance shall be paid by Lessee to Lessor upon receipt of an invoice
and supporting documentation therefor. In addition to the deposit described in
Paragraph 12.2(e), Lessor may, as a condition to considering any such request by
Lessee, require that Lessee deposit with Lessor an amount of money (in addition
to the Security Deposit held under Paragraph 5) reasonably calculated by Lessor
to represent the cost Lessor will incur in considering and responding to
Lessee's request. Any unused portion of said deposit shall be refunded to Lessee
without interest. Lessor's consent to any act, assignment of this Lease or
subletting of the Premises by Lessee shall not constitute an acknowledgment that
no Default or Breach by Lessee of this Lease exists, nor shall such consent be
deemed a waiver of any then existing Default or Breach, except as may be
otherwise specifically stated in writing by Lessor at the time of such consent.
(b) All conditions to Lessor's consent authorized by this Lease are
acknowledged by Lessee as being reasonable. The failure to specify herein any
particular condition to Lessor's consent shall not preclude the impositions by
Lessor at the time of consent of such further or other conditions as are then
reasonable with reference to the particular matter for which consent is being
given.
37. GUARANTOR.
37.1 FORM OF GUARANTY. If there are to be any Guarantors of this Lease per
Paragraph 1.11, the form of the guaranty to be executed by each such Guarantor
shall be in the form most recently published by the American Industrial Real
Estate Association, and each such Guarantor shall have the same obligations as
Lessee under this lease, Including but not limited to the obligation to provide
the Tenancy Statement and information required in Paragraph 16.
Initials: _________
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<PAGE>
37.2 ADDITIONAL OBLIGATIONS OF GUARANTOR. It shall constitute a Default of
the Lessee under this Lease it any such Guarantor fails or refuses, upon
reasonable request by Lessor to give: (a) evidence of the due execution of the
guaranty called for by this Lease, including the authority of the Guarantor (and
of the party signing on Guarantors behalf) to obligate such Guarantor on said
guaranty, and resolution of its board of directors authorizing the making of
such guaranty, together with a certificate of incumbency showing the signatures
of the persons authorized to sign on its behalf, (b) current financial
statements of Guarantor as may from time to time be requested by Lessor, (c) a
Tenancy Statement, or (d) written confirmation that the guaranty is still in
effect,
38. QUIET POSSESSION. Upon payment by Lessee of the rent for the Premises and
the performance of all of the covenants, conditions and provisions on Lessee's
part to be observed and performed under this Lease, Lessee shall have quiet
possession of the Premises for the entire term hereof subject to all of the
provisions of this Lease.
39. OPTIONS.
39.1 DEFINITION. As used in this Lease, the word "OPTION" has the following
meaning: (a) the right to extend the term of this Lease or to renew this Lease
or to extend or renew any lease that Lessee has on other property of Lessor, (b)
the right of first refusal to lease the Premises or the right of first offer to
lease the Premises or the right of first refusal to lease other property of
Lessor or the right of first offer to lease other property of Lessor; (c) the
right to purchase the Premises, or the right of first refusal to purchase the
Premises, or the right of first offer to purchase the Premises, or the right to
purchase other property of Lessor, or the right of first refusal to purchase
other property of Lessor, or the right of first offer to purchase other property
of Lessor.
39.2 OPTIONS PERSONAL TO ORIGINAL LESSEE. Each Option granted to Lessee in
this Lease is personal to the original Lessee named in Paragraph 1.1 hereof, and
cannot be voluntarily or involuntarily assigned or exercised by any person or
entity other than said original Lessee while the original Lessee Is in full and
actual possession of the Premises and without the intention of thereafter
assigning or subletting. The Options, if any, herein granted to Lessee are not
assignable, either as a part of an assignment of this Lease or separately or
apart therefrom, and no Option may be separated from this Lease in any manner,
by reservation or otherwise.
39.3 MULTIPLE OPTIONS. In the event that Lessee has any multiple Options to
extend or renew this Lease, a later option cannot be exercised unless the prior
Options to extend or renew this Lease have been validly exercised.
39.4 EFFECT OF DEFAULT ON OPTIONS.
(a) Lessee shall have no right to exercise an Option, notwithstanding any
provision in the grant of Option to the contrary: (i) during the period
commencing with the giving of any notice of Default under Paragraph 13.1 and
continuing until the noticed Default is cured, or (ii) during the period of time
any monetary obligation due Lessor from Lessee is unpaid (without regard to
whether notice thereof is given Lessee), or (iii) during the time Lessee is in
Breach of this Lease, or (iv) In the event that Lessor has given to Lessee three
(3) or more notices of separate Defaults under Paragraph 13.1 during the twelve
(12) month period immediately preceding the exercise of the Option, whether or
not the Defaults are cured.
(b) The period of time within which an Option may be exercised shall not be
extended or enlarged by reason of Lessee's inability to exercise an Option
because of the provisions of Paragraph 39.4(a)
(c) All rights of Lessee under the provisions of an Option shall terminate
and be of no further force or effect, notwithstanding Lessee's due and timely
exercise of the Option, if, offer such exercise and during the term 0 this
Lease, (i) Lessee tails to pay to Lessor a monetary obligation of Lessee for a
period of thirty (30) days after such obligation becomes due (without any
necessity of Lessor to give notice thereof to Lessee), or (ii) Lessor gives to
Lessee three (3) or more notices of separate Defaults under Paragraph 13.1
during any twelve (12) month period, whether or not the Defaults are cured, or
(iii) it Lessee commits a Breach of this Lease.
40. RULES AND REGULATIONS. Lessee agrees that it will abide by, and keep and
observe all reasonable rules and regulations (Rules and Regulations") which
Lessor may make from time to time for the management, safety, care, and
cleanliness of the grounds, the parking and unloading of vehicles and the
preservation of good order, as well as for the convenience of other occupants or
tenants of the Building and the Industrial Center and their invitees.
41. SECURITY PLEASURES. Lessee hereby acknowledges that the rental payable to
Lessor hereunder does not include the cost of guard service or other security
measures, and that Lessor shall have no obligation whatsoever to provide same.
Lessee assumes all responsibility for the protection of the Premises, Lessee,
its agents and invitees and their property from the acts of third parties.
42. RESERVATIONS. Lessor reserves the right, from time to time, to grant,
without the consent or joinder of Lessee, such easements, rights of way, utility
raceways, and dedications chat Lessor deems necessary, and to cause the
recordation of parcel maps and restrictions, so long as such easements, rights
of way, utility raceways, dedications, maps and restrictions do not reasonably
interfere with the use of the Premises by Lessee. Lessee agrees to sign any
documents reasonably requested by Lessor to effectuate any such easement rights,
dedication, map or restrictions.
43. PERFORMANCE UNDER PROTEST. If at any time a dispute shall arise as to any
amount or sum of money to be paid by one Party to the other under the provisions
hereof, the Party against whom the obligation to pay the money is asserted shall
have the right to make payment "under protest" and such payment shall not be
regarded as a voluntary payment and there shall survive the right on the part of
said Party to institute suit for recovery of such sum. If it shall be adjudged
that there was no legal obligation on the part of said Party to pay such sum or
any part thereof, said Party shall be enticed to recover such sum or so much
thereof as it was not legally required to pay under the provisions of this
Lease.
44. AUTHORITY. It ether Party hereto is a corporation, trust, or general or
limited partnership, each individual executing this Lease on behalf of such
entity represents and warrants that he or she is duly authorized to execute and
deliver this Lease on its behalf. It Lessee is a corporation, trust or
partnership, Lessee shall, within thirty (30) days after request by Lessor,
deliver to Lessor evidence satisfactory to Lessor of such authority.
45. CONFLICT. Any conflict between the printed provisions of this Lease and me
typewritten or handwritten provisions shall be controlled by the typewritten or
handwritten provisions.
46. OTHER. Preparation of this Lease by either Lessor or Lessee or Lessor's
agent or Lessee's agent and submission of same to Lessee or Lessor shall not be
deemed an offer to lease. This Lease is not intended to be binding until
executed and delivered by all Parties hereto.
47. AMENDMENTS. This Lease may be modeled only in writing, signed by the parties
in interest at the time of the modification. The Parties shall amend this Lease
from time to time to reflect any adjustments that are made to the Base Rent or
other rent payable under this Lease. As long as they do not materially change
Lessee's obligations hereunder, Lessee agrees to make such reasonable
non-monetary modifications to this Lease as may be reasonably required by an
institutional insurance company or pension plan Lender in connection with the
obtaining of normal financing or refinancing of the property of which the
Premises are a part.
48. MULTIPLE PARTIES. Except as otherwise expressly provided herein, it more
than one person or entity is named herein as either Lessor or Lessee, the
obligations of such multiple parses shall be the Joint and several
responsibility of all persons or entices named herein as such Lessor or Lessee.
Initials: _________
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<PAGE>
LESSOR AND LESSEE HAVE CAREFULLY READ AND REVIEWED THIS LEASE AND EACH TERM AND
PROVISION CONTAINED HEREIN, AND BY THE EXECUTOR OF THIS LEASE SHOW THEIR
INFORMED AND VOLUNTARY CONSENT THERETO. THE PARTIES HEREBY AGREE THAT, AT THE
TIME THIS LEASE IS EXECUTED, THE TERMS OF THIS LEASE ME COMMERCIALLY REASONABLE
AND EFFECTUATE THE INTENT AND PURPOSE OF LESSOR AND LESSEE WITH RESPECT TO THE
PREMISES.
IF THIS LEASE HAS BEEN FILLED IN IT HAS BEEN PREPMED FOR YOUR ATTORNEY'S REVIEW
AND APPROVAL FURTHER, EXPERTS SHOULD BE CONSULTED TO EVALUATE THE CONDITION OF
THE PROPERTY FOR THE POSSIBLE PRESENCE OF ASBESTOS UNDERGROUND STORAGE TANKS OR
HAZARDOUS SUBSTANCES. NO REPRESENTATION OR RECOMMENDATION IS MADE BY THE
AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION OR BY THE REAL ESTATE BROKERS OR
THEIR CONTRACTORS, AGENTS OR EMPLOYEES AS TO THE LEGAL SUFFICIENCY, LEGAL
EFFECT, OR TAX CONSEQUENCES OF THIS LEASE OR THE TRANSACTION TO WHICH IT
RELATES; THE PMTIES SHALL RELY SOLELY UPON THE ADVICE OF THEIR OWN COUNSEL AS TO
THE LEGAL AND TAX CONSEQUENCES OF THIS LEASE. IF THE SUBJECT PROPERTY IS IN A
STATE OTHER THAN CALIFORNIA, AN ATTORNEY FROM THE STATE WHERE THE PROPERTY IS
LOCATED SHOULD BE CONSULTED.
The parties hereto have executed this Lease at the place and on the dates
specified above their respective signatures.
Executed at: _________________________ Executed at: _________________________
on: __________________________________ on: __________________________________
By LESSOR: By LESSEE:
REMCON II, L.L.C. EMPYREAN DIAGNOSTICS
- -------------------------------------- --------------------------------------
Name Printed: Gerald Remaklus Name Printed: Raymond E. Dean
------------------------ ------------------------
Title: Title: C. O. O
-------------------------------- -------------------------------
By: __________________________________ By: __________________________________
Name Printed: Chuck Hanson Name Printed:
------------------------ ------------------------
Title: _______________________________ Title: _______________________________
Address: 4717 E. McDowell Rd., Suite 200 Address: 348 E. Middlefield Rd.
------------------------------- ----------------------------
Phoenix, AZ 85008 Mountain View, CA 94043
----------------------------- ----------------------------
Telephone: (602) 273-0085 Telephone: (650) 960-0516
---------------------------- ---------------------------
Facsimile: (602) 273-0086 Facsimile: (650) 960-0515
---------------------------- ---------------------------
BROKER: BROKER:
Executed at: Executed at:
------------------------- -------------------------
on: on:
---------------------------------- ----------------------------------
By: By:
---------------------------------- ----------------------------------
Name Printed: Bob Deininger Name Printed: Ken McQuene
------------------------ ------------------------
Title: Associate Director Title:
------------------------------- -------------------------------
Address: 2741 W. Southern Ave., Suite 1 Address: 4455 E. Camelback Rd., B-210
------------------------------- -----------------------------
Tempe, AZ 85282 Phoenix, AZ 85018
----------------------------- ----------------------------
Telephone: (602) 431-3968 Telephone: (602) 808-9887
---------------------------- ----------------------------
Facsimile: (602) 431-1213 Facsimile: (602) 954-7121
---------------------------- ----------------------------
NOTE: These forms are often modeled to meet changing requirements of law and
needs of the industry. Always write or call to make sure you are utilizing the
most current form: AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION, 700 South Flower
Street, Suite 600, Los Angeles, CA 90017. (213) 687-8777
Initials: ________
MULTI-TENANT-GROSS
American Industrial Real Estate Association 1993
LIST OF SUBSIDIARIES
(After giving effect to the merger)
SUBSIDIARY STATE OF INCORPORATION
---------- ----------------------
Empyrean Diagnostics, Inc. California
Exhibit 23.1
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We have issued our report dated February 11, 1999, accompanying the
consolidated financial statements of Empyrean Bioscience, Inc., contained in
this Registration Statement and Joint Proxy Statement/Prospectus. We consent to
the use of the aforementioned report in this Registration Statement and Joint
Proxy Statement/Prospectus, and to the use of our name as it appears under the
caption "Experts."
GRANT THORNTON LLP
San Jose, California
July 29, 1999
