As filed with the Securities and Exchange Commission on October 26, 1999
Registration No. 333-84147
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 2 TO
FORM S-4
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933
PREVENTX, INC.
(Exact name of Registrant as specified in its charter)
Delaware 5122 83-0212682
- ------------------------ ---------------------------- ----------------------
(State of Incorporation) (Primary Standard Industrial (I.R.S. Employer
Classification Code Number Identification Number)
2238 West Lone Cactus Drive, Suite 200
Phoenix, Arizona, 85027-2613
(623) 879-6935
(Address, Including Zip Code, and Telephone Number, Including Area Code,
of Registrant's Principal Executive Offices)
Stephen D. Hayter
Chairman of the Board of Directors, President, and Chief Executive Officer
2238 West Lone Cactus Drive, Suite 200
Phoenix, Arizona 85027-2613
(623) 879-6935
(Name, Address, Including Zip Code, and Telephone Number,
Including Area Code, of Agent For Service)
COPIES OF ALL COMMUNICATIONS, INCLUDING ALL COMMUNICATIONS SENT TO
THE AGENT FOR SERVICE, SHOULD BE SENT TO:
Steven D. Pidgeon
Snell & Wilmer L.L.P.
One Arizona Center
Phoenix, Arizona 85004
(602) 382-6000
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If the securities being registered on this form are being offered in connection
with the formation of a holding company and there is compliance with General
Instruction G, check the following box. [ ]
If this form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
CALCULATION OF REGISTRATION FEE
================================================================================
Title of
Each Class of Maximum
Securities Aggregate Amount of
to be Offering Registration
Registered Price Fee
- --------------------------------------------------------------------------------
Common Stock, $.0001 par value ...... $ 18,429,701 (1) $ 5,123.46 (2)
================================================================================
(1) Estimated under the Rule 457(f)(1) solely for the purpose of calculating
the amount of the registration fee.
(2) This amount was previously paid.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE
SECURITIES ACT OF 1933, OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
================================================================================
<PAGE>
EMPYREAN BIOSCIENCE, INC.
2238 WEST LONE CACTUS DRIVE, SUITE 200
PHOENIX, ARIZONA 85027-2613
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON NOVEMBER 16, 1999
Dear Stockholder:
We will hold an annual meeting of stockholders on November 16, 1999, at
10:00 a.m. local time, at 2238 West Lone Cactus Drive, Suite 200, Phoenix,
Arizona 85027-2613. We are holding the meeting for the following purposes:
(a) To approve reincorporation to Delaware by approving a merger agreement
between our Delaware and Wyoming companies.
(b) To elect seven directors, each to serve for a one year term; and
(c) To transact other business that may properly come before the annual
meeting.
These items are more fully described in the enclosed joint proxy
statement/prospectus.
You may vote at the meeting if you are a stockholder of record at the close
of business on October 6, 1999.
If you are entitled to vote, you may dissent from the adoption of the
merger agreement. We have attached a copy of the merger agreement as Annex A and
a copy of the dissenters' rights statute as Annex B.
We have enclosed a proxy card to assist you in the voting process. We look
forward to seeing you on November 16, 1999.
YOUR VOTE IS IMPORTANT.
By Order of the Board of Directors:
Secretary
Phoenix, Arizona
October , 1999
To Vote Your Shares, Please Complete, Date And Sign The Enclosed Proxy Card And
Mail It Promptly In The Enclosed Return Envelope.
<PAGE>
THIS PROSPECTUS CONTAINS INFORMATION WHICH IS NOT COMPLETE AND WHICH MAY BE
CHANGED. NO ONE MAY SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED
WITH SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN
OFFER TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION, DATED OCTOBER , 1999
PREVENTX, INC.
29,346,659 Shares of Common Stock
We are changing our state of incorporation to Delaware and in the process
are registering your shares. If we reincorporate, our name will be changed to
Preventx, Inc., the new name we have chosen for our Delaware corporation. We are
also electing seven directors at our annual meeting.
We cannot complete the reincorporation unless stockholders holding a
majority of our outstanding common stock approve the merger of our Wyoming and
Delaware companies. We have scheduled an annual meeting for our stockholders to
vote on the merger.
The date, time and place of the meeting are as follows:
DATE: November 16, 1999
TIME: 10:00 a.m., Local Time
PLACE: 2238 West Lone Cactus Drive, Suite 200
Phoenix, Arizona 85027-2613
Whether or not you plan to attend our meeting, please take the time to vote
by completing and mailing the enclosed proxy card to us. If you sign, date and
mail your proxy card without indicating how you want to vote, we will count your
proxy as a vote in favor of the merger proposal submitted at the meeting and for
each of the director nominees identified in this document. Failure to return
your proxy card or vote in person at the meeting will effectively result in a
vote against the merger.
Our common stock is traded on the OTC Bulletin Board and is not listed on
any exchange or on Nasdaq.
You should carefully consider the risks described in "Risk Factors"
beginning on page 4.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
, 1999
<PAGE>
SUMMARY
This Summay Contains Basic Information About Us And Our Reincorporation.
Because It Is A Summary, It Does Not Contain All Of The Information That Is
Important To You. You Should Read Carefully This Entire Document And The
Documents To Which We Have Referred You.
OUR BUSINESS
We develop products known as microbicidal products that prevent diseases,
including sexually transmitted diseases. We currently market and distribute a
hand sanitizer and antiseptic skin protectant. We have licensing rights to a
spermicidal gel and a hand sanitizer and antiseptic skin protectant, and are
developing a line of related products such as an antiseptic surface spray and
baby wipes.
REINCORPORATING IN DELAWARE
We are reincorporating in Delaware and in the process are registering your
shares. We are currently a Wyoming company. The management of our new Delaware
company will be identical to the current management of our Wyoming company. The
reincorporation will not affect our ongoing business. As part of the
reincorporation, our name will change to Preventx, Inc. We are reincorporating
because we believe that Delaware has more stable, modern, and flexible corporate
law than Wyoming. We are registering your shares to facilitate secondary trading
of your shares and ongoing disclosure to our stockholders. You will receive one
share of our Delaware company for every share of the current Wyoming company and
a warrant or option for every warrant or option you currently own. We are not
registering any warrants or options through this Registration Statement.
ELECTION OF DIRECTORS
We are electing seven directors for a one year term. The seven directors
are Stephen D. Hayter, Richard C. Adamany, Bennett S. Rubin, Andrew J.
Fishleder, M.D., Robert G.J. Burg II, Lawrence D. Bain and Michael Cicak.
VOTES REQUIRED
A vote of a majority of the outstanding shares of our common stock in favor
of the merger proposal will approve the merger. A plurality of votes cast for a
director will elect that director. As of September 28, 1999, our directors,
executive officers, and their affiliates owned approximately 4% of our
outstanding common stock entitled to vote excluding shares issuable upon
exercise of the warrants or options held by them.
DISSENTERS' RIGHTS
Stockholders may dissent from the merger and receive the "fair value" of
their common stock. Wyoming law requires each dissenting stockholder to meet
strict requirements to dissent properly. You should consult your legal advisor
for a full understanding of your right to dissent. We have attached a copy of
the Wyoming statute that provides for your appraisal rights as Annex B,
including the procedures that you must follow to properly exercise these rights.
FORWARD-LOOKING STATEMENTS MAY PROVE INACCURATE
Forward-looking statements made in this document are subject to risks and
uncertainties. Forward-looking statements include the information concerning our
possible or assumed future results of operations and market opportunities for
our current and planned products. Also, when we use words such as "believes,"
"expects," "anticipates" or similar expressions, we are making forward-looking
statements. You should understand that factors identified in the section of this
document titled "Risk Factors" could affect our future financial results and
stock price, in addition to those factors discussed elsewhere in this joint
proxy statement/prospectus, and could cause results to differ materially from
those expressed in our forward-looking statements.
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<PAGE>
SUMMARY HISTORICAL FINANCIAL DATA
<TABLE>
<CAPTION>
Six-Months Ended
Years Ended June 30,
December 31, (unaudited)
--------------------------- ----------------------------
1997 1998 1998 1999
----------- ------------ ------------ ------------
(Restated) (Restated) (Restated)
<S> <C> <C> <C> <C>
SELECTED CONSOLIDATED
STATEMENTS OF OPERATIONS
DATA:
Net revenues ...................... $ 13,018 $ 9,815 $ 9,000 $ 586,591
Cost of sales ..................... 2,623 3,436 3,400 22,337
Gross profit ...................... 10,395 6,379 5,600 564,254
Research and development .......... 137,349 31,425 2,011 10,519
Selling, general and administrative
expenses ......................... 1,875,020 2,912,791 1,506,747 2,222,027
Write-down of inventory ........... 458,800 28,516 -- --
Write-down of receivables ......... 105,000 -- -- --
Operating loss .................... (2,565,774) (2,966,353) (1,503,158) (1,668,292)
Other income (expense), net ....... (29,772) (180,782) 14,626 (110,510)
Net loss .......................... (2,595,546) (3,147,135) (1,488,532) (1,778,802)
Net loss per share ................ (0.14) (0.14) (0.08) (0.07)
Weighted average shares outstanding 18,213,790 22,883,937 19,066,665 26,837,853
</TABLE>
At December 31, At June 30,
1998 1999
--------------- ------------
SELECTED CONSOLIDATED BALANCE
SHEET DATA:
Cash and Cash Equivalents ....... $ 62,793 $ 190,108
Working Capital ................. (182,030) (646,772)
Total Assets .................... 313,825 1,004,788
Long Term Obligations ........... -- --
Stockholders' Deficit ........... (124,908) (586,281)
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<PAGE>
RISK FACTORS
You should consider carefully the following factors together with all of
the other information included in this prospectus before you decide to vote on
our merger and reincorporation.
RISKS RELATING TO THE MERGER:
REINCORPORATION IN DELAWARE MAY RESTRICT SHAREHOLDERS' RIGHTS AND NEGATIVELY
IMPACT OUR STOCK PRICE.
If the merger is completed, we will become a Delaware corporation subject
to the corporation laws of that state. These laws are different from the
corporate laws of Wyoming where Empyrean currently is incorporated. As a result,
our shareholders may lose some rights they would have been entitled to under
Wyoming law. For example, our shareholders can call special meetings under
Wyoming law but will not be able to if we reincorporate in Delaware. Wyoming law
also provides for dissenters' or appraisal rights for a broader range of mergers
and other transactions than does Delaware, where these rights are more limited.
Also, in Delaware shareholders may take action by written consent with fewer
shares than is possible in Wyoming, and Delaware allows for less restrictive
dividend rights than we have as a Wyoming corporation. In addition, under
Delaware law and our new articles of incorporation and bylaws, it may be more
difficult or less advantageous for another person or entity to attempt or
complete a hostile acquisition of us. All of these factors may have a negative
impact on our stock price.
WE MAY ISSUE PREFERRED STOCK WITH RIGHTS AND PREFERENCES SENIOR TO THOSE OF
COMMON STOCK IF THE MERGER IS SUCCESSFUL, WHICH COULD CAUSE A DECLINE IN THE
VALUE OF THE COMMON STOCK OR MAKE IT MORE DIFFICULT FOR A THIRD PARTY TO AQUIRE
US.
If the merger is completed, articles of incorporation in the form attached
as Exhibit 3.1(a) will govern us. These new articles of incorporation, unlike
our existing articles, contain a provision providing for serial or "blank check"
preferred stock. This provision will enable our Board of Directors, without a
vote of common stockholders, to issue separate classes or series of preferred
stock with rights and preferences that may be senior to those of our common
stock with respect to voting, dividends, rights upon liquidation, dissolution or
acquisition, and redemption, which may cause a decline in the value of the
common stock. As a result, we may issue preferred stock that could adversely
affect the economic or voting rights of common stockholders withhold a vote of
the common stockholders. In addition, the issuance of preferred stock could
provide the preferred stockholders with separate rights to approve an
acquisition of us by a third party and may make an acquisition of us more
difficult.
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 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.
3
<PAGE>
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 our products.
Geda, our licensor, has filed a suit against the third party seeking a
declaratory judgment that the third party has no rights in the product line, but
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 currently in development. If that were to occur, we would be
unable to generate revenues.
WE EXPECT TO INCUR LOSSES FOR THE FORSEEABLE 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
4
<PAGE>
or recalls of other products may adversely affect the sales of our products or
our ability to ever become profitable, as our customer or consumers may not
distinguish our products from the products that are the subject of this 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, could 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.
WE HAVE LIMITED SALES MARKETING AND DISTRIBUTION CAPABILITIES AND RELY
EXTENSIVELY ON THIRD PARTIES TO MARKET AND DISTRIBUTE OUR PRODCUCTS, 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
5
<PAGE>
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.
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 our products 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 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 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.
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<PAGE>
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 how we would respond to these assertions if
made or how they would affect the marketing of the marketability of our product.
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. This impact would not be
offset by the successful marketing or sales of 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 the plaintiff's claims, we could lose this
lawsuit. A loss or 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 to 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
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limited resources to devote to research and development of our currently planned
future products and technologies. Since our only product on the market to date
is our hand sanitizer and antiseptic skin protectant product, our success
depends heavily on our ability to develop innovative additional products
utilizing our core proprietary product formulation. Unless we are able to obtain
and devote resources to our research and development efforts, we may only be
able to develop limited product offerings in the future. 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,
our vendors, or our 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.
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
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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 MORE 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 the bid and offer quotations and compensation information prior to
effecting the transaction and include this 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 raising additional capital.
OUR STOCK PRICE MAY BE VOLATILE DUE TO FACTORS BEYOND OUR CONTROL, WHICH COULD
SUBJECT THE VALUE OF YOUR 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. See "Price of Common Stock" below.
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OUR ANNUAL MEETING
GENERAL
We are furnishing this joint proxy statement/prospectus to our stockholders
as part of the solicitation of proxies by our Board for use at our annual
meeting of stockholders to be held on November 16, at 10:00 a.m. local time, at
2238 West Lone Cactus Drive, Suite 200, Phoenix, Arizona 85027-2613.
We are first mailing this joint proxy statement/prospectus on the enclosed
form of proxy to our stockholders on or about October , 1999.
The purpose of our meeting is:
(a) To consider and vote upon a proposal to approve a merger agreement and
merger between Empyrean Bioscience, Inc., a Wyoming corporation and
Preventx, Inc., a Delaware corporation. Under the merger agreement
Empyrean will be merged into Preventx which will continue as the
surviving corporation. Each outstanding share of Empyrean common stock
will be converted into and become exchangeable for one share of
Preventx common stock;
(b) To elect seven directors, each to serve for a one year term; and
(c) To transact other business that may properly come before the annual
meeting.
A form of proxy for use at the annual meeting accompanies each copy of this
joint proxy statement/prospectus mailed to our common stockholders.
The Board unanimously recommends that stockholders vote FOR the approval of
the merger proposal and the election of directors proposal.
RECORD DATE AND VOTING
We have fixed the close of business on October 6, 1999 as the record date
for establishing which stockholders are entitled to vote at the annual meeting.
Accordingly, only holders of record for common stock on the record date will be
entitled to vote at the annual meeting. As of the record date, there were
outstanding and entitled to vote 29,346,659 shares of our common stock, which
constitutes all of our outstanding voting stock. These shares were held by
approximately 4,100 holders of record. Each holder of record of our common stock
on the record date is entitled to one vote per share. This vote may be cast
either in person, or by properly executed proxy, at our annual meeting. A quorum
for the annual meeting consists of the presence of the holders of a majority of
the outstanding shares of our common stock. Approval of the merger proposal
discussed above requires the affirmative vote of holders of at least a majority
of the shares of our common stock outstanding and entitled to vote on the record
date. Election of a director requires a plurality of votes be cast for that
director.
We will count shares of our common stock represented in person or by proxy
for purposes of establishing a quorum at our annual meeting. Shares which
abstain from voting as to a particular matter will be treated as shares that are
present and entitled to vote at the annual meeting for purposes of determining
whether a quorum exists, but abstentions will have the same effect as votes
against that matter. Brokers or nominees holding shares of record for customers
will not be entitled to vote on the proposals unless they receive voting
instructions from their customers. Shares held by brokerage nominees for which
no instructions are given by the beneficial owners will not count toward
determining whether a quorum exists or be voted in any manner on the proposals
and will have the same effect as votes against the proposals.
As of the record date for the annual meeting, our directors and executive
officers and their affiliates may be deemed to be beneficial owners of
approximately 4% of the outstanding shares of our common stock, excluding shares
issuable upon exercise of outstanding options and warrants, and have expressed
their intent to vote their shares in favor of the merger proposal and the
election of the director nominees.
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VOTING AND REVOCATION OF PROXIES
All shares of our common stock that are entitled to vote and are
represented at our annual meeting by properly executed proxies received prior to
or at the meeting and not revoked, will be voted at the meeting in accordance
with the instructions indicated on the proxies. If no instructions are
indicated, proxies will be voted for approval of the proposals.
The only business which may be conducted at the annual meeting is business
that is brought before a meeting under our notice of the annual meeting. If any
other matters are properly presented at the annual meeting for consideration,
such as consideration of a motion to adjourn the meeting, the persons named in
the enclosed forms of proxy generally will have discretion to vote on those
matters in accordance with their best judgment. Proxies voting against a
specific proposal may not be used by the persons named in the proxies to vote
for adjournment of the meeting to give management additional time to solicit
votes for approval of the proposal.
Any proxy given under this solicitation may be revoked by the person giving
it at any time before it is voted. Proxies may be revoked by:
* Filing with our secretary at or before the taking of the vote at the
annual meeting a written notice of revocation bearing a date later
than the proxy;
* Duly executing a later dated proxy relating to the same shares and
delivering it to our secretary before the taking of the vote at our
meeting; or
* Attending our annual meeting and voting in person although attendance
alone will not constitute revocation.
Any written notice of revocation or subsequent proxy should be sent to 2238
West Lone Cactus Drive, Suite 200, Phoenix, Arizona 85027-2613, Attention:
Secretary, or hand delivered to the Secretary of Empyrean at or before the
taking of the vote at the annual meeting. Stockholders that have instructed a
broker to vote their shares must follow directions received from the broker to
change their vote or to vote at the annual meeting.
We will bear all expenses of our solicitation of proxies for the annual
meeting. In addition to solicitation by use of mail, proxies may be solicited
from our stockholders by directors, officers, and employees in person or by
telephone, facsimile, or other means of communication. Our directors and
officers and employees will not be additionally compensated, but may be
reimbursed for reasonable out-of-pocket expenses in connection with the
solicitation. We will make arrangements with brokerage houses, custodians,
nominees, and fiduciaries for forwarding of proxy solicitation materials to
beneficial owners of shares held of record by these brokerage houses,
custodians, nominees, and fiduciaries. We will reimburse these institutions for
their reasonable expenses incurred in connection with the solicitation.
DISSENTERS' RIGHTS
Our stockholders have the right to dissent from the merger and receive
payment of the "fair value" of their shares. Proposal No. 2, Delaware
Reincorporation, below discusses dissenters' rights more fully.
STOCKHOLDERS SHOULD NOT SEND THE STOCK CERTIFICATES WITH THEIR PROXIES.
EMPYREAN WYOMING COMMON STOCK CERTIFICATES WILL BE EXCHANGED FOR PREVENTX COMMON
STOCK FOLLOWING CONSUMMATION OF THE MERGER IN ACCORDANCE WITH THE INSTRUCTIONS
TO BE SENT TO HOLDERS OF OUR COMMON STOCK AFTER THE MERGER.
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PROPOSAL NO. 1 -- ELECTION OF DIRECTORS
Seven directors will be elected at the meeting for a one year term. Unless
you specify otherwise, the enclosed proxy will be voted in favor of electing as
directors the nominees listed below. If any nominee should be unable to serve,
the proxy will be voted for a substitute nominee selected by our Board of
Directors.
The name, principal occupation, business experience since at least 1993,
tenure, and age of each nominee for election as a director are set forth below.
STEPHEN D. HAYTER DIRECTOR, PRESIDENT, AND CHIEF EXECUTIVE OFFICER
Mr. Hayter, 60, was appointed as a Director and our 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 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.
ANDREW J. FISHLEDER, M.D., DIRECTOR
Dr. Fishleder, 46, was appointed a director on November 20, 1998. Dr.
Fishleder has been the Chairman of the Division of Education of the Cleveland
Clinic Foundation since 1991 and currently serves on the institution's Board of
Governors and Medical Executive Committee. Dr. Fishleder is a pathologist and
has been a member of the staff of the Cleveland Clinic Department of Clinical
Pathology since 1982.
ROBERT G. J. BURG II, DIRECTOR
Mr. Burg, 42, was appointed a director on November 20, 1998. Mr. Burg has
over twenty-years experience in sales and marketing. Since January 1998 Mr.
Burg has been the President of Profile Sports. Between 1990 and 1998, Mr. Burg
was employed by Royal Grip, Inc./Roxxi Caps, which manufacturers and
distributes golf grips and sports headwear, and was its President between
February 1995 and January 1998. Mr. Burg has been a director of Royal
Precision, Inc. since June, 1998.
MICHAEL CICAK, DIRECTOR
Mr. Cicak, 63, was appointed a director on May 26, 1999. Mr. Cicak is
currently the president of Solar Cells, Inc. 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.
LAWRENCE D. BAIN, DIRECTOR
Mr. Bain, 49, 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.
RICHARD C. ADAMANY, EXECUTIVE VICE PRESIDENT AND CHIEF OPERATING OFFICER
Mr. Adamany, 46, 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,
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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.
BENNETT S. RUBIN, EXECUTIVE VICE PRESIDENT AND CHIEF MARKETING OFFICER
Mr. Rubin, 42, 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.
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.
MEETING ATTENDANCE
The Board of Directors had one meeting in 1998. All of the directors
attended the meeting.
DIRECTOR COMPENSATION
Non-employee directors receive:
* a quarterly retainer of $2,500, plus $500 per committee meeting
attended;
* an annual grant of stock options to purchase 100,000 shares of
our common stock; and
* reimbursement for out-of-pocket expenses associated with
attending Board and committee meetings.
Employee directors receive no additional compensation for serving on the Board.
The stock options granted to non-employee directors are granted at an
exercise price equal to the fair market value of the common stock on the date of
grant, are fully vested at date of grant, and expire ten years from the date of
grant.
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PROPOSAL NO. 2 -- DELAWARE REINCORPORATION
INTRODUCTION
The Board of Directors believe that changing the state of our incorporation
or "reincorporating" from Wyoming to Delaware will be in your best interests.
You are urged to read carefully the following sections of this joint proxy
statement/prospectus before voting on the proposed reincorporation.
With your approval, we will complete the reincorporation through a merger
agreement. Under the merger agreement, Empyrean Wyoming will merge with
Preventx, and Preventx will continue as the surviving corporation. This will
change our name to Preventx, Inc. Each outstanding share of Empyrean Wyoming
common stock will automatically convert into one share of Preventx common stock
on the merger effective date. There would be no effect on our financial
statements due to this transaction.
Any stockholder may, as an alternative to voting to approve the proposed
reincorporation, dissent from the right to vote and obtain the fair value of his
or her shares. We provide a more detailed discussion of dissenters' rights and
the concept of fair value below.
Empyrean does not believe that state or federal regulatory approval is
required for the merger except for the Secretary of State for each of Delaware
and Wyoming. We will seek approval from Delaware and Wyoming upon the approval
of reincorporation by our shareholders.
PREDICTABILITY OF DELAWARE LAW
For many years Delaware has followed a policy of encouraging incorporation
in that state. As part of this policy, Delaware has adopted comprehensive
corporate laws responsive to the needs of Delaware corporations. We believe that
the Delaware legislature is particularly sensitive to issues regarding corporate
law and is especially responsive to developments in modern corporate law. We
also believe that the Delaware courts have developed considerable expertise in
dealing with corporate issues as well as a substantial body of case law
construing Delaware's corporate law. As a result of these factors, we anticipate
that Delaware law will provide greater predictability in our legal affairs than
is presently available under Wyoming law.
ABILITY TO ATTRACT AND RETAIN DIRECTORS
In 1986, Delaware amended its corporate law to allow a corporation to limit
the personal monetary liability of its directors for their conduct as directors
under some circumstances. Our Board of Directors have elected to adopt such a
provision in the Certificate of Incorporation that would govern us after the
reincorporation. Delaware law does not permit a Delaware corporation to limit or
eliminate the liability of its directors for breaches of their fiduciary duty of
loyalty, intentional misconduct, bad faith conduct, unlawful distributions or
any transaction from which the director derives an improper personal benefit.
While Wyoming law was more recently amended to permit similar limitations on the
liability of directors, Wyoming does not have the depth of case law interpreting
its statutory provisions. The Board of Directors believes that Delaware
incorporation, and the provisions of the Delaware Certificate of Incorporation,
will enhance our ability to recruit and retain directors in the future. However,
the shareholders should be aware that such a provision inures to the benefit of
the directors, and, therefore, the interest of the Board of Directors in
recommending the reincorporation may be in conflict with the interests of the
shareholders.
ANTI-TAKEOVER IMPLICATIONS
Delaware law, more so than Wyoming law, permits us to take protective
measures to deter hostile takeover attempts. A hostile takeover attempt may have
a positive or a negative effect on us and our shareholders, depending on the
circumstances surrounding a particular takeover attempt. Takeover attempts that
have not been negotiated or approved by the board of directors of a corporation
can seriously disrupt the business and management of a corporation and generally
present to the shareholders the risk of terms which may be less than favorable
to all of the shareholders than would be available in a board approved
transaction. Board approved transactions may be carefully planned and undertaken
at an
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opportune time to obtain maximum value for the corporation and all of its
shareholders with due consideration to matters such as the recognition or
postponement of gain or loss for tax purposes, the management and business of
the acquiring corporation and maximum strategic deployment of corporate assets.
The Board of Directors recognizes that hostile takeover attempts do not
always have the unfavorable consequences or effects described above and may
frequently be beneficial to the shareholders, providing all of the shareholders
with considerable value for their shares. However, the Board of Directors
believes that the potential disadvantages of unapproved takeover attempts are
sufficiently great that prudent steps may in the future be required to reduce
the likelihood of takeover attempts, in the best interests of us and our
shareholders.
You should recognize that one of the effects of reincorporating may be to
discourage a future attempt to acquire control of us which is not presented to
and approved by the Board of Directors, but which a substantial number and
perhaps even a majority of our shareholders might believe to be in their best
interests or in which shareholders might receive a substantial premium for their
shares over the current market prices. As a result, shareholders that might
desire to participate in such a transaction may not have an opportunity to do
so.
In addition, we will have the ability to issue shares of our preferred
stock that will enable the Board of Directors, without a vote of our common
stockholders, to issue separate classes or series of preferred stock with rights
and preferences that may be senior to those of our common stock with respect to
voting, dividends, rights upon liquidation, dissolution or acquisition, and
redemption. This could discourage a change in control. We do not intend to adopt
any additional anti-takeover measures at this time.
NO CHANGE IN THE BOARD MEMBERS, BUSINESS, MANAGEMENT, OR LOCATION OF PRINCIPAL
FACILITIES OF EMPRYEAN
We will change our legal domicile and make other changes of a legal nature
through the proposed reincorporation. The proposed reincorporation will not,
however, result in any change in the business, management, fiscal year, assets
or liabilities, or location of our principal facilities. The directors you elect
at the annual meeting will continue as directors of Preventx. All of the
employee benefit and stock option plans of Empyrean, including the 1998 Empyrean
Diagnostics, Ltd. Stock Plan, will be continued by Preventx and each outstanding
option to purchase shares of Empyrean stock will automatically be converted into
an option to purchase an equivalent number of shares of Preventx stock on the
same terms and subject to the same conditions. Our name will change to Preventx,
Inc.
OUR CHARTER AND BYLAWS
The provisions of the our Delaware Certificate of Incorporation are similar
to those of our Wyoming Articles of Incorporation in many respects. We initially
created the Wyoming Articles of Incorporation to meet British Columbia, Canada
legal requirements. We did not amend the Articles of Incorporation when we
changed our governing jurisdiction from Canada to Wyoming. Those Articles of
Incorporation have acted as our bylaws as well. We have modified these Articles
of Incorporation to meet the requirements of Delaware law. In particular,
Preventx will have a separate Certificate of Incorporation and Bylaws. We
describe below the material changes between the Wyoming Articles of
Incorporation and Bylaws and the Delaware Certificate of Incorporation and
Bylaws.
AUTHORIZED STOCK
Our Wyoming's Articles of Incorporation authorize the Board of Directors to
issue shares of capital stock with terms and for consideration that the Board
considers proper. The Board of Directors has authorized 300,000,000 shares of
capital stock, of which 100,000,000 shares are designated Common Stock, no par
value, and 200,000,000 shares are designated Preferred Stock with par values
ranging from $10 to $50 per share. The Certificate of Incorporation of Preventx
authorizes 100,000,000 shares of capital stock, $.0001 par value, of which
90,000,000 shares are designated Common Stock and 10,000,000 shares are
designated Preferred Stock.
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SIGNIFICANT DIFFERENCES BETWEEN THE CORPORATION LAWS OF WYOMING AND DELAWARE
The corporate laws of Wyoming and Delaware differ in many respects. It is
not practical to summarize all differences in this joint merger/proxy statement,
but the principal differences that could materially affect the rights of
stockholders are discussed below.
DISSENTERS' RIGHTS
Wyoming and Delaware law may grant a stockholder of a corporation
participating in a major corporate transaction dissenters' rights. Dissenters'
rights allow a stockholder to receive the fair value of his or her shares
instead of the amount he or she would otherwise receive in the transaction. Fair
value may not necessarily be the market price of the common stock prior to
reincorporation. Both Wyoming and Delaware law limit the availability of
dissenters' rights where the state law does not require a stockholder vote to
approve the corporate transaction.
Under Delaware law, dissenters' rights are generally not available in a
merger or share exchange if the stockholders' shares were either listed on a
national securities exchange or held by at least 2,000 stockholders of record.
However, the Certificate of Incorporation of the corporation may provide for
appraisal rights. We do not intend to provide for appraisal rights in our
Certificate of Incorporation. Also, Delaware law makes appraisal rights
available if the plan of merger or share exchange provides that stockholders
receive anything other than cash, shares of the surviving corporation, shares of
a publicly traded or widely held corporation, or a combination of these. Under
Wyoming law, appraisal rights may be available for transactions other than
mergers, including sales of significant amounts of assets and changes in the
capital structure or the terms of stock in the Articles of Incorporation. In
Delaware, appraisal rights are only available for some mergers as described
above.
Wyoming does not have Delaware's limitations on dissenters' rights.
Empyrean stockholders do have dissenters' rights related to the proposed
reincorporation. Wyoming law requires that you follow its statutory procedures
to exercise your rights. We have attached to this joint merger/proxy statement
as Annex B the pertinent sections of the Wyoming law. We urge you to consult
with your legal advisor and follow the procedural steps under Wyoming law to
exercise your dissenters' rights. The following description of the appraisal
rights procedure is a summary of Wyoming law.
If you wish to dissent from the reincorporation merger, you must send to
Empyrean a written notice of your intent to demand payment for your shares prior
to the time the vote is taken on the merger. If you vote your shares in favor of
the reincorporation merger, this will waive your appraisal rights. Your notice
must be sent seperately to us, as a vote against the merger alone will not be
sufficient notice of your intent to seek appraisal. If you deliver your notice
and do not vote in favor of the merger, we will deliver a notice to you of when
the reincorporation merger is approved by the shareholders, no later than ten
days after the shareholders' approval. Our notice to you will include the
following:
* an address where a payment demand can be sent and where and when
certificates can be deposited;
* information on the extent of restrictions on the transfer of
shares after the payment demand is received;
* a form for demanding payment, including the date of the first
announcement to the news media or shareholders of the terms of
the reincorporation merger and requiring that the dissenter
certify whether or not he or she acquired beneficial ownership of
the shares before that date;
* a date between thirty and sixty days after delivery of our notice
by which we need to receive payment demand;
* a copy of the dissenter's rights statute.
After receiving our notice you then need to follow the instructions in our
notice if you want to demand payment. Your demand for payment must be delivered
within the time period described in our notice to you (a date between 30 and 60
days after delivery to you of our notice, as described above). Upon receipt of a
payment demand that complies with the above procedure, we will do the following:
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* estimate the fair value of your shares;
* pay you the fair value;
* provide you with a balance sheet or an estimate of the fair value
of the shares;
* provide you with a statement describing your right to demand
further payment; and
* provide you with a copy of the dissenter's rights statute.
If you believe that the fair value of your shares is greater than our offer
to pay fair value, you may send an additional demand for payment of the
difference or reject our offer of payment and demand your estimate of fair value
if any of the following are true:
* you believe that the fair value of your shares was incorrectly
calculated or the amount paid was less than the fair value;
* you believe Empyrean made payment after sixty days of the date
set for demanding payment;
* or, if the reincorporation merger does not take place and we do
not return your stock certificates or release transfer
restrictions within sixty days after demand payment.
If a demand remains unsettled after the above procedure, we will institute
a proceeding in court to determine the fair value of the shares, and if we do
not institute a proceeding within sixty days of receiving your payment demand,
you will be entitled to receive the amount you have demanded. All dissenters who
have unsettled payments will be joined as parties in the action. Court costs
will be paid by us unless the court determines that the dissenters acted
arbitrarily, vexatiously or not in good faith.
LIMITATIONS ON DIRECTOR LIABILITY
Both Wyoming and Delaware law permit a corporation to limit the personal
liability of a director to the corporation or its shareholders for money damages
for breach of the director's duties. Wyoming does not allow a corporation to
limit director liability when the director:
* receives benefits to which he or she is not entitled;
* intentionally inflicts harm on the corporation or its
stockholders;
* votes for an unlawful distribution; or
* intentionally violates criminal law.
Our Delaware Certificate of Incorporation eliminates the liability of
directors to the fullest extent permissible under Delaware law, as the law
exists currently or as it may be amended in the future. Under Delaware law, a
corporation may not eliminate or limit director monetary liability for:
* breaches of the director's duty of loyalty to the corporation or
its shareholders;
* acts or omissions not in good faith or involving intentional
misconduct or knowing violations of law;
* the payment of unlawful dividends or unlawful stock repurchases
or redemptions; or
* transactions in which the director received an improper personal
benefit.
A limitation of liability provision also may not limit director's liability
for violation of, or otherwise relieve the Delaware corporation or its directors
from the necessity of complying with, federal or state securities laws or affect
the availability of non-monetary remedies such as injunctive relief or
rescission.
Our Wyoming Articles of Incorporation limit director, officer, or employee
liability for any loss, damage or expense related to execution of their duties
unless the loss, damage or expense arises through the person's willful act or
default, through negligence, through a breach of trust or through a breach of
duty. Our Certificate of Incorporation eliminates director and officer liability
to the fullest extent permissible under Delaware law as it exists or may be
amended in the future.
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INDEMNIFICATION OF OFFICERS AND DIRECTORS
Wyoming and Delaware have similar laws respecting indemnification by a
corporation of its officers and directors. There are nonetheless differences
between the laws of the two states, as well as the Wyoming and Delaware Bylaws.
Both Delaware and Wyoming law permit indemnification when a director or
officer:
* conducted himself in good faith;
* reasonably believed his conduct was not opposed to the
corporation's best interest; or
* in a criminal proceeding, had no reasonable cause to believe his
conduct was unlawful.
Unlike Wyoming law, Delaware law limits indemnification against expenses
where the director is adjudged liable for negligence or misconduct in the
performance of his or her duty to the corporation to court approved expenses.
Under Wyoming law and the Wyoming Articles of Incorporation, Empyrean may
provide indemnification or advance expenses to officers and directors only as
permitted by the Wyoming statute relating to indemnification or advances. On the
other hand, a provision of Delaware law states that the indemnification provided
by statute will not be deemed exclusive of any other rights under any bylaw,
agreement, vote of shareholders or disinterested directors or otherwise. As a
result, under Delaware law, the Delaware corporation is permitted to indemnify
its directors and officers within the limits established by law and public
policy, pursuant to an express contract, bylaw provision, shareholder vote, vote
of disinterested directors or otherwise, any or all of which could provide
indemnification rights broader than those currently available under the Wyoming
Bylaws or the Wyoming indemnification statutes.
The Wyoming Bylaws require that Empyrean indemnify each of our directors
and officers against any liability incurred by reason of that person's status as
a director or officer, except for liabilities arising out of his or her own
negligence or willful misconduct. The Delaware Bylaws require that the Delaware
corporation indemnify its directors or officers of other corporations, to the
fullest extent permitted by Delaware law, provided that the Delaware corporation
will not be required to indemnify any director or officer in connection with a
proceeding initiated by that person unless the proceeding was authorized by the
Board of Directors.
The indemnification and limitation of liability provisions of Wyoming law,
and not Delaware law, will apply to actions of the directors and officers of
Empyrean made prior to the proposed reincorporation. Nevertheless, the Board of
Directors has recognized in considering this reincorporation proposal that the
individual directors have a personal interest in obtaining the application of
Delaware law to indemnity and limitation of liability issues affecting them and
Empyrean in the event these issues arise from a potential future case. The Board
of Directors also recognizes that the application of Delaware law, to the extent
that any director or officer is actually indemnified in circumstances where
indemnification would not be available under Wyoming law and the Wyoming
Articles, would result in expense to Empyrean which Empyrean would not incur if
Empyrean were not reincorporated. The Board of Directors believes, however, that
the overall effect of reincorporation is to provide a corporate legal
environment that enhances our ability to attract and retain high quality outside
directors and thus benefits the interests of us and our shareholders.
SHAREHOLDER POWER TO CALL SPECIAL SHAREHOLDER MEETING
Under Wyoming law, a special meeting of stockholders may be called by the
following:
* the board of directors;
* the chairman of the board;
* the president;
* the holders of shares entitled to cast not less than ten percent
of the votes at the meeting; or
* any additional persons authorized by the articles of
incorporation or the bylaws.
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Under Delaware law and the Delaware Bylaws, a special meeting of
shareholders may be called by the Board of Directors, the Chairman of the Board
of Directors or the President.
ACTION BY WRITTEN CONSENT OF SHAREHOLDERS
Under Wyoming law, the shareholders may execute a shareholder action by
written consent in lieu of a meeting of shareholders only if the written consent
is signed by all shareholders. Under Delaware law, action by written consent may
be taken by the number of shares that would have been necessary to authorize the
action at a meeting of shareholders, provided that prompt notice of the taking
of the action is given to those shareholders who did not consent and who would
have been entitled to vote on the action at a meeting.
ANTI-TAKEOVER MEASURES
We believe that Delaware law gives a corporation greater flexibility in
governing its internal affairs and its relationships with shareholders and other
parties than do the laws of many other states, including Wyoming. In particular,
Delaware law allows a corporation to adopt measures designed to reduce a
corporation's vulnerability to hostile takeover attempts. These measures are
either not currently permitted or are more narrowly drawn under Wyoming law.
Among these measures is the elimination of the right of shareholders to call
special shareholders' meetings which is described above. The Board of Directors
has not adopted or proposed other permitted anti-takeover measures at this time.
However, the Board of Directors may adopt similar measures in the future.
In addition to permitted anti-takeover measures, for some corporations,
Section 203 of the Delaware General Corporation Law ("Section 203") limits the
ability of a potential acquiror to conduct a hostile takeover. Section 203 only
applies to Delaware corporations which have a class of voting stock that is:
* listed on a national securities exchange;
* authorized for quotation on the Nasdaq Stock Market; or
* held of record by more than 2,000 shareholders.
A number of states, but not Wyoming, have adopted special laws designed to
make some "unfriendly" corporate takeovers, or other transactions involving a
corporation and one or more of its significant shareholders, more difficult.
Under Section 203, "business combinations" by Delaware corporations with
"interested stockholders" are subject to a three-year moratorium unless
specified conditions are met. Section 203 prohibits a Delaware corporation from
engaging in a "business combination" with an "interested shareholder" for three
years following the date that the person becomes an interested stockholder.
There is no equivalent provision to Section 203 under Wyoming law.
An interested stockholder generally is a person or group that owns 15% or
more of the corporation's outstanding voting stock or is an affiliate or
associate of the corporation and was the owner of 15% or more of the voting
stock at any time within the previous three years. Section 203 defines the term
"business combination" broadly to include:
* mergers with or caused by the interested stockholder;
* sales or other dispositions to the interested stockholder of
assets of the corporation or a subsidiary equal to ten percent or
more of the aggregate market value of the corporation's
consolidated assets or its outstanding stock;
* the issuance or transfer by the corporation or a subsidiary of
stock of the corporation or the subsidiary to the interested
stockholder;
* or receipt by the interested stockholder, directly or indirectly,
of any loans, advances, guarantees, pledges or other financial
benefits provided by or through the corporation or a subsidiary.
The three year moratorium imposed on business combinations by Section 203
does not apply if:
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* prior to the date on which the stockholder becomes an interested
stockholder the board of directors approves either the business
combination or the transaction which resulted in the person
becoming an interested stockholder;
* the interested stockholder owns 85% of the corporation's voting
stock upon consummation of the transaction which made him or her
an interested stockholder; or
* on or after the date the person becomes an interested
stockholder, the board approves the business combination and it
is also approved at a stockholder meeting by percent 66 2|M/3% of
the voting stock not owned by the interested stockholder.
A Delaware corporation may elect not to be governed by Section 203 by a
provision in its original certificate of incorporation or an amendment to the
certificate or to the bylaws, which amendment must be approved by majority
stockholder vote and may not be further amended by the board of directors. The
Delaware corporation has elected not to be governed by Section 203.
We believe that Section 203 would encourage any potential acquiror to
negotiate with the Delaware corporation's Board of Directors. Shareholders
should note that the application of Section 203 to the Delaware corporation
confers upon the Board the power to reject a proposed business combination, even
though a potential acquiror may be offering a substantial premium for the
Delaware corporation's shares over the then current market price, assuming the
stock is then publicly traded.
The Board of Directors may adopt further anti-takeover measures available
under Delaware law. Moreover, the availability of these measures under Delaware
law, whether or not implemented, may have the effect of discouraging a future
takeover attempt which a majority of the Delaware corporation's shareholders may
deem to be in their best interests or in which shareholders may receive a
premium for their shares over then current market prices. As a result,
shareholders who might desire to participate in these transactions may not have
the opportunity to do so. Shareholders should recognize that, if adopted, the
effect of these measures, along with the possibility of discouraging takeover
attempts, may be to limit in some respects the rights of shareholders of the
Delaware corporation compared with the rights of shareholders of Empyrean.
The Board of Directors recognizes that hostile takeover attempts do not
always have the unfavorable consequences or effects described above and may
frequently be beneficial to the shareholders, providing all of the shareholders
with considerable value for their shares. However, the Board of Directors
believes that the potential disadvantages of unapproved takeover attempts, such
as disruption of our business and the possibility of terms which may be less
than favorable to all of the shareholders than would be available in a
board-approved transaction, require prudent steps to enable the Board of
Directors to fully consider the proposed takeover attempts and actively
negotiate terms that are in the best interests of us and our shareholders.
LOANS TO OFFICERS AND DIRECTORS
Wyoming law limits loans or guarantees to a director except shareholder
approved or board of directors approved loans or guarantees. Under Delaware law,
a corporation may make loans or guarantees for the benefit of directors,
officers or other employees when, in the judgment of the board of directors, the
loan or guaranty may reasonably be expected to benefit the corporation.
DIVIDENDS
Under Wyoming law, dividends or other distributions to shareholders may not
be made if, after giving effect to the distribution, the corporation would not
be able to pay its debts in the usual course of business or the corporation's
total assets would be less than the sum of its total liabilities plus the amount
that would be needed to satisfy superior preferential rights if the corporation
immediately dissolved. Delaware law allows the payment of dividends and
redemption of stock out of surplus or out of net profits for the current and
immediately preceding fiscal years. Empyrean has never paid cash dividends and
has no present plans to do so.
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FEDERAL INCOME TAX CONSEQUENCES
In this section, we discuss federal income tax consequences to Empyrean
Wyoming capital stockholders who receive Preventx Delaware capital stock in
exchange for their Empyrean Wyoming capital stock as a result of the proposed
reincorporation. We do not address state, local, or foreign tax consequences in
this section.
This discussion does not address all the tax consequences of the proposed
reincorporation that may be relevant to particular Empyrean Wyoming
stockholders. We urge you to consult with your own tax advisor as to the
specific tax consequences to you of the proposed reincorporation, including the
applicability of federal, state, local, or foreign tax laws.
We have not requested a ruling from the Internal Revenue Service on the
federal income tax consequences of the proposed reincorporation under the
Internal Revenue Code of 1986. We have obtained an opinion of counsel that the
following are true of the reincorporation:
* the proposed reincorporation will constitute a tax-free
reorganization under Section 368(a) of the federal tax code;
* no gain or loss will be recognized by Empyrean Wyoming capital
stockholders when they receive Delaware capital stock under the
proposed reincorporation;
* the aggregate tax basis of the Delaware capital stock received by
a stockholder will be the same as the aggregate tax basis of the
Empyrean Wyoming capital stock held by the same stockholder as a
capital asset at the time of the proposed reincorporation;
* the holding period of the Delaware capital stock received by each
Empyrean Wyoming stockholder will include the period the
stockholder held the exchanged Empyrean Wyoming capital stock as
a capital asset; and
* Empyrean Wyoming should not recognize gain or loss for federal
income tax purposes as a result of the proposed reincorporation,
and Preventx should succeed without adjustment to the federal
income tax attributes of Empyrean Wyoming.
A successful IRS challenge to the tax-free status of the proposed
reincorporation would result in a stockholder recognizing gain or loss on each
share of Empyrean Wyoming capital stock surrendered. State, local, or foreign
income tax consequences to stockholders may vary from the federal tax
consequences described above. Stockholders should consult their own tax advisors
as to the effect of the proposed reincorporation under applicable federal,
state, local, or foreign income tax laws.
VOTE REQUIRED FOR THE PROPOSED REINCORPORATION
Approval of the proposed reincorporation, which includes approval of the
merger agreement, requires the affirmative vote of the holders of a majority of
the outstanding shares of Empyrean Wyoming common stock.
The Board of Directors recommends that stockholders vote "FOR" the proposed
reincorporation. An abstention or a failure to vote will have the same effect as
a vote "AGAINST" the proposed reincorporation.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis provides information regarding 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 a 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.
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:
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* 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 the inclusion of the
fair value of stock warrants issued to promissory note holders in February 1999.
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 was
$0.14 in 1998 and 1997, respectively.
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.
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* 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.
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 2% 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.
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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.
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 our 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.
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Due to our Year 2000 analysis, we have determined that an internal
contingency plan is unnecessary. We also is 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.
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 the 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 its 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.
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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 for 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 diagnostic HIV 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
inventory was 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 Phase I and
II of the 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.
These 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.
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.
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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.
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.
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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.
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 these types of disinfectant 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.
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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
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
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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
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
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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.
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.
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* Our hand sanitizer and antiseptic skin protectant not only
alleviates dry skin conditions caused by alcohol or triclosan
based products, it actually helps nourish, moisturize, and heal
damaged skin and does not cause many of the skin irritations
associated with competitive products, including itching, stinging
and burning. We incorporate aloe vera into our hand sanitizer and
antiseptic skin protectant product to further promote its
soothing effects. In addition, our product helps to heal minor
cuts, burns, and abrasions, in contrast to alcohol based products
which can cause painful discomfort when in contact with minor
skin injuries. Our hand sanitizer and antiseptic skin protectant
also does not cause irritation to mucosal tissues in the nose and
eyes, unlike alcohol and triclosan based products.
Our hand sanitizer and antiseptic skin protectant is sold at retail in
2 and 8 ounce plastic bottles, and in the institutional markets in 2, 8, 16
and 32 ounce bottles. We will also provide a bulk refillable dispenser that
dispenses pre-measured lotion.
DISEASE PREVENTATIVE PRODUCTS UNDER DEVELOPMENT
BABY WIPES
Utilizing the same active ingredient as the hand sanitizer and antiseptic
skin protectant, we are developing a non-toxic, long lasting baby wipe for the
retail market. We believe that FDA regulatory approval of a benzalkonium
chloride-containing baby wipe product as a prevention for diaper rash, if sought
and obtained, would give the Preventx(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.
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,
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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.
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
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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.
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 under 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
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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 covered all of
our disease preventive products. Currently, ICS is 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
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 with CCP 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
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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.
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
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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.
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
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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.
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 on the basis of
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.
FACILITIES
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.
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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 2, 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 by licensing rights
to us. Optima and Mercury have requested an unspecified amount of damages
against us. In a separate action that has now been consolidated with the first
in the same court, Geda has requested a declaratory judgment that Geda properly
terminated its development and distribution contract with Optima and Mercury.
Plantiffs seek injuncture 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 rights to market, sell, or manufacture our
current hand sanitizer product and on other products under development
worldwide.
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EXECUTIVE COMPENSATION
The following table is a summary of the compensation paid to our Chief
Executive Officer and each executive officer who earned over $100,000 in total
salary and bonus for each of our three most recently completed fiscal years.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long Term
Compensation
Annual Compensation Awards
------------------------------------ -------------
Securities
Other Under Options All
Annual Granted/SARs Other
Name and Principal Position Year Salary($) Bonus($) Compensation($) Granted(#) Compensation
- ------------------------------ ---- --------- -------- --------------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Stephen D. Hayter ......... 1998 $186,923 0 0 1,400,000 0
President and Chief 1997 $189,539 0 0 300,000 0
Executive Officer 1996 $ 60,000 0 0 600,000 0
Raymond E. Dean ............ 1998 $135,000 0 0 700,000 0
Former Secretary and 1997 $ 40,000 0 0 300,000 0
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 % of Total
Securities Options/SARS
Underlying Granted to Exercise
Options/SARS Employees in or Base
Name Granted # Fiscal Year ($/Security) 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 FY-END OPTION/SAR VALUES
Options/
Options/ SARs
SARs At Fiscal Fiscal
Shares Year-end Year-end
Acquired Value Exercisable/ Exercisable/
Name On Exercise Realized Unexercisable Unexercisable
- ---- ----------- -------- --------------- -------------
Stephen D. Hayter...... 25,000 $8,450 1,350,570 $3,500
854,372 0
Raymond E. Dean........ 0 0 747,719 0
427,186
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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 1 figure represented by options and
warrants exercisable within 60 days of October 22, 1999.
Total Portion
Amount Represented
of Beneficial by Options Percent
Name and Address of Beneficial Owner Ownership and 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 Joint Proxy Statement/Prospectus, to our knowledge,
there are no arrangements of which may at a subsequent date result in a change
in control of Empyrean.
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.
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
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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 the Company 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, the Company 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 of the common stock 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
position of Executive Vice President and Chief Operating Officer of the Company,
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, the Company 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
43
<PAGE>
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 of the common stock 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.
DESCRIPTION OF OUR CAPITAL STOCK
The following is a summary description of the capital stock we intend to
issue as a Delaware corporation. For a more complete description of the rights
and other terms of our capital stock, we direct you to our Certificate of
Incorporation and Bylaws.
COMMON STOCK
Our authorized common stock consists of 90,000,000 shares of common stock,
par value $.0001 per share. 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, 100 shares of Preventx common stock are currently issued and outstanding
and are owned by Empyrean Wyoming.
PREFERRED STOCK
Our authorized shares of preferred stock consists of 10,000,000 shares, par
value of $.0001 per share. Our directors are authorized by our Certificate of
Incorporation to issue preferred stock in one or more series and to create and
attach special rights and restrictions to a series of shares. No shares of
preferred stock have been issued.
Other than the Board's ability to issue preferred stock described above,
there are no provisions in our Certificate of Incorporation which would have an
effect of delaying, deferring or preventing a change in control of Empyrean.
ESCROW SHARES
An additional 710,000 shares of Empyrean common stock reserved for the
potential exercise of warrants were issued and are held in escrow under the
terms of an Escrow Agreement dated July 9, 1998 among Empyrean, Kaplan
Gottbetter & Levenson, LLP and the warrant holders. Shares of our Delaware
corporation issued in exchange for these shares will similarly be held in
escrow.
44
<PAGE>
WARRANTS
Set forth below is a table showing the number of warrants to purchase
Empyrean stock that are currently outstanding, the exercise prices payable upon
an election to exercise, and the term of each of these warrants:
<TABLE>
<CAPTION>
Exercise Exercise
Original Issuance Currently Price/ Price/
Date Outstanding Share Effective Until Share Effective Until
- -------------------- ----------- -------- ----------------- -------- ---------------
<S> <C> <C> <C> <C> <C>
July 15, 1998(1) 795,492 $ 0.9051 July 9, 2000 $ 1.056 July 9, 2001
February 15, 1999(2) 40,000 $ 0.10 February 15, 2001 -- --
March 17, 1999 460,000 $ 0.60 March 17, 2000 $ 0.75 March 17, 2001
May 5, 1999 500,000 $ 0.50 May 5, 2004 -- --
May 27, 1999 610,000 $ 0.60 May 26, 2000 $ 0.75 May 26, 2001
---------
Total 2,405,492
=========
</TABLE>
- ----------
(1) These warrants were issued to purchasers of debentures of Empyrean issued in
a private placement on the same date.
(2) These warrants were issued to purchasers of our promissory notes issued in a
private placement on the same date.
Upon completion of our reincorporation, these warrants will entitle the
holders to purchase our Delaware company stock at the same price.
1998 EMPRYEAN DIAGNOSTICS, LTD. STOCK PLAN
Empyrean has adopted our 1998 stock option plan. We believe the plan is
necessary to attract, compensate, and motivate our employees, officers,
directors, and consultants. Under the plan, we may grant incentive stock options
and non-qualified stock options to our employees, officers, directors, and
consultants. The Board administers the plan. The Board determines eligibility,
the types and sizes of options, the price and timing of options, and any
vesting, including acceleration of vesting, of options.
An aggregate of 6,000,000 shares of Empyrean 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. After our
reincorporation, Preventx will assume this 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.
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
45
<PAGE>
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 termitting this agreement.
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 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 warrants that were granted and fully exercisable in January, 1999 at an
exercisable price of $0.01. The remaining 500,000 warrants that were granted and
fully exercisable on May 5, 1999 have an exercise price of $0.50. Consulting
expenses in the amount of $213,275 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.
PRICE OF COMMON STOCK
Our common stock is publicly traded on the over-the-counter bulletin board
under the ticker symbol "EMDG." We have approximately 4,100 holders of our
common stock. The following table presents the high and low bid prices of the
common stock.
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.
46
<PAGE>
LEGAL MATTERS
The validity of the Preventx, Inc. shares to be issued in connection with
the merger and selected tax matters relating to the reincorporation merger will
be passed upon by Snell & Wilmer L.L.P.
EXPERTS
Grant Thornton LLP, independent auditors, have audited our consolidated
financial statements as of December 31, 1998, and for each of the two years then
ended, as set forth in their report thereon, which financial statements and
report are included elsewhere in this Joint Proxy Statement/Prospectus. These
consolidated financial statements are included in reliance on their report,
given on their authority as experts in accounting and auditing.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the SEC a registration statement on Form S-4 under the
Securities Act of 1933, as amended with respect to the securities offered by
this Joint Proxy Statement/Prospectus. This Joint Proxy Statement/Prospectus,
which is a part of the Registration Statement, does not contain all of the
information in the Registration Statement because parts are omitted in
accordance with the rules and regulations of the SEC. For further information
with respect to us and the offering described in this document, reference is
made to the entire Registration Statement.
We are not subject to the informational requirements of the Securities
Exchange Act of 1934, as amended, and accordingly are not obligated to file
reports, proxy statements, information statements, and other information with
the SEC in accordance with the Exchange Act. However, we intend to begin filing
SEC reports after the effective date of this Joint Proxy Statement/Prospectus.
The Registration Statement we have filed and any reports, proxy statements,
information statements, and other information we later file with the SEC under
the Exchange Act may be inspected and copied at the public reference facilities
of the SEC at Room 1024, Judiciary Plaza, 450 Fifth Street N.W., Washington,
D.C. 20549 and at the SEC's regional offices at Seven World Trade Center, 13th
Floor, New York, New York 10048, and Citicorp Center, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661. Copies of these materials can be obtained
from the Public Reference Section of the SEC at 450 Fifth Street, N.W.,
Washington, D.C. 20549, at prescribed rates, and can also be obtained
electronically through the SEC's Electronic Data Gathering, Analysis and
Retrieval System at the SEC's Internet web site (http://www.sec.gov).
47
<PAGE>
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>
ANNEX A
AGREEMENT AND PLAN OF MERGER
This Agreement and Plan of Merger, is made as of October , 1999, by and
among Empyrean Bioscience, Inc., a Wyoming corporation ("EBW") and Preventx,
Inc., a Delaware corporation ("EBD").
W I T N E S S E T H:
WHEREAS, EBW is a corporation duly organized and existing under the laws of
the State of Wyoming;
WHEREAS, EBD is a corporation duly organized and existing under the laws of
the State of Delaware;
WHEREAS, the authorized capital stock of EBW is: (i) 100,000,000 shares of
common stock, without par value (the "EBW Common Stock") of which 29,346,659
shares are issued and outstanding; and (ii)100,000,000 shares of Class A
Preferred Stock, $10.00 par value and 100,000,000 share of Class B Preferred
Stock, $50.00 par value (collectively, the "EBW Preferred Stock"), of which no
shares are issued and outstanding;
WHEREAS, the authorized capital stock of EBD is: (i) 90,000,000 shares of
common stock, par value $.0001 per share ("EBD Common Stock"), of which 100
shares are issued and outstanding, and (ii) 10,000,000 shares of Preferred Stock
("EBD Preferred Stock"), par value $.0001 per share, of which no shares are
issued and outstanding;
WHEREAS, the Boards of Directors of EBW and EBD deem it advisable and in
the best interests of their respective corporations and shareholders that EBW be
merged with and into EBD, with EBD being the surviving corporation (the
"Reincorporation Merger");
WHEREAS, the Boards of Directors of EBW and EBD have approved this
Agreement by resolutions duly adopted by their respective Boards of Directors in
accordance with the laws of their respective jurisdictions of incorporation; and
WHEREAS, EBW and EBD desire to effect the Reincorporation Merger as a plan
of reorganization in accordance with the provisions of Section 368(a)(1)(F) of
the Internal Revenue Code of 1986, as amended (the "Code");
NOW, THEREFORE, in consideration of the mutual covenants and agreements set
forth herein, and in accordance with applicable law, the parties hereto agree as
follows:
ARTICLE I
REINCORPORATION MERGER
1.01 SURVIVING CORPORATION.
(a) The effective time of the Reincorporation Merger (the "Effective Time")
shall occur at the latest of: (i) the time and date that shareholders of EBW
approve this Agreement and the Reincorporation Merger; (ii) the time and date
that a certificate of merger is duly filed with the Secretary of State of
Delaware with respect to the Reincorporation Merger or such later date and time
as is set forth therein; and (iii) the time and date that articles of merger are
duly filed with the Secretary of State of Wyoming with respect to the
Reincorporation Merger or such later date and time as is set forth therein.
(b) At the Effective Time, EBW shall be merged with and into EBD, with EBD
being the surviving corporation of the Reincorporation Merger. At the Effective
Time, the separate corporate existence of EBW shall cease and EBD shall possess
all the rights, privileges, powers, and franchises of a public and private
nature and be subject to all the restrictions, disabilities, and duties of each
of EBW and EBD (collectively, the "Constituent Corporations"); and all and
singular, the rights, privileges, powers and
A-1
<PAGE>
franchises of each of the Constituent Corporations, and all property, real,
personal, or mixed, and all debts due to each of the Constituent Corporations on
whatever account, as well for stock subscriptions as all other things in action
belonging to each of the Constituent Corporations, shall be vested in EBD; and
all property, rights, and privileges, powers, and franchises, and all and every
other interest shall be thereafter as effectually the property of EBD as they
were of the respective Constituent Corporations, and the title to any real
estate vested by deed or otherwise, in either of such Constituent Corporations
shall not revert or be in any way impaired by reason of the Merger; but all
rights of creditors and all liens upon any property of EBW shall be preserved
unimpaired. To the extent permitted by law, any claim existing or action or
proceeding pending by or against either of the Constituent Corporations may be
prosecuted as if the Merger had not taken place. All debts, liabilities, and
duties of the respective Constituent Corporations shall thenceforth attach to
EBD and may be enforced against it to the same extent as if such debts,
liabilities, and duties had been incurred or contracted by it. All corporate
acts, plans, policies, agreements, arrangements, approvals, and authorizations
of EBW, its shareholders, Board of Directors and committees thereof, officers
and agents which were valid and effective immediately prior to the Effective
Time, shall be taken for all purposes as the acts, plans, policies, agreements,
arrangements, approvals, and authorizations of EBD and shall be effective and
binding thereon as the same were with respect to EBW. The employees and agents
of EBW shall become the employees and agents of EBD and continue to be entitled
to the same rights and benefits which they enjoyed as employees and agents of
EBW. The requirements of any plans or agreements of EBW involving the issuance
or purchase by EBW of certain shares of its capital stock shall be satisfied by
the issuance or purchase of a like number of shares of EBD.
1.02 CERTIFICATE OF INCORPORATION AND BYLAWS.
(a) From and after the Effective Time, the Certificate of Incorporation of
EBD, as in effect immediately prior to the Effective Time, shall be the
Certificate of Incorporation of EBD, until altered, amended, or repealed in
accordance with the laws of the State of Delaware.
(b) From and after the Effective Time, the Bylaws of EBD, as in effect
immediately prior to the Effective Time, shall be the Bylaws of EBD, until
altered, amended, or repealed in accordance with the laws of the State of
Delaware.
1.03 DIRECTORS AND OFFICERS.
(a) The directors of EBD immediately prior to the Effective Time shall be
the directors of EBD from and after the Effective Time and shall hold office
from and after the Effective Time in accordance with the Bylaws of EBD until
their respective successors are duly appointed or elected and qualified.
(b) The officers of EBD immediately prior to the Effective Time shall be
the officers of EBD from and after the Effective Time and shall hold the same
offices from and after the Effective Time in accordance with the Bylaws of EBD
until their respective successors are duly appointed or elected and qualified.
1.04 TERMS OF MERGER.
(a) At the Effective Time, the shares of capital stock of EBW shall be
converted into shares of capital stock of EBD as follows:
(i) each share of EBW Common Stock issued and outstanding immediately
prior to the Effective Time shall, automatically and without further act of
EBW, EBD, or any holder thereof, be extinguished and converted into one (1)
issued and outstanding and fully paid and nonassessable share of EBD Common
Stock subject to the same terms, conditions, and restrictions, if any, as
existed immediately prior to the Effective Time; and
(ii) each share of EBW Common Stock held in the treasury immediately
prior to the Effective Time, if any, shall, automatically and without
further act of EBW, EBD, or any holder thereof, be extinguished and
converted into one (1) fully paid and nonassessable share of EBD Common
Stock to be held in the treasury of EBD subject to the same terms,
conditions, and restrictions, if any, as existed immediately prior to the
Effective Time.
(b) Each person who, as a result of the Reincorporation Merger, holds one
or more certificates representing one or more shares of EBW Common Stock may
surrender any such certificate to EBD, and,
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upon such surrender, EBD shall, within a reasonable time, deliver to such
person, in substitution and exchange therefor, one or more certificates
evidencing the number of shares of EBD Common Stock that such person is entitled
to receive in accordance with the terms of this Agreement, in substitution for
the number of shares of EBW Common Stock represented by each certificate so
surrendered; provided, however, that no such holder shall be required to
surrender any such certificate until such certificate otherwise would be
surrendered for transfer on the books of the issuing corporation in the ordinary
course of business.
(c) At the Effective Time, all of the shares of capital stock of EBD issued
or outstanding immediately prior to the Effective Time shall, automatically and
without further act of EBW, EBD, or any holder thereof, be canceled and cease to
exist, without any consideration being payable therefor.
(d) At the Effective Time, each option to purchase a share of EBW Common
Stock outstanding immediately prior to the Effective Time, if any, shall
automatically and without further act of EBW, EBD, or any holder thereof, become
an option to purchase one (1) share of EBD Common Stock, subject to the same
terms and conditions. ratio.
ARTICLE II
MISCELLANEOUS
2.01 CONSENT TO SERVICE OF PROCESS. EBD hereby consents and agrees,
effective as of the Effective Time, to be sued and served with process in the
State of Wyoming in any proceeding for the enforcement of the rights, if any, of
a dissenting shareholder of EBW against EBD. EBD hereby irrevocably appoints the
Wyoming Secretary of State as its agent to accept service of process in any such
proceeding from and after the Effective Time. EBD hereby agrees that it will
promptly pay to the dissenting shareholders of EBW the amount, if any, to which
they shall be entitled under the Business Corporation Act of the State of
Wyoming with respect to dissenting shareholders.
2.02 ACCOUNTING MATTERS. Except as herein provided with respect to the
cancellation of the outstanding shares of EBW, EBD agrees that, upon the
Effective Time, the assets, liabilities, reserves, and accounts of EBW and EBD
shall be taken up or continued on the books of EBD in the amounts at which such
assets, liabilities, reserves, and accounts shall have been carried on the books
of EBW and EBD immediately prior to the Effective Time, subject to such
adjustments, and such elimination of intercompany items, as may be appropriate
to give effect to the Reincorporation Merger.
2.03 EXPENSES OF REINCORPORATION MERGER. From and after the Effective Time,
EBD shall pay all unpaid expenses of carrying this Agreement into effect and
accomplishing the Reincorporation Merger.
2.04 FURTHER ASSURANCES. If, at any time from and after the Effective Time,
EBD shall consider or be advised that any further assignment or assurance in law
is necessary or desirable to vest in EBD the title to any property or rights of
EBW, the proper officers of EBD are hereby authorized, in the name of EBW or
otherwise, to execute and make all such proper assignments and assurances in
law, and to do all other things necessary or proper to vest such property or
rights in EBD and otherwise to carry out the purposes of this Agreement.
2.05 APPROVAL. This Agreement shall be submitted for approval by the
holders of EBW Common Stock at an annual or special meeting of shareholders, and
this Agreement constitutes the approval thereof by written consent of EBW in its
capacity as sole shareholder of EBD.
2.06 TERMINATION AND ABANDONMENT. At any time prior to the Effective Time
and for any reason, this Agreement may be terminated and abandoned by the Board
of Directors of EBW, notwithstanding approval of this Agreement by the
shareholders of EBW and EBD. Upon any such termination, this Agreement shall
become null and void and have no effect, without any liability to any person on
the part of EBW or EBD or their shareholders, directors, or officers.
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2.07 AMENDMENT. At any time prior to the Effective Time and for any reason,
this Agreement may be amended, notwithstanding approval of this Agreement by the
shareholders of EBW or EBD, by an agreement in writing executed in the same
manner as this Agreement; provided, however, that after approval of this
Agreement by the shareholders of EBW, this Agreement may not be amended, without
such further approval as is required by law, to the extent that such amendment
would: (i) alter or change the amount or kind of shares to be received by the
shareholders of EBD or EBW in the Reincorporation Merger; (ii) alter or change
any term of the Certificate of Incorporation of EBD; or (iii) effect any
alteration or change that would adversely affect the shareholders of EBW or EBD.
EMPYREAN BIOSCIENCE, INC.
a Wyoming corporation
By:
-------------------------
Name:
Title:
PREVENTX, INC.
a Delaware corporation
By:
-------------------------
Name:
Title:
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ANNEX B
ARTICLE 13
DISSENTERS' RIGHTS
17-16-1301. DEFINITIONS.
(a) As used in this article:
(i) "Beneficial shareholder" means the person who is a beneficial
owner of shares held in a voting trust or by a nominee as the record
shareholder;
(ii) "Corporation" means the issuer of the shares held by a dissenter
before the corporate action, or the surviving, new, or acquiring
corporation by merger, consolidation, or share exchange of that issuer;
(iii) "Dissenter" means a shareholder who is entitled to dissent from
corporate action under W.S. 17-16-1302 and who exercises that right when
and in the manner required by W.S. 17-16-1320 through 17-16-1328;
(iv) "Fair value," with respect to a dissenter's shares, means the
value of the shares immediately before the effectuation of the corporate
action to which the dissenter objects, excluding any appreciation or
depreciation in anticipation of the corporate action unless exclusion would
be inequitable;
(v) "Interest" means interest from the effective date of the corporate
action until the date of payment, at the average rate currently paid by the
corporation on its principal bank loans, or, if none, at a rate that is
fair and equitable under all the circumstances;
(vi) "Record shareholder" means the person in whose names shares are
registered in the records of a corporation or the beneficial owner of
shares to the extent of the rights granted by a nominee certificate on file
with a corporation;
(vii) "Shareholder" means the record shareholder or the beneficial
shareholder.
17-16-1302. RIGHT TO DISSENT.
(a) A shareholder is entitled to dissent from, and to obtain payment of the
fair value of his shares in the event of, any of the following corporate
actions:
(i) Consummation of a plan of merger or consolidation to which the
corporation is a party if:
(A) Shareholder approval is required for the merger or
theconsolidation by W.S. 17-16-1103 or 17-16-1111 or the articles of
incorporation and the shareholder is entitled to vote on the merger or
consolidation; or
(B) The corporation is a subsidiary that is merged with its
parent under W.S. 17-16-1104.
(ii) Consummation of a plan of share exchange to which the corporation
is a party as the corporation whose shares will be acquired, if the
shareholder is entitled to vote on the plan;
(iii) Consummation of a sale or exchange of all, or substantially all,
of the property of the corporation other than in the usual and regular
course of business, if the shareholder is entitled to vote on the sale or
exchange, including a sale in dissolution, but not including a sale
pursuant to court order or a sale for cash pursuant to a plan by which all
or substantially all of the net proceeds of the sale will be distributed to
the shareholders within one (1) year after the date of sale;
(iv) An amendment of the articles of incorporation that materially and
adversely affects rights in respect of a dissenter's shares because it:
(A) Alters or abolishes a preferential right of the shares;
(B) Creates, alters or abolishes a right in respect of
redemption, including a provision respecting a sinking fund for the
redemption or repurchase, of the shares;
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(C) Alters or abolishes a preemptive right of the holder of the
shares to acquire shares or other securities;
(D) Excludes or limits the right of the shares to vote on any
matter, or to cumulate votes, other than a limitation by dilution
through issuance of shares or other securities with similar voting
rights; or
(E) Reduces the number of shares owned by the shareholder to a
fraction of a share if the fractional share so created is to be
acquired for cash under W.S. 17-16-604.
(v) Any corporate action taken pursuant to a shareholder vote to the
extent the articles of incorporation, bylaws, or a resolution of the board
of directors provides that voting or nonvoting shareholders are entitled to
dissent and obtain payment for their shares.
(b) A shareholder entitled to dissent and obtain payment for his shares
under this article may not challenge the corporate action creating his
entitlement unless the action is unlawful or fraudulent with respect to the
shareholder or the corporation.
17-16-1303. DISSENT BY NOMINEES AND BENEFICIAL OWNERS.
(a) A record shareholder may assert dissenters' rights as to fewer than all
the shares registered in his name only if he dissents with respect to all shares
beneficially owned by any one (1) person and notifies the corporation in writing
of the name and address of each person on whose behalf he asserts dissenters'
rights. The rights of a partial dissenter under this subsection are determined
as if the shares as to which he dissents and his other shares were registered in
the names of different shareholders.
(b) A beneficial shareholder may assert dissenters' rights as to shares
held on his behalf only if:
(i) He submits to the corporation the record shareholder's written
consent to the dissent not later than the time the beneficial shareholder
asserts dissenters' rights; and
(ii) He does so with respect to all shares of which he is the
beneficial shareholder or over which he has power to direct the vote.
17-16-1320. NOTICE OF DISSENTERS' RIGHTS.
(a) If proposed corporate action creating dissenters' rights under W.S.
17-16-1302 is submitted to a vote at a shareholders' meeting, the meeting notice
shall state that shareholders are or may be entitled to assert dissenters'
rights under this article and be accompanied by a copy of this article.
(b) If corporate action creating dissenters' rights under W.S. 17-16-1302
is taken without a vote of shareholders, the corporation shall notify in writing
all shareholders entitled to assert dissenters' rights that the action was taken
and send them the dissenters' notice described in W.S. 17-16-1322.
17-16-1321. NOTICE OF INTENT TO DEMAND PAYMENT.
(a) If proposed corporate action creating dissenters' rights under W.S.
17-16-1302 is submitted to a vote at a shareholders' meeting, a shareholder who
wishes to assert dissenters' rights shall deliver to the corporation before the
vote is taken written notice of his intent to demand payment for his shares if
the proposed action is effectuated and shall not vote his shares in favor of the
proposed action.
(b) A shareholder who does not satisfy the requirements of subsection (a)
of this section is not entitled to payment for his shares under this article.
17-16-1322. DISSENTERS' NOTICE.
(a) If proposed corporate action creating dissenters' rights under W.S.
17-16-1302 is authorized at a shareholders' meeting, the corporation shall
deliver a written dissenters' notice to all shareholders who satisfied the
requirements of W.S. 17-16-1321.
(b) The dissenters' notice shall be sent no later than ten (10) days after
the corporate action was taken, and shall:
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(i) State where the payment demand shall be sent and where and when
certificates for certificated shares shall be deposited;
(ii) Inform holders of uncertificated shares to what extent transfer
of the shares will be restricted after the payment demand is received;
(iii) Supply a form for demanding payment that includes the date of
the first announcement to news media or to shareholders of the terms of the
proposed corporate action and requires that the person asserting
dissenters' rights certify whether or not he acquired beneficial ownership
of the shares before that date;
(iv) Set a date by which the corporation shall receive the payment
demand, which date may not be fewer than thirty (30) nor more than sixty
(60) days after the date the notice required by subsection (a) of this
section is delivered; and
(v) Be accompanied by a copy of this article.
17-16-1323. DUTY TO DEMAND PAYMENT.
(a) A shareholder sent a dissenters' notice described in W.S. 17-16-1322
shall demand payment, certify whether he acquired beneficial ownership of the
shares before the date required to be set forth in the dissenters' notice
pursuant to W.S. 17-16-1322(b)(iii), and deposit his certificates in accordance
with the terms of the notice.
(b) The shareholder who demands payment and deposits his share certificates
under subsection (a) of this section retains all other rights of a shareholder
until these rights are canceled or modified by the taking of the proposed
corporate action.
(c) A shareholder who does not demand payment or deposit his share
certificates where required, each by the date set in the dissenters' notice, is
not entitled to payment for his shares under this article.
17-16-1324. SHARE RESTRICTIONS.
(a) The corporation may restrict the transfer of uncertificated shares from
the date the demand for their payment is received until the proposed corporate
action is taken or the restrictions released under W.S. 17-16-1326.
(b) The person for whom dissenters' rights are asserted as to
uncertificated shares retains all other rights of a shareholder until these
rights are canceled or modified by the taking of the proposed corporate action.
17-16-1325. PAYMENT.
(a) Except as provided in W.S. 17-16-1327, as soon as the proposed
corporate action is taken, or upon receipt of a payment demand, the corporation
shall pay each dissenter who complied with W.S. 17-16-1323 the amount the
corporation estimates to be the fair value of his shares, plus accrued interest.
(b) The payment shall be accompanied by:
(i) The corporation's balance sheet as of the end of a fiscal year
ending not more than sixteen (16) months before the date of payment, an
income statement for that year, a statement of changes in shareholders'
equity for that year, and the latest available interim financial
statements, if any;
(ii) A statement of the corporation's estimate of the fair value of
the shares;
(iii) An explanation of how the interest was calculated;
(iv) A statement of the dissenter's right to demand payment under W.S.
17-16-1328; and
(v) A copy of this article.
17-16-1326. FAILURE TO TAKE ACTION.
(a) If the corporation does not take the proposed action within sixty (60)
days after the date set for demanding payment and depositing share certificates,
the corporation shall return the deposited certificates and release the transfer
restrictions imposed on uncertificated shares.
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(b) If after returning deposited certificates and releasing transfer
restrictions, the corporation takes the proposed action, it shall send a new
dissenters' notice under W.S. 17-16-1322 and repeat the payment demand
procedure.
17-16-1327. AFTER-ACQUIRED SHARES.
(a) A corporation may elect to withhold payment required by W.S. 17-16-1325
from a dissenter unless he was the beneficial owner of the shares before the
date set forth in the dissenters' notice as the date of the first announcement
to news media or to shareholders of the terms of the proposed corporate action.
(b) To the extent the corporation elects to withhold payment under
subsection (a) of this section, after taking the proposed corporate action, it
shall estimate the fair value of the shares, plus accrued interest, and shall
pay this amount to each dissenter who agrees to accept it in full satisfaction
of his demand. The corporation shall send with its offer a statement of its
estimate of the fair value of the shares, an explanation of how the interest was
calculated, and a statement of the dissenter's right to demand payment under
W.S. 17-16-1328.
17-16-1328. PROCEDURE IF SHAREHOLDER DISSATISFIED WITH PAYMENT OR OFFER.
(a) A dissenter may notify the corporation in writing of his own estimate
of the fair value of his shares and amount of interest due, and demand payment
of his estimate, less any payment under W.S. 17-16-1325, or reject the
corporation's offer under W.S. 17-16-1327 and demand payment of the fair value
of his shares and interest due, if:
(i) The dissenter believes that the amount paid under W.S. 17-16-1325
or offered under W.S. 17-16-1327 is less than the fair value of his shares
or that the interest due is incorrectly calculated;
(ii) The corporation fails to make payment under W.S. 17-16-1325
within sixty (60) days after the date set for demanding payment; or
(iii) The corporation, having failed to take the proposed action, does
not return the deposited certificates or release the transfer restrictions
imposed on uncertificated shares within sixty (60) days after the date set
for demanding payment.
(b) A dissenter waives his right to demand payment under this section
unless he notifies the corporation of his demand in writing under subsection (a)
of this section within thirty (30) days after the corporation made or offered
payment for his shares.
17-16-1330. COURT ACTION.
(a) If a demand for payment under W.S. 17-16-1328 remains unsettled, the
corporation shall commence a proceeding within sixty (60) days after receiving
the payment demand and petition the court to determine the fair value of the
shares and accrued interest. If the corporation does not commence the proceeding
within the sixty (60) day period, it shall pay each dissenter whose demand
remains unsettled the amount demanded.
(b) The corporation shall commence the proceeding in the district court of
the county where a corporation's principal office, or if none in this state, its
registered office, is located. If the corporation is a foreign corporation
without a registered office in this state, it shall commence the proceeding in
the county in this state where the registered office of the domestic corporation
merged with or whose shares were acquired by the foreign corporation was
located.
(c) The corporation shall make all dissenters, whether or not residents of
this state, whose demands remain unsettled parties to the proceeding as in an
action against their shares and all parties shall be served with a copy of the
petition. Nonresidents may be served by registered or certified mail or by
publication as provided by law.
(d) The jurisdiction of the court in which the proceeding is commenced
under subsection (b) of this section is plenary and exclusive. The court may
appoint one (1) or more persons as appraisers to receive
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evidence and recommend decision on the question of fair value. The appraisers
have the powers described in the order appointing them, or in the amendment to
it. The dissenters are entitled to the same discovery rights as parties in other
civil proceedings.
(e) Each dissenter made a party to the proceeding is entitled to judgment
for:
(i) The amount, if any, by which the court finds the fair value of his
shares, plus interest, exceeds the amount paid by the corporation; or
(ii) The fair value, plus accrued interest, of his after-acquired
shares for which the corporation elected to withhold payment under W.S.
17-16-1327.
17-16-1331. COURT COSTS AND COUNSEL FEES.
(a) The court in an appraisal proceeding commenced under W.S. 17-16-1330
shall determine all costs of the proceeding, including the reasonable
compensation and expenses of appraisers appointed by the court. The court shall
assess the costs against the corporation, except that the court may assess costs
against all or some of the dissenters, in amounts the court finds equitable, to
the extent the court finds the dissenters acted arbitrarily, vexatiously, or not
in good faith in demanding payment under W.S. 17-16-1328.
(b) The court may also assess the fees and expenses of counsel and experts
for the respective parties, in amounts the court finds equitable:
(i) Against the corporation and in favor of any or all dissenters if
the court finds the corporation did not substantially comply with the
requirements of W.S. 17-16-1320 through 17-16-1328; or
(ii) Against either the corporation or a dissenter, in favor of any
other party, if the court finds that the party against whom the fees and
expenses are assessed acted arbitrarily, vexatiously, or not in good faith
with respect to the rights provided by this article.
(c) If the court finds that the services of counsel for any dissenter were
of substantial benefit to other dissenters similarly situated, and that the fees
for those services should not be assessed against the corporation, the court may
award to these counsel reasonable fees to be paid out of the amounts awarded the
dissenters who were benefited.
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PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Reference is made to Section 145 of the Delaware General Corporation Law
(the "Delaware GCL"), as amended from time to time ("Section 145"), which
provides for indemnification of directors and officers of a corporation in
certain circumstances. In accordance with Section 145 of the Delaware General
Corporation Law, our certificate of incorporation provides that no director of
Preventx shall be personally liable to of Preventx or its stockholders for
monetary damages for breach of fiduciary duty as a director, except for
liability (1) for any breach of the director's duty of loyalty to Preventx or
its stockholders, (2) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (3) in respect of certain
unlawful dividend payments or stock redemptions or repurchases, or (4) for any
transaction from which the director derived an improper personal benefit. In
addition, our certificate of incorporation provides that if the Delaware General
Corporation Law is amended to authorize the further elimination or limitation of
the liability of directors, then the liabilty of a director of the Corporation
shall be eliminated or limited to the fullest extent permitted by the Delaware
General Corporation Law, as so amended.
Additionally, Article 8 of our Delaware By-Laws provides, among other
matters, that the right to indemnification is a contract right, that we are
expressly authorized to procure insurance, that advancement of expenses by
Preventx is mandatory (except as limited by law) and for procedural mechanisms
for the benefit of indemnified parties.
Article 8 of our Delaware By-Laws provides for indemnification of directors
and officers of Preventx. The provisions of Article 8, among other matters,
require us to indemnify certain persons to the fullest extent authorized by the
Delaware GCL, as the same may now exist or may hereafter be amended (but, in the
case of any such amendment, only to the extent that such amendment permits the
registrant to provide broader indemnification rights than such law permitted the
registrant to provide prior to such amendment). Article 8 provides that the
right to indemnification is a contract right and makes advances of expenses
incurred in defending a proceeding mandatory, provided that if required by the
Delaware GCL, the person seeking such advances furnishes an undertaking to us to
repay all amounts so advanced if it shall be determined by a final adjudication
that the person who received such expenses is not entitled to be indemnified.
Article 8 also expressly provides that any person claiming indemnification may
sue the registrant for payment of amounts due, that Preventx in such case will
have the burden of proving that the claimant has not met the standards of
conduct which make it permissible to indemnify the person for the amount claimed
under the Delaware GCL (except in the case of a claim for advancement of
expenses, where the required undertaking, if any, has been tendered, in which
case it shall not be a defense that the person has not met the applicable
standards of conduct) and that neither the failure by Preventx to have made a
determination that indemnification is proper, nor an actual determination by
Preventx that the claimant has not met the applicable standard of conduct, is a
defense to the action or creates a presumption that the claimant has not met the
applicable standards of conduct.
Preventx currently maintains directors' and officers' liability insurance
to supplement the protection provided in our Delaware Certificate of
Incorporation, as amended, our Delaware By-Laws, and to fund payments that the
we may be required to make under any such provisions. Such insurance is
renewable annually and is subject to standard terms and conditions, including
exclusions from coverage.
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ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
2.1 Form of Agreement and Plan of Merger, dated as of October 6, 1999,
between Empyrean Bioscience, Inc. and Preventx (Included as Annex A to
the proxy statement/prospectus forming a part of this Registration
Statement and incorporated herein by reference.)
3.1(a) Form of Certificate of Incorporation of Preventx.
3.1(b) Articles of Incorporation and Bylaws of Empyrean Wyoming.(1)
3.2 Form of Bylaws of Preventx.
4.1 Convertible Debenture and Warrant Purchase Agreement by and among
Empyrean and purchasers thereof and related Warrant.(1)
4.2 Form of Warrant between Empyrean and the Purchasers thereof dated
February 15, 1999.(1)
4.3 Form of Promissory Note between Empyrean and the Purchasers
thereof.(1)
4.4 Form of "Series K" Warrant Certificate Dated March 17, 1999 between
Empyrean and the Purchasers thereof.(1)
4.5 Form of "Series L" Warrant Certificate between Empyrean and the
Purchasers thereof.(1)
4.6 Certificate of Preventx Common Stock.(1)
5.1 Opinion of Snell & Wilmer L.L.P. as to the legality of the Preventx
common stock being registered hereby.
5.2 Opinion of Snell & Wilmer L.L.P. as to tax matters.
10.1 License Agreement dated as of February 21, 1998 between Empyrean and
Geda International Marketing Co., Ltd.(1)
10.2 Sub-license Agreement dated as of July 20, 1998 between Empyrean and
Preventx, Inc.(1)
10.3 Agreement and Assignment of Distribution Rights, between GEDA
International Marketing Co., Ltd., Farida Darbar, Empyrean Diagnostics
Inc., and Empyrean Diagnostics, Ltd., dated August 31, 1998
10.4 1998 Stock Option Plan and Form of Stock Option Agreement.(1)
10.5 Real Property Lease dated February 20, 1998 between Empyrean and
Remcon II, LLC.(1)
10.6 Employment Agreement for Stephen D. Hayter.(1)
10.7 Employment Agreement for Richard C. Adamany.(1)
10.8 Employment Agreement for Bennett S. Rubin.(1)
10.9 Distribution Agreement between Empyrean and Durstrand International.
21.1 Subsidiaries of Empyrean (1)
23.1 Consent of Grant Thornton LLP
23.2 Consent of Snell & Wilmer L.L.P. (included as part of its opinion
filed as Exhibit 5.1 and Exhibit 5.2 and incorporated herein by
reference.)
27.1 Financial Data Schedule.(1)
99.1 Form of Proxy.(1)
- ----------
(1) Previously filed.
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ITEM 22. UNDERTAKINGS.
(1) The undersigned registrant hereby undertakes as follows: that prior to any
public reoffering of the securities registered hereunder through use of a
prospectus which is a part of this registration statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c),
the issuer undertakes that such reoffering prospectus will contain the
information called for by the applicable registration form with respect to
reofferings by persons who may be deemed underwriters, in addition to the
information called for by the other items of the applicable form.
(2) The registrant undertakes that every prospectus: (i) that is filed pursuant
to paragraph (1) immediately preceding, or (ii) that purports to meet the
requirements of Section 10(a)(3) of the Act and is used in connection with
an offering of securities subject to Rule 415, will be filed as a part of
an amendment to the registration statement and will not be used until such
amendment is effective, and that, for purposes of determining any liability
under the Securities Act of 1933, each such post-effective amendment shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial BONA FIDE offering thereof.
(3) The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant
to Item 4, 10(b), 11, or 13 of this form, within one business day of
receipt of such request, and to send the incorporated documents by first
class mail or other equally prompt means. This includes information
contained in documents filed subsequent to the effective date of the
registration statement through the date of responding to the request.
(4) The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
(5) The undersigned registrant hereby undertakes:
(a) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(1) To include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;
(2) To reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum offering range
may be reflected in the form of prospectus filed with the Commission
pursuant to Rule 424(b) if, in the aggregate, the changes in volume and
price represent no more than a 20% change in the maximum aggregate offering
price set forth in the "Calculation of Registration Fee" table in the
effective registration statement;
(3) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement.
Provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) above do not apply
if the registration statement is on Form S-3, Form S-8 or Form F-3, and the
information required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed with or furnished to the
Commission by the registrant pursuant to section 13 or section 15(d) of the
Securities Exchange Act of 1934 that are incorporated by reference in the
registration statement.
(b) That, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
II-3
<PAGE>
(c) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
(6) Insofar as indemnification for liabilities under the Securities Act of
1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the provisions described in Item 20 above, or otherwise,
the registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Securities Act and is therefore unenforceable. If a claim of
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in a successful defense of any action, suit or
proceeding) is asserted by such director, officer, or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.
II-4
<PAGE>
SIGNATURES
Under the requirements of the Securities Act, the registrant has duly
caused this Amendment to No. 2 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.
Preventx, Inc.
By /s/ Stephen D. Hayter
--------------------------------------
Stephen D. Hayter, Chairman of the
Board of Directors, President, and
Chief Executive Officer
Under the requirements of the Securities Act of 1933, this registration
statement has been signed by the following persons in the capacities and on the
dates indicated.
Signature Title Date
--------- ----- ----
/s/ Stephen D. Hayter Chairman of the Board of October 26, 1999
- --------------------------- Directors, President, Chief
Stephen D. Hayter Executive Officer
(Principal Financial Officer
and Principal Accounting
Officer)
/s/ Dr. Andrew J. Fishleder Director October 26, 1999
- ---------------------------
Dr. Andrew J. Fishleder
/s/ Robert G.J. Burg II Director October 26, 1999
- ---------------------------
Robert G.J. Burg II
/s/ Michael Cicak Director October 26, 1999
- ---------------------------
Michael Cicak
/s/ Lawrence D. Bain Director October 26, 1999
- ---------------------------
Lawrence D. Bain
II-5
CERTIFICATE OF INCORPORATION
OF
PREVENTX, INC.
ARTICLE ONE
The name of the corporation is Preventx, Inc.
ARTICLE TWO
The address of the corporation's registered office in the State of Delaware
is 1209 Orange Street, in the City of Wilmington, County of New Castle, Delaware
19801. The name of its registered agent at such address is The Corporation Trust
Company.
ARTICLE THREE
The purpose of the corporation is to engage in any lawful act or activity
for which corporations may be organized under the General Corporation Law of the
State of Delaware.
ARTICLE FOUR
A. The corporation is authorized to issue two classes of shares of stock to
be designated, respectively, "Common Stock" and "Preferred Stock"; the total
number of shares of Common Stock that the corporation shall have authority to
issue is 90,000,000 and each of such shares shall have a par value of $.0001;
and the total number of shares of Preferred Stock that the corporation shall
have the authority to issue is 10,000,000 and each of such shares shall have a
par value of $.0001.
B. Shares of Preferred Stock may be issued from time to time in one or more
series as may from time to time be determined by the Board of Directors of the
corporation, each of said series to be distinctly designated. The voting powers,
preferences and relative, participating, optional, and other special rights, and
the qualifications, limitations, or restrictions thereof, if any, of each such
series may differ from those of any and all other series of Preferred Stock at
any time outstanding, and the Board of Directors is hereby expressly granted
authority to fix or alter, by resolution or resolutions, the designation,
number, voting powers, preferences, and relative, participating, optional, and
other special rights, and the qualifications, limitations, and restrictions
thereof, of each such series to the fullest extent permitted by law.
<PAGE>
ARTICLE FIVE
The name and mailing address of the incorporator is Stephen D. Hayter, 2238
West Lone Cactus Drive, Suite 200, Phoenix, Arizona 85027-2613.
ARTICLE SIX
The number of directors constituting the initial Board of Directors of the
corporation is one (1). Thereafter, the number of directors constituting the
Board of Directors shall be as set forth in the Bylaws. The name and address of
each person who is to serve as director until the first annual meeting of
stockholders or until his successor is elected and qualified is Stephen D.
Hayter, 2238 West Lone Cactus Drive, Suite 200, Phoenix, Arizona 85027-2613.
ARTICLE SEVEN
A director of the corporation shall not be personally liable to the
corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, except for liability (i) for any breach of the director's
duty of loyalty to the Corporation or its stockholders; (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law; (iii) under Section 174 of the Delaware General Corporation
Law; or (iv) for any transaction from which the director derived an improper
personal benefit. If the Delaware General Corporation Law is amended to
authorize corporate action further eliminating or limiting the personal
liability of directors, then the liability of a director of the corporation
shall be eliminated or limited to the fullest extent permitted by the Delaware
General Corporation Law, as so amended. Any repeal or modification of this
provision shall not adversely affect any right or protection of a director of
the corporation existing at the time of such repeal or modification. The
limitation of liability provided herein shall continue after a director has
ceased to occupy such position as to acts or omissions occurring during such
director's term of terms of office.
ARTICLE EIGHT
A. The corporation shall to the fullest extent authorized by the Delaware
General Corporation Law, as the same exists or may hereafter be amended (but, in
the case of any such amendment, only to the extent that such amendment permits
the corporation to provide broader indemnification rights than such law
permitted the corporation to provide prior to such amendment), indemnify and
hold harmless any person who was or is a party, or is threatened to be made a
party to or is otherwise involved in any threatened, pending or completed
action, suit or proceeding, whether civil, criminal, administrative or
investigative by reason of the fact that such person is or was a director or
officer of the corporation, or is or was serving at the request of the
corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, including service with
respect to an employee benefit plan (hereinafter an "Indemnitee") against
2
<PAGE>
expenses, liabilities and losses (including attorneys' fees, judgments, fines,
excise taxes or penalties paid in connection with the Employee Retirement Income
Security Act of 1974, as amended, and amounts paid in settlement) reasonably
incurred or suffered by such Indemnitee in connection therewith; provided,
however, that except as provided in this subparagraph with respect to
proceedings to enforce rights to indemnification, the corporation shall
indemnify any such Indemnitee in connection with a proceeding (or part thereof)
initiated by such Indemnitee only if such proceeding or part thereof was
authorized by the board of directors of this corporation.
B. The right to indemnification conferred in Subparagraph A of this Article
shall include the right to be paid by the corporation the expenses (including
attorneys' fees) incurred in defending any such proceeding in advance of its
final disposition; provided, however, that, if the Delaware General Corporation
Law requires, an advancement of expenses incurred by an Indemnitee in his
capacity as a director or officer (and not in any other capacity in which
service was or is rendered by such Indemnitee, including, without limitation,
service to an employee benefit plan) shall be made only upon delivery to the
corporation of an undertaking, by or on behalf of such Indemnitee, to repay all
amounts so advanced if it shall ultimately be determined by final judicial
decision from which there is not further right to appeal that such Indemnitee is
not entitled to be indemnified for such expenses under this Subparagraph B or
otherwise. The rights to indemnification and to the advancement of expenses
conferred in this Article shall be contract rights and such rights shall
continue as to an Indemnitee who has ceased to be a director, officer, employee
or agent and shall inure to the benefit of the Indemnitee's heirs, executors and
administrators.
C. If a claim under either Subparagraph A or B of this Article is not paid
in full by the corporation within sixty (60) days after a written claim has been
received by the corporation, except in the case of a claim for an advancement of
expenses, in which case the applicable period shall be twenty (20) days, the
Indemnitee may at any time thereafter bring suit against the corporation to
recover the unpaid amount of the claim. If successful in whole or in part in any
such suit, or in a suit brought by the corporation to recover an advancement of
expenses pursuant to the terms of an undertaking, the Indemnitee shall be
entitled to be paid also the expense of prosecuting or defending such suit. In
(i) any suit brought by the Indemnitee to enforce a right to indemnification
hereunder (but not in a suit brought by the Indemnitee to enforce a right to an
advancement of expenses) and (ii) in any suit brought by the corporation to
recover an advancement of expenses pursuant to the terms of an undertaking, the
corporation shall be entitled to recover such expenses upon a final adjudication
that the Indemnitee has not met any applicable standard for indemnification set
forth in the Delaware General Corporation Law. Neither the failure of the
corporation (including its board of directors, independent legal counsel, or its
stockholders) to have made a determination prior to the commencement of such
suit that indemnification of the Indemnitee is proper in the circumstances
because the Indemnitee has met the applicable standard of conduct set forth in
the Delaware General Corporation Law, nor an actual determination by the
corporation (including its board of directors, independent legal counsel, or its
stockholders) that the Indemnitee has not met such applicable standard of
conduct, shall create a presumption that the Indemnitee has not met the
applicable standard of conduct or, in the case of such a suit brought by the
3
<PAGE>
Indemnitee, be a defense to such suit. In any suit brought by the Indemnitee to
enforce a right to indemnification or to an advancement of expenses hereunder,
or brought by the corporation to recover an advancement of expenses pursuant to
the terms of an undertaking, the burden of proving that the Indemnitee is not
entitled to be indemnified, or to such advancement of expenses under this
section or otherwise shall be on the corporation.
D. The rights to indemnification and advancement of expenses conferred in
this Article shall not be exclusive of any other rights which any person may
have or hereafter acquire under any statute, the corporation's certificate of
incorporation, as it may be amended or restated from time-to-time, any
agreement, vote of stockholders or disinterested directors, or otherwise. No
amendment or repeal of this Article Eight shall apply to or have any effect on
any right to indemnification provided hereunder with respect to any acts or
omissions occurring prior to such amendment or repeal.
E. The corporation shall have the power to purchase and maintain insurance,
at its expense, to protect itself and any director, officer, employee or agent
of the corporation or another corporation, partnership, joint venture, trust or
other enterprise (including an employee benefit plan) against any expense,
liability or loss, whether or not the corporation would have the power to
indemnify such person against such expense, liability or loss under the Delaware
General Corporation Law. The corporation may also create a trust fund, grant a
security interest and/or use other means (including, but not limited to letters
of credit, surety bonds and/or similar arrangements), as well as enter into
contracts providing indemnification to the full extent authorized or permitted
by law and including as part thereof provisions with respect to any or all of
the foregoing, to ensure the payment of such amounts as may become necessary to
effect indemnification as provided therein, or elsewhere.
F. For purposes of this Article, references to the "corporation" shall
include any subsidiary of this corporation from and after the acquisition
thereof by this corporation, so that any person who is a director, officer,
employee or agent of such subsidiary after the acquisition thereof by this
corporation shall stand in the same position under the provisions of this
section as such person would have had such person served in such position for
this corporation.
G. The corporation may, to the extent authorized from time to time by the
board of directors, grant rights to indemnification and to the advancement of
expenses to any employee or agent of the corporation to the fullest extent of
the provisions of this Article with respect to the indemnification and
advancement of expenses of directors and officers of the corporation.
4
<PAGE>
ARTICLE NINE
The corporation expressly denies the application of the Arizona Corporate
Takeover Laws, Arizona Revised Statutes ss.ss. 10-2701 et seq., or any successor
thereto.
ARTICLE TEN
The corporation elects not to be governed by Section 203 of the Delaware
General Corporation Law, which pertains to business combinations with interested
stockholders.
ARTICLE ELEVEN
The corporation reserves the right to amend, alter, change, or repeal any
provision contained in this Certificate of Incorporation, in the manner now or
hereafter prescribed by the Delaware General Corporation Law.
ARTICLE TWELVE
The Board of Directors of the corporation shall have the power to adopt,
amend, and repeal any or all of the Bylaws of the corporation.
5
<PAGE>
I, THE UNDERSIGNED, for the purposes of forming a corporation under the
laws of the State of Delaware, do make, file and record this Certificate, and do
certify that the facts herein stated are true.
Dated this ___ day of September, 1999. /s/ Stephen D. Hayter
---------------------------------------
Stephen D. Hayter
Incorporator
6
BYLAWS
OF
PREVENTX, INC.
I. REFERENCES TO CERTAIN TERMS AND CONSTRUCTION
1.01. CERTAIN REFERENCES. Any reference herein made to law will be deemed
to refer to the law of the State of Delaware, including any applicable provision
of Chapter 1 of Title 8 of the Delaware Statutes, or any successor statutes, as
from time to time amended and in effect (sometimes referred to herein as the
"Delaware General Corporation Law"). Any reference herein made to the
corporation's Certificate will be deemed to refer to its Certificate of
Incorporation and all amendments thereto as at any given time on file with the
Delaware Secretary of State (any reference herein to that office being intended
to include any successor to the incorporating and related functions being
performed by that office at the date of the initial adoption of these Bylaws).
Except as otherwise required by law, the term "stockholder" as used herein shall
mean one who is a holder of record of shares of the corporation.
1.02. SENIORITY. The law and the Certificate (in that order of precedence)
will in all respects be considered senior and superior to these Bylaws, with any
inconsistency to be resolved in favor of the law and such Certificate (in that
order of precedence), and with these Bylaws to be deemed automatically amended
from time to time to eliminate any such inconsistency which may then exist.
1.03. COMPUTATION OF TIME. The time during which an act is required to be
done, including the time for the giving of any required notice herein, shall be
computed by excluding the first day or hour, as the case may be, and including
the last day or hour.
II. OFFICES
2.01. PRINCIPAL OFFICE. The principal office or place of business of the
corporation in the State of Delaware shall be the registered office of the
corporation in the State of Delaware. The corporation may change its registered
office from time to time in accordance with the relevant provisions of the
Delaware General Corporation Law. The corporation may have such other offices,
either within or without the State of Delaware, as the Board of Directors may
designate or as the business of the corporation may require from time to time.
III. STOCKHOLDERS
3.01. ANNUAL STOCKHOLDER MEETING. The annual meeting of the stockholders
shall be held on such date, and at such time and place, either within or without
the State of Delaware, as shall be fixed by the Board of Directors or, in the
absence of action by the Board, as set forth in the notice given or waiver
<PAGE>
signed with respect to such meeting pursuant to Section 3.03 below, for the
purpose of electing directors and for the transaction of such other business as
may properly come before the meeting. If any annual meeting is for any reason
not held on the date determined as aforesaid, a deferred annual meeting may
thereafter be called and held in lieu thereof, at which the same proceedings may
be conducted. If the day fixed for the annual meeting shall be a legal holiday
in the State of Delaware such meeting shall be held on the next succeeding
business day.
3.02. SPECIAL STOCKHOLDER MEETINGS. Special meetings of the stockholders
may be held whenever and wherever, either within or without the State of
Delaware, called for by or at the direction of the Chairman of the Board, the
President, or the Board of Directors.
3.03. NOTICE OF STOCKHOLDERS MEETINGS.
(a) REQUIRED NOTICE. Except as otherwise allowed or required by law,
written notice stating the place, day and hour of any annual or special
stockholders meeting shall be given not less than ten (10) nor more than sixty
(60) days before the date of the meeting by or at the direction of the person or
persons calling the meeting, to each stockholder entitled to vote at such
meeting and to any other stockholder entitled to receive notice of the meeting
by law or the Certificate. Such notice may be given either personally or by
sending a copy thereof through the mail, by telegraph, by private delivery
service (including overnight courier), or by facsimile transmission, charges
prepaid, to each stockholder at his/her address as it appears on the records of
the corporation. If the notice is sent by mail, by telegraph or by private
delivery service, it shall be deemed to have been given to the person entitled
thereto when deposited in the United States mail or with a telegraph office or
private delivery service for transmission to such person. If the notice is sent
by facsimile transmission, it shall be deemed to have been given upon
transmission, if transmission occurs before 12:00 noon at the place of receipt,
and upon the day following transmission, if transmission occurs after 12:00
noon.
(b) ADJOURNED MEETING. If any stockholders meeting is adjourned to a
different date, time, or place, notice need not be given of the new date, time,
and place, if the new date, time, and place are announced at the meeting at
which the adjournment is taken. But if the adjournment is for more than thirty
(30) days, or if after the adjournment a new record date is fixed for the
adjourned meeting, then notice of the adjourned meeting shall be given to each
stockholder of record entitled to such notice pursuant to Section 3.03(a) above.
(c) WAIVER OF NOTICE. Any stockholder may waive notice of a meeting
(or any notice of any other action required to be given by the Delaware General
Corporation Law, the corporation's Certificate, or these Bylaws), at any time
before, during, or after the meeting or other action, by a writing signed by the
stockholder entitled to the notice. Each such waiver shall be delivered to the
corporation for inclusion in the minutes or filing with the corporate records.
Attendance of a stockholder at a meeting shall constitute a waiver of notice of
the meeting, except when the stockholder attends a meeting for the express
purpose of objecting, at the beginning of the meeting, to the transaction of any
business because the meeting is not lawfully called or convened.
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<PAGE>
(d) CONTENTS OF NOTICE. The notice of each special stockholders
meeting shall include a description of the purpose or purposes for which the
meeting is called. Except as required by law or the corporation's Certificate,
the notice of an annual stockholders meeting need not include a description of
the purpose or purposes for which the meeting is called.
3.04. FIXING OF RECORD DATE. For the purpose of determining stockholders
entitled to notice of or to vote at any meeting of stockholders or any
adjournment thereof, or in order to make a determination of stockholders for any
other proper purpose, the Board of Directors may fix a date as the record date,
which record date shall not precede the date upon which the resolution fixing
the record date is adopted by the Board of Directors. In the case of determining
stockholders entitled to notice of or to vote at any meeting of stockholders or
any adjournment thereof, such record date shall not be more than sixty (60) days
nor less than ten (10) days prior to the date of such meeting. In the case of
determining stockholders entitled to consent to corporate action in writing
without a meeting, the record date shall not be more than ten (10) days after
the date upon which the resolution fixing the record date is adopted by the
Board of Directors. In the case of determining stockholders entitled to receive
payment of any dividend or other distribution or allotment of any rights or the
stockholders entitled to exercise any rights in respect of any change,
conversion or exchange of stock, or for the purpose of any other lawful action,
the record date shall be not more than sixty (60) days prior to such action. If
no record date is so fixed by the Board of Directors, the record date for the
determination of stockholders shall be as provided in the Delaware General
Corporation Law.
When a determination of stockholders entitled to notice of or to vote at
any meeting of stockholders has been made as provided in this Section, such
determination shall apply to any adjournment thereof, unless the Board of
Directors fixes a new record date.
3.05. STOCKHOLDER LIST. The officer who has charge of the stock ledger of
the corporation shall make, at least ten (10) days before every meeting of
stockholders, a complete list of the stockholders entitled to vote at the
meeting, arranged in alphabetical order, and showing the address and the number
of shares held by each. The stockholder list shall be available for inspection
by any stockholder, for any purpose germane to the meeting, during ordinary
business hours, for a period of at least ten (10) days prior to the meeting at a
place within the city where the meeting is to be held, which place shall be
specified in the meeting notice, or, if not so specified, at the place where the
meeting is to be held. The list shall also be produced and kept at the time and
place of the meeting during the whole time thereof, and may be inspected by any
stockholder who is present. Except as otherwise provided by law, failure to
comply with this section shall not affect the validity of any action taken at
the meeting.
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<PAGE>
3.06. STOCKHOLDER QUORUM AND VOTING REQUIREMENTS. Unless otherwise provided
in the Certificate or required by law,
(a) a majority of the shares entitled to vote, present in person or
represented by proxy, shall constitute a quorum at a meeting of stockholders;
(b) in all matters other than the election of directors, the
affirmative vote of the majority of shares present in person or represented by
proxy at a meeting and entitled to vote on the subject matter shall be at the
act of the stockholders;
(c) directors shall be elected by a plurality of the votes of the
shares present in person or represented by proxy at a meeting and entitled to
vote on the election of directors; and
(d) where a separate vote by a class or classes is required, a
majority of the outstanding shares of such class or classes, present in person
or represented by proxy, shall constitute a quorum entitled to take action with
respect to that vote on that matter and the affirmative vote of the majority of
shares of such class or classes present in person or represented by proxy at the
meeting shall be the act of such class.
Except as provided below, voting will be by ballot on any question as to
which a ballot vote is demanded prior to the time the voting begins by any
person entitled to vote on such question; otherwise, a voice vote will suffice.
Unless otherwise provided in the Certificate, all elections of directors will be
by written ballot. No ballot or change of vote will be accepted after the polls
have been declared closed following the ending of the announced time for voting.
3.07. PROXIES. At all meetings of stockholders, a stockholder may vote in
person or by proxy duly executed in writing by the stockholder or the
stockholder's duly authorized attorney-in-fact. Such proxy shall comply with law
and shall be filed with the Secretary of the corporation or other person
authorized to tabulate votes before or at the time of the meeting. No proxy
shall be valid after three (3) years from the date of its execution unless
otherwise provided in the proxy. The burden of proving the validity of any
undated, irrevocable, or otherwise contested proxy at a meeting of the
stockholders will rest with the person seeking to exercise the same. A facsimile
appearing to have been transmitted by a stockholder or by such stockholder's
duly authorized attorney-in-fact may be accepted as a sufficiently written and
executed proxy.
3.08. VOTING OF SHARES. Unless otherwise provided in the Certificate or the
Delaware General Corporation Law, each outstanding share entitled to vote shall
be entitled to one (1) vote upon each matter submitted to a vote at a meeting of
stockholders.
3.09. ELECTION INSPECTORS. The Board of Directors, in advance of any
meeting of the stockholders, may appoint an election inspector or inspectors to
act at such meeting (and at any adjournment thereof). If an election inspector
or inspectors are not so appointed, the chairman of the meeting may, or upon
request of any person entitled to vote at the meeting will, make such
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<PAGE>
appointment. If any person appointed as an inspector fails to appear or to act,
a substitute may be appointed by the chairman of the meeting. If appointed, the
election inspector or inspectors (acting through a majority of them if there be
more than one) will determine the number of shares outstanding, the
authenticity, validity, and effect of proxies, the credentials of persons
purporting to be stockholders or persons named or referred to in proxies, and
the number of shares represented at the meeting in person and by proxy; will
receive and count votes, ballots, and consents and announce the results thereof;
will hear and determine all challenges and questions pertaining to proxies and
voting; and, in general, will perform such acts as may be proper to conduct
elections and voting with complete fairness to all stockholders. No such
election inspector need be a stockholder of the corporation.
3.10. ORGANIZATION AND CONDUCT OF MEETINGS. Each meeting of the
stockholders will be called to order and thereafter chaired by the Chairman of
the Board of Directors if there is one, or, if not, or if the Chairman of the
Board is absent or so requests, then by the President, or if both the Chairman
of the Board and the President are unavailable, then by such other officer of
the corporation or such stockholder as may be appointed by the Board of
Directors. The corporation's Secretary or in his or her absence, an Assistant
Secretary will act as secretary of each meeting of the stockholders. If neither
the Secretary nor an Assistant Secretary is in attendance, the chairman of the
meeting may appoint any person (whether a stockholder or not) to act as
secretary for the meeting. After calling a meeting to order, the chairman
thereof may require the registration of all stockholders intending to vote in
person and the filing of all proxies with the election inspector or inspectors,
if one or more have been appointed (or, if not, with the secretary of the
meeting). After the announced time for such filing of proxies has ended, no
further proxies or changes, substitutions, or revocations of proxies will be
accepted. If directors are to be elected, a tabulation of the proxies so filed
will, if any person entitled to vote in such election so requests, be announced
at the meeting (or adjournment thereof) prior to the closing of the election
polls. Absent a showing of bad faith on his or her part, the chairman of a
meeting will, among other things, have absolute authority to fix the period of
time allowed for the registration of stockholders and the filing of proxies, to
determine the order of business to be conducted at such meeting, and to
establish reasonable rules for expediting the business of the meeting and
preserving the orderly conduct thereof (including any informal, or question and
answer portions thereof).
3.11. STOCKHOLDER APPROVAL OR RATIFICATION. The Board of Directors may
submit any contract or act for approval or ratification of the stockholders at a
duly constituted meeting of the stockholders. Except as otherwise required by
law, if any contract or act so submitted is approved or ratified by a majority
of the votes cast thereon at such meeting, the same will be valid and as binding
upon the corporation and all of its stockholders as it would be if it were the
act of its stockholders.
3.12. INFORMALITIES AND IRREGULARITIES. All informalities or irregularities
in any call or notice of a meeting of the stockholders or in the areas of
credentials, proxies, quorums, voting, and similar matters, will be deemed
waived if no objection is made at the meeting.
-5-
<PAGE>
3.13. STOCKHOLDER ACTION BY WRITTEN CONSENT. Any action required or
permitted to be taken at a meeting of the stockholders may be taken without a
meeting if one (1) or more consents in writing, setting forth the action so
taken, shall be signed by the holders of outstanding stock having not less than
the minimum number of votes that would be necessary to authorize or take such
action at a meeting at which all shares entitled to vote thereon were present
and voted. Each consent shall bear the date of signature of each stockholder who
signs the consent. The consents shall be delivered to the corporation in
accordance with law for inclusion in the minutes or filing with the corporate
record. Prompt notice of the taking of corporate action without a meeting by
less than unanimous written consent shall be given to those stockholders who
have not consented to the action.
IV. BOARD OF DIRECTORS
4.01. GENERAL POWERS. The business and affairs of the corporation shall be
managed by or under the direction of the Board of Directors.
4.02. NUMBER, TENURE, AND QUALIFICATION OF DIRECTORS. The initial number of
directors of the corporation shall be one (1). The number of directors in office
from time to time shall be as prescribed initially in the Certificate, or by the
incorporator or incorporators of the corporation, or by the initial director or
directors of the corporation and thereafter as prescribed from time to time by
resolution adopted by either the stockholders or the Board of Directors. The
directors will regularly be elected at each annual meeting of the stockholders,
but directors may be elected at any other meeting of the stockholders. Each
director shall hold office until his/her successor shall have been elected and
qualified or until his/her earlier resignation or removal. Unless required by
the Certificate, directors do not need to be residents of the State of Delaware
or stockholders of the corporation.
4.03. REGULAR MEETINGS OF THE BOARD OF DIRECTORS. A regular annual meeting
of the Board of Directors is to be held as soon as practicable after the
adjournment of each annual meeting of the stockholders, either at the place of
the stockholders meeting or at such other place as the directors elected at the
stockholders meeting may have been informed of at or prior to the time of their
election. Additional regular meetings may be held at regular intervals at such
places and at such times as the Board of Directors may determine.
4.04. SPECIAL MEETINGS OF THE BOARD OF DIRECTORS. Special meetings of the
Board of Directors may be held whenever and wherever called for by the Chairman
of the Board, the President, or the number of directors that would be required
to constitute a quorum.
4.05. NOTICE OF, AND WAIVER OF NOTICE FOR, DIRECTORS MEETINGS. No notice
need be given of regular meetings of the Board of Directors. Notice of the time
and place (but not necessarily the purpose or all of the purposes) of any
special meeting will be given to each director in person or by telephone, or via
mail or facsimile transmission. Notice to any director of any such special
meeting will be deemed given sufficiently in advance when (i), if given by mail,
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the same is deposited in the United States mail at least four (4) days before
the meeting date, with postage thereon prepaid, (ii), if given by facsimile
transmission, the same is transmitted at least 24 hours prior to the convening
of the meeting, or (iii), if personally delivered (including by overnight
courier) or given by telephone, the same is handed, or the substance thereof is
communicated over the telephone to the director or to an adult member of his or
her office staff or household, at least 24 hours prior to the convening of the
meeting. Any director may waive notice of any meeting and any adjournment
thereof at any time before, during, or after it is held, as provided by law.
Except as provided in the next sentence below, the waiver must be in writing,
signed by the director entitled to the notice, and filed with the minutes or
corporate records. The attendance of a director at a meeting shall constitute a
waiver of notice of such meeting, except when the person attends a meeting for
the express purpose of objecting, at the beginning of the meeting, to the
transaction of any business because the meeting is not lawfully called or
convened.
4.06. DIRECTOR QUORUM. A majority of the total number of directors then in
office shall constitute a quorum for the transaction of business at any meeting
of the Board of Directors, unless the Certificate requires a greater number.
4.07. DIRECTORS, MANNER OF ACTING.
(a) The affirmative vote of a majority of the directors present at a
meeting at which a quorum is present shall be the act of the Board of Directors
unless the Certificate or these Bylaws require a greater percentage and except
as otherwise required by law.
(b) Unless the Certificate provides otherwise, any or all directors
may participate in a regular or special meeting by, or conduct the meeting
through the use of, conference telephone or similar communications equipment by
means of which all persons participating in the meeting may hear each other, in
which case any required notice of such meeting may generally describe the
arrangements (rather than or in addition to the place) for the holding thereof.
A director participating in a meeting by this means is deemed to be present in
person at the meeting.
(c) A director who is present at a meeting of the Board of Directors
or a committee of the Board of Directors when corporate action is taken is
deemed to have assented to the action taken unless: (1) the director objects at
the beginning of the meeting (or promptly upon his/her arrival) to holding it or
transacting business at the meeting; or (2) his/her dissent or abstention from
the action taken is entered in the minutes of the meeting; or (3) he/she
delivers written notice of his/her dissent or abstention to the presiding
officer of the meeting before its adjournment or to the corporation before 5:00
p.m. on the next business day after the meeting. The right of dissent or
abstention is not available to a director who votes in favor of the action
taken.
4.08. DIRECTOR ACTION WITHOUT A MEETING. Unless the Certificate provides
otherwise, any action required or permitted to be taken by the Board of
Directors at a meeting may be taken without a meeting if the action is taken by
unanimous written consent of the Board of Directors as evidenced by one (1) or
more written consents describing the action taken, signed by each director and
filed with the minutes or proceedings of the Board of Directors.
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4.09. REMOVAL OF DIRECTORS BY STOCKHOLDERS. Except as limited by the
Certificate or by law, any director or the entire Board of Directors may be
removed, with or without cause, by the holders of a majority of the shares
entitled to vote at an election of directors.
4.10. BOARD OF DIRECTOR VACANCIES. Unless the Certificates provides
otherwise and except as otherwise provided by law, any vacancy or newly created
directorship may be filled by a majority of the directors then in office,
although less than a quorum, or by a sole remaining director.
4.11. DIRECTOR COMPENSATION. Unless otherwise provided in the Certificate,
by resolution of the Board of Directors, each director may be paid his/her
expenses, if any, of attendance at each meeting of the Board of Directors or any
committee thereof, and may be paid a stated salary as director or a fixed sum
for attendance at each meeting of the Board of Directors or any committee
thereof, or both. No such payment shall preclude any director from serving the
corporation in any capacity and receiving compensation therefor.
4.12. DIRECTOR COMMITTEES.
(a) CREATION OF COMMITTEES. Unless the Certificate provides otherwise,
the Board of Directors may create one (1) or more committees and appoint members
of the Board of Directors to serve on them. Each committee shall have one (1) or
more members, who serve at the pleasure of the Board of Directors.
(b) SELECTION OF MEMBERS. The creation of a committee and appointment
of members to it shall be approved by the greater of (1) a majority of all the
directors in office when the action is taken or (2) the number of directors
required by the Certificate to take such action. The Board of Directors may
designate one or more directors as alternate members of any committee, who may
replace any absent or disqualified member at any meeting of the committee. In
the absence or disqualification of any member of a committee, the member or
members thereof present at any meeting and not disqualified from voting, whether
or not he/she or they constitute a quorum, may unanimously appoint another
member of the Board of Directors to act at the meeting in the place of any such
absent or disqualified member.
(c) REQUIRED PROCEDURES. Sections 4.03 through 4.08 of this Article
IV, which govern meetings, action without meetings, notice and waiver of notice,
and quorum and voting requirements of the Board of Directors, apply to
committees and their members.
(d) AUTHORITY. Unless limited by the Certificate and except to the
extent limited by law, each committee may exercise those aspects of the
authority of the Board of Directors which the Board of Directors confers upon
such committee in the resolution creating the committee.
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4.13. DIRECTOR RESIGNATIONS. Any director or committee member may resign
from his or her office at any time by written notice delivered to the
corporation as required by law. Any such resignation will be effective upon its
receipt unless some later time is therein fixed, and then from that time. The
acceptance of a resignation will not be required to make it effective.
V. OFFICERS
5.01. NUMBER OF OFFICERS. The officers of the corporation shall be a
President, a Secretary, and a Treasurer, each of whom shall be appointed by the
Board of Directors. Such other officers and assistant officers as may be deemed
necessary, including any Vice Presidents, may be appointed by the Board of
Directors. If specifically authorized by the Board of Directors, an officer may
appoint one (1) or more other officers or assistant officers. The same
individual may simultaneously hold more than one (1) office in the corporation.
5.02. APPOINTMENT AND TERM OF OFFICE. The officers of the corporation shall
be appointed by the Board of Directors for a term as determined by the Board of
Directors. The designation of a specified term grants to the officer no contract
rights, and the Board of Directors can remove the officer at any time prior to
the termination of such term. If no term is specified, an officer of the
corporation shall hold office until he or she resigns, dies, or until he or she
is removed in the manner provided by law or in Section 5.03 of this Article V.
The regular election or appointment of officers will take place at each annual
meeting of the Board of Directors, but elections of officers may be held at any
other meeting of the Board.
5.03. RESIGNATION AND REMOVAL OF OFFICERS. An officer may resign at any
time by delivering written notice to the corporation. A resignation is effective
when the notice is delivered unless the notice specifies a later effective date
or event. Any officer may be removed by the Board of Directors at any time, with
or without cause. Such removal shall be without prejudice to the contract
rights, if any, of the person so removed. Appointment of an officer shall not of
itself create contract rights.
5.04. DUTIES OF OFFICERS. Officers of the corporation shall have authority
to perform such duties as may be prescribed from time to time by law, in these
Bylaws, or by the Board of Directors, the President, or the superior officer of
any such officer. Each officer of the corporation (in the order designated
herein or by the Board) will be vested with all of the powers and charged with
all of the duties of his or her superior officer in the event of such superior
officer's absence, death, or disability.
5.05. BONDS AND OTHER REQUIREMENTS. The Board of Directors may require any
officer to give bond to the corporation (with sufficient surety and conditioned
for the faithful performance of the duties of his or her office) and to comply
with such other conditions as may from time to time be required of him or her by
the Board of Directors.
5.06. PRESIDENT. Unless otherwise specified by resolution of the Board of
Directors, the President shall be the principal executive officer of the
corporation and, subject to the control of the Board of Directors, shall
supervise and control all of the business and affairs of the corporation and the
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performance by all of its other officers of their respective duties and in
general shall perform all duties incident to the office of President and such
other duties as may be prescribed by the Board of Directors from time to time.
The President shall, when present, and in the absence of a Chairman of the
Board, preside at all meetings of the stockholders and of the Board of
Directors. The President will be a proper officer to sign on behalf of the
corporation any deed, bill of sale, assignment, option, mortgage, pledge, note,
bond, evidence of indebtedness, application, consent (to service of process or
otherwise), agreement, indenture, contract, or other instrument, except in each
such case where the signing and execution thereof shall be expressly delegated
by the Board of Directors or by these Bylaws to some other officer or agent of
the corporation, or shall be required by law to be otherwise signed or executed.
The President may represent the corporation at any meeting of the stockholders
or members of any other corporation, association, partnership, joint venture, or
other entity in which the corporation then holds shares of capital stock or has
an interest, and may vote such shares of capital stock or other interest in
person or by proxy appointed by him or her, provided that the Board of Directors
may from time to time confer the foregoing authority upon any other person or
persons.
5.07. THE VICE-PRESIDENT. If appointed, in the absence of the President or
in the event of his/her death or disability, the Vice-President (or in the event
there be more than one Vice-President, the Vice-Presidents in the order
designated at the time of their election, or in the absence of any such
designation, then in the order of their appointment) shall perform the duties of
the President, and when so acting, shall have all the powers of and be subject
to all the restrictions upon the President. If there is no Vice-President or in
the event of the death or disability of all Vice-Presidents, then the Treasurer
shall perform such duties of the President in the event of his or her absence,
death, or disability. Each Vice-President will be a proper officer to sign on
behalf of the corporation any deed, bill of sale, assignment, option, mortgage,
pledge, note, bond, evidence of indebtedness, application, consent (to service
of process or otherwise), agreement, indenture, contract, or other instrument,
except in each such case where the signing and execution thereof shall be
expressly delegated by the Board of Directors or by these Bylaws to some other
officer or agent of the corporation, or shall be required by law to be otherwise
signed or executed. Any Vice-President may represent the corporation at any
meeting of the stockholders or members of any other corporation, association,
partnership, joint venture, or other entity in which the corporation then holds
shares of capital stock or has an interest, and may vote such shares of capital
stock or other interest in person or by proxy appointed by him or her, provided
that the Board of Directors may from time to time confer the foregoing authority
upon any other person or persons. A Vice-President shall perform such other
duties as from time to time may be assigned to him/her by the President or by
the Board of Directors.
5.08. THE SECRETARY. The Secretary shall: (a) keep the minutes of the
proceedings of the stockholders and of the Board of Directors and any committee
of the Board of Directors and all unanimous written consents of the
stockholders, Board of Directors, and any committee of the Board of Directors in
one (1) or more books provided for that purpose; (b) see that all notices are
duly given in accordance with the provisions of these Bylaws or as required by
law; (c) be custodian of the corporate records and of any seal of the
corporation; (d) when requested or required, authenticate any records of the
corporation; (e) keep a register of the address of each stockholder which shall
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be furnished to the Secretary by such stockholder; and (f) in general perform
all duties incident to the office of Secretary and such other duties as from
time to time may be assigned to him/her by the President or by the Board of
Directors. Except as may otherwise be specifically provided in a resolution of
the Board of Directors, the Secretary will be a proper officer to take charge of
the corporation's stock transfer books and to compile the voting record pursuant
to Section 3.05 above, and to impress the corporation's seal, if any, on any
instrument signed by the President, any Vice President, or any other duly
authorized person, and to attest to the same. In the absence of the Secretary, a
secretary pro tempore may be chosen by the directors or stockholders as
appropriate to perform the duties of the Secretary.
5.09. THE TREASURER. The Treasurer shall: (a) have charge and custody of
and be responsible for all funds and securities of the corporation; (b) receive
and give receipts for moneys due and payable to the corporation from any source
whatsoever, and deposit all such moneys in the name of the corporation in such
bank, trust companies, or other depositories as shall be selected by the Board
of Directors or any proper officer; (c) keep full and accurate accounts of
receipts and disbursements in books and records of the corporation; and (d) in
general perform all of the duties incident to the office of Treasurer and such
other duties as from time to time may be assigned to him/her by the President or
by the Board of Directors. The Treasurer will render to the President, the
directors, and the stockholders at proper times an account of all his or her
transactions as Treasurer and of the financial condition of the corporation. The
Treasurer shall be responsible for preparing and filing such financial reports,
financial statements, and returns as may be required by law.
5.10. ASSISTANT SECRETARIES AND ASSISTANT TREASURERS. The Assistant
Secretaries and the Assistant Treasurers, when authorized by the Board of
Directors, may sign with the President or a Vice-President certificates for
shares of the corporation, the issuance of which shall have been authorized by a
resolution of the Board of Directors. The Assistant Secretaries and Assistant
Treasurers, in general, shall perform such duties as shall be assigned to them
by the Secretary or the Treasurer, respectively, or by the President or the
Board of Directors.
5.11. CHAIRMAN OF THE BOARD. The Board of Directors may elect a Chairman to
serve as a general executive officer of the corporation, and, if specifically
designated as such by the Board of Directors, as the chief executive officer of
the corporation. If elected, the Chairman will preside at all meetings of the
Board of Directors and be vested with such other powers and duties as the Board
of Directors may from time to time delegate to him or her.
5.12. SALARIES. The salaries of the officers of the corporation may be
fixed from time to time by the Board of Directors or (except as to the
President's own) left to the discretion of the President. No officer will be
prevented from receiving a salary by reason of the fact that he or she is also a
director of the corporation.
5.13. Additional Appointments. In addition to the officers contemplated in
this Article V, the Board of Directors may appoint other agents of the
corporation with such authority to perform such duties as may be prescribed from
time to time by the Board of Directors.
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<PAGE>
VI. CERTIFICATES FOR SHARES AND THEIR TRANSFER
6.01. CERTIFICATES FOR SHARES.
(a) CONTENT. Certificates representing shares of the corporation
shall, at a minimum, state on their face the name of the issuing corporation and
that it is formed under the laws of the State of Delaware, the name of the
person to whom issued, and the number and class of shares and the designation of
the series, if any, the certificate represents. Such certificates shall be
signed (either manually or by facsimile to the extent allowable by law) by any
of the Chairman of the Board (if any), the President, or any Vice-President and
by the Secretary or any assistant secretary or the Treasurer or any assistant
treasurer of the corporation, and may be sealed with a corporate seal or a
facsimile thereof. Each certificate for shares shall be consecutively numbered
or otherwise identified and will exhibit such information as may be required by
law. If a supply of unissued certificates bearing the facsimile signature of a
person remains when that person ceases to hold the office of the corporation
indicated on such certificates or ceases to be the transfer agent or registrar
of the corporation, they may still be issued by the corporation and
countersigned, registered, issued, and delivered by the corporation's transfer
agent and/or registrar thereafter, as though such person had continued to hold
the office indicated on such certificate.
(b) LEGEND AS TO CLASS OR SERIES. If the corporation is authorized to
issue different classes of shares or different series within a class, the
powers, designations, preferences, and relative, participating, optional, or
other special rights applicable to each class or series and the qualifications,
limitations, or restrictions of such preference and/or rights shall be set forth
in full or summarized on the front or back of each certificate as required by
law. Alternatively, each certificate may state on its front or back that the
corporation will furnish a stockholder this information on request and without
charge.
(c) STOCKHOLDER LIST. The name and address of the person to whom
shares are issued, with the number of shares and date of issue, shall be entered
on the stock transfer books of the corporation.
(d) LOST CERTIFICATES. In the event of the loss, theft, or destruction
of any certificate representing shares of the corporation or of any predecessor
corporation, the corporation may issue (or, in the case of any such shares as to
which a transfer agent and/or registrar have been appointed, may direct such
transfer agent and/or registrar to countersign, register, and issue) a new
certificate, and cause the same to be delivered to the registered owner of the
shares represented thereby; provided that such owner shall have submitted such
evidence showing the circumstances of the alleged loss, theft, or destruction,
and his, her, or its ownership of the certificate, as the corporation considers
satisfactory, together with any other facts that the corporation considers
pertinent; and further provided that, if so required by the corporation, the
owner shall provide a bond or other indemnity in form and amount satisfactory to
the corporation (and to its transfer agent and/or registrar, if applicable).
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6.02. REGISTRATION OF THE TRANSFER OF SHARES. Registration of the transfer
of shares of the corporation shall be made only on the stock transfer books of
the corporation. In order to register a transfer, the record owner shall
surrender the shares to the corporation for cancellation, properly endorsed by
the appropriate person or persons with reasonable assurances that the
endorsements are genuine and effective. Unless the corporation has established a
procedure by which a beneficial owner of shares held by a nominee is to be
recognized by the corporation as the owner, the corporation will be entitled to
treat the registered owner of any share of the capital stock of the corporation
as the absolute owner thereof and, accordingly, will not be bound to recognize
any beneficial, equitable, or other claim to, or interest in, such share on the
part of any other person, whether or not it has notice thereof, except as may
expressly be provided by applicable law, including as may be contemplated by
Title 6, Subtitle I, Article 8 of the Delaware code (or any comparable successor
statutes), as in effect from time to time.
6.03. SHARES WITHOUT CERTIFICATES. The Board of Directors may authorize the
issuance of uncertificated shares by the corporation and may prescribe
procedures for the issuance and registration of transfer thereof and with
respect to such other matters as the Board of Directors shall deem necessary or
appropriate.
VII. DISTRIBUTIONS
7.01. DISTRIBUTIONS. Subject to such restrictions or requirements as may be
imposed by applicable law or the corporation's Certificate or as may otherwise
be binding upon the corporation, the Board of Directors may from time to time
declare, and the corporation may pay or make, dividends or other distributions
to its stockholders.
VIII. CORPORATE SEAL
8.01. CORPORATE SEAL. The Board of Directors may provide for a corporate
seal of the corporation that will have inscribed thereon any designation
including the name of the corporation, Delaware as the state of incorporation,
the year of incorporation, and the words "Corporate Seal."
IX. AMENDMENTS
9.01. AMENDMENTS. If the Certificate so provides, the corporation's Board
of Directors may amend or repeal the corporation's Bylaws unless the Certificate
or the Delaware General Corporation Law reserve any particular exercise of this
power exclusively to the stockholders in whole or part. The corporation's
stockholders may amend or repeal the corporation's Bylaws even though the Bylaws
may also be amended or repealed by its Board of Directors.
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October 26, 1999
Preventx, Inc.
2238 W. Lone Cactus Drive
Suite 200
Phoenix, AZ 85027-2613
Re: Registration Statement on Form S-4 (SEC File No. 333-84147)
Ladies and Gentlemen:
In connection with the Registration Statement on Form S-4, File No.
333-84147, including amendments and exhibits thereto ("Registration Statement"),
for the proposed registration of 29,346,659 shares of common stock of Preventx,
Inc. (the "Company") in connection with the reincorporation merger (the
"Merger") of Empyrean Bioscience, Inc., a Wyoming corporation ("Old Empyrean"),
with and into the Company, a wholly owned subsidiary of Old Empyrean formed for
the purpose of completing the reincorporation of Old Empyrean from Wyoming to
Delaware pursuant to the Merger, we are of the opinion that:
1. At such time as the registration or qualification provisions of the
Securities Act of 1933, as amended, and such "Blue Sky" and state securities
laws as may be applicable have been complied with, and the certificates
representing the Company shares have been duly executed by the Company,
countersigned and registered by the transfer agent/registrar, and exchanged for
shares for Old Empyrean as contemplated in the Registration Statement and in
accordance with the terms of the planned Merger, the shares to be issued by the
Company in exchange for outstanding shares of Old Empyrean in the Merger will be
legally issued, fully paid, and non-assessable.
In rendering this opinion, we have reviewed and relied upon such documents
and records of the Company and Old Empyrean as we have deemed necessary and have
assumed the following:
<PAGE>
1. The genuiness of all signatures and the authenticity of documents
submitted to us as originals, and the conformity to originals of all documents
submitted to us as copies;
2. The accuracy and completeness of Company and Old Empyrean records; and,
3. The completion of the Merger of Old Empyrean with and to the Company in
accordance with the terms of the Plan of Merger between those entities and in
accordance with the laws of the States of Delaware and Wyoming.
The opinions expressed herein are limited solely to the laws of the State
of Delaware.
The opinions expressed herein are based upon the law and other matters in
effect on the date hereof, and we assume no obligation to revise or supplement
this opinion should such law be changed by legislative action, judicial
decision, or otherwise, or should any facts or other matters upon which we have
relied be changed.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement, to the use of our name in the prospectus included in the
Registration Statement under the caption "Legal Matters" and to the use of our
name on the cover page of the Registration Statement and reference to us and our
opinion in the exhibit index to the Registration Statement.
Very truly yours,
SNELL & WILMER L.L.P.
October 26, 1999
Empyrean Bioscience, Inc.
2238 W. Lone Cactus Drive
Suite 200
Phoenix, AZ 85027-2613
Preventx, Inc.
2238 W. Lone Cactus Drive
Suite 200
Phoenix, AZ 85027-2613
Re: Reincorporation Merger
Ladies and Gentlemen:
We have acted as counsel to Empyrean Bioscience, Inc., a Wyoming
corporation ("EBW") and Preventx, Inc., a Delaware corporation ("EBD") , in
connection with the Agreement and Plan of Merger dated as of October 6, 1999,
(the "Agreement") by and among EBD and EBW. Pursuant to the Agreement, EBW will
merge with and into EBD (the "Merger").
Except as otherwise provided, capitalized terms referred to herein have the
meanings set forth in the Agreement. All section references, unless otherwise
indicated, are to the Internal Revenue Code of 1986, as amended (the "Code").
For the purpose of rendering this opinion, we have examined and are relying
upon (without any independent investigation or review thereof) the truth and
accuracy, at all relevant times, of the certifications, representations,
statements, and warranties contained in the following documents:
1. The Agreement;
2. Certifications and representations made to us by EBW and EBD in a
Certificate reproduced as Exhibit A hereto (the "Tax Certificates"); and
<PAGE>
3. Such other instruments and documents related to the formation,
organization, and operation of EBW and EBD, and/or to the consummation of the
Merger and the transactions contemplated thereby as we have deemed necessary or
appropriate.
In connection with rendering this opinion, we have assumed (without any
independent investigation) that:
1. Original documents (including signatures) are authentic, documents
submitted to us as copies conform to the original documents, and there has been
(or will be by the Effective Time of the Merger) due execution and delivery of
all documents where due execution and delivery are prerequisites to
effectiveness thereof;
2. Any certification, representation, or statement referred to above made
"to the knowledge of," "to the best of the knowledge," or otherwise similarly
qualified is correct without such qualification. As to all matters in which a
person or entity making a certification, representation, or statement referred
to above has certified, represented, or stated that such person or entity either
is not a party to, does not have, or is not aware of, any plan, intention,
understanding or agreement, there is in fact no such plan, intention,
understanding or agreement. As to any matter in which a person or entity making
a certification, representation, or statement referred to above has certified,
represented, or stated that such certification, representation, or statement is
true and accurate in all "material aspects," such certification, representation,
or statement is true and accurate in all respects insofar as it relates to
issues associated with the federal income taxation of the Merger;
3. All certifications, representations, or statements contained in any of
the documents referred to herein or otherwise made to us are true and correct in
all respects and will continue to be true and correct in all material respects
as of the Effective Time of the Merger and all other relevant times, and no
actions have been (or will be) taken which are inconsistent with such
certifications, representations, or statements;
4. The Merger will be reported by EBW and EBD on the federal income tax
return which will be filed for such companies in a manner consistent with the
opinion set forth below;
5. The Merger will be consummated in accordance with the Agreement (and
without any waiver, breach or amendment of any of the provisions thereof) and
will be effective under applicable state laws;
6. No transactions have occurred or will occur following the Effective Time
of the Merger that would cause the continuity of interest requirement as
specified in Treasury
Regulations Section 1.368-1(e) to be violated.
Based on our examination of the foregoing items and subject to the
assumptions, exceptions, limitations, and qualifications set forth herein, we
are of the opinion that if the Merger is consummated in accordance with the
Agreement (and without any waiver, breach, or amendment of any of the provisions
<PAGE>
thereof) and if the certifications and representations set forth in the Tax
Certificate are true and correct, then, for United States federal income tax
purposes:
1. The Merger will qualify as a "reorganization" within the meaning of
Sections 368(a)(1)(F) of the Code;
2. No gain or loss will be recognized by holders of EBW Common Stock upon
the surrender of shares of EBW Common Stock and the receipt of shares of EBD
Common Stock;
3. Each holder's aggregate tax basis in the EBD Common Stock received in
the Merger will equal such holder's aggregate tax basis in the EBW Common Stock
surrendered;
4. The holding period of EBD Common Stock received in the Merger will
include the holding period of the EBW Common Stock surrendered, provided that
the EBW Common Stock is held as a capital asset in the hands of the holder
thereof at the Effective Time of the Merger; and
5. EBW should not recognize gain or loss for federal income tax purposes as
a result of the Merger and EBD should succeed without adjustment to the federal
income tax attributes of EBW.
In addition to the assumptions set forth above, this opinion is subject to
the exceptions, limitations, and qualifications set forth below.
1. This opinion represents and is based upon our best judgment regarding
the application of federal income tax laws arising under the Code, existing
judicial decisions, administrative regulations, and published rulings and
procedures. Our opinion is not binding upon the Internal Revenue Service or the
courts, and there is no assurance that the Internal Revenue Service will not
successfully assert a contrary position. Furthermore, no assurance can be given
that future legislative, judicial, or administrative changes, on either a
prospective or retroactive basis, would not adversely affect the accuracy of the
conclusions stated herein. Nevertheless, we undertake no responsibility to
advise you of any new developments in the application or interpretation of the
federal income tax laws.
2. This opinion addresses only the classification of the Merger as a
reorganization under Sections 368(a)(1)(F) of the Code and the consequences of
the Merger as described above, and does not address any other federal or any
state, local, or foreign tax consequences that may result from the Merger or any
other transaction (including any transaction undertaken in connection with the
Merger).
3. Insofar as the opinion relates to the federal income tax consequences
associated with classification of the Merger as a reorganization under Sections
368(a)(1)(F) of the Code (Items 2 through 5 of the opinion above), the
consequences are those generally applicable to EBW shareholders; the opinion
does not address the tax consequences to specific categories of shareholders
accorded special treatment under the Code including, without limitation,
shareholders who acquired their shares of EBW Common Stock upon the exercise of
<PAGE>
stock options or in other compensatory transfers, foreign persons, tax-exempt
organizations, insurance companies, financial institutions, and dealers in stock
and securities.
4. No opinion is expressed as to any transaction other than the Merger as
described in the Agreement or to any transaction whatsoever, including the
Merger, if all the transactions described in the Agreement are not consummated
in accordance with the terms of the Agreement and without waiver or breach of
any provision thereof or if all of the certifications, representations,
warranties, statements and assumptions upon which we relied are not true and
accurate at all relevant times. In the event any one of the certifications,
representations, warranties, statements, or assumptions upon which we have
relied to issue this opinion is incorrect, our opinion might be adversely
affected and may not be relied upon.
5. The opinion set forth herein is intended solely for your benefit. The
opinion may not be relied upon for any other purpose or by any other person or
entity, and may not be made available to any other person or entity without our
prior written consent.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement on Form S-4 (SEC File No. 333-84147), including
amendments and exhibits thereto and to the use of our name in the prospectus
included in the Registration Statement under the caption "Legal Matters" and to
reference to our opinion elsewhere in the Registration Statement.
Yours very truly,
Snell & Wilmer. L.L.P.
<PAGE>
Empyrean Bioscience, Inc.
a Wyoming corporation
Preventx, Inc.
a Delaware corporation
October 26, 1999
Snell & Wilmer L.L.P.
One Arizona Center
Phoenix, Arizona 85004
Re: Merger pursuant to the Agreement and Plan of Merger dated as of
October 6, 1999 (the "Agreement") by and among Preventx, Inc., a
Delaware corporation ("EBD"), and Empyrean Bioscience, Inc, a Wyoming
corporation ("EBW").
Ladies and Gentlemen:
This Certificate is furnished to you in connection with the rendering of
your opinion regarding certain federal income tax consequences of the Merger.
Unless otherwise indicated, capitalized terms not defined herein have the
meanings set forth in the Agreement, including exhibits and schedules attached
thereto.
After consulting with their counsel and auditors regarding the meaning of
and factual support for the following certifications and representations, the
undersigned hereby certify and represent that, except with respect to an
alternate time set forth below, the following facts are true as of the Effective
Time of the Merger:
1. The Agreement and all other agreements entered into in connection
therewith represent the entire understanding of EBW and EBD with respect to the
Merger.
2. The Merger will be consummated in all material aspects in accordance
with the terms of the Agreement.
3. At the Effective Time of the Merger, neither EBW nor EBD will constitute
an "investment company" within the meaning of Code Sections 368(a)(2)(F)(iii)
and (iv).
4. At the Effective Time of the Merger, EBD will have no plan or intent to
dispose of any of its assets or any of the assets acquired from EBW except for
dispositions made in the ordinary course of business.
<PAGE>
Snell & Wilmer L.L.P.
October 26, 1999
Page 2
5. At the Effective Time of the Merger, the fair market value of the EBD
Common Stock receivable by each EBW shareholder pursuant to the Merger will be
approximately equal to the fair market value of the EBW Common Stock to be
surrendered in exchange therefor and the aggregate consideration receivable by
EBW shareholders in exchange for their EBW Common Stock pursuant to the Merger
will be approximately equal to the fair market value of all of the outstanding
shares of EBW Common Stock immediately prior to the Merger.
6. One hundred percent (100%) of the EBW Common Stock outstanding
immediately before the Merger will be exchanged solely for EBD Common Stock
pursuant to the Merger. Thus, EBW and EBD intend that no consideration be paid
or received (directly or indirectly, actually or constructively) for EBW Common
Stock pursuant to the Merger other than EBD Common Stock.
7. Following the Effective Time of the Merger EBD will continue the
historic business EBW was conducting immediately before the Merger or use a
significant portion of the historic business assets of EBW in a business.
8. The liabilities of EBW assumed by EBD pursuant to the Merger and the
liabilities to which the assets of EBW transferred to EBD pursuant to the Merger
are subject (if any) were, or will have been, incurred in the ordinary course of
EBW's business.
9. EBW and EBD are participating in the Merger for good and valid business
reasons.
10. The Merger will be reported by EBW and EBD on their federal income tax
return as a "reorganization" within the meaning of Code Sections 368(a)(1)(F).
11. Each of the representations made by EBW and EBD in the Agreement and
any other documents associated therewith is true and accurate in all material
aspects.
12. Each of the undersigned is authorized on behalf of each of EBW and EBD
to make all of the certifications and representations set forth herein.
Each of the undersigned recognizes that (i) your opinion will be based on
the certifications and representations set forth herein and on the assumptions,
covenants, and statements contained in the Agreement and documents related
thereto and the opinion, and (ii) your opinion will be subject to certain
exceptions, limitations and qualifications, including that they may not be
relied upon if any such certifications, representations, assumptions, covenants,
or statements are not accurate in all respects. Each of the undersigned further
<PAGE>
Snell & Wilmer L.L.P.
October 26, 1999
Page 3
recognizes that each may be requested to (i) make additional certifications and
representations or (ii) execute additional copies of this Certificate prior to
the Effective Time of the Merger.
Each of the undersigned authorizes Snell & Wilmer L.L.P to attach copies of
this Certificate to its written opinion and agrees to promptly furnish written
notification to Snell & Wilmer L.L.P., via facsimile transmission directed to
the attention of Fred Williams, if, prior to the Effective Time of the Merger,
the undersigned has reason to believe that any of the certifications or
representations made in this Certificate are untrue, incorrect, or incomplete in
any respect.
Preventx, Inc.
a Delaware corporation
By: /s/ Richard Adamany
---------------------------
Name: Richard Adamany
-------------------------
Title: Exec. V.P. and C.O.O.
-------------------------
Empyrean Bioscience, Inc.
a Wyoming corporation
By: /s/ Richard Adamany
---------------------------
Name: Richard Adamany
-------------------------
Title: Exec. V.P. and C.O.O.
-------------------------
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: /s/ David Thornburg
------------------------------------
Address:
"ASSIGNOR"
Farida Darbar
By: /s/ Farida Darbar
------------------------------------
Address:
155 Leighland Avenue
Oakviile, Ontario, Canada L6H 1B3
<PAGE>
"ASSIGNEE"
Empyrean Diagnostics, Inc.
By: /s/ Stephen Hayter
------------------------------------
Address:
2238 West Lone Cactus Drive, Suite 200
Phoenix, Arizona 85027
Empyrean Diagnostics, Ltd., as to paragraph
3 only
By: /s/ Stephen Hayter
------------------------------------
Address:
885 West Georgia Street, Suite 1480,
Vancouver; British Columbia
<PAGE>
REQUIREMENTS AGREEMENT
This Requirements Agreement (the "Agreement") is entered into on the 29 day
of April 1997 by and between Geda International Marketing Co., Ltd., c/o
Pindling & Co., Wave Crest House, West Bay Street, Nassau, Bahamas (the
"Seller"), Empyrean Diagnostics Inc., 348 East Middlefield Road, Mountain View,
California 94043 (the "Purchaser"), and, as to section 15 only, Empyrean
Diagnostics, Ltd. (the "Parent") based upon the following:
RECITALS
A. The Seller is the manufacturer of the products which are included on
Exhibit "A' to this Agreement and made a part of it by this reference
(hereinafter, the "Products").
B. The Purchaser wishes to exclusively market the Products in markets not
already assigned by the Seller and the Seller wishes to gain access to these
markets through the Purchaser.
THEREFORE, the Seller and the Purchaser agree as follows:
AGREEMENT
1. TERM.
The term of this Agreement shall begin on the date of its execution and
shall continue for a period of ten (10) years (the "Initial Term"). The
Purchaser shall have the option to renew this Agreement for one 10 year period,
provided that the Purchaser has, during the second year of the Initial Term,
purchased the Minimum Requirement, as defined in section 3 below, for each
Region.
2. TERRITORY.
2.1 REGIONS. The Purchaser shall be entitled to exclusively sell and
distribute the Products in the following Regions: Region I shall consist of
Russia and all of the countries of the former Soviet Union; Region 2 shall
consist of Argentina, Uruguay, Chile and Peru, so long as a joint venture agreem
ent for the sale of the Products is entered into by and among Seller, Purchaser
and BICI Internacional S.A. de C.V.; Region 3 shall consist of India; Region 4
shall consist of Germany, Switzerland, Austria and Liechtenstein; Region 5 shall
consist of China, and Region 6 shall consist of Indonesia. If the Products must
be approved or qualified for sale in any place or country included in a Region,
then the Purchaser, at its sole cost and expense, shall obtain from the proper
authorities of the country or place included in the Region all registrations,
licenses and approvals required for the import, sale and distribution of the
Products. In that regard, the Seller shall allow the Purchaser access and use of
any and all data collected regarding the testing and use of the Products. If an
approval or qualification for sale is not obtained for the place or country
1
<PAGE>
within 24 months from the date of this Agreement, then Seller may, upon written
notice to Purchaser, remove the country or place from the definition of the
Region; PROVIDED, HOWEVER, that if the Minimum Requirement for the Region (as
defined in section 3 below) has been purchased by the Purchaser during the
second year of the Initial Term, then the Seller shall not be entitled to remove
the country or place from the definition of the Region.
2.2 RIGHT OF FIRST REFUSAL. The Seller hereby grants to the Purchaser a
right of first refusal to supply the Products to any place or country not
included in the Regions, with the exception of Canada, Mexico, Dominican
Republic, South America (except for those countries included in Region 2),
Africa, Spain, Italy, United States, Taiwan, Hong Kong and the Philippines, if
the Seller decides to transfer, sell, license or assign such rights. The Seller
shall not transfer, sell, license or assign, or in any other way dispose of the
right to sell the Products in any such place or country unless the Seller shall
first have given written notice to the Purchaser of its intention to do so
(hereinafter "Notice") and follows the procedures hereinafter set forth.
2.3 NOTICE OF PURCHASE OR TRANSFER. The Notice shall be accompanied by a
copy of any proposed purchase, license, assignment or transfer document, or if
none, a summary of the purchase, license, assignment or transfer proposal
(hereinafter the "Acquisition Documents") which documents must name the proposed
transferee and specify the price and the terms of payment.
2.4 OPTION TO ACQUIRE. For 30 days following the receipt of the Notice and
Acquisition Documents by the Purchaser, the Purchaser shall have the option to
acquire the rights proposed to be transferred at the greater of. (i) the price
stated in the Notice and Acquisition Documents, or (ii) U.S.$50,000, or at any
other price agreed to by the Purchaser and the Seller. If the Purchaser does not
elect to acquire the rights during the 30 day period following the Purchaser's
receipt of the Notice and Acquisition Documents, then, the Seller may transfer
the rights to the proposed transferee on the terms and conditions set forth in
the Acquisition Documents.
3. MINIMUM REQUIREMENT
The Seller and the Purchaser anticipate that it will take approximately 12
months to obtain approvals or qualifications to sell the Products in the various
countries or places within the Regions. Therefore, the Purchaser shall not be
required to purchase the Minimum Requirement during the first year of the
Initial Term. Beginning with the second year of the Initial Term, the Purchaser
shall purchase from the Seller and the Seller shall supply to the Purchaser, on
a monthly basis, at least one container lot of each of the Products per Region.
One container lot shall be equal to seventy-two 55 gallon drums.
4. SHIPPING.
4.1 SHIPMENT UPON RECEIPT OF PURCHASE ORDER. Within 30 days of receipt of a
purchase order from the Purchaser, the Seller shall ship the Products to the
Purchaser in container lots, FOB Toronto. The Purchaser shall be responsible for
the payment of loading, freight, shipping, insurance, duties, forwarding and
handling charges, taxes, storage and all other charges applicable to shipment of
the Products after they are delivered by the Seller to Toronto. The Purchaser
2
<PAGE>
shall assume all risk of loss for the Products upon safe delivery by the Seller
to Toronto, except any such loss which is directly attributable to any act or
omission on the part of the Seller prior to delivery to Toronto.
4.2 LICENSE TO MANUFACTURE IF FAILURE TO SHIP. If for any reason, including
force majeure as discussed in section 14 below, the Seller is unable to ship the
Products within 30 days of receipt of a purchase order from the Purchaser, then
the Seller shall license the manufacture of the Products for a term agreeable to
the parties and shall receive, in exchange for such license, an agreed upon
royalty amount which shall be computed on the net sales of the Products in the
Regions.
5. PRICE.
The price paid by the Purchaser to the Seller for the Products shall be
U.S.$3.60 per liter F.O.B. Toronto. This price shall be firm for a period of 24
months, beginning with the second year of the Initial Term, and may not be
increased after that period unless mutually agreed to by the Seller and the
Purchaser. If the price is increased after the above-referenced 24 month period,
it shall not be increased by more than 2% per year. All prices exclude VAT and
federal, state or local taxes which are properly attributable to the Products
and which shall be added to the price or billed separately to the Purchaser
where the Seller has the legal obligation to collect the taxes or fees. Unless
otherwise agreed to in writing by the Seller, terms of payment for the Products
shall be by letter of credit, 50% of the invoice price to be paid at the time
the letter of credit is placed and the remaining 50% to be paid at the time the
order is delivered for shipment.
6. PRODUCT ACCESSORIES/LABELING.
6.1 ACCESSORY SUPPLIERS. The Seller shall provide to the Purchaser a list
of suppliers to provide accessories for use with the Products, such as tubes,
applicators and boxes. The Seller may, but is not required to, purchase the
accessories from the list of suppliers provided.
6.2 LABELING AND PACKAGING. The Purchaser shall develop all artwork for
labeling and packaging the Products. Except as provided in this Agreement,
neither party shall use any trademark, trade name or logo belonging to the other
party or any confusingly similar trademark, trade name or logo during or after
the term of this Agreement. Upon termination of this Agreement, each party shall
cease any and all use of the trademarks, trade names and logos of the other
party.
7. NOTICE OF DEFECTIVE PRODUCTS.
The Purchaser shall notify the Seller of any claimed defect in a shipment
of the Products within 30 days after the discovery of such defect by the
Purchaser. The notice shall include the lot number of the Products, as well as
the number and date of the invoice and shall be accompanied by samples of the
shipment. The Purchaser shall be entitled, at the expense of the Seller, to
obtain a replacement of the defective Products. If the Seller wishes to have the
Purchaser return the defective Products, the Seller shall be solely responsible
for the cost of such return.
3
<PAGE>
8. INDEMNITY.
8.1 SELLER'S INDEMNITY. The Seller shall indemnify and hold the Purchaser
harmless from any and all claims, liabilities, judgments, losses, damages, costs
and expenses (including reasonable attorney's fees) incurred by or asserted
against the Purchaser by any person or entity as a result of any injury,
illness, death, property damage or other loss or damage arising from a defect in
the Products or resulting from the negligence, fault or wrongful activity of the
Seller. The Purchaser shall give the Seller written notice of any such claim,
action, suit or proceeding immediately upon the Purchaser's receipt of notice
thereof The Purchaser shall cooperate fully and promptly with the Seller in
defending or otherwise resolving any such claims, actions, suits and
proceedings.
8.2 PURCHASER'S INDEMNITY. The Purchaser shall indemnify and hold the
Seller harmless from any and all claims, liabilities, judgments, losses,
damages, costs and expenses (including reasonable attorney's fees) incurred by
or asserted against the Seller by any person or entity as a result of any
injury, illness, death, property damage or other loss or damage arising from
negligent or willful misconduct by the Purchaser, its employees, agents or
representatives. Without limiting the generality of the foregoing, the Purchaser
shall indemnify, defend and hold the Seller harmless from and against any
liability, cost and expense of any nature caused by the Purchaser's improper
storage, alteration, handling or uses of the Products or any statements,
representations, warranties, or advertisements concerning the Products which
exceed in scope or are different in meaning from the statements made by the
Seller in its own literature.
9. INSURANCE.
The Seller shall maintain insurance coverage issued by one or more
insurance companies, with Best Rating B+ or higher, adequate to cover the
claims, liabilities, judgments, losses, damages, costs and expenses (including
reasonable attorney's fees) indemnified in section 8. In no event shall the
amount of insurance coverage be less than U.S. $2,500,000. Subject to the Seller
maintaining such insurance, the Seller shall have full control of any such
claims, actions, suits and proceedings, and the Purchaser shall promptly tender
defense thereof to the Seller and the Purchaser shall not settle or compromise
any such claim, suit, action or proceeding without the prior consent of the
Seller.
10. TERMINATION.
10.1 RIGHTS TO TERMINATE. Except as otherwise provided herein, either party
may terminate this Agreement immediately upon written notice to the other party
if the other party (i) shall become insolvent, make a general assignment for the
benefit of its creditors, have a receiver or manager appointed or otherwise
commence or become the subject of, any action relating to bankruptcy,
insolvency, reorganization, dissolution or winding up; (ii) ceases to function
as a going concern or conduct its operations in the normal course of business as
currently conducted; (iii) is convicted of or pleads guilty or no contest to a
charge of violating any law relating to its business or engages in any act which
materially impairs the goodwill associated with the Products or with the
Seller's trademark, trade name or logo; or (iv) either patty shall fail to
substantially perform its obligations under this Agreement. In the event a party
fails to substantially perform its obligations under this Agreement, the
4
<PAGE>
non-breaching party shall give notice of termination in writing to the breaching
party and the breaching party shall have thirty (30) days in which to correct
the breach. If the breaching party fails to correct the breach within such
thirty (30) day period, this Agreement shall terminate.
10.2 ACCEPTANCE OF ORDERS NOT RENEWAL. In the event of the termination or
expiration of this Agreement, acceptance by the Seller of any orders from the
Purchaser after termination of this Agreement shall not constitute a renewal of
this Agreement or a waiver of the right of either party to treat this Agreement
as terminated.
10.3 CONDUCT AFTER TERMINATION. The Seller shall deliver all Products
ordered by the Purchaser and accepted by the Seller prior to termination, and
the Purchaser shall accept and pay for all Products ordered by it under purchase
orders issued by it and accepted by the Seller prior to the date of termination.
Termination shall not relieve and release either party from its obligations to
make any other payment which may be owing to the other party under the terms of
this Agreement or from any other liability which either may have to the other
arising out of this Agreement or breach of this Agreement.
11. INFRINGEMENT.
The Seller warrants that, to the best of its knowledge, the Purchaser's
offer for sale and the sale of the Products as they exist on the date of this
Agreement does not infringe any patent or other intellectual property right of
another. In the event an infringement claim is commenced or threatened against
the Seller or the Purchaser in any country or place in any Region, the Seller
shall indemnify and hold the Purchaser harmless from any and all losses,
damages, costs and expenses awarded against or incurred by the Purchaser arising
from the infringement claim. The Purchaser shall give to the Seller written
notice of an infringement claim immediately upon the Purchaser's receipt of
notice thereof The Purchaser shall cooperate fully and promptly with the Seller
in defending or otherwise resolving any such claims, actions, suits and
proceedings. The Seller may elect to have full control of any litigation
relating to any infringement claims, and the Purchaser shall promptly tender
defense thereof to the Seller. The Purchaser shall not settle or compromise any
such claim, suit, action or proceeding without the consent of the Seller.
12. CONFIDENTIAL INFORMATION.
12.1 AGREEMENT TO KEEP INFORMATION CONFIDENTIAL. The Purchaser and the
Seller 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 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 or to use it in any way for such party's own or another's benefit,
or permit the Confidential Information to be used in competition with the other
party. Specifically, but not by way of limitation, the Purchaser agrees that
during the Initial Term of this Agreement (and any renewals thereof) and for a
5
<PAGE>
period of two years following the expiration of this Agreement, it will keep
confidential the Seller's confidential information relating to the formulation
of the Products and any other proprietary information which the Seller may
reveal to the Purchaser, unless such information is generally known or has been
published or released for circulation to the public or unless the Purchaser is
required to disclose such confidential information under law, subpoena or
regulatory process, in which case such disclosures shall not breach this
Agreement. Furthermore, during the Initial Term of this Agreement (and any
renewals thereof) and for a period of two years following the expiration of this
Agreement the Purchaser shall not manufacture the Products (except pursuant to a
license from the Seller) nor shall the Purchaser, any subsidiary of the
Purchaser or any individual, partnership, corporation or other entity related to
or associated with the Purchaser, manufacture, purchase or market any similar or
competing product. Both the Seller and the Purchaser shall require its agents
and employees to agree to be bound by the terms of this section 12. Each party
shall refrain from all actions and omissions that would reduce the value of the
other party's Confidential Information.
12.2 INFORMATION THAT IS NOT CONFIDENTIAL. The definition of Confidential
Information shall exclude information that: (1) is in the public domain at the
time of disclosure to the other party or, without a breach of this section 12 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
12.3 SURVIVAL OF TERMINATION OF AGREEMENT. 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.
12.4 BREACH CAUSES IRREPARABLE HARM. 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 12.
13. RIGHT TO ACQUIRE.
13.1 RIGHT OF FIRST REFUSAL. The Seller hereby grants to the Purchaser a
right of first refusal to purchase or license the rights to own and/or
manufacture the Products if the Seller decides to transfer, sell, license or
assign such rights. The Seller shall not transfer, sell, license or assign, or
in any other way dispose of the formula for the Products or any right or
interest in the Products unless the Seller shall first have given written notice
to the Purchaser of its intention to do so (hereinafter "Notice") and follows
the procedures hereinafter set forth.
13.2 NOTICE OF PURCHASE OR TRANSFER. The Notice shall be accompanied by a
copy of any proposed purchase, license, assignment or transfer document, or if
none, a summary of the purchase, license, assignment or transfer proposal
(hereinafter the "Acquisition Documents") which documents must name the proposed
transferee and specify the price and the terms of payment.
6
<PAGE>
13.3 OPTION TO ACQUIRE. For 30 days following the receipt of the Notice and
Acquisition Documents by the Purchaser, the Purchaser shall have the option to
acquire the rights proposed to be transferred at the price and on the terms
stated in the Notice and Acquisition Documents. If the Purchaser does not elect
to acquire the rights during the 30 day period following the Purchaser's receipt
of the Notice and Acquisition Documents, then, the Seller may transfer the
rights to the proposed transferee on the terms and conditions set forth in the
Acquisition Documents.
14. FORCE MAJURE.
Neither party shall be deemed to be in breach of this Agreement or
otherwise be liable to the other by reason of any delay in performing or failure
to perform any obligations hereunder to the extent that such delay or failure
was due to any force majeure of which it has notified the other party, and the
time of performance of that obligation shall be extended accordingly. If the
force majeure in question prevails for a continuous period in excess of 30 days,
the parties shall enter into bona fide discussions with a view to alleviating
its effects or to agree to such alternative arrangements as may be fair and
reasonable. Without prejudice to the generality of the foregoing, the following,
without limitation, shall be regarded as force majeure: acts of God, explosions,
floods, tempest, fires or accidents, war or threat of war, acts, restrictions or
regulations of any government or governmental agency, import or export
regulations or embargoes, strikes or other labor troubles, difficulties in
obtaining raw materials, power failure or breakdowns in machinery or any other
cause beyond the control of, or occurring without the fault of, the party
asserting the force majeure.
15. CONSIDERATION.
The Seller is aware that the Purchaser may not be able to obtain the
registrations, licenses and approvals required in a Region (or from one or more
countries comprising a Region) for the import, sale and distribution of the
Products. The Seller, therefore, agrees that the Purchaser shall pay to the
Seller, for the rights transferred pursuant to this Agreement, the following:
(i) upon execution of this Agreement, the Purchaser shall pay to the
Seller, in cash, the sum of U. S. $33,333 per Region, for an aggregate
of U. S. $199,998;
(ii) upon the Purchaser receiving a valid registration, license or approval
to import, sell and distribute the Products in a Region, the Parent
shall issue to the Seller, from its capital stock, 14,900 shares. If a
Region is comprised of more than one country, the Purchaser must have
received a valid registration, license or approval to import, sell and
distribute the Products to at least one country comprising the Region.
If, for any reason whatsoever, the Purchaser is unable to obtain permission or
acquire the necessary registration, license or approval to sell the Products in
a Region, the Seller will refund to the Purchaser, after the first 12 months of
the Initial Term and within 30 days of written notice being given by the
7
<PAGE>
Purchaser, the sum of U.S.$33,333 and the Purchaser shall release to the Seller
all rights it has acquired by this Agreement relating to the sale of the
Products in the Region.
The Seller is aware that, pursuant to the securities laws of the territory
of Vancouver, the stock of the Parent may not be sold or transferred for a
period of one year from the date its issuance is authorized.
16. MISCELLANEOUS.
16.1 GOVERNING LAW. 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 California.
16.2 VENUE AND JURISDICTION. 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.
16.3 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 introductory section of this Agreement or to such other address as to which
any party hereto may have notified the others in writing.
16.4 SECTION HEADINGS. 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,
16.5 COUNTERPARTS AND FACSIMILES. 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.
16.6 SEVERABILITY. 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.
8
<PAGE>
16.7 ENTIRE AGREEMENT, MODIFICATION. 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.
IN WITNESS WHEREOF, the Parties hereto have executed or caused this
Requirements Agreement to be executed as of the date first above written.
"SELLER"
Geda International Marketing Co., Ltd.
By: /s/ David Thornburgh
------------------------------------
David Thornburgh, M.D., President,
CEO & Director
By: /s/ Ricardo Sabates
------------------------------------
Ricardo Sabates, M.D. Vice President
& Director
By: /s/ Frank Malagon
------------------------------------
Frank Malagon, PhD, Chairman &
Director
"PURCHASER"
Empyrean Diagnostics Inc.
By: /s/ Stephen Hayter
------------------------------------
Stephen Hayter
As to section 15 only.
"PARENT"
Empyrean Diagnostics, Ltd.
By: /s/ Stephen Hayter
------------------------------------
9
<PAGE>
EXHIBIT A
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 cummunicable 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.
DISTRIBUTION AGREEMENT
Entered into this 28th day of April, 1999
BETWEEN
Empyrean Bioscience, Inc., a company organized under the laws of the State of
Wyoming, United States of America ("U.S.A.") and having its offices at 2238 West
Lone Cactus Dr., Suite 200, Phoenix, AZ 85027 U.S.A. ("Empyrean");
AND
Durstrand International Limited, a company organized under the laws of the
British Virgin Islands and having its registered office at P.O. Box 957,
Offshore Incorporations Centre, Road Town, Tortola, British Virgin Islands (the
"Distributor").
WITNESSETH
WHEREAS Empyrean is engaged in the business of developing, manufacturing and
marketing medical diagnostic products and "Over-The-Counter" gels and lotions;
and
WHEREAS Distributor desires to be appointed by Empyrean as its exclusive
distributor for the "Over-The-Counter" products identified in Exhibit A hereto
(collectively, the "Products").
NOW THEREFORE, in consideration of the promises and of the mutual covenants and
obligations hereinafter set forth, the parties hereto agree as follows:
1. DISTRIBUTOR
1.1 EXCLUSIVE RIGHT. Empyrean hereby appoints Distributor as its exclusive
distributor to market, sell and promote by itself and/or through its
distributors, the Products described in Exhibit A, attached hereto and
made a part hereof during the term of this Agreement, in the
territories described under "Territory One" in Exhibit B
(collectively, the "Territory"), and subject to the terms and
conditions of this Agreement. Distributor's appointment as Empyrean's
exclusive distributor for the Products shall be automatically expanded
to include the countries listed as "Territory Two" countries in
Exhibit B (and which countries shall therefore form part of the
"Territory") in the event that Distributor is able to appoint
distributors of the Products in at least three of the eight countries
listed as "Territory One" countries in Exhibit B within four months
after the date of this Agreement.
Distributor and its distributors shall be entitled to describe
themselves as Empyrean's "Authorised Distributors" for the Products.
No rights whatsoever are granted to market, sell and promote Products
outside the Territory, whether directly or indirectly through
purchasers in the Territory for resale or other distribution outside
the Territory. Distributor hereby agrees to market, sell and promote
the sale of the Products in conformity with and subject to the terms
and conditions of this Agreement and further agrees not to sell or
otherwise distribute Products to purchasers in the Territory which it
knows are for resale or other distribution outside the Territory.
1.2 RIGHT TO APPOINT DISTRIBUTORS. Distributor may appoint any other
person, firm or company as its distributors to market, promote and
sell the Products in the Territory, on the terms and subject to the
conditions of a sub-distribution agreement to be entered into between
Distributor and each distributor (the "Sub-Distribution Agreement").
Each Sub-Distribution Agreement shall contain terms and conditions
which are consistent with the provisions contained herein.
<PAGE>
2
1.3 ADDITIONAL TERRITORIES. Empyrean further grants Distributor the first
right of negotiation to be appointed as Empyrean's exclusive
distributor to market, promote and sell the Products in each and every
country (save and except for the United States of America, Japan,
China, Taiwan, Hong Kong, South Africa, Canada, Turkey, Russia, Former
USSR and India) in addition to the countries comprising the Territory.
1.4 PRODUCTS OF OTHERS. Distributor shall have the right to distribute,
sell or sublicense the products of any manufacturers provided that
such other products are not similar to or competitive with the
Products.
1.5 EMPYREAN'S OBLIGATIONS. Empyrean shall not during the term of this
Agreement appoint any other person, firm or company as its distributor
or sales agent for the Products in the Territory; or supply to any
other person, firm or company in the Territory the Products; or supply
to any other person, firm or company outside the Territory the
Products which it knows are for resale in the Territory.
1.6 NO LIMIT ON PRICE. Distributor has the unrestricted right to
unilaterally determine the prices at which it sells the Products which
it purchases hereunder. No Empyrean representative has the authority
to require or suggest that Distributor charge a particular resale
price for the Products which it purchases hereunder.
2. RESPONSIBILITIES OF DISTRIBUTOR
2.1 DISTRIBUTOR'S RESPONSIBILITIES. In addition to all other rights and
obligations created by this Agreement, Distributor shall:
2.1.1 Use its best efforts in the Territory to market, sell,
distribute, promote and support the Products including, when
the necessary licenses (if any) are obtained, the
requirement to advertise the Products and participate and
exhibit the Products at no less than four major local
exhibitions per year (but if there are less than four such
major local exhibitions per year, then such lesser number of
exhibitions) in the Territory;
2.1.2 Maintain qualified staff to accomplish the market objectives
as may be agreed from time to time between the parties
hereto for the Products;
2.1.3 Provide reasonably adequate and competent technical
assistance in support of any prospective or actual Product
sales in the Territory including training salesmen and end
users;
2.1.4 Provide reasonably adequate customer and technical support
for the Products and reasonably assist Empyrean in the
discharge of obligations to customers;
2.1.5 Provide to end users written instructions which have been
determined by Empyrean as to the usage of each of the
Products;
2.1.6 Work with Empyrean quarterly to determine Distributor's
estimated Product needs for the next quarter, marketing
potential, trends and forecasts, competition, marketing
techniques, current developments in the Territory, changes
of regulations governing the sale of Products in the
Territory and amounts of Products sold;
2.1.7 Comply with all present and future regulations and/or
licensing requirements promulgated by authorized
governmental authorities effective during the term of this
Agreement and required in order to carry out the terms of
this Agreement;
<PAGE>
3
2.1.8 Maintain all relevant written documentation and provide the
same to Empyrean on Distributor's customer pricing,
distribution expenses and other financial data normally
needed to audit a distributorship. This will be provided to
Empyrean quarterly;
2.1.9 Distributor will inform Empyrean of any legal,
administrative or regulatory requirements in each country in
the Territory with which Distributor or Empyrean must or
should comply in connection with this Agreement or the
marketing, promotion or sale of Products in such country
(the "Approvals"). Distributor shall be responsible for
obtaining, at its cost, all Approvals for itself and
Empyrean and for complying in all respects with such
Approvals in performing its rights and obligations under
this Agreement. Distributor will maintain at its costs, the
Approvals throughout the term of this Agreement. Approvals
relating to Empyrean or the Products shall be obtained and
maintained in Empyrean's name. Empyrean will provide
reasonable assistance to Distributor in obtaining the
Approvals, including providing such data, samples and other
information and materials as are in Empyrean's possession
and may be required. Distributor will periodically upon
request, and not less other than quarterly, provide Empyrean
information regarding the status of Approvals;
2.1.10 Distributor will submit for and obtain Empyrean's written
approval (which shall not be unreasonably withheld) prior to
use, copies (with translations) of all new or modified
advertising and other promotional materials, including
catalog descriptions, prepared by or for Distributor or any
distributor in connection with the Products, and will only
use the materials so approved;
2.1.11 Distributor agrees not to, and not to permit a distributor
to, directly or indirectly, offer, pay, promise to pay or
authorize the payment of money or anything of value to any
governmental official or representative for the purpose of
influencing such persons' decisions or actions regarding the
Products; and
2.1.12 Unless otherwise agreed by Empyrean in writing, Distributor
will not (a) sell Products other than in original,
unmodified and unused condition, (b) remove, obscure or
modify any label or Product usage or other information,
other indication of patent, any trademark or other
intellectual property rights, (c) add any label or mark to
any Product, or (d) market, sell or promote any Product
under any name or mark other than those provided by
Empyrean.
2.2 SCOPE AND LIMITATIONS OF AUTHORITY. This Agreement does not create an
employer-employee relationship between Empyrean and Distributor, nor any joint
venture, agency or partnership. Neither party hereto shall have the authority to
act for or bind the other in any way, to execute agreements on behalf of the
other or to represent that either party is in any way responsible for the acts
or omissions of the other. Distributor shall be an independent contractor only
and may not, save as provided under Section 1.2 herein, engage any other entity
to carry out any or all of its undertakings under this Agreement unless such
engagement is agreed to by Empyrean in writing.
2.3 PROTECTION OF EMPYREAN'S LICENSES. Distributor acknowledges and agrees
that all proprietary rights in Products delivered to Territory by Empyrean are
and shall remain at all times the exclusive property of Empyrean or its
licensors, and may not be duplicated by Distributor or used except pursuant to
this Agreement and that Distributor, by taking delivery of, making payment for,
distributing, and selling or otherwise using or transferring any of the
Products, shall not become entitled to any proprietary rights in any such
Products. Distributor shall take all measures to ensure that all proprietary
<PAGE>
4
rights of Empyrean in the Products remain with Empyrean, except that Distributor
will not be obligated to institute legal actions against its customers or take
responsibility for their actions.
2.4 TRADEMARK PROTECTION. Distributor may use Empyrean's current and future
trademarks and logos and the name "Preventx" solely for the purposes of
fulfilling its obligation under the terms of this Agreement. Distributor may
(but shall not be obliged to) apply for registration of any trademarks or trade
names of Empyrean for and on behalf of Empyrean and in Empyrean's name and
Empyrean shall provide such assistance as Distributor may reasonably require in
relation to such trade mark or trade name applications. Empyrean shall indemnify
and save harmless Distributor from and against any and all losses, damages,
charges, costs and expenses of whatever nature which Distributor may at any time
and from time to time sustain, incur or suffer by reason of any claim or action
by any third party that the use of Empyrean's trademarks in accordance with this
Agreement infringes the intellectual property rights or other rights of such
third party.
2.5 EMPYREAN'S MARKS. Distributor's, and any distributor's, use of
Empyrean's trademarks or trade names shall at all times be in accordance with
applicable trademarks and other laws and Empyrean's policies regarding
advertising and trademark usage as in effect from time to time. Distributor
shall include all applicable Empyrean trademarks or trade names in any
literature, promotional materials or advertising which it produces or
distributes concerning the Products. Distributor agrees that all trademarks and
trade names of Empyrean are and will remain the sole property of Empyrean, and
Distributor agrees not to do anything inconsistent with that ownership or to
contest ownership of such trademarks or trade names. All use of such trademarks
and trade names shall inure to the benefit of, and be on behalf of, Empyrean.
Should Distributor or any other distributor, in spite of this provision, acquire
any title or interest in any trade names or trademarks, by operation of law or
otherwise, Distributor shall immediately notify Empyrean of that fact and will
assign or cease the assignment of, without consideration, the same to Empyrean.
Upon termination of this Agreement, Distributor shall immediately return to
Empyrean all advertising, sales or promotional material containing Empyrean's
name or marks then in its possession and a complete list of active accounts,
outstanding quotations and product inquiries received in the six months
preceding termination.
2.6 CONFIDENTIALITY OF INFORMATION. From time to time, Empyrean may make
available to Distributor information of a confidential nature including, but not
limited to, medical and technical data, test and analysis data, marketing,
application, financial, bookkeeping, business, market and customer information
in a written form or orally. All oral disclosures will be reduced to writing
within 30 days and all confidential material, not inherently or obviously
confidential, will be clearly labeled "CONFIDENTIAL". Distributor shall not
disclose such information to others or use such information without the prior
written consent of Empyrean, except to the extent required by law. All other
data or proprietary information transmitted by Empyrean to Distributor shall be
treated by Distributor with the same care as it would exercise in the handling
of its own confidential or proprietary information (which shall in every case be
reasonable care) and in no event shall such information be disclosed to any
person unless approved in writing in advance by Empyrean and such individual is
bound by the terms of this paragraph. Confidential or proprietary information
may however be disclosed to Distributor's employees and/or distributors to such
extent only as is necessary for the purposes contemplated by this Agreement and
subject to such employees and distributors being bound by the terms of this
paragraph. Upon termination or cancellation of this Agreement for any reason,
all such data, proprietary information and confidential information of Empyrean,
and all compilations and notes or summaries of same, shall be immediately
returned by Distributor to an officer of Empyrean and the limitations and
undertakings specified in this paragraph shall remain in effect for a period of
five years from the date of termination or expiration of this Agreement.
Confidential information as referred to in this Section 2.6 shall not include
<PAGE>
5
information (i) which is or becomes public knowledge through no fault of
Distributor; (ii) which is properly known to Distributor at the time of
disclosure by Empyrean, as evidenced by Distributor's written records; or (iii)
which is disclosed to Distributor on a non-confidential basis by a third party
having no obligation of secrecy to Empyrean.
3. RESPONSIBILITY OF EMPYREAN
3.1 SUPPORT RESPONSIBILITIES. In addition to other rights and obligations
created by this Agreement, Empyrean shall:
3.1.1 Use its commercially reasonable best efforts to deliver Products set
forth in Distributor's orders pursuant to the terms of this Agreement. Shipments
shall be made to Distributor or directly to customers established by Distributor
no later than 45 days from the date on which the order is received by Empyrean.
Empyrean reserves the right to immediately cease all shipments of the Product
upon the discovery of a non-conformity to specification in the Product or for
regulatory reasons. Empyrean shall use its best efforts to promptly correct such
non-conformity or such regulatory issue(s) and shall renew shipment upon such
correction;
3.1.2 Upon Distributor's request, provide a reasonable amount
of sales and Product training to key employees of
Distributor at Empyrean's facilities and at
Distributor's cost, for the purpose of training
qualified Distributor personnel to ensure proper
support of the Products. Empyrean may require
Distributor to pay reasonable charges for these
services;
3.1.3 Provide a reasonable quantity of current promotional
material literature relating to the Products at a
reasonable charge and such other samples, brochures and
up-to-date information concerning the Products as
Empyrean may consider appropriate or as Distributor may
reasonably require in order to assist Distributor to
sell the Products in the Territory; and
3.1.4 Assist Distributor at Distributor's expense, upon
request and subject to Empyrean's approval, which shall
not be unreasonably withheld, in making presentations
to Distributor's customers or prospects.
3.2 PROVISION OF INFORMATION. Empyrean accepts the responsibility to
provide Distributor with complete information regarding limitations to
use of the Products which are required to be disclosed under the
regulations of each country in the Territory.
4. PURCHASE OF PRODUCTS
4.1 PRODUCTS. Customers in the Territory shall purchase all units of the
Products from Distributor. Distributor shall follow up on delivery of
such units of the Products to customers and shall be responsible for
arranging for advanced payment of Products directly to Empyrean.
Distributor is responsible for entry of Products into the Territory
and for the successful delivery of Products to customers. If any
customer of Distributor does not provide advanced payment directly to
Empyrean, then Distributor must provide advanced payment to Empyrean.
An irrevocable letter of credit must be in place to cover all Product
purchases.
4.2 MINIMUM ANNUAL PURCHASE. Distributor agrees to market, promote and
sell the amount of Products set forth in Exhibit D hereto (the
"Minimum Annual Purchase") and to purchase at least this Minimum
Annual Purchase from Empyrean. In the event that Empyrean does not
obtain the FDA Approval (as defined in Section 5.3.2 below) within 15
months from the date of this Agreement, the parties hereto shall
immediately after the expiry of the 15-month period negotiate in good
<PAGE>
6
faith for a reduction in the Minimum Annual Purchase amounts. The
reduced Minimum Annual Purchase amounts shall thereafter apply until
the FDA Approval has been obtained, in which event, the Minimum Annual
Purchase amounts specified in Exhibit D shall be reinstated for the
year commencing after the FDA Approval has been obtained and for each
year thereafter.
4.3 FAILURE TO MEET MINIMUM ANNUAL PURCHASE REQUIREMENTS. Distributor
acknowledges and agrees that the exclusive right granted to it to
market, promote, distribute and sell the Products under this Agreement
is conditioned on fulfillment of such Minimum Annual Purchase
requirement for the Products or updated versions of the Products by
its distributors or its customers. In the event that less than the
total Minimum Annual Purchase requirement is met by Distributor for
any reason other than (i) due to a force majeure event as specified in
Section 8.3 herein, or (ii) directly attributable to Empyrean's breach
of this Agreement, Empyrean may give 60 days written notice to
Distributor and demand that such shortfall be remedied. If Distributor
fails to remedy the shortfall within the 60-day notice period,
Empyrean may upon written notice to Distributor declare the
distribution rights under this Agreement to be non-exclusive. If
Distributor notifies Empyrean in writing that the Minimum Annual
Purchase requirement for any year will not be met, then Distributor
and Empyrean shall meet to determine the appropriate Minimum Annual
Purchase level for that year.
4.4 NEW PRODUCTS. Distributor acknowledges that Empyrean manufactures
products for "Over-The-Counter". The Products which Empyrean agrees to
provide on an exclusive basis to Distributor are described in Exhibit
A. Additional future products derived from the Preventx product line
will be presented to Distributor on a first right of negotiation basis
for distribution in the Territory. Provided that if Distributor elects
not to accept such additional future products for distribution to its
customers on the terms offered by Empyrean for any reason which it
shall determine within 90 days of presentation, Empyrean shall be
entitled to present such additional future products to any third party
on terms and conditions no more favourable (when taken as a whole) to
such third party than those offered to Distributor.
4.5 PURCHASE PRICES. The prices payable by Distributor to Empyrean for the
Products are set out in Exhibit E (the "Product Price"). Distributor
will be responsible for arranging advanced payment or lines of credit
from the customer or from Distributor before Empyrean will ship the
Products to Distributor or its customers in the Territory.
4.6 DELIVERY AND PAYMENT. The Product Price to be paid by Distributor with
respect to each Product is based upon shipment F.O.B. Empyrean
factory, currently Canada or other warehouse facility in the United
States of America or elsewhere used by Empyrean. "Delivery" shall take
place when shipments are shipped from Empyrean's warehouse facility,
in accordance with instructions from Distributor. In the absence of
specific routing instructions, Empyrean reserves the right to select
the carrier and method of conveyance.
4.7 RISK OF LOSS. Risk of loss shall pass to Distributor on shipment at
Empyrean's warehouse facility. If a shipment of Products is not
accepted by a customer or Distributor due to failure to meet
specifications, Distributor will immediately notify Empyrean, return a
sample of the Product at Empyrean's request and provide its best
efforts to help Empyrean determine the source and nature of the
problem. Empyrean may request the return of the entire shipment and
shall pay all freight, customs fees and other charges associated with
the return of such shipment if such Products in the shipment are
defective. Distributor will use its best efforts to assist Empyrean in
pursuing a claim with the shipper at Empyrean's request provided that
Empyrean shall bear all and any costs and expenses incurred by
Distributor in providing such assistance.
<PAGE>
7
5. PAYMENT
5.1 TERMS. Payment will be an advanced payment prior to shipment using an
irrevocable letter of credit. Empyrean, at its option, shall have the
right to receive special payment procedures arranged by Distributor
for a customer. Any invoiced amount which is not paid when due will
bear interest at the rate of one and one-half (1.5%) per cent per
month. No Product Price or sums owed to Empyrean by a customer or
Distributor shall be subject to set off for claims of Distributor.
Empyrean shall have the right not to make further shipments to
specific customers or Distributor for invoices which are more than 60
days in arrears.
5.2 TAXES AND DUTIES. Distributor shall pay any and all applicable sales,
use or excise, state, local, federal or other taxes, customs duties,
or amounts legally levied with respect to the transportation, sale,
transfer, license, sublicense or use of the Product by or to a
customer or by Distributor, or upon the provision of any services by
Distributor with respect to a Product, as such taxes or amounts that
may now or hereafter be imposed under the authority of any nation,
group of nations, state, or local taxing jurisdiction.
5.3 DISTRIBUTION PAYMENT. In consideration of the exclusive rights granted
to Distributor herein, Distributor shall make the following one-time
payments to Empyrean:
5.3.1 the sum of US$600,000 upon the signing of this
Agreement; and
5.3.2 the additional sum of US$600,000 within 120 days
following the receipt by Distributor of written
notification from Empyrean that the Food and Drug
Administration of the United States of America (the
"FDA") has approved the claims made for the Products
listed in Exhibit A in relation to the prevention of
the transmission of the Human Immunodeficiency Virus
("HIV") (the "FDA Approval").
In addition, the parties hereto agree that out of the
sub-distribution fee to be paid by each distributor to
Distributor under each Sub-Distribution Agreement (the
"Sub-Distribution Fee"):
(i) 33 per cent of the Sub-Distribution Fee shall be paid
to Empyrean;
(ii) 33 per cent of the Sub-Distribution Fee shall be
utilized by Distributor to promote and market the
Products in the Territory; and
(iii) the balance of the Sub-Distribution Fee shall be
retained by Distributor for its account.
As further consideration for the payment by Distributor of the
sum of US$600,000 referred to in Section 5.3.1 herein, Empyrean
agrees to supply, at no cost to Distributor, Products valued at
not less than US$100,000 (based on the Product Price, F.O.B.
Empyrean factory or designated warehouse facility) during Year
One of this Agreement, and which US$100,000 shall be credited
towards the Year One Minimum Annual Purchase requirement.
6. WARRANTIES
6.1 PRODUCTS. Empyrean undertakes and warrants to Distributor that
the Products shall perform and conform with the product
specifications in Exhibit F or otherwise provided for
Distributor from time to time. In the event that any claim
relating to the medicinal or other value of the Products is
approved by the FDA or any other regulatory authority in the
United States of America or elsewhere in the world, such
approved claims shall be deemed to form part of the product
specifications in Exhibit F for the sale of the Products in
each country comprising the Territory provided that such
approved claim shall also have been approved by the relevant
regulatory authority in that country. Empyrean agrees to
replace any Product not performing or conforming with the said
<PAGE>
8
product specifications if the non-conforming Product is
returned to Empyrean within the period of the shelf life
specified by Empyrean for each of the Products and provided
that such non-conformity was not caused by misuse or
negligence of the customer in the Territory and otherwise is
returned in accordance with Empyrean's product return
authorization procedures in effect from time to time. All
third party expenses, including any applicable transportation,
handling, customs and related costs associated with the return
and/or replacement of such Products, if determined to be
non-conforming, shall be paid by Empyrean. Empyrean further
agrees to indemnify and save harmless Distributor from and
against any and all damages that may be suffered or incurred
by Distributor by reason of any claim of any customer or other
third party against Distributor arising or attributable to any
failure of the Products to perform or conform with such
product specifications unless such Product or the labels
relating thereto have been altered by Distributor. SAVE AS
PROVIDED IN THE FOREGOING, EMPYREAN MAKES NO EXPRESS WARRANTY,
AND EXCLUDES AND DISCLAIMS, TO THE EXTENT PERMITTED BY
APPLICABLE LAW, ANY AND ALL IMPLIED WARRANTIES INCLUDING,
WITHOUT LIMITATION, IMPLIED WARRANTIES IN CONNECTION WITH THE
DESIGN, SALE AND MERCHANTABILITY OR FITNESS OF THE PRODUCTS
FOR ANY PARTICULAR PURPOSE OR USE EXCEPT THAT THE PRODUCTS ARE
FREE FROM MANUFACTURING DEFECTS AND CONFORM TO EMPYREAN'S
PUBLISHED SPECIFICATIONS. EMPYREAN SHALL HAVE NO LIABILITY
WITH RESPECT TO ITS OBLIGATIONS UNDER THIS AGREEMENT OR
OTHERWISE FOR CONSEQUENTIAL, EXEMPLARY, INCIDENTAL OR PUNITIVE
DAMAGES, EVEN IF IT HAS BEEN ADVISED THAT THE POSSIBILITY OF
SUCH DAMAGE EXISTS. While Distributor may provide a warranty
for its end user, any warranty provided by Distributor is its
own and shall be the sole responsibility of Distributor.
Distributor shall inform all customers of Empyrean's warranty
disclaimers. Empyrean will make a reasonable effort to provide
an initial response to all customer complaints within 14
working days after receipt of said information.
6.2 AUTHORITY. Each party hereby represents and warrants to and undertakes with
the other as follows:
6.2.1 it has full power and authority to execute and deliver
and perform all of its obligations under this Agreement
and the execution, delivery and performance of this
Agreement by it will not conflict with any law, order,
judgment, decree, rule or regulation of any court,
arbitral tribunal or government agency, or any
agreement, instrument or indenture to which it or any
of its affiliates is a party or by which it is bound;
and
6.2.2 the exercise of the rights granted or to be granted by
Empyrean to Distributor under this Agreement will not
result in the infringement of any copyright, designs,
patents, and other intellectual property of, or any
other claims or rights of whatsoever nature of, any
third parties.
7. TERM AND TERMINATION
7.1 TERM. The initial term of the Agreement shall commence on the date of
execution of this Agreement by both parties hereto and will remain in
effect for the initial term of three years, unless terminated earlier
under the provisions of Section 7.2 herein. At the conclusion of the
initial term, and provided that it has not been subject to earlier
termination under Section 7.2 herein, this Agreement shall be
automatically renewed for additional two ten-year terms unless and
until this Agreement is terminated by mutual written consent of the
parties hereto.
7.2 TERMINATION FOR CAUSE. Empyrean may terminate this Agreement by 60
days notice to Distributor upon the occurrence of any of the following
events should they not be remedied within such 60-day notice period:
<PAGE>
9
7.2.1 Distributor fails to pay an invoice when due;
7.2.2 Distributor fails to fulfil one or more of its
obligations hereunder or otherwise breaches this
Agreement;
7.2.3 Distributor becomes bankrupt, insolvent or becomes
unable to pay its obligation when they become due; or
7.2.4 Distributor fails to substantially perform the specific
support and promotional activities outlined in Exhibit
C without prior written agreement by Empyrean.
Distributor may terminate this Agreement by 60 days notice to
Empyrean upon the occurrence of any of the following events
should they not be remedied within such 60-day notice period:
7.2.5 Empyrean fails to fulfil one or more of its obligations
hereunder or otherwise breaches this Agreement; or
7.2.6 Empyrean becomes bankrupt, insolvent or becomes unable
to pay its obligation when they become due.
7.3 EFFECT OF EXPIRATION OR TERMINATION. The effect of expiration or
termination of the Agreement is to be as follows:
7.3.1 Upon expiration of this Agreement or upon termination
by either party as provided herein, Empyrean shall
continue to ship Products under any Product orders
previously submitted by Distributor. Distributor will
have the right to sell all Products it has in inventory
to its customer or, if requested by Empyrean, the newly
appointed distributor or to Empyrean at cost plus any
handling. All warranties in effect will survive the
termination of this Agreement.
7.3.2 Upon expiration of this Agreement or upon termination,
the terms of Section 2.6 will remain in effect for an
additional five years therefrom.
7.3.3 Termination of this Agreement for any reason shall be
without prejudice to any rights of either party hereto
against the other arising out of events occurring prior
to that termination.
7.3.4 All rights granted hereunder to use trademarks or trade
names of Empyrean shall immediately terminate.
8. MISCELLANEOUS PROVISIONS
8.1 ARBITRATION. Any controversy or claim arising out of or relating to
this Agreement, or the performance or breach thereof, shall be settled
by arbitration in accordance with the Commercial Arbitration Rules of
the American Arbitration Association in the City of Washington, D.C.,
U.S.A. and judgment upon the award rendered by the Arbitrator(s) may
be entered in any Court having jurisdiction thereof and each party
hereto consents to jurisdiction is such forum, except that any party
can apply to any court in the continental U.S. for emergency or
interim injunctive relief.
8.2 ASSIGNMENT. Neither party hereto may assign or transfer all or any of
its rights or obligations under this Agreement without the prior
consent in writing of the other party, except that Empyrean may assign
this Agreement without Distributor's consent in conjunction with the
sale of all or substantially all its business or assets.
<PAGE>
10
8.3 FORCE MAJEURE. Either party hereto shall be excused from any delay or
failure in performance hereunder caused by any labor dispute,
governmental requirement (other than obligations to obtain Approvals),
act of God, earthquake, inability to secure materials and
transportation facilities, and other causes beyond its control. If
such delaying cause shall continue for more than 60 days, and 135 days
in the case of Empyrean's inability to deliver Products, the party
injured by the inability of the other to perform shall have the right,
upon written notice to the other party, to terminate this Agreement.
Alternatively, Empyrean and Distributor may elect to continue the
Agreement, but determine new Minimum Annual Purchases through mutual
agreement.
8.4 ENTIRE AGREEMENT. This Agreement sets forth the entire agreement and
understanding between the parties hereto relative to the subject
matter contained herein and supersedes all other agreements, oral and
written, heretofore made between the parties hereto, except that it
shall not relieve either party from making payments which may be owing
under an agreement prior to the date thereof. Any amendment to this
Agreement must be in writing and signed by an authorized
representative of Empyrean and Distributor. Should any portion of this
Agreement be held invalid or unlawful, the remainder of the Agreement
shall continue to be binding on both parties hereto to the fullest
extent practicable.
8.5 CAPTIONS. Section titles or captions contained herein are for
reference only and shall not be considered in construing this
Agreement.
8.6 NOTICES. All notices and requests required or authorized hereunder
shall, except where specifically provided otherwise, be given either
in writing by personal delivery to the party to whom notice is to be
given, or sent by registered mail, addressed to the party intended at
the address set forth below. The date of delivery in the case of
personal delivery or the date upon which it is deposited in the mail
in the case of notice by mail, shall be deemed to be the date of such
notice.
Empyrean: Empyrean Bioscience, Inc.
2238 West Lone Cactus Drive, Suite 200
Phoenix, Arizona 85027
Attn: President or Chief Operations Officer
Distributor: Durstrand International Limited
c/o 501, Keppel Centre
Cebu Business Park
Cebu City, Cebu
Philippines 6000
Attn: Mr David Austen de Montaigne
8.7 WAIVERS. The waiver by either party hereto of any breach or alleged
breach of any provision hereunder shall not be construed to be a
waiver of any concurrent, prior or succeeding breach of said provision
or any other provision herein. Any waiver must be in writing.
8.8 RECORDS. Distributor shall keep accurate and detailed records of all
sales of the Products, and Distributor shall permit examination and
inspection of such records by authorized representatives of Empyrean,
upon reasonable notice, during usual business hours. Distributor may
limit inspection of such information to an agreed independent auditor,
only to the extent such inspection may divulge confidential
information of Distributor. In the event that Distributor exercises
its right to limit inspection to an auditor, written informal records
of sales not containing such confidential information shall be
supplied by Distributor per the terms of Section 2.1.8.
<PAGE>
11
8.9 GOVERNING LAW. This Agreement, and all of the rights and duties in
connection therewith, shall be governed by and construed under the law
of the State of Arizona, U.S.A. other than conflict of laws,
principles of such state, applicable to agreements made and to be
performed in that State.
In consideration of the mutual covenants and conditions herein set forth, the
parties hereto have executed this Agreement as of the day and year above
written.
Durstrand International Limited Empyrean Bioscience, Inc.
Signature: /s/ Lim Ho Ke Signature: /s/ Stephen D. Hayter
------------------------- -------------------------
By: Lim Ho Ke By Stephen D. Hayter
--------------------------- ---------------------------
Title: Chairman Title: Chief Executive Officer
--------------------------- ---------------------------
Date: April 28, 1999 Date: April 28, 1999
--------------------------- ---------------------------
<PAGE>
12
EXHIBIT A
PRODUCTS
Preventx Contraceptive Gel and Antiseptic provided in 60, 80, 120 ml tube size
or 5.5ml disposable applicators.
Preventx Contraceptive Gel and Antiseptic provided in 55 gallon drum size or
other "bulk" packaging.
Preventx Hand Sanitizer and Antiseptic Lotion provided as finished product in 2,
8, 16 and 32 ounce bottles.
Preventx Hand Sanitizer and Antiseptic Lotion provided in bulk packaging.
<PAGE>
13
EXHIBIT B
TERRITORY ONE
I. The Philippines
II. Singapore
III. Thailand
IV. Indonesia
V. Malaysia
VI. Cambodia
VII. Myanmar
VIII. Vietnam
TERRITORY TWO
I. Bangladesh
II. Brunei
III. North Korea
IV. South Korea
V. Guam
VI. New Guinea
<PAGE>
14
EXHIBIT C
SPECIFIC SUPPORT AND PROMOTIONAL ACTIVITIES
Distributor recognizes that significant market development activities will be
required to build sales volume for Empyrean's products. Distributor agrees to
promote the Products to government agencies and end users. Distributor agrees to
execute Empyrean-generated marketing campaigns in the Territory; these campaigns
may involve translation and printing of promotional materials into brochures,
advertisements and mailers. Distributor will also undertake Empyrean-initiated
product promotional campaigns. Distributor agrees to conduct these campaigns
with reasonable levels of expenditure, to maintain appropriate organizational
staffing to execute said campaigns and to conduct educational seminars
independently and with Empyrean representatives. These activities must first be
discussed and approved by Empyrean USA (which approval shall not be unreasonably
withheld) and shall only be carried out to the extent that such activities do
not contravene the applicable laws and regulations in the Territory of the
United States.
Distributor further agrees to purchase demonstration product as appropriate and
to maintain a product specialist to support the products in-house and in the
field and to provide appropriate incentives to its general support organization.
These activities must first be discussed and approved by Empyrean USA (which
approval shall not be unreasonably withheld).
The quarterly end user sales in the Territory will be maintained by both
Distributor and Empyrean, since customer or Distributor will be required to
remit payment in advance, directly to Empyrean. Distributor may submit to
Empyrean, if agreed to in advance, reasonable and customary sales expenses
relating to the presentation, promotion and sales of Empyrean's products.
Expenses will be reimbursed on a quarterly basis. Expenses must be submitted one
week after the close of each quarter.
Distributor will be responsible for establishing the customer and setting up the
advanced payment schedule with customer and Empyrean. If not, Distributor will
be responsible for advanced payment. Products will be delivered to the
Territory. Distributor will be responsible to follow up on deliveries.
Empyrean and Distributor will maintain a close working relationship. In the
event that Distributor has the ability to open up new customers through a
broader product offering, Empyrean will discuss this with an open mind to
increasing the products offered by Distributor in the Territory, but the
decision to add such products to this Agreement shall be at the sole and
absolute discretion of Empyrean.
Since Distributor is responsible for providing promotion, Product presentation
and selling of the Products only, Empyrean would not expect Distributor to
establish a distribution network, warehousing, or banking facilities on behalf
of Empyrean. Therefore, if Distributor elects to provide that for its customers,
it is at Distributor's expense.
<PAGE>
14
EXHIBIT D
MINIMUM ANNUAL PURCHASE
PRODUCTS:
Preventx Contraceptive Gel and Antiseptic
Preventx Hand Sanitizer and Antiseptic Lotion
MINIMUM PURCHASES CAN BE IN EITHER PRODUCT:
Year One - US$400,000
Year Two - US$1,000,000
Year Three - US$3,000,000
Year Four onwards - Minimum Annual Purchase for each year shall be equivalent to
115 per cent of the Minimum Annual Purchase for the immediately preceding year.
<PAGE>
16
EXHIBIT E
PRODUCT PRICES
PREVENTX CONTRACEPTIVE AND ANTI-MICROBIAL GEL
Preventx Gel 55 gallon containers sold in "bulk", no labels, tubes, or
boxes.
Preventx Gel If purchased in 5.5, 60, 80 or 120 ml size tubes pricing will
be negotiated based on quantity ordered and costs associated
with preparing tubes that are exclusive to the
Territory.
PREVENTX HAND SANITIZER
Hand Sanitizer May be purchased in bulk or in bottles.
PRICING WILL BE PUBLISHED WHOLESALE, MINUS 17.5 PER CENT, F.O.B. EMPYREAN
FACTORY OR DESIGNATED WAREHOUSE.
<PAGE>
17
EXHIBIT F
PER ATTACHED PACKAGED INSERT
Product specifications are as outlined in the specific product package insert
which is delivered with individual product lots to Distributor in the Territory.
18
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
