AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 1, 1999
REGISTRATION NO. 333-84147
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 1 TO
FORM S-4
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933
EMPYREAN BIOSCIENCE, 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
Director, President and Chief Executive Officer
2238 West Lone Cactus Drive, Suite 200
Phoenix, Arizona 85027-2613
(623) 879-6935
(Name, Address, Including Zip Code, and Telephone Number, Including
Area Code, of Agent For Service)
COPIES OF ALL COMMUNICATIONS, INCLUDING ALL COMMUNICATIONS
SENT TO THE AGENT FOR SERVICE, SHOULD BE SENT TO:
Steven D. Pidgeon
Snell & Wilmer L.L.P.
One Arizona Center
Phoenix, Arizona 85008
(602) 382-6000
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
================================================================================
<PAGE>
If the securities being registered on this form are being offered in connection
with the formation of a holding company and there is compliance with General
Instruction G, check the following box. [ ]
If this form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(d) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
CALCULATION OF REGISTRATION FEE
================================================================================
Title of
Each Class of Maximum
Securities Aggregate Amount Of
to be Offering Registration
Registered Price Fee
- --------------------------------------------------------------------------------
Common Stock,
$.001 par value $18,429,701 (1) $5,123.46 (2)
================================================================================
(1) Estimated under 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 THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
1
<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 ___________, 1999
Dear Stockholder:
We will hold an annual meeting of stockholders on ___________, 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 _____________________, 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 ____________________, 1999.
YOUR VOTE IS IMPORTANT.
By Order of the Board of Directors:
Secretary
Phoenix, Arizona
, 1999
TO VOTE YOUR SHARES, PLEASE COMPLETE, DATE AND SIGN THE ENCLOSED PROXY CARD AND
MAIL IT PROMPTLY IN THE ENCLOSED RETURN ENVELOPE.
2
<PAGE>
SUBJECT TO COMPLETION, DATED SEPTEMBER __, 1999
THE INFORMATION CONTAINED IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED.
NO ONE MAY SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
[COMPANY LOGO]
EMPYREAN BIOSCIENCE, INC.
29,346,659 Shares of Common Stock
We develop microbicidal products and currently market and distribute a hand
sanitizer and antiseptic skin protectant. We are moving to Delaware and in the
process are registering your shares. We will become a public reporting company
provided the reincorporation is approved. 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. If we do not complete the reincorporation, your shares will not be
exchanged for shares registered under the federal securities laws.
The date, time and place of the meeting are as follows:
DATE: ____________________
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
3
<PAGE>
TABLE OF CONTENTS
PAGE
----
Summary................................................................... 5
Risk Factors.............................................................. 8
Our Annual Meeting........................................................ 16
Management's Discussion and Analysis of Financial Condition and
Results of Operations................................................... 30
Business.................................................................. 35
Executive Compensation.................................................... 51
Security Ownership of Certain Beneficial Owners and Management............ 52
Description of Capital Stock.............................................. 55
Certain Relationships and Related Transactions............................ 57
Legal Matters............................................................. 60
Experts................................................................... 60
Where you can find more information....................................... 61
4
<PAGE>
SUMMARY
THIS SUMMARY CONTAINS BASIC INFORMATION ABOUT US AND OUR REINCORPORATION.
BECAUSE IT IS A SUMMARY, IT DOES NOT CONTAIN ALL OF THE INFORMATION THAT IS
IMPORTANT TO YOU. YOU SHOULD READ CAREFULLY THIS ENTIRE DOCUMENT AND THE
DOCUMENTS TO WHICH WE HAVE REFERRED YOU.
OUR BUSINESS
We develop products known as microbicidal products that prevent 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. 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 Form S-4.
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
To approve the merger, a majority of the outstanding shares of our common
stock must vote in favor of the merger proposal. To approve the election of a
director a plurality of votes must be cast for that director. As of 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
Our stockholders may dissent from the merger and receive the "fair value"
of their common stock. Wyoming law requires each dissenting stockholder to meet
strict requirements to dissent properly. You should consult your legal advisor
for a full understanding of your right to dissent. We have attached a copy of
the Wyoming statute that provides for your appraisal rights as Annex B,
including the procedures that must be followed by you to properly exercise these
rights.
FORWARD-LOOKING STATEMENTS MAY PROVE INACCURATE
We have made forward-looking statements in this document that are subject
to risks and uncertainties. Forward-looking statements include the information
concerning our possible or assumed future results of operations, including the
cost savings from the merger and market opportunities for our current and
5
<PAGE>
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.
6
<PAGE>
SUMMARY HISTORICAL FINANCIAL DATA
<TABLE>
<CAPTION>
Years Ended December 31, Six-Months Ended June 30,
(unaudited)
----------------------------- ----------------------------
1997 1998 1998 1999
---- ---- ---- ----
<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 2,360,536 954,492 2,774,282
Write-down of inventory .................... 458,800 28,516 -- --
Write-down of receivables .................. 105,000 -- -- --
Operating loss ............................. (2,565,774) (2,414,098) (950,903) (2,220,547)
Other income (expense), net ................ (29,772) (180,782) 14,626 (110,510)
Net loss ................................... (2,595,546) (2,594,880) (936,277) (2,331,057)
Net loss per share ......................... (0.14) (0.11) (0.05) (0.09)
Weighted average shares outstanding ........ 18,213,790 22,883,937 19,546,398 26,837,853
</TABLE>
AT DECEMBER 31, 1998 AT JUNE 30, 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)
7
<PAGE>
RISK FACTORS
You should consider carefully the following factors together with all of
the other information included in this prospectus before you decide to vote on
our merger and reincorporation.
RISKS RELATING TO THE MERGER:
FAILURE TO CONSUMMATE THE MERGER WILL PREVENT OR DELAY OUR EFFORTS TO BECOME A
REPORTING COMPANY UNDER THE EXCHANGE ACT, WHICH COULD CAUSE YOUR EXISTING SHARES
TO BE EXCLUDED FROM QUOTATION ON THE OTC BULLETIN BOARD
The primary purpose of the merger is to reincorporate Empyrean into
Delaware and to satisfy the registration requirements of the Securities Exchange
Act of 1934. The benefits of registering under the Exchange Act include possibly
reducing or eliminating the trading restrictions associated with the stock of
nonreporting companies, improving our chances to eventually list our common
stock on NASDAQ, enhancing our ability to raise capital in the future. If the
merger is not consummated for any reason, Empyrean's shareholders will be
prevented or delayed from realizing these benefits and will continue to own
securities in a nonreporting company. In addition, our continued ability to
include our shares for quotation on the OTC Bulletin Board depends on our
becoming a reporting company under the federal securities laws by November 17,
1999, and it is not likely that we will become a reporting company unless the
merger is completed. Because a number of factors that may affect the merger are
not within our control, the merger may not be consummated.
REINCORPORATING IN DELAWARE MAY RESTRICT SHAREHOLDERS' RIGHTS WHICH MAY
NEGATIVELY IMPACT THE STOCK PRICE
If the merger is consummated, Empyrean will become a Delaware corporation
subject to the corporation laws of that state, which 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 or become subject to some obligations they were not subject to under
Wyoming law. In addition, under Delaware law and Empyrean's new articles of
incorporation and bylaws, it may be more difficult or less advantageous for
another person or entity to attempt or complete a hostile acquisition of
Empyrean. All of these factors may have a negative impact on our stock price.
EMPYREAN MAY ISSUE PREFERRED STOCK WITH RIGHTS AND PREFERENCES SENIOR TO THOSE
OF COMMON STOCK IF THE MERGER IS SUCCESSFUL, WHICH COULD CAUSE A DECLINE IN THE
VALUE OF THE COMMON STOCK OR MAKE IT MORE DIFFICULT FOR A THIRD PARTY TO ACQUIRE
US.
If the merger is completed, Empyrean will be governed by articles of
incorporation substantially in the form attached to the prospectus as Exhibit
3.1(a). These new articles of incorporation, unlike Empyrean's existing
articles, contain a provision providing for serial or "blank check" preferred
stock. This provision will enable Empyrean's Board of Directors, without a vote
of its common stockholders, to issue separate classes or series of preferred
stock with rights and preferences that may be senior to those of its common
stock with respect to voting, dividends, rights upon liquidation, dissolution or
acquisition, and redemption, which may cause a decline in the value of the
common stock. As a result, preferred stock may be issued that could adversely
affect the economic or voting rights of Empyrean's common stockholders and the
common stockholders will not be permitted to vote on this matter. 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.
8
<PAGE>
RISKS RELATING TO EMPYREAN'S BUSINESS:
WE MAY NOT BE ABLE TO OBTAIN SUFFICIENT CAPITAL TO FUND OUR OPERATIONS AND, AS A
RESULT, WE MAY BE REQUIRED TO CUT BACK OR DISCONTINUE OPERATIONS OR LIMIT OUR
BUSINESS STRATEGIES
We will need significant additional capital in the near future, and we
cannot assure you that funding of our operations will be available on favorable
terms, if at all. If adequate funds are not available, we may be required to cut
back or discontinue one or more of our product development, marketing or
distribution programs or plans, reduce operating expenses, or attempt to obtain
funds through strategic alliances that may require us to relinquish rights to
one or more of our technologies or products.
Our future capital requirements will depend on many factors, including:
* the progress of our product development, sales, marketing and distribution
efforts;
* the scope and results of clinical trials related to our products;
* the progress in filing for and obtaining regulatory approvals;
* the rate of technological advances;
* the market acceptance of our products;
* the levels of administrative and legal expenses; and
* competitive products.
In addition, future financing may be increasingly difficult to obtain due
to our limited operating history and results, the level of risk associated with
our business and business plans, increases in our vulnerability to general
economic conditions, and increased stockholder dilution. Additional debt
financing, if available, may have several negative effects on our future
operations including:
* a portion of our cash flow from operations will be dedicated to payment of
principal and interest and this would reduce the funds available for
operations and capital expenditures;
* increased debt burdens will substantially increase our vulnerability to
adverse changes in general economic and competitive conditions; and
* we may be subject to restrictive debt covenants and other conditions in our
debt instruments that may limit our capital expenditures, limit our
expansion or future acquisitions, and restrict our ability to pursue our
business strategies.
Additional equity financing will also lead to increased dilution to
existing stockholders.
CURRENT LITIGATION MAY ADVERSELY AFFECT ONE OF OUR PRIMARY LICENSES AND WE COULD
LOSE A PORTION OF OUR RIGHTS TO MAKE OR SELL OUR PRIMARY PRODUCTS AND BE UNABLE
TO GENERATE REVENUE
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 product and future products developed by us.
These products include the vaginal contraceptive gel, baby wipes, towelettes and
9
<PAGE>
disinfectant surface spray. 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 and sell our current product in the same
manner in which we currently are marketing and selling. If that were to occur,
we would be unable to generate significant revenue.
WE EXPECT TO INCUR LOSSES FOR THE FORESEEABLE FUTURE AND CONTINUED LOSSES COULD
RESULT IN OUR INABILITY TO FUND BUSINESS OPERATIONS AND CAUSE OUR STOCK PRICE TO
DECLINE
We expect to incur a net loss at least through the end of 1999. We have
incurred a net loss in each year of our existence. We incurred operating losses
of $2,007,172, $2,595,546, and $2,594,880 for the years 1996, 1997 and 1998,
respectively, and $2,331,057 in the six months ending June 30, 1999. We cannot
assure you that we will ever 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 $20,150,275 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.
We cannot assure you that any of our products will achieve or maintain market
acceptance or that we will be successful in increasing our market share with
respect to any of our current products. Market acceptance will depend, in large
part, upon our ability to educate health care providers and other institutional
or consumer end users as to the distinctive characteristics and benefits of our
products. Failure of some or all of our preventative products to achieve
significant market acceptance 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.
Certain recent news broadcasts by major television and radio networks have
focused on the use of antibacterial agents to kill germs on various surfaces. In
addition, 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, there can be no assurance that the
adverse publicity stemming from broadcasts of problems with or recalls of other
products will not adversely affect the sales of our products or our ability to
ever become profitable.
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 can be no assurance
that personal injury, including death, or property damage will not occur as a
result of the use or misuse of our products. If that were to occur, we could be
subject to significant product liability claims and litigation. Currently, we
maintain limited product liability insurance. There can be no assurance that any
claims relating to our products, even if nonmeritorious, will not exceed our
existing insurance coverages and assets. If this were to occur, 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.
10
<PAGE>
WE HAVE LIMITED SALES, MARKETING AND DISTRIBUTION CAPABILITIES AND RELY
EXTENSIVELY ON THIRD PARTIES TO MARKET AND DISTRIBUTE OUR PRODUCTS, AND THE
FAILURE OR UNWILLINGNESS OF THESE PARTIES TO MARKET OUR PRODUCTS COULD LIMIT OUR
ABILITY TO GENERATE REVENUES OR PROFITS.
We rely extensively on third party marketing and distribution companies and
have little internal capabilities in these areas. Accordingly, our ability to
effectively market and distribute our products is dependent in large part on the
strength and financial condition of others, the expertise and relationships of
our distributors and marketers with customers and the interest of these parties
in selling and marketing our products. Our marketing and distribution parties
also market and distribute the products of other companies. Our failure to
generate substantial sales through our distributors would 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. There can be no
assurance that we will be able to successfully compete against these companies,
even if our products have recognized superior qualities.
In addition, consumer products, particularly those that we offer or plan to
offer, are subject to significant price competition. From time to time, we may
need to engage in price cutting initiatives for some of our products to respond
to competitive and consumer pressures. Our inability to absorb price reductions
could cause a loss of sales volumes or prohibit us from generating profits from
our product sales.
11
<PAGE>
WE DEPEND ON KEY EMPLOYEES FOR OUR SUCCESS AND THE LOSS OF OUR KEY EMPLOYEES
COULD LIMIT OUR SUCCESS
Our future success will depend in large part on our ability to attract and
retain highly qualified managerial and technical personnel. The competition for
qualified personnel in our industry is intense and, accordingly, we cannot
assure you that we will be able to hire or retain necessary personnel. We are
presently highly dependent upon the efforts of Mr. Stephen D. Hayter, a Director
and the President and Chief Executive Officer of our company, 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 expensive, 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. 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, we may be restricted or prohibited from making pertinent product
claims that may limit our ability to successfully market our products or reduce
the prices that consumers are willing to pay for our products. Finally, failure
to comply with applicable requirements for testing, manufacturing, labeling,
distributing, advertising, marketing, and selling drugs may subject us or our
distributors or manufacturers to administrative or court-imposed sanctions such
as product recalls or seizures, injunctions against production, distribution,
sales and marketing, delays in obtaining marketing approvals or the refusal of
the government to grant 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.
The active ingredient in our hand sanitizer and antiseptic skin protectant
product, benzalkonium chloride, is included in an FDA proposed regulation for
over-the-counter first aid antiseptic drug products, but with different claims
than 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. If
benzalkonium chloride is not covered by the final regulations, or if
benzalkonium chloride is included but for different claims than ours, we will
not be permitted to market the hand sanitizer and antiseptic skin protectant
product without premarket approval by the FDA.
Also, the FDA has taken the position that an antiseptic lotion containing
benzalkonium chloride and marketed by the Andrew Jergens Co. cannot be marketed
in the U.S. without premarket approval. The FDA may take regulatory action
against our hand sanitizer and antiseptic skin protectant product as now
formulated and with its current claims based on a similar position.
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. We may never
12
<PAGE>
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
determined to be invalid in the future, 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, we cannot assure
you in this regard.
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 can be assured. We
expect that most of our revenue in the foreseeable future will continue to be
derived from sales of the hand sanitizer and antiseptic skin protectant and
possibly some of our preventative products currently under development. As a
result of our lack of product diversification, any failure to successfully
develop and market any one or a few of our existing or near-term future products
will have a significant impact on our ability to generate revenues or profits
and this impact would not be offset by the successful marketing or sales of
other of our 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
and claims damages of approximately $500,000 plus punitive damages. We have been
joined as co-defendants. This lawsuit may not be resolved in our favor. If we
lose or settle this lawsuit, we may be required to pay the damages claimed and
punitive damages, and 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.
Due to the early developmental stage of our business, we have expended only
limited amounts on research and development of disease preventative products in
1998 and 1999. Currently, we have very limited resources to devote to research
and development of our currently planned future products and technologies. Since
our only product on the market to date is our hand sanitizer and antiseptic skin
protectant product, our success depends heavily on our ability to develop
innovative additional products utilizing our core proprietary product
formulation. Unless we are able to obtain and devote resources to our research
and development efforts, we may only be able to develop limited product
offerings in the future and our ability to achieve market acceptance, 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
13
<PAGE>
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. We may not be able to manage
any expansion effectively, and a failure to do so could strain our resources and
systems and result in the loss of revenues or customers or the incurrence of
additional operating losses.
OUR LACK OF 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 and
we have not yet completed a review of our suppliers or other third party
business partners to determine whether the systems employed by these parties are
Year 2000 compliant. In addition, we have not developed an internal contingency
plan to deal with the Year 2000 issues that may affect our business. As a
result, we may experience disruptions in our ability to conduct business because
of the Year 2000 problems experienced by us or our distributors or vendors. To
the extent that our systems experience a Year 2000 failure, or if our key
distributors or vendors experience problems relating to achieving Year 2000
compliance, we could suffer a disruption or loss of our systems and
unanticipated additional costs and possible revenue losses. We may also be
subject to unanticipated and significant litigation resulting from any lack of
Year 2000 compliance by us or our vendors or distributors.
INTERNATIONAL SALES OF OUR PRODUCTS EXPOSE US TO CURRENCY FLUCTUATIONS AND OTHER
SPECIAL RISKS, WHICH COULD LIMIT OUR ABILITY TO GENERATE PROFITS OR CAUSE US TO
INCUR OPERATING LOSSES.
We are currently attempting to expand the sale of our current products and
to introduce new products under development in several foreign countries. Our
international sales efforts are subject to several customary risks of doing
business abroad, including regulatory requirements, political and economic
instability, trade barriers, foreign taxes and tariff restrictions, restrictions
on the ability to transfer funds, and export licensing requirements. In
addition, although our limited foreign transactions to date have been U.S.
dollar denominated, 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 LIQUIDITY OF OUR COMMON STOCK IS LIMITED
We do not meet the listing requirements for the listing or quotation of our
common stock on any national or regional securities exchange or on NASDAQ.
Currently, our common stock is traded on the OTC Bulletin Board. As a result,
accurate current quotations as to the value of our common stock are not
available and it is more difficult for investors to dispose of our common stock.
The lack of current quotations and liquidity can cause our stock price to
decline or be generally lower than the prices that may prevail if our securities
were listed or quoted on an exchange or on NASDAQ.
14
<PAGE>
OUR COMMON STOCK IS SUBJECT TO THE "PENNY STOCK" RULES OF THE SEC AND THE
TRADING MARKET IN OUR SECURITIES IS LIMITED
Since our common stock is not listed or quoted on any exchange or on
NASDAQ, and no other exemptions currently apply, trading in our common stock on
the OTC Bulletin Board is subject to the "penny stock" rules of the SEC. These
rules require, among other things, that any broker engaging in a transaction in
our securities provide its customers with a risk disclosure document, disclosure
of market quotations, if any, disclosure of the compensation of the broker and
its salespersons in the transaction, and monthly account statements showing the
market values of our securities held in the customer's accounts. The bid and
offer quotations and compensation information must be provided prior to
effecting the transaction and must be contained on the customer's confirmation.
Generally, brokers subject to the "penny stock" rules when transacting in our
securities may be less willing to do so. This may make it more difficult for
investors to dispose of our common stock. In addition, the information required
to be provided to the customers of brokers is prepared by and is the
responsibility of brokers, and not Empyrean, and broker-distributed information
may not be accurate, complete or current.
THERE ARE A LARGE NUMBER OF SHARES UNDERLYING OUR WARRANTS AND OPTIONS THAT MAY
BE AVAILABLE FOR FUTURE SALE AND THE SALE OF THESE SHARES MAY DEPRESS THE MARKET
PRICE OF OUR COMMON STOCK
As of September 28, 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
5,497,774 shares owned or currently issuable to "affiliates" of Empyrean. The
future sale of these shares may adversely affect the market price of our common
stock. The issuance of shares upon exercise of our outstanding warrants and
options will also cause immediate and substantial dilution to our existing
stockholders. In addition, as long as these warrants and options remain
outstanding, our ability to obtain additional capital might be adversely
affected.
OUR STOCK PRICE MAY BE VOLATILE DUE TO FACTORS BEYOND OUR CONTROL
In addition to the factors described above, the securities markets have
from time to time experienced significant price and volume fluctuations that can
be unrelated to the operating performance or financial condition of any
particular company, including Empyrean. This is especially true with respect to
emerging companies like Empyrean and companies in our industry. Announcements of
technology innovations or new products by other companies, release of reports by
securities analysts, regulatory developments, economic or other external
factors, as well as quarterly fluctuation in our or in our competitors'
operating results, can have a significant impact on our stock price. 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.
15
<PAGE>
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 ____________________, at 10:00 a.m. local
time, at 2238 West Lone Cactus Drive, Suite 200, Phoenix, Arizona 85027-2613.
We are first mailing this joint proxy statement/prospectus on the enclosed
form of proxy to our stockholders on or about _____________________, 1999.
The purpose of our meeting is:
(a) To consider and vote upon a proposal to approve a merger agreement and
merger between Empyrean Bioscience, Inc., a Wyoming corporation and
Empyrean Bioscience, Inc., a Delaware corporation. Under the merger
agreement Empyrean Wyoming will be merged into Empyrean Delaware which
will continue as the surviving corporation and each outstanding share
of Empyrean Wyoming common stock will be converted into and become
exchangeable for one share of Empyrean Delaware 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 ___________________, 1999 as the
record date for determining our stockholders entitled to vote at the annual
meeting. Accordingly, only holders of record for common stock on the record date
will be entitled to vote at the annual meeting. As of the record date, there
were outstanding and entitled to vote 29,346,659 shares of our common stock,
which constitutes all of our outstanding voting stock, and which shares were
held by approximately 2,600 holders of record. Each holder of record of shares
of our common stock on the record date is entitled to one vote per share, which
may be cast either in person or by properly executed proxy, at our annual
meeting. A quorum for the annual meeting consists of the presence of the holders
of a majority of the outstanding shares of our common stock. Approval of the
merger proposal discussed above requires the affirmative vote of holders of at
least a majority of the shares of our common stock outstanding and entitled to
vote on the record date. Election of a director requires a plurality of votes
cast for that director.
Shares of our common stock represented in person or by proxy will be
counted for purposes of determining whether a quorum is present at our annual
meeting. Shares which abstain from voting as to a particular matter will be
treated as shares that are present and entitled to vote at the annual meeting
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 generally will not be entitled to vote on the proposals
unless they receive voting instructions from their customers. Because the
16
<PAGE>
proposals are the only matters for which specific approval is being solicited,
any shares held by brokerage nominees for which no instructions are given by the
beneficial owners will not be voted. This means that these shares will not count
toward determining whether a quorum exists or be voted in any manner on the
proposals and will have the same effect as votes against the proposals.
As of the record date for the annual meeting, our directors and executive
officers and their affiliates may be deemed to be beneficial owners of
approximately 4% of the outstanding shares of our common stock, excluding shares
issuable upon exercise of outstanding options and warrants, and have expressed
their intent to vote their shares in favor of the merger proposal and the
election of the director nominees.
VOTING AND REVOCATION OF PROXIES
All shares of our common stock that are entitled to vote and are
represented at our annual meeting by properly executed proxies received prior to
or at 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.
17
<PAGE>
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 EMPYREAN
DELAWARE COMMON STOCK FOLLOWING CONSUMMATION OF THE MERGER IN ACCORDANCE WITH
THE INSTRUCTIONS TO BE SENT TO HOLDERS OF OUR COMMON STOCK AFTER THE MERGER.
18
<PAGE>
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 as set forth
below.
STEPHEN D. HAYTER DIRECTOR, PRESIDENT, AND CHIEF EXECUTIVE OFFICER
Mr. Hayter, 60, was appointed as our Director and President in August 1996.
Mr. Hayter has over twenty years experience in the health care industry,
specifically in biotechnology, and has an extensive network of contacts
throughout North America, Europe and Japan. For the two years prior to August
1996, Mr. Hayter served as President of Sedona Biotechnology, a consulting
practice with clients such as Fisher Scientific USA, Colby Group International
Japan and Durimport Marine Canada. Prior to 1996, Mr. Hayter was the Executive
Vice President of Centocor, Inc. responsible for the Diagnostics Division. In
1987, Mr. Hayter founded ADI Diagnostics Inc., a fully integrated diagnostics
company specializing in infectious disease and oncology testing, and was its
President until 1993. In 1991, ADI Diagnostics, Inc. merged with Cambridge
Biotech. Mr. Hayter served in the Diagnostics Division of Abbott Laboratories
for thirteen years with his last position being the Executive Vice- President
and Representative Director of Abbott's joint venture, Dainabot KK. Mr. Hayter
currently resides in Phoenix, Arizona.
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. and was the president and CEO of
GlassTech, Inc. from 1983 to 1993. He is currently a member of the Board of
Directors of the University of Findlay in Ohio and serves on several corporate
boards including First Solar, LLC and Autom.
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 &
19
<PAGE>
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. 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.
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. 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.
The Directors have served in their respective capacities since their
election or appointment and will serve until the next annual shareholders
meeting or until a successor is duly elected, unless the office is vacated in
accordance with our Articles of Incorporation. The executive officers are
appointed by the Board of Directors to serve until the earlier of their
resignation or removal with or without cause by the directors.
There are no family relationships between any two or more directors or
executive officers. There are no arrangements or understandings regarding
election between any two or more directors or executive officers.
BOARD COMMITTEES
The Board of Directors has an Audit Committee and a Compensation Committee.
No committee meetings occurred in 1998 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.
20
<PAGE>
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 Empyrean
Delaware, and Empyrean Delaware will continue as the surviving corporation. Each
outstanding share of Empyrean Wyoming Common Stock will automatically convert
into one share of Empyrean Delaware 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 Empyrean Wyoming 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 Empyrean
Delaware 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 Empyrean Delaware's 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.
21
<PAGE>
ANTI-TAKEOVER IMPLICATIONS
Delaware law, more so than Wyoming law, permits Empyrean to take protective
measures to deter hostile takeover attempts. A hostile takeover attempt may have
a positive or a negative effect on Empyrean and 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 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 Empyrean and our
shareholders.
You should recognize that one of the effects of reincorporating may be to
discourage a future attempt to acquire control of Empyrean 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 Empyrean's 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 EMPYREAN
We will change our legal domicile and make other changes of a legal nature
through the proposed reincorporation. The proposed reincorporation will not
result in any change in the business, management, fiscal year, assets or
liabilities, or location of our principal facilities. The directors you elect at
the annual meeting will continue as directors of Empyrean Delaware. All of the
employee benefit and stock option plans of Empyrean Wyoming, including the 1998
Empyrean Diagnostics, Ltd. Stock Plan, will be continued by Empyrean Delaware
and each outstanding option to purchase shares of Empyrean Wyoming stock will
automatically be converted into an option to purchase an equivalent number of
shares of Empyrean Delaware stock on the same terms and subject to the same
conditions. Our name will remain Empyrean Bioscience, Inc.
OUR CHARTER AND BYLAWS
The provisions of the Empyrean Delaware Certificate of Incorporation are
similar to those of the Empyrean Wyoming Articles of Incorporation in most
respects. We initially created the Empyrean Wyoming Articles of Incorporation to
meet British Columbia, Canada legal requirements. We did not amend the Articles
of Incorporation when we reincorporated from Canada to Wyoming. Those Articles
of Incorporation have acted as our bylaws as well. We have modified these
Articles of Incorporation to meet the requirements of Delaware law. In
particular, Empyrean Delaware will have a separate Certificate of Incorporation
22
<PAGE>
and Bylaws. We describe below the material changes between the Empyrean Wyoming
Articles of Incorporation and Bylaws and the Empyrean Delaware Certificate of
Incorporation and Bylaws.
AUTHORIZED STOCK
Empyrean Wyoming's Articles of Incorporation authorize the Board of
Directors to issue shares of capital stock with terms and for consideration that
the Board considers proper. The Board of Directors has authorized 300,000,000
shares of capital stock, of which 100,000,000 shares are designated Common
Stock, no par value, and 200,000,000 shares are designated Preferred Stock with
par values ranging from $10 to $50 per share. The Certificate of Incorporation
of Empyrean Delaware 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.
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.
Wyoming does not have the same limitations on dissenters' rights. Empyrean
stockholders do have dissenters' rights related to the proposed reincorporation.
Wyoming law requires that you follow its statutory procedures to exercise your
rights. We have attached to this joint merger/proxy statement as Annex B the
pertinent sections of the Wyoming law. We urge you to consult with your legal
advisor and follow the procedural steps under Wyoming law to exercise your
dissenters' rights. 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 if
the reincorporation merger is completed. You must also not vote your shares in
favor of the reincorporation merger. If you complete these two steps, 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;
23
<PAGE>
* 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 would then need to follow the instructions in our
notice to demand payment. Upon receipt of a payment demand that complies with
the above procedure, we will do the following:
* 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;
24
<PAGE>
* votes for an unlawful distribution; or
* intentionally violates criminal law.
The Empyrean 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.
Empyrean Wyoming's Articles of Incorporation limit director, officer, or
employee liability for any loss, damage or expense related to execution of their
duties unless the loss, damage or expense arises through the person's willful
act or default, through negligence, through a breach of trust or through a
breach of duty. Empyrean Delaware's 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.
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
25
<PAGE>
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 Empyrean's ability to attract and retain high quality
outside directors and thus benefits the interests of Empyrean and our
shareholders.
SHAREHOLDER POWER TO CALL SPECIAL SHAREHOLDER MEETING
Under Wyoming law, a annual meeting of stockholders may be called by the
following:
* the board of directors;
* the chairman of the board;
* the president;
* the holders of shares entitled to cast not less than ten percent of the
votes at the meeting; or
* any additional persons authorized by the articles of incorporation or the
bylaws.
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.
26
<PAGE>
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:
* 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
27
<PAGE>
* 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 2/3% 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 does not intend to elect not to be governed by Section 203.
Empyrean believes that Section 203 will 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 will
confer 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 Empyrean's 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 Empyrean 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.
DIVIDEND
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.
28
<PAGE>
FEDERAL INCOME TAX CONSEQUENCES
In this section, we discuss federal income tax consequences to Empyrean
Wyoming capital stockholders who receive Empyrean 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.
Empyrean has 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 requested 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 Empyrean Delaware capital stock under the proposed
reincorporation;
* the aggregate tax basis of Empyrean 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; and
* the holding period of Empyrean 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.
A successful IRS challenge to the tax-free status of the proposed
reincorporation would result in a stockholder recognizing gain or loss on each
share of Empyrean Wyoming capital stock surrendered. State, local, or foreign
income tax consequences to stockholders may vary from the federal tax
consequences described above. Stockholders should consult their own tax advisors
as to the effect of the proposed reincorporation under applicable federal,
state, local, or foreign income tax laws.
Empyrean should not recognize gain or loss for federal income tax purposes
as a result of the proposed reincorporation, and Empyrean Delaware should
succeed without adjustment to the federal income tax attributes of Empyrean
Wyoming.
VOTE REQUIRED FOR THE PROPOSED REINCORPORATION
Approval of the proposed reincorporation, which includes approval of the
merger agreement, requires the affirmative vote of the holders of a majority of
the outstanding shares of Empyrean Wyoming common stock.
The Board of Directors recommends that stockholders vote "FOR" the proposed
reincorporation. An abstention or a failure to vote will have the same effect as
a vote "AGAINST" the proposed reincorporation.
29
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion and analysis provides information regarding
Empyrean's financial position and its results of operations for the periods
shown. This discussion should be read in conjunction with Empyrean's
Consolidated Financial Statements and related Notes thereto included elsewhere
in this document.
INTRODUCTION
Prior to April 1997, we distributed and marketed diagnostic products such
as the HIV and Pemview diagnostic test kits. In April 1997, in connection with a
change in our management team, we shifted our focus from marketing and
distributing diagnostic test kits to marketing and distributing preventative
products. This shift in focus coincided with our acquisition of 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,
Empyrean's auditors issued a going concern opinion in connection with the audit
of our 1998 financial statements. See Note 2 to Empyrean's Consolidated
Financial Statements. We expect to generate substantially all of our revenues in
the future from increased sales of our current product and future line of
preventative products.
In addition to costs of goods sold, which vary somewhat proportionately
with our level of sales, significant cost and expense items include salaries and
benefits, management fees and consulting, royalties and distribution rights,
office and administration, advertising, and legal and accounting, each of which
significantly exceeded our total revenue for the year ended December 31, 1998,
primarily as a result of our limited revenues. Accordingly, we do not believe
comparing costs as a percentage of revenues from year to year is meaningful.
RESULTS OF OPERATIONS
COMPARISON OF 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 $2,331,057
compared to a net loss of $936,277 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 $0.09 compared to a net loss per share of
$0.05 in the six months ended June 30, 1998.
30
<PAGE>
Selling, general and administrative expenses increased to $2,774,282 in the
six months ended June 30, 1999 from $954,492 in the six months ended June 30,
1998 primarily due to the following:
* Management fees and consulting expenses increased to $1,191,411 in the six
months ended June 30, 1999 from $89,195 in the six months ended June 30,
1998. This increase resulted primarily from the granting of stock options
to consultants in 1999 for services. This increase also resulted from a
greater reliance on contract employees in the six months ended June 30,
1999 for sales and product launch activities.
* 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.
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 April
1997 to developing, marketing and distributing only disease preventative
products, we do not believe a comparison of our revenues for the fiscal years
ended December 31, 1998 and 1997 are meaningful or that a comparison is
indicative of any future trend in our financial performance.
We incurred a net loss in 1998 of $2,594,880 compared to a net loss of
$2,595,546 in 1997. These losses were due primarily to limited revenues that
were substantially less than our costs of operation. Our net loss per share in
1998 was $0.11 compared to a net loss per share of $0.14 in 1997.
Selling, general and administrative expenses increased to $2,360,536 in
the year ended December 31, 1998 from $1,875,020 in the year ended December 31,
1997 primarily due to the following:
* Management fees and consulting expenses increased to $296,923 in 1998 from
$118,744 in 1997. This increase resulted from a greater reliance on
independent contractors in 1998 compared to 1997 due to use of contract
sales representatives and product launch consultants.
* Expenses for royalties and distribution rights increased to $518,250 in
1998 from $275,492 in 1997, an increase of approximately 88% over the prior
year. This increase was due in large part to a $245,000 guaranteed minimum
payment in 1998 versus a guaranteed minimum payment of $0 in 1997. Our
agreement with Geda International Marketing Co., Ltd., 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
Empyrean's Consolidated Financial
31
<PAGE>
Statements. As a result, we expect our expenses for royalties and
distribution rights to continue to increase significantly on an annual
basis. Unless we are successful in generating substantial additional sales
of our preventative products, we are also likely to continue to generate
substantial losses from operations.
* As a result of consolidating operations into one leased facility in March
1998, total rent expense, net of sublease income received, declined to
$57,894 in 1998 from $91,912 in 1997.
* Office and administration expenses, which consist primarily of day-to-day
operational expenses, increased to $182,390 in 1998 from $164,096 in 1997.
This increase was due primarily to product launch related expenses.
* We incurred advertising expenses of $154,765 in 1998. No advertising
expenses were recorded in 1997. The advertising expenses incurred in 1998
were primarily due to our emphasis on marketing and selling our new line of
preventative products in order to generate increased sales. We anticipate
that advertising expenses will increase substantially in 1999 as a result
of our increased efforts to market and distribute our new line of
preventative products.
* Slightly offsetting the above increases, costs associated with salaries and
benefits declined to $710,137 in 1998 from $805,642 in the prior year. This
decline was primarily due to staff turnover associated with shifting the
organization from an R&D based organization to an emphasis on sales and
marketing.
Research and development expenses decreased to $31,425 in 1998 from
$137,349 in 1997, representing a decline of approximately 77%. This decline
represents our shift in focus from research and development of new diagnostic
test kit products to sales and marketing of our new line of preventative
products.
Prior to 1997 we made a $600,000 advance to Emerald Diagnostics, a company
controlled by a former director, for product development. In 1997 we wrote off
the remaining $105,000 advance because it had no future economic benefit.
We reported a $28,516 loss on inventory obsolescence in 1998 versus a
$458,800 loss in the prior year. The loss recorded in 1998 primarily reflects a
write-off of PEMVIEW Trichomonas test kits while the loss recorded in 1997
primarily reflects a write-off of HIV test kit components.
We incurred a $209,972 loss on fixed asset disposal in 1998. This loss was
due to a one-time noncash charge for a write-off of fixed assets used in
manufacturing and research associated with our discontinued line of diagnostic
products. We recorded a $30,693 loss on fixed asset disposal in 1997 due to
write-offs of abandoned leasehold improvements.
LIQUIDITY AND FINANCIAL POSITION
We have been unable to date to generate significant cash flows from our
business operations. As a result, we have funded our operations through investor
financing, including private placements of common stock, convertible debentures,
warrants and options. Until we are able to generate significant cash flow from
operations through increased sales of our products, we will be required to
continue our reliance on investor financing to fund our operations.
In 1998, net cash flow from financing activities decreased by 7% due to
decreased funding from private placements of common stock and exercises of stock
warrants and options. We have pursued additional financing opportunities to fund
the costs associated with acquiring and marketing our new line of preventative
products. We raised $1,803,039 in 1998 and $1,836,481 in 1997 through financing
activities to fund operations.
32
<PAGE>
At December 31, 1998, cash and cash equivalents totaled $62,793, an
increase of $15,497 from 1997, and at June 30, 1999, cash and cash equivalents
totaled $190,108. Also as of December 31, 1998, current liabilities, consisting
of accounts payable and accrued liabilities, exceeded current assets by
$182,030. Since December 31, 1998, we have funded our operations through private
offerings of securities and a six month bridge loan.
We anticipate incurring a substantial increase in cash outlays associated
with increased marketing and sales of our Preventx(R) preventative product line.
These cash outlays could include, but are not limited to, product registration
costs, advertising, inventory purchases and a sales and marketing campaign. To
maintain our current expenses of approximately $2-3 million per year and meet
the costs associated with our increased marketing and sales efforts, we will
need to raise substantial additional capital during 1999. If we are unsuccessful
in raising the required funds to meet these expenses, we are likely to be unable
to complete the steps necessary to significantly increase our sales. In that
case, our financial condition and results of operations will deteriorate and our
business may ultimately fail.
At June 30, 1999, Empyrean 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 $2,331,057, offset by non-cash expenses of $1,088,721
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 Empyrean's beliefs or expectations regarding future
events. When used in the Year 2000 discussion, the words "believe", "expects",
"estimates" and other similar expressions are intended to identify
forward-looking statements. Forward-looking statements include, without
limitation, Empyrean's expectations as to when it and its significant
distributors, customers and suppliers will complete the implementation and
compliance phases of the Year 2000 Plan, as well as its Year 2000 contingency
plans; and Empyrean's belief that its internal systems and equipment are Year
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.
33
<PAGE>
The Year 2000 problem refers to the inability of software to process date
information later than December 31, 1999. Date codes in many software programs
are abbreviated to allow only two digits for the year. Software with
date-sensitive functions that is not Year 2000 compliant may not be able to
distinguish whether "00" means 1900 or 2000. When that happens, some software
will not work at all and other software will suffer critical calculation and
other processing errors. Hardware and other products with embedded chips may
also experience problems.
Empyrean believes that its critical internal systems, including versions of
Quickbooks, Microsoft Exchange and Microsoft Office products, are Year 2000
compliant. In addition, Empyrean tracks the version and updates when available
for these products to ensure Year 2000 compliance.
Empyrean and its service provider, Integrated Commercialization Solutions,
have completed an evaluation of Empyrean's internal systems and equipment that
addresses both information technology systems 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. Empyrean believes that any future internal Year 2000
costs will be immaterial.
Empyrean has contacted its manufacturer, Jedmon, who has confirmed that it
is Year 2000 compliant. However, if there is interruption of the manufacturing
process due to Year 2000 computer malfunctions, Empyrean will have no way to
manufacture its product until the problem is corrected or another manufacturer
can be obtained.
Due to Empyrean's Year 2000 analysis, Empyrean has determined that an
internal contingency plan is unnecessary. Empyrean also is in the process of
conducting a review of its suppliers to determine whether the suppliers'
operations and the products and services they provide are Year 2000 compliant.
Empyrean has no practical means to verify the information provided by these
third parties and will pursue those secondary distributors and vendors who have
not yet responded. Based upon these assessments and where practicable, Empyrean
will attempt to mitigate its risks with respect to any suppliers that may not
meet the requirements, including seeking alternative suppliers. However,
Empyrean may experience disruptions in its ability to conduct business because
of the Year 2000 problems experienced by its distributors or vendors. As a
result, these problems remain a possibility and could have an adverse impact on
Empyrean's results of operations and financial condition. To the extent that its
key distributors or vendors experience problems relative to achieving Year 2000
compliance, Empyrean could suffer unanticipated additional costs and possible
revenue losses.
Some independent sales representatives that Empyrean uses may have
applications that are not Year 2000 compliant. Empyrean does not believe this is
a material concern since product orders currently are either manually written
and submitted verbally or by fax.
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, Empyrean may be affected.
34
<PAGE>
BUSINESS
HISTORY
Prior to April 1997, we distributed and marketed diagnostic products. In
April 1997, in connection with a change in our management team, we shifted our
focus from marketing and distributing diagnostic test kits to marketing and
distributing preventative products. This shift in focus coincided with our
acquisition of certain rights to use a microbicide formulation utilized in a
number of our preventative products, including Preventx(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 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.
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.
35
<PAGE>
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.
36
<PAGE>
INDUSTRY BACKGROUND
SANITIZER MARKET
Sales of hand sanitizer and antiseptic skin protectants were estimated to
be approximately $400 million in the United States and $800 million worldwide in
1998. It is estimated in some industry studies that the market for hand
sanitizer and antiseptic skin protectants will grow to approximately $1 billion
in annual sales worldwide by 2000, $600 million of which will be in the United
States. We believe that the growth in the sanitizer market will be driven by the
availability of effective products that are also both safe and free of
undesirable side effects.
The dominant products in the sanitizer market today are topically applied
hand sanitizing lotions or creams containing alcohol. These products are sold
primarily in the over-the-counter market, typically in plastic bottles ranging
from two to sixteen ounces each, and in larger volume or bulk forms in
industrial and institutional settings, such as large pump dispensers and wall
mounted dispensers.
Currently marketed hand sanitizer and antiseptic skin protectants or
antimicrobial lotions are designed to protect the skin against various disease
causing microorganisms, including E. COLI, SALMONELLA, STAPH AUREAS,
K-PNEUMONIA, AND PSEUDOMONAS AERUGINOSA. These products typically are not
intended as a cleaner, like soap products, but are intended solely to kill germs
on contact. Sanitizer products can be used in a number of situations where the
spread of disease is a particular concern, such as in the food service, health
care and public accommodation industries, and in settings where water or
facilities are not available for conventional hand or body washing. The market
for personal sanitizing or antimicrobial products has increased rapidly in
recent years due in part to increasing concerns and public awareness and media
reports of dangerous and sometimes deadly bacterial or viral contaminations in
common or frequently populated areas.
Of the hand sanitizer and antiseptic skin protectant products currently on
the market today, most use as their active ingredient either alcohol or
triclosan. The typical alcohol concentration in these product is over 60%.
Institutional use hand sanitizer and antiseptic skin protectants may also
utilize chloroxylenol or nonoxynol-9 as active ingredients. Products based on
these active ingredients can cause a number of undesirable side effects,
including dry skin conditions and other skin irritations such as burning,
itching and stinging. Many of these products, including all alcohol based
products, are flammable until dry, which can lead to limitations on use and to
risks of serious personal injury, and are also painful when applied to existing
cuts, burns, or abrasions. Products using alcohol and triclosan also have
limited effectiveness, as the range of infectious disease-causing germs with
which they react are more limited, and often do not include STDs. This can lead
to a false sense of continued disease protection in periods after application.
In fact, due primarily to their drying effect, products containing alcohol or
triclosan can actually increase vulnerability to infection after repeated use.
Triclosan based products also must be compounded with a form of alcohol or
organic solvent because they are not water soluble and the presence of water can
prevent the release of bactericidal potency in them. This can lead to the
development of environments where bacteria can mutate and the re-growth of
antiseptic tolerant bacteria can occur. In recent years, there have been at
least three product recalls of triclosan-based products, two of which were the
result of PSEUDOMONAS found growing in the product.
Current products in the surface spray category include well known brand
names such as Lysol and Dial. It is a large market with no one product
dominating the segment. Our disinfectant surface spray, which is identical to
our hand sanitizer and antiseptic skin protectant except for the viscosity of
the product, is designed to be used in personal spray-size applications. It can
be used on surface areas typically containing large amounts of bacterial or
other contamination such as public telephones, toilet areas, and diaper changing
areas. It can also be used in institutional applications for surface areas such
as medical patient care areas, food service preparation areas such as sinks and
counter tops, and similar locations.
37
<PAGE>
Existing sales of disinfectant type surface sprays were approximately $2.3
billion in the United States and $5 billion worldwide in 1998, according to
MMR/IRI magazine. We also believe that our surface spray product can increase
the market for these types of products due to its non-toxic qualities, which
make it available for more extensive use in the food service and health care
industries, among others.
CONTRACEPTIVE PRODUCTS
The contraceptive market consists of two general categories, oral
contraceptives 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 oral contraceptives were
approximately $1.5 billion in 1998 in the United States. Sales of
over-the-counter contraceptive products were approximately $690 million
worldwide in 1998, with approximately $261 million of that in the United States.
We expect to compete and expand in the over-the-counter segment of the
contraceptive market with our vaginal contraceptive and disease preventative
gel, which has completed the first two of three-phases of clinical trials to
determine its safety and effectiveness as a contraceptive and against the
prevention of STDs in order to seek regulatory approval in the United States and
in various foreign countries.
To our knowledge, all over-the-counter and prescription contraceptive
products on the market today are effective only as a spermicide and are not
designed or claim to act as a barrier against STDs or other infectious diseases.
Some reports have suggested that the use of nonoxynol-9, the common active
ingredient in many contraceptive gel products, may actually increase the risk of
STD transmission.
It has been widely reported that the United States, like many other
countries, is experiencing an epidemic of STDs, including the HIV virus,
Gonorrhea, Syphilis, Chlamydia, Trichomonas vaginalis, and Herpes. According to
statistics compiled by the World Health Organization in 1997 and by the United
States Center for Disease Control in 1998, approximately 16 million new cases of
HIV infection, 170 million new cases of Trichomonas, 150 million new cases of
Chlamydia, 55 million new cases of Gonorrhea, 7 million new cases of Syphilis
and 40 million new cases of genital Herpes are experienced worldwide each year,
and one in five adults in the United States now has genital Herpes. In the
September 10, 1998 edition of the NEW ENGLAND JOURNAL OF MEDICINE, it was
reported that 9.2% of 13,204 female U.S. Army recruits tested were found to be
infected with Chlamydia, a disease that can lead to infertility. In the December
14, 1998 issue of U.S. NEWS AND WORLD REPORT, it was reported that according to
a leading public health study, at least one in every eight sexually active
people will contract an STD by the age of 24. The estimates of the number of
people contracting STDs are thought by many experts to be conservative, since it
is believed that many people either choose not to discuss these diseases with
their physicians or are unaware of them. The latter problem is particularly
acute with respect to the two STDs that together are thought to account for up
to two-thirds of all new STD infections each year, TRICHOMONIASIS VAGINALIS and
the human PAPILLOMA virus. STDs can cause a variety of serious complications,
including cancers, infertility, ectopic pregnancy, spontaneous abortions, still
birth, low birth weight, and even death.
The most common front-line defense against STDs among over-the-counter
alternatives is the condom. Condoms do not kill STDs or other infectious
disease, but can act as a barrier against disease transmission and are often
purchased by consumers for that purpose. However, studies show that condoms are
only successful about two-thirds of the time in preventing disease transmission,
and the rate of use in the general population has never exceeded 50%. Condoms
are relatively porous, containing pore sizes ranging from 5 to 70 microns in
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.
38
<PAGE>
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 2.4 million
infections and 30,000 deaths in the United States alone resulting from
nosocomial contamination which are infections contracted at a hospital or
doctor's office which are unrelated to the purpose of a patient's visit. There
were another 80 million cases of food poisoning in the United States, 10,000 of
which resulted in death. According to industry studies, in the United States the
average cost of treating nosocomial infections was $2,300 per incident, or $8
billion in annual direct costs. The total cost of food-borne illnesses in the
United States was $20 billion in 1997. Developing inexpensive, effective and
safe solutions to these diseases will, we believe, satisfy a large unmet market
need that is being driven by the frequency and seriousness of public reports of
infectious disease contamination in common public venues, such as hotels, public
restrooms, and food service establishments. According to a December 1998 report
of the American Social Health Association, there are approximately 15 million
new cases of STDs in the U.S. annually. The direct medical cost of treating
these STDs and their complications is reported to be $8.4 billion annually.
THE EMPYREAN SOLUTION
Most of our preventative products utilize the same active ingredient,
benzalkonium chloride, and have the potential to provide exceptional safety and
efficacy qualities lacking in most competitive products, while at the same time
addressing 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.
39
<PAGE>
BUSINESS STRATEGY
Our goal is to achieve a position in the retail and institutional markets
for over-the-counter disease preventative and contraceptive products, and to
leverage our position to enter other markets for infectious disease therapeutic
and curative products. We intend to pursue this goal by increasing the demand
for effective and safe disease preventative products and by increasing the
number of our products used to prevent infectious disease. Our business strategy
consists of the following key elements:
DEVELOP BRAND AWARENESS AND MARKET ACCEPTANCE FOR PREVENTX(R). We believe
that we can develop brand awareness and market acceptance of our unique
antimicrobial products among consumers and institutional customers. We
intend to develop brand awareness and acceptance by offering superior
products that are both more effective in protecting against infectious
disease and safer with more pleasing qualities than competitive products.
We also intend to develop brand awareness and market acceptance of our
products by expanding our network of United States and international
distributors and by entering into strategic relationships with other
parties who can increase significantly marketing, sales and distribution
resources.
APPLY CORE FORMULATIONS TO ADDITIONAL PRODUCT APPLICATIONS. Almost all of
our infectious disease preventative products are based on a common product
formulation, which is proprietary and licensed exclusively to us by third
parties. Our contraceptive gel has octoxynol-9 and benzalkonium chloride as
its active ingredients. We intend to continue to leverage the brand
awareness and market acceptance of our hand sanitizer and antiseptic skin
protectant product to create market demand for our complementary baby
wipes, surface spray product and our contraceptive gel product, all of
which will be developed using manufacturing and packaging variations. We
intend to leverage the future success of these products through the
introduction of a variety of compatible personal care product formulations,
such as deodorant, shaving cream, moist towelettes, toothpaste and
mouthwash products.
DEVELOP NEW TECHNOLOGIES. We intend to utilize our expertise in the
research and development of infectious disease to develop products and
technologies that address other aspects of infectious disease. We believe
that our expertise and the market acceptance of our infectious disease
preventative products will result in additional product and strategic
opportunities that will fill other unmet needs in the market.
LEVERAGE RESOURCES THROUGH STRATEGIC RELATIONSHIP AND ACQUISITIONS. We
intend to build our business in part through the acquisition of
complementary technologies, products and businesses and by entering into
strategic collaborations, including additional licensing and marketing
arrangements, with other biotechnology companies and research institutions.
We believe that these acquisitions and relationships will better enable us
to enter markets more quickly and extensively. We also believe that
significant acquisition and strategic partnering opportunities exist in the
infectious disease industry. We are not currently in active discussions
with possible acquisition or strategic partnering candidates.
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.
40
<PAGE>
CURRENT DISEASE PREVENTATIVE PRODUCTS
PREVENTX(R) HAND SANITIZER AND ANTISEPTIC SKIN PROTECTANT
Our hand sanitizer and antiseptic skin protectant product was launched in
the United States in March 1999 and we expect to launch it in consumer markets
in Far Eastern countries in late 1999 or early 2000. We recently entered into an
exclusive distribution agreement for Southeast Asia with Durstrand International
Limited. The agreement includes minimum product purchase requirements that must
be met in order to retain exclusivity, as well as sub-licensing payment
requirements. We expect that our product will be launched in Southeast Asian
countries upon receipt of required regulatory approvals.
Our hand sanitizer and antiseptic skin protectant is commonly applied in
small quantities and rubbed into the hands. We also recommend use of the product
in the medical and food service industries along with latex gloves as a
secondary barrier against infection. Our product decreases the risks associated
with glove degradation, tears or cuts, and large latex pore sizes. Because our
formula may be virtually non-toxic, it can be used safely in food preparation
areas and around medical patients. Our hand sanitizer and antiseptic skin
protectant will not damage latex gloves or other products.
Our hand sanitizer and antiseptic skin protectant product, unlike most
competitive products, does not include as its active ingredient alcohol,
triclosan, or other organic solvents. The benefits of utilizing an alcohol free
and triclosan free formulation are many, and include:
Our hand sanitizer and antiseptic skin protectant provides a protective
skin barrier. In contrast, alcohol and triclosan based products typically
lose effectiveness after drying, which typically lasts approximately
fifteen seconds. Thus, our product requires less frequent re-application.
Our formulation does not dry out the skin and does not cause any decreased
germ resistance. Alcohol and triclosan based products have been shown to
actually increase the risk of infectious disease after repeated use, as the
drying nature of these ingredients can strip skin of its natural barrier
and cause microscopic cracks in the skin, which act as an environment for
disease-causing germs that colonize the skin. In addition, triclosan based
products have been found to cause decreased resistance to bacteria and the
mutation of some germs.
Our product is non-flammable and thus reduces the personal injury risks
associated with alcohol-based products and increases the institutional and
consumer settings where a hand sanitizer and antiseptic skin protectant
product can safely and conveniently be applied and stored. Alcohol-based
products are highly flammable at concentrations of 60% or greater which are
the concentrations of some competitive products.
Our hand sanitizer and antiseptic skin protectant not only alleviates dry
skin conditions caused by alcohol or triclosan based products, it actually
helps nourish, moisturize, and heal damaged skin and does not cause many of
the skin irritations associated with competitive 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.
41
<PAGE>
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.
42
<PAGE>
MICROBICIDAL CONTRACEPTIVE GEL
Our gel has been developed and we anticipate initiation of a Phase III
clinical trial with the National Institute of Allergy and Infectious Disease of
the National Institutes of Health. The clinical trial, if conducted, will
determine whether the gel effectively kills a host of STDs and other infectious
diseases, in addition to its contraceptive properties, and is safe. We are aware
of no other approved competitive products that make both claims, which would, if
successful, make the gel a unique product in the over-the-counter contraceptive
market. Upon initiation and successful completion of the Phase III clinical
trial and results showing safety and effectiveness, we will file a new drug
application with the FDA for its approval. We cannot assure you of any of the
following:
* the NIH study will either be initiated or successfully completed,
* the study's results will be positive,
* we will file a new drug application for the product, or
* any new drug application we do file will be approved by the FDA.
The gel would be marketed primarily in the retail, over-the-counter market
in 120 ml tubes, and in single use, pre-filled applicators. We would market the
product in bulk quantities to condom manufacturers to be used as a coating
inside the condom wrapper, thus enhancing the effectiveness of condoms as a
disease preventative and enabling condom manufacturers to make additional
product claims.
Existing contraceptive gel products utilize active ingredients such as
nonoxynol-9 that can cause lesions, ulcerations, and other skin irritations.
These irritations can in turn facilitate infections. Our gel's active
ingredients act synergistically as a microbicide and spermicide. In addition,
only small amounts are needed, limiting the possibility of skin irritations. In
pre-clinical safety studies, our gel was found to cause no damage to squamous or
columnar mucosa cells. The gel is compatible with latex condoms.
We believe that if the NIH studies are successfully completed and FDA
approval is obtained, we will be able to offer a product that can capture
significant market share and also increase the market for non-prescription
contraceptive products. We expect to launch our contraceptive gel product if we
receive FDA approval, although we may never obtain approval. The gel is
currently approved for sale in Canada as a contraceptive; however, no claims are
made by us regarding the microbicidal properties of the product at this time.
The contraceptive gel will not be sold in the United States until the NIH
completes its Phase III study which has yet to begin. The Phase III study will
address the effectiveness of the product in preventing the transmission of
gonorrhea, chlamydia, and trichomonas vaginalis. The second part of the Phase
III testing will address the effectiveness of the product in preventing the
transmission of syphilis, HIV, and herpes. This portion of the testing will be
performed outside of the United States due to the insufficient number of STDs in
the United States. It will then be submitted to the FDA for marketing approval.
ADDITIONAL PRODUCTS UNDER CONSIDERATION
We are investigating the use of our proprietary product formulation as a
platform to develop a variety of common personal care products. These products
may include deodorants, shaving creams, moist towelettes, toothpastes and
mouthwashes.
43
<PAGE>
SALES AND MARKETING
We market our products in the United States, Canada, and Southeast Asia, to
both the retail over-the-counter market through third party distributors, and to
institutional customers through the use of distributors and sales agents and
through our internal sales efforts. Our direct sales and executive management
personnel lend sales support to our distributors and third party sales agents by
making direct sales calls on large buying organizations such as municipal or
other governmental service providers, HMOs and hospital buying groups, physician
and school districts, airlines and cruise lines, and wholesale buyers and mass
merchandisers.
Within the United States our existing product is sold through Integrated
Commercialization Solutions and third-party distributors. We will attempt to
distribute our products under development, upon obtaining regulatory approval,
through multiple distributor networks. Internationally, we are represented by
five third party distributors in multiple foreign countries who collectively
employ approximately 500 sales representatives. Our foreign distributors are
generally granted exclusive rights in designated territories and are responsible
for obtaining and maintaining required foreign regulatory approvals for our
products.
We typically sell inventories to third party distributors against
forecasted sales volumes at negotiated transfer prices, and the products are
then re-sold by the distributors to end users or other sub-distributors. Our
independent distributors are generally free to sell other products that do not
compete directly with our products.
Upon launch of our products, we undertake a high volume direct marketing
program, in cooperation with our dealers, consisting of direct mailings of
product announcements and introductory buying programs, pricing sheets, and
other product offers, followed by sales calls and other written and verbal
contacts that are targeted to specific types of buyers. We provide product
samples and seek to create product awareness through trade show presentations,
participation in public health studies, and through direct contact with various
media outlets. We also operate an Internet web site which provides useful
information about our current products and those under development, as well as
about us and our management.
STRATEGIC RELATIONSHIPS
GEDA LICENSE
We currently license on an exclusive basis our proprietary product and
manufacturing formulations used in our disease preventative products from Geda
International Marketing Co., Ltd., a Bahamian company. The license agreement
allows us to make, use, and sell the products formulated on this technology and
to sub-license others to do so. The license agreement requires us to pay
licensor royalties and a portion of some of our sub-licensing fees and other
payments collected by us from joint venture relationships. The license agreement
covers the world except for Hong Kong, Taiwan, Africa, and, as to the sale of
the anti microbial hand lotion, the United States in which we have subsequently
acquired sub-licensing rights. 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. For instance, in 1999, the
minimum royalties are $490,000 and increase to $2,960,000 in the year 2007. The
agreement also grants to us a right of first refusal to acquire the licensed
technology if the licensor decides to sell it.
44
<PAGE>
We are involved in litigation concerning this license, the adverse outcome
of which could have a material adverse effect on our business. See "Risk Factors
- -- One of Our Primary Licenses May Be Adversely Affected by Current Litigation
And We Could Lose A Portion of Our Rights to Make or Sell Our Primary Products,"
and "Business -- Legal Proceedings."
PREVENT-X LICENSE
In July 1998, we entered into a sub-license agreement with Prevent-X, Inc.,
a Miami, Florida based marketing company. This agreement provides us with
exclusive rights to make, market, and sell our hand sanitizer and antiseptic
skin protectant product in the United States, which rights were previously
licensed to Prevent-X by Geda. This licensing agreement also licenses us to use
the Preventx(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 provides
us with a portfolio of outsourcing and marketing resources including finished
goods warehousing, customer service, order processing and distribution,
invoicing and accounts receivable management. ICS has also provided us with
product sampling and other marketing assistance. The arrangement covers all of
our disease preventive products. We are currently negotiating a definitive
agreement with ICS.
DURSTRAND INTERNATIONAL LIMITED
On April 28, 1999, we entered into a distribution agreement with Durstrand
International Limited, a British Virgin Islands company with offices throughout
the world. The agreement provides Durstrand with exclusive rights for three
years and automatic renewal for two additional ten-year terms if the agreement's
provisions are met by both parties, to distribute the Preventx(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 has agreed to
purchase a minimum of $4,400,000 of either product over the three-year term.
MANUFACTURING AND QUALITY CONTROL
PREVENTATIVE PRODUCTS
The manufacturing of our hand sanitizer and antiseptic skin protectant,
contraceptive gel, and disinfectant surface spray 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
45
<PAGE>
to meet current governmental regulations regarding manufacturing of our products
could cause significant disruptions and costs to be incurred by us, and could
cause a material loss of sales and customers. Our use of contract manufacturing
poses other significant risks. See "Risk Factors -- We Have No Internal
Manufacturing Capability and Depend Heavily Upon Third Party Suppliers."
RESEARCH AND DEVELOPMENT
We currently focus all of our limited research and development resources
and efforts on our Preventx(R) antimicrobial and contraceptive products. In
addition to our internal research and development, we intend to pursue strategic
relationships with biotechnology companies and research institutions with
respect to further research and development of our product variations and future
products, and to seek funding from these partners.
PROPRIETARY RIGHTS
We license all of the proprietary product and manufacturing formulas used
in our disease preventative products from third parties. To date, we hold no
patents on our products and formulas. These products utilize common compounds in
a formula that we believe are difficult to copy and manufacture. Our proprietary
formulas are primarily protected by trade secret protections and through
contractual confidentiality obligations, when obtainable, of our employees,
contracting parties, independent contractors and other collaborators. We rely on
trade secret protection, confidentiality obligations, know-how, and continuing
technological innovations and licensing opportunities to develop and maintain
our competitive position. We are reviewing the feasibility of obtaining future
patent protection with respect to some of our proprietary rights. Without
adequate trade secret or patent protection, competitors may be able to produce
products competing with our products without infringing on our proprietary
rights. The lack of patent protection poses risks to us. See "Risk Factors --
The Protection Of Our Proprietary Rights To Our Products May Not Be Complete."
GOVERNMENT REGULATION
The products we market and intend to market are subject to regulatory
approval in both the United States and in foreign countries. The following
discussion outlines the various kinds of reviews to which our products may be
subjected to prior to receiving approval for marketing in the United States and
abroad. 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:
46
<PAGE>
* preclinical laboratory and animal tests;
* submission to the FDA of an application for an investigational new
drug, which must become effective before testing of the drug in people
may begin;
* preliminary testing of the drug in people to evaluate the drug and its
manner of use; and
* adequate and well-controlled testing of the drug in people to
establish the safety and effectiveness of the drug for its intended
indication.
If the product is regulated as a prescription drug, or in some cases as an
over-the-counter drug, the Food and Drug Act ordinarily requires the submission
and approval of a New Drug Application or an abbreviated NDA, for duplicate
versions of "pioneer" drug product, before commercial marketing may begin. As
part of the NDA process, the manufacturer is required to accumulate, and submit
to the FDA for review and approval in the form of an NDA, a significant amount
of safety and effectiveness data from laboratory/animal testing and clinical
studies; detailed information concerning product composition, stability, and
manufacturing; and other information including proposed labeling. Abbreviated
NDAs do not require their own clinical safety and effectiveness data. Each
domestic and foreign manufacturing establishment including contract
manufacturers for us must also be registered with the FDA and pass an inspection
by the FDA prior to approval for commercial distribution.
Domestic and foreign manufacturing establishments are subject to
inspections by the FDA and by other federal agencies and by state and local
agencies, and must comply with current good manufacturing practice requirements.
If violations of applicable requirements are noted by the FDA or other agencies
during an inspection, distribution of clinical materials for investigational use
or production lots for commercial use may be halted and, possibly, other
sanctions imposed. Commercial marketing of perhaps all of our products,
depending on ingredients, claims, and the outcome of the FDA's OTC Drug Review,
may occur only after approval of NDAs following the submission of a complete
application. The NDA internal review process frequently takes two to four years
to complete, or longer and the FDA may require us to perform additional studies
to gain approval which may take several years to complete. The FDA may not give
its approval at the end of the NDA approval process, or ever, and stringent
requirements, violation of which may result in severe civil and criminal
penalties, continue to apply even after approval. See "Risks Factors -- Risks
Relating to Empyrean's Business -- Government Regulation."
Moreover, we are, or may become, subject to various federal, state and
local laws, regulations and recommendations relating to safe working conditions,
laboratory and manufacturing practices, the experimental use of animals and the
use, storage, handling and disposal of waste and hazardous substances used in
conjunction with our research work.
Most OTC drug products marketed in the United States are not subjected to
the Food and Drug Act's premarket approval requirements. In 1972, the FDA
instituted the ongoing OTC Drug Review to evaluate the safety and effectiveness
of OTC drugs then on the market. Through this process, the FDA issues
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.
47
<PAGE>
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, we
cannot assure you that the FDA will reopen the record or that if it does, it
will include benzalkonium chloride in the final regulation or that the permitted
claims will be the same as ours. If benzalkonium chloride is not covered by the
final regulations, or if benzalkonium chloride is included but for different
claims than ours, we will not be permitted to market the hand sanitizer and
antiseptic skin protectant product without premarket approval by the FDA.
Also, we cannot assure you that the FDA will not take regulatory action
against our hand sanitizer and antiseptic skin protectant product as now
formulated and with its current claims. We are aware that the FDA issued a
warning letter to Andrew Jergens Co. dated April 22, 1999 for its antiseptic
lotion containing benzalkonium chloride. The letter maintains that as formulated
and labeled the lotion is not covered by the OTC Drug Review, that
representations that the lotion makes for prophylactic antimicrobial use are not
described in any of the FDA's regulation-making proceedings under the Review,
that the lotion may not be legally marketed in the U.S. without an NDA approved
by the agency, and that the lotion is also misbranded under the Food and Drug
Act because the adequacy of the product's directions for use has not been
determined. We cannot assure you that the FDA will not assert the same or
similar positions respecting our hand sanitizer and antiseptic skin protectant
product, nor can we tell you how we would respond to these assertions or how
they would affect the marketing of the marketability of our product.
We are subject to federal, state and local environmental laws. We believe
that we are in material compliance with applicable environmental laws in
connection with our current operations.
REQUIREMENTS IN FOREIGN COUNTRIES
There is a wide variation in the approval or clearance requirements
necessary to market products in foreign countries. The requirements range from
virtually no requirements to a level comparable to those of the FDA. For
example, many countries in South America have minimal regulatory requirements,
while many developed countries, such as Japan, have conditions as stringent as
those of the FDA. Many lesser developed countries, including many countries in
Africa, allow products evaluated and accepted by the World Health Organization
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
48
<PAGE>
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.
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.
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.
LEGAL PROCEEDINGS
49
<PAGE>
An action filed on February 28, 1997 in California State Court alleges 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.
Plaintiffs, Optima Holding Co., Ltd., and Mercury Technology Corp. allege
that Empyrean 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 Empyrean induced Geda to breach that
agreement. Optima and Mercury have requested an unspecified amount of damages
against Empyrean. Geda has requested a declaratory judgment that Geda properly
terminated its development and distribution contract with Optima and Mercury.
50
<PAGE>
EXECUTIVE COMPENSATION
The following table is a summary of the compensation paid to our Chief
Executive Officer and each executive officer who earned over $100,000 in total
salary and bonus for each of our three most recently completed fiscal years.
Summary Compensation Table
<TABLE>
<CAPTION>
Long Term
Compensation
Annual Compensation Awards
------------------- -------------
Securities
Other Annual Under Options All Other
Name and Principal Salary Bonus Compensation Granted/SARs Compensation
Position Year ($) ($) ($) Granted (#) ($)
-------- ---- -------- ----- ------------ ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Stephen D. Hayter 1998 $186,923 0 0 1,400,000 0
President and Chief 1997 $189,539 0 0 300,000 0
Executive Officer 1996 $ 60,000 0 0 600,000 0
Raymond E. Dean 1998 $135,000 0 0 700,000 0
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
Number of % of Total
Securities Options/SARS
Underlying Granted to Exercise
Options/SARS Employees in or Base
Name Granted # Fiscal Year ($/Security) Expiration Date
- ---- --------- ----------- ------------ ---------------
Stephen D. Hayter 1,400,000 62.5% $0.95 April 28, 2001
Raymond E. Dean 700,000 31.3% $0.95 April 28, 2001
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION/SAR VALUES
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
51
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth as of July 8, 1999 information about the
amount and nature of beneficial ownership of the common stock held by:
* Each person who we know is a beneficial owner of more than 5% of our
outstanding common stock;
* Each person who is a director or executive officer of Empyrean; and
* All of our directors and executive officers as a group.
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/or investment power with respect to
securities. We believe that each individual named has sole investment and voting
power with respect to shares of common stock indicated as beneficially owned by
him, subject to community property laws, where applicable, except where
otherwise noted.
Beneficial ownership is calculated based on 29,346,659 common shares issued
and outstanding as of September 28, 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 September 28, 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.
Amount and Nature
Name and Address of of Beneficial
Beneficial Owner Ownership Percent of Class
------------------- ----------------- ----------------
Michael Cicak 1,385,000(1) 4.7%
Stephen D. Hayter 1,557,305(2) 5.3%
Raymond E. Dean 749,719(3) 2.6%
Dr. Andrew J. Fishleder 163,000(4) *
Robert G.J. Burg II 130,000(5) *
Lawrence D. Bain 1,232,750(6) 4.2%
Richard C. Adamany 140,000(7) *
Bennett S. Rubin 140,000(7) *
Directors and executive 5,497,774 18.8%
officers as a group (eight persons)
52
<PAGE>
* less than 1%
(1) Includes 100,000 vested options to purchase common stock and 480,000
warrants to purchase common stock.
(2) Includes 1,350,570 vested options to purchase common stock and 50,000
warrants to purchase common stock.
(3) Includes 747,719 options to purchase common stock.
(4) Includes 100,000 vested options to purchase common stock and 40,000 vested
warrants to purchase common stock.
(5) Includes 100,000 vested options to purchase common stock.
(6) Includes 100,000 vested options and 610,000 vested stock warrants to
purchase common stock. Includes 890,000 beneficial shares owned by Uptic
Investment Corp., a company owned 100% by Lawrence D. Bain.
(7) Includes 140,000 options to purchase common stock.
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, the Company has agreed to register shares
issuable upon exercise of options granted to Mr. Hayter under our stock plan and
has 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 Empyrean and this indemnification will
survive his termination. We have agreed to continue liability insurance until
five years following Mr. Hayter's termination with Empyrean.
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, the Company has agreed to register
shares issuable upon exercise of options granted to Mr. Adamany under our stock
plan and has 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 Empyrean and this indemnification will survive his termination. We
have agreed to continue liability insurance until five years following Mr.
Adamany's termination with Empyrean.
53
<PAGE>
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.
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, the Company
has agreed to register shares issuable upon exercise of options granted to Mr.
Rubin under our stock plan and has agreed to register the resale of shares under
an effective Form S-3 Registration Statement, if available. If Mr. Rubin is
terminated without cause, we are obligated to provide Mr. Rubin twenty-four
months of severance pay, including two years of salary and a pro rata portion of
his annual bonus and accelerated vesting of options, unless Mr. Rubin is
terminated less than twelve months from the date of execution of the employment
agreement, in which case his severance pay would be limited to twelve months.
Mr. Rubin has the option upon termination of accepting a lump sum payment for
severance pay, calculated by discounting the stream of payments owed to him
using a discount rate of 15%. Mr. Rubin's bonus will be payable no later than
ninety days following the close of the fiscal year that he is terminated. Mr.
Rubin's agreement also contains confidentiality and non-compete covenants. We
have agreed to indemnify Mr. Rubin for actions taken by him as an officer or
director of Empyrean and this indemnification will survive his termination. We
have agreed to continue liability insurance until five years following Mr.
Rubin's termination with Empyrean.
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.
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.
54
<PAGE>
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. As of September 28, 1999, there were 29,346,659 issued and outstanding
shares of common stock.
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 Class "A" and Class "B" 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.
55
<PAGE>
ESCROW SHARES
An additional 710,000 shares of our 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.
WARRANTS
Set forth below is a table showing the number of warrants currently
outstanding to purchase our common stock, the exercise prices payable upon an
election to exercise, and the term of each of these warrants:
<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.
56
<PAGE>
1998 EMPYREAN DIAGNOSTICS, LTD. STOCK PLAN
We believe the Plan is necessary to attract, compensate, and motivate our
employees, officers, directors, and consultants. Under the Plan, we may grant
incentive stock options and non-qualified stock options to our employees,
officers, directors, and consultants. The Board administers the Plan. The Board
determines eligibility, the types and sizes of options, the price and timing of
options, and any vesting, including acceleration of vesting, of options.
An aggregate of 6,000,000 shares of our common stock are available for
grant under the Plan. The Board may terminate or amend the Plan to the extent
shareholder approval is not required by law. Termination or amendment will not
adversely affect options previously granted under the Plan.
REGISTRAR AND TRANSFER AGENT
The registrar and transfer agent of our common stock is Jersey Transfer and
Trust Company, 201 Bloomfield Avenue, P.O. Box 36, Verona New Jersey 07044.
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 one of our directors 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, provides consulting services to us with respect to strategic planning
and business development for a monthly fee of $6,000 and 250,000 stock options
exercisable for three years at $0.83 per share. The 250,000 stock options were
granted on June 16, 1998. The agreement is for a term of three years starting
June 16, 1998.
ANDREW POLLET
Mr. Pollet was one of our directors between March 24, 1997 and November 20,
1998. Pollet Law, a law firm which Mr. Pollet founded and is the principal
shareholder, has provided us with legal services. We paid Pollet Law $127,329,
$93,975 and $126,775 in 1998, 1997 and 1996, respectively for legal services.
Pollet Law continues to provide legal services.
57
<PAGE>
LAWRENCE D. BAIN
Mr. Bain is one of our current directors appointed 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 500,000 shares at an
exercise price of $0.01 per share. The remaining 500,000 warrants have an
exercise price of $0.50.
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.
58
<PAGE>
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 2,600 holders of our
common stock. The following table presents the high and low bid prices of the
common stock.
HIGH LOW
---- ---
1999
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.
59
<PAGE>
LEGAL MATTERS
The validity of the Empyrean Bioscience, Inc. shares to be issued in
connection with the merger will be passed upon by Snell & Wilmer L.L.P.
EXPERTS
Grant Thornton LLP, independent auditors, have audited our consolidated
financial statements as of 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.
60
<PAGE>
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).
61
<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
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
$2,594,880 during the year ended December 31, 1998, and, as of that date
Empyrean Bioscience, Inc. has a deficit in stockholders' equity of $124,908.
These factors, among others, as discussed in Note 2 to the financial statements,
raise substantial doubt about Empyrean Bioscience, Inc.'s ability to continue as
a going concern. Management's plans in regard to these matters are also
described in Note 2. The financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
GRANT THORNTON LLP
San Francisco, California
February 11, 1999
F-2
<PAGE>
EMPYREAN BIOSCIENCE, INC.
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1998
ASSETS
CURRENT ASSETS
Cash and cash equivalents ................................. $ 62,793
Prepaid expenses and deposits ............................. 167,913
Inventory ................................................. 16,386
Due from an employee ...................................... 9,305
Other ..................................................... 306
------------
Total current assets ................................... 256,703
EQUIPMENT AND IMPROVEMENTS .................................... 57,122
------------
$ 313,825
============
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES
Accounts payable and accrued liabilities .................. $ 438,733
COMMITMENTS AND CONTINGENCIES ................................. --
STOCKHOLDERS' DEFICIT
Common stock, authorized 100,000,000 shares, without par
value; 26,399,824 shares issued and outstanding ......... 17,694,310
Accumulated deficit ....................................... (17,819,218)
------------
(124,908)
------------
$ 313,825
============
See accompanying notes to financial statements.
F-3
<PAGE>
EMPYREAN BIOSCIENCE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
YEAR ENDED DECEMBER 31,
1997 1998
------------ ------------
Net sales ...................................... $ 13,018 $ 9,815
Cost of sales .................................. 2,623 3,436
------------ ------------
Gross profit ............................ 10,395 6,379
Selling, general and administrative expenses ... 1,875,020 2,360,536
Research and development expense ............... 137,349 31,425
Write-down of inventory ........................ 458,800 28,516
Write-down of receivables ...................... 105,000 --
------------ ------------
2,576,169 2,420,477
------------ ------------
Loss from operations .................... (2,565,774) (2,414,098)
Other income (expense)
Loss on disposal of fixed assets ........... (30,693) (209,972)
Other, net ................................. 921 29,190
------------ ------------
(29,772) (180,782)
------------ ------------
NET LOSS ................................ $ (2,595,546) $ (2,594,880)
============ ============
BASIC AND DILUTED LOSS PER SHARE ............... $ (.14) $ (.11)
============ ============
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING .. 18,213,790 22,883,937
============ ============
See accompanying notes to financial statements.
F-4
<PAGE>
EMPYREAN BIOSCIENCE, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
YEARS ENDED DECEMBER 31, 1997 AND 1998
<TABLE>
<CAPTION>
Common Stock
---------------------- Paid-in Accumulated
Shares Amount Capital Deficit Total
------ ------ ------- ----------- -----
<S> <C> <C> <C> <C> <C>
Balances, January 1, 1997 .................... 15,712,580 $12,633,185 $ 368,004 $(12,628,729) $ 372,397
Common stock issued for cash .............. 1,542,889 549,329 -- -- 549,329
Common stock issued for subscription ...... 1,008,773 368,004 (368,004) -- --
Stock option exercised by directors ....... 584,155 205,162 -- -- 205,162
Stock option exercised by contractors ..... 120,139 49,594 -- -- 49,594
Stock option exercised 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
Net loss .................................. -- -- -- (2,594,880) (2,594,880)
---------- ----------- --------- ------------ -----------
Balances, December 31, 1998 .................. 26,399,824 $17,694,310 $ -- $(17,819,218) $ (124,908)
========== =========== ========= ============ ===========
</TABLE>
See accompanying notes to financial statements.
F-5
<PAGE>
EMPYREAN BIOSCIENCE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31,
<TABLE>
<CAPTION>
1997 1998
----------- -----------
<S> <C> <C>
Cash flows from operating activities
Net loss ................................................. $(2,595,546) $(2,594,880)
Adjustments to reconcile net loss to net cash used in
operating activities
Depreciation .......................................... 90,120 80,132
Loss on write-downs and adjustments ................... 610,795 212,804
Issuance of common stock for expenses ................. 104,370 337,486
Changes in operating assets and liabilities
Prepaid expenses and deposits ...................... (14,899) (153,014)
Inventory .......................................... (56,511) 31,425
Accounts payable and accrued liabilities ........... (71,971) 297,106
Deposits ........................................... 149,985 --
----------- -----------
Net cash used 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.
F-7
<PAGE>
EMPYREAN BIOSCIENCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND 1997
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
* INCOME TAXES
The Company accounts for income taxes on the liability method, as provided
by Statement of Financial Accounting Standards ("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.
* 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.
* NEW ACCOUNTING STANDARDS
SFAS No. 131 ("Disclosures about Segments of an Enterprise and Related
Information") established annual and interim reporting standards for an
enterprise's operating segments and related disclosures about its products,
services, geographic areas, and major customers. The adoption of this
statement did not affect the Company's consolidated financial position,
results of operations or cash flows, and any effect is limited to the form
and content of its disclosures.
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.
NOTE 3 - PREPAID EXPENSES AND DEPOSITS
During 1998 the Company placed an order with a manufacturer for approximately
$424,000. As of December 31, 1998, the Company had advanced the manufacturer
$150,000 on the order. The terms of the prepaid purchase was freight on board
shipping point. As of December 31, 1998, no goods had been shipped by the
manufacturer.
F-8
<PAGE>
EMPYREAN BIOSCIENCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND 1997
NOTE 4 - EQUIPMENT AND IMPROVEMENTS
Equipment and improvements are comprised of the following:
Furniture and office equipment............................ $107,376
Leasehold improvements.................................... 9,455
--------
116,831
Accumulated depreciation.................................. (59,709)
--------
$ 57,122
NOTE 5 - STOCKHOLDERS' EQUITY
The Company's authorized preferred stock consists of 100,000,000 shares of
Class "A" with a par value of $10 and 100,000,000 shares of Class "B" with a
par value of $50. As of December 31, 1998, no preferred stock is issued or
outstanding.
The 1997 Stock Option Plan, which is accounted for under APB Opinion No. 25
and related interpretations, provides that up to 6,000,000 stock options may
be granted to employees, board members and persons providing services to the
Company. The stock options may be exercised at the rate of 25% semi-annually,
on a cumulative basis during a vesting period of two years and generally
expire three years after the grant date. The stock options are exercisable
during involvement with the Company and up to thirty days after involvement
has ceased, if the Board of Directors so approve. The options are exercisable
at not less than the market value of the Company's stock on the date of the
grant. Accordingly, no compensation cost has been recognized for grants from
the plan. Had compensation cost for the plan been determined based on the
fair value of the options at the grant dates consistent with 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) $(2,594,880)
Pro forma................................... (3,166,866) (3,379,705)
Loss per share
As reported................................. (.14) (.11)
Pro forma................................... (.17) (.15)
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes options-pricing model with the following weighted-average
assumptions: dividend yield of 0%; a risk-free interest rate of 6%, expected
lives of 2 years; and volatility of 96%.
F-9
<PAGE>
EMPYREAN BIOSCIENCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND 1997
NOTE 5 - STOCKHOLDERS' EQUITY (CONTINUED)
A summary of the status of the Company's stock options as of December 31,
1997 and 1998, and changes during the years ending on those dates is
presented below.
1997 1998
-------------------- --------------------
Weighted Weighted
Average Average
Exercise Exercise
Shares Price Shares Price
------ ----- ------ -----
Outstanding at beginning of year.. 1,055,139 $ .41 2,390,000 $ .64
Granted........................ 2,255,000 .68 2,490,000 .79
Exercised...................... (920,139) .41 (132,500) .47
Expired........................ -- -- (212,500) .55
--------- ---------
Outstanding at end of year........ 2,390,000 .64 4,535,000 .73
========= =========
Weighted-average fair value of
options granted during the year $ .44 $ .54
The following table summarizes information concerning options outstanding at
December 31, 1998:
Options Outstanding Options Exercisable
------------------------------------------------ --------------------
Weighted
Average Weighted Weighted
Remaining Average Average
Exercise Number Contractual Exercise Stock Exercise
Price Outstanding Life Price Options Price
----- ----------- ---- ----- ------- -----
$.38 - .40 635,000 1.9 $ .39 635,000 $ .39
.55 - .67 1,010,000 1.8 .57 480,000 .57
.80 - .95 2,890,000 2.0 .95 760,000 .95
--------- ---------
4,535,000 .73 1,875,000 .66
========= =========
F-10
<PAGE>
EMPYREAN BIOSCIENCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND 1997
NOTE 5 - STOCKHOLDERS' EQUITY (CONTINUED)
The Company generally issues one warrant for the purchase of one share of
common stock with each share of common stock that it issues. The following
table summarizes the status of warrants at December 31, 1997 and 1998 and for
the years then ended.
1997 1998
-------------------- --------------------
Weighted Weighted
Average Average
Exercise Exercise
Warrants Price Warrants Price
-------- ----- -------- -----
Outstanding at beginning of year.. 2,670,500 $ .72 2,636,645 $ .46
Issued......................... 2,551,662 .48 1,045,492 .57
Exercised...................... (1,661,847) .62 (1,666,876) .40
Expired........................ (923,670) 1.02 -- --
---------- ----------
Outstanding at end of year........ 2,636,645 .46 2,015,261 .57
========== ==========
NOTE 6 - INCOME TAXES
Deferred tax assets consist of the following at December 31, 1998:
Net operating loss carryover........................... $ 5,615,000
Other.................................................. 17,000
Intangible asset - tax basis .......................... 1,094,000
-----------
6,726,000
-----------
Less valuation allowance............................... (6,726,000)
-----------
$ --
===========
The change in the valuation allowance was $1,092,000 in both 1997 and 1998.
Cumulative net operating losses of approximately $14,589,000 in 1998 are
being carried forward for Federal tax return purposes. The earliest
carryforwards begin to expire in 2007.
F-11
<PAGE>
EMPYREAN BIOSCIENCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND 1997
NOTE 6 - INCOME TAXES (CONTINUED)
The following is a reconciliation between the federal statutory rate and the
effective rate used for the Company's income tax benefit.
1997 1998
----------- ----------
Loss before income tax benefit................... $ 2,595,546 $ 2,594,880
=========== ===========
Tax benefit at statutory federal income
tax rate (34%)................................. $ 882,000 $ 882,000
State franchise tax benefit...................... 210,000 210,000
Change in valuation allowance.................... (1,092,000) (1,092,000)
----------- -----------
$ -- $ --
=========== ===========
NOTE 7 - 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.
F-12
<PAGE>
EMPYREAN BIOSCIENCE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998 AND 1997
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 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.
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-13
<PAGE>
EMPYREAN BIOSCIENCE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
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) ........ 19,563,994 17,694,310
Accumulated deficit .......................... (20,150,275) (17,819,218)
------------ ------------
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)
<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 ............... 1,120,682 461,830 2,774,282 954,492
Research and development .......................... 5,519 31 10,519 2,011
----------- ----------- ----------- -----------
1,126,201 461,861 2,784,801 956,503
----------- ----------- ----------- -----------
Operating loss .............................. (597,434) (456,261) (2,220,547) (950,903)
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 .................................... $ (670,565) $ (445,580) $(2,331,057) $ (936,277)
=========== =========== =========== ===========
Basic and diluted loss per share ............ $ (0.02) $ (0.02) $ (0.09) $ (0.05)
=========== =========== =========== ===========
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)
<TABLE>
<CAPTION>
Common Stock
---------------------- Accumulated
Shares $ Amount Deficit Total
------ -------- ------- -----
<S> <C> <C> <C> <C>
Balances, December 31, 1998 ............ 26,399,824 $17,694,310 $(17,819,218) $ (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 -- 1,088,721 -- 1,088,721
Net loss ............................... -- -- (2,331,057) (2,331,057)
---------- ----------- ------------ -----------
Balance, June 30, 1999 ................. 27,926,659 $19,563,994 $(20,150,275) $ (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.
("EDI"). All significant intercompany balances and transactions have been
eliminated in consolidation.
NOTE 2 - INVENTORY
Inventory consists of the following:
March 31, December 31,
1999 1998
---- ----
Diagnostic Kits-Raw Materials................ $ -- $16,386
Preventx-Finished Goods...................... 327,045 --
-------- -------
$327,045 $16,386
======== =======
NOTE 3 - SHORT-TERM NOTES PAYABLE
In February 1999, the Company entered into promissory note agreements in the
aggregate amount of $800,000 with various investors. The promissory notes are
due and payable six months from the loan date and have a fixed interest rate
of 10%, payable monthly. The Company also issued 320,000 warrants to the
promissory note holders, exercisable for two years expiring February 15,
2001, at an exercise price of $0.10. The fair value of the warrants was
estimated on the date of grant using the Black-Scholes 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 4 - LEGAL PROCEEDINGS
The lotion licensed from Geda is used in a number of products, including
PrevenTx Vaginal Contraceptive Gel and PrevenTx Hand Sanitizer and Antiseptic
Skin Protectant. The Company has been contacted by a third party claiming
that Geda granted a prior license in the lotion to the third party. The
Company has been advised by Geda that Geda has filed suit against the third
party seeking a declaratory judgement to the effect that the third party has
no rights to the lotion. Although Geda has represented that it is has the
exclusive right and authority to license the formula to the Company, and has
agreed to pay any legal fees incurred by the Company arising out of the
Company's investigation and any defense of this matter, there can be no
assurance as to the outcome of this matter or that it will not materially or
adversely impact the Company.
The Company is a defendant in 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.
F-18
<PAGE>
EMPYREAN BIOSCIENCE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
NOTE 5 - 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 6 - 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 $0.83. 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 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 Empyrean
Bioscience, 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:
A-1
<PAGE>
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 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.
A-2
<PAGE>
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, 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.
A-3
<PAGE>
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.
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.
A-4
<PAGE>
EMPYREAN BIOSCIENCE, INC.
a Wyoming corporation
By:
------------------------------------
Name:
Title:
EMPYREAN BIOSCIENCE, INC.
a Delaware corporation
By:
------------------------------------
Name:
Title:
A-5
<PAGE>
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:
B-1
<PAGE>
(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;
(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.
B-2
<PAGE>
(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.
B-3
<PAGE>
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:
(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-4
<PAGE>
(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.
B-5
<PAGE>
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.
(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-6
<PAGE>
(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 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
B-7
<PAGE>
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.
B-8
<PAGE>
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. Under Article ___ of Empyrean Delaware's Certificate of
Incorporation, as amended, Empyrean Delaware shall, to the full extent permitted
by Section 145, indemnify all persons whom it may indemnify pursuant thereto.
Additionally, Article ___ provides, among other matters, that the right to
indemnification is a contract right, that Empyrean Delaware is expressly
authorized to procure insurance, that advancement of expenses by Empyrean
Delaware is mandatory (except as limited by law) and for certain procedural
mechanisms for the benefit of indemnified parties.
Article ___ of the By-Laws of Empyrean Delaware provides for
indemnification of directors and officers of Empyrean Delaware. The provisions
of Article ___, among other matters, require Empyrean Delaware 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 ___ 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 Empyrean Delaware
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 ___ also expressly provides that any person claiming
indemnification may sue the registrant for payment of amounts due, that Empyrean
Delaware 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 Empyrean
Delaware to have made a determination that indemnification is proper, nor an
actual determination by Empyrean Delaware 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.
Empyrean Delaware currently maintains directors' and officers' liability
insurance to supplement the protection provided in Empyrean Delaware's
Certificate of Incorporation, as amended, its By-Laws, and to fund certain
payments that the registrant 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.
II-1
<PAGE>
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
2.1 Form of Agreement and Plan of Merger, dated as of
___________, 1999, between Empyrean Bioscience, Inc. and
Empyrean Bioscience, Inc. (Included as Annex A to the proxy
statement/prospectus forming a part of this Registration
Statement and incorporated herein by reference.)
3.1(a) Form of Certificate of Incorporation of Empyrean Delaware.
3.1(b) Articles of Incorporation and Bylaws of Empyrean Wyoming.(1)
3.2 Form of Bylaws of Empyrean Delaware.
4.1 Convertible Debenture and Warrant Purchase Agreement by and
among Empyrean and purchasers thereof and related Warrant.
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 Empyrean Bioscience, Inc. Common Stock
5.1 Opinion of Snell & Wilmer L.L.P. as to the legality of the
Empyrean common stock being registered hereby.(2)
5.2 Opinion of Snell & Wilmer L.L.P. as to tax matters.(2)
10.1 License Agreement dated as of February 21, 1998 between
Empyrean and Geda International Marketing Co., Ltd.
10.2 Sub-license Agreement dated as of July 20, 1998 between
Empyrean and Prevent-X, Inc.
10.3 Agreement and Assignment of Distribution Rights, between
GEDA International Marketing Co., Ltd., Farida Darbar,
Empyrean Diagnostics Inc., and Empyrean Diagnostics, Ltd.,
dated August 31, 1998
10.4 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
10.7 Employment Agreement for Richard C. Adamany
10.8 Employment Agreement for Bennett S. Rubin
II-2
<PAGE>
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 incorporated herein by
reference.)(2)
27.1 Financial Data Schedule
99.1 Form of Proxy
- ----------
(1) Previously filed.
(2) To be filed by pre-effective amendment.
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;
II-3
<PAGE>
(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.
(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 registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the city of Phoenix, State of
Arizona, on October 1, 1999.
Empyrean Bioscience, Inc..
By /s/ Stephen D. Hayter
-------------------------------------
Stephen D. Hayter Director,
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 Director, President, Chief October 1, 1999
Stephen D. Hayter Executive Officer (Principal
Financial Officer and
Principal Accounting Officer)
/s/ Raymond E. Dean Director October 1, 1999
Raymond E. Dean
/s/ Dr. Andrew J. Fishleder Director October 1, 1999
Dr. Andrew J. Fishleder
/s/ Robert G. J. Burg II Director October 1, 1999
Robert G.J. Burg II
/s/ Michael Cicak Director October 1, 1999
Michael Cicak
/s/ Lawrence D. Bain Director October 1, 1999
Lawrence D. Bain
II-5
CERTIFICATE OF INCORPORATION
OF
EMPYREAN BIOSCIENCE, INC.
ARTICLE ONE
The name of the corporation is Empyrean Bioscience, 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
EMPYREAN BIOSCIENCE, 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.
-2-
<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.
-3-
<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
-4-
<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,
-6-
<PAGE>
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.
-7-
<PAGE>
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.
-8-
<PAGE>
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
-9-
<PAGE>
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
-10-
<PAGE>
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.
-11-
<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).
-12-
<PAGE>
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.
-13-
- --------------------------------------------------------------------------------
CONVERTIBLE DEBENTURE AND WARRANT PURCHASE AGREEMENT
By and Among
Global Strategic Holdings, Ltd.
Successway Holdings Limited
Lampton, Inc.
Turbo International Ltd.
and
Empyrean Diagnostics, Ltd.
-----------------------------
Dated as of July 9, 1998
-----------------------------
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
Page
----
ARTICLE I CERTAIN DEFINITIONS...........................................1
ARTICLE II PURCHASE OF UNITS.............................................3
ARTICLE III REPRESENTATIONS AND WARRANTIES................................4
ARTICLE IV OTHER AGREEMENTS OF THE PARTIES...............................8
ARTICLE V CONDITIONS PRECEDENT TO CLOSING..............................13
ARTICLE VI TERMINATION..................................................15
ARTICLE VII MISCELLANEOUS................................................16
Appendix A Purchasers and Allocations
Exhibit A Form of Convertible Debenture
Exhibit B Form of Warrant
Exhibit C Form of Opinion of Pollet Law, counsel for the Company
Exhibit D Conversion Procedures
Exhibit E Escrow Agreement
Schedule 3.1(a) Subsidiaries
Schedule 3.1(c) Capitalization
Schedule 3.1(g) Litigation
<PAGE>
This CONVERTIBLE DEBENTURE AND WARRANT PURCHASE AGREEMENT is made as of
July 9, 1998 (this "AGREEMENT") by and between Empyrean Diagnostics, Ltd. a
Wyoming corporation (the "COMPANY"), and Global Strategic Holdings, Ltd., a
Guernsey corporation, Successway Holdings Limited, a British Virgin Islands
corporation, and Lampton, Inc., an Israeli corporation, and Turbo International,
Ltd., a Bahamas Corporation, (referred to individually and collectively herein
as the "PURCHASER").
WHEREAS, the Company desires to issue and sell to the Purchaser and the
Purchaser desires to acquire certain of the Company's 0% Convertible Debentures,
due July 9, 2001 (the "CONVERTIBLE DEBENTURES" or the "DEBENTURES" and Warrants
to purchase shares of the Company's common stock (the "WARRANTS").
IN CONSIDERATION of the mutual covenants and agreements set forth herein
and for good and valuable consideration, the receipt of which is hereby
acknowledged, the parties agree as follows:
ARTICLE I
CERTAIN DEFINITIONS
SECTION 1.1. CERTAIN DEFINITIONS. As used in this Agreement, and unless the
context requires a different meaning, the following terms have the meanings
indicated:
"AFFILIATE" means, with respect to any Person, any Person that, directly or
indirectly, controls, is controlled by or is under common control with such
Person. For the purposes of this definition, "CONTROL" (including, with
correlative meanings, the terms "CONTROLLED BY" and "UNDER COMMON CONTROL WITH")
shall mean the possession, directly or indirectly, of the power to direct or
cause the direction of the management and policies of such Person, whether
through the ownership of voting securities or by contract or otherwise.
"BUSINESS DAY" means any day except Saturday, Sunday and any day which
shall be a legal holiday or a day on which banking institutions in the state of
New York are authorized or required by law or other government actions to close.
"CLOSING" shall have the meaning set forth in SECTION 2.1(b).
"CLOSING DATE" shall have the meaning set forth in SECTION 2.1(b).
"CODE" means the Internal Revenue Code of 1986, as amended, and the rules
and regulations thereunder as in effect on the date hereof.
"COMMISSION" means the Securities and Exchange Commission.
<PAGE>
"COMMON STOCK" means the Company's common stock, without par value.
"DEBENTURES" means the 0% Convertible Debentures of the Company, due June
30, 2001, an example of which is attached hereto as Exhibit A.
"DISCLOSURE DOCUMENTS" means the disclosure package, including but not
limited to the Company's Business Plan dated July 9, 1998, the Company's
"Company Profile" dated June 1, 1998, capitalization information, pending or
threatened litigation or action, and required consents, delivered to the
Purchaser in connection with the offering by the Company of the Debentures and
the Schedules to this Agreement furnished by or on behalf of the Company
pursuant to Section 3.1.
"ESCROW AGREEMENT" means the Escrow Agreement dated July 9, 1998 and
attached as Exhibit E.
"ESCROW AGENT" means Kaplan Gottbetter & Levenson LLP.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"LIEN" means, with respect to any asset, any mortgage, lien, pledge,
encumbrance, charge or security interest of any kind in or on such asset or the
revenues or income thereon or therefrom.
"MATERIAL ADVERSE EFFECT" shall have the meaning set forth in SECTION
3.1(a).
"NASD" means the National Association of Securities Dealers, Inc.
"PER SHARE CONSIDERATION" shall have the meaning set forth in SECTION
2.1(a).
"PERSON" means an individual or a corporation, partnership, trust,
incorporated or unincorporated association, joint venture, limited liability
company, joint stock company, government (or an agency or political subdivision
thereof) or other entity of any kind.
"PREFERRED STOCK" shall have the meaning set forth in the recitals hereto.
"PURCHASE PRICE" shall have the meaning set forth in SECTION 2.1(a).
"PURCHASER" shall mean one, some or all of the persons or entities who are
acquiring securities of the Company pursuant to this Agreement, as the context
requires.
"REQUIRED APPROVALS" shall have the meaning set forth in SECTION 3.1(f).
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"SUBSIDIARIES" shall have the meaning set forth in SECTION 3.1(a).
2
<PAGE>
"UNDERLYING SHARES" means the shares of Common Stock into which the
Debentures are convertible in accordance with the terms hereof and the
Debenture, as well the shares of Common Stock issuable upon exercise of the
Warrants in accordance with the terms hereof and the Warrant.
"UNITS" means one Debenture and 1164.41 Warrants to purchase shares of
Common Stock.
ARTICLE II
PURCHASE OF UNITS
SECTION 2.1. PURCHASE OF UNITS; CLOSING.
(a) Subject to the terms and conditions herein set forth, the Company
shall issue and sell to the Purchaser, and the Purchaser shall purchase
from the Company on the Closing Date 600 Units, each unit consisting of one
Debenture, which shall have the respective rights, preferences and
privileges set forth in EXHIBIT A (the "DEBENTURE", and 1164.41 Warrants,
in the form as set forth in Exhibit B, to purchase Common Stock of the
Company, at a price per Unit of US$1,000.00 (the "PER UNIT CONSIDERATION").
The Per Unit Consideration multiplied by the number of Units to be
purchased by the Purchaser hereunder is hereinafter referred to as the
"PURCHASE PRICE." The Company shall allocate and issue the Debentures and
Warrants among the individuals comprising Purchaser in accordance with
Appendix 1.
(b) The closing of the purchase and sale of the Units (the "CLOSING")
shall take place al the offices of Kaplan, Gottbetter & Levenson, LLP,
immediately following the execution hereof, or at such other time and/or
place as the Purchaser and the Company may agree, PROVIDED, however, in no
case shall the Closing take place later than the fifth day after the last
of the conditions listed in ARTICLE V is satisfied or waived by the
appropriate party. The date of the Closing is hereinafter referred to as
the "CLOSING DATE".
(c) At the Closing, (i) the Company shall deliver to the Purchaser (A)
one or more Debentures purchased hereunder, registered in the name of the
Purchaser, (B) all documents, instruments and writings required to have
been delivered at or prior to Closing by the Company pursuant to this
Agreement, and (C) the Warrant Document evidencing the Warrants, and (ii)
the Purchaser shall deliver to the Company (A) the Purchase Price as
determined pursuant to this ARTICLE I in United States dollars in
immediately available funds by wire transfer to an account designated in
writing by the Company prior to the Closing and (B) all documents,
instruments and writings required to have been delivered at or prior to
Closing by the Purchaser pursuant to this Agreement.
3
<PAGE>
ARTICLE III
REPRESENTATIONS AND WARRANTIES
Section 3.1. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company
hereby represents and warrants to the Purchaser as follows:
(a) ORGANIZATION AND QUALIFICATION. The Company is a corporation, duly
incorporated, validly existing and in good standing under the laws of the
jurisdiction of its incorporation, with the requisite corporate power and
authority to own and use its properties and assets and to carry on its
business as currently conducted. The Company has no subsidiaries other than
as set forth in Schedule 3.1 (a) (collectively, the "SUBSIDIARIES"). Each
of the Subsidiaries is a corporation, duly incorporated, validly existing
and in good standing under the laws of the jurisdiction of its
incorporation, with the full corporate power and authority to own and use
its properties and assets and to carry on its business as currently
conducted. Each of the Company and the Subsidiaries is duly qualified to do
business and is in good standing as a foreign corporation in each
jurisdiction in which the nature of the business conducted or property
owned by it makes such qualification necessary, except where the failure to
be so qualified or in good standing, as the case may be, could not
reasonably be expected to have, individually or in the aggregate, a
material adverse effect on the results of operations, assets, prospects, or
financial condition of the Company and the Subsidiaries, taken as a whole
(a "MATERIAL ADVERSE EFFECT") .
(b) AUTHORIZATION; ENFORCEMENT. The Company has the requisite
corporate power and authority to enter into and to consummate the
transactions contemplated hereby and otherwise to carry out its obligations
hereunder and thereunder. The execution and delivery of this Agreement by
the Company and the consummation by it of the transactions contemplated
hereby and thereby have been duly authorized by all necessary action on the
part of the Company. Each of this Agreement has been duly executed and
delivered by the Company and constitutes the valid and binding obligation
of the Company enforceable against the Company in accordance with its
terms, except as such enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium, liquidation or similar
laws relating to, or affecting generally the enforcement of, creditors'
rights and remedies or by other equitable principles of general
application.
(c) CAPITALIZATION. The authorized, issued and outstanding capital
stock of the Company and each of the Subsidiaries is set forth in Schedule
3.1(c). No shares of Common Stock are entitled to preemptive or similar
rights. Except as specifically disclosed in the Disclosure Documents, there
are no outstanding options, warrants, script rights to subscribe to, calls
or commitments of any character whatsoever relating to, or, except as a
result of the purchase and sale of the Units hereunder, securities, rights
or obligations convertible into or exchangeable for, or giving any person
any right to subscribe for or acquire any shares of Common Stock, or
contracts, commitments, understandings, or arrangements by which the
4
<PAGE>
Company or any Subsidiary is or may become bound to issue additional shares
of Common Stock, or securities or rights convertible or exchangeable into
shares of Common Stock. Neither the Company nor any Subsidiary is in
violation of any of the provisions of its respective certificate of
incorporation, bylaws or other charter documents.
(d) ISSUANCE OF UNITS. The Units have been duly and validly authorized
for issuance, offer and sale pursuant to this Agreement and, when issued
and delivered as provided hereunder against payment in accordance with the
terms hereof, shall be valid and binding obligations of the Company
enforceable in accordance with their terms. The Company has and at all
times while the Units are outstanding will maintain an adequate reserve of
shares of Common Stock to enable it to perform its obligations under this
Agreement and the Debentures and the Warrants. When issued in accordance
with the terms hereof and the Debentures and the Warrants, the Underlying
Shares will be duly authorized, validly issued, fully paid and
nonassessable.
(e) NO CONFLICTS. The execution, delivery and performance of this
Agreement by the Company and the consummation by the Company of the
transactions contemplated hereby and thereby do not and will not (i)
conflict with or violate any provision of its certificate of incorporation
or bylaws or (ii) subject to obtaining the consents referred to in SECTION
3.1(f), conflict with, or constitute a default (or an event which with
notice or lapse of time or both would become a default) under, or give to
others any rights of termination, amendment, acceleration or cancellation
of, any agreement, indenture or instrument to which the Company is a party,
or (iii) to the knowledge of the Company result in a violation of any law,
rule, regulation, order, judgment, injunction, decree or other restriction
of any court or governmental authority to which the Company is subject
(including Federal and state securities laws and regulations), or by which
any property or asset of the Company is bound or affected, except in the
case of each of clauses (ii) and (iii), such conflicts, defaults,
terminations, amendments, accelerations, cancellations and violations as
would not, individually or in the aggregate, have a Material Adverse
Effect. The business of the Company is not being conducted in violation of
any law, ordinance or regulation of any governmental authority, except for
violations which, individually or in the aggregate, do not have a Material
Adverse Effect.
(f) CONSENTS AND APPROVALS. Neither the Company nor any Subsidiary is
required to obtain any consent, waiver, authorization or order of, or make
any filing or registration with, any court or other federal, state, local
or other governmental authority or other Person in connection with the
execution, delivery and performance by the Company of this Agreement, other
than the making of the applicable blue-sky filings under state securities
laws, and other than, in all cases, where the failure to obtain such
consent, waiver, authorization or order, or to give or make such notice or
filing, would not materially impair or delay the ability of the Company to
effect the Closing and deliver to the Purchaser the Units free and clear of
all liens (collectively, the "REQUIRED APPROVALS").
5
<PAGE>
(g) LITIGATION; PROCEEDINGS. Except as specifically disclosed in the
Disclosure Documents and Schedule 3.1(g), there is no action, suit, notice
of violation, proceeding or investigation pending or, to the best knowledge
of the Company, threatened against or affecting the Company or any of its
Subsidiaries or any of their respective properties before or by any court,
governmental or administrative agency or regulatory authority (Federal,
State, county, local or foreign) which (i) relates to or challenges the
legality, validity or enforceability of this Agreement or the Units (ii)
could, individually or in the aggregate, have a Material Adverse Effect or
(iii) could, individually or in the aggregate, materially impair the
ability of the Company to perform fully on a timely basis its obligations
under this Agreement.
(h) NO DEFAULT OR VIOLATION. Neither the Company nor any Subsidiary
(i) is in default under or in violation of any indenture, loan or credit
agreement or any other agreement or instrument to which it is a party or by
which it or any of its properties is bound, except such conflicts or
defaults as do not have a Material Adverse Effect, (ii) is in violation of
any order of any court, arbitrator or governmental body, except for such
violations as do not have a Material Adverse Effect, or (iii) is in
violation of any statute, rule or regulation of any governmental authority
which could (individually or in the aggregate) (x) adversely affect the
legality, validity or enforceability of this Agreement, (y) have a Material
Adverse Effect or (z) adversely impair the Company's ability or obligation
to perform fully on a timely basis its obligations under this Agreement.
(i) CERTAIN FEES. No fees or commission will be payable by the Company
to any broker, finder, investment banker or bank with respect to the
consummation of the transactions contemplated hereby; except that upon
Closing, the Company will pay to GEM Advisors, Inc. an unallocated expense
allotment of US $10,000 and a fee equal to 2% of the Purchase Price.
(j) DISCLOSURE DOCUMENTS. The Disclosure Documents do not contain any
untrue statement of a material fact or omit to state any material fact
necessary in order to make the statements made therein, in light of the
circumstances under which they were made, not misleading.
(k) PRIVATE OFFERING. Neither the Company nor any Person acting on its
behalf has taken or will take any action (including, without limitation,
any offering of any securities of the Company under circumstances which
would require the integration of such offering with the offering of the
Units under the Securities Act) which might subject the offering, issuance
or sale of the Units to the registration requirements of Section 5 of the
Securities Act.
(l) NOT A REPORTING COMPANY; ELIGIBILITY TO USE EXEMPTION UNDER 504b.
The Company is not subject to the reporting requirements of Section 18 or
Section 15d of the Exchange Act. The Company has not sold more than
$250,000 of securities in the last twelve months. The Company is eligible
6
<PAGE>
to issue securities exempt from registration pursuant to Rule 504 of
Regulation D promulgated under the Securities Act. It is the intent of the
parties that the sale of the Debentures and Warrants and the conversion of
the Debentures to Common Stock shall be made in reliance upon the exemption
from registration provided by Rule 504, but that the issuance of the Common
Stock upon exercise of the Warrants shall not be in reliance upon Rule 504,
and such stock shall be restricted stock unless it is sold pursuant to a
registration statement under the Securities Act.
Section 3.2. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER. Each
Purchaser hereby represents and warrants to the Company as follows:
(a) ORGANIZATION; AUTHORITY. The Purchaser is a corporation duly and
validly existing and in good standing under the laws of the jurisdiction of
its incorporation. The Purchaser has the requisite power and authority to
enter into and to consummate the transactions contemplated hereby and
otherwise to carry out its obligations hereunder and thereunder. The
purchase of the Units by the Purchaser hereunder has been duly authorized
by all necessary action on the part of the Purchaser. Each of this
Agreement has been duly executed and delivered by the Purchaser or on its
behalf and constitutes the valid and legally binding obligation of the
Purchaser, enforceable against the Purchaser in accordance with its terms,
subject to bankruptcy, insolvency, fraudulent transfer, reorganization,
moratorium and similar laws of general applicability relating to or
affecting creditors' rights generally and to general principles of equity.
(b) INVESTMENT INTENT. The Purchaser is acquiring the Units and the
Underlying Shares for its own account (and/or on behalf of managed accounts
who are purchasing solely for their own accounts for investment) for
investment purposes only and not with a view to or for distributing or
reselling such Units or Underlying Shares or any part thereof or interest
therein, without prejudice, however, to the Purchaser's right, subject to
the provisions of this Agreement, at all times to sell or otherwise dispose
of all or any part of such Units or Underlying Shares in compliance with
applicable State securities laws and under an exemption from registration
under Rule 504 of the Securities Act.
(c) PURCHASER STATUS. At the time the Purchaser (and any account for
which it is purchasing) was offered the Units, it (and any account for
which it is purchasing) was, and at the date hereof, it (and any account
for which it is purchasing) is, and at the Closing Date, it (and any
account for which it is purchasing) will be, an "accredited investor" as
defined in Rule 501(a) under the Securities Act.
(d) EXPERIENCE OF PURCHASER. The Purchaser, either alone or together
with its representatives, has such knowledge, sophistication and experience
in business and financial matters so as to be capable of evaluating the
merits and risks of the prospective investment in the Units, and has so
evaluated the merits and risks of such investment.
7
<PAGE>
(e) ABILITY OF PURCHASER TO BEAR RISK OF INVESTMENT. The Purchaser is
able to bear the economic risk of an investment in the Units and, at the
present time, is able to afford a complete loss of such investment.
(f) PROHIBITED TRANSACTIONS. The Units to be purchased by the
Purchaser are not being acquired, directly or indirectly, with the assets
of any "employee benefit plan", within the meaning of Section 3(3) of the
Employee Retirement Income Security Act of 1974, as amended.
(g) ACCESS TO INFORMATION. The Purchaser acknowledges receipt of the
Disclosure Documents and further acknowledges that it has been afforded (i)
the opportunity to ask such questions as it has deemed necessary of, and to
receive answers from, representatives of the Company concerning the terms
and conditions of the offering of the Units and the merits and risks of
investing in the Units; (ii) access to information about the Company and
the Company's financial condition, results of operations, business,
properties, management and prospects sufficient to enable it to evaluate
its investment in the Common Stock; and (iii) the opportunity to obtain
such additional information which the Company possesses or can acquire
without unreasonable effort or expense that is necessary to make an
informed investment decision with respect to the Units and to verify the
accuracy and completeness of the information contained in the Disclosure
Documents. Purchaser hereby acknowledges that it has received from the
Company all of the information it has requested and answers to all
questions which it has asked of the Company, and that it is satisfied that
it has received all information about the Company which is necessary to
making its decision whether to invest in the Company.
(h) RELIANCE. The Purchaser understands and acknowledges that (i) the
Units are being offered and sold, and the Underlying Shares are being
offered, to it without registration under the Securities Act in a private
placement chat is exempt from the registration provisions of the Securities
Act and (ii) the availability of such exemption, depends in part on, and
that the Company will rely upon the accuracy and truthfulness of, the
foregoing representations and the Purchaser hereby consents to such
reliance.
The Company acknowledges and agrees that the Purchaser makes no
representation or warranty with respect to the transactions contemplated hereby
other than those specifically set forth in Article III herein.
ARTICLE IV
OTHER AGREEMENTS OF THE PARTIES
SECTION 4.1. MANNER OF OFFERING. To the extent, if any, that United States
securities laws apply to the sale of the Units or the conversion of the
Debentures to Common Stock, such transactions shall be done in reliance upon the
8
<PAGE>
exemption from registration provided by Rule 504(b) of Regulation D of the
Securities Act. The Units, the Debentures, the Warrants and the Common Stock
into which the Debentures are convertible will be exempt from restrictions on
transfer, and will carry no restrictive legend. Accordingly, the Company will
use its best efforts to insure that no actions are taken that would jeopardize
the availability of the exemption with respect to these transactions. It is the
intent of the parties chat the sale of the Common Stock upon exercise of the
Warrants shall not be in reliance upon Rule 504, and such stock shall be
restricted stock unless it is sold pursuant to a registration statement under
the Securities Act.
SECTION 4.2. FURNISHING OF INFORMATION. As long as the Purchaser owns Units
or Underlying Shares, the Company will promptly furnish to it all annual and
quarterly reports comparable to those required by Section 13(a) or 15(d) of the
Exchange Act.
SECTION 4.3. NOTICE OF CERTAIN EVENTS. The Company shall (i) advise the
Purchaser promptly after obtaining knowledge thereof, and, if requested by the
Purchaser, confirm such advice in writing, of (A) the issuance by any state
securities commission of any stop order suspending the qualification or
exemption from qualification of the Units or the Common Stock for offering or
sale in any jurisdiction, or the initiation of any proceeding for such purpose
by any state securities commission or other regulatory authority, or (B) any
event that makes any statement of a material fact made in the Disclosure
Documents untrue or that requires the making of any additions to or changes in
the Disclosure Documents in order to make the statements therein, in the light
of the circumstances under which they are made, not misleading, (ii) use its
best efforts to prevent the issuance of any stop order or order suspending the
qualification or exemption from qualification of the Units or the Common Stock
under any stair securities or Blue Sky laws, and (iii) if at any time any state
securities commission or other regulatory authority shall issue an order
suspending the qualification or exemption from qualification of the Units or the
Common Stock under any such laws, use its best efforts to obtain the withdrawal
or lifting of such order at the earliest possible time.
SECTION 4.4. COPIES AND USE OF DISCLOSURE DOCUMENTS. During the thirty day
period immediately following the Closing, the Company shall furnish the
Purchaser, without charge, as many copies of the Disclosure Documents, and any
amendments or supplements thereto, as the Purchaser may reasonably request. The
Company consents to the use of the Disclosure Documents, and any amendments and
supplements thereto, by the Purchaser in connection with resales of the Units or
the Underlying Shares other than pursuant to an effective registration
statement.
SECTION 4.5. MODIFICATION TO DISCLOSURE DOCUMENTS; ADDITIONAL INFORMATION.
If any event shall occur as a result of which, in the reasonable judgment of the
Company or the Purchaser, it becomes necessary or advisable to amend or
supplement the Disclosure Documents in order to make the statements therein, in
the light of the circumstances at the time the Disclosure Documents were
delivered to the Purchaser, not misleading, or if it is necessary to amend or
supplement the Disclosure Documents to comply with applicable law, the Company
shall promptly prepare an appropriate amendment or supplement to the Disclosure
Documents (in form and substance reasonably satisfactory to the Purchaser) so
that (i) as so amended or supplemented the Disclosure Documents will not include
9
<PAGE>
an untrue statement of material fact or omit to state a material fact necessary
in order to make the statements therein, in the light of the circumstances
existing at the time it is delivered to Purchaser, not misleading and (ii) the
Disclosure Documents, together with additional information provided by the
Company, will comply with applicable law pertaining to requirements of
disclosure in connection with the sale of securities. Company and Purchaser
agree to cooperate to ensure that all necessary information is provided to
subsequent purchasers.
SECTION 4.6. BLUE SKY LAWS. The Company shall cooperate with the Purchaser
in connection with the qualification of the Units and the Underlying Shares
under the securities or Blue Sky laws of such jurisdictions as the Purchaser may
request and to continue such qualification at all times through the third
anniversary of the Closing Date; PROVIDED, HOWEVER, that neither the Company nor
its Subsidiaries shall be required in connection therewith to qualify as a
foreign corporation where they are not now so qualified.
SECTION 4.7. INTEGRATION. The Company shall not, and shall use its best
efforts to ensure that its Affiliates shall not, sell, offer for sale or solicit
offers to buy or otherwise negotiate in respect of any security (as defined in
Section 2 of the Securities Act) that would be integrated with the offer or sale
of the Units and/or the Common Stock underlying the Debentures in a manner that
would require the registration under the Securities Act of the sale of the Units
to the Purchaser.
SECTION 4.8. FURNISHING OF RULE 144A MATERIALS. The Company shall, for so
long as any of the Units or Underlying Shares remain outstanding and during any
period in which it is not subject to Section 13 or 15(d) of the Exchange Act,
make available to any registered holder of Units or Underlying Shares in
connection with any sale thereof and any prospective purchaser of such Units or
Underlying Shares from such Person, the following information in accordance with
Rule 144A(d)(4) under the Securities Act a brief statement of the nature of the
business of the Company and the products and services it offers and the
Company's most recent audited balance sheet and profit and loss and retained
earnings statements, and similar audited financial statements for such part of
the two preceding fiscal years as the Company has been in operation.
SECTION 4.9. SOLICITATION. The Company shall not solicit any offer to buy
or sell the Units or Underlying Shares by means of any form of general
solicitation or advertising.
SECTION 4.10. SUBSEQUENT FINANCIAL STATEMENTS. The Company shall furnish to
the Purchaser, promptly after they are filed with the Commission, a copy of all
financial statements for any period subsequent to the period covered by the
financial statements included in the Disclosure Documents.
SECTION 4.11. PROHIBITION ON CERTAIN ACTIONS.
(a) The Company shall not directly or indirectly, without the prior
consent of the Purchaser, offer, sell, grant any option to purchase, or
otherwise dispose (or announce any offer, sale, grant or any option to
purchase or other disposition) of any of its or its Affiliates equity or
equity-equivalent securities (a "Subsequent Sale") for a period of 180 days
10
<PAGE>
after Closing Date, except (i) the granting of options to employees,
officers and directors under, and the issuance of shares upon exercise of
options granted under, any stock option plan heretofore adopted by the
Company; (ii) shares issued upon exercise of any currently outstanding
warrants and upon conversion of any currently outstanding convertible
preferred stock disclosed in SCHEDULE 3.1, (iii) shares of Common Stock
issued upon conversion of Debentures or exercise of Warrants in accordance
herewith, (iv) issuances of securities in a firm commitment underwritten
public offering, and (v) issuances of securities as consideration for a
merger, consolidation or sale of assets, or in connection with any
strategic partnership or joint venture (the primary purpose of which is not
to raise equity capital) or in connection with the disposition or
acquisition of a business, product, or license by the Company.
(b) From the date hereof through the Closing Date, the Company shall
not and shall cause the Subsidiaries not to, without the consent of the
Purchaser, (i) amend its Certificate of Incorporation, bylaws or other
charter documents so as to adversely affect any rights of the Purchaser;
(ii) split, combine or reclassify its outstanding capital stock; (iii)
declare, authorize, set aside or pay any dividend or other distribution
with respect to the Common Stock; (iv) redeem, repurchase or offer to
repurchase or otherwise acquire shares of its Common Stock; or (v) enter
into any agreement with respect to any of the foregoing.
SECTION 4.12. LISTING OF UNDERLYING SHARES. The Company shall use its best
efforts to cause the Common Stock issuable upon conversion of the Debentures to
be approved for listing on the NASD Electronic Bulletin Board (or other national
securities exchange or market on which the Common Stock is listed) no later than
the first day after which Debentures may be converted hereunder by the
Purchaser, and shall provide to the Purchaser evidence of such listing.
SECTION 4.13. CONVERSION PROCEDURES. EXHIBIT D attached hereto sets forth
the procedures with respect to the conversion of the Debentures. In the event
that the Company and the Escrow Agent receive a properly executed Conversion
Notice (the "Conversion Notice") along with other documentation required by the
Conversion Notice, if any, and fail to deliver or cause to be delivered to the
holder of the Debentures ("Holder") identified in the Conversion Notice a
certificate(s) representing the shares of Common Stock into which the Shares
identified on the Conversion Notice have been converted (the "Converted Shares")
within five days of the later of (i) the receipt by the Company of the
Conversion Notice or (ii) the receipt by the Escrow Agent of the Conversion
Notice (a "Conversion Default"), the Company shall be obligated to pay to the
Holder in cash or certified check 1% of the value of the Converted Shares based
on the Per Share Market Value of the Common Stock on the "'Date to Effect
Conversion" as set forth in the Conversion Notice (the "Conversion Penalty") for
each Business Day such Conversion Default continues. The Company shall pay the
Conversion Penalty to the Holder on the third Business Day of each month
following the month in which such Conversion Penalty may have accrued, by check
delivered to the address for notice of such Holder set forth herein or as may
have been property changed pursuant to the terms herein.
11
<PAGE>
SECTION 4.14. REGISTRATION OF UNDERLYING SHARES. So long as any Debentures
remain outstanding, the Company agrees not to file a Form 10 registration
statement with the Securities Exchange Commission (the "SEC"), without first
having registered the issuance of the Debenture Underlying Shares under the
Securities Act, and qualified such issuances in such states of the United States
as the holders of the Debentures shall reasonably request. If the Company shall
propose to file with the SEC any registration statement other than a Form 10
which would cause, or have the effect of causing, the Company to become subject
to the reporting requirements of Section 13 or 15 (d) of the Exchange Act (a
"Reporting Issuer") or to take any other action the effect of which would be to
cause the Underlying Shares to be issued upon conversion of any then outstanding
Debentures to be restricted securities (as such term is defined in Rule 144
promulgated under the Securities Act), the Company agrees to give written
notification of such to the Holders of the Debentures then outstanding at least
two weeks prior to such filing or taking of the proposed action. If any
Debentures are outstanding at the end of such notice period, the Company agrees
to file a registration statement on Form S-1 or SB-2, or such other form of
registration statement in which the Debenture Underlying Shares may be included,
and to include in such registration statement the Underlying Shares issuable
upon conversion of any then outstanding Debentures so as to permit the public
resale thereof. All costs and expenses of registration shall be borne by the
Company.
Notwithstanding the foregoing, if the Company for any reason shall become a
Reporting Issuer, or shall have taken any action the effect of which would be to
cause the Underlying Shares to be issued upon conversion of any then outstanding
Debentures to be restricted securities (as such term is defined in Rule 144
promulgated under the Securities Act), the Company agrees to immediately file
with the SEC and cause to become effective a registration statement which would
permit the public resale of such Underlying Shares in such states of the United
States as the Holders thereof shall reasonably request. All costs and expenses
of such registration shall be borne by the Company.
If (but without any obligation to do so under this Agreement) the Company
proposes to register (including for this purpose a registration effected by the
Company for shareholders other than the Holders) any of its stock or other
securities under the Securities Act in connection with the public offering of
such securities solely for cash (other than a registration relating solely to
the sale of securities to participants in a Company stock plan, or a
registration on any form which does not include substantially the same
information as would be required to be included in a registration statement
covering the issuance of the Underlying Shares, or a registration of an offering
of securities, the underwriter of which objects to registration of additional
securities), the Company shall, at such time, promptly give each Holder of
Debentures or Warrants written notice of such registration. Upon the written
request of each Holder of Debentures or Warrants given within twenty days after
mailing of such notice by the Company, the Company shall cause to be registered
under such registration statement such issuances of Common Stock upon conversion
of Debentures or exercise of Warrants as each such Holder has requested to be
registered.
SECTION 4.15. ESCROW. The Company agrees to enter into the escrow agreement
attached hereto as Exhibit E (the "Escrow Agreement"), and to issue into said
Escrow certificates to be held by the Escrow Agent (as defined in the Escrow
12
<PAGE>
Agreement), registered in the name of the Purchaser and without any restrictive
legend of any kind, representing a number of shares equal to that number of
shares which would be issued if the full amount of the Debenture were converted
at the current prevailing Conversion Price (the "Issuable Number") times 200%
("Debenture Escrow Shares") plus the number of shares equal to the number of
issued warrants ("Warrant Escrow Shares"); rounded up to the nearest even 10,000
shares ("Escrow Shares"). Such certificates shall be in denominations of 10,000
shares. If at any time while any of the Debenture remain outstanding the then
current Conversion Price is such that the number of shares in escrow (the
"Escrow Shares") is less than 150% of the then Issuable Number plus the Warrant
Escrow Shares, additional certificates (registered in the name of the Purchaser
and without any restrictive legend of any kind, in 10,000 share denominations
and rounded to the nearest even 10,000 share amount) shall be issued by the
Company into the escrow so that the total number of Escrow Shares is at least
200% of the Issuable Number plus the Warrant Escrow Shares.
SECTION 4.16. SHORT SELLING. Purchaser and its Affiliates agree not to
engage in any short sales, swaps, purchase of puts, or other hedging activities
involving the Common Stock or other securities of the Corporation. However,
Purchaser may engage in short sales within three days preceding conversion where
the shares issuable upon conversion are used to cover the short sale.
ARTICLE V
CONDITIONS PRECEDENT TO CLOSING
SECTION 5.1. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE PURCHASER. The
obligation of the Purchaser to purchase the Units is subject to the satisfaction
or waiver by the Purchaser, at or prior to the Closing, of each of the following
conditions:
(a) LEGAL OPINION. The Purchaser shall have received the legal
opinion, addressed to it and dated the Closing Date, of Pollet Law, counsel
for the Company, substantially in the form of EXHIBIT C.
(b) ACCURACY OF THE COMPANY'S REPRESENTATIONS AND WARRANTIES. The
representations and warranties of the Company contained herein shall be
true and correct in all material respects as of the date when made and as
of the Closing Date as though made at that time (except that
representations and warranties that are made as of a specific date need be
true in all material respects only as of such date);
(c) PERFORMANCE BY THE COMPANY. The Company shall have performed,
satisfied and compiled in all material respects with all covenants,
agreements and conditions required by this Agreement to be performed,
satisfied or complied with by the Company at or prior to the Closing;
13
<PAGE>
(d) NO MATERIAL ADVERSE EFFECT. Since the date of the financial
statements included in the Disclosure Documents, no event which had a
Material Adverse Effect shall have occurred which is not disclosed in the
Disclosure Documents;
(e) NO PROHIBITIONS. The purchase of and payment for the Units (and
upon conversion therefore, the Underlying Shares) hereunder (i) shall not
be prohibited or enjoined (temporarily or permanently) by any applicable
law or governmental regulation and (ii) shall not subject the Purchaser to
any penalty, or in its reasonable judgment, other onerous condition under
or pursuant to any applicable law or governmental regulation that would
materially reduce the benefits to the Purchaser of the purchase of the
Units or the Underlying Shares (provided, however, that such regulation,
law or onerous condition was not in effect in such form at the date of this
Agreement);
(f) COMPANY CERTIFICATES. The Purchaser shall have received a
certificate, dated the Closing Date, signed by the Secretary or an
Assistant Secretary of the Company and certifying (i) that attached thereto
is a true, correct and complete copy of (A) the Company's Certificate of
Incorporation, as amended to the date thereof, (B) the Company's By-Laws,
as amended to the date thereof, and (C) resolutions duly adopted by the
Board of Directors of the Company authorizing the execution and delivery of
this Agreement and the issuance and sale of the Units and the Underlying
Shares and (ii) the incumbency of officers executing this Agreement;
(g) NO SUSPENSIONS OF TRADING IN COMMON STOCK. Trading in the Common
Stock shall not have been suspended by the Commission or the NASD or other
exchange or market on which the Common Stock is listed or quoted (except
for any suspension of trading of limited duration solely to permit
dissemination of material information regarding the Company);
(h) REQUIRED APPROVALS. All Required Approvals shall have been
obtained; and
(i) DELIVERY OF AGREEMENTS. The Company shall have delivered to the
Escrow Agent signed copies of the Purchase Agreement, Escrow Agreement,
Escrow Shares, and Wiring Instructions.
SECTION 5.2. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE COMPANY. The
obligation of the Company to issue and sell the Units hereunder is subject to
the satisfaction or waiver by the Company, at or to the Closing, of each of the
following conditions:
(a) ACCURACY OF THE PURCHASER'S REPRESENTATIONS AND WARRANTIES. The
representations and warranties of the Purchaser shall be true and correct
in all material respects as of the date when made and as of the Closing
Date as though made at that time (except that representations and
warranties that are made as of a specific date need be true in all material
respects only as of such date);
14
<PAGE>
(b) PERFORMANCE BY THE PURCHASER. The Purchaser shall have performed,
satisfied and compiled in all material respects with all covenants,
agreements and conditions required by this Agreement to be performed,
satisfied or complied with by it at or prior to the Closing; and
(c) NO PROHIBITIONS. The sale of the Units (and upon conversion
thereof, the Underlying Shares) hereunder (i) shall not be prohibited or
enjoined (temporarily or permanently) by any applicable law or governmental
regulation and (ii) shall not subject the Company to any penalty, or in its
reasonable judgment, any other onerous condition under or pursuant to any
applicable law or governmental regulation that would materially reduce the
benefits to the Company of the sale of Units or the Underlying Shares to
the Purchaser (provided, however, that such regulation, law or onerous
condition was not in effect in such form at the date of this Agreement).
(d) DELIVERY OF CONSIDERATION. The Purchaser shall have delivered to
the Escrow Agent signed copies of the Purchase Agreement, Escrow Agreement
and the Purchase Price.
ARTICLE VI
TERMINATION
SECTION 6.1. TERMINATION BY MUTUAL CONSENT. This Agreement may be
terminated at any time prior to Closing by the mutual consent of the Company and
the Purchaser.
SECTION 6.2. TERMINATION BY THE COMPANY OR THE PURCHASER. This Agreement
may be terminated prior to Closing by either the Company or the Purchaser, by
giving written notice of such termination to the other party, if:
(a) the Closing shall not have occurred by June 21, 1998; PROVIDED
THAt the terminating party is not then in material breach of its
obligations under this Agreement in any manner that shall have caused the
failure referred to in this paragraph (a);
(b) there shall be in effect any statute, rule, law or regulation that
prohibits the consummation of the Closing or if the consummation of the
Closing would violate any non-appealable final judgment, order, decree,
ruling or injunction of any court of or governmental authority having
competent jurisdiction; or
(c) there shall have been an amendment to Regulation D or an
interpretive release promulgated or issued thereunder, which, in the
reasonable judgment of the terminating party, would materially adversely
affect the transactions contemplated hereby.
15
<PAGE>
SECTION 6.3. TERMINATION BY THE COMPANY. This Agreement may be terminated
prior to Closing by the Company, by giving notice of such termination to the
Purchaser, if the Purchaser has materially breached any representation,
warranty, covenant or agreement contained in this Agreement and such breach is
not cured within five business days following receipt by the Purchaser of notice
of such breach.
SECTION 6.4. TERMINATION BY THE PURCHASER. This Agreement may be terminated
prior to Closing by the Purchaser, by giving notice of such termination to the
Company, if:
(a) the Company has breached any representation, warranty, covenant or
agreement contained in this Agreement and such breach is not cured within
five business days following receipt by the Company of notice of such
breach;
(b) there has occurred an event, since the date of the financial
statements included in the Company's Disclosure Documents which could
reasonably be expected to have a Material Adverse Effect; or
(c) trading in the Common Stock has been suspended by the Commission
or the NASD or other exchange or market on which the Common Stock is listed
or quoted (except for any suspension of trading of limited duration solely
to permit dissemination of material information regarding the Company).
ARTICLE VII
MISCELLANEOUS
SECTION 7.1. FEES AND EXPENSES. Each party shall pay the fees and expenses
of its advisers, counsel, accountants and other experts, if any, and all other
expenses incurred by such party incident to the negotiation, preparation,
execution, delivery and performance of this Agreement. The Company shall pay all
stamp and other taxes and duties levied in connection with the issuance of the
Units (and upon conversion thereof, the Underlying Shares) pursuant hereto. The
Purchaser shall be responsible for its own tax liability that may arise as a
result of the investment hereunder or the transactions contemplated by this
Agreement. Whether or not the transactions contemplated by this Agreement are
consummated or this Agreement is terminated, the Company shall pay (i) all
costs, expenses, fees and all taxes incident to and in connection with: (A) the
preparation, printing and distribution of the Disclosure Documents and all
amendments and supplements thereto (including, without limitation, financial
statements and exhibits), and all preliminary and final Blue Sky memoranda and
all other agreements, memoranda, correspondence and other documents prepared and
delivered in connection herewith (B) the issuance and delivery of the Debentures
and, upon conversion thereof, the Underlying Shares, (C) the qualification of
the Debentures and, upon conversion thereof, the Underlying Shares for offer and
sale under the securities or Blue Sky laws of the several states (including,
without limitation, the fees and disbursements of the Purchasers' counsel
16
<PAGE>
relating to such registration or qualification), (D) furnishing such copies of
the Disclosure Documents and all amendments and supplements thereto, as may
reasonably be requested for use in connection, with resales of the Debentures
and, upon conversion thereof, the Underlying Shares, and (E) the preparation of
certificates for the Debentures and, upon conversion thereof, the Underlying
Shares (including, without limitation, printing and engraving thereof), (ii) all
fees and expenses of the counsel and accountants of the Company and (iii) all
expenses and listing fees in connection with the application for quotation of
the Underlying Shares in the NASD over-the-counter market.
SECTION 7.2. ENTIRE AGREEMENT; AMENDMENTS. This Agreement together with the
Exhibits, Annexes and Schedules hereto, contain the entire understanding of the
parties with respect to the subject matter hereof and supersede all prior
agreements and understandings, oral or written, with respect to such matters.
SECTION 7.3. NOTICES. Any notice or other communication required or
permitted to be given hereunder shall be in writing and shall be deemed to have
been received (a) upon hand delivery (receipt acknowledged) or delivery by telex
(with correct answer back received), telecopy or facsimile (with transmission
confirmation report) at the address or number designated below (if delivered on
a business day during normal business hours where such notice is to be
received), or the first business day following such delivery (if delivered other
than on a business day during normal business hours where such notice is to be
received) or (b) on the second business day following the date of mailing by
express courier service, fully prepaid, addressed to such address, or upon
actual receipt of such mailing, whichever shall first occur. The addresses for
such communications shall be:
If to the Company: With copies to:
Empyrean Diagnostics, Ltd. Pollet Law
2238 West Lone Cactus Drive, Suite 200 10900 Wilshire Boulevard, Suite 500
Phoenix, AZ 85027 Los Angeles, CA 90024
Attention: Mr. Stephen Hayter Attention: Andrew F. Pollet
Tel: 602-879-6935 Tel: 310 208-1182
Fax: 602-879-6940 Fax: 310 208-1154
If to the Purchaser:
Per Schedule of Purchasers and Allocations,
Appendix A
or such other address as may be designated in writing hereafter, in the same
manner, by such person.
SECTION 7.4. AMENDMENTS; WAIVERS. No provision of this Agreement may be
waived or amended except in a written instrument signed, in the case of an
amendment, by both the Company and the Purchaser, or, in the case of a waiver,
17
<PAGE>
by the party against whom enforcement of any such waiver is sought. No waiver of
any default with respect to any provision, condition or requirement of this
Agreement shall be deemed to be a continuing waiver in the future or a waiver of
any other provision, condition or requirement hereof, nor shall any delay or
omission of either party to exercise any right hereunder in any manner impair
the exercise of any such right accruing to it thereafter.
SECTION 7.5. HEADINGS. The headings herein are for convenience only, do not
constitute a part of this Agreement and shall not be deemed to limit or affect
any of the provisions hereof.
SECTION 7.6. SUCCESSORS AND ASSIGNS. This Agreement shall he binding upon
and inure to the benefit of the parties and their successors and permitted
assigns. Neither the Company nor the Purchaser may assign this Agreement or any
rights or obligations hereunder without the prior written consent of the other.
The assignment by a party of this Agreement or any rights hereunder shall not
affect the obligations of such party under this Agreement.
SECTION 7.7. NO THIRD PARTY BENEFICIARIES. This Agreement is intended for
the benefit of the parties hereto and their respective permitted successors and
assigns and is not for the benefit of, nor may any provision hereof be enforced
by, any other person.
SECTION 7.8. GOVERNING LAW. This Agreement shall be governed by and
construed and enforced in accordance with the internal laws of the State of New
York without regard to the principles of conflicts of law thereof.
SECTION 7.9. SURVIVAL. The representations and warranties of the Company
and the Purchaser contained in ARTICLE III and the agreements and covenants of
the parties contained in ARTICLE IV and this ARTICLE VII shall survive the
Closing (or any earlier termination of this Agreement) and any conversion of
Debentures hereunder.
SECTION 7.10. COUNTERPART SIGNATURES. This Agreement may be executed in two
or more counterparts, all of which when taken together shall be considered one
and the same agreement and shall become effective when counterparts have been
signed by each party and delivered to the other party, it being understood that
both parties need not sign the same counterpart. In the event that any signature
is delivered by facsimile transmission, such signature shall create a valid and
binding obligation of the party executing (or on whose behalf such signature is
executed) the same with the same force and effect as if such facsimile signature
page were an original thereof.
SECTION 7.11. PUBLICITY. The Company and the Purchaser shall consult with
each other in issuing any press releases or otherwise making public statements
with respect to the transactions contemplated hereby and neither party shall
issue any such press release or otherwise make any such public statement without
the prior written consent of the other, which consent shall not be unreasonably
withheld or delayed.
18
<PAGE>
SECTION 7.12. SEVERABILITY. In case any one or more of the provisions of
this Agreement shall be invalid or unenforceable in any respect, the validity
and enforceability of the remaining terms and provisions of this Agreement shall
not in any way be affecting or impaired thereby and the parties will attempt to
agree upon a valid and enforceable provision which shall be a reasonable
substitute therefor, and upon so agreeing, shall incorporate such substitute
provision in this Agreement.
SECTION 7.13. REMEDIES. In addition to being entitled to exercise all
rights provided herein or granted by law, including recovery of damages, the
Purchaser will be entitled to specific performance of the obligations of the
Company under this Agreement and the Company will be entitled to specific
performance of the obligations of the Purchaser hereunder with respect to the
subsequent transfer of Debentures or Warrants and the Underlying Shares. Each of
the Company and the Purchaser agrees that monetary damages would not be adequate
compensation for any loss incurred by reason of any breach of its obligations
described in the foregoing sentence and hereby agrees to waive in any action for
specific performance of any such obligation the defense that a remedy at law
would be adequate.
IN WITNESS WHEREOF, time parties hereto have caused this Agreement to be
duly executed as of the date first indicated above.
[SIGNATURE PAGE FOLLOWS]
19
<PAGE>
Empyrean Diagnostics, Ltd. Global Strategic Holdings, Ltd.
By: /s/ Stephen Hayter By: /s/ Rosemary E. Marr
------------------------------- -------------------------------
Stephen Hayter, President & CEO
Name: Rosemary E. Marr
-----------------------------
Title: Director
----------------------------
Successway Holdings Limited Lampton, Inc.
By: /s/ Angela Ho By: /s/ Sheldon Steinberg
------------------------------- -------------------------------
Name: Angela Ho Name: Sheldon Steinberg
----------------------------- -----------------------------
Title: Title: Director
---------------------------- ----------------------------
Turbo International, Ltd.
By: /s/ Martin Christen
-------------------------------
Name: Martin Christen
-----------------------------
Title: President
----------------------------
20
<PAGE>
VOID AFTER 5:00 P.M., NEW YORK TIME ON JULY 9, 2001
WARRANT TO PURCHASE 662,910 SHARES OF COMMON STOCK
-----------------------------------
WARRANT TO PURCHASE COMMON STOCK
OF
EMPYREAN DIAGNOSTICS, LTD.
-----------------------------------
THIS WARRANT AND THE SHARES OF COMMON STOCK
ISSUABLE PURSUANT TO THIS WARRANT HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED (THE "ACT"), AND MAY NOT BE SOLD,
PLEDGED OR OTHERWISE TRANSFERRED UNLESS
REGISTERED UNDER THE ACT OR AN EXEMPTION FROM
SUCH REGISTRATION IS AVAILABLE.
FOR VALUE RECEIVED, Empyrean Diagnostics Ltd., a Wyoming corporation (the
"Company"), grants the following rights to Global Strategic Holdings, Ltd.
("Holder"):
ARTICLE 1.
DEFINITIONS.
As used herein, the following terms shall have the following meanings,
unless the context shall otherwise require:
(a) "Common Stock" shall mean the common stock, without par value, of
the Company.
(b) "Corporate Office" shall mean the office of the Company (or its
successor) at which at any particular time its principal business shall be
administered.
(c) "Exercise Date" shall mean any date upon which the Holder shall
give the Company a Notice of Exercise.
(d) "Exercise Price" shall mean the price to be paid to the Company
for each share of Common Stock to be purchased upon exercise of this Warrant in
accordance with the terms hereof which shall be:
<PAGE>
$0.75425 per share from January 9, 1999 to July 9, 1999
$0.90510 per share from July 10, 1999 to July 9, 2000
$1.05595 per share from July 10, 2000 to July 9, 2001
(e) "Expiration Date" shall mean 5:00 p.m. (New York time) on July 9,
2001.
(f) "Purchase Agreement" shall mean that certain Convertible Debenture
and Warrant Purchase Agreement dated July 9, 1998, pursuant to which this
Warrant has been issued.
(g) "SEC" shall mean the United States Securities and Exchange
Commission.
(h) "Transfer Agent" shall mean the Company's transfer agent or its
authorized successor.
(i) "Underlying Shares" shall mean the shares of the Common Stock
issuable upon exercise of the Warrant.
ARTICLE 2.
EXERCISE AND AGREEMENTS.
2.1 EXERCISE OF WARRANT. This Warrant shall entitle Holder to purchase up
to 662,910 shares of Common Stock (the "Shares") at the Exercise Price. This
Warrant shall be exercisable at any time and from time to time on or after
January 9, 1999 and prior to the Expiration Date (the "Exercise Period"). This
Warrant and the right to purchase Shares hereunder shall expire and become void
at the Expiration Date.
2.2 MANNER OF EXERCISE.
(a) Holder may exercise this Warrant at any time and from time to time
during the Exercise Period, in whole or in part (but not in denominations of
fewer than 10,000 Shares, except upon an exercise of this Warrant with respect
to the remaining balance of Shares purchasable hereunder at the time of
exercise), by delivering to the Escrow Agent and the Company (as defined in an
escrow agreement dated of the same date between the Company and the Holder) (i)
a duly executed Notice of Exercise in substantially the form attached as
Appendix 1 hereto and (ii) a bank cashiers, certified check, or wire transfer
for the aggregate Exercise Price of the Shares being purchased.
(b) From time to time upon exercise of this Warrant, in whole or part,
in accordance with its terms, the Escrow Agent will deliver stock certificates
to the Holder representing the number of Shares being purchased pursuant to such
exercise, subject to adjustment as described herein.
2
<PAGE>
(c) Promptly following any exercise of this Warrant, if the Warrant
has not been fully exercised and has not expired, the Company will deliver to
the Holder a new Warrant for the balance of the Shares covered hereby.
2.3 TERMINATION. All rights of the Holder in this Warrant, to the extent
they have not been exercised, shall terminate on the Expiration Date.
2.4 NO RIGHTS PRIOR TO EXERCISE. Prior to its exercise pursuant to Section
2.2 above, this Warrant shall not entitle the Holder to any voting or other
rights as Holder of Shares.
2.5 ADJUSTMENTS. In case of any reclassification, capital reorganization,
stock dividend or other change of outstanding shares of Common Stock, or in case
of any consolidation or merger of the Company with or into another corporation
(other than a consolidation or merger in which the Company is the continuing
corporation and which does not result in any reclassification, capital
reorganization, stock dividend or other change of outstanding shares or Common
Stock), or in case of any sale or conveyance to another corporation of the
property of the Company as, or substantially as, an entirety (other than a
sale/leaseback, mortgage or other financing transaction), the Company shall
cause effective provision to be made so that the Holder shall have the right
thereafter, by exercising this Warrant, to purchase the kind and number of
shares of stock or other securities or property (including cash) receivable upon
such reclassification, capital reorganization, stock dividend or other change,
consolidation, merger, sale or conveyance as the Holder would have been entitled
to receive had the Holder exercised this Warrant in full immediately before such
reclassification, capital reorganization, stock dividend or other change,
consolidation, merger, sale or conveyance. Any such provision shall include
provision for adjustments that shall be as nearly equivalent as may be
practicable to the adjustments provided for in this Section 2.5. The foregoing
provisions shall similarly apply to successive reclassifications, capital
reorganizations, stock dividends and other changes of outstanding shares of
Common Stock and to successive consolidations, mergers, sales or conveyances.
2.6 FRACTIONAL SHARES. No fractional Shares shall be issuable upon exercise
or conversion of this Warrant and the number of Shares to be issued shall be
rounded down to the nearest whole Share. If a fractional Share interest arises
upon any exercise or conversion of the Warrant, the Company shall eliminate such
fractional Share interest by paying Holder the amount computed by multiplying
the fractional interest by the closing bid price of a full Share on the date of
the Notice of Exercise.
2.7 ESCROW. The Company agrees to enter into the escrow agreement attached
to the Purchase Agreement hereto as Exhibit E (the "Escrow Agreement"), and to
issue into said escrow certificates to be held by the Escrow Agent (as defined
in the Escrow Agreement), registered in the name of the Holder and without any
restrictive legend of any kind, representing a number of shares of Common Stock
(in 10,000 share certificates) equal to the number of shares of this Warrant
("Escrow Shares").
3
<PAGE>
ARTICLE 3.
REPRESENTATIONS AND COVENANTS OF THE COMPANY.
3.1 Representations and Warranties. The Company hereby represents and
warrants to the Holder as follows:
(a) All Shares which may be issued upon the exercise of the purchase
right represented by this Warrant shall, upon issuance, be duly authorized,
validly issued, fully-paid and nonassessable, and free of any liens and
encumbrances except for restrictions on transfer provided for herein or under
applicable federal and state securities laws, and not subject to any pre-emptive
rights.
(b) The Company is a corporation duly organized and validly existing
under the laws of the State of Wyoming, and has the full power and authority to
issue this Warrant and to comply with the terms hereof. The execution, delivery
and performance by the Company of its obligations under this Warrant, including,
without limitation, the issuance of the Shares upon any exercise of the Warrant
have been duly authorized by all necessary corporate action. This Warrant has
been duly executed and delivered by the Company and is a valid and binding
obligation of the Company, enforceable in accordance with its terms, except as
enforcement may be limited by applicable bankruptcy, insolvency, reorganization
or similar laws affecting enforceability of creditors' rights generally and
except as the availability of the remedy of specific enforcement, injunctive
relief or other equitable relief is subject to the discretion of the court
before which any proceeding therefor may be brought.
(c) The Company is not subject to or bound by any provision of any
certificate or articles of incorporation or by-laws, mortgage, deed of trust,
lease, note, bond, indenture, other instrument or agreement, license, permit,
trust, custodianship, other restriction or any applicable provision of any law,
statute, rule, regulation, judgment, order, writ, injunction or decree of any
court, governmental body, administrative agency or arbitrator which could
prevent or be violated by or under which there would be a default (or right of
termination) as a result of the execution, delivery and performance by the
Company of this Warrant.
(d) The Company is not subject to the reporting requirements of
Section 13 or Section 15d of the Exchange Act. The Company has not sold more
than $750,000 of securities in the last twelve months. The Company is eligible
to issue securities exempt from registration pursuant to Rule 504 of Regulation
D promulgated under the Securities Act.
4
<PAGE>
ARTICLE 4.
SECURITIES LAW COMPLIANCE.
The Shares will be acquired for Purchaser's own account for investment and
not with a view to, or for resale in connection with, any distribution of the
Shares within the meaning of the Securities Act of 1933. Purchaser acknowledges
that it is aware that the issuance of the Shares upon exercise of this Warrant
has not been registered pursuant to the Securities Act of 1933 (the "Act"), nor
is it intended that they be registered, and the Purchaser has no right to
require that they be registered, under the Act or under any state securities
laws. The Purchaser agrees that the Shares may not be sold in the absence of
registration unless such sale is exempt from registration under the Act and any
applicable state securities laws. The Purchaser also acknowledges that he shall
be responsible for compliance with all conditions on transfer imposed by any
Commissioner of Securities of any state and for any expenses incurred by the
Company for legal or accounting services in connection with reviewing such
proposed transfer or issuing opinions in connection therewith. The certificate
for the Shares shall bear the following restrictive legend:
THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, OF THE UNITED STATES OF AMERICA
(THE "ACT") OR THE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES
("STATE ACT"). THESE SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT AND MAY
NOT BE OFFERED, SOLD, PLEDGED, HYPOTHECATED, OR OTHERWISE TRANSFERRED FOR
VALUE, DIRECTLY OR INDIRECTLY, IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT FOR THE SECURITIES UNDER THE ACT AND COMPLIANCE WITH APPLICABLE
STATE ACTS, OR PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE ACT AND
UNDER APPLICABLE STATE ACTS, THE AVAILABILITY OF WHICH IS ESTABLISHED TO
THE SATISFACTION OF THE COMPANY.
If (but without any obligation to do so under this Agreement) the Company
proposes to register (including for this purpose a registration effected by the
Company for shareholders other than the Holders) any of its stock or other
securities under the Securities Act in connection with the public offering of
such securities solely for cash (other than a registration relating solely to
the sale of securities to participants in a Company stock plan, or a
registration on any form which does not include substantially the same
information as would be required to be included in a registration statement
covering the issuance of the Underlying Shares, or a registration of an offering
of securities, the underwriter of which objects to registration of additional
securities), the Company shall, at such time, promptly give each Holder written
notice of such registration. Upon the written request of each Holder given
within twenty days after mailing of such notice by the Company, the Company
shall cause to be registered under such registration statement such Underlying
Shares as each such Holder has requested to be registered.
5
<PAGE>
ARTICLE 5.
MISCELLANEOUS.
5.1 TRANSFER. This Warrant may not be transferred or assigned, in whole or
in part, at any time, except in compliance with applicable federal and state
securities laws by the transferor and the transferee (including, without
limitation, the delivery of an investment representation letter and a legal
opinion reasonably satisfactory to the Company), provided that this Warrant may
nat be transferred or assigned such that either the Holder or any transferee
will, following such transfer or assignment, hold a Warrant for the right to
purchase fewer than 5,000 Shares.
5.2 TRANSFER PROCEDURE. Subject to the provisions of Section 5.1, Holder
may transfer or assign this Warrant by giving the Company notice setting forth
the name, address and taxpayer identification number of the transferee or
assignee, if applicable (the "Transferee") and surrendering this Warrant to the
Company for reissuance to the Transferee (and the Holder, in the event of a
transfer or assignment of this Warrant in part). (Each of the persons or
entities in whose name any such new Warrant shall be issued are herein referred
to as a Holder").
5.3 LOSS, THEFT, DESTRUCTION OR MUTILATION. If this Warrant shall became
mutilated or defaced or be destroyed, lost or stolen, the Company shall execute
and deliver a new Warrant in exchange for and upon surrender and cancellation of
such mutilated or defaced Warrant or, in lieu of and in substitution for such
Warrant so destroyed, last or stolen, upon the Holder filing with the Company
evidence satisfactory to it that such Warrant has been so mutilated, defaced,
destroyed, last or stolen. However, the Company shall be entitled, as a
condition to the execution and delivery of such new Warrant, to demand indemnity
satisfactory to it and payment of the expenses and charges incurred in
connection with the delivery of such new Warrant. Any Warrant so surrendered to
the Company shall be canceled.
5.4 NOTICES. All notices and other communications from the Company to the
Holder or vice versa shall be deemed delivered and effective when given
personally, by facsimile transmission and confirmed in writing or mailed by
first-class registered or certified mail, postage prepaid at such address and/or
facsimile number as may have been furnished to the Company or the Holder, as the
case may be, in writing by the Company or the Holder from time to time.
5.5 WAIVER. This Warrant and any term hereof may be changed, waived, or
terminated only by an instrument in writing signed by the party against which
enforcement of such change, waiver, discharge or termination is sought.
6
<PAGE>
5.6 GOVERNING LAW. This Warrant shall be governed by and construed in
accordance with the laws of the State of New York, without giving effect to its
principles regarding conflicts of law.
Dated: 7/15/98 Empyrean Diagnostics, Ltd.
-----------------------------
Attest: [illegible] By: /s/ Stephen Hayter
---------------------------- -------------------------------
Stephen Hayter, President & CEO
7
COMMON STOCK
NUMBER SHARES
EMPYREAN BIOSCIENCE, INC.
INCORPORATED UNDER THE LAWS OF THE STATE OF WYOMING
CUSIP 29245E 10 3
This Certifies that __________________________________ is the registered
holder of ______________________________________________________________ Shares
FULLY PAID AND NON-ASSESSABLE SHARES OF THE COMMON STOCK, NO PAR VALUE, OF
EMPYREAN BIOSCIENCE, INC.
transferable only on the books of the Corporation by the holder hereof in person
or by Attorney upon surrender of this Certificate properly endorsed.
IN WITNESS WHEREOF, the said Corporation has caused this Certificate to be
signed by its duly authorized officers and its Corporate Seal to be hereunto
affixed this ______ day of ___________________ A.D. _________ .
/s/ Raymond Dean /s/ Stephen Hayter
- ----------------------- -------------------------
Raymond Dean Stephen Hayter
Secretary President
JERSEY TRANSFER AND TRUST CO.
201 BLOOMFIELD AVE. BOX #36
VERONA, NEW JERSEY 07044
- -------------------------------------
AUTHORIZED SIGNATURE
TRANSFER AGENT
<PAGE>
FOR VALUE RECEIVED, _____________________________ hereby sell, assign and
transfer unto __________________________________________________________________
________________________________________________________________________ Shares
represented by the within Certificate and do hereby irrevocably constitute and
appoint _______________________________________________ Attorney to transfer the
said Shares on the books of the within named Corporation with full power of
substitution in the premises.
Dated ___________________________
In presence of
_____________________________________________
NOTICE: THE SIGNATURE OF THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME AS
WRITTEN UPON THE FACE OF THE CERTIFICATE, IN EVERY PARTICULAR, WITHOUT
ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATEVER.
LICENSE AGREEMENT
THIS LICENSE AGREEMENT ("Agreement") is made this 21st day of February,
1998, by and between Geda International Marketing Co., Ltd., c/o Pindling & Co.,
Wave Crest House, West Bay Street, Nassau, Bahamas (the "Licensor") and Empyrean
Diagnostics, Inc., 348 Middlefield Road, Mountain View, California 94043 (the
"Licensee") based upon the following:
RECITALS
A. Licensor represents that it is the sole owner of the entire right,
title and interest in and to the formulation of the Licensed Products (as
defined below) and certain regulatory information pertinent to the Licensed
Products.
B. Licensee desires to acquire a license from Licensor to manufacture
and sell the Licensed Products in accordance with the terms and conditions of
this Agreement.
C. Licensor represents that it has the sole right to grant licenses for
the manufacture and sale of the Licensed Products.
D. Licensor and Licensee entered into that certain Requirements
Agreement dated April 29, 1997 to allow Licensee to exclusively market the
Licensed Products. The Requirements Agreement was amended and restated in full
pursuant to that certain Amended and Restated Requirements Agreement dated
August 2, 1997. By entering into this Agreement, Licensor and Licensee agree
that the Requirements Agreement and the Amended and Restated Requirements
Agreement shall be terminated and replaced in full by this Agreement.
NOW, THEREFORE, in consideration of the following terms and conditions,
Licensor and Licensee hereby agree as follows:
SECTION 1 GRANT OF LICENSE.
Licensor hereby grants the following to Licensee, subject to the terms and
conditions hereof: (i) an exclusive license to manufacture the products set
forth on Exhibit "A" to this Agreement and made a part of it (hereinafter the
"Licensed Products"); (ii) the right to use the name "Geda" in advertising the
Licensed Products; (iii) the exclusive right to distribute and sell the Licensed
Products in the "Territory", which shall be defined as the world, with the
exception of the territories of Hong Kong and Taiwan and the countries of
Canada, Africa, Mexico, the Dominican Republic and, as to the sale of the Geda
Lotion, the United States; and (iv) the right to sub-license the rights granted
pursuant to this Agreement.
SECTION 2 REPRESENTATIONS OF LICENSOR AND LICENSEE.
2.1 Licensor represents to Licensee and warrants that:
(a) Licensor is authorized to license to Licensee the rights to
manufacture and sell the Licensed Products.
<PAGE>
(b) Licensor has the authority to enter into this Agreement upon the
terms and conditions, including duration of term and establishment of royalty
contained herein.
(c) Licensor has not granted any right with respect to the manufacture
and sale of the Licensed Products which are inconsistent with the rights granted
to Licensee hereunder.
(d) To the best of our knowledge and belief the use of the name "Geda"
will not infringe upon or violate any tradename, trademark, copyright, or common
law right of any other person in countries where the "Geda" name is to be
registered. To date the name is registered in the USA, Canada, Hong Kong,
Taiwan, and possibly Mexico. It cannot be used in South Africa. An examination
of the Internet will disclose other entities that use the name Geda. No warranty
is made as to which entity may or may not have a prior right to the name.
2.2 Licensee represents to Licensor and warrants that Licensee has the
authority to enter into this Agreement upon the terms and conditions contained
herein.
SECTION 3 TERM.
3.1 The term of this Agreement shall begin on April 29, 1997 and shall
continue for a period of ten (10) years (the "Initial Term").
3.2 If, during the Initial Term and subsequent 10 year terms, the Licensee
meets or exceeds the payment of the Guaranteed Minimum Royalties as defined in
Section 5 below, then the Licensee shall have the option to renew this Agreement
for an additional period of ten (10) years. The Licensee shall exercise this
option in writing within sixty (60) days from the expiration of the Initial and
Subsequent Terms.
SECTION 4 ROYALTIES AND PAYMENTS.
4.1 For the term of this Agreement, and for as long thereafter as the
Licensee shall manufacture, distribute or sell any Licensed Products, Licensee
shall pay to Licensor: (i) a royalty which shall be computed as the greater of
an amount equal to two percent (2%) of the Net Sales (as defined in section 4.2
below) of the Licensed Products or U.S.$1.35 per liter of the Licensed Products
manufactured; (ii) License Fees as defined in section 4.3 below; and (iii) Joint
Venture Royalties as defined in section 4.4 below. License Fees and Joint
Venture Royalties shall be paid to Licensor by Licensee within thirty (30) days
after the last day of each calendar quarter. Royalties of $1.35 per liter shall
be calculated monthly by the Licensor, billed to licensee, and paid within 30
days.
4.2 "Net Sales" shall be defined as the total of gross sales of the
Licensed Products at the invoice selling price, net of normal and reasonable
cash, trade and quantity discounts and returns for credit, and without
deductions for costs incurred in manufacturing, selling, distributing or
advertising or for uncollectible accounts.
<PAGE>
(a) In the event the Royalty due under Net Sales is less than the
royalty due at $1.35 per liter, than no payment will be made by
Licensee to Licensor.
(b) In the event the Royalty due under Net Sales is greater than the
Royalty due at $1.35 per liter, then the royalty already billed
to Licensor to Licensee and already paid will be subtracted from
the amount due per Net Sales calculation and the difference will
be paid to Licensor.
4.3 License Fees shall be defined as those payments other than royalties
which are made to Licensee by a third party for the grant of a sub-license.
License Fees collected by Licensee shall be divided, 75% to Licensee and 25% to
Licensor, until Licensee is paid from said License Fees a total of U.S.$200,000.
Thereafter, except as otherwise provided in this Section, all License Fees shall
be divided equally between Licensor and Licensee.
4.4 If Licensee forms a joint venture relationship with a third party for
the sale and distribution of the Licensed Products, Licensee will require the
joint venture to pay to Licensor royalties of (a) U.S.$1.35 per liter for each
liter of the Licensed Products manufactured for the joint venture, plus (b) 50%
of any License Fees collected by the joint venture, sales as defined under 4.1
and 4.2, above, collectively, plus (c) 2% of net, these payments shall be
referred to in this Agreement, as the "Joint Venture Royalties".
4.5 Licensor and Licensee agree that it will take approximately 12 months
to obtain approvals to sell the Licensed Products in the Territory. Therefore,
Licensee shall not be required to pay royalties, License Fees or Joint Venture
Royalties during the period beginning on April 29, 1997 and ending on April 29,
1998, unless Licensed Products are manufactured and sold prior to April 29,
1998. Royalties, License Fees, and Joint Venture Royalties, if received by
Licensee prior to April 29, 1998, will be divided between Licensor and Licensee
as they agree.
4.6 Within twenty (20) days after the end of each calendar quarter,
irrespective of whether any Net Sales have been made or whether any sum is then
due to Licensor, Licensee shall deliver to Licensor a complete and accurate
written statement setting forth the amount of Licensed Products sold, the gross
price at which such Licensed Products were sold, the amount of any discount or
allowances given consistent with the terms of this Agreement, the credit for
Licensed Products allowed to be returned and other deductions allowed herein to
compute Net Sales in specific detail, so as to allow an audit of underlying
documents, together with Licensee's calculation of the amount of royalties then
due Licensor for the period covered by such report.
4.7 Licensee shall keep or cause to be kept accurate, complete and
up-to-date books of accounts separately stating by clear means records of all
sales of the Licensed Products including records pertaining to invoiced amounts
by customer and records pertaining to all freight charges, discounts,
allowances, and returns allowed by Licensee. Such books and records of account
shall reflect that a sale of the Licensed Products shall be deemed to have
occurred as of the date such Licensed Products were invoiced to Licensee's
customers.
<PAGE>
4.8 Licensor or its authorized representatives shall have the right, once
each calendar year, to inspect all such records of Licensee with respect to the
Licensed Products and to make copies of said records utilizing Licensee's
facilities without charge and shall have free and full access thereto on
reasonable notice during the normal business hours of Licensee. In the event
that such inspection or audit reveals an underpayment by Licensee of any amounts
due Licensor under this Agreement, Licensee shall immediately pay to Licensor
the balance of all such amounts found to be due pursuant to such audit or
inspection together with interest thereon at the "best commercial customer" rate
of Bank of America, plus two percent (2%) per annum from the date such amounts
first became due to Licensor until all such amounts have been paid in full.
Further, if such inspection or audit discloses that, for the annual period
reviewed or audited, Licensee has underpaid or understated its obligation under
this Agreement by ten percent (10%) or more, then Licensee shall also pay the
reasonable professional fees of the independent representatives engaged to
conduct or review such inspection or audit.
SECTION 5 GUARANTEED MINIMUM ROYALTIES.
Beginning with the second year of the Initial Term, and for each year
thereafter, Licensee shall pay to Licensor no less than the Guaranteed Minimum
Royalties set forth in the following schedule. Guaranteed Minimum Royalties
shall be comprised of all License Fees, royalties and Joint Venture Royalties
collected by Licensee and paid to Licensor.
1998 $ 245,000.00
1999 $ 490,000.00
2000 $ 735,000.00
2001 $ 915,000.00
2002 $1,215,000.00
2003 $1,458,000.00
2004 $1,758,000.00
2005 $2,108,000.00
2006 $2,508,000.00
2007 $2,960,000.00
For all years after 2007, the Minimum Guaranteed Royalties to be paid per year
shall be increased by eight (8%) per cent per year for each year the agreement
remains in effect. Minimum Guaranteed Royalties shall be paid to Licensor by
Licensee within thirty (30) days after the last day of each calendar quarter,
beginning no later than the quarter ended December 31, 1998.
<PAGE>
SECTION 6 TRANSFER OF FORMULATION.
Upon execution of this Agreement, Licensor shall immediately transfer the
formulation and manufacturing technology for the Licensed Products to Licensee
and shall use its best efforts, including providing the necessary expertise, to
allow Licensee to formulate and manufacture the Licensed Products in
approximately the same manner as Licensor had formulated and manufactured the
Licensed Products only after a satisfactory manufacturer has been chosen and
approved. Any costs associated with the transfer of the formulation and
manufacturing technology shall be paid by Licensee. The manufacturing of the
Products shall be done by a manufacturer chosen by Licensee which Licensee
believes will provide both quality and competitive pricing. The choice of
manufacturer shall be subject to the written approval of Licensor, which written
approval shall not be unreasonably withheld. However, it is understood that the
chosen manufacturer shall be of a quality, at least equivalent to an approved
FDA facility.
SECTION 7 RIGHT TO ACQUIRE.
7.1 Licensor hereby grants to Licensee a right of first refusal to purchase
or acquire the rights to own the Licensed Products (the "Rights") if Licensor
decides to transfer, sell, or assign the Rights. Licensor shall not transfer,
sell, or assign, or in any other way dispose of the formula for the Licensed
Products or any right or interest in the Licensed Products or the Rights unless
Licensor shall first have given written notice to Licensee of its intention to
do so (hereinafter "Notice") and follows the procedures hereinafter set forth.
7.2 The Notice shall be accompanied by a copy of any proposed purchase,
assignment or transfer document, or if none, a summary of the purchase,
assignment or transfer proposal (hereinafter the "Acquisition Documents") which
documents must name the proposed transferee and specify the price and the terms
of payment.
7.3 Licensee shall have the right to acquire the Rights at the lesser of
the price stated in the Acquisition Documents. If Licensee does not elect to
acquire the Rights during the 30 day period following Licensee's receipt of the
Notice and Acquisition Documents (as that period may be extended), then,
Licensor may transfer the Rights to the proposed transferee at the price and on
the terms set forth in the Acquisition Documents.
7.5 Licensor agrees that, if any distributor or licensee currently holding
rights to sell or distribute the Licensed Products in the territories of Hong
Kong and Taiwan and the countries of Canada, Mexico, the Dominican Republic, and
Africa and, as to the Geda Lotion only, the United States, substantially
breaches its or his licensing or distribution agreement with Licensor and
Licensor terminates said agreement, the rights to sell or distribute the
Licensed Products in that territory or country shall be transferred to Licensee
under the same terms and conditions as Sections 1 through 4 herein.
<PAGE>
SECTION 8 MODIFICATION OF FORMULATION.
Both Licensee and Licensor agree that it shall not alter, modify or change
the formulation of the Licensed Products without first obtaining the written
approval of the other party in writing.
SECTION 9 CONFIDENTIAL INFORMATION.
9.1 Licensee and Licensor each acknowledge that during the terms of this
Agreement, such party will learn information that the other party considers
confidential and secret, including, but not limited to, inventions, research and
development technology, formulations, methods and procedures, price lists,
marketing plans, discount sheets, trade secrets, technical information, physical
specimens, models and technical specimens and specifications related to the
Licensed Products (collectively, the "Confidential Information"). Each party
shall keep the other party's Confidential Information secret and confidential
and agrees not to disclose, furnish, communicate or make such Confidential
Information accessible to any third party unless such information is generally
known or has been published or released for circulation to the public or unless
Licensee is required to disclose such confidential information under law,
subpoena or regulatory process, in which case such disclosures shall not breach
this Agreement. Both Licensor and Licensee shall require its agents and
employees to agree to be bound by the terms of this Section 9. Each party shall
refrain from all actions and omissions that would reduce the value of the other
party's Confidential Information.
9.2 The definition of Confidential Information shall exclude information
that: (i) is in the public domain at the time of disclosure to the other party
or, without a breach of this section 9 by such party, later becomes part of the
public domain; (ii) the receiving party can verify by written records kept in
the ordinary course of business was in its lawful possession prior to its
disclosure by the other party; or (iii) is received by one party from a third
party without a breach of confidentiality owed by the third party to the other
party to this Agreement
9.3 The obligation of the parties to keep the other party's Confidential
Information confidential shall survive the termination or expiration of this
Agreement. Each of the parties shall immediately return all copies of any
written Confidential Information received by it upon expiration or termination
of this Agreement.
9.4 Each party acknowledges that its failure to maintain the other party's
Confidential Information confidential may result in immediate and irreparable
damage to the other party. Therefore, each party shall be entitled to such
equitable relief, in addition to any damages, as any court of competent
jurisdiction may deem proper to enforce the provision of this section 9.
SECTION 10 INDEMNIFICATION
10.1 Licensee hereby agrees to defend and indemnify and hold Licensor and
its officers, directors, employees and agents (collectively, the "Licensor
Indemnified Parties") harmless against any charges, damages, costs and expenses
(including reasonable attorney's fees and court costs), liability or loss
(including loss of profits), judgments, penalties, liabilities or losses of any
kind which may be sustained or suffered by any Licensor Indemnified Party by
reason of the breach of any of the covenants, representations, warranties, term
or agreement contained herein. In any action or proceeding relating to the
foregoing indemnity and brought against any Licensor Indemnified Party, the
Licensor Indemnified Party shall have the right, at Licensor's cost and expense,
to (i) participate in the defense of such action or proceeding with attorneys of
its own choosing or (ii) defend itself in any action or proceeding with
attorneys of its own choosing.
<PAGE>
SECTION 11 MISCELLANEOUS.
11.1 This Agreement shall be deemed to be made in, and in all respects
shall be interpreted, construed and governed by and in accordance with the laws
of the Bahamas.
11.2 Any action or proceeding arising out of or relating to this Agreement
shall be determined by binding arbitration or trial in such jurisdiction and by
such means (arbitration or trial) as shall be determined by the defendant. Each
party shall generally and unconditionally accept jurisdiction and venue as set
forth herein, consents to the service of process in any such action or
proceeding by certified or registered mailing of the summons and complaint in
accordance with the notice provisions of this Agreement, and waives any defense
or right to object to venue based upon the doctrine of "Forum Non Conveniens".
Each party irrevocably agrees to be bound by any judgement rendered thereby in
connection with this Agreement.
11.3 All notices, demands, requests, consents, approvals or other
communications ("Notices") given hereunder shall be in writing, and shall be
given by personal delivery or by express mail, Federal Express, DHL or other
similar form of recognized airborne/overnight delivery service (which forms of
Notice shall be deemed to have been given upon delivery), or by telex or
facsimile transmission (which forms of Notice shall be deemed delivered upon
confirmed transmission), or by mailing in the mail by registered or certified
mail, return receipt requested, postage prepaid (which forms of Notice shall be
deemed to have been given upon the fifth (5th) business day following the date
mailed). Notices shall be addressed to the parties at the addresses set forth in
the introductory section of this Agreement or to such other address as to which
any party hereto may have notified the others in writing.
11.4 The section and paragraph headings contained in this Agreement are for
reference purposes only and shall not in any way affect the meaning or
interpretation of this Agreement.
11.5 This document must be executed by original signatures, but may be in
counterparts which shall together constitute the agreement of the Parties as one
and the same instrument.
11.6 The rights under this agreement cannot be transferred to a third party
whether by merger, acquisition or sale, by the Licensee, without the written
approval of the Licensor
11.7 If any provision of this Agreement or the application thereof to any
party or circumstance shall be held invalid or unenforceable to any extent, the
remainder of this Agreement and application of such provision to the other party
or circumstances shall not be affected thereby and shall be enforced to the
greatest extent permitted by applicable law.
<PAGE>
11.8 This Agreement, including the Exhibits hereto, embodies the entire
agreement and understanding among the Parties hereto with respect to the subject
matter hereof, and supersedes all prior agreements and understandings related
thereto, and specifically the Requirements Agreement dated April 29, 1997 and
the Amended and Restated Requirements Agreement dated August 2, 1997. The
Parties hereto recognize and agree that no representations or warranties have
been made except as set forth in this Agreement and the Exhibits hereto. This
Agreement may be modified only by a written instrument signed by each of the
Parties.
IN WITNESS WHEREOF, the Parties hereto have executed or caused this
Requirements Agreement to be executed as of the date first above written.
"LICENSOR"
Geda International Marketing Co., Ltd.
By: /s/ David Thornburgh
-----------------------------------------
David Thornburgh, M.D., President
By: /s/ Ricardo Sabates
-----------------------------------------
Ricardo Sabates, M.D., Vice President
By: /s/ Frank Malagon
-----------------------------------------
Frank Malagon, Ph.D., Chairman
"LICENSEE"
Empyrean Diagnostics Inc.
By: /s/ Stephen Hayter
-----------------------------------------
Stephen Hayter, President
<PAGE>
EXHIBIT "A"
LICENSED PRODUCTS
1. Geda Lotion is a microbicide lotion which has Aloe Vera in it for use with
medical gloves as well as all other pertinent uses of a microbicide for stopping
the transmission of communicable diseases, such as chlamydia, trichomonas,
herpes, and hepatitis B, through touch or bodily contact; its remedial ability
is to alleviate and to suppress various types of fungi, bacterial and virus
transmission to the user when applied correctly to all parts of the human body.
2. Geda+ is a vaginal contraceptive gel that destroys various sexually
transmitted microorganisms such as chlamydia, trichomonas, herpes, and hepatitis
B and effectively kills the HIV virus.
3. Any and all products developed or acquired by Licensor or its subsidiaries or
by any of the principals of Licensor.
<PAGE>
GENERAL RELEASE
The undersigned (hereinafter referred to as "RELEASOR"), for and in
consideration of TEN DOLLARS and other good and valuable consideration received
by Geda International Marketing Co., Ltd. (hereinafter referred to as
"RELEASEES"), the receipt and sufficiency of which consideration is hereby
acknowledged, hereby knowingly and voluntarily from the beginning of time to
this day present, releases and forever discharges RELEASEES, RELEASEES' former,
current and future parents, predecessors, affiliates, subsidiaries, and
RELEASEES' former, current and future directors, officers, agents, persons
acting by, through or in concert with any of them, and all successors and
assignees (collectively, the "RELEASEES"), from any and all liabilities, claims,
actions, losses or any other damages, and/or from any actions for contribution
or indemnity, specifically including claims or actions arising from subrogation
which could be brought by insurer(s) of RELEASOR, which have or may arise out of
the Distribution Agreement dated March 20, 1997 (the "Distribution Agreement").
RELEASOR agrees that this General Release applies to all claims including those
of which he may not be aware and which may not be mentioned in the Distribution
Agreement. It is hereby acknowledged and understood that this is a General
Release and is irrevocable.
RELEASOR hereby acknowledges that the RELEASEES deny liability and that
the consideration acknowledged in this General Release was received in
settlement of doubtful and disputed claims and intended solely by RELEASEES to
foster and maintain their relationship with RELEASOR, and further to avoid
future litigation and buy its peace.
RELEASOR acknowledges that he understands the meaning of this General
Release and he/she freely and voluntarily enters into it with authority to do
so. RELEASOR further agrees that no fact, evidence, event or transaction
occurring before the execution of this General Release, which is currently
unknown but which may hereafter become known, shall affect in any manner the
final and unconditional nature of the releases set forth above.
This General Release constitutes the complete understanding and
agreement of the parties, except that, on a going-forward basis, the parties
specifically agree that the Distribution Agreement shall remain in full force
and effect as modified by the Sub-License Agreement between Prevent-X, Inc. and
Empyrean Diagnostics, Inc. and consented to by GIMCO.
IN WITNESS WHEREOF, the undersigned has hereunto set his/her hand to
this General Release this 20 day of July, 1998.
/s/ S. D. Hayter /s/ Joel Meyerson
- ---------------------------- -------------------------------------
Witness (RELEASOR)
Print name and address:
-------------------------------------
-------------------------------------
-------------------------------------
-------------------------------------
<PAGE>
[EMPYREAN LETTERHEAD]
June 15, 1998
Geda International Marketing Co., Ltd.
c/o Pindling & Co.
Wave Crest House
West Bay Street
Nassau, Bahamas
Gentlemen:
This letter will confirm that Empyrean agrees to provide to GIMCO 100,000
Empyrean shares in consideration for the rights to the Geda products in all
areas of the world with the exception of Africa, Taiwan and Hong Kong.
Empyrean is aware that Geda Canada has the non-exclusive right to both products
in Canada only and that Prevent-X has the exclusive rights to the Geda Lotion in
the United States. Empyrean is free to negotiate those rights from Geda Canada
and/or Prevent-X.
Sincerely,
/s/ Stephen Hayter
- ----------------------------------
Empyrean Diagnostics, Inc.
Stephen D. Hayter, President & CEO
Geda International Marketing Co., Ltd.
- ----------------------------------
GIMCO
/s/ D. B. Thornburg
- ----------------------------------
David Thornburg, M.D. President, CEO & Director
/s/ Ricardo Sabates
- ----------------------------------
Ricardo Sabates, M.D., Vice President & Director
/s/ Frank Malagon
- ----------------------------------
Frank Malagon, Ph.D., Chairman & Director
SUB-LICENSE AGREEMENT
THIS SUB-LICENSE AGREEMENT ("Agreement") is made this _______ day of
_______, 1998, by and between Prevent-X, Inc. (the "Sub-Licensor") whose address
is 4412 S..W. 74th Avenue, Miami, Florida 33155, Empyrean Diagnostics, Inc. (the
"Sub-Licensee") whose address is 2238 West Lone Cactus Drive, Suite 200,
Phoenix, Arizona 85027, as to sub-paragraphs 4.4 and 6.9 only, Empyrean
Diagnostics, LTD, (hereinafter "EDL") whose address is 2238 West Lone Cactus
Drive, Phoenix, Arizona, 85027 and as to sub-paragraph 6.10 only, GEDA
International Marketing Co. LTD., based upon the following:
RECITALS
WHEREAS, Sub-Licensor is the exclusive distributor of GEDA LOTION
("Lotion") in the United States of America, as well as all United States
Territories and Possessions, all as more specifically set forth and defined in
the Distribution Agreement between GEDA INTERNATIONAL MARKETING CO., LTD.
("GIMCO") ("The Distribution Agreement")( a copy of which is attached hereto and
incorporated herein as Exhibit "A") and Sub-Licensor dated March 20,1997; and
WHEREAS, Sub-Licensor desires to appoint Sub-Licensee as its exclusive
sub-licensee and assign its rights and delegate its duties under the
Distribution Agreement to Sub-Licensee and Sub-Licensee desires to undertake
said duties and obtain said rights from Sub-Licensor.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
set forth herein, and for other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties agree as follows:
SECTION 1 GRANT OF SUB-LICENSE/TRANSFER OF DISTRIBUTION AGREEMENT RIGHTS.
1.1 Subject to the provisions of this Agreement and the
performance of its covenants and obligations, Sub-Licensor hereby appoints
Sub-Licensee as its exclusive sub-licensee to sell, market and distribute the
Lotion in Sub-Licensor's Territory, as defined under the Distribution Agreement,
under such product name or names as are agreed to by the parties. Licensee
agrees to obtain , prior to the commencement of it sub-licensee business, all
licenses, approvals, inspections, permits or any other certification which may
be required by any competent public authority for the lawful operation of its
business and to keep the same in good standing during the Term of this
Agreement. Sub-Licensee shall also have the right to formulate and manufacture
the Lotion in the Territory in accordance with Sub-Licensee's prior agreements
with GIMCO. Sub-Licensee shall have the right to assign its rights and duties
hereunder subject to the provisions of paragraph 6.8 hereunder.
<PAGE>
1.2 So long as Sub-Licensee is not in material breach of this
Agreement on the expiration date of the Term as defined in Section 3 below, and
so long as this Agreement has not been otherwise terminated, Sub-Licensor agrees
that on the expiration of the Term, all rights it may have under the
Distribution Agreement with GIMCO shall be transferred from Sub-Licensor to
Sub-Licensee without the necessity of further documentation or consideration,
provided, however, if requested by Sub-Licensee or by GIMCO, Sub-Licensor shall
cooperate with Sub-Licensee and/or GIMCO by taking any action reasonably
required to effect such transfer.
SECTION 2 REPRESENTATIONS OF SUB-LICENSOR AND SUB-LICENSEE.
2.1 Sub-Licensor represents to Sub-Licensee and warrants that:
(a) Sub-Licensor is authorized to sub-license to Sub-Licensee
the rights to sell, market and distribute the Lotion in the Territory.
(b) Sub-Licensor has the authority to enter into this
Agreement upon the terms and conditions, including duration of term and
establishment of royalty contained herein.
(c) Sub-Licensor has not granted any right with respect to the
formulation, manufacture and sale of the Lotion which are inconsistent with the
rights granted to Sub-Licensee hereunder.
2.2 Sub-Licensee represents to Sub-Licensor and warrants that
Sub-Licensee has the authority to enter into this Agreement upon the terms and
conditions contained herein.
SECTION 3 TERM.
3.1 The term of this Agreement shall begin on the date first
set forth above and shall continue for a period of ten (10) years (the "Term").
SECTION 4 ROYALTIES AND PAYMENTS.
4.1 For the term of this Agreement, and for as long thereafter
as the Sub-Licensee shall formulate, manufacture, distribute or sell the Lotion
or any derivative hand or body lotion-type products containing Benzalkonium
Chloride and or Octoxynol-9 (hereinafter cumulatively referred to as the
"Lotion"). Sub-Licensee shall pay to Sub-Licensor a royalty which shall be
computed as five percent (5%) of Net Sales of the Lotion. Royalties shall be
paid to Sub-Licensor by Sub-Licensee within thirty (30) days after the last day
of each calendar quarter.
2
<PAGE>
4.2 "Net Sales" shall be defined as the total gross sales of
the Lotion at the invoice selling price, net of normal and reasonable cash,
trade and quantity discounts and returns for credit, and without deductions for
costs incurred in manufacturing, selling, distributing or advertising or for
uncollectible accounts.
4.3 As further consideration for entering into this Agreement,
Sub-Licensee shall pay to Sub-Licensor the sum of Fifty Thousand Dollars
($50,000) upon execution of this Agreement.
4.4 As further consideration for entering into this Agreement,
upon execution of this Agreement, EDT, which owns 100 percent of Sub-Licensee,
shall issue to Sub-Licensor's shareholders two hundred and twenty-five thousand
(225,000) unregistered shares of EDT Common Stock, no par value. Said 225,000
shares of EDT stock shall be issued in three separate certificates as follows:
123,750 shares to Joel and Tammy Meyerson; 78,750 shares to Howard and Gina
Berlin and 22,500 shares to Susan Fox. All of the shares issued to Sub-Licensee
shareholders pursuant to this paragraph shall be cumulatively referred to as the
"PX Stock" . The PX Stock shall have the following "piggy-back" registration
rights:
(A). Whenever EDT proposes to register any of its Common Stock under
the Securities Act whether for its own account, for a public offering whether as
a primary or secondary offering or pursuant to registration rights granted to
holders of other securities of EDT, EDT shall cause to be included in such
registration the PX Stock, provided however, the holders of PX Stock, as a
condition of such registration, if requested by the underwriter(s), agree to
subject the PX Stock to a lock-up provision for a period not to exceed
twenty-four months from the effective date of the registration statement,
provided that such lock-up is required by other EDT shareholders.
(B). EDT shall have no obligation to require the underwriter(s) in any
underwritten public offering of the Common Stock to sell the PX Stock as part of
such public offering. In the event the underwriter(s) agrees to sell the Common
Stock held by any other shareholder of EDT in the public offering, EDT will
afford the holders of PX Stock the right to participate as a selling stockholder
as part of such offering, subject to any priority selling rights previously
given by EDT to any other stockholders. Subject to such priority selling rights,
if the total number of shares of stock which all selling stockholders of EDT
request be sold as part of such public offering exceeds the number of shares
which the underwriter(s) allows to be sold, then the shares so included shall be
apportioned pro rata among the electing selling shareholders according to the
total number of shares of Common Stock requested to be included in such public
offering by said selling stockholders, or in such other proportions as shall be
mutually agreed to by such selling stockholders.
-3-
<PAGE>
(C). EDT shall bear all registration and qualification fees and all
expenses related to the registration of the shares, provided however, that if
the holders of PX Stock sell shares as part of such public offering, they shall,
if requested by EDT, bear such portion of the underwriting commissions paid to
the underwriter(s) as the number of shares of Common Stock sold as part of such
public offering by such selling shareholders bears to the total number of shares
of Common Stock sold in such offering. In addition, each holder of PX Stock
selling shares as part of such public offering shall bear the fees and costs of
his or her own counsel.
4.5 Within thirty (30) days after the end of each calendar
quarter, irrespective of whether any Net Sales have been made or whether any sum
is then due to Sub-Licensor, Sub-Licensee shall deliver to Sub-Licensor a
complete and accurate written statement setting forth the amount of Lotion sold,
the gross price at which the Lotion was sold, the amount of any discount or
allowances given consistent with the terms of this Agreement, and the credit for
Lotion allowed to be returned and other deductions allowed herein to compute Net
Sales in specific detail, so as to allow an audit of underlying documents,
together with Sub-Licensee's calculation of the amount of royalties then due
Sub-Licensor for the period covered by such report.
4.6 Sub-Licensee shall keep or cause to be kept accurate,
complete and up-to-date books of accounts separately stating by clear means
records of all sales of the Lotion including records pertaining to invoiced
amounts by customer and records pertaining to all freight charges, discounts,
allowances, and returns allowed by Sub-Licensee. Such books and records of
account shall reflect that a sale of the Lotion shall be deemed to have occurred
as of the date the Lotion was invoiced to Sub-Licensee's customers.
4.7 Sub-Licensor or its authorized representatives shall have
the right, once each calendar quarter, to inspect all such records of
Sub-Licensee with respect to the sales of the Lotion and to make copies of said
records utilizing Sub-Licensee's facilities without charge and shall have free
and full access thereto on reasonable notice during Sub-Licensee's normal
business hours. In the event that such inspection or audit reveals an
underpayment by Sub-Licensee of any amounts due Sub-Licensor under this
Agreement, Sub-Licensee shall immediately pay to Sub-Licensor the balance of all
such amounts found to be due pursuant to such audit or inspection together with
interest thereon at the rate of eighteen percent (18%) per annum from the date
such amounts first became due to Sub-Licensor until all such amounts have been
paid in full. Further, if such inspection or audit discloses that, for the
period reviewed or audited, Sub-Licensee has underpaid or understated its
obligation under this Agreement by ten percent (10%) or more, then Sub-Licensee
shall also pay the reasonable professional fees of the independent
representatives engaged to conduct or review such inspection or audit.
-4-
<PAGE>
SECTION 5 INDEMNIFICATION
5.1 Sub-Licensee agrees to defend and indemnify and hold
Sub-Licensor, its officers, directors, employees and agents (collectively the
"Sub-Licensor Indemnified Party") harmless against any charges, damages, costs,
expenses (including attorney's fees and court costs), liability or loss
(including loss of profits), judgments, penalties, liabilities or losses of any
kind which may be sustained or suffered by any Sub-Licensor Indemnified Party by
reason of the breach of any covenant, representation, warranty, term or
agreement contained herein. In any action or proceeding relating to the
foregoing indemnity and brought against any Sub-Licensor Indemnified Party, the
Sub-Licensor Indemnified Party shall have the right at Sub-Licensor's cost and
expense to (i) participate in the defense of such action or proceeding with
attorneys of its own choosing or (ii) defend itself in any such action or
proceeding with attorneys of its own choosing.
SECTION 6 MISCELLANEOUS.
6.1 This Agreement shall be deemed to be made in, and in all
respects shall be interpreted, construed and governed by and in accordance with
the laws of the state of Florida.
6.2 Any action or proceeding arising out of or relating to
this Agreement shall be submitted by the parties to binding arbitration before
the American Arbitration Association in Miami-Dade County, Florida. The
arbitrator shall have the authority to permit discovery upon request of a party
and shall render his decision in accordance with the law of the state of
Florida. The prevailing party in any such action shall be entitled to recover
its attorneys's fees, costs and expenses including through appeals if any of the
arbitrator's award, and this provision shall be enforced and included in any
award. The arbitration award issued by the arbitrator may be enforced in any
court having jurisdiction over the subject matter of the controversy.
6.3 All notices, demands, requests, consents, approvals or
other communications ("Notices") given hereunder shall be in writing, and shall
be given by personal delivery or by express mail, Federal Express, DHL or other
similar form of recognized airborne/overnight delivery service (which forms of
Notice shall be deemed to have been given upon delivery), or by telex or
facsimile transmission (which forms of Notice shall be deemed delivered upon
confirmed transmission), or by mailing in the mail by registered or certified
mail, return receipt requested, postage prepaid (which forms of Notice shall be
deemed to have been given upon the fifth (5th) business day following the date
mailed). Notices shall be addressed to the parties at the addresses set forth in
the introductory section of this Agreement or to such other address as to which
any party hereto may have notified the others in writing.
6.4 The section and paragraph headings contained in this
Agreement are for reference purposes only and shall not in any way affect the
meaning or interpretation of this Agreement.
-5-
<PAGE>
6.5 For the convenience of the parties to this Agreement, this
document may be executed by facsimile signatures and in counterparts which shall
together constitute the agreement of the Parties as one and the same instrument.
6.6 If any provision of this Agreement or the application
thereof to any party or circumstance shall be held invalid or unenforceable to
any extent, the remainder of this Agreement and application of such provision to
the other party or circumstances shall not be affected thereby and shall be
enforced to the greatest extent permitted by applicable law.
6.7 This Agreement, including the Exhibits hereto, embodies
the entire agreement and understanding among the Parties hereto with respect to
the subject matter hereof, and supersedes all prior agreements and
understandings related thereto. The Parties hereto recognize and agree that no
representations or warranties have been made except as set forth in this
Agreement and the Exhibits hereto. This Agreement may be modified only by a
written instrument signed by each of the Parties.
6.8 The relationship between the Parties is that of
licensor/licensee and distributor/sub-distributor. Sub-Licensor and Sub-Licensee
are not, and shall not be considered as joint ventures, partners, or agents of
each other and neither shall have the power to bind or obligate the other, other
than as set forth in this Agreement. The parties specifically agree that
application for and ownership of all approvals from the FDA or any other
governmental agency which passes on the Lotion obtained by Sub-Licensee for the
Lotion shall be in the name of the Sub-Licensee (the Intellectual Property).
Sub-Licensee shall have the authority to use the Intellectual Property in
connection with its efforts to manufacture, sell, market and distribute the
Lotion only so long as it complies with all of the terms and conditions of this
Agreement. If Licensee is in breach of this Agreement it is prohibited from
using or exploiting the Intellectual Property and upon termination of this
Agreement (other than after the conclusion of the Term) Sub-Licensee shall
surrender all of its rights to sell, market or distribute the Lotion or to
otherwise use or rely upon the Intellectual Property obtained pursuant to this
Agreement. Sub-Licensee is prohibited from assigning, transferring,
hypothecating or pledging the Intellectual Property or any of its rights and or
delegating any of its duties hereunder without the prior written consent of
Sub-Licensor which shall not be unreasonably withheld. A precondition of
Licensor's consent will be the assignee's affirmative assumption of all of
Sub-Licensee's obligations to Sub-Licensor under this Agreement including but
not limited to the provisions of paragraphs 4.1, 4.5, 4.6, 4.7 and 5.1.
-6-
<PAGE>
6.9 Sub-Licensee's failure to comply with the terms and
conditions of this Agreement and or EDT's failure to comply with the provisions
of paragraphs 4.4 (A), (B) and (C) shall constitute a breach of this Agreement.
In the event of a breach, Sub-Licensor shall provide written notice of said
breach to Sub-Licensee or EDT who shall have 20 days from the date of said
notice to cure the breach. In the event Sub-Licensee fails to cure the breach
within 20 days from the date of the notice or within such additional time as
agreed to by Sub-Licensor in writing, then in that event, Sub-Licensor shall be
entitled to pursue all remedies available under law and equity and in addition
to all of such remedies, may declare this Agreement terminated. No failure or
delay on the part of Sub-Licensor in exercising any right, power or privilege
hereunder and no course of dealing between the parties shall operate as a waiver
thereof and nor shall any single or partial exercise of any right, power or
privilege hereunder preclude any other or further exercise thereof.
6.10 By signing in the space provided below, GIMCO hereby
grants its full consent to the terms and conditions of this Agreement including
but not limited to Sub-Licensor's assignment of its rights and duties under The
Distribution Agreement of March 20,1997 ( Exhibit "A" hereto) to Sub-Licensee
and hereby agrees that pages 4 and 5 of The Distribution Agreement are hereby
deemed amended and modified by eliminating the provisions of Article V titled
"Obligations of Distributor" in their entirety.
6.11 For so long as this Agreement is in effect, Sub-Licensor
shall refrain from manufacturing, marketing or selling Lotion anywhere in the
world.
6.12 Sub-Licensor hereby assigns to Sub-Licensee all of its
right, title and interest to any and all Lotion ordered but not yet received
from GIMCO. Sub-Licensor represents that it has no other inventory-on-hand of
Lotion.
6.13 Sub-Licensor hereby assigns to Sub-Licensee all of
Sub-Licensor's rights, title and interest in and to the name "Prevent-X" and
Sub-Licensor shall cease to use the name "Prevent-X" in connection with the sale
and marketing of any product. Sub-Licensee shall have until December 31, 1999 to
decide if it wishes to use the name "Prevent-X" in connection with the sale and
marketing of the Lotion. If prior to December 31,1999 Sub-Licensee does not
affirmatively elect to utilize the name "Prevent-X" in connection with the sale
and marketing of the Lotion, all rights, title and interest in and to the name
"Prevent-X" will revert back to Sub-Licensor. Upon receipt of written notice
from Sub-Licensee of its intent to utilize the name "Prevent-X" in connection
with the sale and marketing of the Lotion, Sub-Licensor shall take whatever
action is necessary to amend its corporate charter to change its name.
-7-
<PAGE>
IN WITNESS WHEREOF, the Parties hereto have executed or caused this
Sub-License Agreement to be executed as of the date first above written.
"SUB-LICENSOR"
PREVENT-X, INC.
By: /s/ Joel Meyerson
------------------------------------
"SUB-LICENSEE"
EMPYREAN DIAGNOSTICS INC.
By: /s/ Stephen Hayter
------------------------------------
GEDA INTERNATIONAL MARKETING CO. LTD,
(ONLY AS TO PARAGRAPH 6.10)
By: /s/ David Thornburg
------------------------------------
EMPYREAN DIAGNOSTICS LTD.
By: /s/ Stephen Hayter
------------------------------------
-8-
<PAGE>
DISTRIBUTORSHIP AGREEMENT
THIS AGREEMENT is made and shall be deemed effective as of the date of the
last signature set forth below, by and between GEDA INTERNATIONAL MARKETING CO.,
LTD., ("GIMCO"), with its principal place of business located at Wavecrest
House, West Bay Street, Nassau, Bahamas, and Prevent-X, Inc., a Florida
Corporation ("Distributor"), with its principal place of business located at
4412 SW 74 Ave., Miami, Florida 33155.
WITNESSETH
WHEREAS, GIMCO is engaged in the development, production, and international
distribution and sale of an antiseptic barrier lotion, as more particularly
described on Exhibit "A" attached hereto (the "Lotion"); and
WHEREAS, Distributor desires to become the exclusive distributor of the
Lotion in the United States of America, specifically including Alaska and
Hawaii, and all United States territories and possessions (the "Territory")
subject only to the provisions of Article I, Paragraph B, according to the terms
and conditions set forth below; and
WHEREAS, GIMCO desires to appoint Distributor to act as its exclusive
distributor in the Territory subject only to the provisions of Article I,
Paragraph B, upon the terms and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the mutual covenants and agreements set
forth herein, and for other good and valuable consideration, the receipt and
sufficiently of which is hereby acknowledged, the parties agree as follows:
<PAGE>
ARTICLE I
APPOINTMENT AS EXCLUSIVE DISTRIBUTOR
A. Subject to the provisions of this Agreement and the performance of its
covenants and obligations, GIMCO hereby appoints Distributor as its exclusive
distributor to distribute the Lotion, together with all Improvement and
Associated Products as defined in Exhibit "B" attached hereto, (hereafter, the
"Lotion") within the Territory.
B. The parties acknowledge that the Lutheran Church and its charity, to
wit, Kings Outreach (and its affiliated non-profit charities) (hereinafter "the
Church") shall have a limited right to sell the Lotion within the Territory
under the following conditions:
1. The Church's sale of the Lotion is limited to charitable and
not-for-profit purposes;
2. The Church's sale of the Lotion is at prices that are equal to or
greater than those charged by Distributor's retail customers for the
like-size quantities;
3. The Church does not knowingly or intentionally sell the Lotion to any
party who intends to resell the Lotion on either a wholesale, mail
order, retail or commercial basis;
4. The Church does not knowingly or intentional infringe upon the
Distributor's trademarks or trade dress and;
2
<PAGE>
5. The Church does not sell in excess of 100,000 - 250 ml. units in any
single calendar year. The parties agree the annual limit of 100,000
may increase by 10% per year over the term of the Agreement.
ARTICLE II
SPECIFIC TERRITORIAL RIGHTS
A. GIMCO agrees to manufacture and sell the Lotion to the Distributor
according to the terms set forth below, and the Distributor shall have the
exclusive right in its Territory to purchase the Lotion from GIMCO and sell the
Lotion in the Territory.
B. In the event that the Lotion manufactured by GIMCO, directly or
indirectly, is sold in the Distributor's Territory, then GIMCO shall be liable
to Distributor for the Distributor's lost profit resulting from such sales,
except for such sales as are authorized under Article I, Paragraph B above.
C. The Distributor shall have the right to assign its rights and delegate
its duties hereunder to sub-distributors within the Territory.
ARTICLE III
OPTION TERRITORIES AND PRODUCTS
The parties acknowledge that Distributor has requested that GIMCO expand
the Territory to include additional countries on the continents of Asia, Europe
and South America, as well as expand the product list identified on Exhibit B.
GIMCO agrees that, depending upon the availability of such additional
territories and products, as well as Distributor's performance under this
3
<PAGE>
Agreement, GIMCO may, at its sole discretion, appoint Distributor as its
exclusive distributor to distribute the lotion in additional territories, or
appoint Distributor as its exclusive distributor to distribute additional
products in the Territory, or additional territories, under such terms and
conditions as are mutually agreeable to the parties.
ARTICLE IV
OBLIGATIONS OF GIMCO
GIMCO shall assist Distributor in distributing products by way of wholesale
and retail sales in the following manner:
A. Within thirty (30) days following execution of this Agreement, GIMCO
shall conduct, at no charge, at least one preliminary product training program
for key employees designated by Distributor.
B. GIMCO shall provide Distributor, as and when it is available from time
to time, all technical information relating to the Lotion, Improvements and
Associated Products as may be authorized by GIMCO from time to time for sale
pursuant to this Agreement.
ARTICLE V
OBLIGATIONS OF DISTRIBUTOR
Distributor shall make its best efforts to market and distribute the Lotion
within the Territory. Distributor's efforts in this regard shall be measured by
the dollar amount of Lotion it purchases from GIMCO on an annual basis. GIMCO
4
<PAGE>
shall have the right to terminate this Agreement in the event Distributor does
not purchase from GIMCO one million liters of Lotion on an annual basis
commencing the third year of this Agreement and continuing every year thereafter
for the Term of this Agreement.
ARTICLE VI
CONFIDENTIAL INFORMATION
The parties hereto covenant and agree that any Confidential Information (as
hereinafter defined) disclosed to the Distributor relating directly or
indirectly to the Lotion or its ingredients and/or preparation, and any other
information which is proprietary in nature and has been disclosed to Distributor
in connection with this Agreement, will remain the property of GIMCO at all
times and will, if disclosed in any tangible format, be returned to GIMCO in the
event of termination of this Agreement and the Excess Supply and Territorial
License Agreement executed on even date herewith and attached hereto as Exhibit
"C" (the "License Agreement"). For purposes of this Agreement, the term
"Confidential Information" shall mean documents and other material designated by
GIMCO as containing or reflecting a trade secret or other proprietary or
confidential business information.
ARTICLE VII
STANDARDS OF OPERATION
A. Distributor agrees to conduct its business in a manner consistent with
the standards set forth in this Agreement. It is expressly understood that these
5
<PAGE>
standards may change from time to time and are in addition to, and not in
substitution for, any standards set forth in this Agreement.
B. Except as provided herein, GIMCO warrants that title to all Lotion
transferred to Distributor hereunder is owned by GIMCO and will be free and
clear of all liens, security interests or other claims.
ARTICLE VIII
COMMENCEMENT OF BUSINESS
Distributor agrees to obtain, prior to the commencement of its distribution
business, pursuant to the terms of this Agreement, all licenses, approvals,
inspections, permits, or any other certification which may be required by any
competent public authority for the lawful operation of its business and to keep
the same in good standing during the Term (as hereinafter defined).
ARTICLE IX
UNIFORMITY OF PRODUCT AND GOVERNMENTAL REGULATIONS
GIMCO hereby warrants that it has obtained all necessary licenses and
permits necessary to engage in the manufacture, importation, and sale of the
Lotion and that GIMCO will maintain all such appropriate licenses and clearances
for the term of this Agreement.
6
<PAGE>
ARTICLE X
COST OF LOTION
The parties agree that the Distributor will have the right, but not the
obligation, to purchase the Lotion in the amounts and for the prices set forth
in Exhibit "C" attached hereto. However, Distributor must place its first
purchase order with GIMCO within thirty (30) days of the date of this Agreement.
Prices and quantities of any Improvements and Associated Products will be
determined between the parties if and when such items become available for sale.
Payment shall be due upon receipt of the products by Distributor or under such
other terms and conditions as agreed to by the parties.
ARTICLE XI
TERM AND RENEWAL OF AGREEMENT
A. The initial term (the "Term") of this Agreement is twenty years from the
date of execution of this Agreement by the parties.
B. Distributor shall have the option, at the expiration of the Term, or any
Option Term, of this Agreement, to renew the distributorship granted hereunder
for additional ten-year periods ("Option Term"), as long as all terms and
conditions of the Agreement have been met, provided that:
1. Distributor gives GIMCO written notice of its election to renew not
less than one (1) month nor more than nine (9) months prior to the
expiration of the then-current Term;
7
<PAGE>
2. Distributor, at the time of notice of election to renew, is not in
default of any of the terms or conditions of this Agreement or any other
agreement between Distributor and GIMCO or its affiliates, and has
materially complied with the terms and conditions of all such agreements
during the term of this Agreement.
ARTICLE XII
RELATIONSHIP OF THE PARTIES
A. The relationship between GIMCO and Distributor is that of manufacturer
and distributor. GIMCO and Distributor are not, and shall not be considered, as
joint venturers, partners, or agents of each other, or anything other than
manufacturer and distributor, and neither shall have the power to bind or
obligate the other, other than as set forth in this Agreement.
B. The parties further agree that the relationship created by this
Agreement is not a fiduciary, employer/employee, or franchisor/franchisee
relationship.
ARTICLE XIII
NOTICES
A. All notices to GIMCO required by the terms of this Agreement shall be
personally delivered to or sent by certified mail, addressed to GIMCO at its
offices at:
GEDA International Marketing Co., Ltd.
c/o Pindling & Company
Attorney at Law
Wavecrest House, West Bay Street
Nassau, Bahamas
8
<PAGE>
(or such other address as GIMCO shall designate in writing), or by telefax,
telecopier or other electronic means of communication to such address.
B. All notices to Distributor required by the terms of this Agreement shall
be personally delivered to or sent by certified mail, addressed to Distributor
at its offices at:
Howard J. Berlin, Esq.
Kluger, Peretz, Kaplan & Berlin, P.A.
201 S. Biscayne Blvd., Ste. 1970
Miami, Florida 33131
(or such other address as Distributor shall designate in writing), or by
telefax, telecopier or other electronic means of communication to such address.
C. All notices to either party required by the terms of this Agreement
shall be deemed to have been received, upon actual receipt thereof and not the
date of receipt of confirming mail.
ARTICLE XIV
INTERPRETATION AND EXECUTION OF AGREEMENT
A. This Agreement shall be construed and interpreted in accordance with the
laws of the State of Florida.
B. This Agreement (inclusive of any and all Schedules attached hereto and
made a part hereof) contains the entire Agreement of the parties and no
representations, inducements, promises or agreements, oral or otherwise, not
embodied herein, were made by the parties and none shall be of any force or
effect.
9
<PAGE>
ARTICLE XV
SEVERABILITY AND CONSTRUCTION
Each section, part, term, and provision of this Agreement and any portion
thereof shall be considered severable and if, for any reason, any portion of
this Agreement is determined to be invalid, contrary to or in conflict with any
applicable present or future law, rule, or regulation in a final, unappealable
ruling issued by any court, agency, or other tribunal with jurisdiction in a
proceeding to which GIMCO or the Distributor is a party, that ruling shall not
impair the operation of, or have any other effect upon, such other portions of
this Agreement as may remain otherwise valid.
ARTICLE XVI
ATTORNEYS' FEES
In the event a dispute arises between the parties relating to this
Agreement, which results in the filing of a lawsuit, then the prevailing party
in such litigation shall be entitled to recover its attorneys' fees and costs.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
dates set forth below.
GEDA INTERNATIONAL MARKETING CO., LTD.
By: /s/ Dr. Frank M. Malagon Dated: 3/20/97
-----------------------------------
Dr. Frank M. Malagon, Chairman
By: /s/ Dr. David B. Thornburgh Dated: 3/20/97
-----------------------------------
President
PREVENT-X, INC.
By: /s/ Joel J. Meyerson Dated: 3/19/97
-----------------------------------
Joel J. Meyerson
President
10
<PAGE>
EXHIBIT A
TO DISTRIBUTORSHIP AGREEMENT
GEDA ANTISEPTIC BARRIER LOTION
Designed to protect your skin from infectious micro-organisms
* Use GEDA under latex or plastic gloves as a secondary barrier against
infection.
* General skin lotion.
* Antiseptic for minor cuts and abrasions.
* Soothing lotion for Herpes
DIRECTIONS: Spread freely and smoothly over desired area of skin of hands, body,
face. Allow to dry.
STORE at room temperature or can refrigerate if ambient temperature exceeds 100
degrees F (38 degrees C).
INDICATIONS: As a general skin lotion. As an antiseptic lotion for minor cuts
and abrasions. Excellent after-shave lotion. May be applied over make-up or as a
cosmetic base (allow to dry before overlaying cosmetics). Kills most infectious
bacteria, common yeast, protozoa, chlamydia, and viruses on contact including
Hepatitis B virus and HIV (AIDS virus). Under gloves and on skin is protective
for up to 8 hours. Reapply GEDA lotion if gloves are changed or skin is washed.
WARNING: Not for use in eyes, puncture wounds, deep cuts or infections, or on
skin lesions requiring surgical removal such as moles or tumors. KEEP AWAY FROM
CHILDREN. May be used on children's skin if applied by a responsible adult.
Contraindicated in persons hypersentive to ingredients. If burning, itching or
redness devellops after use, wash liberally with water or soap and water.
OTHER INFORMATION: GEDA Antiseptic Barrier Lotion is water soluble and does not
contain alcohol or petroleum jelly. Can be used over infected skin such as Acne,
and although it will not help the deep infection (GEDA is not absorbed through
skin or mucous membranes), it will decrease the number of surface bacteria and
may aid in preventing reinfection.
FIRST AID if accidentally instilled in eyes: Squeeze eyelids and wipe off excess
GEDA. Remove residual by natural tears, by washing eyes with water, or by use of
commercial eye drops. GEDA is intended for external use; however, the ingredient
concentration in GEDA is NOT harmful if swallowed.
ACTIVE INGREDIENT: Benzalkonium chloride 0.17.
OTHER INGREDIENTS: Dionized water, Glycerine, Aloe vera oil, Vanilla extract,
Carbomer 9342, Hydroxypropylmethylcellulose, Sodium hydroxide, Methyl paraben,
Octoxyzol-9, FD&C Blue #1, FDSC Yellow #5.
MADE IN CANADA FOR GEDA INTERNATIONAL MARKETING CO., LTD., BY JEDMON PRODUCTS,
LTD., TORONTO, CANADA M3J3J9. DIN 02053667, NDC 058152-37-01.
**********
NOTE: GEDA does NOT contain antibiotics, antihistamines, or chemotherapeutic
agents
11
<PAGE>
EXHIBIT B
TO DISTRIBUTORSHIP AGREEMENT
IMPROVEMENTS AND ASSOCIATED PRODUCTS
* Flight Cream
* Underarm Applicant
* Hand Lotion
* Herpes Lotion
12
<PAGE>
EXHIBIT C
TO DISTRIBUTORSHIP AGREEMENT
PRICING AND DELIVERY
A. $3.60 per liter or such other price to be agreed upon by parties delivered
by GIMCO to Distributorship F.O.B. Toronto, Canada, within thirty (30) days
of receipt of Distributor's order. GIMCO will not be required to fill
purchase orders from Distributor that are less than one 20-ft. container,
or eighty 55-gallon drums (whichever is less).
B. Until such time as Distributor places an order for at least one container
every thirty (30) days, Distributor shall pay GIMCO a deposit of $40,000
per container upon placing the order, with the balance due upon delivery of
the container to Distributor, FOB Toronto, Canada.
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
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT is entered into at Phoenix, Arizona, this 1st day
of September, 1999 by and between EMPYREAN BIOSCIENCE, INC. (the "Company") and
STEPHEN D. HAYTER ("Employee").
RECITALS:
A. The Company is in the business of infectious disease prevention through
the development and sale of microbicide lotion and gel (the "Business");
B. Employee has certain expertise in connection with certain aspects of the
Company's business and has been employed by the Company.
C. The Company and Employee wish to formalize the employment relationship
between them by means of this written Employment Agreement.
NOW, THEREFORE, in consideration of mutual promises and agreements
contained herein and intending to be legally bound hereby, the parties agree as
follows:
1. EMPLOYMENT. The employment relationship between Employee and the Company
is upon the terms and conditions set forth herein, effective September 1, 1999
(the "Effective Date").
2. SERVICES. Employee is currently President and Chief Executive Officer
and Chairman of the Board. Employee shall continue as President and Chief
Executive Officer and Chairman of the Board for a period of six months from the
Effective Date, at which time he shall resign as President and Chief Executive
Officer. Thereafter, Employee shall continue to serve as Chairman of the Board
of Directors until December 31, 2001 and will continue to be responsible for
forming international distribution agreements. Employee will devote his full
working time, experience and best efforts to the performance of his duties on
behalf of the Company. Employee shall perform all such duties in accordance with
such rules, policies and procedures as the Company and or its Board of Directors
may adopt from time to time.
<PAGE>
3. COMPENSATION.
3.1 BASE SALARY. The Company shall pay to Employee an annual base salary of
One Hundred Eighty Thousand Dollars ($180,000.00) payable in consecutive, equal,
biweekly installments. Notwithstanding Employee's resignation as President and
Chief Executive Officer, Employee's salary and benefits shall continue until
December 31, 2001 at the annual salary rate in effect prior to Employee's
resignation, as if Employee had not resigned, unless mutually agreed to between
Employee and the Board of Directors. Employee's base salary shall be reviewed
annually by the Compensation Committee. The first review shall occur twelve(12)
months from the Effective Date.
3.2 CERTAIN BASIC FRINGE BENEFITS. The Company shall provide to Employee a
benefits package including, but not limited to, company-sponsored group health
insurance (including prescription drug plan), dental insurance, vision
insurance, group life insurance, accidental death and dismemberment benefits,
short term disability insurance, long term disability insurance and the option
to participate in any 401(k) program sponsored by the Company, upon terms and
conditions and in amounts to be determined by the Board of Directors as part of
a package of benefits approved for Senior Management of the Company. Company
will reimburse Employee for his costs, less a reasonable employee contribution,
of securing independent health insurance coverage until such time as the new
company-sponsored plan is in effect.
3.3 BUSINESS EXPENSES. The Company shall promptly reimburse Employee for
all reasonable, ordinary and necessary business expenses incurred by him in the
performance of his duties hereunder, and Employee shall submit receipts,
vouchers or other appropriate evidence to substantiate that said expenses were
2
<PAGE>
incurred by Employee in connection with the business of the Company. In
addition, the Company will reimburse Employee for reasonable travel and
entertainment expenses budgeted and approved by the Board of Directors.
3.4 INCENTIVE COMPENSATION. Employee shall be entitled to participate in an
incentive compensation bonus program to be adopted by the Company and in effect
for Fiscal Year 2000, after consultation with Employee, and pursuant to approval
of the Board of Directors. It will be the responsibility of the Employee to
prepare an incentive program for Senior Managers to present to the Empyrean
Board of Directors for approval.
3.5 INCENTIVE STOCK OPTIONS. Employee previously has been granted by the
Board of Directors of the Company Incentive Stock Options pursuant to the
Company's stock option plan (the "Plan"). A schedule of Employee's 2,204,942
outstanding options and their vesting schedule is attached as Exhibit A and is
incorporated herein. Any shares acquired by Employee upon the exercise of the
Incentive Stock Options shall be subject to and shall be transferable only in
compliance with the Plan and applicable securities laws.
Company hereby agrees to register the shares under the Securities Act of
1933, as amended, by means of an effective Form S-8 registration statement, and
all shares issued upon exercise of options granted pursuant to the terms of the
Plan will be permitted to be resold under an effective Form S-3 registration
statement, if available. Company hereby agrees to have such registration(s) in
effect, to maintain the registration(s) in effect as long as necessary for
Employee to sell his shares, and to comply with any other requirements,
including the preparation of a reoffer prospectus, if applicable, necessary for
employee to sell his shares.
Employee agrees not to sell more than the equivalent of one percent (1%) of
the outstanding shares of the Company during any 90 day period for a period of
twelve months from the Effective Date. Any non-vested options granted to other
3
<PAGE>
members of management will vest upon the same performance criteria as applied to
Employee. The options will have a 10-year term and provide for accelerated
vesting in the event of a change in control or ownership of the Company or
termination of Employee's employment without cause.
4. TERM, TERMINATION.
4.1 This Agreement may be terminated by the Company at any time "for cause"
or without cause. "For cause" shall mean any termination of the Employee's
employment resulting from Employee's engaging in fraud, misappropriation of
funds or embezzlement against the Company.
4.2 If Employee is terminated from employment without cause, the Company
shall provide to Employee a twelve month evergreen severance provision whereby
Employee's base salary, bonus, benefits and options shall continue for twelve
months.
Any termination of Employee's employment resulting from: (i) Employee's
death; (ii) Employee's inability to perform the essential functions of his job
with or without reasonable accommodation for 180 consecutive business days or
300 of 365 total days; or (iii) Employee's resignation from his positions with
the Company within 30 days after the receipt of written notice from the Company
informing Employee that his base salary rate shall be reduced below its then
current level (the "Salary Reduction Notice"), or within 30 days of a reduction
in duties, title or responsibility, or within 30 days of a change in location, a
change in control or a breach of this Agreement, shall be deemed to be a
termination by the Company without cause.
Bonuses to be earned in accordance with an incentive compensation bonus
program applicable to the fiscal year in which Employee is terminated will be
determined by prorating the full amount of the bonus, which would have been
earned, had Employee been employed for the full fiscal year by the number of
4
<PAGE>
days employed during the fiscal year. Incentive stock options to be vested upon
the attainment of certain performance goals applicable to the fiscal year in
which Employee is terminated shall be accelerated and vested as of the
Employee's termination date. Bonus shall be payable no later than 90 days
following the close of the fiscal year that Employee is terminated.
Such severance shall be paid to Employee in the form of regular payroll
checks, less deductions for taxes and withholdings, in equal consecutive
installments during the severance period following Employee's termination. The
Company shall continue to pay Employee's salary at the annual rate in effect
immediately prior to Employee's termination (unless such termination occurs as a
result of the Employee's resignation from his positions with the Company within
30 days after receipt of the Salary Reduction Notice, in which case such
payments shall be at the annual salary rate in effect immediately prior to the
receipt of the Salary Reduction Notice) for the severance period. Employee shall
have the option of accepting a lump sum payment of severance provision
calculated by discounting the stream of payments utilizing a discount rate of
fifteen percent (15%).
In the event that participation in any such benefits package is barred, the
Company shall arrange to provide Employee with benefits during the severance
period substantially similar to those which he is entitled to receive, or
reimburse him for his costs of securing independent benefits coverage
substantially similar to the benefits package available to him prior to
termination, including gross up for any tax cost incurred as a result.
In the event the Company replaces the benefits package available to senior
officers of the Company during the Employee's severance period, Employee shall
be entitled to participate in any such replacement package, provided, however,
that if the new benefits package is substantially worse, in the aggregate, than
the benefits package available to Employee prior to termination, the Company
5
<PAGE>
shall arrange to provide him with benefits substantially similar to those which
he is entitled to receive, or reimburse him for his costs of securing
independent benefits coverage substantially similar to the benefits package
available to him prior to termination.
In the event of a breach of this Agreement by the Company, Employee is
eligible, at Employee's option, to receive severance pay in accordance with the
twelve month evergreen severance provision set forth above. Such severance
payment and acceleration of options as set forth in Section 4.2 shall be
Employee's sole remedy at law or in equity against Company for any breach of
this agreement and Employee shall sign a full and final release of claims, in a
form acceptable to Company, as a condition of receiving such severance payment.
The Company and Employee mutually agree not to make or utter any
disparaging comments about one another, including the Company's past, present
and future officers, directors and or employees, and both the Company and the
Employee agree not to take any action to injure or harm one another's reputation
or business relationships.
5. COVENANTS OF EMPLOYEE.
5.1 Employee acknowledges that during the course of his employment by the
Company he will have access to trade secrets and other confidential information
with respect to the business, operations, accounts, books and records, sales,
customers, pricing, marketing, development, testing, scientific research and
other activities of the Company ("Trade Secrets"). Accordingly, Employee shall,
at all times, keep secret and inviolate all Trade Secrets which he now knows or
may hereafter come to know. In addition, Employee shall at no time copy, remove
from the premises of the Company or retain, without the prior consent of the
Company, any Trade Secrets, including, but not limited to, unpublished records,
agreements, books of account, corporate documents, work papers, correspondence,
customer lists, memoranda, computer software or documentation in connection
6
<PAGE>
therewith, plans, drawings or copies or extracts from any of the foregoing,
except as may be required in the normal operation of the Company's business.
Upon the termination of Employee's employment, Employee shall promptly return to
the Company all Trade Secrets in his possession or under his control and shall
verify in writing his return of same as a condition to receipt of any severance
pay.
5.2 Employee agrees that during the term hereof (except as permitted
hereunder) and for a period of time equivalent to twice the length of Employee's
severance benefit following the termination of his employment, whether by
Company or by Employee, with or without cause, he will not engage in the
Business within any County or State where Company has conducted or may hereafter
conduct any activities; or, own, manage, operate, control, or participate in, or
have any ownership interest in a similar business as the Business described in
Recital A, provided, however, that Employee may own any securities of any
publicly owned and traded entity in which Employee owns less than five percent
(5%) interest, which is engaged in the business similar to or competitive with
the business of the Company.
5.3 Employee agrees that for a period of time equivalent to twice the
length of Employee's severance benefit following the termination of his
employment, whether by Company or by Employee, with or without cause, he will
not, directly or indirectly, solicit the Company's employees. If during the
severance period, Employee is involved in a similar business as the Business
described in Recital A, Employee will not attempt to divert or take away,
solicit or contact for purposes related to the Business, any of the Company's
customers and he shall refrain from committing any act which would in any way
jeopardize any relationship the Company has with any such customer.
7
<PAGE>
5.4 Employee hereby assigns to the Company any and all right, title and
interest Employee has or may have in any product, invention, device, method,
technique or formula created (in whole or in part) by him during the term
hereof, if such product, invention, device, method, technique or formula is
created during the hours in which Employee is employed or with the use or
assistance of the Company's facilities, materials or personnel. Employee shall
execute, acknowledge and deliver all documents and/or instruments which may be
requested by the Company in order to effectuate such assignment.
5.5 The Company shall have the royalty-free right to use in the Business
and to make, use and sell products and processes derived from any inventions,
discoveries, concepts and ideas (whether or not patentable or copyrightable),
including but not necessarily limited to processes, methods, formulae and
techniques, as well as derivatives or improvements thereof or know-how related
thereto, which are conceived or made by Employee during the term of, during the
hours in which Employee is employed by the Company or with the use or assistance
of the Company's facilities, materials or personnel.
5.6 Company and Employee agree that the remedy at law for any breach of the
foregoing provisions of Section 5 will be inadequate, and either party shall be
entitled to both temporary and permanent injunctive relief enforcing such
provisions, in addition to any other remedy it may have at law or in equity.
5.7 The covenants of Company and Employee contained in this Section 5 are
separate and independent of any other provisions hereof and shall survive the
termination of this Agreement.
5.8 Employee has carefully considered the nature and extent of the
restrictions upon him and the rights and remedies conferred upon the Company,
and he hereby acknowledges and agrees that the same are reasonable in time and
8
<PAGE>
territory, are designed to eliminate competition which otherwise would be unfair
to the Company, are fully required to protect the legitimate interest of the
Company, and do not confer a benefit upon the Company disproportionate to the
detriment to Employee.
6. REPRESENTATIONS BY EMPLOYEE. Employee represents and warrants to the
Company that (a) Employee has the legal right, power and authority to enter into
this Agreement and perform the obligations imposed upon him, (b) there are no
legal proceedings pending, or to the knowledge of Employee, threatened against
Employee which would in any way adversely affect the performance of the
obligations, and (c) Employee is not a party to any restrictive covenant,
agreement, contract or instrument which would in any way prohibit Employee from
entering into or performing such obligations.
7. REPRESENTATIONS BY COMPANY. Company represents and warrants to the
Employee that (a) Company has the legal right, power and authority to enter into
this Agreement and perform the obligations imposed upon it, (b) there are no
legal proceedings pending, or to the knowledge of Company, threatened against
Company which would in any way adversely affect the performance of the
obligations, and (c) Company is not a party to any restrictive covenant,
agreement, contract or instrument which would in any way prohibit Company from
entering into or performing such obligations.
8. INDEMNIFICATION; INSURANCE. The Company will indemnify Employee to the
maximum extent permitted by law (including advancing expenses where appropriate)
with respect to actions taken by him as an officer or director of the Company,
any of its subsidiaries, or any affiliated entity of the Company or any of its
subsidiaries. The Company's obligation to provide indemnification shall survive
termination of employment. The Company will also maintain in effect during
9
<PAGE>
Employee's employment hereunder directors and officer liability insurance with
minimum coverage of $5,000,000 per occurrence and $10,000,000 in the aggregate.
Employee will remain insured under such policy until the fifth anniversary of
termination of Employee's employment with the Company.
9. NOTICES. All notices hereunder shall be in writing and shall be deemed
to have been given at the time when mailed in any general or branch of the
United States Post Office enclosed in a registered or certified, postage prepaid
envelope addressed to the address of the respective parties as set forth below,
or to such other address as a party may have fixed by notice as stated below:
To Employee: To the Company:
------------ ---------------
Stephen D. Hayter Empyrean Bioscience, Inc.
7025 E. Stone Raven Trail 2238 West Lone Cactus Drive
Scottsdale, Arizona 85262 Suite 200
Phoenix, Arizona 85027
10. SEVERABILITY. The invalidity or unenforceability of any portion of this
Agreement shall not impair or affect the validity or enforceability of any other
portion of this Agreement, which shall remain in full force and effect.
11. ASSIGNMENT. Employee shall not assign, transfer, pledge or encumber
this Agreement or any rights or obligations hereunder. The Company may not
assign or transfer this Agreement to successor Company in the event of merger,
consolidation, or transfer or sale of all or substantially all of the assets of
the Company without prior written approval of Employee; provided, however, that
in the case of any such assignment or transfer, this Agreement shall be binding
upon and inure to the benefit of such transferee, which shall assume and perform
all of the obligations of the Company hereunder.
10
<PAGE>
12. WAIVER. A waiver by either party of a breach of any provisions of this
Agreement shall not operate or be construed to be a waiver of any subsequent
breach.
13. MISCELLANEOUS. This Agreement (a) shall be governed by and interpreted
in accordance with the local laws of the State of Arizona, (b) shall not be
modified except in a writing signed by the parties, (c) constitutes the entire
understanding of the parties with respect to the subject matter hereof,
superseding all prior understandings and agreements (both oral and written), and
(d) shall be binding upon and inure to the benefit of the parties hereto, their
heirs, executors, administrators, successors and permitted assigns. The
paragraph headings are for convenience only and shall not affect the
construction or interpretation of this Agreement.
11
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement in
multiple counterparts at the place and as of the date and year first above
written.
EMPYREAN BIOSCIENCE, INC. (Company)
By: /s/ Lawrence D. Bain
-------------------------------------
/s/ Stephen D. Hayter
----------------------------------------
STEPHEN D. HAYTER (Employee)
12
<PAGE>
EXHIBIT A
Exercise
Expiration Date Grant Dates Prices Vesting Schedules
- --------------- ----------- ------ -----------------
175,000 (9/6/00) 9/6/96 $0.38 Fully Vested
300,000 (10/3/00) 10/3/97 $0.55 Fully Vested(#)
900,000 (4/28/01) 4/28/98 $0.96 50% Vested
50% Vesting TBD by Comp Committee($)
500,000 (4/28/01) 4/28/98 $0.96 50% Vested(@)
50% Vesting TBD by Comp Committee
21,197 (2/3/09) 2/3/99 $0.37 Fully Vested
308,745 (2/3/09) 2/3/99 $0.37 50% Vested
50% Vesting TBD by Comp Committee
- ----------
Footnotes:
(#) - Options were 50% vested. Board approved fully vested options "unless after
obtaining an opinion from the Company's CPAs there is a required expense
accrual due to the vesting change." Grant Thornton is researching the
accounting rules now.
($) - Options were 50% vested. Board approved creating a vesting schedule for
the remaining 50% (currently the options vest over time) "unless after
obtaining an opinion from the Company's CPAs there is a required expense
accrued due to the vesting change." Grant Thornton is researching the
accounting rules now.
(@) - Options vested subject to certain performance criteria. The Board approved
making the options 50% vested as of April 29, 1999 and creating a vesting
schedule for the remaining 50%.
13
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT is entered into at Phoenix, Arizona, this 7th day
of September, 1999 by and between EMPYREAN BIOSCIENCE, INC. (the "Company") and
RICHARD C. ADAMANY ("Employee").
RECITALS:
A. The Company is in the business of infectious disease prevention through
the development and sale of microbicide lotion and gel (the "Business");
B. Employee has certain expertise in connection with certain aspects of the
Company's business and the ability to expand and grow the Company's operations
and profitability.
NOW, THEREFORE, in consideration of mutual promises and agreements
contained herein and intending to be legally bound hereby, the parties agree as
follows:
1. EMPLOYMENT. The Company hereby employs Employee, and Employee hereby
accepts such employment by the Company, effective September 7, 1999 ("the
Commencement Date"), upon the terms and conditions set forth herein. Company
agrees that any public announcement or disclosure of Employee's employment by
the Company shall occur after the Commencement Date.
2. SERVICES. Employee shall be appointed Executive Vice President and Chief
Operating Officer upon commencement of employment. In addition, Employee shall
be appointed to serve as a member of the Board of Directors within six months
from the Commencement Date or at the next Board of Directors' meeting, whichever
occurs earlier. Employee will devote his full working time, experience and best
efforts to the performance of his duties on behalf of the Company. During the
time Employee holds the position of Executive Vice President and Chief Operating
Officer, Employee shall report to the Chief Executive Officer with respect to
1
<PAGE>
day-to-day operations of the Company. No later than six months following the
Commencement Date, Employee shall be promoted to President and Chief Executive
Officer, at which time Employee shall report to the Chairman of the Company and
shall assume increased responsibilities commensurate with the promotion.
Employee shall perform all such duties in accordance with such rules, policies
and procedures as the Company and or its Board of Directors may adopt from time
to time.
3. COMPENSATION.
3.1 BASE SALARY. The Company shall pay to Employee an annual base salary of
One Hundred Fifty Thousand Dollars ($150,000.00) payable in consecutive, equal,
biweekly installments. Concurrent with Employee's promotion, as provided in
paragraph 2, Employee's annual base salary shall increase to One Hundred Eighty
Thousand Dollars ($180,000.00). Employee's base salary shall be reviewed
annually thereafter by the Compensation Committee. The first review shall occur
eighteen (18) months from the Commencement Date.
3.2 CERTAIN BASIC FRINGE BENEFITS. Upon commencement of employment, the
Company shall provide to Employee a benefits package including, but not limited
to, company-sponsored group health insurance (including prescription drug plan),
dental insurance, vision insurance, group life insurance, accidental death and
dismemberment benefits, short term disability insurance, long term disability
insurance and the option to participate in any 401(k) program sponsored by the
Company, upon terms and conditions and in amounts to be determined by Employee
as part of a package of benefits he shall be responsible for drafting and
implementing and offering to all employees of the Company. Such program shall be
subject to the approval of the Board of Directors. Company will
2
<PAGE>
reimburse Employee for his costs, less a reasonable employee contribution, of
securing independent health insurance coverage until such time as the new
company-sponsored plan is in effect.
3.3 BUSINESS EXPENSES. The Company shall promptly reimburse Employee for
all reasonable, ordinary and necessary business expenses incurred by him in the
performance of his duties hereunder, and Employee shall submit receipts,
vouchers or other appropriate evidence to substantiate that said expenses were
incurred by Employee in connection with the business of the Company. In
addition, the Company will reimburse Employee for the cost of coach air fare
between Cleveland, Ohio and Phoenix, Arizona, when incurred by Employee, but not
more frequently than weekly. In addition, the Company shall provide Employee
with a furnished two-bedroom apartment in the Phoenix area, access to a fitness
center (but not including golf playing privileges), a suitable company-provided
automobile and a company credit card for the purchase of fuel for the company-
provided automobile operated by the Employee in Phoenix for purposes related to
the business of the Company and Employee's commuting to and from work in the
Phoenix area. All other charges to the credit card shall be the Employee's
responsibility.
3.4 INCENTIVE COMPENSATION. Employee shall be entitled to participate in an
incentive compensation bonus program to be adopted by the Company and in effect
for Fiscal Year 2000, after consultation with Employee, and pursuant to approval
of the Board of Directors. It will be the responsibility of the Employee to
prepare an incentive program for Senior Managers to present to the Empyrean
Board of Directors for approval.
3.5 INCENTIVE STOCK OPTIONS. Within thirty (30) days of the Commencement
Date, the Company shall, as set forth in and in accordance with the terms of a
stock option agreement to be entered into between the Company and Employee
3
<PAGE>
pursuant to the Company's stock option plan (the "Plan"), grant Employee
Incentive Stock Options to purchase a minimum of 1,500,000 shares of common
stock exercisable at the fair market value of such shares on the date of the
grant. Any shares acquired by Employee upon the exercise of the Incentive Stock
Options shall be subject to and shall be transferable only in compliance with
the Plan and applicable securities laws.
Company hereby agrees to register the shares under the Securities Act of
1933, as amended, by means of an effective Form S-8 registration statement, and
all shares issued upon exercise of options granted pursuant to the terms of the
Plan will be permitted to be resold under an effective Form S-3 registration
statement, if available. Company hereby agrees to have such registration(s) in
effect, to maintain the registration(s) in effect as long as necessary for
Employee to sell his shares, and to comply with any other requirements,
including the preparation of a reoffer prospectus, if applicable, necessary for
employee to sell his shares.
Options for 500,000 shares will vest over a six-month period as follows:
* Options for 50,000 shares will vest immediately upon the Commencement
Date;
* Options for 90,000 shares will vest on the last day of each of the
second, third, fourth, fifth and sixth month following the
Commencement Date.
Employee agrees not to sell more than the equivalent of one percent (1%) of
the outstanding shares of the Company during any 90 day period for a period of
twelve months from the Commencement Date. Options for a minimum of 1,000,000
shares will vest based upon achieving mutually agreed upon performance criteria
for Fiscal Year 2000 and 2001 as follows:
* Fiscal Year 2000 - Options for a base amount of 500,000 shares will
vest based upon three to five performance criteria. The 500,000
options will be divided by the number of performance criteria and an
equal amount will be attached to the achievement of each performance
criterion. Vesting for each performance criterion will be based upon
4
<PAGE>
upon the percentage of the criterion achieved with a minimum of 85%
achievement to vest and no maximum. The base number of options for
each criterion will be multiplied by the percentage achievement for
that criterion. These amounts will then be added together to determine
the total options vested. Should the total options vested exceed
500,000, then vesting will be accelerated from the remaining options.
* Fiscal Year 2001 - Options for a base amount of 500,000 shares will
vest under the same procedure as described above. If vesting of any
options were accelerated to Fiscal 2000, then additional options will
be granted subject to Compensation Committee guidelines with a minimum
of 200,000 shares as well as any potential additional vesting earned
through other incentive provisions.
Any options granted to other members of management will vest upon the same
performance criteria as applied to Employee. The options will have a 10-year
term and provide for accelerated vesting in the event of a change in control or
ownership of the Company or termination of Employee's employment without cause.
4. TERM, TERMINATION.
4.1 This Agreement may be terminated by the Company at any time "for cause"
or without cause. "For cause" shall mean any termination of the Employee's
employment resulting from Employee's engaging in fraud, misappropriation of
funds or embezzlement against the Company.
4.2 If Employee is terminated from employment without cause, the Company
shall provide to Employee a twenty-four month evergreen severance provision
whereby Employee's base salary, bonus, benefits and options shall continue for
5
<PAGE>
twenty-four months, provided, however, if Employee's employment is terminated
less than twelve months from the Commencement Date, Employee's period of
severance will be limited to twelve months.
Any termination of Employee's employment resulting from: (i) Employee's
death; (ii) Employee's inability to perform the essential functions of his job
with or without reasonable accommodation for 180 consecutive business days or
300 of 365 total days; or (iii) Employee's resignation from his positions with
the Company within 30 days after the receipt of written notice from the Company
informing Employee that his base salary rate shall be reduced below its then
current level (the "Salary Reduction Notice"), or within 30 days of a reduction
in duties, title or responsibility, or within 30 days of a change in location, a
change in control or a breach of this Agreement, shall be deemed to be a
termination by the Company without cause.
Bonuses to be earned in accordance with an incentive compensation bonus
program applicable to the fiscal year in which Employee is terminated will be
determined by prorating the full amount of the bonus, which would have been
earned, had Employee been employed for the full fiscal year by the number of
days employed during the fiscal year. Incentive stock options to be vested
upon the attainment of certain performance goals applicable to the fiscal year
in which Employee is terminated shall be accelerated and vested as of the
Employee's termination date. Bonus shall be payable no later than 90 days
following the close of the fiscal year that Employee is terminated.
Such severance shall be paid to Employee in the form of regular payroll
checks, less deductions for taxes and withholdings, in equal installments during
the severance period following Employee's termination. The Company shall
continue to pay to Employee his salary at the annual rate in effect immediately
prior to such termination (unless such termination occurs as a result of the
6
<PAGE>
Employee's resignation from his positions with the Company within 30 days after
receipt of the Salary Reduction Notice, in which case such payments shall be at
the annual salary rate in effect immediately prior to the receipt of the Salary
Reduction Notice) for the severance period. Employee shall have the option of
accepting a lump sum payment of severance provision calculated by discounting
the stream of payments utilizing a discount rate of fifteen percent (15%).
In the event that participation in any such benefits package is barred, the
Company shall arrange to provide Employee with benefits during the severance
period substantially similar to those which he is entitled to receive, or
reimburse him for his costs of securing independent benefits coverage
substantially similar to the benefits package available to him prior to
termination, including gross up for any tax cost incurred as a result.
In the event the Company replaces the benefits package available to senior
officers of the Company during the Employee's severance period, Employee shall
be entitled to participate in any such replacement package, provided, however,
that if the new benefits package is substantially worse, in the aggregate, than
the benefits package available to Employee prior to termination, the Company
shall arrange to provide him with benefits substantially similar to those which
he is entitled to receive, or reimburse him for his costs of securing
independent benefits coverage substantially similar to the benefits package
available to him prior to termination.
In the event of a breach of this Agreement by the Company, Employee is
eligible, at Employee's option, to receive severance pay in accordance with the
two-year evergreen severance provision set forth above. Such severance payment
and acceleration of options as set forth in Section 4.2 shall be Employee's sole
remedy at law or in equity against Company for any breach of this agreement and
Employee shall sign a full and final release of claims, in a form acceptable to
Company, as a condition of receiving such severance payment.
7
<PAGE>
The Company and Employee mutually agree not to make or utter any
disparaging comments about one another, including the Company's past, present
and future officers, directors and or employees, and both the Company and the
Employee agree not to take any action to injure or harm one another's reputation
or business relationships.
5. COVENANTS OF EMPLOYEE.
5.1 Employee acknowledges that during the course of his employment by the
Company he will have access to trade secrets and other confidential information
with respect to the business, operations, accounts, books and records, sales,
customers, pricing, marketing, development, testing, scientific research and
other activities of the Company ("Trade Secrets"). Accordingly, Employee shall,
at all times, keep secret and inviolate all Trade Secrets which he now knows or
may hereafter come to know. In addition, Employee shall at no time copy, remove
from the premises of the Company or retain, without the prior consent of the
Company, any Trade Secrets, including, but not limited to, unpublished records,
agreements, books of account, corporate documents, work papers, correspondence,
customer lists, memoranda, computer software or documentation in connection
therewith, plans, drawings or copies or extracts from any of the foregoing,
except as may be required in the normal operation of the Company's business.
Upon the termination of Employee's employment, Employee shall promptly return to
the Company all Trade Secrets in his possession or under his control and shall
verify in writing his return of same as a condition to receipt of any severance
pay.
5.2 Employee agrees that during the term hereof (except as permitted
hereunder) and for a period of time equivalent to the length of Employee's
severance benefit following the termination of his employment, whether by
Company or by Employee, with or without cause, he will not engage in the
Business within any County or State where Company has conducted or may hereafter
8
<PAGE>
conduct any activities; or, own, manage, operate, control, or participate in, or
have any ownership interest in a similar business as the Business described in
Recital A, provided, however, that Employee may own any securities of any
publicly owned and traded entity in which Employee owns less than five percent
(5%) interest, which is engaged in the business similar to or competitive with
the business of the Company.
5.3 Employee agrees that for a period of time equivalent to the length of
Employee's severance benefit following the termination of his employment,
whether by Company or by Employee, with or without cause, he will not, directly
or indirectly, solicit the Company's employees. If during the severance period,
Employee is involved in a similar business as the Business described in Recital
A, Employee will not attempt to divert or take away, solicit or contact for
purposes related to the Business, any of the Company's customers and he shall
refrain from committing any act which would in any way jeopardize any
relationship the Company has with any such customer.
5.4 Employee hereby assigns to the Company any and all right, title and
interest Employee has or may have in any product, invention, device, method,
technique or formula created (in whole or in part) by him during the term
hereof, if such product, invention, device, method, technique or formula is
created during the hours in which Employee is employed or with the use or
assistance of the Company's facilities, materials or personnel. Employee shall
execute, acknowledge and deliver all documents and/or instruments which may be
requested by the Company in order to effectuate such assignment.
5.5 The Company shall have the royalty-free right to use in the Business
and to make, use and sell products and processes derived from any inventions,
discoveries, concepts and ideas (whether or not patentable or copyrightable),
including but not necessarily limited to processes, methods, formulae and
9
<PAGE>
techniques, as well as derivatives or improvements thereof or know-how related
thereto, which are conceived or made by Employee during the term of, during the
hours in which Employee is employed by the Company or with the use or assistance
of the Company's facilities, materials or personnel.
5.6 Company and Employee agree that the remedy at law for any breach of the
foregoing provisions of Section 5 will be inadequate, and either party shall be
entitled to both temporary and permanent injunctive relief enforcing such
provisions, in addition to any other remedy it may have at law or in equity.
5.7 The covenants of Company and Employee contained in this Section 5 are
separate and independent of any other provisions hereof and shall survive the
termination of this Agreement.
5.8 Employee has carefully considered the nature and extent of the
restrictions upon him and the rights and remedies conferred upon the Company,
and he hereby acknowledges and agrees that the same are reasonable in time and
territory, are designed to eliminate competition which otherwise would be unfair
to the Company, are fully required to protect the legitimate interest of the
Company, and do not confer a benefit upon the Company disproportionate to the
detriment to Employee.
6. REPRESENTATIONS BY EMPLOYEE. Employee represents and warrants to the
Company that (a) Employee has the legal right, power and authority to enter into
this Agreement and perform the obligations imposed upon him, (b) there are no
legal proceedings pending, or to the knowledge of Employee, threatened against
Employee which would in any way adversely affect the performance of the
obligations, and (c) Employee is not a party to any restrictive covenant,
agreement, contract or instrument which would in any way prohibit Employee from
entering into or performing such obligations.
10
<PAGE>
7. REPRESENTATIONS BY COMPANY. Company represents and warrants to the
Employee that (a) Company has the legal right, power and authority to enter into
this Agreement and perform the obligations imposed upon it, (b) there are no
legal proceedings pending, or to the knowledge of Company, threatened against
Company which would in any way adversely affect the performance of the
obligations, and (c) Company is not a party to any restrictive covenant,
agreement, contract or instrument which would in any way prohibit Company from
entering into or performing such obligations.
8. INDEMNIFICATION; INSURANCE. The Company will indemnify Employee to the
maximum extent permitted by law (including advancing expenses where appropriate)
with respect to actions taken by him as an officer or director of the Company,
any of its subsidiaries, or any affiliated entity of the Company or any of its
subsidiaries. The Company's obligation to provide indemnification shall survive
termination of employment. The Company will also maintain in effect during
Employee's employment hereunder directors and officer liability insurance with
minimum coverage of $5,000,000 per occurrence and $10,000,000 in the aggregate.
Employee will remain insured under such policy until the fifth anniversary of
termination of Employee's employment with the Company.
9. NOTICES. All notices hereunder shall be in writing and shall be deemed
to have been given at the time when mailed in any general or branch of the
United States Post Office enclosed in a registered or certified, postage prepaid
envelope addressed to the address of the respective parties as set forth below,
or to such other address as a party may have fixed by notice as stated below:
TO EMPLOYEE: TO THE COMPANY:
------------ ---------------
Richard C. Adamany Stephen D. Hayter, President and CEO
7240 Rollingbrook Trail Empyrean Bioscience, Inc.
Solon, Ohio 44139 2238 West Lone Cactus Drive
Suite 200
Phoenix, Arizona 85027
11
<PAGE>
10. SEVERABILITY. The invalidity or unenforceability of any portion of this
Agreement shall not impair or affect the validity or enforceability of any other
portion of this Agreement, which shall remain in full force and effect.
11. ASSIGNMENT. Employee shall not assign, transfer, pledge or encumber
this Agreement or any rights or obligations hereunder. The Company may not
assign or transfer this Agreement to successor Company in the event of merger,
consolidation, or transfer or sale of all or substantially all of the assets of
the Company without prior written approval of Employee; provided, however, that
in the case of any such assignment or transfer, this Agreement shall be binding
upon and inure to the benefit of such transferee, which shall assume and perform
all of the obligations of the Company hereunder.
12. WAIVER. A waiver by either party of a breach of any provisions of this
Agreement shall not operate or be construed to be a waiver of any subsequent
breach.
13. MISCELLANEOUS. This Agreement (a) shall be governed by and interpreted
in accordance with the local laws of the State of Arizona, (b) shall not be
modified except in a writing signed by the parties, (c) constitutes the entire
understanding of the parties with respect to the subject matter hereof,
superseding all prior understandings and agreements (both oral and written), and
(d) shall be binding upon and inure to the benefit of the parties hereto, their
heirs, executors, administrators, successors and permitted assigns. The
paragraph headings are for convenience only and shall not affect the
construction or interpretation of this Agreement.
12
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement in
multiple counterparts at the place and as of the date and year first above
written. EMPYREAN BIOSCIENCE, INC. (Company)
By: /s/ Stephen D. Hayter
------------------------------------
Stephen D. Hayter, President and CEO
/s/ Richard C. Adamany
------------------------------------
RICHARD C. ADAMANY (Employee)
13
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT is entered into at Phoenix, Arizona,
this 7th day of September, 1999 by and between EMPYREAN BIOSCIENCE, INC. (the
"Company") and BENNETT S. RUBIN ("Employee").
RECITALS:
A. The Company is in the business of infectious disease prevention through
the development and sale of microbicide lotion and gel (the "Business");
B. Employee has certain expertise in connection with certain aspects of the
Company's business and the ability to expand and grow the Company's operations
and profitability.
NOW, THEREFORE, in consideration of mutual promises and agreements
contained herein and intending to be legally bound hereby, the parties agree as
follows:
1. EMPLOYMENT. The Company hereby employs Employee, and Employee hereby
accepts such employment by the Company, effective September 7, 1999 ("the
Commencement Date"), upon the terms and conditions set forth herein. Company
agrees that any public announcement or disclosure of Employee's employment by
the Company shall occur after the Commencement Date.
2. SERVICES. Employee shall be appointed Executive Vice President and Chief
Marketing Officer upon commencement of employment. In addition, Employee shall
be appointed to serve as a member of the Board of Directors within six months
from the Commencement Date or at the next Board of Directors' meeting, whichever
occurs earlier. Employee will devote his full working time, experience and best
efforts to the performance of his duties on behalf of the Company. During the
time Employee holds the position of Executive Vice President and Chief Marketing
Officer, Employee shall report to the Chief Executive Officer with respect to
day-to-day operations of the Company. No later than six months following the
1
<PAGE>
Commencement Date, Employee shall be promoted to Executive Vice President and
Chief Operating Officer, at which time Employee shall report to the Chairman of
the Company and shall assume increased responsibilities commensurate with the
promotion. Employee shall perform all such duties in accordance with such rules,
policies and procedures as the Company and or its Board of Directors may adopt
from time to time.
3. COMPENSATION.
3.1 BASE SALARY. The Company shall pay to Employee an annual base salary of
One Hundred Fifty Thousand Dollars ($150,000.00) payable in consecutive, equal,
biweekly installments. Concurrent with Employee's promotion, as provided in
paragraph 2, Employee's annual base salary shall increase to One Hundred Seventy
Thousand Dollars ($170,000.00). Employee's base salary shall be reviewed
annually thereafter by the Compensation Committee. The first review shall occur
eighteen (18) months from the Commencement Date.
3.2 CERTAIN BASIC FRINGE BENEFITS. Upon commencement of employment, the
Company shall provide to Employee a benefits package including, but not limited
to, company-sponsored group health insurance (including prescription drug plan),
dental insurance, vision insurance, group life insurance, accidental death and
dismemberment benefits, short term disability insurance, long term disability
insurance and the option to participate in any 401(k) program sponsored by the
Company, upon terms and conditions and in amounts to be determined by Employee
as part of a package of benefits he shall be responsible for drafting and
implementing and offering to all employees of the Company. Such program shall be
subject to the approval of the Board of Directors. Company will reimburse
Employee for his costs, less a reasonable employee contribution, of securing
independent health insurance coverage until such time as the new
company-sponsored plan is in effect.
2
<PAGE>
3.3 BUSINESS EXPENSES. The Company shall promptly reimburse Employee for
all reasonable, ordinary and necessary business expenses incurred by him in the
performance of his duties hereunder, and Employee shall submit receipts,
vouchers or other appropriate evidence to substantiate that said expenses were
incurred by Employee in connection with the business of the Company. In
addition, the Company will reimburse Employee for the cost of coach air fare
between Cleveland, Ohio and Phoenix, Arizona, when incurred by Employee, but not
more frequently than weekly. In addition, the Company shall provide Employee
with a furnished two-bedroom apartment in the Phoenix area, access to a fitness
center (but not including golf playing privileges), a suitable company-provided
automobile and a company credit card for the purchase of fuel for the
company-provided automobile operated by the Employee in Phoenix for purposes
related to the business of the Company and Employee's commuting to and from work
in the Phoenix area. All other charges to the credit card shall be the
Employee's responsibility.
3.4 INCENTIVE COMPENSATION. Employee shall be entitled to participate in an
incentive compensation bonus program to be adopted by the Company and in effect
for Fiscal Year 2000, after consultation with Employee, and pursuant to approval
of the Board of Directors. It will be the responsibility of the Employee to
prepare an incentive program for Senior Managers to present to the Empyrean
Board of Directors for approval.
3.5 INCENTIVE STOCK OPTIONS. Within thirty (30) days of the Commencement
Date, the Company shall, as set forth in and in accordance with the terms of a
stock option agreement to be entered into between the Company and Employee
pursuant to the Company's stock option plan (the "Plan"), grant Employee
Incentive Stock Options to purchase a minimum of 1,500,000 shares of common
stock exercisable at the fair market value of such shares on the date of the
grant. Any shares acquired by Employee upon the exercise of the Incentive Stock
Options shall be subject to and shall be transferable only in compliance with
the Plan and applicable securities laws.
3
<PAGE>
Company hereby agrees to register the shares under the Securities Act of
1933, as amended, by means of an effective Form S-8 registration statement, and
all shares issued upon exercise of options granted pursuant to the terms of the
Plan will be permitted to be resold under an effective Form S-3 registration
statement, if available. Company hereby agrees to have such registration(s) in
effect, to maintain the registration(s) in effect as long as necessary for
Employee to sell his shares, and to comply with any other requirements,
including the preparation of a reoffer prospectus, if applicable, necessary for
employee to sell his shares.
Options for 500,000 shares will vest over a six-month period as follows:
* Options for 50,000 shares will vest immediately upon the Commencement
Date;
* Options for 90,000 shares will vest on the last day of each of the
second, third, fourth, fifth and sixth month following the
Commencement Date.
Employee agrees not to sell more than the equivalent of one percent (1%) of
the outstanding shares of the Company during any 90 day period for a period of
twelve months from the Commencement Date.
Options for a minimum of 1,000,000 shares will vest based upon achieving
mutually agreed upon performance criteria for Fiscal Year 2000 and 2001 as
follows:
* Fiscal Year 2000 - Options for a base amount of 500,000 shares will
vest based upon three to five performance criteria. The 500,000
options will be divided by the number of performance criteria and an
equal amount will be attached to the achievement of each performance
criterion. Vesting for each performance criterion will be based upon
4
<PAGE>
the percentage of the criterion achieved with a minimum of 85%
achievement to vest and no maximum. The base number of options for
each criterion will be multiplied by the percentage achievement for
that criterion. These amounts will then be added together to determine
the total options vested. Should the total options vested exceed
500,000, then vesting will be accelerated from the remaining options.
* Fiscal Year 2001 - Options for a base amount of 500,000 shares will
vest under the same procedure as described above. If vesting of any
options were accelerated to Fiscal 2000, then additional options will
be granted subject to Compensation Committee guidelines with a minimum
of 200,000 shares as well as any potential additional vesting earned
through other incentive provisions.
Any options granted to other members of management will vest upon the same
performance criteria as applied to Employee. The options will have a 10-year
term and provide for accelerated vesting in the event of a change in control or
ownership of the Company or termination of Employee's employment without cause.
4. TERM, TERMINATION.
4.1 This Agreement may be terminated by the Company at any time "for cause"
or without cause. "For cause" shall mean any termination of the Employee's
employment resulting from Employee's engaging in fraud, misappropriation of
funds or embezzlement against the Company.
4.2 If Employee is terminated from employment without cause, the Company
shall provide to Employee a twenty-four month evergreen severance provision
whereby Employee's base salary, bonus, benefits and options shall continue for
5
<PAGE>
twenty-four months, provided, however, if Employee's employment is terminated
less than twelve months from the Commencement Date, Employee's period of
severance will be limited to twelve months.
Any termination of Employee's employment resulting from: (i) Employee's
death; (ii) Employee's inability to perform the essential functions of his job
with or without reasonable accommodation for 180 consecutive business days or
300 of 365 total days; or (iii) Employee's resignation from his positions with
the Company within 30 days after the receipt of written notice from the Company
informing Employee that his base salary rate shall be reduced below its then
current level (the "Salary Reduction Notice"), or within 30 days of a reduction
in duties, title or responsibility, or within 30 days of a change in location, a
change in control or a breach of this Agreement, shall be deemed to be a
termination by the Company without cause.
Bonuses to be earned in accordance with an incentive compensation bonus
program applicable to the fiscal year in which Employee is terminated will be
determined by prorating the full amount of the bonus, which would have been
earned, had Employee been employed for the full fiscal year by the number of
days employed during the fiscal year. Incentive stock options to be vested upon
the attainment of certain performance goals applicable to the fiscal year in
which Employee is terminated shall be accelerated and vested as of the
Employee's termination date. Bonus shall be payable no later than 90 days
following the close of the fiscal year that Employee is terminated.
Such severance shall be paid to Employee in the form of regular payroll
checks, less deductions for taxes and withholdings, in equal installments during
the severance period following Employee's termination. The Company shall
continue to pay to Employee his salary at the annual rate in effect immediately
prior to such termination (unless such termination occurs as a result of the
6
<PAGE>
Employee's resignation from his positions with the Company within 30 days after
receipt of the Salary Reduction Notice, in which case such payments shall be at
the annual salary rate in effect immediately prior to the receipt of the Salary
Reduction Notice) for the severance period. Employee shall have the option of
accepting a lump sum payment of severance provision calculated by discounting
the stream of payments utilizing a discount rate of fifteen percent (15%).
In the event that participation in any such benefits package is barred, the
Company shall arrange to provide Employee with benefits during the severance
period substantially similar to those which he is entitled to receive, or
reimburse him for his costs of securing independent benefits coverage
substantially similar to the benefits package available to him prior to
termination, including gross up for any tax cost incurred as a result.
In the event the Company replaces the benefits package available to senior
officers of the Company during the Employee's severance period, Employee shall
be entitled to participate in any such replacement package, provided, however,
that if the new benefits package is substantially worse, in the aggregate, than
the benefits package available to Employee prior to termination, the Company
shall arrange to provide him with benefits substantially similar to those which
he is entitled to receive, or reimburse him for his costs of securing
independent benefits coverage substantially similar to the benefits package
available to him prior to termination.
In the event of a breach of this Agreement by the Company, Employee is
eligible, at Employee's option, to receive severance pay in accordance with the
two-year evergreen severance provision set forth above. Such severance payment
and acceleration of options as set forth in Section 4.2 shall be Employee's sole
remedy at law or in equity against Company for any breach of this agreement and
Employee shall sign a full and final release of claims, in a form acceptable to
Company, as a condition of receiving such severance payment.
7
<PAGE>
The Company and Employee mutually agree not to make or utter any
disparaging comments about one another, including the Company's past, present
and future officers, directors and or employees, and both the Company and the
Employee agree not to take any action to injure or harm one another's reputation
or business relationships.
5. COVENANTS OF EMPLOYEE.
5.1 Employee acknowledges that during the course of his employment by the
Company he will have access to trade secrets and other confidential information
with respect to the business, operations, accounts, books and records, sales,
customers, pricing, marketing, development, testing, scientific research and
other activities of the Company ("Trade Secrets"). Accordingly, Employee shall,
at all times, keep secret and inviolate all Trade Secrets which he now knows or
may hereafter come to know. In addition, Employee shall at no time copy, remove
from the premises of the Company or retain, without the prior consent of the
Company, any Trade Secrets, including, but not limited to, unpublished records,
agreements, books of account, corporate documents, work papers, correspondence,
customer lists, memoranda, computer software or documentation in connection
therewith, plans, drawings or copies or extracts from any of the foregoing,
except as may be required in the normal operation of the Company's business.
Upon the termination of Employee's employment, Employee shall promptly return to
the Company all Trade Secrets in his possession or under his control and shall
verify in writing his return of same as a condition to receipt of any severance
pay.
5.2 Employee agrees that during the term hereof (except as permitted
hereunder) and for a period of time equivalent to the length of Employee's
severance benefit following the termination of his employment, whether by
Company or by Employee, with or without cause, he will not engage in the
Business within any County or State where Company has conducted or may hereafter
8
<PAGE>
conduct any activities; or, own, manage, operate, control, or participate in, or
have any ownership interest in a similar business as the Business described in
Recital A, provided, however, that Employee may own any securities of any
publicly owned and traded entity in which Employee owns less than five percent
(5%) interest, which is engaged in the business similar to or competitive with
the business of the Company.
5.3 Employee agrees that for a period of time equivalent to the length of
Employee's severance benefit following the termination of his employment,
whether by Company or by Employee, with or without cause, he will not, directly
or indirectly, solicit the Company's employees. If during the severance period,
Employee is involved in a similar business as the Business described in Recital
A, Employee will not attempt to divert or take away, solicit or contact for
purposes related to the Business, any of the Company's customers and he shall
refrain from committing any act which would in any way jeopardize any
relationship the Company has with any such customer.
5.4 Employee hereby assigns to the Company any and all right, title and
interest Employee has or may have in any product, invention, device, method,
technique or formula created (in whole or in part) by him during the term
hereof, if such product, invention, device, method, technique or formula is
created during the hours in which Employee is employed or with the use or
assistance of the Company's facilities, materials or personnel. Employee shall
execute, acknowledge and deliver all documents and/or instruments which may be
requested by the Company in order to effectuate such assignment.
5.5 The Company shall have the royalty-free right to use in the Business
and to make, use and sell products and processes derived from any inventions,
discoveries, concepts and ideas (whether or not patentable or copyrightable),
including but not necessarily limited to processes, methods, formulae and
9
<PAGE>
techniques, as well as derivatives or improvements thereof or know-how related
thereto, which are conceived or made by Employee during the term of, during the
hours in which Employee is employed by the Company or with the use or assistance
of the Company's facilities, materials or personnel.
5.6 Company and Employee agree that the remedy at law for any breach of the
foregoing provisions of Section 5 will be inadequate, and either party shall be
entitled to both temporary and permanent injunctive relief enforcing such
provisions, in addition to any other remedy it may have at law or in equity.
5.7 The covenants of Company and Employee contained in this Section 5 are
separate and independent of any other provisions hereof and shall survive the
termination of this Agreement.
5.8 Employee has carefully considered the nature and extent of the
restrictions upon him and the rights and remedies conferred upon the Company,
and he hereby acknowledges and agrees that the same are reasonable in time and
territory, are designed to eliminate competition which otherwise would be unfair
to the Company, are fully required to protect the legitimate interest of the
Company, and do not confer a benefit upon the Company disproportionate to the
detriment to Employee.
6. REPRESENTATIONS BY EMPLOYEE. Employee represents and warrants to the
Company that (a) Employee has the legal right, power and authority to enter into
this Agreement and perform the obligations imposed upon him, (b) there are no
legal proceedings pending, or to the knowledge of Employee, threatened against
Employee which would in any way adversely affect the performance of the
obligations, and (c) Employee is not a party to any restrictive covenant,
10
<PAGE>
agreement, contract or instrument which would in any way prohibit Employee from
entering into or performing such obligations.
7. REPRESENTATIONS BY COMPANY. Company represents and warrants to the
Employee that (a) Company has the legal right, power and authority to enter into
this Agreement and perform the obligations imposed upon it, (b) there are no
legal proceedings pending, or to the knowledge of Company, threatened against
Company which would in any way adversely affect the performance of the
obligations, and (c) Company is not a party to any restrictive covenant,
agreement, contract or instrument which would in any way prohibit Company from
entering into or performing such obligations.
8. INDEMNIFICATION; INSURANCE. The Company will indemnify Employee to the
maximum extent permitted by law (including advancing expenses where appropriate)
with respect to actions taken by him as an officer or director of the Company,
any of its subsidiaries, or any affiliated entity of the Company or any of its
subsidiaries. The Company's obligation to provide indemnification shall survive
termination of employment. The Company will also maintain in effect during
Employee's employment hereunder directors and officer liability insurance with
minimum coverage of $5,000,000 per occurrence and $10,000,000 in the aggregate.
Employee will remain insured under such policy until the fifth anniversary of
termination of Employee's employment with the Company.
9. NOTICES. All notices hereunder shall be in writing and shall be deemed
to have been given at the time when mailed in any general or branch of the
United States Post Office enclosed in a registered or certified, postage prepaid
envelope addressed to the address of the respective parties as set forth below,
or to such other address as a party may have fixed by notice as stated below:
11
<PAGE>
TO EMPLOYEE: TO THE COMPANY:
------------ ---------------
Bennett S. Rubin Stephen D. Hayter, President and CEO
32379 Pinebrook Lane Empyrean Bioscience, Inc.
Pepper Pike, Ohio 44124 2238 West Lone Cactus Drive
Suite 200
Phoenix, Arizona 85027
10. SEVERABILITY. The invalidity or unenforceability of any portion of this
Agreement shall not impair or affect the validity or enforceability of any other
portion of this Agreement, which shall remain in full force and effect.
11. ASSIGNMENT. Employee shall not assign, transfer, pledge or encumber
this Agreement or any rights or obligations hereunder. The Company may not
assign or transfer this Agreement to successor Company in the event of merger,
consolidation, or transfer or sale of all or substantially all of the assets of
the Company without prior written approval of Employee; provided, however, that
in the case of any such assignment or transfer, this Agreement shall be binding
upon and inure to the benefit of such transferee, which shall assume and perform
all of the obligations of the Company hereunder.
12. WAIVER. A waiver by either party of a breach of any provisions of this
Agreement shall not operate or be construed to be a waiver of any subsequent
breach.
13. MISCELLANEOUS. This Agreement (a) shall be governed by and interpreted
in accordance with the local laws of the State of Arizona, (b) shall not be
modified except in a writing signed by the parties, (c) constitutes the entire
understanding of the parties with respect to the subject matter hereof,
superseding all prior understandings and agreements (both oral and written), and
(d) shall be binding upon and inure to the benefit of the parties hereto, their
heirs, executors, administrators, successors and permitted assigns. The
paragraph headings are for convenience only and shall not affect the
construction or interpretation of this Agreement.
12
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement in
multiple counterparts at the place and as of the date and year first above
written. EMPYREAN BIOSCIENCE, INC. (Company)
By: /s/ Stephen D. Hayter
-----------------------------------------
Stephen D. Hayter, President and CEO
/s/ Bennett S. Rubin
------------------------------------------
BENNETT S. RUBIN (Employee)
13
EXHIBIT 23.1
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We have issued our report dated February 11, 1999, accompanying the consolidated
financial statements of Empyrean Bioscience, Inc., contained in this
Registration Statement and Joint Proxy Statement/Prospectus. We consent to the
use of the aforementioned report in this Registration Statement and Joint Proxy
Statement/Prospectus, and to the use of our name as it appears under the caption
"Experts."
Grant Thornton LLP
San Jose, California September 30, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> YEAR 6-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1999
<PERIOD-START> JAN-01-1998 JAN-01-1999
<PERIOD-END> DEC-31-1998 JUN-30-1999
<CASH> 63 190
<SECURITIES> 0 0
<RECEIVABLES> 0 52
<ALLOWANCES> 0 0
<INVENTORY> 16 327
<CURRENT-ASSETS> 257 944
<PP&E> 117 128
<DEPRECIATION> 58 67
<TOTAL-ASSETS> 314 1,005
<CURRENT-LIABILITIES> 439 1,591
<BONDS> 0 0
0 0
0 0
<COMMON> 17,694 19,564
<OTHER-SE> (17,819) (20,150)
<TOTAL-LIABILITY-AND-EQUITY> 314 1,005
<SALES> 10 586
<TOTAL-REVENUES> 10 586
<CGS> 3 22
<TOTAL-COSTS> 2,420 2,785
<OTHER-EXPENSES> (181) (111)
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 0 0
<INCOME-PRETAX> (2,595) (2,331)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (2,595) (2,331)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (2,595) (2,331)
<EPS-BASIC> (0.11) (0.09)
<EPS-DILUTED> (0.11) (0.09)
</TABLE>
EMPYREAN BIOSCIENCE, INC.
2238 WEST LONE CACTUS DRIVE, SUITE 200
PHOENIX, ARIZONA 85027-2613
PROXY
The undersigned hereby appoints _______________ and ______________ and each of
them, proxies, with power of substitution and revocation, acting unanimously and
voting or if only one is present and voting then that one, to vote the shares of
stock of EMPYREAN BIOSCIENCE, INC. which the undersigned is entitled to vote, at
the annual meeting of stockholders to be held at the above address on
_____________ at ____, Arizona time, and at any adjournment or adjournments
thereof, with all the powers the undersigned would possess if present:
(CONTINUED AND TO BE SIGNED ON REVERSE SIDE)
(reverse of card)
FOR all nominees WITHHOLD
listed at right (except authority to vote for
as marked to the all nominees listed
contrary below) below
I. ELECTION NOMINEES:
OF [ ] [ ] Stephen D. Hayter
DIRECTORS: Andrew J. Fishleder
Robert G.J. Burg II
Michael Cicak
Lawrence D. Bain
Richard C. Adamany
Bennett S. Rubin
INSTRUCTION: TO WITHHOLD AUTHORITY TO
VOTE FOR ANY INDIVIDUAL NOMINEE, STRIKE
A LINE THROUGH THAT NOMINEE'S NAME AT
RIGHT.
FOR AGAINST ABSTAIN
2. APPROVAL OF MERGER AGREEMENT [ ] [ ] [ ]
BETWEEN EMPYREAN DELAWARE AND
EMPYREAN WYOMING
3. IN THEIR DISCRETION, THE PROXIES ARE AUTHORIZED TO VOTE UPON ALL OTHER
MATTERS THAT PROPERLY MAY BE PRESENTED AT THE MEETING.
<PAGE>
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF EMPYREAN
BIOSCIENCE, INC. AND WILL BE VOTED FOR THE ELECTION OF DIRECTORS UNLESS MARKED
TO WITHHOLD AUTHORITY AND WILL BE VOTED IN ACCORDANCE WITH ANY SPECIFICATION
INDICATED HEREON; IN THE ABSENCE OF A SPECIFICATION AS TO ANY PROPOSAL, THIS
PROXY WILL BE VOTED FOR SUCH PROPOSAL.
PLEASE SIGN AND DATE AND RETURN PROMPTLY IN THE ENCLOSED ENVELOPE. NO POSTAGE
NEED BE AFFIXED IF MAILED IN THE UNITED STATES.
The undersigned hereby revokes proxy or proxies heretofore given to vote such
shares at said meeting or at any adjournment thereof.
Signature of Stockholder: _____________________________ Date:_____________, 1999
FIRST CLASS MAIL IMPORTANT: PLEASE SIGN AND RETURN PROMPTLY PROXY MATERIAL
ENCLOSED. (Please sign exactly as name appears on this proxy, indicating, where
proper, official position or representative capacity).
