SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-SB
GENERAL FORM FOR REGISTRATION OF SECURITIES OF
SMALL BUSINESS ISSUERS
UNDER SECTION 12(B) OR (G) OF THE SECURITIES EXCHANGE ACT OF 1934
EMPYREAN BIOSCIENCE, INC.
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(Name of Small Business Issuer in its Charter)
WYOMING 83-0212682
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2238 WEST LONE CACTUS DRIVE, SUITE 200
PHOENIX, ARIZONA 85027-2613
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(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code: (623) 879-6935
SECURITIES TO BE REGISTERED UNDER SECTION 12(B) OF THE ACT:
Title of each class Name of each exchange on which each
to be so registered class is to be registered
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None N/A
SECURITIES TO BE REGISTERED UNDER SECTION 12(G) OF THE ACT:
COMMON STOCK, WITHOUT PAR VALUE
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(Title of Class)
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PART I
BUSINESS
HISTORY
We were originally incorporated in the Province of British Columbia, Canada
in 1986 under the name "Mr. Build Industries Inc." Since that time, we changed
our name at various times, and on December 31, 1996, under the name Empyrean
Diagnostics, Ltd., we changed our governing jurisdiction from the Province of
British Columbia to the State of Wyoming through the filing of a certificate of
continuance with the Wyoming Secretary of State.
We have not undergone any bankruptcy, receivership, or similar proceedings
nor have we had any material consolidation, merger, or purchase or sale of a
significant amount of assets not in the ordinary course of business (except the
disposal of our diagnostic equipment assets upon discontinuance of that business
line, as described below).
Prior to April 1997, we distributed and marketed an HIV diagnostic product.
In April 1997, in connection with a change in our management team, we shifted
our focus from marketing and distributing the HIV diagnostic test kit to
marketing and distributing preventative products. In 1998, we discontinued
marketing and distributing our Trichomonas diagnostic kits. The HIV diagnostic
kit inventory was written off in 1997 and the Trichomonas diagnostic kit
inventories were written off in 1998. This shift in focus coincided with our
acquisition of rights to use a microbicide formulation utilized in a number of
our preventative products, including Preventx(R) hand sanitizer and antiseptic
skin protectant, Preventx(R) vaginal contraceptive gel, and Preventx(R)
antiseptic surface spray. Since that time, we are no longer actively marketing
our diagnostic products. Our Board has changed from time to time due to shifts
in the company such as our new product line.
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(R) 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, 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 to undergo Phase III clinical trials to prove its safety and its
effectiveness against STDs and as a contraceptive. The purposes of our Phase I
and II clinical trials were to study the safety of the contraceptive gel when
used in women and its effectiveness against STDs in an in vitro environment. 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.
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We believe that the spread of infectious disease has become a major concern
in many industries, including the health care, food service and public
accommodation industries. We also believe that bacterial contamination has
become an issue of heightened public concern as well fueled by the prevalence or
reemergence of several deadly diseases in recent years, including HIV, the
causative agent of 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.
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:
* may protect skin and surfaces from a broader range of harmful
microorganisms and infectious diseases;
* may be longer lasting and more effective,
* is alcohol and triclosan free, and as a result may be relatively
non-irritating and may avoid safety concerns such as flammability, and
* 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 formulation and manufacturing processes 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, 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.
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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. Integrated Commercialization Solutions 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 and body lotions were estimated to be approximately $700
million in the United States in 1996. 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.
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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 such as sinks and
counter tops, and similar locations.
Existing sales of household cleaners (including all household cleaning
related products) were approximately $2.3 billion in the United States in 1998
according to MMR/IRI magazine. We believe that our surface spray product can
increase the market for disinfectant type surface spray 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 which are 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 over-the-counter
contraceptive products in 1998 were approximately $261 million 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 5.8 million new cases
of HIV infection, 89 million new cases of Trichomonas, 150 million new cases of
Chlamydia, 62 million new cases of Gonorrhea, 12 million new cases of Syphilis
and 40 million new cases of genital Herpes are experienced worldwide each year,
and one in three 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
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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. Condoms are relatively porous,
containing pore sizes ranging from 5 to 70 microns in 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 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 a high enough dosage, 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 million
infections and 90,000 deaths in the United States alone resulting from
nosocomial contamination which are infections contracted at a hospital or
doctor's office which are unrelated to the purpose of a patient's visit. There
were 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 $4.9
billion in annual direct costs. 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. 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.
OUR 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 limitations of competitive products. If the appropriate government
agencies approve the gel, we expect that our contraceptive gel will utilize
octoxynol-9 and benzalkonium chloride as its active ingredients. 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
itching irritations. Our products may offer protection against the spread of
nearly all harmful microorganisms on the skin. In addition, our products are
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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(R). 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(R) 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(R) 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 Far Eastern countries in late 1999 or early 2000. 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
concentrations of 60% or greater which are the concentrations of some
competitive products.
* 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
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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(R) baby wipe a significant advantage over
alcohol-based wipes on the market today.
The baby wipes have been developed and are currently being tested for
effectiveness in an independent laboratory.
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.
The disinfectant surface spray has been developed and is being reviewed by
an EPA consultant hired by us to determine what further testing is required
before we submit it to the EPA. It will require EPA approval because we want to
claim that the spray has the ability to eliminate viruses, bacteria and fungi on
surfaces. In accordance with EPA guidelines, the surface spray is classified as
a pesticide since it kills viruses, fungi and bacteria on surfaces. Therefore,
EPA approval will be applied for under the rules and regulations governing
pesticides.
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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 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 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 a new drug application for the product, or
* any new drug application 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.
Existing contraceptive gel products utilize active ingredients such as
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.
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 we may never obtain 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.
The contraceptive gel will not be sold in the United States until the NIH
completes its Phase III study which has yet to begin. The Phase III study will
address the effectiveness of the product in preventing the transmission of
gonorrhea, chlamydia, and trichomonas vaginalis. The second part of the Phase
III testing will address the effectiveness of the product in preventing the
transmission of syphilis, HIV, and herpes. This portion of the testing will be
performed outside of the United States due to the insufficient number of STDs in
the United States. It will then be submitted to the FDA for marketing approval.
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, and Southeast Asia, 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 Integrated
Commercialization Solutions and third-party distributors. 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 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.
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. 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 some of our 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, and, as to the sale of
the anti- microbial hand lotion, the United States. We have subsequently
acquired sub-licensing rights in the United States. The term of the license
extends to April 29, 2007, subject to renewal options for additional 10 year
terms if we meet the guaranteed minimum royalty requirements. Under the license
agreement, we are required to pay minimum royalties in order to maintain
exclusivity. These minimum royalties increase each year of the contract as shown
below:
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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
2004 1,758,000
2005 2,108,000
2006 2,508,000
2007 2,960,000
The agreement also grants us a right of first refusal to acquire the licensed
technology if the licensor decides to sell it.
We are involved in litigation concerning this license, the adverse outcome
of which could result in us losing rights to market, sell and manufacture our
hand sanitizer product and other products currently in development by us, which
would result in our inability to generate revenues.
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(R) trade name, marks and logos. We acquired these rights in
exchange for up-front payments of 225,000 shares of our common stock, $50,000
cash, and continuing royalty payments of 5% of net sales. 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, a division of Bergen Brunswig Corporation. The
letter of intent requires us to pay up to $75,000 for ICS services. ICS provided
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. Currently, ICS in only providing warehousing,
order processing and some customer service functions.
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(R) 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
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the exclusive rights to the Preventx(R) Hand Sanitizer and Antiseptic Skin
Protectant and will pay $600,000 for the contraceptive gel 120 days following
approval of claims related to our products by the FDA. Durstrand must purchase a
minimum of $4,400,000 of either product over the three-year term to maintain its
exclusive rights.
MANUFACTURING AND QUALITY CONTROL
PREVENTATIVE PRODUCTS
The manufacturing of our hand sanitizer and antiseptic skin protectant,
contraceptive gel, and disinfectant surface spray is performed to our
specifications by a contract manufacturer, Canadian Custom Packaging, 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 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 including regulations adopted
by the FDA and is subject to periodic inspection by the agency. It is also ISO
9001 certified. CCP may not 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. We do not have a long-term
contract with CCP and our current arrangement could be terminated at any time.
RESEARCH AND DEVELOPMENT
We currently focus all of our limited research and development resources
and efforts on our Preventx(R) 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 these 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 risks to us.
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. Some of our collaborative partners in foreign countries will be
responsible for preparing and processing regulatory submissions for countries
located in their respective territories.
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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 and the regulations 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:
* preclinical laboratory and animal tests;
* 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;
* preliminary testing of the drug in people to evaluate the drug and its
manner of use; and
* 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 drug, the Food and Drug Act ordinarily requires the submission
and approval of a New Drug Application or an abbreviated NDA, for duplicate
versions of "pioneer" drug product, 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 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. The FDA may not give
its approval at the end of the NDA approval process, or ever, and stringent
requirements, violation of which may result in severe civil and criminal
penalties, continue to apply even after approval.
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.
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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
regulations, called mongraphs, 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 some categories of OTC drugs
not yet subject to a final regulation, the FDA usually will not take regulatory
action against 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. Benzalkonium chloride may not be included in the final
regulation or, if it is, the permitted claims may not 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, the
FDA may not reopen the record or, even if it does, it may not include
benzalkonium chloride in the final regulation or permit claims like ours. If
benzalkonium chloride is not covered by the final regulations, or if
benzalkonium chloride is included but for different claims than ours, the FDA
will not permit us to market the hand sanitizer or antiseptic skin protectant
product without premarket approval by the FDA.
The FDA may 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. The FDA may assert the same or
similar positions respecting our hand sanitizer and antiseptic skin protectant
product. We are unsure of how we would respond to these assertions if made 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
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(R) 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 to
undergo a Phase III clinical trial to prove its safety and its effectiveness
against 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. 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.
The contraceptive gel, if approved in the United States, will be sold as a
contraceptive gel and anti-infective barrier. The product will be sold at a
premium from contraceptive gels that cannot claim an anti-infective barrier. We
believe that our gel will compete against other contraceptive products on the
basis of product differentiation and, to a lesser extent, price. To the extent
we compete based on price, we will be at a competitive disadvantage.
PREVENTX(R) 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% or higher concentration 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(R). Hand sanitizers in the United States are
sold based on price competition.
PREVENTX(R) DISINFECTANT SURFACE SPRAY
There are numerous competitors in the surface cleaning market, both in the
United States and worldwide, including Reckitt & Coleman, which markets the
Lysol brand, and Dial.
We plan to sell the disinfectant surface spray as an anti-bacterial surface
spray that is safe to be used near food and that does not give any after taste
or odor. We expect that it will be as strong and as effective as those sprays
not used near food because they are lethal to ingest. We intend to sell the
product at a premium price. Like our contraceptive gel, we believe that our
surface spray will compete against other surface cleaners based on product
differentiation and, to a lesser extent, price. Price competition would place us
at a competitive disadvantage.
EMPLOYEES
As of September 15, 1999, we employed nine full-time personnel. These
employees are involved in executive, corporate administration, operations, and
sales and marketing functions.
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RISKS RELATING TO OUR BUSINESS AND OUR SECURITIES
Our future prospects and the market value of our securities are subject to
several risks, some of which are described below.
RISKS RELATING TO OUR BUSINESS:
WE MAY NOT BE ABLE TO OBTAIN SUFFICIENT CAPITAL TO FUND OUR OPERATIONS AND,
AS A RESULT, WE MAY CUT BACK OR DISCONTINUE OPERATIONS OR LIMIT OUR BUSINESS
STRATEGIES.
While we will need significant additional capital in the near future, we
may be unable to obtain funding for our operations on favorable terms, or 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 also lead to increased dilution to existing
stockholders.
CURRENT LITIGATION MAY ADVERSELY AFFECT ONE OF OUR PRIMARY LICENSES AND WE
COULD LOSE OUR RIGHTS TO MAKE OR SELL OUR PRODUCTS AND BE UNABLE TO GENERATE
REVENUES.
A third party claims a prior worldwide licensing and marketing right
without an expiration date which could materially adversely affect our rights to
license and market our current hand sanitizer product and future products
developed by us. These products include any products that we develop based on
the formulation licensed by us from Geda, which is currently all of our
products. Geda, our licensor, has sought a declaratory judgment that the third
party has no rights in the product line, but it may not succeed in the
litigation. If Geda does not succeed, we may not be able to market, sell or
manufacture our current hand sanitizer product or any other products in
development. If that were to occur, we would be unable to generate revenues.
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WE EXPECT TO INCUR LOSSES FOR THE FORESEEABLE FUTURE AND CONTINUED LOSSES
COULD RESULT IN OUR INABILITY TO FUND BUSINESS OPERATIONS AND CAUSE OUR STOCK
PRICE TO DECLINE.
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 $3,147,135 for the years 1996, 1997 and 1998,
respectively, and $1,778,802 in the six months ending June 30, 1999. We may
never make a profit. These 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 $19,598,020 at June 30, 1999. In we continue to incur
losses, we would not be able to fund continuing business operations which could
lead to the limitation or closure of some or all of our operations.
EXISTING OR POTENTIAL MARKETS MAY NOT ACCEPT OUR PRODUCTS AND WE MAY
EXPERIENCE AN INABILITY TO GENERATE REVENUE OR PROFITS.
Our success depends significantly on obtaining and increasing penetration
of existing and new markets and the acceptance of our products in these markets.
Our products may not achieve or maintain market acceptance. We also may not 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
would limit our ability to generate revenue or result in a loss of revenue and
our ability to ever make a profit.
ADVERSE PRODUCT PUBLICITY AND PRODUCT RECALLS OF OTHER PRODUCTS MAY HAVE A
NEGATIVE EFFECT ON THE SALES OR ACCEPTANCE OF OUR PRODUCTS AND COULD RESULT IN A
LOSS OF REVENUES OR OUR INABILITY TO EVER BECOME PROFITABLE.
Anti-bacterial products containing triclosan as the active 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, adverse publicity stemming from
broadcasts of problems with or recalls of other products may adversely affect
the sales of our products or our ability to ever become profitable, as our
customers or consumers may not distinguish our products from the products that
are the subject of negative publicity.
WE MAY INCUR SIGNIFICANT LIABILITIES AND EXPENSES IF OUR PRODUCTS CAUSE
PERSONAL INJURY OR PROPERTY DAMAGE.
Although we believe that our products are safe, there is a possibility that
personal injury, including death, or property damage could occur from the use or
misuse of our products. If so, significant product liability claims and
litigation could be brought against us. Currently, we maintain limited product
liability insurance. Any claims relating to our products, even if
nonmeritorious, may exceed our existing insurance coverages and assets. If this
occurs, we may experience significant losses and may be required to divert cash
or assets otherwise available for use in our operations to pay these losses and
expenses.
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WE HAVE LIMITED SALES, MARKETING AND DISTRIBUTION CAPABILITIES AND RELY
EXTENSIVELY ON THIRD PARTIES TO MARKET AND DISTRIBUTE OUR PRODUCTS, AND THE
FAILURE OR UNWILLINGNESS OF THESE PARTIES TO MARKET OUR PRODUCTS COULD LIMIT OUR
ABILITY TO GENERATE REVENUES OR PROFITS.
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 largely dependent 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 result in our
inability to generate significant revenues and profits if we are not able to
generate sales with our internal salespeople. 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 or our
inability to become profitable.
WE HAVE NO INTERNAL MANUFACTURING CAPABILITY AND DEPEND HEAVILY UPON THIRD
PARTY SUPPLIERS, AND THE INABILITY OR UNWILLINGNESS OF THESE THIRD PARTIES TO
SUPPLY OUR PRODUCTS COULD RESULT IN INTERRUPTIONS OF OUR PRODUCT SUPPLY
CAPABILITY AND A LOSS OF CUSTOMERS AND REVENUES.
We have a single contract manufacturer for our current product who
purchases raw materials used in the manufacture of our product from various
suppliers. We do not have a written agreement with this manufacturer and our
arrangements with it could be terminated at any time. Our contract manufacturer
and our suppliers may not be able to supply our product in a timely or
cost-effective 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 materials or finished
products would significantly impair our ability to compete, would cause a loss
of revenue and could cause a loss of significant customers.
WE ARE SUBJECT TO INTENSE COMPETITION AND PRICING PRESSURES FROM
SUBSTANTIALLY LARGER COMPETITORS WHICH CAN LIMIT OUR ABILITY TO EVER MAKE A
PROFIT.
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. We may be unable 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 inability to absorb price reductions
could cause a loss of sales volumes or prohibit us from generating profits from
our product sales.
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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 may be
unable 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, Mr. Richard C. Adamany, the Executive
Vice President and Chief Operating Officer of Empyrean and Mr. Bennett S. Rubin,
the Executive Vice President and Chief Marketing Officer of Empyrean. The loss
of the services of Mr. Hayter, Mr. Adamany or Mr. Rubin could limit our success
in the future. Messrs. Hayter, Adamany and Rubin are all subject to employment
agreements, and the Company plans to obtain "key man" life insurance policies on
their lives.
GOVERNMENT REGULATION OF OUR PRODUCTS MAY PREVENT US FROM SELLING OUR
CURRENT PRODUCT OR MAY RESULT IN DELAYS IN LAUNCHING OR SELLING FUTURE PRODUCTS,
AND CAN SIGNIFICANTLY INCREASE OUR COSTS.
The testing, manufacture, labeling, distribution, advertising, marketing,
and sale of our products are 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 very costly, time consuming, and uncertain, and our
products may not obtain FDA approval on a timely basis, if at all. We may not
have sufficient resources to complete the required testing and regulatory review
process for our products currently under development, and we do not have
sufficient resources to seek FDA approval of any of our products. In addition,
approvals 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. Also, the FDA may restrict or prohibit us from making
pertinent product claims and this may limit the successful marketing of our
products or may reduce the prices for our products. Finally, failure to comply
with 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 approvals, suspensions and withdrawals of previous
approvals, and criminal prosecution of us or our officers or employees.
THE ACTIVE INGREDIENT IN OUR CURRENT PRODUCT MAY BE SUBJECT TO FDA REVIEW
WHICH COULD DELAY OR PREVENT MARKETING OF OUR CURRENT AND FUTURE PRODUCTS.
Most over-the-counter (OTC) drug products marketed in the United States are
not subjected to the FDA'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
regulations, called monographs, 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 not
subject to premarket approval. For some categories of OTC drugs not yet subject
to a final regulation, the FDA usually will not take regulatory action against 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 an FDA proposed regulation for
OTC first aid antiseptic drug products, but with different claims than ours.
Further, the FDA declined to include benzalkonium chloride in its proposed
regulation for OTC health care antiseptic drug products, which include
antiseptic handwash or health-care personnel handwash drug products. If
benzalkonium chloride is not covered by the final regulations, or if
benzalkonium chloride is included but for different claims than ours, the
marketing of the hand sanitizer and antiseptic skin protectant product without
premarket approval by the FDA may be limited or forbidden.
The FDA may 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 Federal Food, Drug and Cosmetic Act because the adequacy of
the product's directions for use has not been determined. The FDA may assert the
same or similar positions respecting our hand sanitizer and antiseptic skin
protectant product. We are unsure of how we would respond to these assertions if
made or how they would affect the marketing of the marketability of our product.
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THE PROTECTION OF OUR PROPRIETARY RIGHTS TO OUR PRODUCTS MAY NOT BE
COMPLETE AND THIS COULD IMPAIR OUR ABILITY TO SUCCESSFULLY COMPETE AGAINST
OTHERS.
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. As a result, we
have no ability to prevent third parties from duplicating our products if they
can do so without either violating an agreement with us or improperly using our
trade secrets. We may never be able to obtain any key patents or other
protection and our licensors may never be able to obtain similar protection for
our products. Our existing proprietary rights may not be sufficient to protect
our products, may be found invalid, and may not provide significant commercial
benefits in any event. Although we do not believe that our products infringe on
the patent rights or proprietary rights of others, they may be found to infringe
on other products.
WE HAVE A LIMITED PRODUCT LINE AND OUR INABILITY TO SUCCESSFULLY MARKET ANY
ONE OR A FEW OF OUR PRODUCTS COULD CAUSE A SIGNIFICANT DECLINE IN OUR REVENUES
OR FUTURE PROFITABILITY.
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 an 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 is guaranteed. We
expect to derive most of our revenue in the foreseeable future 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 any one
or a few of our existing or near-term future products will have a significant
impact on our ability to generate revenues or profits and this impact would not
be offset by the successful marketing or sales of our other products.
WE ARE INVOLVED IN A SECURITIES LITIGATION MATTER 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 securities
fraud violations and misrepresentations led it to invest in Pinnacle
Diagnostics. The plaintiff claims damages of approximately $540,000 and interest
on that amount, plus punitive damages. We have been joined as a co-defendant.
Although we do not agree with plaintiff's claims, we could lose this lawsuit. A
loss or a settlement of this lawsuit may require us to pay the damages claimed
and punitive damages. Payment of these damages could cause us to incur
significant losses and deplete any cash or assets that we otherwise may have had
available for use in our business operations.
WE HAVE LIMITED RESEARCH AND DEVELOPMENT RESOURCES AND OUR SUCCESS DEPENDS
IN PART ON OUR RESEARCH AND DEVELOPMENT EFFORTS AND AS A RESULT OUR FUTURE
PROFITABILITY AND ABILITY TO GENERATE REVENUES MAY BE HARMED BY OUR INABILITY TO
DEVELOP NEW PRODUCTS OR IMPROVEMENTS OF OUR PRODUCTS.
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
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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. As a result, our ability to achieve market acceptance,
to leverage that acceptance through the introduction of follow-on products, or
to better diversify our risks through multiple product offerings 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 STRAIN OUR RESOURCES AND SYSTEMS.
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. Our failure to manage any
expansion effectively could strain our resources and systems and result in the
loss of revenues or customers or the incurrence of additional operating losses.
FAILURE TO ACHIEVE YEAR 2000 COMPLIANCE MAY CAUSE A DISRUPTION IN OUR
SYSTEMS AND CAUSE US TO INCUR SIGNIFICANT LIABILITIES OR EXPENSES.
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. 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 Year
2000 compliant. In addition, we have not developed an internal contingency plan
to deal with Year 2000 issues that may affect our business. As a result, we may
experience disruptions in our ability to conduct business because of the Year
2000 problems experienced by us, our distributors, or our vendors. To the extent
that our systems experience a Year 2000 failure, or if our key distributors or
vendors experience problems relating to achieving Year 2000 compliance, we could
suffer a disruption or loss of our systems and 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 WHICH COULD LIMIT OUR ABILITY TO GENERATE PROFITS OR CAUSE
US TO INCUR OPERATING LOSSES.
We are 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, foreign customers may 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, which could limit or eliminate our ability to generate profits
from the sale of these products or cause us to incur significant losses.
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RISKS RELATING TO OUR STOCK:
THE LACK OF A MATURE TRADING MARKET FOR OUR COMMON STOCK MAY CAUSE OUR
STOCK PRICE TO DECLINE SIGNIFICANTLY AND LIMIT THE LIQUIDITY OF OUR COMMON
STOCK.
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 to trade lower than the prices that may prevail if our securities
were listed or quoted on an exchange or on Nasdaq.
OUR COMMON STOCK IS SUBJECT TO THE "PENNY STOCK" RULES OF THE SEC AND THE
TRADING MARKET IN OUR SECURITIES IS LIMITED, WHICH MAKES TRANSACTIONS IN OUR
STOCK CUMBERSOME AND MAY REDUCE THE VALUE OF AN INVESTMENT IN OUR STOCK.
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 brokers
must provide bid and offer quotations and compensation information prior to
effecting the transaction and include the information in the customer's
confirmation. Generally, brokers may be less willing to execute transactions in
securities subject to the "penny stock" rules. This may make it more difficult
for investors to dispose of our common stock and cause a decline in the market
value of our stock.
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.
As of October 22, 1999, we have 29,346,659 shares of common stock
outstanding and available for sale in the public market, and we have outstanding
warrants and options to purchase 10,509,617 additional 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
5,677,774 shares owned or currently issuable to our "affiliates." 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, we may
have difficulty obtaining additional capital.
OUR STOCK PRICE MAY BE VOLATILE DUE TO FACTORS BEYOND OUR CONTROL WHICH
COULD SUBJECT THE VALUE OF OUR SHARES TO RAPID DECLINE.
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 us. This is especially true with respect to
emerging companies like us 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. For
example, in the first quarter of 1999, the bid price of our common stock quoted
on the OTC Bulletin Board ranged from a low of $0.35 per share to a high of
$1.03 per share, and from a high of $1.00 per share to a low of $0.30 per share
in the fourth quarter of 1998. Similar fluctuations have been experienced in
other periods.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion and analysis provides information regarding our
financial position and its results of operations for the periods shown. This
discussion should be read in conjunction with our Consolidated Financial
Statements and related Notes thereto included elsewhere in this document.
INTRODUCTION
Prior to April 1997, we distributed and marketed an HIV diagnostic kit. In
April 1997, in connection with a change in our management team, we shifted our
focus from marketing and distributing the HIV diagnostic test kit to marketing
and distributing our preventative products. In 1998, we discontinued the
distribution and marketing of our Trichomonas diagnostic test kit. This shift in
focus coincided with our acquisition of the rights to use a microbicide
formulation utilized in a number of our preventative products, including
Preventx(R) Hand Sanitizer and Antiseptic Skin Protectant, Preventx(R) Vaginal
Contraceptive Gel, and Preventx(R) 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, our
auditors issued a going concern opinion in connection with the audit of our 1998
financial statements. See Note 2 to our 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.
As discussed in note 10 to the financial statements, the financial
statements have been restated to reflect the correction of an error.
RESULTS OF OPERATIONS
COMPARISON OF SIX MONTHS ENDED JUNE 30, 1999 AND JUNE 30, 1998.
Our total revenues in the six months ended June 30, 1999 were $586,591
compared to $9,000 in the six months ended June 30, 1998. Revenues in the first
half of 1999 consisted of sales from the Preventx(R) antiseptic and skin
protectant product introduced in late February 1999 in the amount of $69,925 and
Southeast Asia distribution rights income in the amount of $516,666. In the
first half of 1998, revenues of $9,000 represented sales of products under
development for use as samples.
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We incurred a net loss in the six months ended June 30, 1999 of $1,778,802
compared to a net loss of $1,488,532 in the six months ended June 30, 1998. The
losses in 1999 and 1998 were due primarily to limited revenues that were
substantially exceeded by our costs of operation. Our net loss per share for the
six months ended June 30, 1999 was $0.07 compared to a net loss per share of
$0.08 in the six months ended June 30, 1998.
Selling, general and administrative expenses increased to $2,222,027 in the
six months ended June 30, 1999 from $1,506,747 in the six months ended June 30,
1998 primarily due to the following:
* Administrative fees relating to our relationship with Integrated
Commercialization Solutions, a division of Bergen Brunswig Corporation,
were $270,304 in the six months ended June 30, 1999, and we did not incur
these fees in the six months ended June 30, 1998. Empyrean entered into a
letter of intent on October 7, 1998 with Integrated Commercialization
Solutions to provide infrastructure services including order entry,
warehousing, billing, customer service and marketing services.
* Expenses for royalties and distribution rights increased to $318,445 in the
six months ended June 30, 1999 from $122,500 in the six months ended June
30, 1998, an increase of 160%. This increase was due in large part to an
increase in the guaranteed minimum royalty payment of $245,000 in the six
months ended June 30, 1999 compared to $122,500 in the six months ended
June 30, 1998. Additionally, we incurred a $70,000 distribution right
expense in the six months ended June 30, 1999 due to the purchase of rights
to distribute Preventx(R) in Canada.
* We incurred advertising expenses of $281,062 in the six months ended June
30, 1999 compared to $39,408 in the six months ended June 30, 1998. The
advertising expenses incurred in 1999 were primarily due to our emphasis on
marketing and selling our hand sanitizer and antiseptic skin protectant.
Interest expense increased to $111,613 in the six months ended June 30, 1999
from $0 in the six months ended June 30, 1998 due to inclusion of the fair value
of stock warrants as interest expense issued to promissory note holders in the
1999 period.
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 sample sales of our
preventative products in development. As a result of the shift in focus in 1997
and 1998 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 $3,147,135 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 $0.14 compared to a net loss per share of $0.14 in 1997.
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Selling, general and administrative expenses increased to $2,912,791 in the
year ended December 31, 1998 from $1,875,020 in the year ended December 31, 1997
primarily due to the following:
* Management fees and consulting expenses increased to $849,178 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., under 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 our
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.
* Slightly offsetting the above increases, 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.
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.
Prior to 1997 we made a $600,000 advance to Emerald Diagnostics, a company
controlled by a former director, for product development. In 1997 we wrote off
the remaining $105,000 advance because it had no future economic benefit.
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.
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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 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.
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 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
the costs associated with acquiring and marketing our new line of preventative
products. We raised $1,803,039 in 1998 and $1,836,481 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 June 30, 1999, cash and cash equivalents
totaled $190,108. 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(R) 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 June 30, 1999, we had negative working capital of $646,772 and a current
ratio of 0.59 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, of which $285,500 has
been extended for another six months under the same terms, $214,500 has been
satisfied with the purchase of common stock warrants, and $300,000 is due and
payable, with a security interest in our inventory and accounts receivable and
proceeds from our inventory and accounts receivable. 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 six months ended June 30, 1999, net cash used in operating
activities was $1,325,049 which primarily resulted from a net loss from
continuing operations of $1,778,802, offset by non-cash expenses of $536,466 for
the granting of stock options to consultants.
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Net cash provided by financing activities for the six months ended June 30,
1999, was $1,461,733 resulting from issuance of short-term promissory notes
payable totaling $800,000 and the exercise of warrants and the issuance of
common stock to various investors in a private placement totaling $661,733.
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 our 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, our expectations as to when we and our significant distributors,
customers, and suppliers will complete the implementation and compliance phases
of the Year 2000 Plan, as well as any Year 2000 contingency plans; and our
belief that our internal systems and equipment are Year 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.
We believe that our critical internal systems, including versions of
Quickbooks, Microsoft Exchange and Microsoft Office products, are Year 2000
compliant. In addition, we track the versions and updates when available for
these products to ensure Year 2000 compliance.
We and our service provider, Integrated Commercialization Solutions, have
completed an evaluation of our internal systems and equipment that addresses
both information technology systems and non-IT systems. IT systems consist of
business systems and the software development environment. Non-IT systems
consist of all other systems such as building security and HVAC systems. In
addition, we have completed the upgrade of certain critical systems to meet Year
2000 requirements. We believe that any future internal Year 2000 costs will be
immaterial.
We have contacted our manufacturer, Canadian Custom Packaging, who has
confirmed that it is Year 2000 compliant. However, if there is interruption of
the manufacturing process due to Year 2000 computer malfunctions, we will have
no way to manufacture our product until the problem is corrected or another
manufacturer can be obtained.
Due to our Year 2000 analysis, we have determined that an internal
contingency plan is unnecessary. We also are in the process of conducting a
review of our suppliers to determine whether the suppliers' operations and the
products and services they provide are Year 2000 compliant.
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We have 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, we will
attempt to mitigate our risks with respect to any suppliers that may not meet
the requirements, including seeking alternative suppliers. However, we may
experience disruptions in our ability to conduct business because of Year 2000
problems experienced by our distributors or vendors. As a result, these problems
remain a possibility and could have an adverse impact on our results of
operations and financial condition. To the extent that our key distributors or
vendors experience problems relative to achieving Year 2000 compliance, we could
suffer unanticipated additional costs and possible revenue losses.
Some independent sales representatives that we use may have applications
that are not Year 2000 compliant. We do not believe this is a material concern
since product orders currently are either manually written and submitted
verbally or by fax.
Some commentators have predicted significant litigation regarding Year 2000
compliance issues. Because of the unprecedented nature of Year 2000 litigation,
it is uncertain whether, or to what extent, we may be affected.
PROPERTIES
Our corporate facility is located in Phoenix, Arizona and consists of
approximately 4,300 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.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth as of October 22, 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.
The business address of each person listed is c/o Empyrean Bioscience,
Inc., 2238 West Lone Cactus Drive, Suite 200, Phoenix, Arizona 85027-2613.
Beneficial ownership is determined in accordance with the rules of the SEC
and includes generally voting powers and 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 and except where
otherwise noted.
Beneficial ownership is calculated based on 29,346,659 common shares issued
and outstanding as of October 22, 1999, under 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 October 22, 1999, are deemed
outstanding for the purpose of calculating the number and percentage owned by
that person, but not deemed outstanding for the purpose of calculating the
percentage owned by each other person listed. The first column of the following
chart represents the total number of actual outstanding shares owned by the
named individual, including options and warrants exercisable within 60 days of
October 22, 1999. The second column titled "Portion Represented by Options and
Warrants" shows the portion of the column one figure represented by options and
warrants exercisable within 60 days of October 22, 1996. The totals for Mr. Bain
include 890,000 shares owned beneficially by Uptic Investment Corp., a company
owned 100% by Mr. Bain.
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TOTAL AMOUNT PORTION REPRESENTED
NAME AND ADDRESS OF OF BENEFICIAL BY OPTIONS AND PERCENT
BENEFICIAL OWNER OWNERSHIP WARRANTS OF CLASS
- ------------------- ------------- ------------------- --------
Michael Cicak 1,385,000 580,000 4.7%
Stephen D. Hayter 1,557,305 1,400,570 5.3%
Raymond E. Dean 749,719 747,719 2.6%
Dr. Andrew J. Fishleder 163,000 140,000 *
Robert G.J. Burg II 130,000 100,000 *
Lawrence D. Bain 1,232,750 710,000 4.2%
Richard C. Adamany 230,000 230,000 *
Bennett S. Rubin 230,000 230,000 *
Directors and executive officers
as a group (eight persons) 5,677,774 4,138,289 19.3%
- ----------
* less than 1%
As of the date of this Registration Statement, to our knowledge, there are
no arrangements of which may at a subsequent date result in a change in control
of Empyrean.
DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
The following table sets forth the names of all of our current directors
and executive officers as of the date of this Registration Statement, with each
position and office held by them and their periods of service in the capacities
listed.
NAME AGE POSITION WITH THE COMPANY DATE FIRST ELECTED
- ---- --- ------------------------- ------------------
Stephen D. Hayter 60 Director, President and August 1996
Chief Executive Officer
Andrew J. Fishleder, M.D. 46 Director November 1998
Robert G.J. Burg II 42 Director November 1998
Michael Cicak 63 Director May 26, 1999
Lawrence D. Bain 49 Director August 6, 1999
Richard C. Adamany 46 Executive Vice President September 7, 1999
and Chief Operations
Officer
Bennett S. Rubin 42 Executive Vice President September 7, 1999
and Chief Marketing
Officer
Mr. Hayter was appointed as our director, President and Chief Executive
Officer 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
30
<PAGE>
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. Mr. Hayter will resign as
President and Chief Executive Officer by March 7, 2000.
Dr. Fishleder 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.
Mr. Burg was appointed a director on November 20, 1998. Mr. Burg has over
twenty-years experience in sales and marketing. Since January 1998 Mr. Burg 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.
Mr. Cicak was appointed a director on May 26, 1999. Mr. Cicak is currently
the president of Solar Cells, Inc., a privately held manufacturer and worldwide
distributor of solar panels, and was the president and CEO of GlassTech, Inc., a
privately held manufacturer and distributor of window manufacturing equipment,
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.
Mr. Bain was appointed a director on August 6, 1999. Mr. Bain is a senior
vice president in the investment banking division of Stifel, Nicolaus & Company,
Incorporated. Previously, Mr. Bain was a managing director with Everen
Securities and a senior vice president with both Morgan Stanley Dean Witter and
E.F. Hutton Company. He currently serves as a trustee for Cleveland's Leprechaun
Society Charity and is a past board member of the Better Business Bureau.
Mr. Adamany was appointed Executive Vice President and Chief Operating
Officer on September 7, 1999. Prior to joining Empyrean, Mr. Adamany was a 50%
owner of Premier Enterprise Partners, LLC, a company formed to acquire, operate
and grow companies pursuing long-term capital gains. Mr. Adamany was Executive
Vice President and Chief Operating Officer of Advanced Lighting Technologies
from 1997 to 1998. From 1992 to 1996 Mr. Adamany was Senior Vice President,
Treasurer and Chief Financial Officer of Health O Meter Products Inc. which
acquired Mr. Coffee, Inc. where he held the same position. Mr. Adamany is
entitled under his employment agreement with us to become our President and
Chief Executive Officer and a director by March 7, 2000.
Mr. Rubin was appointed Executive Vice President and Chief Marketing
Officer on September 7, 1999. Prior to joining Empyrean, Mr. Rubin was a 50%
owner of Premier Enterprise Partners, LLC, a company formed to acquire, operate
and grow companies pursuing long-term capital gains. During 1998, Mr. Rubin was
Senior Vice President, Sales of Advance Lighting Technologies, Inc. From 1995 to
1998, Mr. Rubin held several senior management positions at Invacare
Corporation, including Vice President, Marketing and Marketing Services. From
1989 to 1995 Mr. Rubin was Vice President of Sales and Marketing of The Genie
Company. Mr. Rubin is entitled under his employment agreement with us to become
our Executive Vice President and Chief Operations Officer and a director by
March 7, 2000.
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.
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There are no family relationships between any two or more directors or
executive officers. Under their employment agreements with us, we are required
to elect Mr. Adamany and Mr. Rubin as directors by March 7, 2000. Other than as
described for these individuals, 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 or 1999. The Audit Committee is
responsible for evaluating the Company's accounting principles and its system of
accounting controls. The Compensation Committee acts on matters related to the
compensation of directors, senior management and key employees. Dr. Fishleder
and Mr. Burg each serve on our Audit Committee and Compensation Committee.
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.
EXECUTIVE COMPENSATION
The following table is a summary of the compensation paid to our Chief
Executive Officer and each executive officer who earned over $100,000 in total
salary and bonus for each of our three most recently completed fiscal years.
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<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
--------------------------------------- -------------
SECURITIES
OTHER ANNUAL UNDER OPTIONS ALL OTHER
NAME AND COMPENSATION GRANTED/SARS COMPENSATION
PRINCIPAL POSITION YEAR SALARY ($) BONUS ($) ($) GRANTED (#) ($)
- ------------------ ---- ---------- --------- ------------ ------------- ------------
<S> <C> <C> <C>
Stephen D. Hayter 1998 $186,923 -- -- 1,400,000 --
President and Chief 1997 $189,539 -- -- 300,000 --
Executive Officer 1996 $ 60,000 -- -- 600,000 --
Raymond E. Dean 1998 $135,000 -- -- 700,000 --
Former Secretary and 1997 $ 40,000 -- -- 300,000 --
Chief Operations
Officer(1)
</TABLE>
- ----------
(1) Mr. Dean joined Empyrean in August, 1997 and therefore no compensation
information for 1996 is provided. Mr. Dean resigned as chief operations
officer in September 1999. Currently he remains an employee of the Company.
OPTION/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
NUMBER OF PERCENT OF TOTAL
SECURITIES OPTIONS/SARS
UNDERLYING GRANTED TO EXERCISE
OPTIONS/SARS EMPLOYEES IN OR BASE PRICE
NAME GRANTED # FISCAL YEAR ($/SHARE) EXPIRATION DATE
---- ------------ ---------------- ------------- ---------------
<S> <C> <C> <C> <C>
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
</TABLE>
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END
OPTION/SAR VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES UNDERLYING VALUE OF UNEXERCISED
SHARES UNEXERCISED OPTIONS/SARS IN-THE-MONEY
ACQUIRED ON VALUE AT FISCAL YEAR-END OPTIONS/SARS FISCAL YEAR-END
NAME EXERCISE REALIZED EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
---- ----------- -------- ------------------------------- ----------------------------
<S> <C> <C> <C> <C>
Stephen D. Hayter 25,000 $8,450 1,350,570/854,372 $3,500
--
Raymond E. Dean -- -- 747,719/427,186 --
</TABLE>
EMPLOYMENT AGREEMENTS
Steven D. Hayter, our President, Chief Executive Officer, and Chairman of
the Board, works under an employment agreement effective as of September 1,
1999. Under the employment agreement, six months from September 1, 1999, Mr.
Hayter will resign as President and Chief Executive Officer of the Company. Mr.
33
<PAGE>
Hayter's agreement provides for a base salary of $180,000 per year which shall
continue through December 31, 2001 subject to review by our Compensation
Committee. Mr. Hayter would be entitled to participate in an incentive
compensation program in the future if so approved by our Board of Directors.
Under the employment agreement, we have agreed to register shares issuable upon
exercise of options granted to Mr. Hayter under our stock plan and have agreed
to register the resale of those shares under an effective Form S-3 Registration
Statement, if available. If Mr. Hayter is terminated without cause, we are
obligated to provide Mr. Hayter twelve months of severance pay, including one
year's salary and a pro rata portion of his annual bonus and accelerated vesting
of options. Mr. Hayter's agreement also contains confidentiality and non-compete
covenants. We have agreed to indemnify Mr. Hayter for actions taken by him as an
officer or director of us and this indemnification will survive his termination.
We have agreed to continue liability insurance until five years following Mr.
Hayter's termination with us.
Richard C. Adamany, our Executive Vice President and Chief Operating
Officer, works under an employment agreement effective as of September 7, 1999.
Mr. Adamany's agreement provides for a base salary of $150,000 for the first six
months of the agreement. Under the employment agreement, no later than six
months from September 7, 1999, Mr. Adamany will assume the position of President
and Chief Executive Officer of Empyrean and will become a director. His annual
base salary will increase to $180,000 at the end of the six month period. Mr.
Adamany will be reimbursed for weekly trips between Cleveland, Ohio and Phoenix,
Arizona. In addition, we will provide Mr. Adamany with a furnished two-bedroom
apartment in Phoenix, Arizona, access to a physical fitness center, and an
automobile. Mr. Adamany would be entitled to participate in an incentive
compensation program in the future if so approved by our Board of Directors.
Under the employment agreement, we have agreed to register shares issuable upon
exercise of options granted to Mr. Adamany under our stock plan and have agreed
to register the resale of those shares under an effective Form S-3 Registration
Statement, if available. If Mr. Adamany is terminated without cause, we are
obligated to provide Mr. Adamany twenty-four months of severance pay, including
two years of salary and a pro rata portion of his annual bonus and accelerated
vesting of options, unless Mr. Adamany is terminated less than twelve months
from the date of execution of the employment agreement, in which case his
severance pay would be limited to twelve months. Mr. Adamany has the option upon
termination of accepting a lump sum payment for severance pay, calculated by
discounting the stream of payments owed to him using a discount rate of 15%. Mr.
Adamany's bonus will be payable no later than ninety days following the close of
the fiscal year that he is terminated. Mr. Adamany's agreement also contains
confidentiality and non-compete covenants. We have agreed to indemnify Mr.
Adamany for actions taken by him as an officer or director of us and this
indemnification will survive his termination. We have agreed to continue
liability insurance until five years following Mr. Adamany's termination with
us.
In addition, under his employment agreement, Mr. Adamany is entitled to a
grant of options to purchase a minimum of 1.5 million shares of common stock at
the fair market value on the date of grant. The first option to purchase 50,000
shares of common stock vested upon execution of the employment agreement.
Options to purchase 90,000 shares will vest on the last day of each of the
second, third, fourth, fifth and sixth months following the execution of the
employment agreement. The remaining options will vest according to mutually
agreed upon performance criteria. The agreement provides that options granted to
other members of management will vest upon the same performance criteria as the
criteria for Mr. Adamany
Bennett S. Rubin, our Executive Vice President and Chief Marketing Officer,
works under an employment agreement effective as of September 7, 1999. Mr.
Rubin's agreement provides for a base salary of $150,000 for the first six
months of the agreement. Under the employment agreement, no later than six
months from the effective date of September 7, 1999, Mr. Rubin will assume the
34
<PAGE>
position of Executive Vice President and Chief Operating Officer of Empyrean,
and will become a director. His annual base salary will increase to $170,000 at
the end of the six month period. Mr. Rubin will be reimbursed for weekly trips
between Cleveland, Ohio and Phoenix, Arizona. In addition, we will provide Mr.
Rubin with a furnished two-bedroom apartment in Phoenix, Arizona, access to a
physical fitness center, and an automobile. Mr. Rubin would be entitled to
participate in an incentive compensation program in the future if so approved by
our Board of Directors. Under the employment agreement, we have agreed to
register shares issuable upon exercise of options granted to Mr. Rubin under our
stock plan and have agreed to register the resale of shares under an effective
Form S-3 Registration Statement, if available. If Mr. Rubin is terminated
without cause, we are obligated to provide Mr. Rubin twenty-four months of
severance pay, including two years of salary and a pro rata portion of his
annual bonus and accelerated vesting of options, unless Mr. Rubin is terminated
less than twelve months from the date of execution of the employment agreement,
in which case his severance pay would be limited to twelve months. Mr. Rubin has
the option upon termination of accepting a lump sum payment for severance pay,
calculated by discounting the stream of payments owed to him using a discount
rate of 15%. Mr. Rubin's bonus will be payable no later than ninety days
following the close of the fiscal year that he is terminated. Mr. Rubin's
agreement also contains confidentiality and non-compete covenants. We have
agreed to indemnify Mr. Rubin for actions taken by him as an officer or director
of us and this indemnification will survive his termination. We have agreed to
continue liability insurance until five years following Mr. Rubin's termination
with us.
In addition, under his employment agreement, Mr. Rubin is entitled to a
grant of options to purchase a minimum of 1.5 million shares of common stock at
the fair market value on the date of grant. The first option to purchase 50,000
shares of common stock vested upon execution of the employment agreement.
Options to purchase 90,000 shares will vest on the last day of each of the
second, third, fourth, fifth and sixth months following the execution of the
employment agreement. The remaining options will vest according to mutually
agreed upon performance criteria. The agreement provides that options granted to
other members of management will vest upon the same performance criteria as the
criteria for Mr. Rubin.
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. which is a private British Columbia company
controlled by Mr. McNeill. McNeill & Associates, under the agreement, provided
us with accounting, office and administrative services. We paid McNeill &
Associates $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 a director between January 27, 1997 and November 20, 1998. We
entered into a Consulting Services Agreement with International Trade Group,
Inc. which is a private company controlled by Mr. Tews. ITG, under the
agreement, provided 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 250,000 stock options were
granted on June 16, 1998. The agreement was for a term of three years starting
June 16, 1998. Effective October 15, 1999, we notified Mr. Tews that we were
terminating this agreement.
35
<PAGE>
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.
LAWRENCE D. BAIN
Mr. Bain was appointed a director on August 6, 1999. In April 1998, we
entered into an engagement agreement with Uptic Investments Corp., which is
controlled by Mr. Bain. Uptic provided financial advisory services to us with
respect to obtaining strategic corporate or institutional investors and also
facilitated introductions to key customers and distributors. Uptic has been
issued warrants to purchase 1,000,000 shares of common stock, of which it has
purchased upon exercise of the warrant 250,000 shares that were granted and
fully exercisable in April 1998 at an exercise price of $0.01 per share, and
250,000 shares that were granted and fully exercisable in January 1999 at an
exercise price of $0.01 per share. The remaining 500,000 warrants were granted
and fully exercisable on May 5, 1999 and have an exercise price of $0.50 per
share. Consulting expenses in the amounts of $213,225 and $301,000 were recorded
in 1998 and 1999, respectively, in accordance with SFAS 123 for the fair value
of the warrants.
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.
DESCRIPTION OF SECURITIES
The following is a summary description of our securities. 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 October 22, 1999, there were
29,346,659 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
36
<PAGE>
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 equally between the two classes, 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 over 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:
CURRENTLY EXERCISE
ORIGINAL ISSUANCE DATE OUTSTANDING PRICE/SH EXPIRATION
- ---------------------- ----------- ---------- ----------
July 15, 1998 (1) 795,492 $0.9051(2) July 9, 2001
February 15, 1999(3) 40,000 $ 0.10 February 15, 2001
March 17, 1999 460,000 $ 0.60(4) March 17, 2001
May 5, 1999 500,000 $ 0.50 May 5, 2004
May 27, 1999 610,000 $ 0.60(5) May 26, 2001
---------
Total 2,405,492
=========
- ----------
(1) These warrants were issued to purchasers of debentures of Empyrean issued
in a private placement on the same date.
(2) 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.
(3) These warrants were issued to purchasers of our promissory notes issued in
a private placement on the same date.
(4) 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.
(5) 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 STOCK PLAN
Empyrean's Board of Directors adopted the Empyrean Diagnostics Inc. 1998
Stock Plan in May 1999. We believe the Plan is necessary to attract, compensate,
and motivate our employees, officers, directors, and consultants. Under the
37
<PAGE>
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.
38
<PAGE>
PART II
ITEM 1. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND
OTHER SHAREHOLDER MATTERS
Our common stock is publicly traded on the over-the-counter bulletin board
under the ticker symbol "EMDG." We have approximately 2,600 holders of our
common stock. We have never paid dividends on our common stock and have no plans
to do so. The following table presents the high and low bid prices of the common
stock for the periods indicated.
HIGH LOW
---- -----
1999
Third Quarter $1.00 $0.62
Second Quarter $1.01 $0.48
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.
ITEM 2. LEGAL PROCEEDINGS
An action was filed against us on February 28, 1997 in the Superior Court
of the State of California, Santa Clara County, alleging a number of securities
fraud violations and misrepresentations by Daniel Bland and Pinnacle
Diagnostics, formerly known as Empyrean Diagnostics USA, Inc. Plaintiff, Focus
Profile, LLC, claims economic damages in amount of $538,750, plus interest.
Plaintiff also requests punitive damages. We have been joined as defendants on
the theory that Pinnacle's investment in us declined as a result of
misrepresentations and omissions by former management and that we are
purportedly liable to Pinnacle's investors as an "alter-ego" of Pinnacle. We
were granted judgement in this case on September 22, 1999. Plaintiff has asked
the court to set aside the judgement, a matter scheduled to be heard in October
1999.
We are involved in an action filed by Optima Holding Co., Ltd. and Mercury
Technology Corp. on July 28, 1998 in the Circuit Court of the Eleventh Judicial
District, Dade County, Florida. This action alleges that we tortiously
interfered with Optima and Mercury's contractual relationship with Geda. Optima
and Mercury claim that they had prior rights to the Geda formulation and
products and that we induced Geda to breach that agreement. Optima and Mercury
have requested an unspecified amount of damages against us. In a seperate action
that has now been consolidated with the first action in the same court, Geda has
requested a declaratory judgment that Geda properly terminated its development
and distribution contract with Optima and Mercury. Plaintiffs also seek
injunctive relief to prevent Geda and its managers and directors from allowing
Geda to have further dealings with us. If we are not successful in this action,
we could lose the right to market, sell or manufacture worldwide our hand
sanitizer product and other products currently under development.
II-1
<PAGE>
ITEM 3. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
Not applicable.
ITEM 4. RECENT SALES OF UNREGISTERED SECURITIES
During the preceding three years, Empyrean sold to accredited or
sophisticated investors units consisting of a combination of common stock,
debentures and warrants for cash at the price and during the periods provided
below:
During the first quarter of 1997, 1,773,773 shares at a price of $0.50 per
share were issued to 7 purchasers; during the second quarter of 1997, 306,389
shares at a price of $0.52 per share were issued to 20 purchasers; during the
third quarter of 1997, 544,250 shares at a price of $0.80 per share were issued
to 10 purchasers; during the fourth quarter of 1998, 1,000,000 shares at a price
of $0.50 per share were issued to 9 purchasers; during the first quarter of
1999, 360,000 shares at price of $0.50 per share were issued to 4 purchasers;
and during the second quarter of 1999, 600,000 shares at a price of $0.50 per
share were issued to 3 purchasers.
Debentures were issued in the above transactions in the original principal
amount of $600,000 during 1997. Warrants were also issued in conjunction with
the issuances of stock to purchase an aggegate of 795,492 shares in July 1998.
Of these debentures and warrants, the following have been converted to or
exercised for shares of common stock in the amounts and during the periods
indicated: 157,615 shares during the first quarter of 1997 at an exercise price
of $0.88 per share; 563,615 shares during the second quarter of 1997 at an
exercise price of $0.88 per share; 507,585 shares during the third quarter of
1997 at an exercise price of $0.66 per share; 443,032 shares during the fourth
quarter of 1997 at an exercise price of $0.33 per share; 569,597 shares during
the first quarter of 1998 at an exercise price of $0.42 per share; 1,097,279
shares during the second quarter of 1998 at an exercise price of $0.38 per
share; 950,879 shares during the fourth quarter of 1998 at an exercise price of
$0.46 per share; 796,493 shares during the first quarter of 1999 at an exercise
price of $0.47 per share; and 1,420,000 shares during the third quarter of 1999
at an exercise price of $0.40 per share.
During the preceding three years, Empyrean granted to directors, executive
officers, employees, advisors and consultants 9,509,125 options to purchase
common stock at a weighted average exercise price of $0.68 per share.
Options issued in the above transactions, were exercised for 220,139 shares
during the second quarter of 1997 at an average exercise price of $0.41 per
share; 600,000 shares during the fourth quarter of 1997 at an average exercise
price of $0.39 per share; and 132,500 shares during the second quarter of 1998
at an average exercise price of $0.40 per share.
In July 1998, as partial payment for the exclusive marketing and
manufacturing rights to Geda products, Empyrean issued 100,000 shares of common
stock to Geda International Marketing Co., Ltd.
In July 1997, in settlement for incurred and assumed debt in the amount of
$93,080, Empyrean issued 260,728 shares of common stock to 5 of Empyrean's
creditors.
In the third quarters of 1997 and 1998, in consideration for past services
rendered, Empyrean issued 25,000 and 50,000 shares respectively to two
consultants.
II-2
<PAGE>
In October 1997, in exchange for a license to a bacterial meningitis test,
Empyrean issued 95,000 shares of common stock to Global Tek, Inc.
In April 1998, Empyrean issued to Uptic Investment Corp., a company
controlled by Lawrence D. Bain, now a board member, for its services, warrants
to purchase 250,000 shares of common stock at an exercise price of $0.01 per
share. The warrants were exercised in June 1998.
In July 1998, in exchange for exclusive distribution rights for the
Preventx lotion, Empyrean issued 225,000 shares of common stock to Prevent-X,
Inc.
In November 1998, in settlement for incurred and assumed debt in the amount
of $89,236, Empyrean issued 114,405 shares of common stock to a creditor of
Empyrean.
In November 1998, in settlement for an obligation resulting from an
attempted business venture with another party Empyrean issued 197,247 shares to
the owners of the other party.
In March 1999, in exchange for exclusive rights to licensed products in
Canada, Empyrean issued 100,000 shares of common stock to Farida Darbar.
In May 1999, in settlement for incurred and assumed debt in the amount of
$49,230, Empyrean issued 71,650 shares of common stock to one of Empyrean's
creditors.
In January and May 1999, Empyrean issued warrants to purchase 250,000 and
500,000 shares of common stock to Uptic Investments, Inc. for services provided,
including introductions to distributors and customers.
The sales of the above securities were deemed to be exempt from
registration under the Securities Act in reliance on Section 4(2) of the
Securities Act, or Regulation D promulgated thereunder, or, with respect to
issuances to employees, Rule 701 promulgated under Section 3(b) of the
Securities Act as transactions by an issuer not involving a public offering or
transactions pursuant to compensatory benefit plans and contracts relating to
compensation as provided under such Rule 701. The recipients of securities in
each such transaction represented their intentions to acquire the securities for
investment only and not with a view to or for sale in connection with any
distribution thereof and appropriate legends were affixed to the instruments
representing such securities issued in such transactions. With respect to the
issuance of shares upon conversion or exercise of outstanding securities,
Empyrean has also relied on the exemption provided by Section 3(a) (9) under the
Securities Act of 1933, as amended, for the exchange of securities with existing
securityholders where no commission or other renumeration is paid or given
directly or indirectly for soliciting such exchange.
ITEM 5. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Each director or former director and their heirs and personal
representatives are entitled to be indemnified by Empyrean under our Articles of
Incorporation and Bylaws 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-3
<PAGE>
PART F/S
FINANCIAL STATEMENTS AND INFORMATION
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
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTH PERIOD ENDING JUNE 30, 1999
Condensed Consolidated Balance Sheet .............................. F-14
Condensed Consolidated Statements of Operations .................. F-15
Condensed Consolidated Statement of Stockholders' Equity (Deficit) F-16
Condensed Consolidated Statements of Cash Flows .................. F-17
Notes to Condensed Consolidated Financial Statements ............ F-18
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
$3,147,135 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, except for notes 10 and 11 as to
which the date is October 25, 1999.
F-2
<PAGE>
EMPYREAN BIOSCIENCE, INC.
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1998
(Restated)
ASSETS
CURRENT ASSETS
Cash and cash equivalents.................................... $ 62,793
Prepaid expenses and deposits................................ 167,913
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......... 18,246,565
Accumulated deficit.......................................... (18,371,473)
-------------
(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
------------ ------------
(Restated)
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 2,912,791
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 2,972,732
------------ ------------
Loss from operations ..................... (2,565,774) (2,966,353)
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) $ (3,147,135)
============ ============
BASIC AND DILUTED LOSS PER SHARE ............ $ (.14) $ (.14)
============ ============
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
(Restated)
<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 $ (12,628,792) $ 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 by the
Company's CEO for note receivable....... 215,845 120,873 -- -- 120,873
Warrants exercised by directors.......... 251,766 125,511 -- -- 125,511
Warrants 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
Fair value of option and warrant
grants.................................. -- 552,255 -- -- 552,255
Net loss................................. -- -- -- (3,147,135) (3,147,135)
---------- ------------ ---------- ------------- ------------
Balances, December 31, 1998 ................ 26,399,824 $ 18,246,565 $ -- $ (18,371,473) $ (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
----------- -----------
(Restated)
<S> <C> <C>
Cash flows from operating activities
Net loss .................................................. $(2,595,546) $(3,147,135)
Adjustments to reconcile net loss to net cash used in
operating activities
Depreciation ............................................ 90,120 80,132
Options and warrants issued for services ................ -- 552,255
Loss on write-downs and adjustments ..................... 610,795 212,804
Issuance of common stock for expenses ................... 104,370 337,486
Changes in operating assets and liabilities
Prepaid expenses and deposits .......................... (14,899) (153,014)
Inventory .............................................. (56,511) --
Accounts payable and accrued liabilities ............... (71,971) 297,106
Deposits ............................................... 149,985 --
----------- -----------
Net cash used in operating activities .................. (1,783,657) (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 .................... 1,836,481 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 ........................ $ 262,237 $ 124,265
Issuance of common shares to CEO 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.
* 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.
* INVENTORY
Inventory is recorded at the lower of cost (average cost) or market.
Management performs periodic assessments to determine the existence of
obsolete, slow moving and non-salable inventories, and records necessary
provisions to reduce such inventories to net realizable value.
* 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 revenue when no significant obligations remain and
collectability of the amount is probable.
* ADVERTISING
The Company recognizes advertising expenses as they are incurred.
* INCOME TAXES
The Company accounts for income taxes on the liability method, as provided
by Statement of Financial Accounting Standards ("SFAS") 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.
F-7
<PAGE>
EMPYREAN BIOSCIENCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997 -- (Continued)
* STOCK-BASED COMPENSATION
The Company accounts for stock-based awards to employees and members of the
board of directors using the intrinsic value method in accordance with APB
No. 25, "Accounting for Stock Issued to Employees." Awards to consultants and
others are accounted for using the fair value method of SFAS No. 123
"Stock-based Compensation." The Company presents the disclosure only
provisions of SFAS No. 123 for employee and director awards.
* 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
SFAS 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.
* SEGMENT REPORTING
The Company's business is currently conducted in a single operating segment,
preventative products. In the future, we expect to operate in several
segments based on the type of customer such as institutional, retail and
distributor. The Company's chief operating decision maker is the Chief
Executive Officer who reviews a single set of financial data that encompasses
our entire operations for purposes of making operating decisions and
assessing performance.
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.
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. Management intends to seek additional capital investment through
either debt or equity placements and believes the proceeds of these
placements, along with the focus on new products, will generate sufficient
working capital for the Company to continue in operation for the next twelve
months.
F-8
<PAGE>
EMPYREAN BIOSCIENCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997 -- (Continued)
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.
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 SFAS No. 123,
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) $(3,147,135)
Pro forma ............. (3,166,866) (3,931,960)
Loss per share
As reported ........... (.14) (.14)
Pro forma ............. (.17) (.17)
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
DECEMBER 31, 1998 AND 1997 -- (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 2,925,000 .91
Exercised .................... (920,139) .41 (132,500) .47
Expired ....................... -- -- (212,500) .55
--------- ---------
Outstanding at end of year ........ 2,390,000 .64 4,970,000 .81
========= =========
Weighted-average fair value of
options granted during the year... $ .44 $ .56
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 - 0.40 .... 635,000 1.9 $ .39 635,000 $ .39
.55 - 0.67 .... 1,010,000 1.8 .57 480,000 .57
.80 - .95 .... 3,325,000 2.0 .95 1,195,000 .95
--------- ---------
4,970,000 .81 2,310,000 .69
========= =========
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.
<TABLE>
<CAPTION>
1997 1998
---------------------- ----------------------
Weighted Weighted
Average Average
Exercise Exercise
Warrants Price Warrants Price
----------- -------- ----------- --------
<S> <C> <C> <C> <C>
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
========== ==========
</TABLE>
F-10
<PAGE>
EMPYREAN BIOSCIENCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997 -- (Continued)
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 1997 and $1,325,000
in 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.
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 $ 3,147,135
=========== ===========
Tax benefit at statutory federal
income tax rate (34%) ............... $ 882,000 $ 1,070,000
State franchise tax benefit .......... 210,000 255,000
Change in valuation allowance ........ (1,092,000) (1,325,000)
----------- -----------
$ -- $ --
=========== ===========
NOTE 7 -- LEASES
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 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.
NOTE 8 -- LICENSES AND ROYALTIES
The Company entered into an agreement on April 29, 1997, which was
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
F-11
<PAGE>
EMPYREAN BIOSCIENCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997 -- (Continued)
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 Geda $200,000 in cash in 1997, and, in 1998, issued 100,000 shares of
common stock valued at $50,000 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(R) Vaginal Contraceptive Gel, Preventx(R) Hand Sanitizer and
Antiseptic Skin Protectant, and Preventx(R) 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 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.
In 1998, the Company obtained a license from the third party to sell the
products. In consideration for this license, the Company paid $50,000 in cash
and issued 225,000 shares of common stock values at $173,250. The Company is
also required to pay a royalty equal to 5% of the net revenues of certain
products that contain the lotion.
In 1997, the Company acquired the license rights to manufacture and
distribute a diagnostic test kit for bacterial meningitis for a term of 40
years, renewable for a further term of 20 years. In consideration for this
license, the Company paid approximately $53,000, including legal and finder's
fees and issued 95,000 shares of Common Stock valued at $75,492. The Company
is also required to pay a royalty equal to 10% of net sales.
NOTE 9 -- CONTINGENCIES
The Company is a defendant in lawsuits where the plaintiffs are seeking
recovery of amounts invested in a company controlled by the Company's former
CEO. The suits seek 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-12
<PAGE>
EMPYREAN BIOSCIENCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997 -- (Continued)
NOTE 10 -- PRIOR PERIOD ADJUSTMENT
The 1998 consolidated financial statements have been restated to reflect the
correction of an error in the recording of $552,255 of expense related to
options and warrants granted to consultants. The grants were made in 1998 but
not approved by the Board of Directors until 1999. The expense was originally
recorded in 1999.
NOTE 11 -- SUBSEQUENT EVENT
In connection with the Company's reincorporation in Delaware it will be
changing its name to Preventx, Inc.
F-13
<PAGE>
EMPYREAN BIOSCIENCE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Restated)
June 30, December 31,
1999 1998
------------ ------------
(unaudited)
ASSETS
Current Assets:
Cash and cash equivalents .................... $ 190,108 $ 62,793
Accounts receivable .......................... 51,858 --
Prepaid expenses and deposits ................ 372,286 167,913
Inventory .................................... 327,045 16,386
Other assets ................................. 3,000 9,611
------------ ------------
Total current assets ...................... 944,297 256,703
Equipment and improvements ...................... 60,491 57,122
------------ ------------
Total assets .............................. $ 1,004,788 $ 313,825
============ ============
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current Liabilities:
Accounts payable and accrued liabilities ..... $ 720,213 $ 438,733
Deferred revenue ............................. 100,000 --
Short-term notes payable ..................... 770,856 --
------------ ------------
Total current liabilities ................. 1,591,069 438,733
STOCKHOLDERS' EQUITY (DEFICIT)
Common stock, authorized 100,000,000 shares,
without par value; issued and outstanding
(1999: 27,926,659; 1998: 26,399,824) .......... 19,011,739 18,246,565
Accumulated deficit ............................. (19,598,020) (18,371,473)
------------ ------------
Total stockholders' deficit ............... (586,281) (124,908)
------------ ------------
Total liabilities and stockholders' deficit $ 1,004,788 $ 313,825
============ ============
See accompanying notes to financial statements
F-14
<PAGE>
EMPYREAN BIOSCIENCE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(Restated)
<TABLE>
<CAPTION>
Three months ended Six months ended
---------------------------- ----------------------------
June 30, June 30, June 30, June 30,
1999 1998 1999 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net revenues ...................... $ 534,081 $ 9,000 $ 586,591 $ 9,000
Cost of sales ..................... 5,314 3,400 22,337 3,400
------------ ------------ ------------ ------------
Gross profit ................... 528,767 5,600 564,254 5,600
Selling, general and administrative 568,427 1,014,085 2,222,027 1,506,747
Research and development .......... 5,519 31 10,519 2,011
------------ ------------ ------------ ------------
573,946 1,014,116 2,232,546 1,508,758
------------ ------------ ------------ ------------
Operating loss ................. (45,179) (1,008,516) (1,668,292) (1,503,158)
Other income (expenses)
Other, net ....................... 3,098 10,131 (1,169) 13,925
Interest expense ................. (78,288) -- (111,613) --
Interest income .................. 2,059 550 2,272 701
------------ ------------ ------------ ------------
(73,131) 10,681 (110,510) 14,626
------------ ------------ ------------ ------------
Net loss ....................... $ (118,310) $ (997,835) $ (1,778,802) $ (1,488,532)
============ ============ ============ ============
Basic and diluted loss per share $ (0.00) $ (0.04) $ (0.07) $ (0.08)
============ ============ ============ ============
Weighted average number of
shares outstanding used in
computing per share
information ................... 27,678,550 22,554,751 26,837,853 19,066,665
============ ============ ============ ============
</TABLE>
See accompanying notes to financial statements
F-15
<PAGE>
EMPYREAN BIOSCIENCE, INC.
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
(UNAUDITED)
(Restated)
<TABLE>
<CAPTION>
Common Stock
------------------------- Accumulated
Shares $ Amount Deficit Total
----------- ----------- ------------ -----------
<S> <C> <C> <C> <C>
Balances, December 31, 1998 ......... 26,399,824 $18,246,565 $(18,371,473) $ (124,908)
Warrants exercised by investors ..... 67,050 31,733 -- 31,733
Stock options exercised ............. 375,000 150,000 -- 150,000
Shares issued for license rights .... 100,000 70,000 -- 70,000
Common stock issued for debt ........ 71,660 49,230 -- 49,230
Common stock issued for cash ........ 960,000 480,000 -- 480,000
Cancellation of shares held in escrow (46,875) -- -- --
Fair value of options and warrant
grants ............................. -- 536,466 -- 536,466
Net loss ............................ -- -- (1,778,802) (1,778,802)
----------- ----------- ------------ -----------
Balances, June 30, 1999 ............. 27,926,659 $19,011,739 $(19,598,020) $ (586,281)
=========== =========== ============ ===========
</TABLE>
See accompanying notes to financial statements
F-16
<PAGE>
EMPYREAN BIOSCIENCE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Six months ended
------------------------
June 30, June 30,
1999 1998
----------- ---------
Cash flows from operating activities:
Net cash used in operating activities ............ $(1,325,049) $(753,439)
Cash flows from investing activities:
Payments on note receivable ...................... -- 50,761
Purchase of capital assets ....................... (9,369) (28,083)
----------- ---------
Net cash provided by (used in) investing
activities (9,369) 22,678
Cash flows from financing activities:
Issuance of common stock ......................... 661,733 731,212
Short-term note payable proceeds ................. 800,000 --
----------- ---------
Net cash provided by financing activities ...... 1,461,733 731,212
----------- ---------
Net increase in cash and cash equivalents ...... 127,315 451
Cash and cash equivalents at beginning of period ... 62,793 47,296
----------- ---------
Cash and cash equivalents at end of period ......... $ 190,108 $ 47,747
=========== =========
See accompanying notes to financial statements
F-17
<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
June 30, 1999 and 1998, and the financial information as of June 30, 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.
All significant intercompany balances and transactions have been eliminated
in consolidation.
NOTE 2 -- SEGMENT REPORTING
The Company's business is currently conducted in a single operating segment,
preventative products. In the future, we expect to operate in several
segments based on the type of customer such as institutional, retail and
distributor. The Company's chief operating decision maker is the Chief
Executive Officer who reviews a single set of financial data that encompasses
our entire operations for purposes of making operating decisions and
assessing performance.
NOTE 3 -- INVENTORY
Inventory consists of the following:
June 30, December 31,
1999 1998
--------- ------------
Diagnostic Kits-Raw Materials ...... $ -- $16,386
Preventx(R) Finished Goods .......... 327,045 --
-------- --------
$327,045 $16,386
======== ========
NOTE 4 -- 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 option pricing model
to be $116,576. As of June 30, 1999, the unamortized fair value of the
warrants was $29,144. The fair value of the warrants is being amortized as
interest expense over the life of the promissory notes. Subsequent to June
30, 1999 $214,500 of the promissory notes were converted into common stock,
the due date of $288,500 were extended for an additional six months and
$300,000 of the promissory notes are currently due and payable.
NOTE 5 -- 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.
F-18
<PAGE>
EMPYREAN BIOSCIENCE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) -- (Continued)
The Company is a defendant in a lawsuit where the plaintiffs are seeking
recovery of amounts invested in a company controlled by the Company's former
CEO. The suit seeks a total of approximately $500,000 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.
NOTE 6 -- DISTRIBUTION AGREEMENT
In the quarter ended June 30, 1999, the Company executed a distribution
agreement with Durstrand International Limited granting Durstrand the
exclusive right to distribute the Company's products in certain Southeast
Asian markets. Durstrand made a non-refundable payment of $600,000 for these
rights. The Company recognized $500,000 of the fee paid as revenue in the
current quarter as the Company had performed all of its obligations under the
agreement. The remaining $100,000 was deferred pending shipment of product to
Durstrand. Durstrand will make an additional $600,000 payment once approval
for additional products is received from the US Food and Drug Administration.
No royalties are payable to Geda as a result of this agreement.
NOTE 7 -- STOCKHOLDERS' EQUITY
During the six months ended June 30, 1999, the Company granted options and
warrants to purchase shares of common stock to various consultants and others
as compensation for services. The Company determined the fair value of the
grants and the related compensation expense using the Black Scholes option
pricing model with assumptions consistent with those used for determining the
fair value of options granted in 1998. These grants are exerciseable at
prices ranging from $0.01 to $0.95. One of the grants was to a company owned
by a former director of the Company for 250,000 shares at $0.83 per share.
Another of these grants was to Uptic, a company owned by a current director
of the Company for 1,000,000 shares, half of which are excerciseable at $0.50
per share and half of which are excerciseable at $0.01 per share.
The Company also issued 100,000 shares valued at $70,000 for rights to
distribute our products in Canada.
F-19
<PAGE>
PART III
ITEM 1. INDEX TO EXHIBITS
2.1 Articles of Incorporation and Bylaws of Empyrean Wyoming.
2.2 Convertible Debenture and Warrant Purchase Agreement by and among
Empyrean and purchasers thereof and related Warrant.
2.3 Form of Warrant between Empyrean and the Purchasers thereof dated
February 15, 1999.
2.4 Form of Promissory Note between Empyrean and the Purchasers
thereof.
2.5 Form of "Series K" Warrant Certificate dated March 17, 1999 between
Empyrean and the Purchasers thereof.
2.6 Form of "Series L" Warrant Certificate between Empyrean and the
Purchasers thereof.
6.1 License Agreement dated as of February 21, 1998 between Empyrean and
Geda International Marketing, Co., Ltd.
6.2 Sub-license Agreement dated as of July 20, 1998 between Empyrean and
Prevent-X, Inc.
6.3 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.
6.4 1998 Stock Option Plan and Form of Stock Option Agreement.
6.5 Real Property Lease dated February 20, 1998 between Empyrean and
Remcon II, LLC.
6.6 Employment Agreement for Stephen D. Hayter.
6.7 Employment Agreement for Richard C. Adamany.
6.8 Employment Agreement for Bennett S. Rubin.
6.9 Distribution Agreement between Empyrean and Durstrand International.
23.1 Consent of Grant Thornton LLP
III-1
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, 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 October 26, 1999.
Empyrean Bioscience, Inc..
By /s/ Stephen D. Hayter
-------------------------------------
Stephen D. Hayter
Chairman of the Board of Directors,
President and Chief Executive Officer
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
- --------------------------------------------------------------------------------
CONVERTIBLE DEBENTURE AND WARRANT PURCHASE AGREEMENT
By and Among
Global Strategic Holdings, Ltd.
Successway Holdings Limited
Lampton, Inc.
Turbo International Ltd.
and
Empyrean Diagnostics, Ltd.
-----------------------------
Dated as of July 9, 1998
-----------------------------
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
Page
----
ARTICLE I CERTAIN DEFINITIONS...........................................1
ARTICLE II PURCHASE OF UNITS.............................................3
ARTICLE III REPRESENTATIONS AND WARRANTIES................................4
ARTICLE IV OTHER AGREEMENTS OF THE PARTIES...............................8
ARTICLE V CONDITIONS PRECEDENT TO CLOSING..............................13
ARTICLE VI TERMINATION..................................................15
ARTICLE VII MISCELLANEOUS................................................16
Appendix A Purchasers and Allocations
Exhibit A Form of Convertible Debenture
Exhibit B Form of Warrant
Exhibit C Form of Opinion of Pollet Law, counsel for the Company
Exhibit D Conversion Procedures
Exhibit E Escrow Agreement
Schedule 3.1(a) Subsidiaries
Schedule 3.1(c) Capitalization
Schedule 3.1(g) Litigation
<PAGE>
This CONVERTIBLE DEBENTURE AND WARRANT PURCHASE AGREEMENT is made as of
July 9, 1998 (this "AGREEMENT") by and between Empyrean Diagnostics, Ltd. a
Wyoming corporation (the "COMPANY"), and Global Strategic Holdings, Ltd., a
Guernsey corporation, Successway Holdings Limited, a British Virgin Islands
corporation, and Lampton, Inc., an Israeli corporation, and Turbo International,
Ltd., a Bahamas Corporation, (referred to individually and collectively herein
as the "PURCHASER").
WHEREAS, the Company desires to issue and sell to the Purchaser and the
Purchaser desires to acquire certain of the Company's 0% Convertible Debentures,
due July 9, 2001 (the "CONVERTIBLE DEBENTURES" or the "DEBENTURES" and Warrants
to purchase shares of the Company's common stock (the "WARRANTS").
IN CONSIDERATION of the mutual covenants and agreements set forth herein
and for good and valuable consideration, the receipt of which is hereby
acknowledged, the parties agree as follows:
ARTICLE I
CERTAIN DEFINITIONS
SECTION 1.1. CERTAIN DEFINITIONS. As used in this Agreement, and unless the
context requires a different meaning, the following terms have the meanings
indicated:
"AFFILIATE" means, with respect to any Person, any Person that, directly or
indirectly, controls, is controlled by or is under common control with such
Person. For the purposes of this definition, "CONTROL" (including, with
correlative meanings, the terms "CONTROLLED BY" and "UNDER COMMON CONTROL WITH")
shall mean the possession, directly or indirectly, of the power to direct or
cause the direction of the management and policies of such Person, whether
through the ownership of voting securities or by contract or otherwise.
"BUSINESS DAY" means any day except Saturday, Sunday and any day which
shall be a legal holiday or a day on which banking institutions in the state of
New York are authorized or required by law or other government actions to close.
"CLOSING" shall have the meaning set forth in SECTION 2.1(b).
"CLOSING DATE" shall have the meaning set forth in SECTION 2.1(b).
"CODE" means the Internal Revenue Code of 1986, as amended, and the rules
and regulations thereunder as in effect on the date hereof.
"COMMISSION" means the Securities and Exchange Commission.
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"COMMON STOCK" means the Company's common stock, without par value.
"DEBENTURES" means the 0% Convertible Debentures of the Company, due June
30, 2001, an example of which is attached hereto as Exhibit A.
"DISCLOSURE DOCUMENTS" means the disclosure package, including but not
limited to the Company's Business Plan dated July 9, 1998, the Company's
"Company Profile" dated June 1, 1998, capitalization information, pending or
threatened litigation or action, and required consents, delivered to the
Purchaser in connection with the offering by the Company of the Debentures and
the Schedules to this Agreement furnished by or on behalf of the Company
pursuant to Section 3.1.
"ESCROW AGREEMENT" means the Escrow Agreement dated July 9, 1998 and
attached as Exhibit E.
"ESCROW AGENT" means Kaplan Gottbetter & Levenson LLP.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"LIEN" means, with respect to any asset, any mortgage, lien, pledge,
encumbrance, charge or security interest of any kind in or on such asset or the
revenues or income thereon or therefrom.
"MATERIAL ADVERSE EFFECT" shall have the meaning set forth in SECTION
3.1(a).
"NASD" means the National Association of Securities Dealers, Inc.
"PER SHARE CONSIDERATION" shall have the meaning set forth in SECTION
2.1(a).
"PERSON" means an individual or a corporation, partnership, trust,
incorporated or unincorporated association, joint venture, limited liability
company, joint stock company, government (or an agency or political subdivision
thereof) or other entity of any kind.
"PREFERRED STOCK" shall have the meaning set forth in the recitals hereto.
"PURCHASE PRICE" shall have the meaning set forth in SECTION 2.1(a).
"PURCHASER" shall mean one, some or all of the persons or entities who are
acquiring securities of the Company pursuant to this Agreement, as the context
requires.
"REQUIRED APPROVALS" shall have the meaning set forth in SECTION 3.1(f).
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"SUBSIDIARIES" shall have the meaning set forth in SECTION 3.1(a).
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"UNDERLYING SHARES" means the shares of Common Stock into which the
Debentures are convertible in accordance with the terms hereof and the
Debenture, as well the shares of Common Stock issuable upon exercise of the
Warrants in accordance with the terms hereof and the Warrant.
"UNITS" means one Debenture and 1164.41 Warrants to purchase shares of
Common Stock.
ARTICLE II
PURCHASE OF UNITS
SECTION 2.1. PURCHASE OF UNITS; CLOSING.
(a) Subject to the terms and conditions herein set forth, the Company
shall issue and sell to the Purchaser, and the Purchaser shall purchase
from the Company on the Closing Date 600 Units, each unit consisting of one
Debenture, which shall have the respective rights, preferences and
privileges set forth in EXHIBIT A (the "DEBENTURE", and 1164.41 Warrants,
in the form as set forth in Exhibit B, to purchase Common Stock of the
Company, at a price per Unit of US$1,000.00 (the "PER UNIT CONSIDERATION").
The Per Unit Consideration multiplied by the number of Units to be
purchased by the Purchaser hereunder is hereinafter referred to as the
"PURCHASE PRICE." The Company shall allocate and issue the Debentures and
Warrants among the individuals comprising Purchaser in accordance with
Appendix 1.
(b) The closing of the purchase and sale of the Units (the "CLOSING")
shall take place al the offices of Kaplan, Gottbetter & Levenson, LLP,
immediately following the execution hereof, or at such other time and/or
place as the Purchaser and the Company may agree, PROVIDED, however, in no
case shall the Closing take place later than the fifth day after the last
of the conditions listed in ARTICLE V is satisfied or waived by the
appropriate party. The date of the Closing is hereinafter referred to as
the "CLOSING DATE".
(c) At the Closing, (i) the Company shall deliver to the Purchaser (A)
one or more Debentures purchased hereunder, registered in the name of the
Purchaser, (B) all documents, instruments and writings required to have
been delivered at or prior to Closing by the Company pursuant to this
Agreement, and (C) the Warrant Document evidencing the Warrants, and (ii)
the Purchaser shall deliver to the Company (A) the Purchase Price as
determined pursuant to this ARTICLE I in United States dollars in
immediately available funds by wire transfer to an account designated in
writing by the Company prior to the Closing and (B) all documents,
instruments and writings required to have been delivered at or prior to
Closing by the Purchaser pursuant to this Agreement.
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ARTICLE III
REPRESENTATIONS AND WARRANTIES
Section 3.1. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company
hereby represents and warrants to the Purchaser as follows:
(a) ORGANIZATION AND QUALIFICATION. The Company is a corporation, duly
incorporated, validly existing and in good standing under the laws of the
jurisdiction of its incorporation, with the requisite corporate power and
authority to own and use its properties and assets and to carry on its
business as currently conducted. The Company has no subsidiaries other than
as set forth in Schedule 3.1 (a) (collectively, the "SUBSIDIARIES"). Each
of the Subsidiaries is a corporation, duly incorporated, validly existing
and in good standing under the laws of the jurisdiction of its
incorporation, with the full corporate power and authority to own and use
its properties and assets and to carry on its business as currently
conducted. Each of the Company and the Subsidiaries is duly qualified to do
business and is in good standing as a foreign corporation in each
jurisdiction in which the nature of the business conducted or property
owned by it makes such qualification necessary, except where the failure to
be so qualified or in good standing, as the case may be, could not
reasonably be expected to have, individually or in the aggregate, a
material adverse effect on the results of operations, assets, prospects, or
financial condition of the Company and the Subsidiaries, taken as a whole
(a "MATERIAL ADVERSE EFFECT") .
(b) AUTHORIZATION; ENFORCEMENT. The Company has the requisite
corporate power and authority to enter into and to consummate the
transactions contemplated hereby and otherwise to carry out its obligations
hereunder and thereunder. The execution and delivery of this Agreement by
the Company and the consummation by it of the transactions contemplated
hereby and thereby have been duly authorized by all necessary action on the
part of the Company. Each of this Agreement has been duly executed and
delivered by the Company and constitutes the valid and binding obligation
of the Company enforceable against the Company in accordance with its
terms, except as such enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium, liquidation or similar
laws relating to, or affecting generally the enforcement of, creditors'
rights and remedies or by other equitable principles of general
application.
(c) CAPITALIZATION. The authorized, issued and outstanding capital
stock of the Company and each of the Subsidiaries is set forth in Schedule
3.1(c). No shares of Common Stock are entitled to preemptive or similar
rights. Except as specifically disclosed in the Disclosure Documents, there
are no outstanding options, warrants, script rights to subscribe to, calls
or commitments of any character whatsoever relating to, or, except as a
result of the purchase and sale of the Units hereunder, securities, rights
or obligations convertible into or exchangeable for, or giving any person
any right to subscribe for or acquire any shares of Common Stock, or
contracts, commitments, understandings, or arrangements by which the
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Company or any Subsidiary is or may become bound to issue additional shares
of Common Stock, or securities or rights convertible or exchangeable into
shares of Common Stock. Neither the Company nor any Subsidiary is in
violation of any of the provisions of its respective certificate of
incorporation, bylaws or other charter documents.
(d) ISSUANCE OF UNITS. The Units have been duly and validly authorized
for issuance, offer and sale pursuant to this Agreement and, when issued
and delivered as provided hereunder against payment in accordance with the
terms hereof, shall be valid and binding obligations of the Company
enforceable in accordance with their terms. The Company has and at all
times while the Units are outstanding will maintain an adequate reserve of
shares of Common Stock to enable it to perform its obligations under this
Agreement and the Debentures and the Warrants. When issued in accordance
with the terms hereof and the Debentures and the Warrants, the Underlying
Shares will be duly authorized, validly issued, fully paid and
nonassessable.
(e) NO CONFLICTS. The execution, delivery and performance of this
Agreement by the Company and the consummation by the Company of the
transactions contemplated hereby and thereby do not and will not (i)
conflict with or violate any provision of its certificate of incorporation
or bylaws or (ii) subject to obtaining the consents referred to in SECTION
3.1(f), conflict with, or constitute a default (or an event which with
notice or lapse of time or both would become a default) under, or give to
others any rights of termination, amendment, acceleration or cancellation
of, any agreement, indenture or instrument to which the Company is a party,
or (iii) to the knowledge of the Company result in a violation of any law,
rule, regulation, order, judgment, injunction, decree or other restriction
of any court or governmental authority to which the Company is subject
(including Federal and state securities laws and regulations), or by which
any property or asset of the Company is bound or affected, except in the
case of each of clauses (ii) and (iii), such conflicts, defaults,
terminations, amendments, accelerations, cancellations and violations as
would not, individually or in the aggregate, have a Material Adverse
Effect. The business of the Company is not being conducted in violation of
any law, ordinance or regulation of any governmental authority, except for
violations which, individually or in the aggregate, do not have a Material
Adverse Effect.
(f) CONSENTS AND APPROVALS. Neither the Company nor any Subsidiary is
required to obtain any consent, waiver, authorization or order of, or make
any filing or registration with, any court or other federal, state, local
or other governmental authority or other Person in connection with the
execution, delivery and performance by the Company of this Agreement, other
than the making of the applicable blue-sky filings under state securities
laws, and other than, in all cases, where the failure to obtain such
consent, waiver, authorization or order, or to give or make such notice or
filing, would not materially impair or delay the ability of the Company to
effect the Closing and deliver to the Purchaser the Units free and clear of
all liens (collectively, the "REQUIRED APPROVALS").
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(g) LITIGATION; PROCEEDINGS. Except as specifically disclosed in the
Disclosure Documents and Schedule 3.1(g), there is no action, suit, notice
of violation, proceeding or investigation pending or, to the best knowledge
of the Company, threatened against or affecting the Company or any of its
Subsidiaries or any of their respective properties before or by any court,
governmental or administrative agency or regulatory authority (Federal,
State, county, local or foreign) which (i) relates to or challenges the
legality, validity or enforceability of this Agreement or the Units (ii)
could, individually or in the aggregate, have a Material Adverse Effect or
(iii) could, individually or in the aggregate, materially impair the
ability of the Company to perform fully on a timely basis its obligations
under this Agreement.
(h) NO DEFAULT OR VIOLATION. Neither the Company nor any Subsidiary
(i) is in default under or in violation of any indenture, loan or credit
agreement or any other agreement or instrument to which it is a party or by
which it or any of its properties is bound, except such conflicts or
defaults as do not have a Material Adverse Effect, (ii) is in violation of
any order of any court, arbitrator or governmental body, except for such
violations as do not have a Material Adverse Effect, or (iii) is in
violation of any statute, rule or regulation of any governmental authority
which could (individually or in the aggregate) (x) adversely affect the
legality, validity or enforceability of this Agreement, (y) have a Material
Adverse Effect or (z) adversely impair the Company's ability or obligation
to perform fully on a timely basis its obligations under this Agreement.
(i) CERTAIN FEES. No fees or commission will be payable by the Company
to any broker, finder, investment banker or bank with respect to the
consummation of the transactions contemplated hereby; except that upon
Closing, the Company will pay to GEM Advisors, Inc. an unallocated expense
allotment of US $10,000 and a fee equal to 2% of the Purchase Price.
(j) DISCLOSURE DOCUMENTS. The Disclosure Documents do not contain any
untrue statement of a material fact or omit to state any material fact
necessary in order to make the statements made therein, in light of the
circumstances under which they were made, not misleading.
(k) PRIVATE OFFERING. Neither the Company nor any Person acting on its
behalf has taken or will take any action (including, without limitation,
any offering of any securities of the Company under circumstances which
would require the integration of such offering with the offering of the
Units under the Securities Act) which might subject the offering, issuance
or sale of the Units to the registration requirements of Section 5 of the
Securities Act.
(l) NOT A REPORTING COMPANY; ELIGIBILITY TO USE EXEMPTION UNDER 504b.
The Company is not subject to the reporting requirements of Section 18 or
Section 15d of the Exchange Act. The Company has not sold more than
$250,000 of securities in the last twelve months. The Company is eligible
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to issue securities exempt from registration pursuant to Rule 504 of
Regulation D promulgated under the Securities Act. It is the intent of the
parties that the sale of the Debentures and Warrants and the conversion of
the Debentures to Common Stock shall be made in reliance upon the exemption
from registration provided by Rule 504, but that the issuance of the Common
Stock upon exercise of the Warrants shall not be in reliance upon Rule 504,
and such stock shall be restricted stock unless it is sold pursuant to a
registration statement under the Securities Act.
Section 3.2. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER. Each
Purchaser hereby represents and warrants to the Company as follows:
(a) ORGANIZATION; AUTHORITY. The Purchaser is a corporation duly and
validly existing and in good standing under the laws of the jurisdiction of
its incorporation. The Purchaser has the requisite power and authority to
enter into and to consummate the transactions contemplated hereby and
otherwise to carry out its obligations hereunder and thereunder. The
purchase of the Units by the Purchaser hereunder has been duly authorized
by all necessary action on the part of the Purchaser. Each of this
Agreement has been duly executed and delivered by the Purchaser or on its
behalf and constitutes the valid and legally binding obligation of the
Purchaser, enforceable against the Purchaser in accordance with its terms,
subject to bankruptcy, insolvency, fraudulent transfer, reorganization,
moratorium and similar laws of general applicability relating to or
affecting creditors' rights generally and to general principles of equity.
(b) INVESTMENT INTENT. The Purchaser is acquiring the Units and the
Underlying Shares for its own account (and/or on behalf of managed accounts
who are purchasing solely for their own accounts for investment) for
investment purposes only and not with a view to or for distributing or
reselling such Units or Underlying Shares or any part thereof or interest
therein, without prejudice, however, to the Purchaser's right, subject to
the provisions of this Agreement, at all times to sell or otherwise dispose
of all or any part of such Units or Underlying Shares in compliance with
applicable State securities laws and under an exemption from registration
under Rule 504 of the Securities Act.
(c) PURCHASER STATUS. At the time the Purchaser (and any account for
which it is purchasing) was offered the Units, it (and any account for
which it is purchasing) was, and at the date hereof, it (and any account
for which it is purchasing) is, and at the Closing Date, it (and any
account for which it is purchasing) will be, an "accredited investor" as
defined in Rule 501(a) under the Securities Act.
(d) EXPERIENCE OF PURCHASER. The Purchaser, either alone or together
with its representatives, has such knowledge, sophistication and experience
in business and financial matters so as to be capable of evaluating the
merits and risks of the prospective investment in the Units, and has so
evaluated the merits and risks of such investment.
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(e) ABILITY OF PURCHASER TO BEAR RISK OF INVESTMENT. The Purchaser is
able to bear the economic risk of an investment in the Units and, at the
present time, is able to afford a complete loss of such investment.
(f) PROHIBITED TRANSACTIONS. The Units to be purchased by the
Purchaser are not being acquired, directly or indirectly, with the assets
of any "employee benefit plan", within the meaning of Section 3(3) of the
Employee Retirement Income Security Act of 1974, as amended.
(g) ACCESS TO INFORMATION. The Purchaser acknowledges receipt of the
Disclosure Documents and further acknowledges that it has been afforded (i)
the opportunity to ask such questions as it has deemed necessary of, and to
receive answers from, representatives of the Company concerning the terms
and conditions of the offering of the Units and the merits and risks of
investing in the Units; (ii) access to information about the Company and
the Company's financial condition, results of operations, business,
properties, management and prospects sufficient to enable it to evaluate
its investment in the Common Stock; and (iii) the opportunity to obtain
such additional information which the Company possesses or can acquire
without unreasonable effort or expense that is necessary to make an
informed investment decision with respect to the Units and to verify the
accuracy and completeness of the information contained in the Disclosure
Documents. Purchaser hereby acknowledges that it has received from the
Company all of the information it has requested and answers to all
questions which it has asked of the Company, and that it is satisfied that
it has received all information about the Company which is necessary to
making its decision whether to invest in the Company.
(h) RELIANCE. The Purchaser understands and acknowledges that (i) the
Units are being offered and sold, and the Underlying Shares are being
offered, to it without registration under the Securities Act in a private
placement chat is exempt from the registration provisions of the Securities
Act and (ii) the availability of such exemption, depends in part on, and
that the Company will rely upon the accuracy and truthfulness of, the
foregoing representations and the Purchaser hereby consents to such
reliance.
The Company acknowledges and agrees that the Purchaser makes no
representation or warranty with respect to the transactions contemplated hereby
other than those specifically set forth in Article III herein.
ARTICLE IV
OTHER AGREEMENTS OF THE PARTIES
SECTION 4.1. MANNER OF OFFERING. To the extent, if any, that United States
securities laws apply to the sale of the Units or the conversion of the
Debentures to Common Stock, such transactions shall be done in reliance upon the
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exemption from registration provided by Rule 504(b) of Regulation D of the
Securities Act. The Units, the Debentures, the Warrants and the Common Stock
into which the Debentures are convertible will be exempt from restrictions on
transfer, and will carry no restrictive legend. Accordingly, the Company will
use its best efforts to insure that no actions are taken that would jeopardize
the availability of the exemption with respect to these transactions. It is the
intent of the parties chat the sale of the Common Stock upon exercise of the
Warrants shall not be in reliance upon Rule 504, and such stock shall be
restricted stock unless it is sold pursuant to a registration statement under
the Securities Act.
SECTION 4.2. FURNISHING OF INFORMATION. As long as the Purchaser owns Units
or Underlying Shares, the Company will promptly furnish to it all annual and
quarterly reports comparable to those required by Section 13(a) or 15(d) of the
Exchange Act.
SECTION 4.3. NOTICE OF CERTAIN EVENTS. The Company shall (i) advise the
Purchaser promptly after obtaining knowledge thereof, and, if requested by the
Purchaser, confirm such advice in writing, of (A) the issuance by any state
securities commission of any stop order suspending the qualification or
exemption from qualification of the Units or the Common Stock for offering or
sale in any jurisdiction, or the initiation of any proceeding for such purpose
by any state securities commission or other regulatory authority, or (B) any
event that makes any statement of a material fact made in the Disclosure
Documents untrue or that requires the making of any additions to or changes in
the Disclosure Documents in order to make the statements therein, in the light
of the circumstances under which they are made, not misleading, (ii) use its
best efforts to prevent the issuance of any stop order or order suspending the
qualification or exemption from qualification of the Units or the Common Stock
under any stair securities or Blue Sky laws, and (iii) if at any time any state
securities commission or other regulatory authority shall issue an order
suspending the qualification or exemption from qualification of the Units or the
Common Stock under any such laws, use its best efforts to obtain the withdrawal
or lifting of such order at the earliest possible time.
SECTION 4.4. COPIES AND USE OF DISCLOSURE DOCUMENTS. During the thirty day
period immediately following the Closing, the Company shall furnish the
Purchaser, without charge, as many copies of the Disclosure Documents, and any
amendments or supplements thereto, as the Purchaser may reasonably request. The
Company consents to the use of the Disclosure Documents, and any amendments and
supplements thereto, by the Purchaser in connection with resales of the Units or
the Underlying Shares other than pursuant to an effective registration
statement.
SECTION 4.5. MODIFICATION TO DISCLOSURE DOCUMENTS; ADDITIONAL INFORMATION.
If any event shall occur as a result of which, in the reasonable judgment of the
Company or the Purchaser, it becomes necessary or advisable to amend or
supplement the Disclosure Documents in order to make the statements therein, in
the light of the circumstances at the time the Disclosure Documents were
delivered to the Purchaser, not misleading, or if it is necessary to amend or
supplement the Disclosure Documents to comply with applicable law, the Company
shall promptly prepare an appropriate amendment or supplement to the Disclosure
Documents (in form and substance reasonably satisfactory to the Purchaser) so
that (i) as so amended or supplemented the Disclosure Documents will not include
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an untrue statement of material fact or omit to state a material fact necessary
in order to make the statements therein, in the light of the circumstances
existing at the time it is delivered to Purchaser, not misleading and (ii) the
Disclosure Documents, together with additional information provided by the
Company, will comply with applicable law pertaining to requirements of
disclosure in connection with the sale of securities. Company and Purchaser
agree to cooperate to ensure that all necessary information is provided to
subsequent purchasers.
SECTION 4.6. BLUE SKY LAWS. The Company shall cooperate with the Purchaser
in connection with the qualification of the Units and the Underlying Shares
under the securities or Blue Sky laws of such jurisdictions as the Purchaser may
request and to continue such qualification at all times through the third
anniversary of the Closing Date; PROVIDED, HOWEVER, that neither the Company nor
its Subsidiaries shall be required in connection therewith to qualify as a
foreign corporation where they are not now so qualified.
SECTION 4.7. INTEGRATION. The Company shall not, and shall use its best
efforts to ensure that its Affiliates shall not, sell, offer for sale or solicit
offers to buy or otherwise negotiate in respect of any security (as defined in
Section 2 of the Securities Act) that would be integrated with the offer or sale
of the Units and/or the Common Stock underlying the Debentures in a manner that
would require the registration under the Securities Act of the sale of the Units
to the Purchaser.
SECTION 4.8. FURNISHING OF RULE 144A MATERIALS. The Company shall, for so
long as any of the Units or Underlying Shares remain outstanding and during any
period in which it is not subject to Section 13 or 15(d) of the Exchange Act,
make available to any registered holder of Units or Underlying Shares in
connection with any sale thereof and any prospective purchaser of such Units or
Underlying Shares from such Person, the following information in accordance with
Rule 144A(d)(4) under the Securities Act a brief statement of the nature of the
business of the Company and the products and services it offers and the
Company's most recent audited balance sheet and profit and loss and retained
earnings statements, and similar audited financial statements for such part of
the two preceding fiscal years as the Company has been in operation.
SECTION 4.9. SOLICITATION. The Company shall not solicit any offer to buy
or sell the Units or Underlying Shares by means of any form of general
solicitation or advertising.
SECTION 4.10. SUBSEQUENT FINANCIAL STATEMENTS. The Company shall furnish to
the Purchaser, promptly after they are filed with the Commission, a copy of all
financial statements for any period subsequent to the period covered by the
financial statements included in the Disclosure Documents.
SECTION 4.11. PROHIBITION ON CERTAIN ACTIONS.
(a) The Company shall not directly or indirectly, without the prior
consent of the Purchaser, offer, sell, grant any option to purchase, or
otherwise dispose (or announce any offer, sale, grant or any option to
purchase or other disposition) of any of its or its Affiliates equity or
equity-equivalent securities (a "Subsequent Sale") for a period of 180 days
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after Closing Date, except (i) the granting of options to employees,
officers and directors under, and the issuance of shares upon exercise of
options granted under, any stock option plan heretofore adopted by the
Company; (ii) shares issued upon exercise of any currently outstanding
warrants and upon conversion of any currently outstanding convertible
preferred stock disclosed in SCHEDULE 3.1, (iii) shares of Common Stock
issued upon conversion of Debentures or exercise of Warrants in accordance
herewith, (iv) issuances of securities in a firm commitment underwritten
public offering, and (v) issuances of securities as consideration for a
merger, consolidation or sale of assets, or in connection with any
strategic partnership or joint venture (the primary purpose of which is not
to raise equity capital) or in connection with the disposition or
acquisition of a business, product, or license by the Company.
(b) From the date hereof through the Closing Date, the Company shall
not and shall cause the Subsidiaries not to, without the consent of the
Purchaser, (i) amend its Certificate of Incorporation, bylaws or other
charter documents so as to adversely affect any rights of the Purchaser;
(ii) split, combine or reclassify its outstanding capital stock; (iii)
declare, authorize, set aside or pay any dividend or other distribution
with respect to the Common Stock; (iv) redeem, repurchase or offer to
repurchase or otherwise acquire shares of its Common Stock; or (v) enter
into any agreement with respect to any of the foregoing.
SECTION 4.12. LISTING OF UNDERLYING SHARES. The Company shall use its best
efforts to cause the Common Stock issuable upon conversion of the Debentures to
be approved for listing on the NASD Electronic Bulletin Board (or other national
securities exchange or market on which the Common Stock is listed) no later than
the first day after which Debentures may be converted hereunder by the
Purchaser, and shall provide to the Purchaser evidence of such listing.
SECTION 4.13. CONVERSION PROCEDURES. EXHIBIT D attached hereto sets forth
the procedures with respect to the conversion of the Debentures. In the event
that the Company and the Escrow Agent receive a properly executed Conversion
Notice (the "Conversion Notice") along with other documentation required by the
Conversion Notice, if any, and fail to deliver or cause to be delivered to the
holder of the Debentures ("Holder") identified in the Conversion Notice a
certificate(s) representing the shares of Common Stock into which the Shares
identified on the Conversion Notice have been converted (the "Converted Shares")
within five days of the later of (i) the receipt by the Company of the
Conversion Notice or (ii) the receipt by the Escrow Agent of the Conversion
Notice (a "Conversion Default"), the Company shall be obligated to pay to the
Holder in cash or certified check 1% of the value of the Converted Shares based
on the Per Share Market Value of the Common Stock on the "'Date to Effect
Conversion" as set forth in the Conversion Notice (the "Conversion Penalty") for
each Business Day such Conversion Default continues. The Company shall pay the
Conversion Penalty to the Holder on the third Business Day of each month
following the month in which such Conversion Penalty may have accrued, by check
delivered to the address for notice of such Holder set forth herein or as may
have been property changed pursuant to the terms herein.
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SECTION 4.14. REGISTRATION OF UNDERLYING SHARES. So long as any Debentures
remain outstanding, the Company agrees not to file a Form 10 registration
statement with the Securities Exchange Commission (the "SEC"), without first
having registered the issuance of the Debenture Underlying Shares under the
Securities Act, and qualified such issuances in such states of the United States
as the holders of the Debentures shall reasonably request. If the Company shall
propose to file with the SEC any registration statement other than a Form 10
which would cause, or have the effect of causing, the Company to become subject
to the reporting requirements of Section 13 or 15 (d) of the Exchange Act (a
"Reporting Issuer") or to take any other action the effect of which would be to
cause the Underlying Shares to be issued upon conversion of any then outstanding
Debentures to be restricted securities (as such term is defined in Rule 144
promulgated under the Securities Act), the Company agrees to give written
notification of such to the Holders of the Debentures then outstanding at least
two weeks prior to such filing or taking of the proposed action. If any
Debentures are outstanding at the end of such notice period, the Company agrees
to file a registration statement on Form S-1 or SB-2, or such other form of
registration statement in which the Debenture Underlying Shares may be included,
and to include in such registration statement the Underlying Shares issuable
upon conversion of any then outstanding Debentures so as to permit the public
resale thereof. All costs and expenses of registration shall be borne by the
Company.
Notwithstanding the foregoing, if the Company for any reason shall become a
Reporting Issuer, or shall have taken any action the effect of which would be to
cause the Underlying Shares to be issued upon conversion of any then outstanding
Debentures to be restricted securities (as such term is defined in Rule 144
promulgated under the Securities Act), the Company agrees to immediately file
with the SEC and cause to become effective a registration statement which would
permit the public resale of such Underlying Shares in such states of the United
States as the Holders thereof shall reasonably request. All costs and expenses
of such registration shall be borne by the Company.
If (but without any obligation to do so under this Agreement) the Company
proposes to register (including for this purpose a registration effected by the
Company for shareholders other than the Holders) any of its stock or other
securities under the Securities Act in connection with the public offering of
such securities solely for cash (other than a registration relating solely to
the sale of securities to participants in a Company stock plan, or a
registration on any form which does not include substantially the same
information as would be required to be included in a registration statement
covering the issuance of the Underlying Shares, or a registration of an offering
of securities, the underwriter of which objects to registration of additional
securities), the Company shall, at such time, promptly give each Holder of
Debentures or Warrants written notice of such registration. Upon the written
request of each Holder of Debentures or Warrants given within twenty days after
mailing of such notice by the Company, the Company shall cause to be registered
under such registration statement such issuances of Common Stock upon conversion
of Debentures or exercise of Warrants as each such Holder has requested to be
registered.
SECTION 4.15. ESCROW. The Company agrees to enter into the escrow agreement
attached hereto as Exhibit E (the "Escrow Agreement"), and to issue into said
Escrow certificates to be held by the Escrow Agent (as defined in the Escrow
12
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Agreement), registered in the name of the Purchaser and without any restrictive
legend of any kind, representing a number of shares equal to that number of
shares which would be issued if the full amount of the Debenture were converted
at the current prevailing Conversion Price (the "Issuable Number") times 200%
("Debenture Escrow Shares") plus the number of shares equal to the number of
issued warrants ("Warrant Escrow Shares"); rounded up to the nearest even 10,000
shares ("Escrow Shares"). Such certificates shall be in denominations of 10,000
shares. If at any time while any of the Debenture remain outstanding the then
current Conversion Price is such that the number of shares in escrow (the
"Escrow Shares") is less than 150% of the then Issuable Number plus the Warrant
Escrow Shares, additional certificates (registered in the name of the Purchaser
and without any restrictive legend of any kind, in 10,000 share denominations
and rounded to the nearest even 10,000 share amount) shall be issued by the
Company into the escrow so that the total number of Escrow Shares is at least
200% of the Issuable Number plus the Warrant Escrow Shares.
SECTION 4.16. SHORT SELLING. Purchaser and its Affiliates agree not to
engage in any short sales, swaps, purchase of puts, or other hedging activities
involving the Common Stock or other securities of the Corporation. However,
Purchaser may engage in short sales within three days preceding conversion where
the shares issuable upon conversion are used to cover the short sale.
ARTICLE V
CONDITIONS PRECEDENT TO CLOSING
SECTION 5.1. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE PURCHASER. The
obligation of the Purchaser to purchase the Units is subject to the satisfaction
or waiver by the Purchaser, at or prior to the Closing, of each of the following
conditions:
(a) LEGAL OPINION. The Purchaser shall have received the legal
opinion, addressed to it and dated the Closing Date, of Pollet Law, counsel
for the Company, substantially in the form of EXHIBIT C.
(b) ACCURACY OF THE COMPANY'S REPRESENTATIONS AND WARRANTIES. The
representations and warranties of the Company contained herein shall be
true and correct in all material respects as of the date when made and as
of the Closing Date as though made at that time (except that
representations and warranties that are made as of a specific date need be
true in all material respects only as of such date);
(c) PERFORMANCE BY THE COMPANY. The Company shall have performed,
satisfied and compiled in all material respects with all covenants,
agreements and conditions required by this Agreement to be performed,
satisfied or complied with by the Company at or prior to the Closing;
13
<PAGE>
(d) NO MATERIAL ADVERSE EFFECT. Since the date of the financial
statements included in the Disclosure Documents, no event which had a
Material Adverse Effect shall have occurred which is not disclosed in the
Disclosure Documents;
(e) NO PROHIBITIONS. The purchase of and payment for the Units (and
upon conversion therefore, the Underlying Shares) hereunder (i) shall not
be prohibited or enjoined (temporarily or permanently) by any applicable
law or governmental regulation and (ii) shall not subject the Purchaser to
any penalty, or in its reasonable judgment, other onerous condition under
or pursuant to any applicable law or governmental regulation that would
materially reduce the benefits to the Purchaser of the purchase of the
Units or the Underlying Shares (provided, however, that such regulation,
law or onerous condition was not in effect in such form at the date of this
Agreement);
(f) COMPANY CERTIFICATES. The Purchaser shall have received a
certificate, dated the Closing Date, signed by the Secretary or an
Assistant Secretary of the Company and certifying (i) that attached thereto
is a true, correct and complete copy of (A) the Company's Certificate of
Incorporation, as amended to the date thereof, (B) the Company's By-Laws,
as amended to the date thereof, and (C) resolutions duly adopted by the
Board of Directors of the Company authorizing the execution and delivery of
this Agreement and the issuance and sale of the Units and the Underlying
Shares and (ii) the incumbency of officers executing this Agreement;
(g) NO SUSPENSIONS OF TRADING IN COMMON STOCK. Trading in the Common
Stock shall not have been suspended by the Commission or the NASD or other
exchange or market on which the Common Stock is listed or quoted (except
for any suspension of trading of limited duration solely to permit
dissemination of material information regarding the Company);
(h) REQUIRED APPROVALS. All Required Approvals shall have been
obtained; and
(i) DELIVERY OF AGREEMENTS. The Company shall have delivered to the
Escrow Agent signed copies of the Purchase Agreement, Escrow Agreement,
Escrow Shares, and Wiring Instructions.
SECTION 5.2. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE COMPANY. The
obligation of the Company to issue and sell the Units hereunder is subject to
the satisfaction or waiver by the Company, at or to the Closing, of each of the
following conditions:
(a) ACCURACY OF THE PURCHASER'S REPRESENTATIONS AND WARRANTIES. The
representations and warranties of the Purchaser shall be true and correct
in all material respects as of the date when made and as of the Closing
Date as though made at that time (except that representations and
warranties that are made as of a specific date need be true in all material
respects only as of such date);
14
<PAGE>
(b) PERFORMANCE BY THE PURCHASER. The Purchaser shall have performed,
satisfied and compiled in all material respects with all covenants,
agreements and conditions required by this Agreement to be performed,
satisfied or complied with by it at or prior to the Closing; and
(c) NO PROHIBITIONS. The sale of the Units (and upon conversion
thereof, the Underlying Shares) hereunder (i) shall not be prohibited or
enjoined (temporarily or permanently) by any applicable law or governmental
regulation and (ii) shall not subject the Company to any penalty, or in its
reasonable judgment, any other onerous condition under or pursuant to any
applicable law or governmental regulation that would materially reduce the
benefits to the Company of the sale of Units or the Underlying Shares to
the Purchaser (provided, however, that such regulation, law or onerous
condition was not in effect in such form at the date of this Agreement).
(d) DELIVERY OF CONSIDERATION. The Purchaser shall have delivered to
the Escrow Agent signed copies of the Purchase Agreement, Escrow Agreement
and the Purchase Price.
ARTICLE VI
TERMINATION
SECTION 6.1. TERMINATION BY MUTUAL CONSENT. This Agreement may be
terminated at any time prior to Closing by the mutual consent of the Company and
the Purchaser.
SECTION 6.2. TERMINATION BY THE COMPANY OR THE PURCHASER. This Agreement
may be terminated prior to Closing by either the Company or the Purchaser, by
giving written notice of such termination to the other party, if:
(a) the Closing shall not have occurred by June 21, 1998; PROVIDED
THAt the terminating party is not then in material breach of its
obligations under this Agreement in any manner that shall have caused the
failure referred to in this paragraph (a);
(b) there shall be in effect any statute, rule, law or regulation that
prohibits the consummation of the Closing or if the consummation of the
Closing would violate any non-appealable final judgment, order, decree,
ruling or injunction of any court of or governmental authority having
competent jurisdiction; or
(c) there shall have been an amendment to Regulation D or an
interpretive release promulgated or issued thereunder, which, in the
reasonable judgment of the terminating party, would materially adversely
affect the transactions contemplated hereby.
15
<PAGE>
SECTION 6.3. TERMINATION BY THE COMPANY. This Agreement may be terminated
prior to Closing by the Company, by giving notice of such termination to the
Purchaser, if the Purchaser has materially breached any representation,
warranty, covenant or agreement contained in this Agreement and such breach is
not cured within five business days following receipt by the Purchaser of notice
of such breach.
SECTION 6.4. TERMINATION BY THE PURCHASER. This Agreement may be terminated
prior to Closing by the Purchaser, by giving notice of such termination to the
Company, if:
(a) the Company has breached any representation, warranty, covenant or
agreement contained in this Agreement and such breach is not cured within
five business days following receipt by the Company of notice of such
breach;
(b) there has occurred an event, since the date of the financial
statements included in the Company's Disclosure Documents which could
reasonably be expected to have a Material Adverse Effect; or
(c) trading in the Common Stock has been suspended by the Commission
or the NASD or other exchange or market on which the Common Stock is listed
or quoted (except for any suspension of trading of limited duration solely
to permit dissemination of material information regarding the Company).
ARTICLE VII
MISCELLANEOUS
SECTION 7.1. FEES AND EXPENSES. Each party shall pay the fees and expenses
of its advisers, counsel, accountants and other experts, if any, and all other
expenses incurred by such party incident to the negotiation, preparation,
execution, delivery and performance of this Agreement. The Company shall pay all
stamp and other taxes and duties levied in connection with the issuance of the
Units (and upon conversion thereof, the Underlying Shares) pursuant hereto. The
Purchaser shall be responsible for its own tax liability that may arise as a
result of the investment hereunder or the transactions contemplated by this
Agreement. Whether or not the transactions contemplated by this Agreement are
consummated or this Agreement is terminated, the Company shall pay (i) all
costs, expenses, fees and all taxes incident to and in connection with: (A) the
preparation, printing and distribution of the Disclosure Documents and all
amendments and supplements thereto (including, without limitation, financial
statements and exhibits), and all preliminary and final Blue Sky memoranda and
all other agreements, memoranda, correspondence and other documents prepared and
delivered in connection herewith (B) the issuance and delivery of the Debentures
and, upon conversion thereof, the Underlying Shares, (C) the qualification of
the Debentures and, upon conversion thereof, the Underlying Shares for offer and
sale under the securities or Blue Sky laws of the several states (including,
without limitation, the fees and disbursements of the Purchasers' counsel
16
<PAGE>
relating to such registration or qualification), (D) furnishing such copies of
the Disclosure Documents and all amendments and supplements thereto, as may
reasonably be requested for use in connection, with resales of the Debentures
and, upon conversion thereof, the Underlying Shares, and (E) the preparation of
certificates for the Debentures and, upon conversion thereof, the Underlying
Shares (including, without limitation, printing and engraving thereof), (ii) all
fees and expenses of the counsel and accountants of the Company and (iii) all
expenses and listing fees in connection with the application for quotation of
the Underlying Shares in the NASD over-the-counter market.
SECTION 7.2. ENTIRE AGREEMENT; AMENDMENTS. This Agreement together with the
Exhibits, Annexes and Schedules hereto, contain the entire understanding of the
parties with respect to the subject matter hereof and supersede all prior
agreements and understandings, oral or written, with respect to such matters.
SECTION 7.3. NOTICES. Any notice or other communication required or
permitted to be given hereunder shall be in writing and shall be deemed to have
been received (a) upon hand delivery (receipt acknowledged) or delivery by telex
(with correct answer back received), telecopy or facsimile (with transmission
confirmation report) at the address or number designated below (if delivered on
a business day during normal business hours where such notice is to be
received), or the first business day following such delivery (if delivered other
than on a business day during normal business hours where such notice is to be
received) or (b) on the second business day following the date of mailing by
express courier service, fully prepaid, addressed to such address, or upon
actual receipt of such mailing, whichever shall first occur. The addresses for
such communications shall be:
If to the Company: With copies to:
Empyrean Diagnostics, Ltd. Pollet Law
2238 West Lone Cactus Drive, Suite 200 10900 Wilshire Boulevard, Suite 500
Phoenix, AZ 85027 Los Angeles, CA 90024
Attention: Mr. Stephen Hayter Attention: Andrew F. Pollet
Tel: 602-879-6935 Tel: 310 208-1182
Fax: 602-879-6940 Fax: 310 208-1154
If to the Purchaser:
Per Schedule of Purchasers and Allocations,
Appendix A
or such other address as may be designated in writing hereafter, in the same
manner, by such person.
SECTION 7.4. AMENDMENTS; WAIVERS. No provision of this Agreement may be
waived or amended except in a written instrument signed, in the case of an
amendment, by both the Company and the Purchaser, or, in the case of a waiver,
17
<PAGE>
by the party against whom enforcement of any such waiver is sought. No waiver of
any default with respect to any provision, condition or requirement of this
Agreement shall be deemed to be a continuing waiver in the future or a waiver of
any other provision, condition or requirement hereof, nor shall any delay or
omission of either party to exercise any right hereunder in any manner impair
the exercise of any such right accruing to it thereafter.
SECTION 7.5. HEADINGS. The headings herein are for convenience only, do not
constitute a part of this Agreement and shall not be deemed to limit or affect
any of the provisions hereof.
SECTION 7.6. SUCCESSORS AND ASSIGNS. This Agreement shall he binding upon
and inure to the benefit of the parties and their successors and permitted
assigns. Neither the Company nor the Purchaser may assign this Agreement or any
rights or obligations hereunder without the prior written consent of the other.
The assignment by a party of this Agreement or any rights hereunder shall not
affect the obligations of such party under this Agreement.
SECTION 7.7. NO THIRD PARTY BENEFICIARIES. This Agreement is intended for
the benefit of the parties hereto and their respective permitted successors and
assigns and is not for the benefit of, nor may any provision hereof be enforced
by, any other person.
SECTION 7.8. GOVERNING LAW. This Agreement shall be governed by and
construed and enforced in accordance with the internal laws of the State of New
York without regard to the principles of conflicts of law thereof.
SECTION 7.9. SURVIVAL. The representations and warranties of the Company
and the Purchaser contained in ARTICLE III and the agreements and covenants of
the parties contained in ARTICLE IV and this ARTICLE VII shall survive the
Closing (or any earlier termination of this Agreement) and any conversion of
Debentures hereunder.
SECTION 7.10. COUNTERPART SIGNATURES. This Agreement may be executed in two
or more counterparts, all of which when taken together shall be considered one
and the same agreement and shall become effective when counterparts have been
signed by each party and delivered to the other party, it being understood that
both parties need not sign the same counterpart. In the event that any signature
is delivered by facsimile transmission, such signature shall create a valid and
binding obligation of the party executing (or on whose behalf such signature is
executed) the same with the same force and effect as if such facsimile signature
page were an original thereof.
SECTION 7.11. PUBLICITY. The Company and the Purchaser shall consult with
each other in issuing any press releases or otherwise making public statements
with respect to the transactions contemplated hereby and neither party shall
issue any such press release or otherwise make any such public statement without
the prior written consent of the other, which consent shall not be unreasonably
withheld or delayed.
18
<PAGE>
SECTION 7.12. SEVERABILITY. In case any one or more of the provisions of
this Agreement shall be invalid or unenforceable in any respect, the validity
and enforceability of the remaining terms and provisions of this Agreement shall
not in any way be affecting or impaired thereby and the parties will attempt to
agree upon a valid and enforceable provision which shall be a reasonable
substitute therefor, and upon so agreeing, shall incorporate such substitute
provision in this Agreement.
SECTION 7.13. REMEDIES. In addition to being entitled to exercise all
rights provided herein or granted by law, including recovery of damages, the
Purchaser will be entitled to specific performance of the obligations of the
Company under this Agreement and the Company will be entitled to specific
performance of the obligations of the Purchaser hereunder with respect to the
subsequent transfer of Debentures or Warrants and the Underlying Shares. Each of
the Company and the Purchaser agrees that monetary damages would not be adequate
compensation for any loss incurred by reason of any breach of its obligations
described in the foregoing sentence and hereby agrees to waive in any action for
specific performance of any such obligation the defense that a remedy at law
would be adequate.
IN WITNESS WHEREOF, time parties hereto have caused this Agreement to be
duly executed as of the date first indicated above.
[SIGNATURE PAGE FOLLOWS]
19
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Empyrean Diagnostics, Ltd. Global Strategic Holdings, Ltd.
By: /s/ Stephen Hayter By: /s/ Rosemary E. Marr
------------------------------- -------------------------------
Stephen Hayter, President & CEO
Name: Rosemary E. Marr
-----------------------------
Title: Director
----------------------------
Successway Holdings Limited Lampton, Inc.
By: /s/ Angela Ho By: /s/ Sheldon Steinberg
------------------------------- -------------------------------
Name: Angela Ho Name: Sheldon Steinberg
----------------------------- -----------------------------
Title: Title: Director
---------------------------- ----------------------------
Turbo International, Ltd.
By: /s/ Martin Christen
-------------------------------
Name: Martin Christen
-----------------------------
Title: President
----------------------------
20
<PAGE>
VOID AFTER 5:00 P.M., NEW YORK TIME ON JULY 9, 2001
WARRANT TO PURCHASE 662,910 SHARES OF COMMON STOCK
-----------------------------------
WARRANT TO PURCHASE COMMON STOCK
OF
EMPYREAN DIAGNOSTICS, LTD.
-----------------------------------
THIS WARRANT AND THE SHARES OF COMMON STOCK
ISSUABLE PURSUANT TO THIS WARRANT HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED (THE "ACT"), AND MAY NOT BE SOLD,
PLEDGED OR OTHERWISE TRANSFERRED UNLESS
REGISTERED UNDER THE ACT OR AN EXEMPTION FROM
SUCH REGISTRATION IS AVAILABLE.
FOR VALUE RECEIVED, Empyrean Diagnostics Ltd., a Wyoming corporation (the
"Company"), grants the following rights to Global Strategic Holdings, Ltd.
("Holder"):
ARTICLE 1.
DEFINITIONS.
As used herein, the following terms shall have the following meanings,
unless the context shall otherwise require:
(a) "Common Stock" shall mean the common stock, without par value, of
the Company.
(b) "Corporate Office" shall mean the office of the Company (or its
successor) at which at any particular time its principal business shall be
administered.
(c) "Exercise Date" shall mean any date upon which the Holder shall
give the Company a Notice of Exercise.
(d) "Exercise Price" shall mean the price to be paid to the Company
for each share of Common Stock to be purchased upon exercise of this Warrant in
accordance with the terms hereof which shall be:
<PAGE>
$0.75425 per share from January 9, 1999 to July 9, 1999
$0.90510 per share from July 10, 1999 to July 9, 2000
$1.05595 per share from July 10, 2000 to July 9, 2001
(e) "Expiration Date" shall mean 5:00 p.m. (New York time) on July 9,
2001.
(f) "Purchase Agreement" shall mean that certain Convertible Debenture
and Warrant Purchase Agreement dated July 9, 1998, pursuant to which this
Warrant has been issued.
(g) "SEC" shall mean the United States Securities and Exchange
Commission.
(h) "Transfer Agent" shall mean the Company's transfer agent or its
authorized successor.
(i) "Underlying Shares" shall mean the shares of the Common Stock
issuable upon exercise of the Warrant.
ARTICLE 2.
EXERCISE AND AGREEMENTS.
2.1 EXERCISE OF WARRANT. This Warrant shall entitle Holder to purchase up
to 662,910 shares of Common Stock (the "Shares") at the Exercise Price. This
Warrant shall be exercisable at any time and from time to time on or after
January 9, 1999 and prior to the Expiration Date (the "Exercise Period"). This
Warrant and the right to purchase Shares hereunder shall expire and become void
at the Expiration Date.
2.2 MANNER OF EXERCISE.
(a) Holder may exercise this Warrant at any time and from time to time
during the Exercise Period, in whole or in part (but not in denominations of
fewer than 10,000 Shares, except upon an exercise of this Warrant with respect
to the remaining balance of Shares purchasable hereunder at the time of
exercise), by delivering to the Escrow Agent and the Company (as defined in an
escrow agreement dated of the same date between the Company and the Holder) (i)
a duly executed Notice of Exercise in substantially the form attached as
Appendix 1 hereto and (ii) a bank cashiers, certified check, or wire transfer
for the aggregate Exercise Price of the Shares being purchased.
(b) From time to time upon exercise of this Warrant, in whole or part,
in accordance with its terms, the Escrow Agent will deliver stock certificates
to the Holder representing the number of Shares being purchased pursuant to such
exercise, subject to adjustment as described herein.
2
<PAGE>
(c) Promptly following any exercise of this Warrant, if the Warrant
has not been fully exercised and has not expired, the Company will deliver to
the Holder a new Warrant for the balance of the Shares covered hereby.
2.3 TERMINATION. All rights of the Holder in this Warrant, to the extent
they have not been exercised, shall terminate on the Expiration Date.
2.4 NO RIGHTS PRIOR TO EXERCISE. Prior to its exercise pursuant to Section
2.2 above, this Warrant shall not entitle the Holder to any voting or other
rights as Holder of Shares.
2.5 ADJUSTMENTS. In case of any reclassification, capital reorganization,
stock dividend or other change of outstanding shares of Common Stock, or in case
of any consolidation or merger of the Company with or into another corporation
(other than a consolidation or merger in which the Company is the continuing
corporation and which does not result in any reclassification, capital
reorganization, stock dividend or other change of outstanding shares or Common
Stock), or in case of any sale or conveyance to another corporation of the
property of the Company as, or substantially as, an entirety (other than a
sale/leaseback, mortgage or other financing transaction), the Company shall
cause effective provision to be made so that the Holder shall have the right
thereafter, by exercising this Warrant, to purchase the kind and number of
shares of stock or other securities or property (including cash) receivable upon
such reclassification, capital reorganization, stock dividend or other change,
consolidation, merger, sale or conveyance as the Holder would have been entitled
to receive had the Holder exercised this Warrant in full immediately before such
reclassification, capital reorganization, stock dividend or other change,
consolidation, merger, sale or conveyance. Any such provision shall include
provision for adjustments that shall be as nearly equivalent as may be
practicable to the adjustments provided for in this Section 2.5. The foregoing
provisions shall similarly apply to successive reclassifications, capital
reorganizations, stock dividends and other changes of outstanding shares of
Common Stock and to successive consolidations, mergers, sales or conveyances.
2.6 FRACTIONAL SHARES. No fractional Shares shall be issuable upon exercise
or conversion of this Warrant and the number of Shares to be issued shall be
rounded down to the nearest whole Share. If a fractional Share interest arises
upon any exercise or conversion of the Warrant, the Company shall eliminate such
fractional Share interest by paying Holder the amount computed by multiplying
the fractional interest by the closing bid price of a full Share on the date of
the Notice of Exercise.
2.7 ESCROW. The Company agrees to enter into the escrow agreement attached
to the Purchase Agreement hereto as Exhibit E (the "Escrow Agreement"), and to
issue into said escrow certificates to be held by the Escrow Agent (as defined
in the Escrow Agreement), registered in the name of the Holder and without any
restrictive legend of any kind, representing a number of shares of Common Stock
(in 10,000 share certificates) equal to the number of shares of this Warrant
("Escrow Shares").
3
<PAGE>
ARTICLE 3.
REPRESENTATIONS AND COVENANTS OF THE COMPANY.
3.1 Representations and Warranties. The Company hereby represents and
warrants to the Holder as follows:
(a) All Shares which may be issued upon the exercise of the purchase
right represented by this Warrant shall, upon issuance, be duly authorized,
validly issued, fully-paid and nonassessable, and free of any liens and
encumbrances except for restrictions on transfer provided for herein or under
applicable federal and state securities laws, and not subject to any pre-emptive
rights.
(b) The Company is a corporation duly organized and validly existing
under the laws of the State of Wyoming, and has the full power and authority to
issue this Warrant and to comply with the terms hereof. The execution, delivery
and performance by the Company of its obligations under this Warrant, including,
without limitation, the issuance of the Shares upon any exercise of the Warrant
have been duly authorized by all necessary corporate action. This Warrant has
been duly executed and delivered by the Company and is a valid and binding
obligation of the Company, enforceable in accordance with its terms, except as
enforcement may be limited by applicable bankruptcy, insolvency, reorganization
or similar laws affecting enforceability of creditors' rights generally and
except as the availability of the remedy of specific enforcement, injunctive
relief or other equitable relief is subject to the discretion of the court
before which any proceeding therefor may be brought.
(c) The Company is not subject to or bound by any provision of any
certificate or articles of incorporation or by-laws, mortgage, deed of trust,
lease, note, bond, indenture, other instrument or agreement, license, permit,
trust, custodianship, other restriction or any applicable provision of any law,
statute, rule, regulation, judgment, order, writ, injunction or decree of any
court, governmental body, administrative agency or arbitrator which could
prevent or be violated by or under which there would be a default (or right of
termination) as a result of the execution, delivery and performance by the
Company of this Warrant.
(d) The Company is not subject to the reporting requirements of
Section 13 or Section 15d of the Exchange Act. The Company has not sold more
than $750,000 of securities in the last twelve months. The Company is eligible
to issue securities exempt from registration pursuant to Rule 504 of Regulation
D promulgated under the Securities Act.
4
<PAGE>
ARTICLE 4.
SECURITIES LAW COMPLIANCE.
The Shares will be acquired for Purchaser's own account for investment and
not with a view to, or for resale in connection with, any distribution of the
Shares within the meaning of the Securities Act of 1933. Purchaser acknowledges
that it is aware that the issuance of the Shares upon exercise of this Warrant
has not been registered pursuant to the Securities Act of 1933 (the "Act"), nor
is it intended that they be registered, and the Purchaser has no right to
require that they be registered, under the Act or under any state securities
laws. The Purchaser agrees that the Shares may not be sold in the absence of
registration unless such sale is exempt from registration under the Act and any
applicable state securities laws. The Purchaser also acknowledges that he shall
be responsible for compliance with all conditions on transfer imposed by any
Commissioner of Securities of any state and for any expenses incurred by the
Company for legal or accounting services in connection with reviewing such
proposed transfer or issuing opinions in connection therewith. The certificate
for the Shares shall bear the following restrictive legend:
THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, OF THE UNITED STATES OF AMERICA
(THE "ACT") OR THE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES
("STATE ACT"). THESE SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT AND MAY
NOT BE OFFERED, SOLD, PLEDGED, HYPOTHECATED, OR OTHERWISE TRANSFERRED FOR
VALUE, DIRECTLY OR INDIRECTLY, IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT FOR THE SECURITIES UNDER THE ACT AND COMPLIANCE WITH APPLICABLE
STATE ACTS, OR PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE ACT AND
UNDER APPLICABLE STATE ACTS, THE AVAILABILITY OF WHICH IS ESTABLISHED TO
THE SATISFACTION OF THE COMPANY.
If (but without any obligation to do so under this Agreement) the Company
proposes to register (including for this purpose a registration effected by the
Company for shareholders other than the Holders) any of its stock or other
securities under the Securities Act in connection with the public offering of
such securities solely for cash (other than a registration relating solely to
the sale of securities to participants in a Company stock plan, or a
registration on any form which does not include substantially the same
information as would be required to be included in a registration statement
covering the issuance of the Underlying Shares, or a registration of an offering
of securities, the underwriter of which objects to registration of additional
securities), the Company shall, at such time, promptly give each Holder written
notice of such registration. Upon the written request of each Holder given
within twenty days after mailing of such notice by the Company, the Company
shall cause to be registered under such registration statement such Underlying
Shares as each such Holder has requested to be registered.
5
<PAGE>
ARTICLE 5.
MISCELLANEOUS.
5.1 TRANSFER. This Warrant may not be transferred or assigned, in whole or
in part, at any time, except in compliance with applicable federal and state
securities laws by the transferor and the transferee (including, without
limitation, the delivery of an investment representation letter and a legal
opinion reasonably satisfactory to the Company), provided that this Warrant may
nat be transferred or assigned such that either the Holder or any transferee
will, following such transfer or assignment, hold a Warrant for the right to
purchase fewer than 5,000 Shares.
5.2 TRANSFER PROCEDURE. Subject to the provisions of Section 5.1, Holder
may transfer or assign this Warrant by giving the Company notice setting forth
the name, address and taxpayer identification number of the transferee or
assignee, if applicable (the "Transferee") and surrendering this Warrant to the
Company for reissuance to the Transferee (and the Holder, in the event of a
transfer or assignment of this Warrant in part). (Each of the persons or
entities in whose name any such new Warrant shall be issued are herein referred
to as a Holder").
5.3 LOSS, THEFT, DESTRUCTION OR MUTILATION. If this Warrant shall became
mutilated or defaced or be destroyed, lost or stolen, the Company shall execute
and deliver a new Warrant in exchange for and upon surrender and cancellation of
such mutilated or defaced Warrant or, in lieu of and in substitution for such
Warrant so destroyed, last or stolen, upon the Holder filing with the Company
evidence satisfactory to it that such Warrant has been so mutilated, defaced,
destroyed, last or stolen. However, the Company shall be entitled, as a
condition to the execution and delivery of such new Warrant, to demand indemnity
satisfactory to it and payment of the expenses and charges incurred in
connection with the delivery of such new Warrant. Any Warrant so surrendered to
the Company shall be canceled.
5.4 NOTICES. All notices and other communications from the Company to the
Holder or vice versa shall be deemed delivered and effective when given
personally, by facsimile transmission and confirmed in writing or mailed by
first-class registered or certified mail, postage prepaid at such address and/or
facsimile number as may have been furnished to the Company or the Holder, as the
case may be, in writing by the Company or the Holder from time to time.
5.5 WAIVER. This Warrant and any term hereof may be changed, waived, or
terminated only by an instrument in writing signed by the party against which
enforcement of such change, waiver, discharge or termination is sought.
6
<PAGE>
5.6 GOVERNING LAW. This Warrant shall be governed by and construed in
accordance with the laws of the State of New York, without giving effect to its
principles regarding conflicts of law.
Dated: 7/15/98 Empyrean Diagnostics, Ltd.
-----------------------------
Attest: [illegible] By: /s/ Stephen Hayter
---------------------------- -------------------------------
Stephen Hayter, President & CEO
7
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
<PAGE>
EMPYREAN BIOSCIENCE, INC. SERIES "K" 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 "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
-2-
<PAGE>
EMPYREAN BIOSCIENCE, INC. SERIES "K" 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 "K" 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 "K" 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 "K" 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 "K" 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 "K" 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 "K" 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 "K" 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 "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
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EMPYREAN BIOSCIENCE, INC. SERIES "L" 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 "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
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EMPYREAN BIOSCIENCE, INC. SERIES "L" 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 "L" 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 "L" 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 "L" 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 "L" 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 "L" 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 "L" 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 "L" 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
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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:
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Address:
2238 West Lone Cactus Drive, Suite 200
Phoenix, Arizona 85027
Empyrean Diagnostics, Ltd., as to paragraph
3 only
By:
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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):
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(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.
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(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.
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(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
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(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.
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(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):
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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;
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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;
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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.
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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.
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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.
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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>
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(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>
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(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>
-15-
(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>
-28-
(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).
2
<PAGE>
(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
3
<PAGE>
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
4
<PAGE>
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
5
<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
6
<PAGE>
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
7
<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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<PAGE>
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
9
<PAGE>
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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<PAGE>
(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.
11
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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
12
<PAGE>
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
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<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.
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(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.
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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.
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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
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Facsimile: (602) 431-1213 Facsimile: (602) 954-7121
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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
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT is entered into at Phoenix, Arizona, this 1st day
of September, 1999 by and between EMPYREAN BIOSCIENCE, INC. (the "Company") and
STEPHEN D. HAYTER ("Employee").
RECITALS:
A. The Company is in the business of infectious disease prevention through
the development and sale of microbicide lotion and gel (the "Business");
B. Employee has certain expertise in connection with certain aspects of the
Company's business and has been employed by the Company.
C. The Company and Employee wish to formalize the employment relationship
between them by means of this written Employment Agreement.
NOW, THEREFORE, in consideration of mutual promises and agreements
contained herein and intending to be legally bound hereby, the parties agree as
follows:
1. EMPLOYMENT. The employment relationship between Employee and the Company
is upon the terms and conditions set forth herein, effective September 1, 1999
(the "Effective Date").
2. SERVICES. Employee is currently President and Chief Executive Officer
and Chairman of the Board. Employee shall continue as President and Chief
Executive Officer and Chairman of the Board for a period of six months from the
Effective Date, at which time he shall resign as President and Chief Executive
Officer. Thereafter, Employee shall continue to serve as Chairman of the Board
of Directors until December 31, 2001 and will continue to be responsible for
forming international distribution agreements. Employee will devote his full
working time, experience and best efforts to the performance of his duties on
behalf of the Company. Employee shall perform all such duties in accordance with
such rules, policies and procedures as the Company and or its Board of Directors
may adopt from time to time.
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3. COMPENSATION.
3.1 BASE SALARY. The Company shall pay to Employee an annual base salary of
One Hundred Eighty Thousand Dollars ($180,000.00) payable in consecutive, equal,
biweekly installments. Notwithstanding Employee's resignation as President and
Chief Executive Officer, Employee's salary and benefits shall continue until
December 31, 2001 at the annual salary rate in effect prior to Employee's
resignation, as if Employee had not resigned, unless mutually agreed to between
Employee and the Board of Directors. Employee's base salary shall be reviewed
annually by the Compensation Committee. The first review shall occur twelve(12)
months from the Effective Date.
3.2 CERTAIN BASIC FRINGE BENEFITS. The Company shall provide to Employee a
benefits package including, but not limited to, company-sponsored group health
insurance (including prescription drug plan), dental insurance, vision
insurance, group life insurance, accidental death and dismemberment benefits,
short term disability insurance, long term disability insurance and the option
to participate in any 401(k) program sponsored by the Company, upon terms and
conditions and in amounts to be determined by the Board of Directors as part of
a package of benefits approved for Senior Management of the Company. Company
will reimburse Employee for his costs, less a reasonable employee contribution,
of securing independent health insurance coverage until such time as the new
company-sponsored plan is in effect.
3.3 BUSINESS EXPENSES. The Company shall promptly reimburse Employee for
all reasonable, ordinary and necessary business expenses incurred by him in the
performance of his duties hereunder, and Employee shall submit receipts,
vouchers or other appropriate evidence to substantiate that said expenses were
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incurred by Employee in connection with the business of the Company. In
addition, the Company will reimburse Employee for reasonable travel and
entertainment expenses budgeted and approved by the Board of Directors.
3.4 INCENTIVE COMPENSATION. Employee shall be entitled to participate in an
incentive compensation bonus program to be adopted by the Company and in effect
for Fiscal Year 2000, after consultation with Employee, and pursuant to approval
of the Board of Directors. It will be the responsibility of the Employee to
prepare an incentive program for Senior Managers to present to the Empyrean
Board of Directors for approval.
3.5 INCENTIVE STOCK OPTIONS. Employee previously has been granted by the
Board of Directors of the Company Incentive Stock Options pursuant to the
Company's stock option plan (the "Plan"). A schedule of Employee's 2,204,942
outstanding options and their vesting schedule is attached as Exhibit A and is
incorporated herein. Any shares acquired by Employee upon the exercise of the
Incentive Stock Options shall be subject to and shall be transferable only in
compliance with the Plan and applicable securities laws.
Company hereby agrees to register the shares under the Securities Act of
1933, as amended, by means of an effective Form S-8 registration statement, and
all shares issued upon exercise of options granted pursuant to the terms of the
Plan will be permitted to be resold under an effective Form S-3 registration
statement, if available. Company hereby agrees to have such registration(s) in
effect, to maintain the registration(s) in effect as long as necessary for
Employee to sell his shares, and to comply with any other requirements,
including the preparation of a reoffer prospectus, if applicable, necessary for
employee to sell his shares.
Employee agrees not to sell more than the equivalent of one percent (1%) of
the outstanding shares of the Company during any 90 day period for a period of
twelve months from the Effective Date. Any non-vested options granted to other
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members of management will vest upon the same performance criteria as applied to
Employee. The options will have a 10-year term and provide for accelerated
vesting in the event of a change in control or ownership of the Company or
termination of Employee's employment without cause.
4. TERM, TERMINATION.
4.1 This Agreement may be terminated by the Company at any time "for cause"
or without cause. "For cause" shall mean any termination of the Employee's
employment resulting from Employee's engaging in fraud, misappropriation of
funds or embezzlement against the Company.
4.2 If Employee is terminated from employment without cause, the Company
shall provide to Employee a twelve month evergreen severance provision whereby
Employee's base salary, bonus, benefits and options shall continue for twelve
months.
Any termination of Employee's employment resulting from: (i) Employee's
death; (ii) Employee's inability to perform the essential functions of his job
with or without reasonable accommodation for 180 consecutive business days or
300 of 365 total days; or (iii) Employee's resignation from his positions with
the Company within 30 days after the receipt of written notice from the Company
informing Employee that his base salary rate shall be reduced below its then
current level (the "Salary Reduction Notice"), or within 30 days of a reduction
in duties, title or responsibility, or within 30 days of a change in location, a
change in control or a breach of this Agreement, shall be deemed to be a
termination by the Company without cause.
Bonuses to be earned in accordance with an incentive compensation bonus
program applicable to the fiscal year in which Employee is terminated will be
determined by prorating the full amount of the bonus, which would have been
earned, had Employee been employed for the full fiscal year by the number of
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days employed during the fiscal year. Incentive stock options to be vested upon
the attainment of certain performance goals applicable to the fiscal year in
which Employee is terminated shall be accelerated and vested as of the
Employee's termination date. Bonus shall be payable no later than 90 days
following the close of the fiscal year that Employee is terminated.
Such severance shall be paid to Employee in the form of regular payroll
checks, less deductions for taxes and withholdings, in equal consecutive
installments during the severance period following Employee's termination. The
Company shall continue to pay Employee's salary at the annual rate in effect
immediately prior to Employee's termination (unless such termination occurs as a
result of the Employee's resignation from his positions with the Company within
30 days after receipt of the Salary Reduction Notice, in which case such
payments shall be at the annual salary rate in effect immediately prior to the
receipt of the Salary Reduction Notice) for the severance period. Employee shall
have the option of accepting a lump sum payment of severance provision
calculated by discounting the stream of payments utilizing a discount rate of
fifteen percent (15%).
In the event that participation in any such benefits package is barred, the
Company shall arrange to provide Employee with benefits during the severance
period substantially similar to those which he is entitled to receive, or
reimburse him for his costs of securing independent benefits coverage
substantially similar to the benefits package available to him prior to
termination, including gross up for any tax cost incurred as a result.
In the event the Company replaces the benefits package available to senior
officers of the Company during the Employee's severance period, Employee shall
be entitled to participate in any such replacement package, provided, however,
that if the new benefits package is substantially worse, in the aggregate, than
the benefits package available to Employee prior to termination, the Company
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shall arrange to provide him with benefits substantially similar to those which
he is entitled to receive, or reimburse him for his costs of securing
independent benefits coverage substantially similar to the benefits package
available to him prior to termination.
In the event of a breach of this Agreement by the Company, Employee is
eligible, at Employee's option, to receive severance pay in accordance with the
twelve month evergreen severance provision set forth above. Such severance
payment and acceleration of options as set forth in Section 4.2 shall be
Employee's sole remedy at law or in equity against Company for any breach of
this agreement and Employee shall sign a full and final release of claims, in a
form acceptable to Company, as a condition of receiving such severance payment.
The Company and Employee mutually agree not to make or utter any
disparaging comments about one another, including the Company's past, present
and future officers, directors and or employees, and both the Company and the
Employee agree not to take any action to injure or harm one another's reputation
or business relationships.
5. COVENANTS OF EMPLOYEE.
5.1 Employee acknowledges that during the course of his employment by the
Company he will have access to trade secrets and other confidential information
with respect to the business, operations, accounts, books and records, sales,
customers, pricing, marketing, development, testing, scientific research and
other activities of the Company ("Trade Secrets"). Accordingly, Employee shall,
at all times, keep secret and inviolate all Trade Secrets which he now knows or
may hereafter come to know. In addition, Employee shall at no time copy, remove
from the premises of the Company or retain, without the prior consent of the
Company, any Trade Secrets, including, but not limited to, unpublished records,
agreements, books of account, corporate documents, work papers, correspondence,
customer lists, memoranda, computer software or documentation in connection
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therewith, plans, drawings or copies or extracts from any of the foregoing,
except as may be required in the normal operation of the Company's business.
Upon the termination of Employee's employment, Employee shall promptly return to
the Company all Trade Secrets in his possession or under his control and shall
verify in writing his return of same as a condition to receipt of any severance
pay.
5.2 Employee agrees that during the term hereof (except as permitted
hereunder) and for a period of time equivalent to twice the length of Employee's
severance benefit following the termination of his employment, whether by
Company or by Employee, with or without cause, he will not engage in the
Business within any County or State where Company has conducted or may hereafter
conduct any activities; or, own, manage, operate, control, or participate in, or
have any ownership interest in a similar business as the Business described in
Recital A, provided, however, that Employee may own any securities of any
publicly owned and traded entity in which Employee owns less than five percent
(5%) interest, which is engaged in the business similar to or competitive with
the business of the Company.
5.3 Employee agrees that for a period of time equivalent to twice the
length of Employee's severance benefit following the termination of his
employment, whether by Company or by Employee, with or without cause, he will
not, directly or indirectly, solicit the Company's employees. If during the
severance period, Employee is involved in a similar business as the Business
described in Recital A, Employee will not attempt to divert or take away,
solicit or contact for purposes related to the Business, any of the Company's
customers and he shall refrain from committing any act which would in any way
jeopardize any relationship the Company has with any such customer.
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5.4 Employee hereby assigns to the Company any and all right, title and
interest Employee has or may have in any product, invention, device, method,
technique or formula created (in whole or in part) by him during the term
hereof, if such product, invention, device, method, technique or formula is
created during the hours in which Employee is employed or with the use or
assistance of the Company's facilities, materials or personnel. Employee shall
execute, acknowledge and deliver all documents and/or instruments which may be
requested by the Company in order to effectuate such assignment.
5.5 The Company shall have the royalty-free right to use in the Business
and to make, use and sell products and processes derived from any inventions,
discoveries, concepts and ideas (whether or not patentable or copyrightable),
including but not necessarily limited to processes, methods, formulae and
techniques, as well as derivatives or improvements thereof or know-how related
thereto, which are conceived or made by Employee during the term of, during the
hours in which Employee is employed by the Company or with the use or assistance
of the Company's facilities, materials or personnel.
5.6 Company and Employee agree that the remedy at law for any breach of the
foregoing provisions of Section 5 will be inadequate, and either party shall be
entitled to both temporary and permanent injunctive relief enforcing such
provisions, in addition to any other remedy it may have at law or in equity.
5.7 The covenants of Company and Employee contained in this Section 5 are
separate and independent of any other provisions hereof and shall survive the
termination of this Agreement.
5.8 Employee has carefully considered the nature and extent of the
restrictions upon him and the rights and remedies conferred upon the Company,
and he hereby acknowledges and agrees that the same are reasonable in time and
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territory, are designed to eliminate competition which otherwise would be unfair
to the Company, are fully required to protect the legitimate interest of the
Company, and do not confer a benefit upon the Company disproportionate to the
detriment to Employee.
6. REPRESENTATIONS BY EMPLOYEE. Employee represents and warrants to the
Company that (a) Employee has the legal right, power and authority to enter into
this Agreement and perform the obligations imposed upon him, (b) there are no
legal proceedings pending, or to the knowledge of Employee, threatened against
Employee which would in any way adversely affect the performance of the
obligations, and (c) Employee is not a party to any restrictive covenant,
agreement, contract or instrument which would in any way prohibit Employee from
entering into or performing such obligations.
7. REPRESENTATIONS BY COMPANY. Company represents and warrants to the
Employee that (a) Company has the legal right, power and authority to enter into
this Agreement and perform the obligations imposed upon it, (b) there are no
legal proceedings pending, or to the knowledge of Company, threatened against
Company which would in any way adversely affect the performance of the
obligations, and (c) Company is not a party to any restrictive covenant,
agreement, contract or instrument which would in any way prohibit Company from
entering into or performing such obligations.
8. INDEMNIFICATION; INSURANCE. The Company will indemnify Employee to the
maximum extent permitted by law (including advancing expenses where appropriate)
with respect to actions taken by him as an officer or director of the Company,
any of its subsidiaries, or any affiliated entity of the Company or any of its
subsidiaries. The Company's obligation to provide indemnification shall survive
termination of employment. The Company will also maintain in effect during
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Employee's employment hereunder directors and officer liability insurance with
minimum coverage of $5,000,000 per occurrence and $10,000,000 in the aggregate.
Employee will remain insured under such policy until the fifth anniversary of
termination of Employee's employment with the Company.
9. NOTICES. All notices hereunder shall be in writing and shall be deemed
to have been given at the time when mailed in any general or branch of the
United States Post Office enclosed in a registered or certified, postage prepaid
envelope addressed to the address of the respective parties as set forth below,
or to such other address as a party may have fixed by notice as stated below:
To Employee: To the Company:
------------ ---------------
Stephen D. Hayter Empyrean Bioscience, Inc.
7025 E. Stone Raven Trail 2238 West Lone Cactus Drive
Scottsdale, Arizona 85262 Suite 200
Phoenix, Arizona 85027
10. SEVERABILITY. The invalidity or unenforceability of any portion of this
Agreement shall not impair or affect the validity or enforceability of any other
portion of this Agreement, which shall remain in full force and effect.
11. ASSIGNMENT. Employee shall not assign, transfer, pledge or encumber
this Agreement or any rights or obligations hereunder. The Company may not
assign or transfer this Agreement to successor Company in the event of merger,
consolidation, or transfer or sale of all or substantially all of the assets of
the Company without prior written approval of Employee; provided, however, that
in the case of any such assignment or transfer, this Agreement shall be binding
upon and inure to the benefit of such transferee, which shall assume and perform
all of the obligations of the Company hereunder.
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12. WAIVER. A waiver by either party of a breach of any provisions of this
Agreement shall not operate or be construed to be a waiver of any subsequent
breach.
13. MISCELLANEOUS. This Agreement (a) shall be governed by and interpreted
in accordance with the local laws of the State of Arizona, (b) shall not be
modified except in a writing signed by the parties, (c) constitutes the entire
understanding of the parties with respect to the subject matter hereof,
superseding all prior understandings and agreements (both oral and written), and
(d) shall be binding upon and inure to the benefit of the parties hereto, their
heirs, executors, administrators, successors and permitted assigns. The
paragraph headings are for convenience only and shall not affect the
construction or interpretation of this Agreement.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement in
multiple counterparts at the place and as of the date and year first above
written.
EMPYREAN BIOSCIENCE, INC. (Company)
By: /s/ Lawrence D. Bain
-------------------------------------
/s/ Stephen D. Hayter
----------------------------------------
STEPHEN D. HAYTER (Employee)
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EXHIBIT A
Exercise
Expiration Date Grant Dates Prices Vesting Schedules
- --------------- ----------- ------ -----------------
175,000 (9/6/00) 9/6/96 $0.38 Fully Vested
300,000 (10/3/00) 10/3/97 $0.55 Fully Vested(#)
900,000 (4/28/01) 4/28/98 $0.96 50% Vested
50% Vesting TBD by Comp Committee($)
500,000 (4/28/01) 4/28/98 $0.96 50% Vested(@)
50% Vesting TBD by Comp Committee
21,197 (2/3/09) 2/3/99 $0.37 Fully Vested
308,745 (2/3/09) 2/3/99 $0.37 50% Vested
50% Vesting TBD by Comp Committee
- ----------
Footnotes:
(#) - Options were 50% vested. Board approved fully vested options "unless after
obtaining an opinion from the Company's CPAs there is a required expense
accrual due to the vesting change." Grant Thornton is researching the
accounting rules now.
($) - Options were 50% vested. Board approved creating a vesting schedule for
the remaining 50% (currently the options vest over time) "unless after
obtaining an opinion from the Company's CPAs there is a required expense
accrued due to the vesting change." Grant Thornton is researching the
accounting rules now.
(@) - Options vested subject to certain performance criteria. The Board approved
making the options 50% vested as of April 29, 1999 and creating a vesting
schedule for the remaining 50%.
13
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT is entered into at Phoenix, Arizona, this 7th day
of September, 1999 by and between EMPYREAN BIOSCIENCE, INC. (the "Company") and
RICHARD C. ADAMANY ("Employee").
RECITALS:
A. The Company is in the business of infectious disease prevention through
the development and sale of microbicide lotion and gel (the "Business");
B. Employee has certain expertise in connection with certain aspects of the
Company's business and the ability to expand and grow the Company's operations
and profitability.
NOW, THEREFORE, in consideration of mutual promises and agreements
contained herein and intending to be legally bound hereby, the parties agree as
follows:
1. EMPLOYMENT. The Company hereby employs Employee, and Employee hereby
accepts such employment by the Company, effective September 7, 1999 ("the
Commencement Date"), upon the terms and conditions set forth herein. Company
agrees that any public announcement or disclosure of Employee's employment by
the Company shall occur after the Commencement Date.
2. SERVICES. Employee shall be appointed Executive Vice President and Chief
Operating Officer upon commencement of employment. In addition, Employee shall
be appointed to serve as a member of the Board of Directors within six months
from the Commencement Date or at the next Board of Directors' meeting, whichever
occurs earlier. Employee will devote his full working time, experience and best
efforts to the performance of his duties on behalf of the Company. During the
time Employee holds the position of Executive Vice President and Chief Operating
Officer, Employee shall report to the Chief Executive Officer with respect to
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day-to-day operations of the Company. No later than six months following the
Commencement Date, Employee shall be promoted to President and Chief Executive
Officer, at which time Employee shall report to the Chairman of the Company and
shall assume increased responsibilities commensurate with the promotion.
Employee shall perform all such duties in accordance with such rules, policies
and procedures as the Company and or its Board of Directors may adopt from time
to time.
3. COMPENSATION.
3.1 BASE SALARY. The Company shall pay to Employee an annual base salary of
One Hundred Fifty Thousand Dollars ($150,000.00) payable in consecutive, equal,
biweekly installments. Concurrent with Employee's promotion, as provided in
paragraph 2, Employee's annual base salary shall increase to One Hundred Eighty
Thousand Dollars ($180,000.00). Employee's base salary shall be reviewed
annually thereafter by the Compensation Committee. The first review shall occur
eighteen (18) months from the Commencement Date.
3.2 CERTAIN BASIC FRINGE BENEFITS. Upon commencement of employment, the
Company shall provide to Employee a benefits package including, but not limited
to, company-sponsored group health insurance (including prescription drug plan),
dental insurance, vision insurance, group life insurance, accidental death and
dismemberment benefits, short term disability insurance, long term disability
insurance and the option to participate in any 401(k) program sponsored by the
Company, upon terms and conditions and in amounts to be determined by Employee
as part of a package of benefits he shall be responsible for drafting and
implementing and offering to all employees of the Company. Such program shall be
subject to the approval of the Board of Directors. Company will
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reimburse Employee for his costs, less a reasonable employee contribution, of
securing independent health insurance coverage until such time as the new
company-sponsored plan is in effect.
3.3 BUSINESS EXPENSES. The Company shall promptly reimburse Employee for
all reasonable, ordinary and necessary business expenses incurred by him in the
performance of his duties hereunder, and Employee shall submit receipts,
vouchers or other appropriate evidence to substantiate that said expenses were
incurred by Employee in connection with the business of the Company. In
addition, the Company will reimburse Employee for the cost of coach air fare
between Cleveland, Ohio and Phoenix, Arizona, when incurred by Employee, but not
more frequently than weekly. In addition, the Company shall provide Employee
with a furnished two-bedroom apartment in the Phoenix area, access to a fitness
center (but not including golf playing privileges), a suitable company-provided
automobile and a company credit card for the purchase of fuel for the company-
provided automobile operated by the Employee in Phoenix for purposes related to
the business of the Company and Employee's commuting to and from work in the
Phoenix area. All other charges to the credit card shall be the Employee's
responsibility.
3.4 INCENTIVE COMPENSATION. Employee shall be entitled to participate in an
incentive compensation bonus program to be adopted by the Company and in effect
for Fiscal Year 2000, after consultation with Employee, and pursuant to approval
of the Board of Directors. It will be the responsibility of the Employee to
prepare an incentive program for Senior Managers to present to the Empyrean
Board of Directors for approval.
3.5 INCENTIVE STOCK OPTIONS. Within thirty (30) days of the Commencement
Date, the Company shall, as set forth in and in accordance with the terms of a
stock option agreement to be entered into between the Company and Employee
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pursuant to the Company's stock option plan (the "Plan"), grant Employee
Incentive Stock Options to purchase a minimum of 1,500,000 shares of common
stock exercisable at the fair market value of such shares on the date of the
grant. Any shares acquired by Employee upon the exercise of the Incentive Stock
Options shall be subject to and shall be transferable only in compliance with
the Plan and applicable securities laws.
Company hereby agrees to register the shares under the Securities Act of
1933, as amended, by means of an effective Form S-8 registration statement, and
all shares issued upon exercise of options granted pursuant to the terms of the
Plan will be permitted to be resold under an effective Form S-3 registration
statement, if available. Company hereby agrees to have such registration(s) in
effect, to maintain the registration(s) in effect as long as necessary for
Employee to sell his shares, and to comply with any other requirements,
including the preparation of a reoffer prospectus, if applicable, necessary for
employee to sell his shares.
Options for 500,000 shares will vest over a six-month period as follows:
* Options for 50,000 shares will vest immediately upon the Commencement
Date;
* Options for 90,000 shares will vest on the last day of each of the
second, third, fourth, fifth and sixth month following the
Commencement Date.
Employee agrees not to sell more than the equivalent of one percent (1%) of
the outstanding shares of the Company during any 90 day period for a period of
twelve months from the Commencement Date. Options for a minimum of 1,000,000
shares will vest based upon achieving mutually agreed upon performance criteria
for Fiscal Year 2000 and 2001 as follows:
* Fiscal Year 2000 - Options for a base amount of 500,000 shares will
vest based upon three to five performance criteria. The 500,000
options will be divided by the number of performance criteria and an
equal amount will be attached to the achievement of each performance
criterion. Vesting for each performance criterion will be based upon
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upon the percentage of the criterion achieved with a minimum of 85%
achievement to vest and no maximum. The base number of options for
each criterion will be multiplied by the percentage achievement for
that criterion. These amounts will then be added together to determine
the total options vested. Should the total options vested exceed
500,000, then vesting will be accelerated from the remaining options.
* Fiscal Year 2001 - Options for a base amount of 500,000 shares will
vest under the same procedure as described above. If vesting of any
options were accelerated to Fiscal 2000, then additional options will
be granted subject to Compensation Committee guidelines with a minimum
of 200,000 shares as well as any potential additional vesting earned
through other incentive provisions.
Any options granted to other members of management will vest upon the same
performance criteria as applied to Employee. The options will have a 10-year
term and provide for accelerated vesting in the event of a change in control or
ownership of the Company or termination of Employee's employment without cause.
4. TERM, TERMINATION.
4.1 This Agreement may be terminated by the Company at any time "for cause"
or without cause. "For cause" shall mean any termination of the Employee's
employment resulting from Employee's engaging in fraud, misappropriation of
funds or embezzlement against the Company.
4.2 If Employee is terminated from employment without cause, the Company
shall provide to Employee a twenty-four month evergreen severance provision
whereby Employee's base salary, bonus, benefits and options shall continue for
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twenty-four months, provided, however, if Employee's employment is terminated
less than twelve months from the Commencement Date, Employee's period of
severance will be limited to twelve months.
Any termination of Employee's employment resulting from: (i) Employee's
death; (ii) Employee's inability to perform the essential functions of his job
with or without reasonable accommodation for 180 consecutive business days or
300 of 365 total days; or (iii) Employee's resignation from his positions with
the Company within 30 days after the receipt of written notice from the Company
informing Employee that his base salary rate shall be reduced below its then
current level (the "Salary Reduction Notice"), or within 30 days of a reduction
in duties, title or responsibility, or within 30 days of a change in location, a
change in control or a breach of this Agreement, shall be deemed to be a
termination by the Company without cause.
Bonuses to be earned in accordance with an incentive compensation bonus
program applicable to the fiscal year in which Employee is terminated will be
determined by prorating the full amount of the bonus, which would have been
earned, had Employee been employed for the full fiscal year by the number of
days employed during the fiscal year. Incentive stock options to be vested
upon the attainment of certain performance goals applicable to the fiscal year
in which Employee is terminated shall be accelerated and vested as of the
Employee's termination date. Bonus shall be payable no later than 90 days
following the close of the fiscal year that Employee is terminated.
Such severance shall be paid to Employee in the form of regular payroll
checks, less deductions for taxes and withholdings, in equal installments during
the severance period following Employee's termination. The Company shall
continue to pay to Employee his salary at the annual rate in effect immediately
prior to such termination (unless such termination occurs as a result of the
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Employee's resignation from his positions with the Company within 30 days after
receipt of the Salary Reduction Notice, in which case such payments shall be at
the annual salary rate in effect immediately prior to the receipt of the Salary
Reduction Notice) for the severance period. Employee shall have the option of
accepting a lump sum payment of severance provision calculated by discounting
the stream of payments utilizing a discount rate of fifteen percent (15%).
In the event that participation in any such benefits package is barred, the
Company shall arrange to provide Employee with benefits during the severance
period substantially similar to those which he is entitled to receive, or
reimburse him for his costs of securing independent benefits coverage
substantially similar to the benefits package available to him prior to
termination, including gross up for any tax cost incurred as a result.
In the event the Company replaces the benefits package available to senior
officers of the Company during the Employee's severance period, Employee shall
be entitled to participate in any such replacement package, provided, however,
that if the new benefits package is substantially worse, in the aggregate, than
the benefits package available to Employee prior to termination, the Company
shall arrange to provide him with benefits substantially similar to those which
he is entitled to receive, or reimburse him for his costs of securing
independent benefits coverage substantially similar to the benefits package
available to him prior to termination.
In the event of a breach of this Agreement by the Company, Employee is
eligible, at Employee's option, to receive severance pay in accordance with the
two-year evergreen severance provision set forth above. Such severance payment
and acceleration of options as set forth in Section 4.2 shall be Employee's sole
remedy at law or in equity against Company for any breach of this agreement and
Employee shall sign a full and final release of claims, in a form acceptable to
Company, as a condition of receiving such severance payment.
7
<PAGE>
The Company and Employee mutually agree not to make or utter any
disparaging comments about one another, including the Company's past, present
and future officers, directors and or employees, and both the Company and the
Employee agree not to take any action to injure or harm one another's reputation
or business relationships.
5. COVENANTS OF EMPLOYEE.
5.1 Employee acknowledges that during the course of his employment by the
Company he will have access to trade secrets and other confidential information
with respect to the business, operations, accounts, books and records, sales,
customers, pricing, marketing, development, testing, scientific research and
other activities of the Company ("Trade Secrets"). Accordingly, Employee shall,
at all times, keep secret and inviolate all Trade Secrets which he now knows or
may hereafter come to know. In addition, Employee shall at no time copy, remove
from the premises of the Company or retain, without the prior consent of the
Company, any Trade Secrets, including, but not limited to, unpublished records,
agreements, books of account, corporate documents, work papers, correspondence,
customer lists, memoranda, computer software or documentation in connection
therewith, plans, drawings or copies or extracts from any of the foregoing,
except as may be required in the normal operation of the Company's business.
Upon the termination of Employee's employment, Employee shall promptly return to
the Company all Trade Secrets in his possession or under his control and shall
verify in writing his return of same as a condition to receipt of any severance
pay.
5.2 Employee agrees that during the term hereof (except as permitted
hereunder) and for a period of time equivalent to the length of Employee's
severance benefit following the termination of his employment, whether by
Company or by Employee, with or without cause, he will not engage in the
Business within any County or State where Company has conducted or may hereafter
8
<PAGE>
conduct any activities; or, own, manage, operate, control, or participate in, or
have any ownership interest in a similar business as the Business described in
Recital A, provided, however, that Employee may own any securities of any
publicly owned and traded entity in which Employee owns less than five percent
(5%) interest, which is engaged in the business similar to or competitive with
the business of the Company.
5.3 Employee agrees that for a period of time equivalent to the length of
Employee's severance benefit following the termination of his employment,
whether by Company or by Employee, with or without cause, he will not, directly
or indirectly, solicit the Company's employees. If during the severance period,
Employee is involved in a similar business as the Business described in Recital
A, Employee will not attempt to divert or take away, solicit or contact for
purposes related to the Business, any of the Company's customers and he shall
refrain from committing any act which would in any way jeopardize any
relationship the Company has with any such customer.
5.4 Employee hereby assigns to the Company any and all right, title and
interest Employee has or may have in any product, invention, device, method,
technique or formula created (in whole or in part) by him during the term
hereof, if such product, invention, device, method, technique or formula is
created during the hours in which Employee is employed or with the use or
assistance of the Company's facilities, materials or personnel. Employee shall
execute, acknowledge and deliver all documents and/or instruments which may be
requested by the Company in order to effectuate such assignment.
5.5 The Company shall have the royalty-free right to use in the Business
and to make, use and sell products and processes derived from any inventions,
discoveries, concepts and ideas (whether or not patentable or copyrightable),
including but not necessarily limited to processes, methods, formulae and
9
<PAGE>
techniques, as well as derivatives or improvements thereof or know-how related
thereto, which are conceived or made by Employee during the term of, during the
hours in which Employee is employed by the Company or with the use or assistance
of the Company's facilities, materials or personnel.
5.6 Company and Employee agree that the remedy at law for any breach of the
foregoing provisions of Section 5 will be inadequate, and either party shall be
entitled to both temporary and permanent injunctive relief enforcing such
provisions, in addition to any other remedy it may have at law or in equity.
5.7 The covenants of Company and Employee contained in this Section 5 are
separate and independent of any other provisions hereof and shall survive the
termination of this Agreement.
5.8 Employee has carefully considered the nature and extent of the
restrictions upon him and the rights and remedies conferred upon the Company,
and he hereby acknowledges and agrees that the same are reasonable in time and
territory, are designed to eliminate competition which otherwise would be unfair
to the Company, are fully required to protect the legitimate interest of the
Company, and do not confer a benefit upon the Company disproportionate to the
detriment to Employee.
6. REPRESENTATIONS BY EMPLOYEE. Employee represents and warrants to the
Company that (a) Employee has the legal right, power and authority to enter into
this Agreement and perform the obligations imposed upon him, (b) there are no
legal proceedings pending, or to the knowledge of Employee, threatened against
Employee which would in any way adversely affect the performance of the
obligations, and (c) Employee is not a party to any restrictive covenant,
agreement, contract or instrument which would in any way prohibit Employee from
entering into or performing such obligations.
10
<PAGE>
7. REPRESENTATIONS BY COMPANY. Company represents and warrants to the
Employee that (a) Company has the legal right, power and authority to enter into
this Agreement and perform the obligations imposed upon it, (b) there are no
legal proceedings pending, or to the knowledge of Company, threatened against
Company which would in any way adversely affect the performance of the
obligations, and (c) Company is not a party to any restrictive covenant,
agreement, contract or instrument which would in any way prohibit Company from
entering into or performing such obligations.
8. INDEMNIFICATION; INSURANCE. The Company will indemnify Employee to the
maximum extent permitted by law (including advancing expenses where appropriate)
with respect to actions taken by him as an officer or director of the Company,
any of its subsidiaries, or any affiliated entity of the Company or any of its
subsidiaries. The Company's obligation to provide indemnification shall survive
termination of employment. The Company will also maintain in effect during
Employee's employment hereunder directors and officer liability insurance with
minimum coverage of $5,000,000 per occurrence and $10,000,000 in the aggregate.
Employee will remain insured under such policy until the fifth anniversary of
termination of Employee's employment with the Company.
9. NOTICES. All notices hereunder shall be in writing and shall be deemed
to have been given at the time when mailed in any general or branch of the
United States Post Office enclosed in a registered or certified, postage prepaid
envelope addressed to the address of the respective parties as set forth below,
or to such other address as a party may have fixed by notice as stated below:
TO EMPLOYEE: TO THE COMPANY:
------------ ---------------
Richard C. Adamany Stephen D. Hayter, President and CEO
7240 Rollingbrook Trail Empyrean Bioscience, Inc.
Solon, Ohio 44139 2238 West Lone Cactus Drive
Suite 200
Phoenix, Arizona 85027
11
<PAGE>
10. SEVERABILITY. The invalidity or unenforceability of any portion of this
Agreement shall not impair or affect the validity or enforceability of any other
portion of this Agreement, which shall remain in full force and effect.
11. ASSIGNMENT. Employee shall not assign, transfer, pledge or encumber
this Agreement or any rights or obligations hereunder. The Company may not
assign or transfer this Agreement to successor Company in the event of merger,
consolidation, or transfer or sale of all or substantially all of the assets of
the Company without prior written approval of Employee; provided, however, that
in the case of any such assignment or transfer, this Agreement shall be binding
upon and inure to the benefit of such transferee, which shall assume and perform
all of the obligations of the Company hereunder.
12. WAIVER. A waiver by either party of a breach of any provisions of this
Agreement shall not operate or be construed to be a waiver of any subsequent
breach.
13. MISCELLANEOUS. This Agreement (a) shall be governed by and interpreted
in accordance with the local laws of the State of Arizona, (b) shall not be
modified except in a writing signed by the parties, (c) constitutes the entire
understanding of the parties with respect to the subject matter hereof,
superseding all prior understandings and agreements (both oral and written), and
(d) shall be binding upon and inure to the benefit of the parties hereto, their
heirs, executors, administrators, successors and permitted assigns. The
paragraph headings are for convenience only and shall not affect the
construction or interpretation of this Agreement.
12
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement in
multiple counterparts at the place and as of the date and year first above
written. EMPYREAN BIOSCIENCE, INC. (Company)
By: /s/ Stephen D. Hayter
------------------------------------
Stephen D. Hayter, President and CEO
/s/ Richard C. Adamany
------------------------------------
RICHARD C. ADAMANY (Employee)
13
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT is entered into at Phoenix, Arizona,
this 7th day of September, 1999 by and between EMPYREAN BIOSCIENCE, INC. (the
"Company") and BENNETT S. RUBIN ("Employee").
RECITALS:
A. The Company is in the business of infectious disease prevention through
the development and sale of microbicide lotion and gel (the "Business");
B. Employee has certain expertise in connection with certain aspects of the
Company's business and the ability to expand and grow the Company's operations
and profitability.
NOW, THEREFORE, in consideration of mutual promises and agreements
contained herein and intending to be legally bound hereby, the parties agree as
follows:
1. EMPLOYMENT. The Company hereby employs Employee, and Employee hereby
accepts such employment by the Company, effective September 7, 1999 ("the
Commencement Date"), upon the terms and conditions set forth herein. Company
agrees that any public announcement or disclosure of Employee's employment by
the Company shall occur after the Commencement Date.
2. SERVICES. Employee shall be appointed Executive Vice President and Chief
Marketing Officer upon commencement of employment. In addition, Employee shall
be appointed to serve as a member of the Board of Directors within six months
from the Commencement Date or at the next Board of Directors' meeting, whichever
occurs earlier. Employee will devote his full working time, experience and best
efforts to the performance of his duties on behalf of the Company. During the
time Employee holds the position of Executive Vice President and Chief Marketing
Officer, Employee shall report to the Chief Executive Officer with respect to
day-to-day operations of the Company. No later than six months following the
1
<PAGE>
Commencement Date, Employee shall be promoted to Executive Vice President and
Chief Operating Officer, at which time Employee shall report to the Chairman of
the Company and shall assume increased responsibilities commensurate with the
promotion. Employee shall perform all such duties in accordance with such rules,
policies and procedures as the Company and or its Board of Directors may adopt
from time to time.
3. COMPENSATION.
3.1 BASE SALARY. The Company shall pay to Employee an annual base salary of
One Hundred Fifty Thousand Dollars ($150,000.00) payable in consecutive, equal,
biweekly installments. Concurrent with Employee's promotion, as provided in
paragraph 2, Employee's annual base salary shall increase to One Hundred Seventy
Thousand Dollars ($170,000.00). Employee's base salary shall be reviewed
annually thereafter by the Compensation Committee. The first review shall occur
eighteen (18) months from the Commencement Date.
3.2 CERTAIN BASIC FRINGE BENEFITS. Upon commencement of employment, the
Company shall provide to Employee a benefits package including, but not limited
to, company-sponsored group health insurance (including prescription drug plan),
dental insurance, vision insurance, group life insurance, accidental death and
dismemberment benefits, short term disability insurance, long term disability
insurance and the option to participate in any 401(k) program sponsored by the
Company, upon terms and conditions and in amounts to be determined by Employee
as part of a package of benefits he shall be responsible for drafting and
implementing and offering to all employees of the Company. Such program shall be
subject to the approval of the Board of Directors. Company will reimburse
Employee for his costs, less a reasonable employee contribution, of securing
independent health insurance coverage until such time as the new
company-sponsored plan is in effect.
2
<PAGE>
3.3 BUSINESS EXPENSES. The Company shall promptly reimburse Employee for
all reasonable, ordinary and necessary business expenses incurred by him in the
performance of his duties hereunder, and Employee shall submit receipts,
vouchers or other appropriate evidence to substantiate that said expenses were
incurred by Employee in connection with the business of the Company. In
addition, the Company will reimburse Employee for the cost of coach air fare
between Cleveland, Ohio and Phoenix, Arizona, when incurred by Employee, but not
more frequently than weekly. In addition, the Company shall provide Employee
with a furnished two-bedroom apartment in the Phoenix area, access to a fitness
center (but not including golf playing privileges), a suitable company-provided
automobile and a company credit card for the purchase of fuel for the
company-provided automobile operated by the Employee in Phoenix for purposes
related to the business of the Company and Employee's commuting to and from work
in the Phoenix area. All other charges to the credit card shall be the
Employee's responsibility.
3.4 INCENTIVE COMPENSATION. Employee shall be entitled to participate in an
incentive compensation bonus program to be adopted by the Company and in effect
for Fiscal Year 2000, after consultation with Employee, and pursuant to approval
of the Board of Directors. It will be the responsibility of the Employee to
prepare an incentive program for Senior Managers to present to the Empyrean
Board of Directors for approval.
3.5 INCENTIVE STOCK OPTIONS. Within thirty (30) days of the Commencement
Date, the Company shall, as set forth in and in accordance with the terms of a
stock option agreement to be entered into between the Company and Employee
pursuant to the Company's stock option plan (the "Plan"), grant Employee
Incentive Stock Options to purchase a minimum of 1,500,000 shares of common
stock exercisable at the fair market value of such shares on the date of the
grant. Any shares acquired by Employee upon the exercise of the Incentive Stock
Options shall be subject to and shall be transferable only in compliance with
the Plan and applicable securities laws.
3
<PAGE>
Company hereby agrees to register the shares under the Securities Act of
1933, as amended, by means of an effective Form S-8 registration statement, and
all shares issued upon exercise of options granted pursuant to the terms of the
Plan will be permitted to be resold under an effective Form S-3 registration
statement, if available. Company hereby agrees to have such registration(s) in
effect, to maintain the registration(s) in effect as long as necessary for
Employee to sell his shares, and to comply with any other requirements,
including the preparation of a reoffer prospectus, if applicable, necessary for
employee to sell his shares.
Options for 500,000 shares will vest over a six-month period as follows:
* Options for 50,000 shares will vest immediately upon the Commencement
Date;
* Options for 90,000 shares will vest on the last day of each of the
second, third, fourth, fifth and sixth month following the
Commencement Date.
Employee agrees not to sell more than the equivalent of one percent (1%) of
the outstanding shares of the Company during any 90 day period for a period of
twelve months from the Commencement Date.
Options for a minimum of 1,000,000 shares will vest based upon achieving
mutually agreed upon performance criteria for Fiscal Year 2000 and 2001 as
follows:
* Fiscal Year 2000 - Options for a base amount of 500,000 shares will
vest based upon three to five performance criteria. The 500,000
options will be divided by the number of performance criteria and an
equal amount will be attached to the achievement of each performance
criterion. Vesting for each performance criterion will be based upon
4
<PAGE>
the percentage of the criterion achieved with a minimum of 85%
achievement to vest and no maximum. The base number of options for
each criterion will be multiplied by the percentage achievement for
that criterion. These amounts will then be added together to determine
the total options vested. Should the total options vested exceed
500,000, then vesting will be accelerated from the remaining options.
* Fiscal Year 2001 - Options for a base amount of 500,000 shares will
vest under the same procedure as described above. If vesting of any
options were accelerated to Fiscal 2000, then additional options will
be granted subject to Compensation Committee guidelines with a minimum
of 200,000 shares as well as any potential additional vesting earned
through other incentive provisions.
Any options granted to other members of management will vest upon the same
performance criteria as applied to Employee. The options will have a 10-year
term and provide for accelerated vesting in the event of a change in control or
ownership of the Company or termination of Employee's employment without cause.
4. TERM, TERMINATION.
4.1 This Agreement may be terminated by the Company at any time "for cause"
or without cause. "For cause" shall mean any termination of the Employee's
employment resulting from Employee's engaging in fraud, misappropriation of
funds or embezzlement against the Company.
4.2 If Employee is terminated from employment without cause, the Company
shall provide to Employee a twenty-four month evergreen severance provision
whereby Employee's base salary, bonus, benefits and options shall continue for
5
<PAGE>
twenty-four months, provided, however, if Employee's employment is terminated
less than twelve months from the Commencement Date, Employee's period of
severance will be limited to twelve months.
Any termination of Employee's employment resulting from: (i) Employee's
death; (ii) Employee's inability to perform the essential functions of his job
with or without reasonable accommodation for 180 consecutive business days or
300 of 365 total days; or (iii) Employee's resignation from his positions with
the Company within 30 days after the receipt of written notice from the Company
informing Employee that his base salary rate shall be reduced below its then
current level (the "Salary Reduction Notice"), or within 30 days of a reduction
in duties, title or responsibility, or within 30 days of a change in location, a
change in control or a breach of this Agreement, shall be deemed to be a
termination by the Company without cause.
Bonuses to be earned in accordance with an incentive compensation bonus
program applicable to the fiscal year in which Employee is terminated will be
determined by prorating the full amount of the bonus, which would have been
earned, had Employee been employed for the full fiscal year by the number of
days employed during the fiscal year. Incentive stock options to be vested upon
the attainment of certain performance goals applicable to the fiscal year in
which Employee is terminated shall be accelerated and vested as of the
Employee's termination date. Bonus shall be payable no later than 90 days
following the close of the fiscal year that Employee is terminated.
Such severance shall be paid to Employee in the form of regular payroll
checks, less deductions for taxes and withholdings, in equal installments during
the severance period following Employee's termination. The Company shall
continue to pay to Employee his salary at the annual rate in effect immediately
prior to such termination (unless such termination occurs as a result of the
6
<PAGE>
Employee's resignation from his positions with the Company within 30 days after
receipt of the Salary Reduction Notice, in which case such payments shall be at
the annual salary rate in effect immediately prior to the receipt of the Salary
Reduction Notice) for the severance period. Employee shall have the option of
accepting a lump sum payment of severance provision calculated by discounting
the stream of payments utilizing a discount rate of fifteen percent (15%).
In the event that participation in any such benefits package is barred, the
Company shall arrange to provide Employee with benefits during the severance
period substantially similar to those which he is entitled to receive, or
reimburse him for his costs of securing independent benefits coverage
substantially similar to the benefits package available to him prior to
termination, including gross up for any tax cost incurred as a result.
In the event the Company replaces the benefits package available to senior
officers of the Company during the Employee's severance period, Employee shall
be entitled to participate in any such replacement package, provided, however,
that if the new benefits package is substantially worse, in the aggregate, than
the benefits package available to Employee prior to termination, the Company
shall arrange to provide him with benefits substantially similar to those which
he is entitled to receive, or reimburse him for his costs of securing
independent benefits coverage substantially similar to the benefits package
available to him prior to termination.
In the event of a breach of this Agreement by the Company, Employee is
eligible, at Employee's option, to receive severance pay in accordance with the
two-year evergreen severance provision set forth above. Such severance payment
and acceleration of options as set forth in Section 4.2 shall be Employee's sole
remedy at law or in equity against Company for any breach of this agreement and
Employee shall sign a full and final release of claims, in a form acceptable to
Company, as a condition of receiving such severance payment.
7
<PAGE>
The Company and Employee mutually agree not to make or utter any
disparaging comments about one another, including the Company's past, present
and future officers, directors and or employees, and both the Company and the
Employee agree not to take any action to injure or harm one another's reputation
or business relationships.
5. COVENANTS OF EMPLOYEE.
5.1 Employee acknowledges that during the course of his employment by the
Company he will have access to trade secrets and other confidential information
with respect to the business, operations, accounts, books and records, sales,
customers, pricing, marketing, development, testing, scientific research and
other activities of the Company ("Trade Secrets"). Accordingly, Employee shall,
at all times, keep secret and inviolate all Trade Secrets which he now knows or
may hereafter come to know. In addition, Employee shall at no time copy, remove
from the premises of the Company or retain, without the prior consent of the
Company, any Trade Secrets, including, but not limited to, unpublished records,
agreements, books of account, corporate documents, work papers, correspondence,
customer lists, memoranda, computer software or documentation in connection
therewith, plans, drawings or copies or extracts from any of the foregoing,
except as may be required in the normal operation of the Company's business.
Upon the termination of Employee's employment, Employee shall promptly return to
the Company all Trade Secrets in his possession or under his control and shall
verify in writing his return of same as a condition to receipt of any severance
pay.
5.2 Employee agrees that during the term hereof (except as permitted
hereunder) and for a period of time equivalent to the length of Employee's
severance benefit following the termination of his employment, whether by
Company or by Employee, with or without cause, he will not engage in the
Business within any County or State where Company has conducted or may hereafter
8
<PAGE>
conduct any activities; or, own, manage, operate, control, or participate in, or
have any ownership interest in a similar business as the Business described in
Recital A, provided, however, that Employee may own any securities of any
publicly owned and traded entity in which Employee owns less than five percent
(5%) interest, which is engaged in the business similar to or competitive with
the business of the Company.
5.3 Employee agrees that for a period of time equivalent to the length of
Employee's severance benefit following the termination of his employment,
whether by Company or by Employee, with or without cause, he will not, directly
or indirectly, solicit the Company's employees. If during the severance period,
Employee is involved in a similar business as the Business described in Recital
A, Employee will not attempt to divert or take away, solicit or contact for
purposes related to the Business, any of the Company's customers and he shall
refrain from committing any act which would in any way jeopardize any
relationship the Company has with any such customer.
5.4 Employee hereby assigns to the Company any and all right, title and
interest Employee has or may have in any product, invention, device, method,
technique or formula created (in whole or in part) by him during the term
hereof, if such product, invention, device, method, technique or formula is
created during the hours in which Employee is employed or with the use or
assistance of the Company's facilities, materials or personnel. Employee shall
execute, acknowledge and deliver all documents and/or instruments which may be
requested by the Company in order to effectuate such assignment.
5.5 The Company shall have the royalty-free right to use in the Business
and to make, use and sell products and processes derived from any inventions,
discoveries, concepts and ideas (whether or not patentable or copyrightable),
including but not necessarily limited to processes, methods, formulae and
9
<PAGE>
techniques, as well as derivatives or improvements thereof or know-how related
thereto, which are conceived or made by Employee during the term of, during the
hours in which Employee is employed by the Company or with the use or assistance
of the Company's facilities, materials or personnel.
5.6 Company and Employee agree that the remedy at law for any breach of the
foregoing provisions of Section 5 will be inadequate, and either party shall be
entitled to both temporary and permanent injunctive relief enforcing such
provisions, in addition to any other remedy it may have at law or in equity.
5.7 The covenants of Company and Employee contained in this Section 5 are
separate and independent of any other provisions hereof and shall survive the
termination of this Agreement.
5.8 Employee has carefully considered the nature and extent of the
restrictions upon him and the rights and remedies conferred upon the Company,
and he hereby acknowledges and agrees that the same are reasonable in time and
territory, are designed to eliminate competition which otherwise would be unfair
to the Company, are fully required to protect the legitimate interest of the
Company, and do not confer a benefit upon the Company disproportionate to the
detriment to Employee.
6. REPRESENTATIONS BY EMPLOYEE. Employee represents and warrants to the
Company that (a) Employee has the legal right, power and authority to enter into
this Agreement and perform the obligations imposed upon him, (b) there are no
legal proceedings pending, or to the knowledge of Employee, threatened against
Employee which would in any way adversely affect the performance of the
obligations, and (c) Employee is not a party to any restrictive covenant,
10
<PAGE>
agreement, contract or instrument which would in any way prohibit Employee from
entering into or performing such obligations.
7. REPRESENTATIONS BY COMPANY. Company represents and warrants to the
Employee that (a) Company has the legal right, power and authority to enter into
this Agreement and perform the obligations imposed upon it, (b) there are no
legal proceedings pending, or to the knowledge of Company, threatened against
Company which would in any way adversely affect the performance of the
obligations, and (c) Company is not a party to any restrictive covenant,
agreement, contract or instrument which would in any way prohibit Company from
entering into or performing such obligations.
8. INDEMNIFICATION; INSURANCE. The Company will indemnify Employee to the
maximum extent permitted by law (including advancing expenses where appropriate)
with respect to actions taken by him as an officer or director of the Company,
any of its subsidiaries, or any affiliated entity of the Company or any of its
subsidiaries. The Company's obligation to provide indemnification shall survive
termination of employment. The Company will also maintain in effect during
Employee's employment hereunder directors and officer liability insurance with
minimum coverage of $5,000,000 per occurrence and $10,000,000 in the aggregate.
Employee will remain insured under such policy until the fifth anniversary of
termination of Employee's employment with the Company.
9. NOTICES. All notices hereunder shall be in writing and shall be deemed
to have been given at the time when mailed in any general or branch of the
United States Post Office enclosed in a registered or certified, postage prepaid
envelope addressed to the address of the respective parties as set forth below,
or to such other address as a party may have fixed by notice as stated below:
11
<PAGE>
TO EMPLOYEE: TO THE COMPANY:
------------ ---------------
Bennett S. Rubin Stephen D. Hayter, President and CEO
32379 Pinebrook Lane Empyrean Bioscience, Inc.
Pepper Pike, Ohio 44124 2238 West Lone Cactus Drive
Suite 200
Phoenix, Arizona 85027
10. SEVERABILITY. The invalidity or unenforceability of any portion of this
Agreement shall not impair or affect the validity or enforceability of any other
portion of this Agreement, which shall remain in full force and effect.
11. ASSIGNMENT. Employee shall not assign, transfer, pledge or encumber
this Agreement or any rights or obligations hereunder. The Company may not
assign or transfer this Agreement to successor Company in the event of merger,
consolidation, or transfer or sale of all or substantially all of the assets of
the Company without prior written approval of Employee; provided, however, that
in the case of any such assignment or transfer, this Agreement shall be binding
upon and inure to the benefit of such transferee, which shall assume and perform
all of the obligations of the Company hereunder.
12. WAIVER. A waiver by either party of a breach of any provisions of this
Agreement shall not operate or be construed to be a waiver of any subsequent
breach.
13. MISCELLANEOUS. This Agreement (a) shall be governed by and interpreted
in accordance with the local laws of the State of Arizona, (b) shall not be
modified except in a writing signed by the parties, (c) constitutes the entire
understanding of the parties with respect to the subject matter hereof,
superseding all prior understandings and agreements (both oral and written), and
(d) shall be binding upon and inure to the benefit of the parties hereto, their
heirs, executors, administrators, successors and permitted assigns. The
paragraph headings are for convenience only and shall not affect the
construction or interpretation of this Agreement.
12
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement in
multiple counterparts at the place and as of the date and year first above
written.
EMPYREAN BIOSCIENCE, INC. (Company)
By: /s/ Stephen D. Hayter
-----------------------------------------
Stephen D. Hayter, President and CEO
/s/ Bennett S. Rubin
------------------------------------------
BENNETT S. RUBIN (Employee)
13
Exhibit 23.1
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We have issued our report dated February 11, 1999, except for notes 10 and
11, as to which the date is October 25, 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."
/s/ GRANT THORNTON LLP
San Jose, California
October 25, 1999
