FORM 10-SB
GENERAL FORM FOR REGISTRATION OF SECURITIES
OF SMALL BUSINESS ISSUERS
Under Section 12(b) or (g) of the
Securities Exchange Act of 1934
BIOLABS, INC.
(Name of Small Business Issuer in its charter)
NEW YORK
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
1A-3033 KING GEORGE HIGHWAY, SURREY B.C. CANADA V4P 1B8
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(Address of principal executive offices) (Zip Code)
Issuer's telephone number: (604)542-0820
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Securities to be registered under Section 12(b) of the Act:
Title of each class to be so registered Name of each exchange
on which each class is
to be registered
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Securities to be registered under Section 12(g) of the Act:
Common Stock, Par Value $0.0001
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(Title of class)
<PAGE>
1
This Registration Statement on Form 10-SB contains statements which constitute
forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933, as amended (the "Securities Act"). These statements appear in a
number of places in this Form 10-SB and include statements regarding the intent,
belief or current expectations of BioLabs, Inc. (together with its subsidiaries,
the "Company") with respect to (i) the Company's financing plans, (ii) trends
affecting the Company's financial condition or results of operations, (iii) the
impact of competition, and (iv) the expansion of certain operations. Investors
are cautioned that any such forward-looking statements are not guarantees of
future performance and involve risks and uncertainties, and that the actual
results may differ materially from those in the forward-looking statements as a
result of various factors. The information contained in this Form 10-SB,
including, without limitation, the information under "Risk Factors",
"Management's Discussion and Analysis or Plan of Operations" and " Description
of Business" identifies important factors that could cause or contribute to such
differences. See "Description of Business--Risk Factors--Cautionary Statements
Regarding Forward-Looking Statements".
PART I
Item 1. Description of Business
BioLabs, Inc.'s (the "Company") principal operating asset is a 50% joint venture
("JV") to develop and commercialize the Mammastatin Serum Assay Test ("MSA
test"), with Biotherapies Incorporated ("Biotherapies"), a privately held
corporation located in Ann Arbor, Michigan. In addition to the JV, the Company
also holds a 6% equity interest in Biotherapies.
Biotherapies was founded by Dr. Paul Ervin Jr. in 1994. Dr. Ervin discovered the
mammastatin protein in 1987 at the University of Michigan Cancer Center (now
known as the Karamasoff Cancer Center in Detroit, Michigan).
Dr. Ervin observed under laboratory conditions that mammastatin decreased the
growth rate of breast cancer cells. During his Ph.D. training from 1987 to 1994,
Dr. Ervin continued his research which resulted in the issuance of a patent to
the University of Michigan in 1990, titled Mammastatin Biochemical
Characteristics. Dr. Ervin ultimately discovered that mammastatin is a naturally
occurring human protein that has been identified in laboratory media conditions
by the growth of normal mammary epithelial cells in culture. Mammastatin can be
identified in female blood serum and mammastatin levels vary in the serum of
healthy women during menstrual cycles. Additionally, preliminary research
indicated that mammastatin:
(a) is a growth inhibitory protein that may be a normal regulator of
breast cell growth and is likely a secreted protein
(b) does not effect the growth of other cells
<PAGE>
(c) requires the addition of a phosphate group to be active. Cancer cells
have an excess of the enzyme that removes the phosphate group (d) is
not active and levels are low in over 90% of breast cancer samples
analyzed. Active in all of the normal breast cells analyzed.
A gene for mammastatin has been isolated and identified. Dr. Ervin was
successful in cloning the gene and is now preparing for synthetic production for
further research.
In 1997, Biotherapies was given permission to administer natural mammastatin to
Stage IV breast cancer patients on a compassionate basis. The protein was
approximately 70% effective in either stopping or eradicating the cancer.
In conjunction with Biotherapies research on mammastatin, Biotherapies developed
a quantitative assay for measuring mammastatin in blood serum, known as the MSA
test.
MSA is composed of monoclonal antibodies against mammastatin and mammastatin
protein standards. The serum assay may contain, in addition, components of a
"Kit" which would allow antibody based detection of the mammastatin protein.
Components of the Kit could include but not be limited to: anti-mammastatin
monoclonal antibody, mammastatin protein, second antibody to detect
anti-mammastatin monoclonal antibody, substrates to develop color from the
assay, membrane to immobilize serum proteins, an apparatus to perform the blot,
a scanner to read the blot, and a software program and computer to interpret the
blot.
The assay is performed by applying a sample (serum or other fluid) and control
protein (mammastatin protein in solution, human serum with known amounts of
mammastatin, or some other liquid containing mammastatin of known amounts) to a
membrane using a dot-blot apparatus and suction. The membrane is then incubated
with anti-mammastatin antibody, washed and then incubated with a second
(detecting) antibody which is labeled by enzymatic means. The membrane is then
washed and developed with a substrate solution. Samples containing mammastatin
will show a colored reaction where the intensity of color is proportional to the
amount of mammastatin in the sample. The developed membrane is then analyzed by
desktop scanner and interpreted using appropriate software.
The assay may be modified to utilize additional anti-mammastatin antibodies and
different formats. The assay may be ELISA, or ELISA based but will, in any of
its forms, remain an antibody based system for measuring the quantity of
mammastatin protein in a liquid. In all cases, mammastatin is defined as a human
derived protein with forms of 53, 49 and 44kD which is growth inhibitory for
breast cell, phosphorylated, and produced by normal human mammary cells.
The Company entered in to the JV on November 4, 1998 with Biotherapies and
formed Biomedical Diagnostics LLC (the "LLC"), which will serve as the JV
entity. Under the terms of the JV Operating Agreement, the Company and
Biotherapies each agreed to make capital contributions as set forth below:
Company Contributions
(a) $500,000 to be paid to the LLC within 90 days of the effective date of
the JV agreement to be used by the LLC exclusively for the design and
development of a laboratory for the testing and manufacturing of
anti-mammastatin monoclonal and other anti-bodies used for the
Mammastatin Serum Assay screening test. The amount was paid on
______________.
(b) $1,000,000 to be paid to the LLC on or before March 31, 1999 to be
used for the ongoing development and support of the laboratory
described in (a). Biotherapies and the LLC agreed to extend the date
for the payment to June 30, 1999.
(c) $500,000 to be paid to Biotherapies no later than 60 days of the
effective date of the agreement to be used exclusively by Biotherapies
for the development of products utilizing the mammastatin technology.
The amount was paid on ____________.
(d) $500,000
(e)
(f) (R)Oe-DOU@bh@EAoae@I@e-DE@EAeE@e-DAe@e-DE@~~+@AeAOUae@e-DE@aEgulatory
approval noted in (e), the Company is to issue
Biotherapies' Contributions
Under the terms of the JV Operating Agreement, Biotherapies' contribution is an
exclusive, non-assignable, non-sublicensable, royalty free world-wide
sub-license to use all of Biotherapies' rights under the License Agreement with
the University of Michigan, for the development, manufacturing, marketing and
sale of the MSA test. The LLC will own all improvements developed by the LLC,
including modifications and enhancements as well as any new product or material
which performs substantially the same function as the MSA test, but does so
through a different method or process.
<PAGE>
As long as the JV remains in effect, the Company has a right of first refusal
over the development or commercialization of any other diagnostic or screening
test developed by Biotherapies, subject to the negotiation of acceptable terms
between the parties.
The JV is managed by four committee members, two of whom were appointed by the
Company and two appointed by Biotherapies. Each member has one vote. The votes
are decided by the President of Biotherapies. The committee has the power and
authority to make all of the ordinary and usual decisions concerning the
business of the JV, including the hiring of key officers and the following:
(a) Approve the Development Plan, Manufacturing Plan and Marketing Plan
for the Mammastatin Test or any other product, and approve revisions
to such plans;
(b) Approve all annual operating budgets, capital plans, long-range plans
and other plans, forecasts and projections for each Development
Program, Manufacturing Program and Marketing Program presented to the
Manager by the Project Team;
(c) Review the progress of each Development Program, Manufacturing Program
and Marketing Program on a calendar quarterly basis;
(d) Make, amend and repeal from time to time rules and procedures, not
inconsistent with the provisions of this Agreement, to regulate the
business and affairs of the Company;
(e) Approve the fiscal and financial policies of the Company established
by the President;
(f) Establish accounting procedures and accounting policies applicable to
the Company;
(g) Purchase, lease or otherwise acquire any real or personal property;
(h) Sell, convey, mortgage, grant a security interest in, pledge, lease,
exchange or otherwise dispose of, or encumber any real or personal
property;
(i) Open one or more depository accounts and make deposits into and checks
and withdrawals against such accounts in any amount;
(j) Borrow money, incur liabilities, and other obligations;
(k) Enter into any and all agreements and execute any and all contracts,
documents and instruments;
(l) Create Officer positions, engage the Officers of the Company, define
their respective duties other than as specifically provided in this
Agreement, and establish their compensation or remuneration;
<PAGE>
(m) Establish pension plans, trusts, profit sharing plans and other
benefit and incentive plans for Members, employees and agents of the
Company;
(n) Participate with others in partnerships; joint ventures and other
associations and strategic alliances; and
(o) Carry out such other duties as the Members from time to time direct.
The committee must refer the sale or hypothecation of all or substantially all
of the assets of the JV, capital expenditures or major commitments in excess of
$250,000, non-arms-length transaction or issuance of any additional JV interests
directly to the JV partners to be passed by simple majority vote.
The JV Agreement has no fixed term for expiry and both the Company and
Biotherapies can engage in competing technologies or business to the MSA test.
Either member of the JV may sell or encumber all or part of its interest in the
JV to another party by first granting the non-selling member a 30 day right of
first refusal.
In addition to the previously described Initial Contributions made by the
Company and Biotherapies, in the event that additional capital is required by
the JV, each member of the JV is obligated to fund its 50% portion of the total
shortfall. Should either member of the JV fail to fund the shortfall within 60
days of the due date, the other member has the option to fund the shortfall and
correspondingly dilute the non-funding members ownership percentage of the JV.
Subject to income tax regulations, the JV intends to allocate JV profits or
losses for each fiscal year in a manner that would cause each member's adjusted
capital account balance at the end of the year to equal the amount that would be
distributed to the members under a hypothetical liquidation of the JV. In
determining hypothetical liquidation values, it would be presumed that all of
the JV's assets would be sold at fair market value net of liabilities.
It is intended that the JV will distribute operating cash flow no less
frequently than once each calendar quarter. Operating cash flow is the gross
cash proceeds generated by the JV's operations less expenses, working capital,
interest and principal payments on JV debt, capital asset purchases and
contingencies, if any, as determined by the committee. Operating cash flow will
also include a deduction for a 4% royalty payment on sales payable under the
head licensing agreement between Biotherapies and the University of Michigan.
Operating cash will not include a deduction for depreciation and amortization of
capital equipment.
Government Regulation
In the United States, commercialization and sale of either therapeutic products
or diagnostic/screening tests are subject to approval or sanctioning by the
Federal Drug
<PAGE>
Administration ("FDA"). There are a number of regulations governing the
methodology under which tests and clinical trials must be conducted. Generally,
a proposed product must pass each phase of a multi phase process or fail. The
process is designed to prove safety, efficacy and effectiveness over a large
population sample. Recombinant or synthetic products are subject to long term
safety test which may be of a duration of a number of years. Generally,
regulatory authorities have a broad discretion when granting approvals.
The FDA approval process is being managed by Biotherapies, who has retained a
team of expert regulatory and legal advisors, including former FDA officials. In
1997, the FDA accepted the mammastatin proof of concept studies and approved the
therapeutic product under the "Fast Track" program, under which new products of
life threatening diseases can be approved in less than two years. The proof of
concept study involved a sample of 1000 blood samples and correlated low
mammastatin levels with the incidence of breast cancer. In 1998, Biotherapies
received approval from the FDA to commence Phase I and II clinical trials at the
University of Texas, MD Anderson Cancer Center in Houston, Texas. The trial
protocols were completed in early 1999 and the program is anticipated to start
during the second quarter of 1999. Phase I and II clinical trials will utilize
naturally produced mammastatin and will likely be completed in mid 2000. If
Phase I and II are successful, Biotherapies will then have to likely complete
one or more Phase III trials prior to obtaining approval to commercially launch
the product. Phase III trials will involve the use of recombinant or synthetic
mammastatin because of the limited production capability of natural mammastatin.
Phase III testing will primarily focus on long term safety and efficacy and may
take several years.
The MSA screening test will be likely subject to a less stringent trial process
because it is not an in-vitro therapeutic, but rather a blood test.
Biotherapies, on behalf of the JV, has identified the Toronto General Hospital
Cancer Centre to conduct a 1000 sample range test and a subsequent correlation
test utilizing a similar sample size.
The range test will consist of 500 healthy women and 500 breast cancer patients
to test and determine normal mammastatin ranges. Histories will be available for
each patient. The test will consist of a test on each sample and measurement of
mammastatin levels and a determent as to whether the levels correspond with the
patient history.
The correlation test will consist of 1000 blood samples absent of patient
history. The purpose of the test is to identify those patients who have tumours
or breast cancer.
The Company anticipates that the duration of the test period will be
approximately 6-9 months. Biotherapies is currently in the process of completing
the Protocols governing the test under a 510K application with FDA. Under a
510K, if accepted, the FDA would sanction the use of the product and approve
wording and terms of use accompanying the product.
<PAGE>
There can be no assurance that either mammastatin approved as a therapeutic
product or that the MSA test will be sanctioned for use. The FDA could impose
additional product testing and in the case of the MSA test, may require either
additional testing .
The international jurisdictions in which Biotherapies and the JV intend to
market their products have similar legislation and regulations governing the
sale of the therapeutic products and cancer screening tests. In addition, other
certain restrictions are often imposed on foreign corporations seeking to do
business in such jurisdictions. Failure to comply with these provisions could
result in immediate cessation of sales and distribution activities or the
institution of legal proceedings.
Laws and regulations of individual states and countries are subject to change.
There can be no assurance that any such change would not adversely affect the
Company. The failure of the Company to comply with such laws and regulations
could have an adverse impact on the operations of the Company.
Industry Overview
Cancer is one of medicine's most challenging fronts. Despite aggressive
measures, new drugs and advanced technologies, cancer remains one of the major
causes of death in developed countries. For 1998, the American Cancer Society
estimated new breast cancer incidence at 180,300 and 43,900 related deaths in
the USA alone. Breast cancer is a major form of cancer and is a leading cause of
cancer mortality among women in the USA and the developed world. While the rate
of incidence increase is greatest in women under age 50, most cases occur after
age 50.
Breast cancer, like other cancers, is a disease of abnormal cell growth.
Typically, the cells which line the milk producing ducts in the breast are the
cells that become cancerous. These cells undergo a controlled cycle of growth
and death during each menstrual cycle. The growth of these cells is thought to
be stimulated by the action of steroid hormones such as estrogen and
progesterone. Little is known about what other factors may normally control
growth of these cells in the breast. Abnormal growth causes a dense accumulation
of cells in a small area, which is the early formation of a tumour and quite
possibly breast cancer. This abnormal growth or mutation that ultimately leads
to breast cancer can be passed in a hereditary manner (believed to be
approximately 10% of all cases) or thought to be caused by mutating
environmental agents. Environmental agents that are thought to cause mutation
include radiation, synthetic chemicals, pesticides and diets which generate a
large amount of activated chemicals.
Many different factors may combine to lead to a mutation resulting in cancer.
Several different mutations may be necessary to initiate abnormal growth that
will lead to cancer. Many mutations that may occur may be repaired by the body
or may not ultimately lead to cancer.
Cancer incidence rates increase dramatically with age. The aging population is
also primarily responsible for increasing healthcare expenditure for cancer
diagnosis and management in the USA and worldwide.
<PAGE>
In most cancer cases, the disease is first diagnosed via patient complaint or
discomfort or the detection of lumps in abnormal tumour development. Experts
agree that early diagnosis is the most critical factor in improving the efficacy
of treatment and survival. The increase in cancer survivors has raised the
demand for disease monitoring and treatment protocols. In the past, cancer was
primarily diagnosed via tissue biopsy, sample culture or x-ray, mammography,
among others including surgery. Recent advances mediate cancer detection through
the identification of specific markers or screens in the body fluids of patients
with cancer. Tumour markers or screening tests are defined as either substances
or antibodies that can be measured quantitatively to measure the presence of a
cancer and/or possibly the organ where it resides. It can be used to establish
the extent of tumour growth before treatment, to predict prognosis, and to
monitor therapeutic response.
The tumour marker and screening test industry has grown significantly over the
past several years due to increased awareness of the benefits of early
detection, and the FDA's reclassification of tumour marker tests as Class II
devices, in September, 1996. The reclassification allows manufacturers to submit
pre-market notification 510(K) to the FDA, in lieu of submitting pre-market
approval application (PMA), which are more costly and intensive. The US market
for immunoassay tumour marker and screening tests totaled $238 million in 1998
for existing products. It is expected to reach $600 million by 2004 with a
compound annual growth rate of approximately 16%. Current penetration rates in
other developed countries are lower but are expected to grow at similar if not
better rates with increased awareness.
The Company believes that the MSA screening test will be functionally similar to
the existing PSA test for prostrate cancer, in that it is an immunoassay test,
utilizing blood serum, that screens for levels of a key growth inhibiting
protein. It is used for both cancer screening and evaluating treatment progress.
The PSA test is still in a developing market phase and despite lack of insurance
coverage, the product continues to achieve 30% plus compounded annual growth
rates. Although there can be no assurances, the Company believes that the MSA
product can achieve more rapid initial penetration and growth rates given that
breast cancer is a significantly more debilitating disease and effects a wider
population base.
Competition
Competition to the Biotherapies proposed therapeutic product consists of more
conventional treatments such as surgery, chemotherapy and radiation. In
addition, several other non-invasive therapeutics also exist, which are
manufactured and marketed by several large multinational pharmaceutical
companies. Additional competition and better or improved products may arise
while Biotherapies completes its clinical trials. While the Company believes
that Biotherapies' mammastatin therapeutic is superior to any other treatment
currently in existence, there is no assurance that the product will not face
severe competition from a superior product or procedure in the future, which
could significantly impact the Company's performance.
<PAGE>
Competition in the tumour marker and screening test immunoassay market is
dependent upon price, sensitivity of the test to a particular cancer type (i.e.
the number of false readings) and ongoing innovations to increase the test
performance and specificity. The reclassification of tests by the FDA has
resulted in a significant expansion in the number of new products submitted to
the FDA for clearance.
The industry is dominated by 4 large competitors with Abbott Laboratories having
the major share (approximately 53%). The large companies established their
dominance through instrumentation giveaways in exchange for test sales. They are
also able to offer a wide variety of tests for different cancers.
Currently, management is not aware of any direct competition to the MSA
immunoassay screening test but there can be no assurance that one will not be
available in the future.
Intellectual Property
The applications have been assigned to the University of Michigan according to
the terms of the licensing agreement for the mammastatin technology between
Biotherapies and the University of Michigan. The mammastatin technology,
including the MSA test is protected by two existing patents granted to the
University of Michigan in 1989 and two patent applications filed in 1997 and
1998. Biotherapies and a team of experts manages the patent process. Both
Biotherapies and the JV intend to patent all practical extensions of the
existing technology.
There can be no assurance that the patent applications will ultimately be
granted or that the patents will fully protect the Company, Biotherapies or the
JV from other competition. Both Biotherapies and the JV will have to incur
considerable costs in the future to obtain patent protection in other countries,
if any can be obtained at all.
History and Organization
The Company is a New York corporation which was incorporated on September 19,
1994, under the name Flexx Realm Inc. The name was changed to BioLabs, Inc. on
August 14, 1998.
The Company began focusing on the biotechnology industry in 1998. During March
through May, 1998, the Company acquired a 6% equity interest in Biotherapies. In
November, 1998, the Company entered into the JV with Biotherapies.
Potential Expansion of Business
<PAGE>
The Company is continually evaluating opportunities in the biotechnology
industry. The Company anticipates that over the next several years it will
attempt to either acquire related or unrelated technologies or operations. In
doing so, the Company may be able to introduce additional products or services
to diversify its revenue and asset base. The Company may also be able to acquire
the rights to a technology through future acquisitions. There can be no
assurance, however, that it will do so or that such efforts will be successful.
Employees
Because the Company is in the start-up phase of its operations, none of the
Company's principal officers are employed directly by the Company.
As of _______________ , the Company had one full time employee, employed in
administration. The Company's employees are not represented by a union or
governed by a collective bargaining agreement.
Risk Factors
Cautionary Statements Regarding Forward Looking Statements. Statements in this
Registration Statement on Form 10-SB under the captions "Description of
Business", "Management's Discussion and Analysis or Plan of Operations" and
elsewhere in this Form 10-SB, as well as statements made in press releases or
oral statements that may be made by the Company, or by officers, directors or
employees of the Company acting on the Company's behalf, that are not statements
of historical fact, constitute "forward looking statements" within the meaning
of the Private Securities Litigation Reform Act of 1995. Such forward looking
statements involve known and unknown risks, uncertainties and other factors,
including those described in this Form 10-SB under the caption "Risk Factors",
that could cause the actual results of the Company to be materially different
from the historical results or from any future results expressed or implied by
such forward looking statements. In addition to statements which explicitly
describe such risks and uncertainties, readers are urged to consider statements
labeled with the terms "anticipates", "believes", "belief", "expects", "plans",
"potential", "likely", "intends", to be uncertain and forward looking. All
cautionary statements made in this Form 10-SB should be read as being applicable
to all related forward looking statements wherever they appear. Investors should
consider the following risk factors as well as the risks described elsewhere in
this Form 10-SB.
History of Losses. The Company has incurred net losses of $1,007,958 and
$191,118 for the fiscal years ended December 31, 1998 and 1997 respectively.
There can be no assurance that the Company will operate profitably in the near
future or at all.
Net Worth. The Company had a negative net worth of $415,622 and $393,896 as at
December 31, 1998 and 1997 respectively.
There is no assurance that the Company will be able to operate profitably in the
future or at all.
<PAGE>
Lack of Prior Operations and Experience. The Company has no revenue from
operations, is in a start-up phase with its existing assets and has no other
significant assets other than those disclosed herein. There can be no assurance
that the Company will generate revenues in the future, and therefore, there can
be no assurance that the Company will be able to operate profitably in the
future or at all.
Additional Financing. As of December 31, 1998, the Company's current liabilities
exceeded its current assets by $1,346,248 and its total assets by $415,622. The
amount is reduced by $1,286,500 to $59,748 through the conversion of $872,500 of
accrued liabilities to common stock and issuance of preferred stock of $414,000
against preferred share subscriptions in 1999. The Company continues to have
significant obligations with respect to the JV and Biotherapies. In order to
complete its obligations, the Company requires additional financing.
The Company's obligations under the JV are likely sufficient to carry the JV
until December 31, 1999. The JV will likely require additional operating capital
for 2000, of which the Company and Biotherapies are required to contribute
equally.
There can be no assurance that the Company will obtain additional financing for
its current and future operations or capital needs on favorable terms, if at
all.
Uncertain Market/Government Regulations. Biotherapies' therapeutic product
requires FDA approval in the USA and will likely undergo a series of long term
clinical trials. The product will have to likely go through similar testing in
foreign jurisdictions. The MSA test is also subject to successful completion of
significantly more limited trials in the USA and requires standardization with
respect to methods of use and packaging, which is subject to FDA approval. There
can be no assurance that the tests and trials will ultimately be successful nor
that the product can be commercialized in it's current form, or approved for
use, in either the USA or any other foreign jurisdiction.
Competition. The Company may face intense competition from very large, well
established firms in the industry. These entities typically have significantly
more resources and well established track records. Many of these competitors are
in a better position to attract clientele. The Company, Biotherapies and the JV
will likely have to form alliances or further joint ventures in order to
successfully penetrate the marketplace. There can be no assurance that a
competitor will not develop similar or superior products nor that the Company
will be successful in competing in the marketplace.
No Likelihood of Dividends. The Company has never paid any cash or other
dividend on either its Common or Preferred Stock. At present, the Company does
not anticipate paying dividends in the foreseeable future and intends to devote
any earnings to the development of the Company's businesses. Investors who
anticipate the need for immediate income from their investment should refrain
from purchasing the Company's Stock.
<PAGE>
Lack of Diversification. The size of the Company makes it unlikely that the
Company will be able to commit its funds to the acquisition of any major
accounts or opportunities until it has a proven track record. The Company may
not be able to achieve the same level of diversification as larger entities
engaged in similar businesses.
Reliance on Management. The Company's success is dependent upon its officers and
directors and the hiring of key individuals. No officer or director has any long
term employment agreement. The Company has completed non-competition agreements
with all of its key personnel. There can be no assurance that the key personnel
and the Company's other directors will remain employed by the Company. In the
event key personnel cease to be employed by the Company, the Company will seek
to find qualified replacements on a timely basis.
Conflicts of Interest. The officers and directors may or may not have other
interests to which they devote substantial time and each will continue to do so,
not withstanding the fact that management time may be necessary to conduct the
business of the Company. As a result, certain conflicts of interest exist and
will continue to exist between the Company and its officers and directors, which
may not be susceptible to resolution. Conflicts of interest may arise in the
area of corporate opportunities, which can only be resolved through exercise by
the officers and directors of such judgment as is consistent with their
fiduciary duties to the Company. It is the intention of management, so as to
minimize potential conflicts of interest, to present first to the Board of
Directors of the Company, any proposed investments for its evaluation.
Indemnification and Exclusion of Liability of Directors and Officers. So far as
permitted by law, the Company's Certificate of Incorporation and By-Laws provide
that the Company will indemnify its directors and officers against expenses and
liabilities they incur to defend, settle or satisfy any civil or criminal action
brought against them on account of their being or having been Company directors
or officers unless, in any such action, they are adjudged to have acted with
gross negligence or to have engaged in willful misconduct. As a result of such
provisions, stockholders may be unable to recover damages against the directors
and officers of the Company for actions taken by them which constitute
negligence or a violation of their fiduciary duties, which may reduce the
likelihood of stockholders instituting derivative litigation against directors
and officers and may discourage or deter stockholders from suing directors,
officers, employees and agents of the Company for breaches of their duty of
care, even though such action, if successful, might otherwise benefit the
Company and its stockholders.
Item 2. Management's Discussion and Analysis of Plan of Operation.
All statements contained herein that are not historical facts, including but not
limited to, statements regarding the Company's current business strategy and the
Company's plans for future development and operations, are based upon current
expectations. These statements are forward-looking in nature and involve a
number of risks or uncertainties. Generally, the words "anticipates",
"believes", "estimates", "expects", "likely", "potentially", and similar
expressions as they relate to the Company and its management are intended to
identify forward-looking statements. Actual results may differ materially. Among
the factors that could cause actual results to differ materially are those set
forth under the caption "Description of Business-Risk Factors". The Company
wishes to caution readers not to place undue reliance on any such
forward-looking statements, which statements are made pursuant to the Private
Litigation Reform Act of 1995 and, as such, speak only as of the date made.
<PAGE>
The Company is in a start-up phase with respect to its assets and operations.
The Company's principal business prior to its investment and JV with
Biotherapies, was the investigation and evaluation of suitable business
prospects for the Company. On November 11, 1998, the Company entered into the JV
with Biotherapies described herein under "Item 1. Description of Business".
Management believes that revenues will not be generated by the JV until early to
mid 2000.
The financial results of the last two fiscal years are not indicative of the
results of the current fiscal year or, the Company believes, other future years
as the JV begins to produce revenues.
<TABLE>
<CAPTION>
Year Ended December 31
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1998 1997
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<S> <C> <C>
Total Revenue $ -- $ --
Gross Profit -- --
----------- -----------
General and Administrative
Expenses 1,080,811 191,118
Operating Loss (1,080,811) (191,118)
Interest and Miscellaneous
Income 2,853 --
----------- -----------
Net Loss $(1,077,958) $ (191,118)
=========== ===========
</TABLE>
Year Ended December 31, 1998 compared to Year Ended December 31, 1997
- ---------------------------------------------------------------------
Results for the fiscal year ended December 31, 1998 ("FY 98") reflect a loss of
$1,077,958 compared to a loss for the fiscal year ended December 31, 1997 ("FY
97") of $191,118. The loss from FY 98 was primarily attributable to costs
associated with the Company's start-up and organization activities related to
the raising of capital to proceed with its investment in Biotherapies and the
JV.
<PAGE>
General and administrative expenses for FY 98 were $1,080,811 compared to
$191,118 for FY 97. The major general and administrative expenses for the
Company were legal and accounting fees, management and consulting fees, and
travel expenses. Expenses were higher in FY 98 due primarily to the following.
Legal and accounting expenses increased by $89,176 as a result of a special
audit conducted for the Company's 504 offering, legal fees associated with the
offering, and the Biotherapies agreements. Listing and share transfer fees
increased from a nil amount to $37,802 as the Company prepared for its listing
on the bulletin board in February, 1999. Management and consulting fees
increased by $625,656 from $112,176 for FY 97 to $737,832 for FY 98. The
increase was primarily due to the Company's use of external consultants utilized
to investigate, evaluate and negotiate the agreements with Biotherapies. Travel
expenses also increased from $35,017 in FY 97 to $149,671 in FY 98, also related
to the Company's activities associated with the completion of the investment and
JV with Biotherapies, and its capital raising and listing activities.
Liquidity and Capital Resources. As of December 31, 1998, the Company had cash
of $82,153 compared to $402 as of December 31, 1997. On December 31, 1998, the
Company had a net working capital deficit of $1,346,248. However, $414,000 of
this deficit are preferred stock subscriptions (i.e. amounts received for Class
A preferred stock where the shares were not yet issued as at December 31, 1998,
but issued subsequent to December 31, 1998) and $872,500 is accrued liabilities
which were converted to common stock equity in 1999. Accordingly, such
liabilities will not adversely impact cash flow and without such liabilities,
the net working capital deficit was $59,748. On December 31, 1997, the net
working capital deficit was $393,896. The improvement in FY 98 is primarily due
to equity raised through the 504 offering.
The cash requirements of funding the Company's requirements have historically
exceeded cash flow from operations. Accordingly, the Company has satisfied its
capital needs primarily through debt and equity financing.
The Company's outstanding indebtedness as of December 31, 1998 was $40,132,
represented by promissory notes payable to companies controlled by officers and
directors of the Company. The notes are payable 30 days after demand, bear
interest at prime plus 4%, and are convertible into shares of the Company at
$.25 per share. The notes are secured by a security interest in and to all
assets and book accounts of the Company.
Subsequent to December 31, 1998, the Company's indebtedness has not changed.
The Company has material capital commitments under its JV with Biotherapies.
Accordingly, the Company needs to raise financing to meet these obligations.
Recently Issued Accounting Standards
(TO BE DETERMINED)
Year 2000. The Company believes that all of its computer systems are Year 2000
compliant. The operating systems employed by the Company include Windows 98 and
DOS, all of which are compliant. The ACCPAC accounting software is also
compliant. The Company does not believe that the year 2000 problems will have
any effect on the Company's operations.
<PAGE>
Item 3. Description of Property
The Company maintains its executive offices in approximately 2000 square feet of
space in Surrey, British Columbia, Canada, pursuant to a base expiry on November
30, 2001. The Company has an option to renew the lease for an additional three
years. Monthly lease payments are approximately $3200 per month.
Item 4. Security Ownership of Certain Beneficial Owners and Management.
The following table sets forth information known to the Company, as of
___________, 1999, regarding the beneficial ownership of the Company's voting
securities by (i) each of the Company's directors and Named Executive Officers,
as defined in Item 6, and (ii) all directors and executive officers of the
Company as a group. Management is not aware of any individual or entity that
owns 5% or more of the voting stock of the Company, unless otherwise indicated,
each of the stockholders listed in the table below has sole voting and
dispositive power with respect to shares beneficially owned by such stockholder.
<TABLE>
<CAPTION>
Number of Shares Percent of
Name of Beneficial Owner Beneficially Owned Percent of Class Voting Stock
- ------------------------ ------------------ ---------------- ------------
<S> <C> <C> <C>
E. Greg McCartney 350,000 common 4.3% 4%
Lawrence J. Pasemko 350,000 common 4.3% 4%
Albert Klychak 210,000 common 2.6% 2.4%
Dr. Ian B. Woods 300,000 common 3.7% 3.4%
</TABLE>
(i) The address for Messrs. McCartney, Pasemko, Klychak, and Woods is c/o
BioLabs, Inc., Suite #1A, 3033 King George Highway, Surrey, BC, Canada, V4P 1B8.
Item 5. Directors, Executive Officers, Promoters and Control Persons
The directors and executive officers of the Company are as follows:
<TABLE>
<CAPTION>
Name Age Position
- ---- --- --------
<S> <C> <C>
E. Greg McCartney 48 President, Chief Executive Officer and
Chairman of the Board of Directors
Lawrence J. Pasemko 62 Chief Financial Officer, Secretary and Director
Albert Klychak 41 Vice President, Corporate Relations and
Director
Dr. Ian B. Woods 55 Vice President, Operations and Director
Dr. Paul R. Ervin Jr. 40 Director
Carol Patterson Neves 66 Director
</TABLE>
E. Greg McCartney Mr. McCartney has been the Company's President and Chief
Executive Officer since 1995 and in addition sits as Chairman of the Board for
White Diamond Spirits Inc., an American distilled spirits importing company.
From 1992 to 1995, Mr. McCartney was Vice President of Corporate Development at
Advanced Gaming Technology Corp., a public company distributing and
manufacturing electronic gaming equipment. Prior to 1992, Mr. McCartney was a
founding partner in a number of private enterprises involved in the electronics
industry, real estate and the automotive distribution business.
Lawrence J. Pasemko Mr. Pasemko has been the Company's Chief Financial Officer
and Secretary Treasurer since 1995. From 1992 to 1995, Mr. Pasemko was the CFO
for Advanced Gaming Technology Corp., a public company which manufactured and
distributed electronic gaming equipment. Prior to his employment with Advanced
Gaming, Mr. Pasemko was president of Supercart Pacific Wholesale (Canada) Inc.,
a private distribution business with operations throughout the Pacific Northwest
and was President and General Manager of two Chrysler automobile dealerships
located in British Columbia.
Dr. Ian B. Woods Dr. Woods has been the Company's Vice President, Operations
since February 1998. Dr. Woods is the senior founding partner of the Burke
Mountain Medical Centre in Port Coquitlam, British Columbia where he has
conducted a general medical practice since 1977. He received his Ph.D. in
Physics and his M.D. from the University of British Columbia. He completed his
internship at the Royal Columbian Hospital. He has served on numerous medical
advisory committees, is a director of ETC Industries Ltd. and President and
director of Chill Tech Industries Inc.
Albert Klychak Mr. Klychak has been the Company's Vice President, Corporate
Relations since 1995 and is primarily responsible for investor relations. From
1993 to 1996, Mr. Klychak was the President and Director of Quinchak Enterprises
Limited, a private company providing financing and investor relations services
and management services for a private equity fund. From 1986 to 1993, he managed
a private equity portfolio as an independent consultant.
<PAGE>
Dr. Paul R. Ervin Jr. Dr. Ervin is the founder and chairman of Biotherapies,
Incorporated, a privately held biotechnology company specializing in the
development of cancer diagnostics and therapeutics. Dr. Ervin is also the
founder and managing director of the Mammastatin Research Institute, and is a
former scientist at the University of Michigan Cancer Research Center. Dr. Ervin
is the principal scientist who discovered mammastatin and has conducted over 10
years of laboratory and pre-clinical tests on mammastatin. Dr. Ervin received
his Bachelor of Science Degree from Eastern Michigan University and his Ph.D. in
Cellular and Molecular Biology from the University of Michigan. Dr. Ervin was
first elected to the Board on November 5, 1998, by the Board of Directors.
Carol Patterson Neves Ms. Neves was employed with Merrill Lynch, Pierce, Fenner
& Smith for approximately 40 years prior to her retirement in 1996. From 1986 to
1996, Ms. Neves was the First Vice President/Senior Research Analyst:
Diversified Companies. Ms. Neves received her B.A. in Economics from Trinity
College, her graduate certificate from Harvard Business School and her MBA from
New York University. Ms. Neves was first elected to the Board on March 1, 1999,
by the Board of Directors.
Each director holds office until the Company's annual meeting of stockholders
and until his successor is duly elected and qualified. Officers are elected by
the Board of Directors and hold office at the discretion of the Board of
Directors. There are no family relationships between any of the directors or
executive officers of the Company.
Item 6. Executive Compensation
The Company is in the start-up phase of its business and operations and
currently generates no revenues. None of the Company's principal officers are
employed directly by the Company. Messrs. McCartney, Pasemko and Klychak,
through their respective holding companies, are parties to an employment
agreement dated September 1, 1998, between Tynehead Capital Corp. and the
Company.
During the year ended December 31, 1998, fees aggregating $173,200 was paid or
was payable to Tynehead Capital Corp. in connection with management and
administrative services provided by such executive officers and corporations.
The amount was split equally among the three officers excepting automobile
expenses, which were based on actual expenses incurred. Dr. Woods was not paid
for his services in 1998.
Director Compensation Directors did not receive compensation for serving on the
Board of Directors during the fiscal year ended December 31, 1998.
<PAGE>
Option and Award Plan On July 31, 1998, the stockholders approved the 1998 Stock
Option Plan adopted by the Board of Directors of the Company. The plan provides
for the grant of incentive stock option for up to 650,000 shares of Common Stock
to those employees, officers, directors or consultants eligible under the Plan
to receive stock option.
The Plan is administered by the Board of Directors on a committee thereof, which
determines, among other things, those individuals who receive options, the time
period during which the options may be partially or fully exercised, the terms
of any restrictions, the number of shares of Common Stock issuable upon the
exercise of each option, the exercise price and the expiration date, which date
will not exceed ten years from the date of grant of the Option.
The exercise price per share of Common Stock subject to an incentive option may
not be less than the fair market value per share of Common Stock on the date the
option is granted. The maximum grant to any individual cannot exceed 5% of the
total issued and outstanding Common Stock of the Company as of the date of the
grant of the option.
No stock option may be transferred by a plan participant other than by will, or
the laws of descent and distribution, and during the lifetime of the plan
participant, the option can be only exercised by the plan participant. In the
event of termination by death, retirement or the date a consultant ceases to be
a consultant by termination of the contract in accordance with its terms, or
ceases to be a director, the plan participant shall be entitled to exercise the
option within ninety days of the termination date. Options expire immediately in
all other instances. The plan administrator may amend the rules with respect to
termination in special circumstances.
Options issued under the Plan must be issued within ten years from the date the
option is granted. All options granted under the Plan provide for the payment of
the exercise price in cash or bank draft provided the plan participant delivers
notice of intent to exercise speaking the number of options to be exercised.
In the event of a merger, amalgamation or other corporate arrangement, including
but not limited to takeover, the Board of Directors may, in a fair and equitable
manner, determine the manner in which all unexercised option rights granted
under this plan will be treated, including the acceleration of time for the
exercise of such rights.
Any unexercised options that expire or that terminate upon a participant ceasing
to be employed by the Company become available again for issuance under the
Plan.
As of _________, 1999, the following options to purchase Common Stock have been
granted to officers and directors of the Company :
<PAGE>
<TABLE>
<CAPTION>
Number of Securities Exercise Date
Name Underlying Options Granted Price Granted
- ---- -------------------------- ----- -------
<S> <C> <C>
E. Greg McCartney 90,000 $1.00
Lawrence J. Pasemko 90,000 $1.00
Albert Klychak 90,000 $1.00
Dr. Ian B. Woods 90,000 $1.00
Dr. Paul R. Ervin Jr. 50,000 $1.00
</TABLE>
Employment Agreements The Company is in the start-up phase of its business and
operations and currently generates no revenues. None of the Company's principal
officers are employed directly by the Company.
Messrs. McCartney, Pasemko and Klychak, through their respective holding
companies, are parties to an employment agreement dated September 1, 1998,
between Tynehead Capital Corp. and the Company. $22,833 is payable monthly for
management services and reimbursement of automobile expenses. Other than
automobile expenses, the amount is shared equally between the three executive
officers. In the event that the agreement with Tynehead Capital Corp. is
terminated without cause, including termination through a change in control,
Tynehead is entitled to receive a lump sum payment equal to 24 months of the
then current compensation.
The monthly management fee is subject to an annual review by the Board of
Directors of the Company. The Company may also pay to Tynehead Capital Corp. an
annual incentive management fee, to be determined by the Board of Directors,
taking into account the financial performance of the Company and other such
factors deemed relevant.
The agreement provides that Messrs. McCartney, Pasemko and Klychak will not
compete with the Company for a period of one year subsequent to termination. A
court, however, may determine not to enforce such non-complete clauses as
against public policy.
Item 7. Certain Relationships and Related Transactions
- ------- ----------------------------------------------
On May 4, 1997, shares of Common Stock of the Company were issued to officers
and directors noted below as a settlement of outstanding debts and accounts
payable of $17,400.
<TABLE>
<CAPTION>
Shares of Common Stock
----------------------
<S> <C>
E. Greg McCartney 150,000
Lawrence J. Pasemko 135,000
Albert Klychak 150,000
Dr. Ian B. Woods 200,000
</TABLE>
<PAGE>
On January 2, 1998, 200,000 shares of Common Stock of the Company were issued to
Aspenwood Holdings Ltd., a company controlled by E. Greg McCartney, as
settlement of outstanding debts and accounts payable of $17,271.
On January 2, 1998, 215,000 shares of Common Stock of the Company were issued to
Supercart Pacific Wholesale (Canada) Inc., a company controlled by Lawrence J.
Pasemko, as settlement of outstanding debts and accounts payable of $18,567.
On January 2, 1998, 100,000 shares of Common Stock of the Company were issued to
Dr. Ian B. Woods, an officer and director of the Company, as settlement of
outstanding debts and accounts payable of $8,635.
On January 2, 1998, 60,000 shares of Common Stock of the Company were issued to
Albert Klychak, an officer and director of the Company, as settlement of
outstanding debts and accounts payable of $5,181.
Item 8. Description of Securities
The Company is authorized to issue 100,000,000 shares of its Common Stock,
$.0001 par value, of which 8,119,036 shares are outstanding as of
______________, 1999.
Each outstanding share of Common Stock is entitled to one vote, either in person
or by proxy, on all matters that may be voted upon by the holders thereof at
meetings of the stockholders. The holders of the Company's Common Stock have
equal ratable rights to dividends from funds legally available, therefore, when,
and if declared by the Board of Directors of the Company, and are entitled to a
pro rata share, subject to preferences given to Preferred Stock holders of all
the assets of the Company available for distribution to holders of the Common
Stock, upon liquidation, dissolution or winding up of the affairs of the
Company. The holders of Common Stock do not have preemptive, subscription or
conversion rights, redemption or any redemption or sinking fund provisions.
All shares of Common Stock outstanding are fully paid and non-assessable.
The Company is also authorized to issue 100,000,000 shares of its Preferred
Stock, $.0001 par value, of which 619,170 shares are outstanding as of
___________, 1999.
Class A Convertible Preferred Stock
The holder of the Series A Convertible Preferred Stock, par value $0.0001, (the
"Class A Stock") is entitled to receive, out of any funds legally available,
noncumulative dividends at a rate of six percent (6%) per annum prior and in
preference to any payment of any dividend on the Common Stock in each calendar
year. Dividends are paid when, as and if declared by the board. The dividend
rights and preferences of the Class A Stock are senior to those of the Common
Stock.
After the dividend preference of the Class A Stock has been paid in full for a
given calendar year, the Class A Stock will participate pro rata with the Common
Stock in the receipt of any additional dividends on an "as-if-converted" basis.
<PAGE>
The Class A Stock is unregistered stock and will remain as unregistered stock in
the event of any liquidation, dissolution or winding up of the Company, a merger
or consolidation of the Company in which its shareholders do not retain a
majority of the voting power in the surviving corporation, or a sale of all or
substantially all of the Company's assets. The holders of the Class A Stock are
entitled to receive an amount equal to the original purchase price per share for
the Class A Stock plus an amount equal to all declared but unpaid dividends
thereon (the "Preference Amount"). After the full liquidation preference on all
outstanding shares of the Class A Stock has been paid, any remaining funds and
assets of the Company legally available for distribution to shareholders are
distributed pro rata among the holders of the Class A Stock and the Common Stock
on an "as-if-converted" basis. The liquidation rights and preferences of the
Class A Stock are senior to those of the Common Stock. If the Company has
insufficient assets to permit payment of the Preference Amount in full to all
the Class A Stock shareholders, then the assets of the Company will be
distributed ratably to the holders of the Class A Stock in proportion to the
Preference Amount each such holder would otherwise be entitled to receive.
Subject to any legal restrictions on the Company's redemption of shares, the
Company has full rights to redeem all of the outstanding Class A Stock at any
time. The redemption price for each share of the Class A Stock is 110% of the
initial purchase price of the Class A Stock plus all declared but unpaid
dividends thereon to the date of redemption. If on the redemption date the
number of shares of the Class A Stock that may then be legally redeemed by the
Company is less than the number of such shares to be redeemed, the Company shall
redeem all shares that may be legally redeemed. The shares which may not be
legally redeemed at that time will be carried forward and redeemed as soon as
the Company has legally available funds to do so.
The holders of the Class A Stock have the right to convert its Class A Stock
into shares of Common Stock at any time after the passing of one year subsequent
to the date of the holder's subscription agreement. The Conversion Rate is one
share of Class A Stock for one share of Common Stock. All rights incident to a
share of Class A Stock will terminate automatically upon any conversion of such
share into Common Stock.
The Conversion Rate of the Class A Stock into Common Stock is subject to
adjustment from time-to-time as follows:
a) If the Company, at any time or from time-to-time after the date of the
first issuance of the Class A Stock (the "Initial Purchase Date")
issues any Additional Stock (as defined below) for a consideration less
than the market price of the Common stock in effect immediately prior
to the issuance of such Additional Stock, that Conversion Rate is
adjusted by multiplying the Conversion Rate by the following fraction:
i) the numerator shall be the per share price of the shares of
Additional Stock so issued.
ii) the denominator shall be the market price of a Common Stock
immediately prior to the issuance of such additional stock.
b) In the case of the issuance of Additional Stock for a consideration in
whole or in part other than cash, the consideration other than cash is
deemed to be the fair value thereof as determined by the Board of
Directors, irrespective of any accounting treatment.
c) In the case of the issuance, whether before, on, or after the Initial
Purchase Date, of options to purchase or rights to subscribe for Common
Stock, securities by their terms convertible into or exchangeable for
Common Stock, or options to purchase or rights to subscribe for such
convertible or exchangeable securities (which are not excluded from the
definition of Additional Stock), the following provisions apply:
i) The aggregate maximum number of shares of Common Stock
deliverable upon exercise of such options to purchase or
rights to subscribe for Common Stock is deemed to have been
issued at the time such options or rights were issued and for
a consideration equal to the consideration, if any, received
by the Company upon the issuance of such options or rights
plus the minimum purchase price provided in such options or
rights for the Common Stock covered thereby.
ii) The aggregate maximum number of shares of Common Stock
deliverable upon conversion of or in exchange for any such
convertible or exchangeable securities or upon the exercise of
options to purchase or rights to subscribe for such
convertible or exchangeable securities and subsequent
conversion or exchange thereof is deemed to have been issued
at the time such securities were issued or such options or
rights were issued and for a consideration equal to the
consideration, if any, received by the Company for any such
securities and related options or rights (excluding any cash
received on account of accrued interest or accrued dividends),
plus the additional consideration, if any, to be received by
the Company upon the conversion or exchange of such securities
or the exercise of any related options or rights (the
consideration in each case to be determined in the manner
provided in subsection 1(b).
iii) In the event of any change in the number of shares of Common
Stock deliverable or any increase in the consideration payable
to the Company upon exercise of such options or rights or upon
conversion of or in exchange for such convertible or
exchangeable securities including, but not limited to, a
change resulting from the antidilution provisions thereof, the
Conversion Rate of the Class A Stock obtained with respect to
the adjustment which was made upon the issuance of such
options, rights or securities, and any subsequent adjustments
based thereon, shall be recomputed to reflect such change, but
no further adjustment shall be made for the actual issuance of
Common Stock or any payment of such consideration upon the
exercise of any such options or rights or the conversion or
exchange of such securities.
<PAGE>
iv) Upon the expiration of any such options or rights, the
termination of any such rights to convert or exchange or the
expiration of any options or rights related to such
convertible or exchangeable securities, the Conversion Rate of
the Class A Stock obtained with respect to the adjustment
which was made upon the issuance of such options, rights or
securities or options or rights related to such securities,
and any subsequent adjustments based thereon, shall be
recomputed to reflect the issuance of only the number of
shares of Common Stock actually issued upon the exercise of
such options or rights, upon the conversion or exchange of
such securities or upon the exercise of the options or rights
related to such securities. Upon the expiration of any such
options or rights, the termination of any such rights to
convert or exchange or the expiration of any options or rights
related to such Convertible or exchangeable securities, only
the number of shares of Common Stock actually issued upon the
exercise of such options or rights, upon the conversion or
exchange of such securities or upon the exercise of the
options or rights related to such securities shall continue to
be deemed to be issued.
d) "Additional Stock" shall mean any shares of Common Stock issued (or
deemed to have been issued pursuant to subsection 1(c)) by the Company
on or after the Initial Purchase Date other than shares of Common Stock
issued or issuable as follows:
i) pursuant to a transaction described in subsection 1(e) below,
ii) to officers, directors, employees and consultants of the
Company directly or pursuant to benefit plans approved by the
shareholders and/or directors of the Company, or
iii) upon conversion of the Class A Stock.
e) In the event the Company should at any time or from time to time after
the Initial Purchase Date fix a record date for the effectuation of a
forward split or subdivision of the outstanding shares of Common Stock
or the determination of holders of Common Stock entitled to receive a
dividend or other distribution payable in additional shares of Common
Stock or other securities or rights convertible into, or entitling the
holder thereof to receive directly or indirectly, additional shares of
Common Stock (hereinafter referred to as "Common Stock Equivalents")
without payment of any consideration by such holder for the additional
shares of Common Stock or the Common Stock Equivalents (including the
additional shares of Common Stock issuable upon conversion or exercise
thereof), then, as of such record date (or the date of such dividend
distribution split or subdivision if no record date is fixed), the
Conversion Rate of the Class A Stock shall be appropriately increased
so that the number of shares of Common Stock issuable on conversion of
each share of such series shall be increased in proportion to such
increase of outstanding shares determined in accordance with subsection
1(c).
<PAGE>
f) If the number of shares of Common Stock outstanding at any time after
the Initial Purchase Date is decreased by a combination of the
outstanding shares of Common Stock, then, following the record date of
such combination, the Conversion Rate for the Class A Stock shall be
appropriately decreased so that the number of shares of Common Stock
issuable on conversion of each share shall be decreased in proportion
to such decrease in outstanding shares.
In the event the Company shall declare a distribution payable in securities of
entities, evidences of indebtedness issued by the Company or other entities,
assets (excluding cash dividends), or options or rights, then, in each such case
for the purpose of this subsection 2, the holders of the Class A Stock shall be
entitled to a proportionate share of any such distribution as though they were
the holders of the number of shares of Common Stock of the Company into which
their shares of the Class A Stock are convertible as of the record date fixed
for the determination of the holders of Common Stock of the Company entitled to
receive such distribution.
If at any time or from time to time there shall be a recapitalization of the
Common Stock (other than a subdivision, combination or merger or sale of assets
transaction provided for elsewhere herein, provision shall be made so that the
holders of the Class A Stock shall thereafter be entitled to receive upon
conversion of the Class A Stock the number of shares of stock or other
securities or property of the Company or otherwise, to which a holder of Common
Stock deliverable upon conversion would have been entitled on such
recapitalization. In any such case, appropriate adjustment shall be made in the
application of the provisions herein with respect to the rights of the holders
of the Class A Stock after the recapitalization to the end that the provisions
of this Agreement (including adjustment of the Conversion Rate then in effect
and the number of shares purchasable upon conversion of the Class A Stock) shall
be applicable after that event as nearly equivalent as may be practicable.
The Company will not, by amendment of its Articles of Incorporation or through
any reorganization, recapitalization, transfer of assets, consolidation, merger,
dissolution, issue or sale of securities or any other voluntary action, avoid or
seek to avoid the observance or performance of any of the terms to be observed
or performed hereunder by the Company, but will at all times in good faith
assist in the carrying out of all the provisions herein and in the taking of all
such action as may be necessary or appropriate in order to protect the
Conversion Rights of the holders of the Class A Stock against impairment.
For the purpose of effecting the conversion of the shares of the Class A Stock
the Company shall at all times reserve and keep available out of its authorized
but unissued shares of Common Stock such number of its shares of Common Stock as
shall from time to time be sufficient to effect the conversion of all
outstanding shares of the Class A Stock; and if at any time the number of
authorized but unissued shares of Common Stock shall not be sufficient to effect
the conversion of all then outstanding shares of the Class A Stock, in addition
to such other remedies as shall be available to the holder of such Class A
Stock, the Company will take such corporate action as may, in the opinion of its
counsel, be necessary to increase its authorized but unissued shares of Common
Stock to such number of shares as shall be sufficient for such purposes.
<PAGE>
Each share of the Class A Stock carries a number of votes equal to the number of
shares of Common Stock then issuable upon its conversion into Common Stock. The
Class A Stock will generally vote together with the Common Stock and not as a
separate class, except as provided below. In no instance shall the preferred
shareholders be entitled to vote for directors of the Company or on any sale,
stock issuance or the like with a combined vote of more than 49%.
Consent of the holders of a majority of the outstanding Class A Stock shall be
required for (i) any amendment or change of the rights, preferences, privileges
or powers of, or the restrictions provided for the benefit of, the Class A
Stock; (ii) any action that authorizes, creates or issues shares of any class of
stock having preferences superior to or on a parity with the Class A Stock;
(iii) any action that reclassifies any outstanding shares into shares having
preferences or priority as to dividends or assets senior to or on a parity with
the preference of the Class A Stock; (iv) any amendment of the Company's
Articles of Incorporation that adversely affects the rights of the Class A
Stock; (v) any merger or consolidation of the Company with one or more other
corporations in which the shareholders of the Company immediately prior to such
merger or consolidation hold, immediately after such merger or consolidation,
stock representing less than a majority of the voting power of the outstanding
stock of the surviving corporation; (vi) the sale of all or substantially all
the Company's assets; (vii) the liquidation or dissolution of the Company; or
(viii) the declaration or payment of any dividend on the Common Stock (other
than a dividend payable solely in shares of Common Stock).
Part II
Item 1. Market Price of and Dividends on the Registrants Common Equity and
Other Shareholder Matters
Price Range of Common Stock
The Common Stock commenced trading on the OTC Bulletin Board on February 16,
1999, under the symbol "BILB". The following table sets forth, for the fiscal
periods indicated, the high and low bid prices of a share of Common Stock as
reported by the OTC Bulletin Board for periods on and subsequent to February 16,
1999. Such quotations reflect inter-dealer prices, without dealer mark-up,
mark-down or commission and may not necessarily represent actual transactions.
High Low
---- ---
Fiscal Year 1999
1st Quarter
2nd Quarter
<PAGE>
As of _____________ 1999, there were approximately __________ holders of record
of the Common Stock.
The Company has not paid dividends on the Common Stock or the Class A Preferred
Stock since inception and does not intend to pay and dividends to its stock
holders in the foreseeable future. The declaration of dividends in the future
will be at the election of the Board of Directors and will depend upon the
earnings, capital requirements, financial position of the Company, general
economic conditions, and other factors the Board of Directors deems relevant.
Item 2. Legal Proceedings
Not Applicable
Item 3. Changes in and Disagreements with External Auditors
Not Applicable
Item 4. Recent Sales of Unregistered Securities
In the past three years, the Company has made the following sales of
unregistered securities, all of which sales were exempt from the registration
requirements of the Securities Act of 1933, as amended (the "Securities Act"),
pursuant to Section 3(b) hereof or as otherwise indicated herein.
In August, 1998, the Company sold 960,000 shares of Common Stock at $1.00 per
share (an aggregate of $960,000) to 181 non-accredited investors. The Company
believes that each issuance and sale of such securities was exempt from
registration pursuant to Section 3 (b) of the Securities Act and/or Rule 504
promulgated thereunder.
[what about preferred shared offering]
[what about 504 to create company]
Item 5. Indemnification of Directors and Officers
New York Law enables a corporation in its original certificate of incorporation,
or an amendment thereto validly approved by the Board of Directors, to eliminate
or limit personal liability of members of its Board of Directors for violations
of a director's fiduciary duty of care. However, the elimination or limitation
shall not apply where there has been a breach of the duty of loyalty, failure to
act in good faith, intentional misconduct or a knowing violation of a law, or
where an improper personal benefit is obtained. New York law permits a
corporation to indemnify directors and officers with respect to any matter in
which a director or officer acted in good faith and in a manner reasonably
believed to be not opposed to the best interests of the corporation, and, with
respect to any criminal action, had reasonable cause to believe the conduct was
lawful.
<PAGE>
The Company's Certificate of Incorporation includes the following language:
The personal liability of directors to the corporation or its shareholders
for damages for any breach of duty in such capacity is hereby eliminated
except that such personal liability shall not be eliminated if a judgement
or other final adjudication adverse to such director established that his
acts or omissions were in bad faith or involved intentional misconduct or a
knowing violation of law or that he personally gained in fact a financial
profit or other advantage to which he was not legally entitled or that his
acts violated Section 719 of the Business Corporation Law.
The Company's By-Laws include the following language:
Each director and officer of the corporation shall be indemnified by the
corporation to the fullest extent permitted by law against all costs and
expenses actually and necessarily incurred by him or her in connection with the
defense of any action, suit or proceeding in which he or she may be involved or
to which he or she may be made a party by reason of his or her being or having
been such director or officer, except in relation to matter as to which he or
she shall be finally adjudged in such action, suit or proceeding to be liable
for negligence or misconduct in the performance of duty.
Part F/S
The Financial Statements and Notes thereto can be found beginning on page ____
"Index to Financial Statements" following
- ------------------.
Part III
Item 1. Index to Exhibits
1) Certificate of Incorporation
2) By-Laws
3) 1998 Stock Option Plan
4) Employment Agreements
5) Lease Agreement
6) Joint Venture Agreement [is this needed]
<PAGE>
BIOLABS INC.
(formerly Flexx Realm Inc.)
(a New York Corporation)
(a development stage company)
FINANCIAL STATEMENTS
DECEMBER 31, 1998
1 Auditors' Report
2 Statement of Operations and Deficit
3 Balance Sheet
4 Statement of Stockholders' Equity
5 Statement of Cash Flows
6 Notes to the Financial Statements
AUDITORS' REPORT
To the Directors of
BIOLABS INC. (formerly Flexx Realm Inc.)
We have audited the accompanying balance sheet of Biolabs Inc. (A New York
Corporation) as at December 31, 1998 and the related statements of operations
and deficit and changes in cash flows for the year 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 audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform an audit to obtain reasonable
assurance 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.
In our opinion, these financial statements present fairly, in all material
respects, the financial position of the company as at December 31, 1998 and the
results of its operations and the changes in its cash flows for the year then
ended in accordance with generally accepted accounting principles.
The prior year financial statements were audited by other auditors who expressed
their opinion without reservation in their report dated March 19, 1998.
"LEMIEUX DECK MILLARD BOND"
Chartered Accountants
Langley, Canada
January 22, 1999
<PAGE>
<TABLE>
<CAPTION>
BIOLABS INC.
(formerly Flexx Realm Inc.)
(a New York Corporation)
(a development stage company)
STATEMENT OF OPERATIONS AND DEFICIT
Total from
inception
(September 19,
1994) to
December 31,
FOR THE YEARS ENDED DECEMBER 31, 1998 1997 1996 1998
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
REVENUE ............................ $ -- $ -- $ -- $ --
----------- ----------- ----------- -----------
EXPENSES
Amortization .................. 1,763 1,763 1,763 7,052
Automobile .................... 16,650 11,650 8,698 36,998
Interest and bank charges ..... 3,136 8,088 123 11,347
Legal and accounting .......... 109,180 20,005 25,948 155,132
Listing and share transfer fees 37,802 -- -- 37,802
Management and consulting fees 737,832 112,176 123,315 1,117,616
Office and miscellaneous ...... 15,462 772 1,875 19,246
Rent .......................... 3,196 -- -- 3,196
Telephone ..................... 6,118 1,648 1,087 8,853
Travel and promotion .......... 149,671 35,017 21,594 206,282
----------- ----------- ----------- -----------
1,080,810 191,119 184,403 1,603,524
===========
LOSS BEFORE OTHER INCOME ........... (1,080,810) (191,119) (184,403) (1,603,524)
Interest and miscellaneous
income ........................ 2,853 2,853
-----------
NET LOSS ........................... (1,077,957) (191,119) (184,403) (1,600,671)
DEFICIT, BEGINNING ................. (522,714) (331,595) (147,192) --
----------- ----------- ----------- -----------
DEFICIT, ENDING .................... $(1,600,671) $ (522,714) $ (331,595) $(1,600,671)
=========== =========== =========== ===========
LOSS PER COMMON SHARE (Note 7) ..... $ 0.17 $ 0.09 $ 1.04
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
<TABLE>
<CAPTION>
BIOLABS INC.
(formerly Flexx Realm Inc.)
(a New York Corporation)
(a development stage company)
BALANCE SHEETS
DECEMBER 31, 1998 1997 1996
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ASSETS
Current assets
Cash ..................................... $ 82,153 $ 402 $ --
Accounts receivable ...................... 288 --
Prepaid expenses ......................... 10,000 -- --
----------- ----------- -----------
92,153 690
----------- ----------- -----------
Long-term investment in:
Biomedical Diagnostics LLC (Note 2) ...... 500,000 -- --
Biotherapies Incorporated - shares (6%) .. 420,000 -- --
Office equipment (Note 3) ..................... 8,861 -- --
Organizational expense ........................ 1,765 3,528 5,291
----------- ----------- -----------
$ 1,022,779 $ 4,218 $ 5,291
=========== =========== ===========
LIABILITIES
Current Liabilities
Accounts payable and accrued liabilities . $ 984,268 $ 276,599 $ 328,069
Preferred stock subscriptions (Note 8) ... 414,000 -- --
Promissory notes payable -
related parties (Note 4) .............. 40,132 121,516 --
Commitments (Note 9)
----------- ----------- -----------
1,438,400 398,115 328,069
----------- ----------- -----------
STOCKHOLDERS' EQUITY (Note 5)
Preferred stock, $.0001 par value .............
Authorized 100,000,000 shares, none issued
Common stock, $.0001 par value ................
Authorized 100,000,000 shares;
Issued: 1998-7,186,536; 1997-3,176,536;
1996-176,536 .......................... 719 318 18
Additional paid-in capital .................... 1,184,330 128,499 8,799
Accumulated deficit ........................... (1,600,671) (522,714) (331,595)
----------- ----------- -----------
(415,622) (393,897) (322,778)
----------- ----------- -----------
$ 1,022,778 $ 4,218 $ 5,291
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
<TABLE>
<CAPTION>
BIOLABS INC.
(formerly Flexx Realm Inc.)
(a New York Corporation)
(a development stage company)
STATEMENT OF STOCKHOLDERS' EQUITY
DECEMBER 31, 1998
Common stock Additional Accum- Total
Number paid-in ulated stockholders'
of shares Amount capital deficit equity
--------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Issue of common stock on
organisation of the company 8,816,992 $ 8,817 $ -- $ --- $ 8,817
Net loss .................. -- -- -- (147,192) (147,192)
--------- ----------- ----------- ----------- -----------
Balance, December 31, 1995 8,816,992 8,817 -- (147,192) (138,375)
Consolidation of shares in
November on a
50 for 1 basis ............ (8,640,456) (8,799) 8,799 -- --
Net loss .................. -- -- -- (184,403) (184,403)
--------- ----------- ----------- ----------- -----------
Balance, December 31, 1996 176,536 18 8,799 (331,595) (322,778)
Issue of common stock for
settlement of debt ....... 3,000,000 300 119,700 -- 120,000
Net loss .................. -- -- -- (191,118) (191,118)
--------- ----------- ----------- ----------- -----------
Balance, December 31, 1997 3,176,536 318 128,499 (522,713) (393,896)
Issue of common stock for
settlement of debt ...... 3,000,000 300 347,095 -- 347,395
Issue of common stock for
cash .................... 1,010,000 101 708,736 -- 708,837
Net loss .................. -- -- -- (1,077,957) (1,077,957)
--------- ----------- ----------- ----------- -----------
Balance, December 31,1998 . 7,186,536 $ 719 $ 1,184,330 $(1,600,670) $ (415,621)
========= =========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
<TABLE>
<CAPTION>
BIOLABS INC.
(formerly Flexx Realm Inc.)
(a New York Corporation)
(a development stage company)
STATEMENT OF CASH FLOWS
Total from
inception,
(September 19,
1994) to
December 31,
FOR THE YEARS ENDED DECEMBER 31, 1998 1997 1996 1998
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net Loss ............................... $(1,077,957) $ (191,119) $ (184,403) $(1,600,671)
Adjustment to reconcile
net loss to cash
used in operating activities:
Amortization ......................... 1,763 1,763 1,763 7,052
Changes in operating assets
and liabilities:
Accounts receivable ................ 288 (288) -- --
Prepaid expenses ................... (10,000) -- -- (10,000)
Promissory notes payable ........... 266,011 121,516 -- 387,527
Accounts payable ................... 707,671 68,529 182,640 1,104,269
----------- ----------- ----------- -----------
(112,224) 401 -- (111,823)
----------- ----------- ----------- -----------
Cash flows from investing activities
Capital expenditures on
equipment .............................. (8,861) -- -- (8,861)
Purchase of shares of
Biotherapies Inc. ...................... (420,000) -- -- (420,000)
Investment in Biomedical
Diagnostics LLC ........................ (500,000) -- -- (500,000)
----------- ----------- ----------- -----------
(928,861) -- -- (928,861)
----------- ----------- ----------- -----------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Cash flows from financing activities
Common stock issued for cash ........... 708,837 -- -- 708,837
Preferred stock
subscriptions received ................. 414,000 -- -- 414,000
----------- ----------- ----------- -----------
1,122,837 -- -- 1,122,837
----------- ----------- ----------- -----------
Net increase in cash ...................... 81,752 401 -- 82,153
Cash, beginning ........................... 401 -- -- --
----------- ----------- ----------- -----------
Cash, ending .............................. $ 82,153 $ 401 $ -- 82,153
=========== =========== =========== ===========
Non-cash financing and investing activities
Common stock issued
to settle debt ......................... $ 347,395 $ 120,000 $ -- $ 467,395
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
BIOLABS INC.
(formerly Flexx Realm Inc.)
(a New York Corporation)
(a development stage company)
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 1998
1. Summary of significant accounting policies
Nature of operations
Biolabs Inc., through its 50% interest in Biomedical Diagnostics LLC., is
involved in the development of a mammastatin diagnostic assay to be used in
breast cancer detection.
These financial statements have been prepared in accordance with generally
accepted accounting principles applicable to a going concern which assume that
the Company will realise its assets and discharge its liabilities in the normal
course of business. Realisation values may be substantially different from the
carrying values as shown in these financial statements should the Company be
unable to continue as a going concern. The Company's ability to meet its
obligations and maintain its operations is contingent upon successful completion
of additional financial arrangements and the continuing support of its
creditors.
Accounting estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities 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.
Cash equivalents
Cash equivalents include holdings of highly liquid investments with maturities
of three months or less when purchased.
Long-term investments
The Company accounts for its investment in Biomedical Diagnostics LLC by the
equity method, whereby the investment is initially recorded at cost and adjusted
thereafter to include the Company's pro-rata share of Biomedical Diagnostics LLC
earnings and losses.
Long-term investments in companies in which the Company holds less than a 20%
interest are recorded at cost. When there is other than a temporary decline in
value, these investments are written down to provide for the loss.
Equipment
Equipment is recorded at cost less depreciation. Depreciation is primarily
accounted for on the straight-line method based on estimated useful lives.
<PAGE>
BIOLABS INC.
(formerly Flexx Realm Inc.)
(a New York Corporation)
(a development stage company)
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 1998
1. Summary of significant accounting policies (continued)
Organizational costs
Costs associated with the organization of the Company are capitalized and
amortized on a straight-line basis over a period of five years commencing
January 1, 1995.
Stock options
The exercise price of stock options granted was greater than the market price at
the grant date. No expense related to the stock options has been recorded.
Earnings per common share
Statement of Financial Accounting Standards No. 128, "Earnings per Share", which
became effective in 1997, requires presentation of two calculations of earnings
per common share. "Basic" earnings per common share equals net income divided by
weighted average number of common shares outstanding during the period.
"Diluted" earnings per common share equal net income divided by the sum of
weighted average common shares outstanding during the period plus common stock
equivalents. Common stock equivalents are shares assumed to be issued if
outstanding stock options were exercised and are only considered if their effect
on earnings per common share is dilutive.
2. Investment in Biomedical Diagnostics, LLC
The Company has entered into a joint venture agreement with Biotherapies
Incorporated for development of a mammastatin diagnostic assay. The joint
venture is named Biomedical Diagnostics, LLC and the Company and Biotherapies
Incorporated each have a 50% interest .
Under the terms of the Biomedical Diagnostics, LLC operating agreement, the
Company is required to make capital contributions of $1,500,000 to Biomedical
Diagnostics, LLC. The first contribution of $500,000 is due within 90 days of
the effective date. The remaining $1,000,000 contribution is due on or before
March 31, 1999.
The Company is also required, under the operating agreement, to make the
following additional payments to Biotherapies Incorporated:
-$ 500,000 within 60 days of execution (paid)
-$ 500,000 on or before March 31, 1999
-$2,500,000 within 14 days after the later of:
-the date the shares of the Company are first quoted on the OTC
Bulletin Board or the NASDAQ Market; and
<PAGE>
BIOLABS INC.
(formerly Flexx Realm Inc.)
(a New York Corporation)
(a development stage company)
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 1998
2. Investment in Biomedical Diagnostics, LLC (continued)
-the date Biomedical Diagnostics, LLC obtains regulatory approvals as
required for the manufacturing and marketing of some form of the mammastatin
diagnostic assay in the United States ("the Milestone").
Within 14 days of Biomedical Diagnostics, LLC achieving the Milestone, the
Company will issue to Biotherapies Incorporated voting shares of the common
stock of the Company constituting 5% of the total outstanding shares of all
types on a fully diluted basis, taking into account allocations, convertible
debt and issued shares.
As at December 31, 1998, Biomedical Diagnostics, LLC had not commenced
operations.
3. Equipment
1998 1997 1996
Office equipment $8,861 $ - $ -
Less: accumulated depreciation
$8,861 $ - $ -
4. Promissory notes payable - related parties
Promissory notes payable to companies controlled by Officers and Directors of
the Company, repayable 30 days after demand, interest at prime plus 4%,
convertible into shares of the Company at $.25 per share after the shares are
listed for trading, secured by a security interest in and to all assets and book
accounts, equipment, furniture, cash as well as accounts receivable and
inventory owned by the Company
1998 1997 1996
$40,132 $121,516 $ -
<PAGE>
BIOLABS INC.
(formerly Flexx Realm Inc.)
(a New York Corporation)
(a development stage company)
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 1998
5. Stockholders' equity
Pursuant to a Directors resolution dated November 14, 1996, the authorized and
issued common stock of the corporation was consolidated on a 50 to 1 basis.
Pursuant to the resolution, the authorized capital of the Company was then
increased to 19,000,000 shares with a par value of $0.0001 per share of which
176,340 shares are issued.
In July 1998, the Company amended the Articles of Incorporation as follows:
- - The name of the Company was changed to Biolabs Inc.
- - The authorized share capital of the Company was increased to 200,000,000
shares, comprised of:
- - 100,000,000 common shares with a par value of $0.0001 per common share.
- - 100,000,000 preferred shares with a par value of $0.0001 per preferred
share, leaving to the sole discretion of the directors the determination of
the rights and preferences of such shares.
6. Stock option plan
During 1998, the Company established a stock option plan to allow key employees,
directors, advisors and representatives of the Company to acquire Company common
stock. Under the terms of the plan the Company has made available 650,000 common
shares to the plan.
Stock options outstanding under this plan are summarized as follows:
Option price Shares
per share outstanding
$1.00 360,000
During the year the Company granted 360,000 stock options. These options expire
September 8, 2003. No options were exercised during the year.
The exercise price of stock options granted was equal to the market value at the
grant date. No expenses related to the stock option has been recorded.
<PAGE>
BIOLABS INC.
(formerly Flexx Realm Inc.)
(a New York Corporation)
(a development stage company)
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 1998
7. Loss per common share
Loss per common share is computed by dividing the net loss by the average number
of Common shares and common stock equivalents outstanding during the year. The
weighted average number of Common shares outstanding during the year ended
December 31, 1998 were approximately 6,496,536 and approximately 2,123,533
during the year ended December 31, 1997 and approximately 177,311 during the
year ended December 31, 1996.
Common stock equivalents are the net additional number of shares which would be
issuable upon the exercise of the outstanding common stock options (see Note 6),
assuming that the Company reinvested the proceeds to purchase additional shares
at market value. Common stock equivalents had no material effect on the
computation of earnings per share for the three years ended December 31, 1998.
8. Preferred stock subscriptions
Under the terms of a private placement offering memorandum the company has
received $414,000 in subscription payments for 138,000 Series A preferred
shares. The Series A preferred shares carry a 6% non-cumulative dividend rate in
preference to any dividend on common stock, have a liquidation preference ahead
of common stock and are convertible into common stock on a one-for-one basis
within one year of the date of the subscription agreement.
Subsequent to the year end the Company received additional preferred share
subscriptions for 145,500 Series A preferred shares.
9. Commitments
Lease commitments
The Company leases office premises for use in its operations. Rent expense was
$3,196 in 1998. This table shows future minimum rental commitments under the
lease at December 31, 1998.
1999 2000 2001
Lease commitment $37,065 $37,194 $35,400
Funding commitments
Under the terms of the Biomedical Diagnostics, LLC operating agreement the
Company has agreed to fund Biotherapies Incorporated and Biomedical Diagnostics,
LLC as set out in Note 2 Investment in Biomedical Diagnostics, LLC.
<PAGE>
BIOLABS INC.
(formerly Flexx Realm Inc.)
(a New York Corporation)
(a development stage company)
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 1998
9. Commitment (continued)
Management services
During the year the Company entered into a management services agreement with
Tynehead Capital Corp. Tynehead Capital Corp. is controlled by certain directors
of the Company. Under the terms of the agreement the Company has future
commitments as set out in the table below.
<TABLE>
<CAPTION>
1999 2000 2001 2002 2003
<S> <C> <C> <C> <C> <C>
Management services $274,000 $274,000 $274,000 $274,000 $205,000
</TABLE>
10. Income taxes
The company has accumulated losses for tax purposes which may be carried forward
and used to reduce taxable income otherwise calculated. The benefit of these
available carry forwards has not been recorded in the accounts.
11. Related party transactions
<TABLE>
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
(a) Management and consulting fees paid
to companies controlled by officers
and directors of the Company. $137,055 $103,691 $123,315
(b) Interest on promissory notes payable
to companies controlled by officers
and directors of the Company. $ 2,225 $ 7,574 $ -
(c) Included in the balance sheet are the
following amounts due to directors
and officers and/or companies controlled
by officers and directors of the
Company.
Accounts payable $ 30,756 $248,098 $322,209
Promissory notes payable $ 40,132 $121,516 $ -
</TABLE>
(d) In 1997 the Company issued 3,000,000 common shares to companies controlled
by officers and directors of the Company to settle debt of $120,000. During 1998
the Company issued 3,000,000 common shares to companies controlled by officers
and directors of the Company to settle debt of $347,395.
<PAGE>
BIOLABS INC.
(formerly Flexx Realm Inc.)
(a New York Corporation)
(a development stage company)
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 1998
12. Financial instruments
The fair value of the company's cash, accounts receivable, accounts payable and
accrued liabilities, and promissory notes payable are estimated to approximate
their carrying values due to the immediate or short term maturity of these
financial instruments.
13. Subsequent events
Subsequent to the year end the Company reached agreement with certain of its
creditors to settle payables totalling $872,500 by issuing 872,500 common
shares.
<PAGE>
FLEXX REALM INC.
(a New York Corporation)
FINANCIAL STATEMENTS
DECEMBER 31, 1997
1 Auditors' Report
2 Statement of Operations and Deficit
3 Balance Sheet
4 Statement of Cash Flows
5 Notes to the Financial Statements
<PAGE>
AUDITORS' REPORT
To the Directors of FLEXX REALM INC.
We have audited the accompanying balance sheets of Flexx Realm Inc. (A New York
Corporation) as at December 31, 1997 and 1996 and the related statements of
operations and deficit and changes in cash flows for the 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 audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform an audit to obtain reasonable
assurance 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.
In our opinion, these financial statements present fairly, in all material
respects, the financial position of the company as at December 31, 1997 and 1996
and the results of its operations and the changes in its cash flows for the
years then ended in accordance with generally accepted accounting principles.
"ACTON GUNDERSON"
Chartered Accountants
Vancouver, Canada
March 19, 1998
<PAGE>
<TABLE>
<CAPTION>
FLEXX REALM INC.
(A New York Corporation)
STATEMENT OF OPERATIONS AND DEFICIT
FOR THE YEARS ENDED DECEMBER 31, 1997 1996
- -------------------------------- --------- ---------
<S> <C> <C>
REVENUE .................................... $ - $ -
--------- ---------
EXPENSES
Amortization .......................... 1,763 1,763
Automobile ............................ 11,650 8,698
Interest and bank charges ............. 8,088 123
Legal and accounting .................. 20,004 25,948
Management and consulting fees ........ 112,176 123,315
Office ................................ 84 1,040
State Franchise Taxes ................. 688 835
Telephone ............................. 1,648 1,087
Travel and promotion .................. 35,017 21,594
--------- ---------
191,118 184,403
--------- ---------
NET LOSS ................................... (191,118) (184,403)
DEFICIT, BEGINNING ......................... (331,595) (147,192)
--------- ---------
DEFICIT, ENDING ............................ $(522,713) $(331,595)
========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
<TABLE>
<CAPTION>
FLEXX REALM INC.
(A New York Corporation)
BALANCE SHEETS
DECEMBER 31, 1997 1996
- ------------ --------- ---------
<S> <C> <C>
ASSETS
Current assets
Cash $ 402 $ --
Accounts receivable ............................... 288 --
--------- ---------
690 --
Organisational expense ................................. 3,528 5,291
--------- ---------
$ 4,218 $ 5,291
========= =========
LIABILITIES
Current Liabilities
Accounts Payable and Accrued Liabilities .......... $ 276,598 $ 327,209
New York State Franchise Taxes
Payable and Accrued ........................... -- 860
Promissory Notes Payable - related parties (Note 3) 121,516 --
--------- ---------
398,114 328,069
--------- ---------
STOCKHOLDERS' EQUITY
Common stock, $.0001 par value .........................
Authorized 19,000,000 shares; (Note 4)
3,176,536 and 176,536 shares issued and
outstanding in 1997 and 1996 respectively ......... 318 18
Additional paid-in capital ............................. 128,499 8,799
Accumulated Deficit .................................... (522,713) (331,595)
--------- ---------
(393,896) (322,778)
--------- ---------
$ 4,218 $ 5,291
========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
<TABLE>
<CAPTION>
FLEXX REALM INC.
(A New York Corporation)
STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
Common stock Additional Accum- Total
Number paid-in ulated stockholders'
of shares Amount capital deficit equity
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Issue of common stock on
organisation of the company 8,816,992 $ 8,817 $ -- $ -- $ 8,817
Net loss ................... -- -- -- (147,192) (147,192)
---------- ---------- ---------- ---------- ----------
Balance, December 31, 1995 . 8,816,992 8,817 -- (147,192) (138,375)
Consolidation of shares in
November on a
50 for 1 basis ............. (8,640,456) (8,799) 8,799 -- --
Net loss ................... -- -- -- (184,403) (184,403)
---------- ---------- ---------- ---------- ----------
Balance, December 31, 1996 . 176,536 18 8,799 (331,595) (322,778)
Issue of common stock for
settlement of debt ........ 3,000,000 300 119,700 -- 120,000
Net loss ................... -- -- -- (191,118) (191,118)
---------- ---------- ---------- ---------- ----------
Balance, December 31, 1997 . 3,176,536 $ 318 $ 128,499 $ (522,713) $ (393,896)
========== ========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
<TABLE>
<CAPTION>
FLEXX REALM INC.
(A New York Corporation)
STATEMENT OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1997 1996
- --------------------------------------------------------------------------------
<S> <C> <C>
Cash flows from operating activities:
Net Loss .................................... $(191,118) $(184,403)
Adjustment to reconcile net loss to cash
used in operating activities:
Amortization ............................ 1,763 1,763
Changes in operating assets
and liabilities:
Accounts receivable ................. (288) --
Promissory notes payable ............ 121,516 --
Accounts payable .................... 69,389 182,891
State taxes payable ................. (860) (251)
--------- ---------
Net change in cash ............................. 402 --
Cash beginning ................................. -- --
--------- ---------
Cash, ending ................................... $ 402 $ --
========= =========
Non-cash financing and investing activities
Common stock issued to settle debt .......... $ 120,000 $ --
========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
FLEXX REALM INC.
(A New York Corporation)
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 1997
1. Continuing Operations
These financial statements have been prepared in accordance with generally
accepted accounting principles applicable to a going concern which assume that
the Company will realise its assets and discharge its liabilities in the normal
course of business. Realisation values may be substantially different from the
carrying values as shown in these financial statements should the Company be
unable to continue as a going concern. The Company's ability to meet its
obligations and maintain its operations is contingent upon successful completion
of additional financial arrangements and the continuing support of its
creditors.
2. Summary of Significant Accounting Policies
Accounting Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities 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.
Organisational Costs
Costs associated with the organisation of the Company are capitalised and
amortised on a straight-line basis over a period of five years commencing
January 1, 1995.
Currency
The financial statements are expressed in U.S. dollars.
3. Promissory Notes Payable - related parties
1997 1996
Promissory notes payable to companies controlled
by Officers and Directors of the Company,
repayable 30 days after demand, interest at prime
plus 4%, convertible into shares of the company at
$.25 per share after the shares are listed for
trading, secured by a security interest in and to
all assets and book accounts, equipment,
furniture, cash as well as accounts receivable and
inventory owned by the Company.
$121,516 $ --
<PAGE>
FLEXX REALM INC.
(A New York Corporation)
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 1997
4. Stockholders' equity
Pursuant to a Directors resolution dated November 14, 1996, the authorized and
issued common stock of the corporation was consolidated on a 50 to 1 basis.
Pursuant to the resolution, the authorized capital of the company was then
increased to 19,000,000 shares with a par value of $0.0001 per share of which
176,340 shares are issued.
5. Income taxes
The company has accumulated losses for tax purposes which may be carried forward
and used to reduce taxable income otherwise calculated. The benefit of these
available carry forwards has not been recorded in the accounts.
6. Related Party Transactions 1997 1996 (a)
Management and consulting fees paid to
companies controlled by officers and
directors of the Company. $103,691 $123,315
(b) Interest on promissory notes payable to
companies controlled by officers and
directors of the Company. $ 7,574 $ --
(c) Included in the balance sheet are the
following amounts due to directors and
officers and/or companies controlled by
officers and directors of the Company.
Accounts payable $248,098 $322,209
Promissory notes payable $121,516 $ --
(d) During the year the company issued
3,000,000 common shares to companies
controlled by officers and directors of the
Company to settle debt of $120,000.
7. Financial Instruments
The fair value of the company's cash, accounts receivable, accounts payable and
accrued liabilities, and promissory notes payable are estimated to approximate
their carrying values due to the immediate or share term maturity of these
financial instruments.
<PAGE>
BIOLABS, INC.
(formerly Flexx Realm Inc.)
(a New York Corporation)
((a development stage company)
FINANCIAL STATEMENTS
June 30, 1999
Unaudited - Prepared by Management
All figures are expressed in $USD
<PAGE>
<TABLE>
<CAPTION>
BioLabs, Inc.
Balance Sheet
(a development stage company)
(Unaudited, prepared by management)
June 30 1,999 1,998
- ------- ---------- ----------
ASSETS
<S> <C> <C>
Current Assets
Cash ....................................... 321,345 121,575
Accounts receivable ........................ 18,970 121
Prepaid expenses ........................... 22,833
----------
363,148 121,696
Long term investments
Biomedical Diagnostics LLC ................. 1,445,541
Biotherapies incorporated .................. 420,000 420,000
Office equipment ............................... 19,980
Incorporation costs ............................ 883 2,647
---------- ----------
2,249,552 544,343
---------- ----------
LIABILITIES
Current liabilities
Accounts payable & accrued liabilities ..... 202,145 61,635
Common stock subscriptions ................. 484,986
Preferred stock subscriptions .............. 30,000
Promissory notes payable - related parties . 40,132 170,973
---------- ----------
542,277 717,594
---------- ----------
SHAREHOLDER'S EQUITY (Deficiency)
Preferred stock par value $.0001
Authorized: 100,000,000 shares
Issued: 1999 - 619,170 1998 - nil ......... 62
Common stock par value $.0001
Authorized: 100,000,000 shares
Issued: 1999 - 8,119,036 1998 - 6,176,536 . 812 618
Additional paid-in capital ..................... 3,845,999 475,594
Accumulated deficit ............................ (2,139,598) (649,463)
---------- ----------
1,707,275 (173,251)
---------- ----------
2,249,552 544,343
---------- ----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
2
<PAGE>
<TABLE>
<CAPTION>
BioLabs, Inc.
STATEMENT OF
OPERATIONS AND DEFICIT
(a development stage
company)
(unaudited, prepared by
management)
FOR THE SIX MONTHS
ENDED:
30-Jun 1999 1998
- ------ ----------- -----------
<S> <C> <C>
EXPENSES
Automobile ............................. $ 2,676 $ 4,903
Depreciation & amortization ........... 3,921 882
Interest & accounting .................. 58,215 20,777
Listing & share transfer fees .......... 4,693
Management & consulting fees ......... 273,287 79,981
Office & miscellaneous ................ 64,653 937
Premises costs ......................... 14,076
Salaries & benefits .................... 9,175
Telephone .............................. 9,884 1,018
Travel & promotion ..................... 46,165 12,023
----------- -----------
487,834 127,198
----------- -----------
LOSS BEFORE OTHER
INCOME ................................... (487,834) (127,198)
Interest & miscellaneous income ........ 3,366 448
Equity loss of Biomedical Diagnostics
LLC .................................... (54,458)
NET LOSS ................................ (538,927) (126,750)
DEFICIT, BEGINNING OF
PERIOD ................................... (1,600,671) (522,713)
DEFICIT, END OF PERIOD ................. ($2,139,598) ($ 649,463)
LOSS PER COMMON SHARE ................... ($ 0.07) ($ 0.02)
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE>
<TABLE>
<CAPTION>
BioLabs, Inc.
(a development stage company)
STATEMENT OF CASH FLOW
(unaudited, prepared by management)
Total from
FOR THE SIX MONTHS ENDED: Inception
(September
19, 1994
to June 30,
June 30 1999 1998 1999)
- ------- ----------- ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net Loss ....................................... ($ 538,927) ($ 126,750) ($2,139,598)
Adjustment to reconcile net loss to cash
used in operating activities:
Depreciation & amortization ................... 3,921 882 10,973
Equity in loss of Biomedical Diagnostics LLC 54,459 54,459
Change in operating assets & liabilities ...... 118,572 (165,339) 1,600,368
----------- ----------- -----------
(361,975) (291,207) (473,798)
----------- ----------- -----------
Cash flows from investing activities:
Capital expenditures on equipment ............. (14,157) -- (23,018)
Purchase of shares in Biotherapies Inc. ......... -- (420,000) (420,000)
Investment in Biomedical Diagnostics LLC ........ (1,000,000) -- (1,500,000)
----------- ----------- -----------
(1,014,157 (420,000) (1,943,018)
----------- ----------- -----------
Cash flows from financing activities:
Common stock issued for cash ................. -- 347,394 708,837
Preferred stock issued for cash ............... 1,615,324 -- 1,615,324
Common stock subscriptions received .......... -- 484,986 --
Preferred stock subscriptions received ........ -- -- 414,000
1,615,324 832,380 2,738,161
----------- ----------- -----------
Net increase in cash .............................. 239,192 121,173 321,345
Cash:
Beginning of period ............................. 82,153 402 --
----------- ----------- -----------
End of period .................................. $ 321,345 $ 121,575 $ 321,345
----------- ----------- -----------
Non Cash Financing and Investing Activities:
Common stock issued to settle debt and
Accounts Payable ................................ $ 932,500 $ 347,395 $ 1,399,895
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE>
BioLabs, Inc.
Notes to Financial Statements
(unaudited, prepared by management)
Note 1. Summary of Significant Accounting Policies
These financial statements are unaudited and reflect all adjustments (consisting
only of normal recurring adjustments) which are, in the opinion of management,
necessary for a fair presentation of the financial position and operating assets
for the interim periods.
The financial statements as of December 31, 1998, are derived from audited
financial statements. These financial statements should be read in conjunction
with the financial statements and accompanying notes contained in the company's
financial statements for the fiscal year ended December 31, 1998. The results of
operations for the six months ended June 30, 1999, are not necessarily
indicative of the results that will be achieved for the entire fiscal year
ending December 31, 1999.
The financial statements have been prepared in accordance with generally
accepted accounting principles applicable to a going concern, which assume that
the Company will realize its assets and discharge its liabilities in the normal
course of business. Realization values may be substantially different from the
carrying values as shown in these financial statements should the Company be
unable to continue as a going concern. The Company's ability to meet its
obligations and maintain its operations is contingent upon successful completion
of additional financial arrangements and the continuing support of its
creditors.
Note 2. Supplemental Cash Flow Disclosures
On January 26, 1999 and February 15, 1999, the Company issued common stock in
non-cash transactions described in note 3.
Note 3. Equity Transactions
On January 26, 1999, in a non-cash transaction, the Company issued 60,000 shares
of common stock in exchange for $60,000 of investor relations services provided
by an unrelated party.
On February 15, 1999, in a non-cash transaction, the Company issued 872,500
shares of common stock through a negotiated agreement to convert $872,500 of
outstanding accounts payable into equity of the Company. The creditors are
unrelated parties to the Company.
During the six months ended June 30, 1999, the Company issued 619,170 shares of
series A Convertible Preferred stock to 17 persons for $3.00 per share. The
Company believes that such offerings are exempt from registration pursuant to
Regulation D and Sections 3(b) or 4(2) of the Act as well as relevant exemptions
in accordance with the Canadian
Securities Laws and provincial authorities, including Section 74(2)(4) of the
Securities Act (British Columbia) and 107(1)(d) of the Securities Act (Alberta).
All proceeds of the Company's private placement offerings, net of commissions,
have been applied by the Company solely to capital contributions to the JV with
Biotherapies, certain other capital commitments to Biotherapies and payment of
general operating expenses.
<PAGE>
Note 4. Related Party Transactions
Pursuant to a management agreement dated September 1, 1998 between Tynehead
Capital Corp. and the Company, during the six months ended June 30, 1999, fees
aggregating $136,998 were paid or were payable, for the six months ended June
30, 1999, to Tynehead Capital Corp. in connection with management and
administration services provided by Messrs. McCartney, Pasemko and Klychak,
through their respective holding corporations. The amounts are divided equally
among the three executive officers excepting automobile expenses which were
based on actual expenses incurred.
Subsequent Events
In July of 1999, the Company re-negotiated certain items of the JV Operating
Agreement between BioLabs, Inc. and Biotherapies Inc.
The main amendments to the Agreement are as follows:
1. Definition of milestone revised; "means the date that the Company first
receives in the aggregate (not to be calculated on any particular
periodic basis) $100,000 in gross revenue of any type derived from any
sale or license of the Mammastatin Serum Assay and has completed the
diagnostic clinical trials for some form of the Mammastatin Serum Assay
in the United States."
2. In the event that BioLabs fails to meet its obligations to Biotherapies
(as per the Operating Agreement - $2,000,000 after August 9, 1999),
then BioLabs shall retain an interest in Biomedical Diagnostics LLC
based on this formula:
BioLabs Capital Contributions
10,000,000 = % interest retained
In addition, BioLabs has a grace period of 180 days to rectify any
capital obligation not met by the due date.
3. BioLabs to pay $1,000,000 to Biomedical Diagnostics LLC by August 9,
1999. This obligation has been met - payment made August 9, 1999.
4. BioLabs to pay $500,000 to Biotherapies Inc. by August 9, 1999. This
obligation has been met - payment made August 9, 1999.
5. BioLabs to pay $1,000,000 to Biotherapies Inc. within 60 days after
completion by Biomedical Diagnostics LLC of diagnostic clinical trials
for some form of the Mammastatin Serum Assay in the United States.
6. BioLabs to pay additional $1,000,000 to Biotherapies Inc. within 30
days after the date that Biomedical Diagnostics LLC first achieves the
milestone.
In the period from June 30, 1999 to August 30,1999 an additional 1,388,830
Convertible Preferred Shares were placed by the Company with the same group of
nineteen (19) investors who purchased the earlier traunche of the same
securities. In all, a total of 2,000,000 shares were sold under this offering,
to a total number of nineteen (19) investors.
Proceeds of the Company's Private Placement Offerings , net of commissions and
costs have been applied by the Company solely to capital contributions to the
Joint Venture with Biotherapies and payment of general operating expenses
current and future.
<PAGE>
Impact of the Year 2000 Issue
The year 2000 issue is the result of certain computer programs being written
using two digits rather than four to indicate the applicable year. As a result,
computer programs with date-sensitive software may incorrectly recognize a date
using "00" as the year 1900 rather than the year 2000. Such an error could
result in a system failure or miscalculations resulting in disruptions of
operations, including a temporary inability to process normal business
transactions or provide service to our customers.
The Company has undertaken a review of its own computer systems and applications
to determine if significant problems exist with the operations of those systems
as a result of the Year 2000 Issue. As a result of that review, management does
not expect that any modifications required to address Year 2000 problems will
have a material impact on the Company's business, operations or financial
condition.
The Company cannot guarantee that the systems of its vendors and suppliers will
be Year 2000 compliant. However, based on surveys of such vendors and suppliers,
management does not anticipate replacement or major modifications or any
hardware or software components in its systems if third party supplied hardware
and software is not Year 2000 compliant. Nevertheless, the Company may be
required to install software updates to its systems and hardware. Management
believes that any such needed software updates are currently available or will
be available through normal software maintenance licenses.
The Company has not incurred material costs to date in its Year 2000 review
process and does not anticipate that it will incur material expenses outside the
normal course of business to modify systems or third party supplied systems to
be Year 2000 compliant. However, its systems and third party systems may contain
undetected errors or defects that may cause management to incur material costs
and could result in a material adverse effect on its operations and financial
condition. Based upon a current review, management has no reason to anticipate
any interruption of its business or material unexpected costs as a consequence
of any Y2K computer.
3.2 CLASS A CONVERTIBLE PREFERRED STOCK DEFINITION-*
<PAGE>
BioLabs, Inc.
Class A Convertible Preferred Stock Definition
Dividend Rights The holder of the Series A Convertible Preferred Stock, par
value $0.000 1, (the "Class A Stock") shall be entitled to receive, out of any
funds legally available, noncumulative dividends at a rate of six percent (6%)
per annum prior and in preference to any payment of any dividend on tile Common
Stock in each calendar year. Such dividends shall be paid when, as and if
declared by the board.
The dividend rights and preferences of the Class A Stock shall be senior to
those of the Common Stock.
After the dividend preference of the Class A Stock has been paid in full for a
given calendar year, the Class A Stock will participate pro rata with the
Common Stock in the receipt of any additional dividends on an "as-
if-converted" basis.
Liquidation Preference In the event of any liquidation, dissolution or winding
up of tile Company, a merger or consolidation of the Company in which its
shareholders do not retain a majority of the voting power in the surviving
corporation, or a sale of all or substantially all of the Company's assets-,
the holders of the Class A Stock will be entitled to receive an amount equal to
the original purchase price per share for the Class A Stock plus an amount
equal to all declared but unpaid dividends thereon (the "Preference Amount").
After the full liquidation preference on all outstanding shares of tile Class A
Stock has been paid, any remaining funds and assets of the Company legally
available for distribution to shareholders will be distributed pro rata among
the, holders of the Class A Stock and the Common Stock on an "as-if-converted"
basis. The liquidation rights and preferences of the Class A Stock shall be
senior to those of the Common Stock.
If the Company has insufficient assets to permit payment of the Preference
Amount in full to all the Class A Stock shareholders, then the assets of the
Company will be distributed ratably to tile holders of tile Class A Stock in
proportion to the Preference Amount each such holder would otherwise be
entitled to receive.
Redemption Subject to any legal restrictions on the Company's redemption of
shares, the Company has full rights to redeem all of the outstanding Class A
Stock at any time. The redemption price for each share of the Class A Stock
will be 110% of the initial purchase price of the Class A Stock plus all
declared but unpaid dividends thereon to the date of redemption. If on the
redemption date the number of shares of the Class A Stock that may then be
legally redeemed by the Company is less than the number of such shares to be
redeemed, the Company shall redeem all shares that may be legally redeemed. The
shares which may not be legally redeemed at that time shall be carried forward
and redeemed as soon as the Company has legally available funds to do so.
Conversion Rights The holders of the Class A Stock shall have the right to
convert its Class A Stock into shares of Common Stock at any time after the
passing of one year subsequent to the date of the holder's subscription
agreement. Tile Conversion Rate shall be one share of Class A Stock for one
share of Common Stock. All rights incident to a share of Class A Stock will
terminate automatically upon any conversion of such share into Common Stock.
1
BioLabs Inc Attachment
<PAGE>
Antidilution Provisions
1. Conversion Rate Adjustments. The Conversion Rate of the Class A Stock shall
be subject to adjustment from time-to-time pursuant to this section.
The term "Conversion Rate" is the number of shares of Common Stock
which can be obtained from the conversion of one share of Class A
Stock.
a) If the Company, at any time or from time-to-time after the date
of the first issuance of the Class A Stock (the "Initial Purchase
Date") shall issue any Additional Stock (as defined below) for a
consideration less than the market price of the Common stock in
effect immediately prior to the issuance of such Additional
Stock, that Conversion Rate shall be adjusted by multiplying the
Conversion Rate by the following fraction:
i) the numerator shall be the per share price of the shares of
Additional Stock so issued.
ii) the denominator shall be the market price of a Common Stock
immediately prior to the issuance of such additional stock.
b) In the case of the issuance of Additional Stock for a
consideration in whole or in part other than cash, the
consideration other than cash shall be deemed to be the fair
value thereof as determined by the Board of Directors
irrespective of any accounting treatment.
c) In the case of the issuance, whether before, on, or after the
Initial Purchase Date, of options to purchase or rights to
subscribe for Common Stock, securities by their terms convertible
into or exchangeable for Common Stock, or options to purchase or
rights to subscribe for such convertible or exchangeable
securities (which are not excluded from the definition of
Additional Stock), the following provisions shall apply:
i) The aggregate maximum number of shares of Common Stock
deliverable upon exercise of such options to purchase or
rights to subscribe for Common Stock shall be deemed to have
been issued at the time such options or rights were issued
and for a consideration equal to the consideration, if any,
received by the Company upon the issuance of such options or
rights plus the minimum purchase price provided in such
options or rights for the Common Stock covered thereby.
ii) The aggregate maximum number of shares of Common Stock
deliverable upon conversion of or in exchange for any such
convertible or exchangeable securities or upon the exercise
of options to purchase or rights to subscribe for such
convertible or exchangeable securities and subsequent
conversion or exchange thereof shall be deemed to have been
issued at the time such securities were issued or such
options or rights were issued and for a consideration equal
to the consideration, if any, received by the Company for
any such securities and related options or rights (excluding
any cash received on account of accrued interest or accrued
dividends), plus the additional consideration, if any, to be
received by the Company upon the conversion or exchange of
such securities or the exercise of any related options or
rights (the consideration in each case to be determined in
the manner provided in subsection I (b).
2
<PAGE>
iii) In tile event of any change in the number of shares of Common Stock
deliverable or any increase in the consideration payable to the
Company upon exercise of such options or rights or upon conversion of
or in exchange for such convertible or exchangeable securities
including, but not limited to, a change resulting from tile
antidilution provisions thereof, the Conversion Rate of the Class A
Stock obtained with respect to tile adjustment which was made upon the
issuance of such options, rights or securities, and any subsequent
adjustments based thereon, shall be recomputed to reflect such change,
but no further adjustment shall be made for the actual issuance of
Common Stock or any payment of such consideration upon tile exercise
of any such options or rights or the conversion or exchange of such
securities.
iv) Upon the expiration of any such options or rights, the termination of
any such rights to convert or exchange or the expiration of any
options or rights related to such convertible or exchangeable
securities, the Conversion Rate of tile Class A Stock obtained with
respect to the adjustment which was made upon the issuance of such
options, rights or securities or options or rights related to such
securities, and any subsequent adjustments based thereon, shall be
recomputed to reflect the issuance of only the number of shares of
Common Stock actually issued upon the exercise of such options or
rights, upon the conversion or exchange of such securities or upon the
exercise of tile options or rights related to such securities. Upon
the expiration of any such options or rights, the termination of any
such rights to convert or exchange or the expiration of any options
or rights related to such Convertible or exchangeable securities, only
the number of shares of Common Stock actually issued upon the exercise
of such options or rights, upon the conversion or exchange of such
securities or upon the exercise of tile options or rights related to
such securities shall continue to be deemed to be issued.
<PAGE>
d) "Additional Stock" shall mean any shares of Common Stock issued (or
deemed to have been issued pursuant to subsection I (c)) by the
Company on or after tile Initial Purchase Date other than shares of
Common Stock issued or issuable as follows:
i) pursuant to a transaction described in subsection I (e) below,
ii) to officers, directors, employees and consultants of the Company
directly or pursuant to benefit plans approved by the
shareholders and/or directors of the Company, or
iii) upon conversion of the Class A Stock.
e) In the event the Company should at any time or from time to time after
the Initial
Purchase Date fix a record date for the effectuation of a forward split or
subdivision of the outstanding shares of Common Stock or the determination of
holders of Common Stock entitled to receive a dividend or other distribution
payable in additional shares of Common Stock or other securities or rights
convertible into, or entitling the holder thereof to receive directly or
indirectly, additional shares of Common Stock (hereinafter referred to as
"Common Stock Equivalents") without payment of any consideration by such
3
BioLabs Inc Attachment
<PAGE>
holder for the additional shares of Common Stock or the Common Stock
Equivalents (including the additional shares of Common Stock issuable
upon conversion or exercise thereof), then, as of such record date (or
the date of such dividend distribution split or subdivision if no
record date is fixed), the Conversion Rate of the Class A Stock shall
be appropriately increased so that the number of shares of Common
Stock issuable on conversion of each share of such series shall be
increased in proportion to such increase of outstanding shares
determined in accordance with subsection I (c).
f) If the number of shares of Common Stock outstanding at any time after
tile Initial Purchase Date is decreased by a combination of the
outstanding shares of Common Stock, then, following the record date of
such combination, tile Conversion Rate for tile Class A Stock shall be
appropriately decreased so that the number of shares of Common Stock
issuable on conversion of each share shall be decreased in proportion
to such decrease in outstanding shares.
2. Other Distributions. In the event the Company shall declare a distribution
payable in securities of entities, evidences of indebtedness issued by the
Company or other entities, assets (excluding cash dividends), or options or
rights, then, in each such case for the purpose of this subsection 2, the
holders of the Class A Stock shall be entitled to a proportionate share of
any such distribution as though they were the holders of the number of
shares of Common Stock of the Company into which their shares of the Class
A Stock are convertible as of the record date fixed for tile determination
of the holders of Common Stock of the Company entitled to receive such
distribution.
3. Recapitalizations. If at any time or from time to time there shall be a
recapitalization of the Common Stock (other than a subdivision, combination
or merger or sale of assets transaction provided for elsewhere herein,
provision shall be made so that the holders of tile Class A Stock shall
thereafter be entitled to receive upon conversion of the Class A Stock the
number of shares of stock or other securities or property of the Company or
otherwise, to which a holder of Common Stock deliverable upon conversion
would have been entitled on such recapitalization. In any such case,
appropriate adjustment shall be made in the application of the provisions
herein with respect to the rights of the holders of the Class A Stock after
the recapitalization to the end that the provisions of this Agreement
(including adjustment of the Conversion Rate then in effect and the number
of shares purchasable upon conversion of the Class A Stock) shall be
applicable after that event as nearly equivalent as may be practicable.
4. No Impairment. The Company will not, by amendment of its Articles of
Incorporation or through any reorganization, recapitalization, transfer of
assets, consolidation, merger, dissolution, issue or sale of securities or
any other voluntary action, avoid or seek to avoid the observance or
performance of any of the terms to be observed or performed hereunder by
the Company, but will I at all times in good faith assist in the carrying
out of all the provisions herein and in the taking of all such action as
may be necessary or appropriate in order to protect the Conversion Rights
of the holders of the Class A Stock against impairment.
<PAGE>
5. No Fractional Shares and Certificate as to Adjustments.
a) No fractional shares shall be issued upon conversion of the Class A
Stock, and the number of shares of Common Stock to be issued shall be
rounded to the nearest whole share.
4
BioLabs Inc Attachment
<PAGE>
b) Upon the occurrence of each adjustment or readjustment of any
Conversion Rate of any the Class A Stock pursuant to this Section, the
Company, at its expense, shall promptly compute such adjustment or
readjustment in accordance with the terms hereof and prepare and, upon
the written request at any time of a holder of Class A Stock furnish
to each holder of tile Class A Stock a statement setting forth such
adjustment or readjustment and showing in detail the facts upon which
such adjustment or readjustment is based.
6. Notices of Record Date. In the event of any taking by the Company of a
record of the holders of any class of securities for the purpose of
determining the holders thereof who are entitled to receive any dividend
(other than a cash dividend) or other distribution, any right to subscribe
for, purchase or otherwise acquire any shares of stock of any class or any
other securities or to receive any other right, the Company shall mail to
each holder of tile Class A Stock, at least 20 days prior to the date
specified therein a notice specifying the date on which any such record is
to be taken for the purpose of such dividend, distribution or right, and
tile amount and character of such dividend, distribution or right.
7. Reservation of Stock Issuable Upon Conversion. For the purpose of effecting
tile conversion of the shares of the Class A Stock tile Company shall at
all times reserve and keep available out of its authorized but unissued
shares of Common Stock such number of its shares of Common Stock as shall
from time to time be sufficient to effect tile conversion of all
outstanding shares of the Class A Stock; and if at any time the number of
authorized but unissued shares of Common Stock shall not be sufficient to
effect the conversion of all then outstanding shares of the Class A Stock,
in addition to such other remedies as shall be available to the holder of
such Class A Stock, tile Company will take such corporate action as may, in
the opinion of its counsel, be necessary, to increase its authorized but
unissued shares of Common Stock to such number of shares as shall be
sufficient for such purposes.
8. Notices. Any notice required by the provisions of this Section to be given
to tile holders of shares of the' Class A Stock shall be deemed given if
deposited in the United States mail, postage prepaid, and addressed to each
holder of record at his address appearing on the books of the Company.
Voting Rights Each share of the Class A Stock carries a number of votes equal
to the number of shares of Common Stock then issuable upon its conversion into
Common Stock. The Class A Stock will generally vote together with the Common
Stock and not as a separate class, except as provided below. In no instance
shall the preferred shareholders be entitled to vote for directors of the
Company or on any sale, stock issuance or the like with a combined vote of more
than 49%.
Protective Provisions Consent of the holders of a majority of the outstanding
Class A Stock shall be required for (i) any amendment or change of the rights,
preferences, privileges or powers of, or the restrictions provided for the
benefit of, the Class A Stock; (ii) any action that authorizes, creates or
issues shares of any class of stock having preferences superior to or on a
parity with the Class A Stock; (iii) any action that reclassifies any
outstanding shares into shares having preferences or priority as to dividends or
assets senior to or on a parity with the preference of the Class A Stock; (iv)
any amendment of the Company's Articles of Incorporation that adversely affects
the rights of the Class A Stock; (v) any merger or consolidation of the Company
with one or more other corporations in which tile shareholders of the Company
immediately prior to such merger or consolidation hold, immediately after such
merger or
5
BioLabs Inc Attachment
<PAGE>
consolidation, stock representing less than a majority of the voting power of
the outstanding stock of the surviving corporation; (vi) the sale of all or
substantially all the Company's assets; (vii) the liquidation or dissolution of
the Company; or (viii) the declaration or payment of any dividend on the Common
Stock (other than a dividend payable solely in shares of Common Stock)
Information Rights So long as shares of the Class A Stock are outstanding, the
Company shall upon written request annual financial statements to the holders of
Common Stock, the Class A Stock requesting same, within 90 days after the end of
each fiscal year, and (ii) unaudited quarterly financial statements within 45
days of the end of each fiscal quarter.
Registration Rights
a) Demand Rights. If the holders of at least 50% of the Registerable
Securities (as defined below) then outstanding request that the
Company file a registration statement covering the public sale of
Registerable Securities then the Company will use its best efforts to
cause such shares to be registered under the Securities Act (the "1933
Act), provided that the Company shall have the right to delay such a
demand registration under certain circumstances for a period not in
excess of 360 days. The term Registerable Securities will include the
Common Stock issuable on conversion of the Class A Stock to be sold in
this financing.
b) Piggyback Rights. The holders of the Registerable Securities shall be
entitled to "piggyback" registration rights on all 1933 Act
registrations of the Company or on any demand registration (except for
the registrations relating to employee benefit plans and any
registration statement on Form S-4; Form S-8 or any successor form)
subject, however, to the right of the Company to reduce the number of
shares proposed to be registered pro rata in view of market
conditions. However, such reductions shall be restricted so that (i)
all shares held by Company employees, officers and directors which are
not Registerable Securities shall be excluded from the registration
before any Registerable Securities are so excluded, and (ii) the
number of Registerable Securities required to be included in such
registration shall not be less than 25% of the shares of Registerable
Securities requested to be included in the registration.
c) S-3 Rights. Investors shall be entitled to a one-time registration of
an unlimited number of shares on Form S-3 (if available to the
Company) unless: (i) the Company certifies that it is not in the
Company's best interest to file such Form S-3, in which event, the
Company may defer the filing for up to 180 days once during any 12
month period, or (ii) the Company has already effected registration on
Form S-3 during the preceding 12 months.
d) Expenses. The Company shall bear the registration and filing expenses
(exclusive of underwriting discounts and commissions but including
fees of one counsel for the selling shareholders) of all such demand,
piggyback and S-3 registrations.
e) Transfer of Rights. The registration rights may be transferred.
f) Other Provisions. Other provisions shall be included with respect to
registration rights as reasonable, including cross-indemnification.
6
BioLabs Inc Attachment
<PAGE>
g) Termination. These registration rights will terminate seven (7) years
after tile closing of this offering and do not apply to any shares
that can be without registration pursuant to Rule 144 promulgated
under the 1933 Act.
h) Miscellaneous. The Company will not grant registration rights to any
other holder of the Company's securities without tile prior approval
of a majority of the Registrable Securities. The Company will keep any
registration effective for the lesser of six months or until all
Registrable Securities offered pursuant to such registration have been
sold.
THE BALANCE OF THIS PAGE IS INTENTIALLY LEFT BLANK
7
BioLabs Inc Attachment
10.2 AMENDED AND RESTATED JOINT VENTURE AGREEMENT, DATED AS OF NOVEMBER 4.
1998, AND AS AMENDED THROUGH JULY 31, 1999.
<PAGE>
AMENDED AND RESTATED
LIMITED LIABILITY C OMPANY
OPERATING AGREEMENT
OF
BIOMEDICAL DIAGNOSTICS, LLC
<PAGE>
SCHEDULE "A"
DESCRIPTION OF MANAGEMENT SERVICES
1. Review existing corporate objectives, strategies and utilization of
resources. Develop present, implement and maintain an operational
business plan which sets out:
o Objectives of BioLabs
o Strategies for achieving objectives;
o Timeframe for meeting objectives, milestones;
o Resources required;
o Allocation and utilization of resources; and
o Other matters consistent with and operational business plan.
2. Keep the Board of Directors apprised of corporate developments and
activities:
o Performance compared to the operational business plan;
o Economic, industry and business matters that may impact
BioLabs; and
o Other matters of relevance.
3. Build orginization (eg. facilities, personnel, contract research
organizations, collaborations, strategic alliances etc.) to
successfully carry out the operational business plan.
4. Ensure expenditures are in accordance with approved budgets and the
adequate funding is maintained.
5. Provide policy and executive direction to Bilabs.
6. Initiate and manage progects (eg. acquisitions, collaborations,
research programs etc.) to provide new product, technologies and other
growth opportunities for BioLabs.
7. Keep investors, brokers, analysts and others apprised of developments
and activities of Biolabs.
<PAGE>
=======================================================
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| |
| AMENDED AND RESTATED |
| |
| LIMITED LIABILITY COMPANY |
| |
| OPERATING AGREEMENT |
| |
| OF |
| |
| |
| BIOMEDICAL DIAGNOSTICS, LLC |
| |
| |
| |
| |
| |
| |
| |
| |
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| |
| Dated as of |
| |
| November 4, 1998 |
| |
=======================================================
<PAGE>
TABLE OF CONTENTS
ARTICLE I
DEFINITIONS
ARTICLE 11
ORGANIZATION
2.1 Forination
2.2 Name
2.3 Purpose
2.4 Duration
2.5 Registered Office and Resident Agend
2.6 Conflicts of Interest
ARTICLE III
BOOKS, RECORDS AND ACCOUNTING
3.1 Books and Records
3.2 Fiscal Year; Accounting
3.3 Reports
3.4 Member's Accounts
3.5 Sale or Exchange of Interest
ARTICLE IV
CAPITAL CONTRIBUTIONS; PARTICIPATING PERCENTAGES
4.1 Capital Contributions; Participating Percentages
4.1.1 General
4.1.2 BioLabs Contributions
4.1.3 Biotheraples Contributions
4.2 Additional Commitments
4.2.1 BioLabs
4.2.2 Biotherapies
4.3 Additional Contributions
ARTICLE V
DISTRIBUTIONS
5.1 Amount and Time of Distributions
5.2 Distributions of Operating Cash Flow
5.3 Distributions of Capital Proceeds
5.4 Return of Capital
5.5 Distribution of Assets
5.6 Restricted Distributions
ARTICLE VI
PROFITS AND LOSSES
<PAGE>
6.1 Profit and Loss Allocations
6.1.1 Profit Allocation
6.1.2 Loss Allocations
6.2 Liquidation
ARTICLE VII
DISPOSITION OF MEMBERSHIP INTERESTS
7.1 General
7.2 Permitted Dispositions
7.2.1 Assignment of Distributions
7.2.2 Transfer of Membership Interest
ARTICLE VIII
MEETINGS OF MEMBERS
8.1 Voting
8.2 Required Vote
8.3 Meetings
8.4 Consent
ARTICLE IX
MANAGEMENT
9.1 Management of Business
9.2 General Powers of Managers
9.3 Limitations
9.4 Standard of Care; Liability
9.5 Vacancies
9.6 Place of Meeting
9.7 Regular Meetings
9.8 Special Meetings
9.9 Notice
9.10 Meetings by Communications Facilities
9.11 Manager Action; Quorum
9.12 Adjournment
9.13 Action Without a Meeting
9.14 Removal
9.15 Confidentiality and Covenant Not to Compete
ARTICLE X
OFFICERS
10.1 General
10.2 Tenn of Office, Resignation and Removal
10.3 Superior Responsibility
10.4 Customary Rules
10.5 President
<PAGE>
ARTICLE XI
PRODUCT DEVELOPMENT
11.1 Development Committee
11.2 Preparation of Development Plan and Budget
ARTICLE XII
REGULATORY APPROVALS
12.1 Regulatory Approvals
12.2 Responsibility for Books and Records
12.3 Notice of Findings
12.4 Recall
ARTICLE XIII
INFRINGEMENT CLAIMS
13.1 Infringement Claims
ARTICLE XIV
REPRESENTATIONS AND WARRANTIES
14.1 Representations and Warranties of Blotherapies
14.1.1 Corporate Status
14.1.2 Corporate Authority
14.1.3 No Default
14.1.4 Third Party Consents
14.1.5 No Court Orders
14.1.6 No Regulatory Consents
14.1.7 Litigation
14.1.8 Title to License
14.1.9 Biotherapies Shares
14.1.10 No Additional Common Shares
14.1.11 No Transfer Restrictions
14.1.12 Not Insolvent
14.1.13 Compliance with Law
14.1.14 Year 2000 Compliance
14.2 Representations and Warranties of BioLabs
14.2.1 Corporate Status
14.2.2 Corporate Authority
14.2.3 No Default
14.2.4 Third Party Consents
14.2.5 No Court Orders
14.2.6 No Regulatory Consents
14.2.7 Litigation
14.2.8 BioLabs Shares
14.2.9 No Transfer Restrictions
14.2.10 Not Insolvent
<PAGE>
ARTICLE XV
EXCULPATION OF LIABILITY; INDEMNIFICATION
15.1 Exculpation of Liability
15.2 Indemnification
ARTICLE XVI
DISPUTE RESOLUTION
16.1 Dispute Resolution
ARTICLE XVII
MISCELLANEOUS PROVISIONS
17.1 Terrns
17.2 Article Headings
17.3 Counterparts
17.4 Entire Agreement
17.5 Severability
17.6 Amendment
17.7 Notices
17.8 Binding Effect
17.9 Governing Law
17.10 No Third Party Rights
17.11 Time is of Essence
17.12 Other Actions
17.13 Accounting Terrns
17.14 Statutory References
17.15 Corporate Entity
17.16 Business Day
17.17 Drafting
17.18 Waiver
17.19 Sharing of Information
APPENDIX A
SCHEDULE"A
SCHEDULE"B
SCHEDULE"C
<PAGE>
RESTATED
OPERATING AGREEMENT
FOR
BIOMEDICAL DIAGNOSTICS, LLC
A Michigan Limited Liability Company
THIS RESTATED OPERATING AGREEMENT (the "Agreement"), dated August 6, 1999,
and is made effective as of November 4, 1998 (the "Effective Date"), among
Biotherapies Incorporated, a Michigan corporation with offices located at 5692
Plymouth Road, Ann Arbor, Michigan 48105 ("Biotherapies"), BioLabs Inc., a New
York corporation with offices located c/o Richard S. Lane, One Old Country Road,
Suite497, Carle Pla&, New York 11514 ("BioLabs"), and Biomedical Diagnostics,
LLC, a Michigan limited liability company.
ARTICLE I
DEFINITIONS
For purposes of this Agreement, the definitions set forth in Appendix A to
this Agreement and the definitions set forth in this Article I apply.
"Act" means the Michigan Limited Liability Company Act, being Act No. 23,
Public Acts of 1993, as may be amended.
"Additional Contribution" means a Member's obligation to make Capital
Contributions in accordance with the provisions of Section 4.3 of this Agreement
which are in addition to the initial Capital Contributions set forth in Section
4.1 of this Agreement.
"Additional Products" means any potential diagnostic assay identified,
developed or obtained by Biotherapies after the Effective Date and at any time
while Blotherapies is a Member of the Company.
"Admission Agreement" means the agreement executed by any new Member or by
any assignee of any membership interest whereby the new Member agrees to be
bound by the terms and conditions of this Agreement, the Articles and any other
applicable laws or bylaws.
"Affiliate" means a Person that directly, or indirectly through one or more
intermediaries, Controls, or is Controlled by, or is under common Control with,
the Person in question, including without limitation, directors and principal
officers any corporation or managers of any company..
1
<PAGE>
"Approvals" means any and all licenses, leases, permits, consents or other
authorizations, including, without limitation, all approvals required by any
relevant Regulatory Authority for the Development, Manufacturing and Marketing
of any product in one or more countries.
"Articles" means the Articles of Organization filed by the Company with the
Department of Commerce of the State of Michigan, as may be amended.
"Capital Contribution" means, with respect to any Member, the amount of
money contributed by that Member to the Company and, if property other than
money is contributed, the initial Gross Asset Value of such property, net of
liabilities assumed or taken subject to by the Company.
"Code" means the Internal Revenue Code of 1986 (4 successor thereto), as
amended from time to time.
"Company" means Biomedical Diagnostics, LLC, a Michigan limited liability
company.
"Contract" means any agreement, indenture, contract, lease, deed of trust,
license, option, instrument or other commitment, whether written or oral.
"Control," "Controls" or "Controlled" means: (1) the right to exercise,
directly or indirectly, a majority of the votes that may be put at a meeting of
the entity; or (11) the right to elect or appoint directly or indirectly a
majority of the directors of the entity or other persons who have the night to
manage or supervise the management of the affairs and business of the entity; or
(Iii) the ownership, directly or beneficially, of more than 50% of the equity of
the entity.
"Development" means with respect to any product, all work carried Out to
develop the product, including without limitation, worked performed in
accordance with a Development Program, and non-clinical and clinical studies
required to obtain health regulatory Approvals for all countries in the world
determined to be necessary or desirable by the Managers and all subsequent work
required to maintain or defend such Approvals.
"Development Plan" means the plan approved by the Managers for all
Development of a product, which will include each Development Program approved
by the Managers, estimates of all Development expenses of all such activity
through to commercialization contemplated by this Agreement, and all other items
deemed appropriate by the Managers.
"Development Program" means a program developed by a Project Team and
approved by the Managers for the Development of a product and will include a
budget, tasks and timelmes.
"License" means the license granted by the University of Michigan to
Biotherapies for the exclusive use of Mammastatin technology, as more
particularly described in the License Agreement
2
<PAGE>
between The University of Michigan and Biotherapies, dated March 29, 1996, and
attached as Schedule "A" to this Agreement.
"Mammastatin" means a protein produced by the normal mammary gland (breast)
in humans that controls the growth of breast cancer cells, as more fully
described under the discussion of "Technology" contained in the License.
"Mammastatin Serum Assay" means a clinical assay system using the
production of antiMammastatin monoclonal antibodies to assist in the screening
of human patients with a high risk for breast cancer and in the diagnosis of the
presence of breast cancer, as more fully described in Schedule "B" to this
Agreement.
" Manager(s)" means a person or persons designated i~rom time to time by
the Members of the Company by appropriate resolution to manage the Company as
provided in the Articles or in this Agreement.
"Manufacturing" means with respect to any product, all work carried out to
manufacture the product, including without limitation, work performed in
accordance with a Manufacturing Program, all work required to meet good
manufacturing practices and other regulations to obtain regulatory Approvals for
all countries in the world determined to be necessary or desirable by the
Managers and all subsequent work required to maintain or defend such Approvals.
"Manufacturing Plan" means the plan approved by the Managers for all
Manufacturing of a product, which will include each Manufacturing Program
approved of by the Managers, estimates of all Manufacturing expenses of all such
activity, and all other items deemed appropriate by the Managers.
"Manufacturing Program" means a program developed by a Project Team and
approved of by the Managers for the Manufacturing of a product and will include
a budget, tasks an timelines.
"Marketing" means with respect to any product, all work carried out to
market the product, including without limitation, work perforined in accordance
with a Marketing Program, all work required to meet all relevant regulations to
obtain Approvals to market and distribute a product in all countries of the
world deten-nined to be necessary or desirable by the Managers.
"Marketing Plan" means the plan approved by the Managers for all Marketing
of a product, which will include each Marketing Program approved by the
Managers, estimates of all preMarketing and Marketing expenses, and all other
items deemed appropriate by the Managers.
"Marketing Program" means a program developed by a Project Team and
approved of by the Managers for the Marketing of a product and will include a
budget, tasks an timelines.
3
<PAGE>
"Member(s)" collectively refers to the individuals and entities who have an
ownership interest in the Company and who either execute this Agreement or who
shall hereafter be admitted as members of the Company and have executed an
Admission Agreement. The term "Member" as used herein shall mean any individual
or entity who is one of the Members of the Company.
"Milestone" means the date that the Company first receives in the aggregate
(not to be calculatedon any particular peni odic basis) $100,000 in gross
revenue of anytypederived from any sale or license of the Marnmastatin Serum
Assay and has completed the diagnostic clinical trials for some form of the
Marnmastatin Serum Assay in the United States.
"Officer(s)" means a person or persons designated from time to time by the
Managers of the Company, pursuant to Article X of this Agreement, to operate the
Company as provided in this Agreement. 1)
"Participating Percentage" ineans the percentage ownership interest of each
Member in the Company as set forth in this Agreement.
"Performance Criteria" means theobligation ofthe Companyto: (i) complete
clinical trials and obtain all necessary regulatory Approvals for Manufacturing
the Marnmastatin Serum Assay in the United States on or before May 1, 2000; (11)
obtain all necessary regulatory Approvals for Marketing the Mammastatin Serum
Assay in the United States on or before November 1, 2000; (iii) begin Marketing
the Mammastatin Serum Assay in the United States on or before November 1, 2001;
and (iv) obtain gross sales revenue from sales of the Mammastatin Serum Assay
equal to or exceeding $ 1,000,000 on or before November 1, 2002. By written
agreement of all Members, the Performance Criteria may be waived.
"Person" includes an individual, a firm, a corporation, a limited liability
company, a syndicate, a partnership, a trust, an association, a joint venture,
an incorporated organization or another entity.
"Program Coordinator" means a Person appointed by the Managers to develop
aparticular product for the Company.
"Project Team"means Persons appointed by the Managers or applicable Program
Coordinator to cooperation in the development of a particular product for the
Company.
"Proprietary Information" means all information, knowledge or data of an
intellectual, technical, scientific or industrial nature in which the disclosing
party has a proprietary or ownership interest or has a legal duty to protect,
including, without limitation, technical data, drawings, photographs,
specifications, standards, manuals, reports, formulas, compilations, processes,
information, lists, trade secrets, computer software, programs, devices,
concepts, inventions, designs, methods, technical infori-nation, unique
combinations of separate items that individually may or may not be generally
known, and items provided or disclosed to the disclosing party by third parties
4
<PAGE>
subject to restrictions on use or disclosure, whether oral or written, furnished
by the disclosing party to the receiving party or any of its representatives,
whether furnished or prepared before or after the date of this Agreement, and
includes all analysis, compilations, data, studies, reports or other documents
prepared by the receiving party based upon or including any such infort-nation,
data or knowledge furnished by the disclosing party.
" Regulations" means the pronouncements, as amended from time to time, or
their successor pronouncements, which clarify, interpret and apply the
provisions of the Code, and which are designated as "Treasury Regulations" by
the United States Department of the Treasury.
"Regulatory Authority" means any regulatory authority or government
regulating of all or a portion of the Development, Manufactuning and Marketing
of any product in a country. ARTICLE 11 ORGANIZATION
2.1 Formation. The Company has been organized as a Michigan limited
liability company under and pursuant to the Act by the filing of the Articles
with the Department of Commerce of the State of Michigan. The Members shall
cause the Articles to be filed upon execution of tills Agreement.
2.2 Name. The name of the Company shall be Biomedical Diagnostics, LLC. The
Company may also conduct its business under one or more assumed names.
2.3 Purpose. The primary purposes of the Company are to develop,
manufacture, market, sell and distribute the Marnmastatin Serum Assay on an
exclusive worldwide basis, and other diagnostic tools. The Company shall have
all the powers necessary or convenient to effect any purpose for which it is
fornled, including all powers granted by the Act.
2.4 Duration. The Company shall continue in existence until its dissolution
as provided under this Section 2.4.
2.4.1 For purposes of this Agreement, "Termination Event" shall include:
(a) The expiration of the period fixed in the Articles as the duration
of the Company;
(b) The dissolution of the Company in accordance with the Act;
(c) (1) The breach by any Member of a material provision of this
Agreement (other than the failure to make any initial Capital Contribution due
under Section 4.1 of this Agreement or any payment to Biotheraples under Section
4.2 of this Agreement); (ii) such breach or failure remains unremedied for 30
consecutive days after notice in wniting thereof is given
5
<PAGE>
to the Member in breach; and (ill) written notice of termination from the other
Member, which will be effective upon receipt;
(d) (i) The dissolution of Biotherapies or BioLabs, or the appointment
of a receiver or receiver-manager of any part of the property or business of
Biotherapies or BioLabs, or the making of an assignment, proposal, or
arrangement by Biotherapies or BioLabs for the benefit of creditors, or the
filing of a petition in bankruptcy against Blotherapies or BioLabs, or the
commencement of any proceedings under any bankruptcy or insolvency laws in
respect of Blotherapies or BioLabs, or if Biotherapies or BioLabs discontinues
its business; (ii) the failure of such event to be cured within 180 days of its
occurrence; and (111) written notice of termination from the other Member, which
will be effective upon receipt; or
(e) (1) The failure by the Company to meet one orinore of the
Performance Criteria; (il) the written notice by Biotherapies or BioLabs to the
other Members terminating this Agreement; and (Iii) the expiration of 60 days
after the written notice of termination and the failure of the Company to
complete the Performance Criteria which had not been met prior to the date of
the tennination notice provided under (11) above.
2.4.2 Upon a Termination Event, Blotherapies and BioLabs shall mutually agree
(pursuant to good faith business negotiations) in writing which of Blotherapies
or BioLabs shall purchase the entire membership interest in the Company of the
other Member and shall mutually agree in writing to the terms of such purchase.
If Blotherapies and BioLabs cannot mutually agree in writing to the transfer of
one of the Member's membership interest as provided above within 90 days after a
Termination Event, then the Company shall dissolve and its assets shall be
distributed as provided in Section 6.2 of this Agreement.
2.4.3 As used in the Subsection 2.4.3, the term "BioLabs Payments" means the
Capital Contributions due from BloLabs under Subsection 4.1.2 of this Agreement,
and the payments to Biotherapies due from BioLabs under Subsection 4.2.1 of this
Agreement. If BioLabs falls to make when due any one or more of the BioLabs
Payments, then without any further action on the part of Biotherapies, BioLabs
or the Company, the Participating Percentage of BioLabs shall automatically be
reduced to the percentage which is equal to: (1) the aggregate amount all
BioLabs Payments made by BloLabs, divided by (11) $10,000,000. If the
Participating Percentage of BioLabs is reduced under this Subsection 2.4.3, and
on or before the date occurring 180 days after the due date of any BioLabs
Payment which was not made, BioLabs makes such BioLabs Payment, then the
Participating Percentage of BioLabs shall be immediately and without any further
action on the part of Biotherapies, BioLabs or the Company, be increased to an
amount equal to: (i) the aggregate amount all BioLabs Payments made by BioLabs,
divided by (ii) $10,000,000. Notwithstanding anything contained in this
Subsection 2.4.3 to the contrary and subject to Section 4.3, in no event shall
the Participating Percentage of BioLabs be increased to more than fifty percent
(50%) pursuant to this Subsection 2.4.3.
6
<PAGE>
2.5 Registered Office and Resident Agent. The registered office and
resident agent, each as required under the Act, of the Company shall be as
designated in the initial Articles or any amendment thereof The registered
office and/or resident agent may be changed from time to time. Any such change
shall be made in accordance with the Act. If the resident agent shall ever
resign, the Company shall promptly appoint a successor.
2.6 Conflicts of Interest.
2.6.1 Unless otherwise expressly provided in this Agreement, nothing
herein shall be construed to prevent any Member or a Manager, or any
entity in which such person may have an interest, from dealing with the
Company in the following circumstances: (a) with the consent of the
Members or (b) if (i) the compensation paid or promised for such goods
or services is reasonable and is paid only for goods aild services
actually furnished to the Company, (ii) the goods or services to be
furnished shall be reasonable for and necessary to the Company, (Ili)
the terms for the furnishing of such goods or services shall be at
least as favorable to the Company as would be attainable in an
anns-length transaction; and (iv) all compensation paid is disclosed to
all Members. The burden of proving reasonableness with respect to
transactions described in Subsection 2.6. 1 (b) above shall be upon the
Member or Manager receiving the payment.
2.6.2 The Members may have other business interests and may engage in
other activities in addition to those relating to the Company. The
other business interests and activities of the Members may be of any
nature or description and may be engaged in independently or with other
Members. Neither the Company nor any Member shall have any right, by
virtue of this Agreement or the Company created hereby, in or to such
other ventures or activities of a Member or to the income or proceeds
derived therefrom, and the pursuit of such ventures, even if
competitive with the business of the Company, other than as to any
action related to the Marnmastatin Serum Assay, shall not be deemed
wrongful or improper.
ARTICLE III
BOOKS, RECORDS AND ACCOUNTING
3.1 Books and Records. The Company shall maintain complete and accurate
books and records of the Company's business and affairs as required by the Act,
or reasonably required by Biotherapies or BioLabs, and such books and records
shall be kept at the Company's registered office. The Company shall also
maintain at its offices a list of the names and addresses of all Members, which
any Member or his or her designated representative may inspect during business
hours upon reasonable notice to the Company. Any Manager may have complete
access at any reasonable time without notice to such books and records to review
them and to take extracts.
7
<PAGE>
3.2 Fiscal Year; Accounting. The Company's fiscal year shall be the
calendar year. The accounting methods and principles to be followed by the
Company shall be selected by the Managers.
3.3 Reports. The Managers shall provide reports concerning the
financial condition and results of operation of the Company and the Capital
Accounts of the Members to the Members in the time, manner and form as the
Managers deten-nine. Such reports shall be provided at least quarterly within 60
days after the end of each quarter or 90 days after the end of each calender
year, and shall include a statement of each Member's share of profits, other
items of income, gain, loss, deduction and credit, and such other information as
Biotherapies or BioLabs reasonably requests.
3.4 Member's Accounts. Separate Capital Accounts for each Member shall
be maintained by the Company. Each Member's Capital Account shall refleit the
Member's capital contributions and increases for the Member's share of any net
income or gain of the Company. Each Member's Capital Account shall also reflect
decreases for distributions made to the Member and the Member's share of any
losses and deductions of the Company. All Capital Accounts shall reflect, and
shall be maintained in accordance with, the provisions of Appendix A to this
Agreement which is incorporated into this Agreement by this reference.
3.5 Sale or Exchange of Interest. In the event of a permitted sale or
exchange of some or all of a Member's interest in the Company, the Capital
Account of the transferring Member shall become the Capital Account of the
assignee, to the extent it relates to the portion of the interest transferred.
ARTICLE IV
CAPITAL CONTRIBUTIONS; PARTICIPATING PERCENTAGES
4.1 Capital Contributions; Participating Percentages
4.1.1 General. By the execution of this Agreement, Biotherapies and
BioLabs each agree to make the Capital Contributions set forth in this
Section 4. L The initial Participating Percentage of Biotherapies is
50% and the initial Participating Percentage of Biol-abs is 50%. The
Participating Percentage of Blol-abs may be reduced pursuant to the
provisions of Subsection 2.4.3 of this Agreement if and when such
provisions apply. Any additional Member (other than an assignee of a
membership interest who has been admitted as a Member) shall make the
capital contribution set forth in an Admission Agreement. No interest
shall accrue on any capital contribution and no Member shall have any
right to withdraw or to be repaid any capital contribution except as
provided in this Agreement.
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4.1.2 BioLabs Contributions. BioLabs shall make the following Capital
Contributions:
(a) $500,000 to be paid to the Company within 90 days after the Effective
Date to be used by the Company exclusively for the design and development of a
laboratory for the testing and manufacturing of anti - Mammastatin monoclonal
and other antibodies used for the Mammastatin Serum Assay; and
(b) $ 1,000,000 to be paid to the Company on or before August 9, 1999, to
be used by the Company exclusively for the ongoing development and support of a
laboratory for the testing and manufacturing of anti - M ammastatin monoclonal
and other antibodies used for the Marnmastatin Serum Assay.
4.1.3 Biotherapies Contributions. As a Capital Cont~bution to the Company,
Blotherapies hereby grants to the Company an exclusive, nonassignable,
nonsublicensable, royalty free, worldwide sublicense to use all of
Blotherapies'right, title and interest under the License for the Development,
Manufacturing, Marketing and sale of the Marnmastatin Serum Assay in accordance
with the terms of this Agreement (the "Company License"); provided that if this
Agreement has been terminated pursuant to Section 2.4. 1 (e) of this Agreement,
then the Company License shall automatically, and without any action by any
Manager or Member, be void and of no effect. The Company shall own and shall
have all rights, including all Proprietary Infon-nation, in all Improvements (as
defined below) to the Marnmastatin Serum Assay which are conceived and reduced
to practice exclusively by the Company's personnel orby third party personnel
working on the Company's behalf. For purposes of this Section 4.1.3, the terni
"Improvements" means: (i) any alteration, modification, or enhancement to the
Mammastatin Serum Assay which improves the effectiveness, efficiency,
perfon-nance or other attribute of, or otherwise relates to, Mammastatin Serum
Assay, or any element thereof, or (ii) any new product or material which
performs substantially the same function as the Mammastatin Serum Assay but does
so through a different method or process.
The Company hereby agrees to pay to The University of Michigan four percent
(4%) of the Net Sales (as defined under the License) of the Company for all
Products (as defined under the License).
For all purposes tinder this Agreement, the value of the Company License
shall be deemed to be $1,500,000.
4.2 Additional Commitments.
4.2.1 BioLabs. In addition to making the Capital Contributions described in
Section 4.1 of this Agreement, BioLabs covenants and agrees that it will, as
long as BioLabs remains a Member of the Company:
(a) Use reasonable commercial efforts to seek approval from the
shareholders or board of directors of BioLabs, as required, for the immediate
appointment of Dr. Paul Ervin Jr. to the scientific advisory board of BioLabs;
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(b) Pay the amount of $500,000 to Biotherapies as follows: (1) $10,000 upon
execution of this Agreement, and (ii) $490,000 within 60 days after tile
Effective Date to be used for the development of products utilizing the
Mammastatin technology;
(c) Pay an additional $500,000 to Biotherapies on or before April 15, 1999,
to be used for the ongoing development of products utilizing the Marnmastatin
technology;
(d) Pay an additional $500,000 to Biotherapies on or before August 9, 1999,
to be exclusively used for the ongoing development of products utilizing the
Marnmastatin technology;
(e) Pay an additional $ 1,000,000 to Biotherapies (to be exclusively used
for the ongoing development of products utilizing the Mammastatin# technology)
within 60 days after completion by the Company of diagnostic clinical trials for
some form of the Mammastatin Serum Assay in the United States;
(f) Pay an additional $ 1,000,000 to Biotherapies (to be exclusively used
for the ongoing development of products utilizing the Marnmastatin technology)
within 30 days after the date that the Company first achieves the Milestone;
(g) Take any and all actions reasonably necessary to cause each of tile
representations and warranties made by it under this Agreement, Including
without limitation, the representations and warranties set forth in Article XIV
of this Agreement, to remain true during the term of this Agreement;
(h) Use commercially reasonable efforts to secure the quotation of shares
of Biolabs' common stock on either the OTC Bulletin Board or the Nasdaq SmallCap
Market as soon as practicable; and
(i) Within 14 days of the date that the Company first achieves tile
Milestone, issue to Biotherapies voting shares of the common stock of BioLabs
constituting 5% of the total outstanding shares of all types on a fully diluted
basis (i.e., taking into account all options, convertible debt, issued shares,
or the like, whether vested or unvested, exercised or unexercised), such shares
to be issued in accordance with all relevant securities and other laws, and
subject to all applicable state and federal trading restnictions. All shares
issued to Biotherapies under this Subsection 4.2. 1 (1) shall have, at the sole
discretion of Biotherapies, the same voting, distribution, preference and other
rights as any other shares, options, convertible debt, or the like, held by any
shareholder of BioLabs. Upon issuance of any BioLabs' shares to Biotherapies
under this Subsection 4.2.1 (1), Biotherapies shall execute a mutually agreeable
written stock subscription agreement containing standard reasonable
representations to be made by Biotherapies as required for such share issuance
to comply with applicable securities laws. All stock certificates issued to
Biotherapies shall contain a
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standard reasonable legend as to the restricted nature of the shares under
applicable securities laws.
4.2.2 Biotherapies. In addition to the Capital Contributions described in
Section 4.1 of this Agreement, Biotherapies covenants and agrees that it will,
as long as Biotherapies remains a Member of the Company:
(a) Promptly notify BioLabs in writing of any opportunities for the
development or commercialization of any Additional Product with an intention
that should BioLabs be interested, the Members may negotiate a mutually agreed
new alliance or similar arrangement with respect to such Additional Product;
(b) Use reasonable commercial efforts to sA approval from the shareholders
of Biotherapies for the immediate appointment of Dr. Ian Woods, or one other
BioLabs nominee reasonably acceptable to Biotheraples, to the board of directors
of Biotherapies;
(c) Take any and all actions reasonably necessary to cause each of the
representations and warranties made by it under this Agreement, including
without limitation, the representations and warranties set forth in Article XIV
of this Agreement, to remain true during the ten-n of this Agreement;
(d) Continue to take such action and make such payments as are necessary at
its own expense to maintain the License and all other Proprietary Information
relevant to the Marnmastatin Serum Assay that it holds, if any, in good
standing;
(e) Use its best efforts to obtain, within 60 days of the Effective Date,
an opinion from Biotherapies' intellectual property attorney as to the validity
and exclusivity of the License and such other matters requested by the attorney
for BioLabs, in a form satisfactory to BioLabs' attorney acting reasonably (this
requirement is declared to be for the exclusive benefit of BioLabs);
(f) Obtain directors and officers liability insurance with a minimum of
$2,000,000 in coverage for Dr. Ian Woods in connection with his director
capacity at Blothereapies; and
(g) From the Effective Date through December 17, 1998, Biotherapies shall
give to BioLabs written notice of a proposed sale or disposition of any shares
of stock of Biotherapies the main purpose of which is to fund the development,
manufacture, marketing or sale of any Additional Product, which notice (the
"Financing Notice") shall contain the following: (i) a certificate on the part
of Biotherapies stating that a bona fide offer has been received by Biotherapies
or that Biotherapies intends to offer its stock for sale to any Person; (ii) the
number or amount of Biotherapies' stock which is subject to the offer (the
"Offered Stock"); (iii) the name of the Person from whom Biotherapies has
received such offer, if applicable; (iv) the date on which the proposed sale is
to take place; (v) the price per share
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at which the Offered Stock is proposed to be sold; and (vi) the terms upon which
payment for the Offered Stock are to be made. Biotherapies hereby grants BioLabs
a night of first refusal effective from the Effective Date through December 17,
1998 (a "Financing Offer"), to purchase the Offered Stock at the price and under
the terms set forth in the Financing Notice; provided that such right of first
refusal shall only apply to a proposed sale or disposition of any shares of
stock of Biotherapies the main purpose of which is to fund the development,
manufacture, marketing or sale of any Additional Product; provided further that
any Financing Offer shall be void to the extent that BioLabs would own, on a
fully diluted basis (i.e., taking into account all options, convertible debt,
issued shares, or the like, whether vested or unvested, exercised or
unexercised), more than 20% of the total issued and outstanding shares, on a
fully diluted basis, of Blotherapies after exercising such right of first
refusal.
Any Financing Offer will be open for acceptance in whole or in part by
BioLabs for a period of 30 days from the date of receipt of the Financing Notice
by BioLabs (the "Offer Period"). To the degree that BioLabs does not accept the
Financing Offer within the Offer Period, Biotherapies may accept and complete a
financing on the same terins and conditions as set out in the Financing Offer
within 90 days from the expiration of the Offer Period; otherwise Biotherapies
must again comply with the provisions of this Section 4.2.2(g). If BioLabs
accepts the Financing Offer in whole or in part within the Offer Period by
providing notice in writing to Blotherapies, then Blotherapies will be bound to
enter into an agreement with BioLabs on the terms and conditions of the
Financing Offer as applicable with respect to that portion of the Financing
Offer accepted.
Biotherapies shall not sell any of the Offered Stock to any Person other
than BioLabs unless and until Blotherapies has provided the Financing Notice to
BioLabs and the Offered Period has expired. After providing BioLabs with a
Financing Notice, Blotherapies shall not solicit or accept any other offer to
purchase its stock unless and until the earlier of- (i) the expiration of the
90-day period referred above without Biotherapies completing a financing in
accordance with the terins of the Financing Offer; (ii) Biotherapies has
completed a financing in accordance with the terms of the Financing Offer; or
(iii) Biotherapies has terminated any financing contemplated under the Financing
Offer.
Notwithstanding anything in this Section 4.2.2 (g) to the contrary, the
Financing Offer shall apply to all transactions occurring on or after December
18, 1998, solely if no contract, agreement or arrangement between Biotherapies
and any third party (including, without limitation, any purchaser of Offered
Stock, investment banker, stock broker, sales agent, or similar party) restricts
or prohibits (in any manner) such Financing Offer. In each such case,
Biotherapies shall provide BioLabs with a Financing Notice as otherwise provided
above.
4.3 Additional Contributions. In addition to the initial Capital
Contributions made under Section 4.1 of this Agreement, the Managers may
determine (in accordance with the provisions of Section 9.11 of this Agreement)
from time to time that additional capital is needed to enable the
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Company to conduct its business and affairs. Each Member shall be obligated to
make any Additional Contribution in addition to any unfulfilled Capital
Contribution. Any Member who has made that Member's Capital Contribution and any
prior Additional Contribution, shall have the right, but not the obligation, to
make the Additional Contributions of any Member that does not make its
Additional Contribution within 60 days after the date that each Additional
Contribution was due as specified by the Managers, or if no such date was
specified, then within 6 months after the date that the Managers first voted for
the subject Additional Contribution. Any Member making such extra Additional
Contribution shall do so according to that Member's Participating Percentage in
relation to all other Members' Participating Percentages who elect to make an
extra Additional Contribution pursuant to this provision. The Participating
Percentage of any Member making an extra Additional Contribution pursuant to
this Section 4.3 shall increase in proportion to such extra Additional
Contribution. The Participating Percentage of any Member on whose behalf an
extra Additional Contribution was made shall decrease in proportion to
suchiextra Additional Contribution. Any change of a Participating Percentage
pursuant to this Section 4.3 shall be made based upon the aggregate value of all
capital contributions made by each Member (without regard to any payments made
by any Member, or the obligations of any Member, under Section 4.2 of this
Agreement) prior to the date of the applicable Additional Contribution, in
proportion to the amount of the applicable Additional Contribution. By way of
example only, if all of the Members contributed an amount equal to $3,000,000 in
the aggregate prior to the date of an Additional Contribution, and a particular
Member has made prior capital contributions equal to $1,500,000 and such Member
makes an Additional Contribution equal to S 1,000,000, then such Member's
Participating Percentage shall be increased to 62.5%.
ARTICLE V
DISTRIBUTIONS
5.1 Amount and Time of Distributions. "Operating Cash Flow" means the gross
cash proceeds from the Company's operations less the portion thereof used to pay
or establish reserves for Company expenses and fees, principal and interest
payments on Company debt (including loans from any Member and Manager to the
Company), capital improvements, replacements and contingencies, all determined
by the Managers. Operating Cash Flow shall not be reduced by depreciation,
amortization, or other similar non-cash allowances, and shall be increased by
any reductions in reserve which, when previously established, reduced Operating
Cash Flow. Distributions of Operating Cash Flow shall be made from time to time
at the discretion of the Managers, but no less frequently than once each
calendar quarter, in the order and priorities set forth in Section 5.2 of this
Agreement. "Capital Proceeds" of the Company means the net cash proceeds from
all sales, dispositions and refinancings of the Company's property, less any
portion thereof used to make principal and interest payments on Company debt or
established reserves, as detennined by the Managers in their sole discretion.
Capital Proceeds shall be increased by any reductions or reserves which, when
previously established, reduced Capital Proceeds. Distributions of Capital
Proceeds shall be made from time to time in the discretion of the Manager, but
no less frequently than quarterly, in the order and pniority set forth in
Section 5.3 of this Agreement.
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5.2 Distributions of Operating Cash Flow. Operating Cash Flow and any other
available cash proceeds that are not Capital Proceeds shall be distributed from
time to time among the Members pro rata based on their Participating
Percentages.
5.3 Distributions of Capital Proceeds. Capital Proceeds shall be
distributed in the following order and priority:
5.3.1 First, distributions shall be made to each Member, pro rata based on
the unreturned Capital Contributions of each Member, until each such Member
has received aggregate distributions pursuant to this Section 5.3.1 equal
to such Member's Capital Contributions.
5.3.2 Second, distributions shall be made to the')Members, pro rata based
on their Participating Percentages.
5.4 Return of Capital. No Member shall be entitled to the return of, or
interest on, that Member's Capital Contributions except as provided herein.
5.5 Distribution of Assets. If the Company at any time distributes any of
its assets in-kind to any Member, the Capital Account of each Member shall be
adjusted to account for that Member's allocable share (as determined below) of
the net profits or net losses that would have been realized by the Company had
it sold the assets that were distributed at their respective fair market values
immediately prior to their distnibution.
5.6 Restricted Distributions. Notwithstanding any provision to the contrary
contained in this Agreement, the Company shall not make any distribution to any
Member on account of such Member's Interest if such distribution would violate
Section 307 of the Act.
ARTICLE VI
PROFITS AND LOSSES
6.1 Profit and Loss Allocations.
6.1.1 Profit Allocation. Except as may be required by the Code, the
Regulations, or this Agreement, and after taking into account the
provisions of Appendix A to this Agreement, Profit (as defined in Appendix
A) for any Fiscal Year shall be allocated as follows: (a) First, Profit
shall be allocated to the Members pro rata based on the Losses (as defined
in Appendix A) allocated to each Member in previous Fiscal Years pursuant
to Section 6.1.2(b), until each Member has been allocated amount of Profits
pursuant to this Section in the current and previous Fiscal Years equal to
the Losses allocated to that Member in previous Fiscal Years pursuant to
Section 6.1.2(b) of this Agreement; and (b) thereafter, Profit shall be
allocated to the Members pro rata based on their Participating Percentages.
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6.1.2 Loss Allocations. Except as may be required by the Code, the
Regulations, or this Agreement, and after taking into account the
provisions of Appendix A to this Agreement, Loss for any Fiscal Year shall
be allocated as follows: (a) First, Loss shall be allocated to the Members
pro ratabased on theirProfit Account balances until each Member's Profit
Account balance is reduced to zero; and (b) thereafter, Loss shall be a]
located to the Members pro rata based on their Capital Contributions.
6.2 Liquidation. Upon the dissolution of the Company, the Company shall
cease to carry on its business, except insofar as may be necessary for the
winding up of its business, but its separate existence shall continue until a
Certificate of Dissolution has been filed as required by the Act. Upon
dissolution of the Company, the business and affairs of the Company shall be
wound up and the Company liquidated as rapidly as business circumstances pednit.
The Members shall agree on the appointment of a liquidating trustee (who may or
may not be a Member). The assets (other than Proprietary Information owned by
the Company) of the Company shall be liquidated and the proceeds thereof shall
be distnibuted (to the extent permitted by applicable law) in the following
order: (a) first, to creditors; (b) second, for reserves reasonably required to
provide for liabilities (contingent or otherwise) of the Company; (c) third, to
the Members on account of positive Capital Account balances; (d) fourth, pro
rata to Members based on Participating Percentages. Notwithstanding the
foregoing, upon and after the dissolution of the Company, Blol-abs and
Blotherapies shall have joint ownership of all Proprietary Inforl-nation, and
any and all goodwill associated therewith, that was owned by the Company upon
the date of dissolution, and may exercise all applicable rights of such
ownership in the Proprietary Information.
ARTICLE VII
DISPOSITION OF MEMBERSHIP INTERESTS
7.1 General. Every sale, assignment, transfer, exchange, mortgage, pledge,
grant, hypothecation or other disposition of any membership interest shall be
made only upon compliance with this Article. No membership interest shall be
disposed of if. (a) the disposition would not comply with all applicable state
and federal securities laws and regulations; or (b) the assignee of the
membership interest falls to execute an Admission Agreement and to provide the
Company with the inforl-nation and other agreements that the Managers may
require in connection with such a disposition. Any attempted disposition of a
membership interest in violation of this Article is void.
7.2 Permitted Dispositions.
7.2.1 Assignment of Distributions. A Member may assign such Member's right
to receive distributions from the Company in whole or in part. The
assignment of such right does not entitle the assignee to participate in
the management and affairs of the Company or to become a Member. Such
assignee is only entitled to receive, to the extent assigned, the
distributions the assigning Member would otherwise be entitled.
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7.2.2 Transfer of Membership Interest. Subject to the provisions of Section
7.1 of this Agreement, a Member may dispose or encumber its membership
interest in the Company in whole or in part only in accordance with the
terms and conditions of this Subsection 7.2.2. After a permitted
disposition of a membership interest and compliance with the provisions of
this Article VII, the substitute Member has, to the extent assigned, all of
the rights and powers, and is subject to all of the restrictions and
liabilities of a Member. If any Member receives abona fide offer for the
sale, assignment (otherthan as provided in Subsection 7.2.1 of this
Agreement), transfer, exchange, mortgage, pledge, grant, hypothecation or
other disposition of all or any portion of such Member's membership
interest in the Company, then the disposing Member (the "Selling Member")
shall give to all other Members (the "NonSelling Members") at least 30 days
written notice of the proposed transaction containing all of the following
(the "Transfer Notice"): (1) a certificdte on the part of the Selling
Member stating that a bona fide offer has been received by the Selling
Member for the proposed transaction; (ii) a complete description of the
proposed transaction, including without limitation, the percentage interest
of the Company subject to the proposed transaction (the "Offered Company
Interest"); (Ili) the name of the Person from whom the Selling Member has
received such offer (the "Proposed Buyer"); (lv) the date on which the
proposed transaction is to take place; (v) the price or consideration
involved with the proposed transaction; and (vi) the terms upon which
consideration for the Offered Company Interest are to be made. The Selling
Member hereby grants to each Non-Selling Member a right of first refusal (a
"Transfer Offer") to purchase the Offered Company Interest (or otherwise
complete the proposed transaction in lieu of the Proposed Buyer) at the
price and under the terms set forth in the Transfer Notice.
Any Transfer Offer will be open for acceptance in whole or in part by
each Non-Selling Member for a period of 30 days from the date of receipt of
the Transfer Notice by each NonSelling Member (the "Transfer Offer
Period"). To the degree that the Non-Selling Members do not accept the
Transfer Offer within the Transfer Offer Period, the Selling Member may
accept and complete the transaction on the same terins and conditions as
set out in the Transfer Offer within 90 days from the expiration of the
Transfer Offer Period; otherwise the Selling Member must again comply with
the provisions of this Section 7.2.2. If a NonSelling Member accepts the
Transfer Offer in whole or in part within the Transfer Offer Period by
providing notice in writing to the Selling Member, then the Selling Member
will be bound to enter into an agreement with each such Non-Selling Member
on the terms and conditions of the Transfer Offer as applicable with
respect to that portion of the Transfer Offer accepted. If more than one
Non-Selling Member accepts the Transfer Offer, then each accepting
Non-Selling Member shall complete the Transfer Offer on a pro rata basis
based upon the Participating Percentage of each accepting Non-Selling
Member.
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ARTICLE VIII
MEETINGS OF MEMBERS
8.1 Voting. All Members shall be entitled to vote on any matter submitted
to a vote of the Members. Notwithstanding anything contained in this Agreement
to the contrary, the Members shall have the right to vote on the matters
identified in Section 9.3 of this Agreement.
8.2 Required Vote. Unless a greater vote is required by the Act, the
Articles or this Agreement, the affirmative vote or consent of Members entitled
to vote or consent on such matter assuring a majority in interest of the
Participating Percentages is required to take or approve any action requiring a
Member vote.
8.3 Meetings. A meeting of Members for any propeOpurpose or purposes may be
called at any time by the Managers or the holders of at least 10% of the
Participating Percentages of all Members. The Company shall deliver or mail
written notice stating the date, time, place and purposes of any meeting to each
Member entitled to vote at the meeting. Such notice shall be given not less than
10 and not more than 60 days before the date of the meeting. All meetings of
Members shall be presided over by a Chairperson who shall be a Manager so
designated by the Managers.
8.3.1 Location. Company meetings will be held at a location in the United
States mutually agreed to by all Members.
8.4 Consent. Any action which, by law, may be taken at a meeting of the
Members may be taken without a meeting if authorized by a writing signed by all
of the Members. Any written consent under this Section 8.4 may be executed in
several counterparts, each of which will be deemed an original but all of which
will constitute one and the same. Any signature to such consent may be made by
facsimile transmission or other means of delivering a written message. Each
written consent under this Section 8.4 will have the same force and effect as an
action of the Members voted at a meeting of the Members duly called and
constituted, held on the date specified on the consent or, if no date is so
specified, on the date of the signature of the last Member to execute the
consent.
ARTICLE IX
MANAGEMENT
9.1 Management of Business. The Company shall be managed by 4 Managers. The
terms, duties, compensation and benefits, if any, of the Managers shall be
determined by the Members and by this Agreement. Biotherapies shall appoint 2
Managers, and BioLabs shall appoint 2 Managers. Each Manager shall have one
vote regardless of the Participating Percentage of any Manager or of any Member
who appointed such Manager. Each Member may from time to time on not less than
48 hours written notice to each of the other Members, remove one or both of the
Managers appointed by such Member, and replace such Manager(s) at its sole
discretion. Each Member may on less than
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48 hours written notice to each of the other Members, appoint one or more
alternate Manager(s), any of whom may attend and act as a Manager in absence of
the previously designated Manager for the term specified in the notice
appointing the alternate Manager.
9.2 General Powers of Managers. Except as may otherwise be provided in this
Agreement, the ordinary and usual decisions concerning the business and affairs
of the Company shall be made by the Managers. The Managers have the power, on
behalf of the Company, to do all things necessary or convenient to carry out the
business and affairs of the Company, including without limitation, the power to:
(a) Approve the Development Plan, Manufacturing Plan and Marketing
Plan for the Marnmastatin Serum Assay or any other product, and approve
revisions to such plans;
(b) Approve all annual operating budgets, capital plans, long-range
plans and other plans, forecasts and projections for each Development
Program, Manufacturing Program and Marketing Program presented to the
Manager by the Project Team;
(c) Review the progress of each Development Program, Manufacturing
Program and Marketing Program on a calendar quarterly basis;
(d) Make, amend and repeal from time to time rules and procedures,
not inconsistent with the provisions of this Agreement, to regulate the
business and affairs of the Company;
(e) Approve the fiscal and financial policies of the Company
established by the President;
(f) Establish accounting procedures and accounting policies
applicable to the Company;
(g) Purchase, lease or otherwise acquire any real or personal
property;
(h) Sell, convey, mortgage, grant a security interest in, pledge,
lease, exchange or otherwise dispose of, or encumber any real or personal
property;
(i) Open one or more depository accounts and make deposits into and
checks and withdrawals against such accounts in any amount;
(j) Borrow money, incur liabilities, and other obligations;
(k) Enter into any and all agreements and execute any and all
contracts, documents and instruments;
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(1) Create Officer positions, engage the Officers of the Company,
define their respective duties other than as specifically provided in this
Agreement, and establish their compensation or remuneration;
(m) Establish pension plans, trusts, profit sharing plans and other
benefit and incentive plans for Members, employees and agents of the
Company;
(n) Participate with others in partnerships, joint ventures and other
associations and strategic alliances; and
(o) Carry out such other duties as the Members from time to time
direct.
9.3 Limitations. Notwithstanding the foregoing and) any other provision
contained in this Agreement to the contrary, no act shall be taken, sum
expended, decision made, obligation incurred or power exercised by any Manager
on behalf of the Company except by vote of the Members holding a majority of the
Participating Percentages of all of the Members with respect to: (a) the sale of
all or substantially all of the assets and property of the Company; (b) any
mortgage, grant of security interest, pledge or encumbrance upon all or
substantially all of the assets and property of the Company; (c) any
consolidation, merger or amalgamation of the Company; (d) any amendment or
restatement of the Articles or this Agreement; (e) the commission of any act
which would make it impossible for the Company to carry on its ordinary business
and affairs; (0 any capital expenditures, leases of Company property or other
commitments having a capital value of, or otherwise exceeding, $250,000; (g) any
loans by the Company or a subsidiary to a Member or an Affiliate or any
shareholders of such persons or their respective relatives; (h) any contracts
between the Company or a subsidiary and a Member or an Affiliate or any
shareholders of such persons or their respective relatives; (1) any transaction
out of the ordinary course of business of the Company (provided that a
transaction shall not be deemed to be out of the ordinary course of business
solely because it occurs infrequently); 0) distribution of any of the Company's
assets, in-kind or otherwise, to a Member or an Affiliate; (k) any employment by
the Company or a subsidiary of any shareholder of a Member or an Affiliate or
their respective relatives; (1) waiver or appointment of an auditor; (in) the
issuance of any additional membership interest; or (n) any act that would
contravene any provision of the Articles or this Agreement or the Act.
9.4 Standard of Care; Liability. Every Manager shall discharge his or her
duties as a Manager in good faith, with the care an ordinarily prudent person in
a like position would exercise under similar circumstances, and in a manner he
or she reasonably believes to be in the best interests of the Company. A Manager
shall not be liable for any monetary damages to the Company for any breach of
such duties except for receipt of a financial benefit to which the Manager is
not entitled; voting for or assenting to a distribution to Members in violation
of this Agreement or the Act; or a knowing violation of the law.
9.5 Vacancies. Any Manager vacancy shall be filled by the Member, in its
sole discretion, who appointed (under Section 9.1 of this Agreement) the Manager
who created the vacancy.
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9.6 Place of Meeting. Meetings of the Managers shall be held at any place
(other than in Canada) within or without the State of Michigan which has been
designated from time to time by resolution of the Managers or by written consent
of all Managers.
9.7 Regular Meetings. Regular meetings of the Managers shall be held at
such time as the Managers may from time to time designate. Notice of all such
regular Manager meetings shall be given as provided under Section 9.9 of this
Agreement.
9.8 Special Meetings. In addition to regular meetings, a special Manager
meeting may be called for any purpose or purposes at any time by any Manager by
providing written notice of such meeting to the President. A special meeting may
also be called for any purpose or purposes at any time by the President. Special
meetings of the Managers with be held at a location determined by a majority of
the Managers (whether formally or informally obtained), or, failing such
selection, at the location of the previous Manager meeting. Notice of all such
special Manager meetings shall be given as provided under Section 9.9 of this
Agreement.
9.9 Notice. The President, or his appointee, will furnish each Manager with
at least 7 days notice of each regular meeting and at least 48 hours notice of
each special meeting of the Managers. Notices will be in writing and will set
forth those matters which the Manager calling the meeting, or the President if
the President called the meeting, instructs. Notices will be either delivered
personally or transmitted by facsimile transmission addressed to each appointee
at the facsimile number given by the appointee to the President. Notice of an
adjourned meeting of the Managers is not required to be given if the time and
place thereof is announced at the original meeting. Notice of any meeting of the
Managers may at any time be waived by any appointee.
9.10 Meetings by Communications Facilities. A meeting of the Managers may
be held where one or more Managers participates by means of such communications
facilities as permit all persons participating in the meeting to hear each
other, and any Manager so participating will be deemed to have been present at
that meeting.
9.11 Manager Action; Quorum. A majority of the duly elected Managers shall
be necessary to constitute a quorum for the transaction of business, except to
adjourn as hereinafter provided. Every act or decision done or made by a
majority of the Managers present at a meeting duly held at which a quorum is
present shall be regarded as the act of the Managers unless a greater majority
is expressly required by law, the Articles of Organization or by this Agreement.
ANY TIE VOTE BY THE MANAGERS SHALL BE DECIDED SOLELY BY THE PRESIDENT (OR OTHER
APPOINTEE) OF BIOTHERAPIES IN HIS OR HER SOLE DISCRETION.
9.12 Adjournment. A quorum of the Managers may adjourn any Manager's
meeting to meet again at a stated day and hour; provided, however, that in the
absence of a quorum, a majority of the Managers present at any Manager's
meeting, either regular or special, may adjourn such meeting until the time
fixed for the next regular or special Managers meeting.
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9.13 Action Without a Meeting. Any action which, by law, may be taken at a
meeting of the Managers may be taken without a meeting if authorized by a
writing signed by all of the Managers. Any written consent under this Section
9.13 may be executed in several counterparts, each of which will be deemed an
original but all of which will constitute one and the same. Any signature to
such consent may be made by facsimile transmission or other means of delivering
a written message. Each written consent under this Section 9.13 will have the
same force and effect as an action of the Managers voted at a regular or special
meeting of the Managers duly called and constituted, held on the date specified
on the consent or, if no date is so specified, on the date of the signature of
the last Manager to execute the consent.
9.14 Removal. Subject to Section 9.1 of this Agreement, Managers may be
removed for cause upon an affirmative vote of a majority in interest of the
Participating Percentages of the Members entitled to vote or consent on such
matter.
9.15 Confidentiality and Covenant Not to Compete. Upon appointment, each
Member shall cause each appointed Manager, and the Company shall cause each
Officer, to execute a confidentiality and non-competition agreement in a form
reasonably satisfactory to the Members. Additionally, upon execution of this
Agreement, Dr. Paul R. Ervin Jr. and Dr. Ian Woods shall execute a
confidentiality and non-competition agreement in a form reasonably satisfactory
to the Members.
ARTICLE X
OFFICERS
10.1 General. Except as may otherwise be provided in this Agreement, the
day to day operation of the business and affairs of the Company shall be
conducted by the Officers. All Officers shall be appointed by, and shall serve
at the will of, the Managers. The Officer positions shall include a President
and any other Officer(s) positions as established by the Managers from time
to time. Each Officer shall have the rights and duties specified in this
Agreement or by the Managers if not contrary to the terms of this Agreement.
10.2 Term of Office, Resignation and Removal. An Officer shall hold office
for the term for which elected or appointed and until the Officer's successor is
elected or appointed and qualified, or until the Officer's resignation or
removal. An Officer may resign by written notice to the President, or if the
President is not available, or if the resigning Officer is the President, to all
of the Managers. The resignation shall be effective upon its receipt by a person
as above provided, or at a subsequent time specified in the notice of
resignation. An Officer may be removed by the Managers with or without cause and
with or without notice. The removal of an Officer shall be without prejudice to
the Officer's contract rights, if any. The election or appointment of an Officer
does not of itself create contract rights. An Officer may be suspended by the
President, pending action by the Managers.
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10.3 Superior Responsibility. Unless otherwise provided by the Managers,
all Officers shall act under the direction of the President.
10.4 Customary Rules. To the extent the powers and duties of the several
Officers are not provided from time to time by resolution or other directive of
the Managers, the Officers shall have all powers and shall discharge the duties
customarily and usually held and performed by like officers of corporations or
companies similar in organization and business purposes to the Company.
10.5 President. Except to the extent that powers and duties are reserved to
the Members or Managers under this Agreement, the President shall be the chief
executive and administrative officer of the Company having all authorities
normally associated therewith and has the power, on behalf of the Company, to do
all things necessary or convenient to carry out the day to day operation of the
business and affairs of the Company, including without limitation, the power to:
(a) Approve objectives and schedules for each Development Program,
Manufacturing Program and Marketing Program set by the Project Team and any
variations, amendments, suspensions or deletions thereto that may be
recommended by the Project Team;
(b) Approve the composition of and staffing levels for the Project
Team, including the appointment of the Program Coordinator;
(c) Give general direction and guidance to each Project Team;
(d) Subject to the approval of the Managers, establish fiscal and
financial policies of the Company.
(e) On behalf of the Company and the Members, coordinate and operate
an adverse event reporting system;
(f) Purchase, lease or otherwise acquire any property other than real
property as long as such transaction does not obligate the Company to pay
or assume liability more than $50,000;
(g) Sell, convey, lease, exchange or otherwise dispose (other than by
mortgage, grant of a security interest, pledge, or other encumbrance) any
property other than real property;
(h) Open one or more depository accounts and make deposits into and
checks and withdrawals against such accounts, however the Managers must
approve any check or withdrawal over $50,000;
(i) Borrow money, incur liabilities, and other obligations of $50,000
or less;
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j) Enter into any and all agreements and execute any and all
contracts, documents and instruments as long as such transaction does not
obligate the Company to pay or assume liability more than $50,000;
(k) Engage employees and agents (other than Officers of the Company),
define their respective duties, and establish their compensation or
remuneration;
(1) Obtain insurance covering the business and affairs of the Company
and its property and on the lives and well being of its Member employees
and agents;
(m) Commence, prosecute or defend any proceeding in the Company's
name;
(n) Carry out such other duties as the Managersirom time to time
direct.
For all purposes under this Section 10.5, all related transactions shall be
combined to determine if any $50,000 threshold has been met.
ARTICLE XI
PRODUCT DEVELOPMENT
11.1 Development Committee. The Company shall undertake the Development of
the Mammastatin Serum Assay, and any other product as the Managers from time to
time determine, pursuant to the terms of this Agreement.
11.2 Preparation of Development Plan and Budget. Within 75 days before the
commencement of each calendar year, commencing with the 1999 calendar year, the
Managers will consider and approve annually the Development Plan for each
product of the Company (including, without limitation, the Mammastatin Serum
Assay) or annual revision thereto and a budget for all planned Development
expenses on a calendar year basis. The budget will designate expenditures listed
in such budget as either discretionary or required items. The Development Plan
will set forth in reasonable detail, for the following calendar year, all
anticipated Development Programs and any non-routine activities which the
Managers anticipate with respect to Development.
ARTICLE XII
REGULATORY APPROVALS
12.1 Regulatory Approvals. In respect of any products, the Company shall
make submissions required to obtain health registration approvals in each
country which the Managers determine is commercially desirable, and all
subsequent submissions required to maintain or defend such approvals or
amendments or supplements thereto in countries as the Managers will determine
is commercially desirable.
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12.2 Responsibility for Books and Records. In respect of each product, all
involved parties will maintain adequate books and records as required by the
applicable boards of health and will comply with all applicable laws and
regulations. Without limiting the generality of the foregoing, the Company and
the Managers shall comply and have all contractors comply with current good
manufacturing practice, good clinical practice, and good laboratory practice
regulations which are in force or are hereafter adopted by any relevant
Regulatory Authorities.
12.3 Notice of Findings. Each Member and each Manager shall promptly notify
all other Members and Managers in writing and on a timely basis, of any
significant unusual physiochemical, pharmacological, toxicological or
pharmacokinetic finding from experiments and/or clinical studies with each
product.
12.4 Recall. The Members and Managers will immediately contact each other
in the event that any party has reason to believe that the recall of a product
may be necessary. The Members and the Managers will fully cooperate and will,
through the Managers, resolve any issues with respect to the recall of any such
product including without limitation, the necessity of declaring the recall, the
manner in which the recall should be conducted and the duration of the recall.
ARTICLE XIII
INFRINGEMENT CLAIMS
13.1 Infringement Claims.
13.1.1 If at anytime during the term of this Agreement, any Manager or
Member believes that a third party is infringing, or is threatening to
infringe, any patent or other Proprietary Information owned by the Company
or relating to any product developed, distributed, marketed or sold by the
Company, including without limitation, the Marnmastatin Serum Assay, or any
element thereof, then the Company shall initiate and maintain, at its sole
expense, an action against such third party to cease its infringement, or
threatened infringement, and to recover any and all damages, costs, and
expenses arising out of the third party's infringement or threatened
infringement.
13.1.2 If the Company falls or refuses to initiate and maintain an action
referred to in Subsection 13.1.1 above, then BioLabs or Biotherapies may,
in its own name and in the Company's name, initiate and maintain the
action, in which case BioLabs or Biotherapies, as applicable, will retain
sole control over the prosecution and settlement of such action, shall
retain the full amount of any and all damages, costs and/or expenses
recovered in such action. In such case, BioLabs or Biotherapies, as
applicable, shall be entitled to reimbursement by the Company for all costs
and expenses of such action in excess of the recovery in such action. The
Company and each Member and Manager shall provide all
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reasonable assistance, as well as all necessary authority to BioLabs or
Biotherapies, as applicable, to carry out such action.
ARTICLE XIV
REPRESENTATIONS AND WARRANTIES
14.1 Representations and Warranties of Biotherapies. Biotherapies hereby
represents and warrants to BioLabs that each of the statements set forth below
is true and correct in all respects. Such representations, warranties, covenants
and agreements constitute a material inducement to BioLabs to enter into this
Agreement and to consummate the other transactions contemplated by this
Agreement.
14.1.1 Corporate Status. Biotherapies is a corporation duly organized,
validly existing and in good standing under the laws of the State of
Michigan, and has all necessary corporate powers to own its assets, and
carry on its business as now owned and operated.
14.1.2 Corporate Authority. The execution and delivery of this Agreement
and the consummation by Biotherapies of the transactions described herein
have been duly authorized, and no further corporate action or authorization
is necessary in connection therewith.
14.1.3 No Default. The consummation by Biotherapies of the transactions
contemplated herein will not result in or constitute: (1) a breach of any
term or condition of this Agreement, (ii) a default or an event that, with
notice or lapse of time or both, would constitute a default, breach or
violation of the constituent documents of Biotherapies or any license,
promissory note or other agreement, instrument or arrangement to which
Biotherapies is a party, or (iii) an event that would pennit any party to
terminate an agreement or to accelerate the maturity of any obligation of
Biotherapies.
14.1.4 Third Party Consents. There is no requirement under any Contract to
which Biotherapies is a party to give any notice to or to obtain the
consent or approval of, any party to such Contract relating to the
consummation of the transactions contemplated by this Agreement.
14.1.5 No Court Orders. No court orders have been made against Biotherapies
and the execution and delivery of this Agreement by Biotherapies does not,
and the consummation of the transactions contemplated herein will not,
breach the terms of any order of any court.
14.1.6 No Regulatory Consents. There is no requirement to make any filing
with, give any notice to or to obtain any license, permit, certificate,
registration, authorization, consent or approval of, any governmental or
regulatory authority as a condition to the lawful consummation of the
transactions contemplated by this Agreement.
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14.1.7 Litigation. Other than as disclosed to BioLabs, there is no litigation or
administrative or govenuriental proceeding or inquiry pending or to the
knowledge of Biotherapies threatened against or relating to Biotherapies nor
does Blotherapies know of or have reasonable grounds for believing that there is
any basis for any action, proceeding, or inquiry.
14.1.8 Title to License. Biotherapies has all ownership and/or license rights
necessary to perform its obligations and grant the Company License contained in
this Agreement, and the License is in good standing in all material respects.
14.1.9 Biotherapies Shares. Blotherapies has authorized capital consisting of
1,440,000 shares which are divided into two (2) classes, 1,430,0A class A common
shares, and 10,000 series A preferred shares. There are 912,060 class A common
shares issued, outstanding, and fully paid, and 10,000 series A preferred shares
issued, outstanding, and fully paid.
14.1.10 No Additional Common Shares. Except as set out in Schedule "C" hereto or
as made pursuant to this Agreement, no person now has any agreement or other
contract for the acquisition, purchase, subscription, allotment or issuance of
any common shares in Biotherapies.
14.1.11 No Transfer Restrictions. No shareholder agreement or other contracts
are in effect which affect transferability of the Biotherapies' common shares
currently traded and outstanding.
14.1.12 Not Insolvent. Blotherapies is neither an "Insolvent person" nor a
"bankrupt" as each such term is defined under the U.S. Bankruptcy Code.
14.1.13 Compliance with Law. Biotherapies is in material compliance with all
relevant federal, state, municipal and local laws, statutes, ordinances, bylaws
and regulations, and orders, directives and decisions rendered by any Regulatory
Authority with respect to Mammastatin and the License.
14.1.14 Year 2000 Compliance. Any and all computer systems or other technology
used by Biotherapies is Year 2000 Compliant. For the purposes of this Section,
"Year 2000 Compliant" means a product or service that is able to accurately
process, provide and receive date data (including, but not limited to,
calculating, comparing and sequencing) from, into, and between the twentieth and
twenty-first centuries (including leap year calculations) provided that all
products (e.g. hardware, software, middleware and firmware) which interconnect
with, or which are used in combination with, that product and service, are Year
2000 Compliant and are capable of properly exchanging date data, and provided
that no unauthorized modifications or additions are made to the product or
service.
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14.2 Representations and Warranties of BioLabs. BjoLabs hereby represents and
warrants to Biotherapies that each of the statements set forth below is true and
correct in all respects. Such representations, warranties, covenants and
agreements constitute a material inducement to Biotherapies to enter into this
Agreement and to consummate the other transactions contemplated by this
Agreement.
14.2.1 Corporate Status. BioLabs is a corporation duly organized, validly
existing and in good standing under the laws of the State of New York, and
has all necessary corporate powers to own its assets, and carry on its
business as now owned and operated.
14.2.2 Corporate Authority. The execution and delivery of this Agreement
and the consummation by BioLabs of the transactions described herein have
been duly authorized, and no further corporate action or authorization is
neJessary in connection therewith.
14.2.3 No Default. The consummation by Biol-abs of the transactions
contemplated herein will not result in or constitute: (1) a breach of any
term or condition of this Agreement, (ii) a default or an event that, with
notice or lapse of time or both, would constitute a default, breach or
violation of the constituent documents of Biol-abs or any license,
promissory note or other agreement, instrument or arrangement to which
BioLabs is a party, or (iii) an event that would permit any party to
ten-ninate an agreement or to accelerate the maturity of any obligation of
BioLabs.
14.2.4 Third Party Consents. There is no requirement under any Contract to
which BioLabs is a party to give any notice to or to obtain the consent or
approval of, any party to such Contract relating to the consummation of the
transactions contemplated by this Agreement.
14.2.5 No Court Orders. No court orders have been made against BioLabs and
the execution and delivery of this Agreement by BioLabs does not, and the
consummation of the transactions contemplated herein will not, breach the
ternis of any order of any court.
14.2.6 No Regulatory Consents. There is no requirement to make any filing
with, give any notice to or to obtain any license, permit, certificate,
registration, authorization, consent or approval of, any governmental or
regulatory authority as a condition to the lawful consummation of the
transactions contemplated by this Agreement.
14.2.7 Litigation. There is no litigation or administrative or governmental
proceeding or inquiry pending or to the knowledge of BioLabs threatened
against or relating to BioLabs nor does BioLabs know of or have reasonable
grounds for believing that there is any basis for any action, proceeding,
or inquiry.
14.2.8 BioLabs Shares. BioLabs has an authorized capital consisting of
200,000,000 shares broken into two classes, 100,000,000 common shares and
100,000,000 preferred shares, of
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which 8,119,036 common shares and 1,285,838 Class A Convertible Preferred
Shares are currently issued and outstanding and are fully paid and
non-assessable. BioLabs has all necessary authority to issue shares of its
stock to Biotherapies in accordance with the provisions of Subsection 4.2.
1 (i) of this Agreement.
14.2.9 No Transfer Restrictions. No shareholder agreement or other
contracts are in effect which affect transferability of the Biol-abs'
common shares currently traded and outstanding.
14.2.10 Not Insolvent. BioLabs is neither an "insolvent person" nor a
"bankrupt" as each such term is defined under the U.S. Bankruptcy Code.
ARTICLE XV
EXCULPATION OF LIABILITY; INDlkMNIFICATION
15.1 Exculpation of Liability. Unless otherwise provided by law or
expressly assumed, a person who is a Member or Manager, or both, shall not be
liable to any other Member, any Manager, the Company, or any third party for the
acts, debts or liabilities of the Company.
15.2 Indemnification. Except as otherwise provided in this Article, the
Company shall indemnify and hold harmless any Manager and may indemnify and hold
harmless any employee or agent of the Company who was or is a party or is
threatened to be made a party to a threatened, pending or completed action, suit
or proceeding, whether civil, criminal, administrative, or investigative, and
whether formal or informal, other than an action by or in the night of the
Company, by reason of the fact that such person is or was a Manager, employee or
agent of the Company against expenses, including attorneys' fees, judgments,
penalties, fines and amounts paid in settlement actually and reasonably incurred
by such person in connection with the action, suit or proceeding, if the person
acted in good faith, with the care an ordinarily prudent person in a like
position would exercise under similar circumstances, and in a manner that such
person reasonably believed to be in the best interests of the Company and with
respect to a criminal action or proceeding, if such person had no reasonable
cause to believe such person's conduct was unlawful. To the extent that a
Manager, employee or agent of the Company has been successful on the merits or
otherwise in defense of an action, suit or proceeding or in defense of any
claim, issue or other matter in the action, suit or proceeding, such person
shall be indemnified against actual and reasonable expenses, including
attomeys'fees, incurred by such person in connection with the action, suit or
proceeding and any action, suit or proceeding brought to enforce the mandatory
indemnification provided herein. Any indemnification permitted under this
Article, unless ordered by a court, shall be made by the Company only as
authonized in the specific case upon a deten,nination that the indemnification
is proper under the circumstances because the person to be indemnified has met
the applicable standard of conduct and upon an evaluation of the reasonableness
of expenses and amounts paid in settlement. This determination and evaluation
shall be made by a vote of the Members holding a majority of the total
Participating Percentages of all Members who are not parties or threatened to be
made parties to the action, suit or proceeding. Notwithstanding the foregoing to
the contrary, no indemnification shall be provided to any Manager, employee or
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agent of the Company for or in connection with the receipt of a financial
benefit to which such person is not entitled, voting for or assenting to a
distribution to Members in violation of this Agreement or the Act, or a knowing
violation of law.
ARTICLE XVI
DISPUTE RESOLUTION
16.1 Dispute Resolution. If a controversy, claim or dispute arises out of,
or relating to, this Agreement (as may be amended), or the interpretation or
application of the tenris of this Agreement, or any breach of this Agreement
(the "Dispute"), the Members agree to use their best efforts to resolve the
Dispute through good faith business negotiations, which shall be a condition
precedent to the institution of any mediation or litigation. The Party cliiming
the Dispute shall give written notice of the Dispute to each of the other
Members containing sufficient detail to provide them with sufficient notice as
to the Dispute. The good faith business negotiations must take place for at
least 30 days after the written notice of the Dispute is provided (the
"Negotiation Period"). If the Dispute is not resolved during the Negotiation
Period, then the Members shall submit the Dispute to nonbinding mediation to be
conducted in Ann Arbor, Michigan, by an independent qualified professional
selected by mutual agreement. The fee of such professional shall be borne by the
Company or equally by all Members, as agreed by the Members. If the Members
cannot agree upon one independent qualified professional to mediate the Dispute
within 30 days after the expiration of the Negotiation Period, then each Members
shall select one independent qualified professional and the independent
qualified professionals so selected shall select an alternative independent
qualified professional who shall solely mediate the Dispute. The mediation shall
be non-binding on the Members or the Company. Forinal litigation proceedings can
be commenced in a court of competent junsdiction solely in the State of
Washington by any Member if the mediation process does not result in a
resolution of the Dispute as determined in the sole discretion of such Member,
or if the mediation is not completed within 120 days after the expiration of the
Negotiation Period.
ARTICLE XVII
MISCELLANEOUS PROVISIONS
17.1 Terms. Nouns and pronouns will be deemed to refer to the masculine,
feminine, neuter, singular and plural, as the identity of the person or persons,
firm or corporation may in the context require.
17.2 Article Headings. The Article headings contained in this Agreement
have been inserted only as a matter of convenience and for reference, and in no
way shall be construed to define, limit or describe the scope or intent of any
provision of this Agreement.
17.3 Counterparts. This Agreement may be executed in several counterparts,
each of which will be deemed an original but all of which will constitute one
and the same. This Agreement
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may be executed by the parties and transmitted by facsimile transmission and if
so executed and transmitted this Agreement will be for all purposes as effective
as if the parties had delivered an executed original Agreement.
17.4 Entire Agreement. This Agreement constitutes the entire agreement
among the parties hereto and contains all of the agreements among said parties
with respect to the subject matter hereof. This Agreement supersedes any and all
other agreements, either oral or written, between said parties with respect to
the subject matter hereof The documents attached to this Agreement and referred
to herein are hereby incorporated into and made a part of this Agreement, but
the contractual effect of such documents will be determined and limited entirely
by the references to such documents contained in the main body of this
Agreement.
17.5 Severability. The invalidity or unenforceabili~ of any particular
provision of this Agreement shall not affect the other provisions of this
Agreement, and this Agreement shall be construed in all respects as if such
invalid or unenforceable provisions were omitted.
17.6 Amendment. This Agreement may be amended or revoked at any time by a
written agreement executed by all of the parties to this Agreement. No change or
modification to this Agreement shall be valid unless in writing and signed by
all of the parties to this Agreement.
17.7 Notices. Any notice required or pennitted to be given hereunder will
be in writing and may be delivered in person, by fax or by other recorded
communication addressed to the respective parties at their address set forth on
page one to this Agreement or such changed address or fax number as may be given
by a party to the others by such written notice. Any such notice will be
considered to have been given when personally delivered, or upon receipt of
acknowledgment of receipt if sent by fax or other recorded communication. Any
party may change its address or fax number for the purposes of this Section 17.7
by giving the other party written notice of the new address or fax number in the
manner set forth above.
17.8 BindingEffect. Subject to the provisions of this Agreement relating to
transferability, this Agreement will be binding upon and shall inure to the
benefit of the parties, and their respective distributees, successors and
assigns.
17.9 Governing Law. This Agreement is being executed and delivered in the
State of Michigan and shall be governed by, construed and enforced in accordance
with the laws of the State of Michigan.
17.10 No Third Party Rights. This Agreement is intended to create
enforceable rights between the parties hereto only, and creates no rights in, or
obligations to, any other Persons whatsoever.
17.11 Time is of Essence. Time is of the essence in the performance of each
and every obligation herein imposed.
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17.12 Other Actions. Each of the Members will use its reasonable best
efforts to, and shall with reasonable diligence, take all action and to do all
things necessary in order to consummate and make effective the transactions
contemplated by this Agreement, including without limitation, executing and
delivering or otherwise providing such further documents, instruments or
information required by any party as reasonably necessary or desirable to effect
the purpose and intent of this Agreement and to carry out its provisions.
17.13 Accounting Terms. All accounting terms not otherwise defined have the
meanings assigned to them in accordance with United States generally accepted
accounting principles.
17.14 Statutory References. Any reference to a statute includes and is a
reference to such statute and to the regulations made pursuant thereto, with all
Aendments made thereto and in force from time to time, and to any statute or
regulations that may be passed which has the effect of supplementing or
superseding such statute or such regulations.
17.15 Corporate Entity. Any reference to a corporate entity includes and is
also a reference to any corporate entity that is a successor to such entity.
17.16 Business Day. Any action to be taken pursuant to this Agreement on a
day which is not a business day will be taken on the next succeeding business
day.
17.17 Drafting. Each party to this Agreement has cooperated in the drafting
and preparation of this Agreement. Thus, in any construction to be made of this
Agreement, the same will not be construed against any party.
17.18 Waiver. No provision of this Agreement will be deemed to be waived
unless such waiver is in writing. Any waiver of any default by any party hereto
in the observance or of the perfon-nance of any part of this Agreement will not
extend to or be taken in any manner to affect any other default.
17.19 Sharing of Information. Biotherapies and BioLabs will make available
and disclose to each other all information known by either party concerning the
Mammastatin Serum Assay as of the date of this Agreement and at any time
thereafter. All discoveries or inventions made by Biotherapies in the Additional
Products will be promptly disclosed to BioLabs. Biotherapies and BioLabs will
provide to the Company all raw data in original forin or a photocopy thereof for
any and all work carried out in the course of the Development of the Mammastatin
Serum Assay as reasonably requested by the other party.
31
<PAGE>
17.12 Other Actions. Each of the Members will use its reasonable best
efforts to, and shall with reasonable diligence, take all action and to do all
things necessary in order to consummate and make effective the transactions
contemplated by this Agreement, including without limitation, executing and
delivering or otherwise providing such further documents, instruments or
information required by any party as reasonably necessary or desirable to effect
the purpose and intent of this Agreement and to carry out its provisions.
17.13 Accounting Terms. All accounting ternis not otherwise defined have
the meanings assigned to them in accordance with United States generally
accepted accounting principles.
17.14 Statutory References. Any reference to a statute includes and is a
reference to such statute and to the regulations made pursuant thereto, with all
af6endments made thereto and in force from time to time, and to any statute or
regulations that may be passed which has the effect of supplementing or
superseding such statute or such regulations.
17.15 Corporate Entity. Any reference to a corporate entity includes and is
also a reference to any corporate entity that is a successor to such entity.
17.16 Business Day. Any action to be taken pursuant to this Agreement on a
day which is not a business day will be taken on the next succeeding business
day.
17.17 Drafting. Each party to this Agreement has cooperated in the drafling
and preparation of this Agreement. Thus, in any construction to be made of this
Agreement, the same will not be construed against any party.
17.18 Waiver. No provision of this Agreement will be deemed to be waived
unless such waiver is in writing. Any waiver of any default by any party hereto
in the observance or of the perfon-nance of any part of this Agreement will not
extend to or be taken in any manner to affect any other default.
17.19 Sharing of Information. Blotherapies and BioLabs will make available
and disclose to each other all information known by either party concerning the
Mammastatin Serum Assay as of the date of this Agreement and at any time
thereafter. All discoveries or inventions made by Blotherapies in the Additional
Products will be promptly disclosed to BioLabs. Biotherapies and BioLabs will
provide to the Company all raw data in original form or a photocopy thereof for
any and all work carried out in the course of the Development of the Mammastatin
Serum Assay as reasonably requested by the other party.
31
<PAGE>
17.20 Costs. Except as otherwise provided herein, each Member will be
responsible for and will pay all taxes, costs, expenses and legal or other fees
incurred by it in connection with the negotiations, settlement and execution of
this Agreement and all matters related thereto and will indemnify and hold
harmless the other Members from and against any and all liabilities or claims in
respect to any such expenses, costs or fees.
ACCEPTED AND AGREED:
"THE COMPANY" "MEMBERS"
Biotherapies Incorporated
a Michigan corporation
By: /s/ James S. Arthurs By: /s/ Thomas D. Trimmer
------------------------------ ------------------------------
James S. Arthurs Thomas D. Trimmer
Its: President Its: President
By: /s/ Earl Gregory McCartney By: /s/ Earl Gregory McCartney
------------------------------ ------------------------------
Earl Gregory McCartney Earl Gregory McCartney
Its: Manager Its: President
32
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APPENDIX A
1. Adjustment to Allocations. It is the intention of the Members that
Profit or Loss for each Fiscal Year will be allocated to the Members by Section
6.1 of this Agreement in such a manner that would cause each Member's Adjusted
Capital Account Balance at the end of such Fiscal Year to equal the amount that
would be distributed to such Member upon a hypothetical liquidation of the
Company at the end of such Fiscal Year. In deten-nining the amounts
distributable to the Members u on a h othetical li uidation it shall be presumed
that (i) all of the Company's assets would be sold at their Gross Asset Value,
(ii) payments to any holder on any nonrecourse debt would be limited to the
Gross Asset Value of the assets secured by repayment of such debt, and (Ili) all
distributions to the Members will be made solely in accordance with Section 6.2
of this Agreement. If, upon the advice of the accounting firm retained to
prepare the income tax returns of the Company, it is determined that the
intention set forth in this Section I o~Appendix A is not being met by the
allocations of Section 6.1 of this Agreement, the Manager shall have the
discretion and authority to make such allocations of Profit or Loss, or items of
income, gain, loss or deduction, compni sing such Profit or Loss as necessary to
achieve the intentions set forth herein.
2. Special Allocations.
(a) Company Minimum Gain Chargeback. Notwithstanding any other provision of
this Agreement, if there is a net decrease in Minimum Gain during any Fiscal
Year, each Member shall be specially allocated items of Company income and gain
for such year (and, if necessary, for subsequent years) in an amount equal to
the portion of that Member's share of the net decrease in Minimum Gain during
such year that is allocable to the disposition of any Company assets subject to
one or more nonrecourse liabilities of the Company. The items to be so allocated
shall be determined in accordance with Regulation Section 1.704-20)(2)(1). Any
Member's share of any net decrease in Minimum Gain shall be determined in
accordance with Regulation Section 1.704-2(g). This Section is intended to
comply with the minimum gain chargeback requirement in the Regulations and shall
be interpreted consistently therewith.
(b) Nonrecourse Deductions. Nonrecourse deductions for any Fiscal Year
shall be allocated to the Members in accordance with their Sharing Ratios. For
purposes of this Section, "nonrecourse deductions" shall have the meaning set
forth in Section 1.704-2(b)(1) of the Regulations. The amount of nonrecourse
deductions for a Fiscal Year shall equal the excess, if any, of the net
increase, if any, in the amount of Minimum Gain during that Fiscal Year over the
aggregate amount of any distributions during that Fiscal Year of proceeds of a
nonrecourse liability (as that term is defined in Regulation Section
1.704-2(b)(3)) that are allocable to an increase in Minimum Gain, determined
according to the provisions of Regulation Section 1.704-2(d).
(c) Member Minimum Gain Chargeback. Notwithstanding any other provision of
this Agreement except Section 2(a) of Appendix A, if there is a net decrease in
Member Minimum Gain attributable to Member Nonrecourse Debt during any Fiscal
Year, each Member who has a share of the Member Minimum Gain attributable to
such Member Nonrecourse Debt shall be specially
Page 1 of 7
<PAGE>
allocated items of Company income and gain for such year (and, if necessary,
subsequent years) in an amount equal to the portion of such Member's share of
the net decrease of Member Minimum Gain attributable to such Member Nonrecourse
Debt that is allocable to the disposition of any Company assets subject to such
Member Nonrecourse Debt. The items to be so allocated shall be determined in
accordance with Regulation Section 1.704-20)(2)(ii). Any Member's share of the
net decrease in Member Minimum Gain shall be determined in accordance with
Regulation Section 1.704-2(i)(5). This Section is intended to comply with the
minimum gain chargeback requirements in the Regulations and shall be interpreted
consistently therewith.
(d) Member Nonrecourse Deductions. Any Member nonrecourse deductions for
any Fiscal Year shall be specially allocated to the Member who bears economic
risk of loss with respect to the Member Nonrecourse Debt to which such Member
nonrecourse deductions are attributable in accordance with Regulation Section
1.704-2(1). For piji-poses of this Section, "Member nonrecourse deductions" has
the same meaning as "partner nonrecourse deduction" in Regulation Section
1.704-2(i)(1). The amount of Member nonrecourse deductions with respect to a
Member Nonrecourse Debt for a Fiscal Year equals the excess, if any, of the net
increase, if any, in the amount of Member Minimum Gain attributable to such
Member Nonrecourse Debt during that Fiscal Year over the aggregate amount of any
distributions during that Fiscal Year to the Member that bears the economic risk
of loss for such Member Nonrecourse Debt to the extent such distributions are
from the proceeds of such Member Nonrecourse Debt and are allocable to an
increase in Member Minimum Gain attributable to such Member Nonrecourse Debt,
deten-nined in accordance with Section 1.704-2(i)(1).
(e) Qualified Income Offset. In the event any Member unexpectedly receives
any adjustment, allocation or distribution described in Regulation paragraph
(4), (5) or (6) of Section 1.704-1(b)(2)(ii)(d), items of Company income and
gain shall be specially allocated to the Members in an amount and manner
sufficient to eliminate, to the extent required by the Regulations, the Adjusted
Capital Account Deficit of that Member as quickly as possible.
(f) Gross Income Allocation. In the event that any Member has a deficit
Capital Account at the end of any Company Fiscal Year that is in excess of the
sum of (1) the amount that such Member is obligated to restore and (ii) the
amount that the Member is deemed to be obligated to restore pursuant to the
penultimate sentence of Regulation Sections 1.704-2(g)(1) and (1)(5), that
Member shall be specially allocated items of Company income and gain in the
amount of such excess as quickly as possible, provided that an allocation
pursuant to this Section 2(f) of Appendix A shall be made only if and to the
extent that such Member would have a deficit Capital Account in excess of such
sum after all other allocations provided for in this Appendix A have been made
as if Sections 2(e) and 2(f) of Appendix A were not in the Agreement.
(g) Allocation In the Event of Section 754 Election. To the extent an
adjustment to the adjusted tax basis of any Company asset pursuant to Code
Section 734(b) or Code Section 743(b) is required, pursuant to Regulation
Section 1.704-1(b)(2)(iv)(m), to be taken into account in deten-nining Capital
Accounts, the amount of that adjustment to the Capital Accounts shall be treated
Page 2 of 7
<PAGE>
as an item of gain (if the adjustment increases the basis of the asset) or loss
(if the adjustment decreases the basis of the asset), then that gain or loss
shall be specially allocated to the Members in the manner consistent with the
manner in which their Capital Accounts are required to be adjusted pursuant to
that Regulation.
3. Curative Allocations.
(a) Regulatory Allocations. The allocations set forth in Section 2 of this
Appendix ("Regulatory Allocations") are intended to comply with certain
requirements of Regulations Section 1.704- 1 (b) and 1.704- 2. The Regulatory
Allocations may not be consistent with the manner in which the Members intend to
divide distributions. Accordingly, the Managers are authorized to divide
allocations of Profits, Losses and other items among the Members so as to
prevent the Regulatory Allocations from distorting the manner in which Company
Atributions are required to be divided among the Members pursuant to this
Agreement. In general, the Members anticipate that this will be accomplished by
specially allocating Profits and Losses and items of income, gain, loss and
deduction among the Members so that the net amount of the Regulatory Allocations
and such special allocations to each Member is zero. The Manager will have
complete discretion to accomplish this result in any reasonable manner.
(b) Recharacterization of Fees or Distributions. In the event that a
guaranteed payment to a Member is ultimately recharacterized as a distribution
for federal income tax purposes (as the result of an audit of the Company's
return or otherwise) and if such recharacterization has the effect of
disallowing a deduction or reducing the adjusted basis of any asset of the
Company, then an amount of Company gross income equal to such disallowance or
reduction shall be allocated to the recipient of such payment. In the event that
a distribution to a Member is ultimately recharacterized as a guaranteed payment
for federal income tax purposes (as a result of an audit of the Company's return
or otherwise), and if any such recharacterization gives rise to a deduction,
such deduction shall be allocated to the recipient of the distribution.
4. Special Tax Allocations.
(a) Contributed Property. In accordance with Code Section 704(c) and the
Regulations thereunder, income, gain, loss and deduction with respect to any
property contributed to the Company shall, solely for tax purposes, be allocated
among the Members in any permissible manner so that a contributing Member, to
the maximum extent possible, recognizes the variation, if any, between the
Adjusted Basis and the initial Gross Asset Value of the property contributed by
that Member.
(b) Adjusted Property. In the event the Gross Asset Value of any Company
asset is adjusted pursuant to subsection (b) of the definition of Gross Asset
Value, subsequent allocations of income, gain, loss and deduction with respect
to that asset shall take into account any variation between the Gross Asset
Value of that asset before such adjustment and its Gross Asset Value after such
adjustment in the same manner as the variation between Adjusted Basis and Gross
Asset Value
Page 3 of 7
<PAGE>
is taken into account under Section 4(a) of Appendix A with respect to
contributed property, and such variation shall be allocated in accordance with
the principles of Regulation Section 1.704l(b)(2)(iv)(f), and the
Members'capital accounts shall be adjusted in accordance with Regulation Section
1.704-1(b)(2)(iv)(g).
(c) Recapture of Deductions and Credits. If any "recapture" of deductions
or credits previously claimed by the Company is required under the Code upon the
sale or other taxable disposition of any Company property, those recaptured
deductions or credits shall, to the extent possible, be allocated to the Members
pro rata in the same manner that the deductions and credits giving rise to the
recapture items were originally allocated using the "first-in, first-out" method
of accounting; provided, however, that this Section 4(c) of Appendix A shall
only affect the characterization of income allocated among the Members for tax
purposes.
(d) Discretion of the Manager. Any elections or other decisions relating to
the allocations under this Section 4 of Appendix A shall be made by the Manager
in any manner that reasonably reflects the purpose and intention of this
Agreement. Allocations pursuant to this Section 4 of Appendix A are solely for
purposes of federal, state and local taxes and shall not affect or in any way be
taken into account in computing any Member's Capital Account or share of
Profits, Losses, other items or distributions pursuant to any provision of
below.
this Agreement.
5. Knowledge to Tax Consequences. The Members are aware of the income tax
consequences of the allocations made by this Appendix A and the economic impact
of the allocations on the amounts receivable by them under the Agreement. The
Members hereby agree to be bound by the provisions of this Appendix A in
reporting their share of Company income and loss for income tax purposes.
6. Definitions. As used in this Agreement, the following terins have the
meanings set forth
(a) "Adjusted Basis" has the meaning given such term in Section 1011 of the
Code.
(b) "Adjusted Capital Account Balance" means that amount with respect to
any Member equal to the balance of such Member's Capital Account at the end of
the Fiscal Year after increasing the balance on such Member's Capital Account by
any amount which the Member is deemed to be obligated to restore pursuant to the
penultimate sentence of Regulation Sections 1.704-2(g)(1) and (i)(5).
(c) "Adjusted Capital Account Deficit" means with respect to any Member,
the deficit balance, if any, in that Member's Capital Account as of the end of
the relevant Fiscal Year, after given effect to the following adjustments: (i)
credit to that Capital Account the amount by which that Member is obligated to
restore or is deemed to be obligated to restore pursuant to the penultimate
sentence of Regulation Sections 1.704-2(g)(1) and (i)(5), and (11) debit to that
Capital Account the items described in paragraphs (4), (5) and (6) in Section
1.704- 1 (b)(2)(10(d) of the Regulations. This
Page 4 of 7
<PAGE>
definition of Adjusted Capital Account Deficit is intended to comply with the
provisions of Section 1.704- 1(b)(2)(ii)(d) of the Regulations and shall be
interpreted consistently therewith.
(d) "Capital Account" means the accounting record of each Member's capital
interest in the Company. There shall be credited to each Member's Capital
Account (a) the amount of any contribution of cash by that Member, (b) the Gross
Asset Value of property contributed by that Member, (c) that Members allocable
share of Profits and any items in the nature of income or gain are specially
allocated to that Member (not including allocations pursuant to Section 4 of
Appendix A) and (d) the amount of any Company liabilities that the Member
assumes or takes subject to under Code Section 752. There shall be debited
against each Member's Capital Account (i) the amount of all distributions of
cash to that Member unless a distribution to the Member is a loan or is deemed a
payment under Code Section 707(c), (ii) the Gross Asset Value of property
distributed to that Member by the Company, (ill) that Member's allocable share
6f Losses and any items in the nature of expenses or losses which are specially
allocated to that Member (not including allocations pursuant to Section 4 of
Appendix A), and (lv) the amount of any liabilities of that Member that the
Company assumes or takes subject to under Code Section 752. The transferee of
all or a portion of an Interest shall succeed to that portion of the transferor
Member's Capital Account that is allocable to the portion of the Interest
transferred. This definition of Capital Account and the other provisions herein
relating to the maintenance of Capital Accounts are intended to comply with
Regulation Sections 1.704-1(b) and 1.704-2 and shall be interpreted and applied
in a manner consistent with those Regulation Sections. In the event the Managers
determine that it is prudent to modify the manner in which the Capital Accounts,
or any debits or credits thereto (including, without limitation, debits or
credits relating to liabilities that are secured by contributed or distributed
property or which are assumed by the Company or the Members), are computed in
order to comply with those Regulations, the Managers may make such modification.
The Managers shall also make any appropriate modifications in the event
unanticipated events might otherwise cause this Agreement not to comply with
Regulation Sections 1. 704-1 (b) and 1. 704-2.
(e) "Depreciation" means, for each Fiscal Year or other period, an amount
equal to the depreciation, amortization or other cost recovery deduction
allowable with respect to an asset for that year or other period, except that if
the Gross Asset Value of an asset differs from its adjusted basis for federal
income taxpurposes atthebeginning of the Fiscal Year or other period,
Depreciation shall be an amount whichbears the same ratio to that different
Gross Asset Value (as originally computed) as the federal income tax
depreciation, amortization, or other cost recovery deduction for that Fiscal
Year or other period bears to the adjusted tax basis (as originally computed);
provided, however, that if the federal income tax depreciation, amortization or
other cost recovery deduction for the applicable year or period is zero,
Depreciation shall be determined with reference to the Gross Asset Value (as
originally computed) using any reasonable method selected by the Manager.
(f) "Fiscal Year" means the year on which the accounting and federal income
tax records of the Company are kept.
Page 5 of 7
<PAGE>
(g) "Gross Asset Value" means with respect to any Company asset, the
asset's Adjusted Basis, except as follows:
(i) the initial Gross Asset Value of any asset contributed by a Member
to the Company shall be the gross fair market value of that asset, as detennined
by the contributing Member and the non-contributing Members;
(ii) the Gross Asset Value of all Company assets shall be adjusted to
equal their respective gross fair market values, as determined by the Manager,
as of the date upon which any of the following occurs: (A) the acquisition of an
additional interest in the Company after the Effective Date by any new or
existing Member, in exchange for more than a de minimis Capital Contribution or
the distribution by the Company to a Member of more than a de minimis amount of
Company property as consideration for an interest in the Company, if the Manager
detennines that such adjustment is necessary or appropriate to reflect the
relative economic interest of the Members of the Company; and (B) the
liquidation of the Company within the meaning of Regulation Section 1.7041
(b)(2)(ii)(g);
(iii) the Gross Asset Value of any Company asset distributed to any
Member shall be the gross fair market value of that asset on the date of
distribution, as determined by the Member receiving that distribution and the
other Member; and
(iv) if an election under Code Section 754 has been made, the Gross
Asset Value of Company assets shall be increased (or decreased) to reflect any
adjustments to the adjusted basis of the assets pursuant to Code Section 734(b)
or Code Section 743(b), but only to the extent that those adjustments are taken
into account in detennining Capital Accounts pursuant to Regulation Section
1.704- 1 (b)(2)(iv)(m) and Section 2(g) of Appendix A; provided, however, that
Gross Asset Value shall not be adjusted pursuant to this subsection (iv) to the
extent that the Manager determines that an adjustment pursuant to subsection
(11) hereof is necessary or appropriate in connection with a transaction that
would otherwise result in an adjustment pursuant to this subsection (iv).
If the Gross Asset Value of an asset has been determined or adjusted hereby,
that Gross Asset Value shall thereafter be detennined by taking into account all
adjustments for Depreciation, if any, taken with respect to that asset for
purposes of computing Profits and Losses.
(h) "Member Minimum Gain" means an amount, with respect to each Member
Nonrecourse Debt, equal to the Minimum Gain that would result if such Member
Nonrecourse Debt were treated as a nonrecourse liability, deten-nined in
accordance with Regulation Section 1. 704-2(1).
(i) "Member Nonrecourse Debt" has the same meaning as "partner
nonrecourse debt" as set forth in Regulation Section 1.704-2(b)(4).
j) "Minimum Gain" has the meaning given such term in Regulation Section
1.704-2(d).
Page 6 of 7
<PAGE>
(k) "Profit Account" means the accounting record of each Member's
Interest in such Member's share of Profit. Each Member's Profit Account shall be
increased by any Profit allocated to that Member pursuant to Section 6.1 of this
Agreement and shall be reduced by any Loss allocated to such Member pursuant to
Section 6.1 of this Agreement and by any distributions to such Member pursuant
to Sections 6.2 of this Agreement. The transferee of all or a portion of an
Interest shall succeed to that portion of the transferor Member's Profit Account
as allocable to the portion of the Interest transferred.
(1) "Profits" and "Losses" means, for each Fiscal Year or other
period, an amount equal to the Company's taxable income or loss for that year or
period, determined in accordance with Code Section 703(a) (for this purpose, all
items of income, gain, loss or deduction required to be stated separately
pursuant to Code Section 703(a)(1) shall be included in taxable income or loss),
with the following adjustments: i
(i) any income of the Company exempt from federal income tax not
otherwise taken into account in computing Profits or Losses shall be added to
that taxable income or loss;
(ii) any expenditures of the Company described in Code Section
705(a)(2)(B) or treated as Code Section 705(a)(2)(B) expenditures pursuant to
Regulation Section 1.704- l(b)(2)(iv)(0, shall be subtracted from that taxable
income or loss;
(iii) in the event the Gross Asset Value of any Company asset is
adjusted as required by subsections (iij or (iii) of the definition of Gross
Asset Value, the amount of that adjustment so'all be taken into account as gain
or loss from the disposition of that asset (assuming the asset was disposed of
just prior to the adjustment) for purposes of computing Profits or Losses in the
Fiscal Year of adjustment;
(iv) gain or loss resulting from any disposition of Company
property with respect to which gain or loss is recognized for federal income tax
purposes shall be computed by reference to the Gross Asset Value of the property
disposed of, notwithstanding that the Adjusted Basis of that property may differ
from its Gross Asset Value;
(i) in lieu of the depreciation, amortization and other cost
recovery deductions taken into account in computing the taxable income or loss,
there shall be taken into account the Depreciation for the Fiscal Year or other
period; and
(vi) any items of income, gain, loss or deduction that are
specially allocated shall not be taken into account in computing Profits or
Losses.
Page 7 of 7
<PAGE>
LICENSE AGREEMENT
MICHIGAN FILE 379/380/1061 TECHNOLOGY
This is an Agreement between Biotherapies, Inc., a corporation incorporated in
the State of Michigan, with offices located at 3728 Plaza Drive, Suite 2, Ann
Arbor, MI 48108 ("BIOTHERAPIES"), and the Regents of the University of Michigan,
a constitutional corporation of the State of Michigan ("MICHIGAN"). This
Agreement is effective as of the date executed by both BIOTHERAPIES and MICHIGAN
(the "Effective Date"). BIOTHERAPIES and MICHIGAN agree as follows:
1. BACKGROUND.
1.1 MICHIGAN has developed rights, including potential patent rights, in the
"TECHNOLOGY" that is d9fined below.
1.2 Dr. Paul R. Ervin, Jr., is a shareholder of BIOTHERAPIES and a current or
former employee of MICHIGAN, and has contributed to the creation of the
TECHNOLOGY. He has elected and has agreed to receive rewards for
commercialization of the TECHNOLOGY direczly through the operation of
and/or his ownersh-i D 4 nterests in BIOTHERkPIES rather than through zhe
royalty distriou::ion policy of MICHIGAN.
1.3 BIOTHERAPIES desires to obtain, and MICHIGAN, consistent with its mission
of education and research, desires to grant a license of the 7ECHNOLOGY on
the terms and condition S herein.
2. DEFINITIONS.
2.1 "TECHNOLOGY", as used in this Agreement, shall mean the biological
materials which are listed on the atzached Exhibit A which is hereby
incorporated into this Agreement, and all 4nforma-ion, manufacturing
techniques, data, designs or concepts (whether or not such specific
information, manufacturing techniques, data, designs, or concepts are or
become -publicly known or available) covering (--*) the human mammary cell
growth inhibitor protein known as mammastatin, the aene encodin.-, such
protein, and methods of making and using same, all as developed by
MICHIGAN's employees Paul J. Ervin, Max Wicha and Robert Cody as described
in MICHIGAN's Technology Management Office File No. 380 entitled "Human
Mammary 'Cell Growth Inhibitor Protein," and F41e No. 1061 entitled
"Mammastatin - A Mammary Cell Growth inhib`tor;11 and (ii) monoclonal
antibodies directed against the protein known as mammastatin, and methods
of making and using same, all as developed by MICHIGAN's employees Paul J.
Ervin, Max Wicha, Robert Cody, and Mark Kaminski as described in MICHIGAN's
Technology Management Office File No. 379 entitled "Monoclonal Ant- bodies
to Human Mammary Cell Growth Inhibitor." TECHNO11OGY shall also include all
invent-ions and
1
<PAGE>
discoveries in which MICHIGAN acquires ownership pursuant to Article 9
below.
2.2 "Parties", in singular or plural usage as required by the context, shall
mean BIOTHERAPIES and/or MICHIGAN.
2.3 "Affiliate(s)" shall mean any individual, corporation, partnership,
proprietorship or other entity controiled by, controlling, or under common
control with BIOTHERAPIES through equity ownership, ability to elect
directors, or by virtue of a majority of overlapping directors, and shall
include any individual, corporation, oartnershiv, proprietorship or other
entity directly or ind"recty owning, owned by or under common ownership
with BIOTHEPAPIES to the extent of fifty percent (50%) or more of the
voting shares, including shares owned beneficially b such party.
2.4 "Sublicensee(s)" shall mean any person or entizy, except an Affiliate,
sublicensed by BIOTHERAPIES under this Agreement to make, have made, use,
market or sell Produc~s.
2.5 "Licensed Patenz(s)" shall mean all patents and patent applications, as
well as all foreign ecruivalenz pate_= appli- cations and Pazent
Cooperation Trear~y filings, and all patents issuing nherefrom, in which
MTCHIGAN has or acquires a property inte-rest, and (i) which cover an
inven~ion included in the TECHNOLOGY, or (ii) which are included in this
definition by operation of Paragraph 9.3 of this Agreement.
2.6 "Valid Claim(s)" means any claim(s) in an unexpired patent or pending in a
patent anolication included within the Licensed Patents which has not been
held unenforceable, unpatentable, or inva-lid by a decision of a court or
other ao-,.rernmental agency of compezent jurisdiction, unappealable or
unappealed within the time allowed for av-,)eal, and which has no-- been
admitted to be invalid or unenforceable through, reissue or disclaimer. IF
4 n any country -here should be two or more such decisions conflicting with
respec-- to the valid_`ty of: the same claim, the decision of the li~gher
or highesz tribunal shall thereafter control; however, should the tribunals
be of equal rank, then the decision or decisions upholding the c-~aim shall
prevail when the conflictina decisions are equal in number, and the
majority of decisions shall prevail when the conflicting deciS4ons are
unequal in number.
2.7 "Product(s)" shall mean: (i) any goods or serv4ces whose manufacture, use
or sale in any country would, ~Dut for this Agreement, comprise an
infringement, includ-na cont-ributory infringement, of one or more Valid
Claims; as well as (ii) any good or services incorporating, or the
manufacture, use or sale of which utilizes TECHNOLOGY.
<PAGE>
2.8 "Net Sales" shall mean the sum, over the term of this Agreement, of all
amounts received and all other consideration received (or, when in a form
other than cash or its ecruivalent, the fair market value thereof when
received) by BIOTHERAPIES and its Affiliates from persons or entities due
to or by reason of the sale, distribution or use of Products, less the
following deductions and offsets, but only to the extent such sums are
otherwise included in the computation o-f Net Sales, or are paid by
BIOTHERAPIES and not otherwise reimbursed: refunds, rebates, replacements
or credits actually allowed and taken by purchasers for return of Products;
customary trade, quantity and cash discounts actually allowed and taken;
excise, value-added, and sales taxes actually paid by BIOTHERAPIES for
Products; and shipping and handling charges actually paid by B70THERAPIES -
or Products.
2.9 "Gross Sublicensing Revenues" shall mean all amounts received and all other
consideration received (or, when in a form other than cash or its
equ~valenz, the fair market value thereof': when received) by BTOTHERAPIES
and its AL"'iliates pursuant to any sublicense to a Sublicensee, and also
pursuant to any -_,se, distribut-ion, or sar--le of ?_-oduc:_-s where such
amounts or other consilderation are not includei in Net Sales.
2.10 "Rovalty Quarter(s)" shall mean the three-month ne--iods ending on -the
last day of March, June, Sepzember and December of each year.
2.11 "First CommerC4a~ Sale" shall mean the first sale of any Product by
BIO-7-HERAPIES or an Affilia:.e or Sublicensee. --------
3. GRANT OF LICENSE.
3.1 M_-CHIGAN hereby grants to B 7 OTHERAPIES the exclusive, worldwide license
under the Licensed Patents to make, have made, use, market and sell
Products; with the right to arant sublicenses to kffiliates and
Sublicensees subject to the terms and nrovisions of A_-zicle 8 below.
3.2 MICHIGAN hereby grants to BIOTHERIAPIES the worl6wide right t practice the
TECHNOLOGY to make, have made, use, market and/or sell Prod"ucts. During
the term of this Agreement MICHIGAN covenan-:s not to enter into any
agreement allowing any other party -:o commercially pract--ce the
TECHNOLOGY to make, have made, use, markec and/or sell Products.
3.3 MICHIGAN reserves the right to practice the TECHNOLOGY and the Licensed
Patents solely for research and education purposes.
3
<PAGE>
3.4 MICHIGAN further reserves the right to grant to the U.S. Government a
nonexclusive, irrevocable, royalty-free license or licenses, with the right
to sublicense, to all patent applications and resulting patents included in
the TECHNOLOGY and the Licensed Patents, to the extent that such granz of
license(s) is or may be required by research funding agreements between the
University and the U.S. Government relating to the TECHNOLOGY or the
Licensed Patents.
4. CONSIDERATION.
4.1 BIOTHERAPIES shall pay MICHIGAN, with respect to each Royalty Quarter, a
royalty equal ~o:
(i) four percent (4%) of Net Sales o~ BIOTHERAPIES and Affiliate(s) for
all Products defined under Subparagraph 2.7 (i) above; and
(ii) one and one-half percen: (1.5%) of Net Sales of BIOTHERAP7ES and
Affililate(s) for all other Products.
4.2 BT0THEP_kPIES shall also pay MICHIGAN., with respect to each Royalty
Quarter, a royalr-v eaual to fifteen percent (15%) of Gross Sublicens_`ng
---- Revenues.
4.3 The obligation to pay MICH7,-_kN a royalty under --4s Arz`c-le 4 is imposed
only once wir-h respect to the same unit of Product ,regardless of the
number of Valid Claims or Licensed Patents covering the sane; howevef, for
purposes of determination of payments due hereunder, whenever the term
"Product" may app1j, to a property during var-'o-cus stages of manufacture,
use or sale, Net Sales, as otherwise defined, shall be der 4 ved from the
sale, distribution or use of such Produ.ct by BIOTHERAPIES or Affiliates a~
-.he s~age of its highest invoiced value to unrelated third parties.
4.4 As further cons iderat ion for this License Agreement and as reimbursement
for paten~ expenses related to Licensed Patents previously incurred by
MICHIGAN, BIOTHERAPIES shall pay to MICHIGAN the total sum of: $34,590.00,
in payments as follows:
(1) $15,000.00 shall accrue on December 31, 1996, an& shall be paid by
BIOTHERAPT7S according to Paragraph 6.1; and
(2) $13,918.00 shall accrue as of December 31 of each of the calendar
years 1997, 1998, 1999, 2000, and 2001, and shall be paid by
SIOTHERAPIES according to Paragraph 6.1.
4
<PAGE>
5. REPORTS.
5.1 Within thirty (30) days after the close of each Royalty Quarter during the
term of this Agreement (including the close of any Royalty Quarter
immediately following any termination of zhis Agreement), BIOTHERAPIES
shall report to MICHIGAN all rovalties accruing to MICHIGAN during such
Royalty Quarter. Such quarterly reports shall indicate for each Royalty
Q---.a---L-er the gross sales and Net Sales of Products by BIOTHERAPIES and
Affiliates; such reports shall also indicate the source and amount of all
Gross Sublicensing Revenues (including, where such information is provided
to BIOTHERAPIES or Affiliates, the aross sales and net sales of Products by
Sublicensees) and any other revenues with respect to which paymenz~s are
due, and the a-mount of such payments, as well as the various calculations
us~d to arrive at said amounts, including the quantity. ption (nomenclature
and type designation), country of manufacture and country of sale of
Products. In case no payment is due -for any such period, BIOTHER-kPIES
shall so report.
5.2 BIOTHERAPIES covenants that: it will promptly establish and '~fi re and
consistenzly employ a syszeip. of specific nomenclature designations for
Products so that various types can be identified and segregated, where
necessary; BIOTHERAPIES, Affiliates and SubJ4 ~censees shall consistently
employ such system when rendering invoices thereon and henceforth agree to
inform MICT-=3_kN, or its auditors, when requested as to the details
concern--'na such nomencla7:ure system as wel-, as to all additions there:o
and changes therein.
5.3 BIOTHERAPIES sh-all keep, and shall reauire ~ts Affiliates and Sublicensees
tc keep, true and accurate records and books of account cont-ain-'ng data
reasonably required for the comouzation and verifica:iion or oavments to-be
made as C7 - provided by this Agreemenz, whi h records and books shall be
open for inspec:--'on upon reasonable notice dur--'-ig business hours by
eithe-- MICHIGAN auditor(s) or an inaepenaen certified accoun--ant selected
by MICHIGAN, for the ourr)ose of veri-fying the amount of payments due and
pavable. said right of inspection w--'--l exist for six (6) years from the
date of filing of the report for the Royalty Quarter :c wh~ch such records
and books of account relate in support thereof, and this recruiremen: and
riaht of inspection shal.1 survive any termination of ~__-.is Agreement.
MICHIGAN shall be responsible for all expenses of such inspection, except
that if such inspection reveals an underpayment of royalties to MICHIGAN in
excess of ten percent (10%), then said inspection shall be at BIOTHERAPIES
s expense and such underpayment shall become immediately due and payab'-e
to MICHIGAN.
<PAGE>
5.4 The reports provided for hereunder shall be certified by an authorized
representative of BIOTHERAPIES to be correct to the best of BIOTHERAPIES's
knowledge and information.
6. TIMES AIND-CURRENCIES OF PA ENTS.
6.1 ?ayments accrued during each Royalty Quarter s-all be due and payable in
Ann Arbor, Michigan on the date eac cruarterly report is due (as provided
in Paragraph 5.1), shall be .Lncluded with such report and shall be paid in
United States dollars. BIOTHERAPIES agrees to make all payments due
hereunder to M7 CHIGAN by check made Dayable tc "The Regents of The
University oil Michigan, " and sent by prepaid, certified or registered
mail, return receipt requested, to the address for notices set forth in
Article 21 herein.
6.2 on all amounts outstanding and payable i to MICHICAN, interest shall accrue
on an annualized basis from the date such amounts are due and payable at
two percentage points above the prime lending rate as established by the
C-,ase ~Ianhattan Bank, N.A., in New York City, New York, or at such -ower
rate as may be required !Dy law.
6.3 Where Net Sales are generated or Gross Sublicensing Revenues are received
in -f:oreign currency, such foreig~- cur--ency shall be converted inzo its
equivalent in Un~ ' ted Sta:~es dcllars at the exchange raze of such
currency as reported (or erroneously reported, as subsequently
co_rrecte-_~~) ir. the Wall Streez Journa- on the last business day of the
Roya__Zy Quarter during which such payments are received' by BIOTHERAPIES
or Af-filiates (or 4f not reported on that date, as quoted by the Chase
Manhattan Bank, N.A., in New York City, New York)
6.4 Except as provided in the definitio.- of Nez'SaLes, =11 --- I_Oyp~ty
payments to MICHIGAN under this Agreemenz shall be ------------------
wIthout deduction for sales, use, excise, -personai property or other
similar ta~:es or other duties imposed on s~_lch --------- payments by :~he
government of any country or any poLitical sub.d4V4s~on thereoz; and any
and all such taxes or shall be assumed by and paid b,,,- BIOTIHERAPIES.
------
7. COMMERCIALIZATION
7.2 s understoo- zna-- BIOTHERAP7ES has --he resp:)ns---jlity to do ai approv s
necessary for any government a-Is to that manu-facture and/or sell
Products, except as o--'---__-wise specifically provided herein W4th recard
to Li-nse_,,~ 'Patents.
BIOTHERAPIES aarees to use its best efforts to 6eve--op Products, obtain
any government approvals necessary, and manufacture and sell Product S 4 n
an expeditious manner; and to effectively expLoit, market and manufactu-re
in suf~ficient
<PAGE>
quantities to meet anticipated customer demand and to make the benefits of
the Products reasonably available to the public.
7.3 BIOTHERAPIES shall also achieve milestones according to the schedule set
out below.
The following m4-lestones apply to this Paragraph 7-3:
(1) "Milestone 10 shall be demonstration by BIOTHERAPIES (to MICHIGAN's
reasonable satisfaction) of the completion of equity investment
financing or research -ffunding agreements providing BIO."HERAPIES
with a tozal of at least four hundred thousand dollars ($400,000.00)
in private, cash (non-debt) equity investment and cash Lundina -zor
BIOTHERAPIES research;
(2) "Milestone 2" shall be demonstration by '-5--OTHERAPIES (to MICHIGAN's
reasonable satisfaction) of the commencement of preclinical animal
trials for develoiDment of a therapeutic Product, and the commencement
of clinical trials for a diagnostic Product;
(3) "Milestone 3" shall be demonstration bv (to MIC~-'IGAK's reasonable
satisfaccior) of the f"i'ling of an FDA IND for the commencement of
human Cl4rical trials for a theraneutic Product, and -final
sub.-.1'ssion to the FDA of all teszi data reauired for aovernmen7_al
approval of the sale of a diagnostic Product;
(4) "Milestone 4." shall be demonstration by E10THEPLAPIES (to MICHIGAN's
-reasonable satisfaction) of the commencement of FDA Phase I clinical
trials for a therapeutic Product, and final approval by the FDA of the
public sale of a diagnostic Product; and
(5) "Milestone 5" shall be demonstrat:4 on by BIOTHERAPIES (to MICHIGAN's
reasonable satisfaction) of the commencement o.f FDA Phase III
clinical trials ---- for a theraoeutic Product.
The following ~s the milestone achievement schedule. BIOTHERAPIES shall achieve
demonstration of the milestones by -the dates set out below, and, upon any
failure to do so, MICH7GAN may az Jts option terminate ~his-Agreement and the
license rights conveyed herein:
(1) Milestone 1: December 31, 1996;
(2) Milestone 2: January 31, 1-997;
(3) Milestone
(4) Milestone 4:
<PAGE>
(5) Milestone 5: December 31, 2002.
7.4 BIOTHERAPIES agrees to substantially manufacture or have manufactured all
Products in the United States.
7.5 BIOTHERAPIES agrees that it will maintain a principal business office
within the State of Michigan for at least five (5) years following the
Effective Date, and that it will, where commercially reasonable, make
reasonable attempts to establish any Product production facilities and
research facilities of BILOTHERAPIES in MICHIGAN.
7.6 Within fifteen (15) days after the First Commercial Sale, BIOTHERAPIES
shall report by written letter to MICHIGAN the date and general terms of
that sale. j
8. SUBLICENSING.
8.1 BIOTHERAPIES shall have the exclusive right to grant sublicenses to -4ts
rights under Article 3 above to Affiliates and Sublicensees, to make, have
made, use, market and sell Products.
8.2 BIOTHERAPIES shall notify MICHIGAN of every sublicense agreement and each
amendment thereto, within thirty (30) days after their execution, and
indicate the name of the Sublicensee or Affiliate, the terr-tory of the
sublicense, the scope of the sublicense, and the nature, timing and amounts
of all ---*:ees and royalties --o be paid thereunder.
8.3 Any sublicense granted by BIOTHERAPIES under this Article 8 shall provide
for its termination upon termination of this Agreement, provided, however,
that a sublicense granted to any Sublicensee may permit such Sublicensee,
by written notice to MICHIGAN within sixty (60) days of the Sublicensee's
receipt of written notice of such termination, to elect to continue its
sublicense. No such election will be valid unless (i) the sublicense
conforms to the requirements of this Article 8, and (ii) the Sublicensee
agrees in writing at the time of election to assume in respect to MICHTGAN
all of the obligations (including obligations for payment) contained in its
sublicense agreement with BIOTHERAPIES.
8.4 All sublicenses shall be consistent with the terms and conditions of this
Agreement, and shall contain acknowledgements by the Sublicensee or
Affiliate of MICHIGAN's rights in the TECHNOLOGY and Licensed Patents, and
the disclaimer of warranty and limitation on MICHIGAN's liability, as
provided by Artic,:e 12 below. All sublicenses shall also contain
provisions under which the Sublicensee or Affiliate accepts duties to keep
records; to avoid improper
<PAGE>
representations or responsibilities; to defend, hold harmless, and
indemnify MICHIGAN; to control export; to restrict the use of MICHIGAN's
name; and to properly mark Products with patent notices; which duties shall
be at least equ4valent to those accepted by BIOTHERAPIES in Paragraphs 5.3,
12.4 and 13.1, and Articles 17, 19 and 20, respectively, herein.
8.5 All sublicenses shall provide for each Sublicensee or Affiliate to pay
taxes due, if any, in the same manner as set out in Paragraph 6.4 above, or
shall provide that the Sublicensee or Affiliate will be responsible for
such taxes should the sublicense be assigned to MICHIGAN.
8.6 All sublicenses shall provide the right for BIOTHERAPIES to assIgn its
rights under the sublicensi to MICHIGAN.
9. OWNERSHIP OF T CTUAL PROPERTY.
9.1 BIOTHERAPIES acknowledges MICHIGAN's ownership interest in all Licensed
Patents as defined in Paragraph 2.5 (i) above.
9.2 MICHIGAN employees might be engaged as employees or consultants to
BIOTHERAPTES or Affiliates during the time of the--'r employment with
MICHIGAN. Where any material invention (whether or not zatentable),
discovery or computer software is conceived, reduced to practice or
developed 6y deve-lopers/invenzors acting as emp-,oyees of or consultants
to BIOTHERAPIES or Affiliates, and persons concurrently employed by
MICHIGAN constitute part or all of that group of developers/inventors, then
BIOTHERAPIES shall disclose to MIC147GAN full details of the nature of the
invention, discovery or computer software, the circumstances of its
concept-ion, reduction to Dractice and/or development, and the persons
const-izi_:ting the group of developers/Inventors.
9.3 BIOTHERAPIES acknowledges that MICHIGAN employees have certa4n obligations
to MICHIGAN with respect to any invenzion, discovery or computer software
which is conceived, reduced to practice or developed in whole or in part
with the use of MICHIGAN ]"unds, facilities or equipment, as part of
research sponsored at MICHIGAN ' or in the course of the performance of
d-,--ties for MICHIGAN. These obligations ------ include duties to disclose
and assign such inventions, discoveries and computer software to MICHIGAN.
Such --- obligations of M:CHIGAN emplo ees a Agreement.
10. PATENT APPLICATIONS AND MAINTENANCE.
10.1 BIOTHERAPIES may administer the filing, prosecution and maintenance of T
'censed Patents, including fore4gn filings and Patent Coooeration Treaty
filings, provided that: (i)
9
<PAGE>
all such filing, prosecution and maintenance shall be at BIOTHERAPIES's
sole expense, and BIOTHERAPIES shall directly pay all associated third
party fees, including attorney fees and patent office fees; (ii) MICHIGAN
shall have the right to review and comment upon all aspects of such filing,
prosecution and maintenance, and BIOTHERAPIES shall provide MICHIGAN with
copies of all documen--s relating thereto -n sufficient time to allow such
review and comment by MICHIGAN, and BIOTHERAPIES shall otherwise endeavor
to provide MICHIGAN with a meaningFul opportunity to participate fully in
a--, aspects of such filing, prosecution and maintenance; and (iii) all
such filing, prosecution and maintenance shall be handled through an agent
or attorney engaged by BIOTHERA-PIES (and acknowledging BIOTHERAPIES as the
sole Party responsible for expenses) , reasonably accept- able to MICHIGAN,
which agent or attorney shall be required to treat BIOTHERAPIES and
MICHIGAN as its joint cl-ient in such Atters.
10.2 If BIOTHERAPIES decides to refrain from or zo cease prosecuting or
maintaining any of Licensed Patents, B701HERAPIES shall notify M7CHIGAN
promptly and in suff`c~ent ---------- time to permit MICHIGAN 'In its sole
discretion to continue ---- such prosecution or main-enance. If MICHIGAN
decides to so continue, then those Patent aDz:) -1.41. cations and natents
shall thereafter be deemed no:~ included in the definitions c -
"TECHNOLOGY" and "Licensed Patents" herein; except that r)rior to such
continuance, MICHIGAN shall notify BIOTHEP-kPIES its decision zo so
continue and in good faith offer to allow BIOTHERAPIES to agree ~c
reimbursement of all expenses incurred by M7C-~:7GAN for such continuance,
and if such agreement is promptly made then those patents and patent
applications shall rema-'n included as part of "TECHNOLOGY" and "Licensed
Patents" herein.
11. INFRINGEMENT
11.1 During the term of this Agreement, BIOTHERAP77S shall have the first option
to police the T icensed Patents and -Oroducts against infringement by other
parties. This right to police includes defending any action for declaratory
judgmen-_ of nonin-7-ringemen- or invalidity; and prosecuting, defendin--
or settling all infringement and declaratory judgment actions at its
exnense and, through counsel of its selection, except that any such
settlement shall only be made with the advice and consent of MICIZIGAN.
MICHIGAN shall provide r easonable assistance to B-_-OTHERA:--'_-E'S with
resDect to suc-In actions, provided BIOTHERAPIES shall reimburse MICHIG_kN
for out-of pocket expenses incurred 2n connectJon with any such as S4
stance rendered at BIOTHERAPIES's request or reasonably requIred by
M!C_:;IGAN. .7- the event BIOTHERAPIES elects to institute any such actlon
or suit, MICHIGAN agrees to be named as a nominal party therein. MICHIGAN
retains 'the right
10
<PAGE>
to participate, with counsel of its own choosing, in any action under this
Paragraph 11.1.
11.2 In the event that BIOTHERAPIES shall institute an action for infringement
of a Licensed Patent or defend a declaratory judgment or other action with
respect to a Licensed- Patent, any portion of any resulting settlement
paymenzs or damages awarded which is received by BIOTHERAPIES, less
3IOTHERAPIES's actual outside attorney fees and ozher direct, out-of-pocket
litigation expenses, including expenses due MICHIGAN for its participation
in said litigation as provided under Paragraph 11.1 (not to include any
compensaton paid to employees of BIOTHERAPIES or Affiliates) paid and
u'n_-ecovered by BIOTHERAPIES, shall be paid 85% to BIOTHERAPIES and 15% to
MICHIGAN.
11.3 In the event that BIOTHERAPIES fails tt take action to abate any alleged
infringement of a Licensed Patent within s'xty (60) days of a request by
MICHIGAN to do so (or within such shorter period which might be required to
preserve ::he legal rights of MICHIGAN under the laws of any relevant
covernment or political subdivision thereof), then MICHIGAN shall have !:he
right to take such act~on (including prosecuticn cf a suit) at its ex-oense
and BIOTHERAPIES shall use reasonable ef"Lorts to cooperate in such act~on,
a: BIOTHEPLAPT7S'S expense. in the event MICHIGAN elects zo insci~:ute anv
such action or suit--, BIOTHE~Lkp7ES agrees to be named as a nominal party
therein. MICHI&kN shall have full au~_hority to settle on such terms as
MICHIGAN shall determine, except :ih,at MICHIGAN shall not reach any
settlemen~ wherebv it 1-- 'censes a third party under any Licensed Patents
without the consent of BIOTHERAPIES, which consent can be withheld for any
reason. MTC_rTIGAN shall retain one hundred percent (100%) of any recovery
or se_:~tlement under this Paragraph 11.3, a--.'-e-payment to
B-0-HEERAPILES (such payment not to excee-~ the recovery or settlement
amounts actually received bv MICL:i"17AN) of any unrecovere3 expenses paid
by BIOTHERAPIES at MICHIGAN's recr-,est to third parties in furtherance o`:
such act.on.
11.4 BIOTHERAPTES shall PrO.-nDtlY notify MICHIGANY-in writing in 6etail of zhe
-;, b% a third party of iscover-y of any allegation infringement resulting
Efrom the practice of License-_~ Patents, and of the in4tiation of any
legal action by BIOTHERZ~.P:ES or bv anv third party with regard to any
allegec~ infringement or noninfringement. BIOTHERAPIES shall in a zimel7y
manner keep MICHIGAN, in-Formed and provide copies to MICHIGAN of al!
documents reaardincy all such proceedings or actions instituted by
BIOTHERA-PIES.
11
<PAGE>
12. NO WARRANTIES, -LIMITATION ON MICHIGAN's LIABILITY.
12.1 MICHIGAN, includina its fellows, officers, employees and agents, makes no
representations or warranties that any Licensed Patent is or will be held
valid, or that the manufacture, use, sale or other distribution of any
Products will not in-fringe upon any patent or other rights not vested in
MICHIGAN.
12.2 MICHIGAN, 7NCLUDING ITS FELLOWS, OFFICERS, EMPLOYEES AND AGENTS, MAKES NO
REPRESENTATIONS, EXTENDS NO WARRANTIES OF ANY KIND, EITHER EXPRESS OR
IMPLIED, INCLUDING BUT NOT LIMITED TO THE :MPLIED WARRANTIES OF
MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE, AND ASSUMES NO
RESPONSIBILIT7ES WHATEVER WITH RESPECT TO DES7GN, DEVELOPMENT, MANUFACTURE,
USE, SALE OR OTHER DISPOSITION BY BIOTHERAPIES, AFFILIATES OR SUBLIC43NSEES
OF PRODUCTS.
12.3 THE ENTIRE RISK AS TO PERFORMANCE OF PRODUCTS IS ASSUMED BY BIOTHERAPIES,
AFFILIATES AND SUBLICENSEES. In no event shall MICHIGAN , 4 ncluding its
fellows, officers, employees and agents, be responsible or liable for any
direct, indirecz , special, incidental, or consequential damages, or lost
profits or ozher econom--*c loss or damage, to B--OTHERAP7ES, Af'f'iliates,
Sublicensees or any other individual or entity regardless of -7--gal
theory. -he above lim4tations on 11'ability apply even though MICHIGAN, its
fellows, officers, employees or agents may have been advised of the
possibility o-": such damage.
12.4 BIOTHERAPIES shall noz, and shall require that its Affiliates and
Sublicensees do not, make any statements, repres entat ions or warranties
or accept any liabilities or resDonsibilit4es whatsoever to or with regard
to any person or entity which are inconsistent wi-:h any disclaimer or
limitation included in th~s Article '~2.
13. INDEMNITY INSURANCE,
13.1 B-LOTFERAPIES shall defend, indemnif::y and hold harmless and shall require
i~s Affiliates and Sublicensees to defend, indemnify and ; hc-- Id harmless
MICHIGAN, izs fellows, officers, employees and agents, for and against any
and all claims, demands, damages, losses, and expenses of any na--ure
(including atto--neys' fees and other litigation expenses) resulting from,
but no-- limited to, death, perscnal injury, illness, prope--zv damage,
economic loss or proaucts liability arising from or --'n connection W4th,
any o--" the --':ollow~ncr:
(1) Any manufac7ure, use, sale or other disposizion by BIOTHERAP7ES,
Affiliates, Sublicensees or zrans'lerees of Products;
12
<PAGE>
(2) The direct or indirect use by any person of Products made, used, sold
or otherwise distributed by BIOTHERAPIES, Affiliates or Sublicensees;
(3) The use by BIOTHERAPIES, Affiliates or Sublicensees of any invention
or computer software related to the TECHNOLOGY or the Licensed
Patents.
13.2 MICHIGAN shall ]oe entitled to participate at -4-zs option and expense
through counsel of its ow-n selection, and may join in any legal actions
related to any such claims, demands, damages, losses and expenses under
Paragraph 13.1 above.
13.3 Prior to any distribution of any Product by BIOTHERAPIES or an Affiliate
(including any distribution -for clinical trials) , BIOTHERAPIES shall
purchase and maintain in effect a policy of product liability insurance.
Prio-1- 7.o any distribution of any Product by a Sublitensee (including any
distribution fcr clinical trials) , BIOTHERAPIES shall require that the
Sublicensee purchase and maintain in effect a policy of r)roduct liab-`lity
insu--ance. Each such insurance policy shall provide reasonable coverage
for all claims with respect to any Products manufactured, sold, licensed cr
other-wise distributed by zIOTHERAPIES and Af---- "ilia-Les -- or, 4n the
case of a Sublicensee's policy, by said Sublicensee -- and shall specify
MICHIGAN, including - its fellows, officers and employees, as an additionai
insured. BIOTH7-P-k-ITES shal' urnish certificate(s) of such insurance ro
MICHIGAN, upon recruest.
14. TERM;--AND TERMINATION.
14.1 Upon any termination of this Agreement, and except as Provided herein -:o
the contrary, all rights and obligations of the Parties hereunder shall
cease, except as follows:
(1) Obligations to pay royalties and other su:-Ps acc-ruing hereunder uD to the
day of such termination;
(2) MICHIGAN's rights to inspect books and records as described - ~n Article 5,
and B7071HERAPIES'z obligations to keep such records for the required time;
(3) Obligations to hold harm~ess, defend and MICHIGAN under Article 1.3;
(4) Any cause off action or claim of BIOTHER_kp-ES or MIC-;~7.IGAN accrued or
to accrue because of any breac-- or de-fault by the other ?-=rty hereunder;
(5) The genera-- rights, obligations, and understandings of Articles 2, 12, 17,
19, 20, 26 and 29; and
13
<PAGE>
(6) All other terms, provisions, representations, rights and obligations
contained in this Agreement that by their sense and context are
intended to survive until performance thereof by either or both
Parties.
14.2 This Agreement will become effective on its Effective Date and, unless
terminated under another, specific provision of this Agreement, will remain
in effect until and terminate uDon the latter of (i) the last to expire of
Licensed Patents, (ii) the tenth anniversary date of the Effective Date or
(iii) the seventh anniversary date of the date of the F 4 rst Commercial
Sale.
14.3 if BiOTHERAPIES shall at any time default in the payment of any royalty or
the making of any report hereunder, or shall make any false report, or if
either Party shall commit any material breach of any covenant or pr~mise
herein contained, and shall fail to remedy any such default, breach or
report within thirty (30) days after written notice thereof by the other
Party specifying such default, then that other Party may, at its ontion,
terminate this Agreement and the license righ~s granted herein by notice in
writing to such effect. Any such termination shall be without prejudice to
either Party's other legal rights for breach of this Agreement.
14.4 E-70TFERAPIES may terminate this Agreement by giving MICHIGAN a notice of
--ermination, which shall include a statement of the reasons, whatever they
may be, for such termination and the termination date established by
BIOTHERAPIES, which date S_ ~Iall not be sooner than ninety (90) days after
the date of the notice. Such notice shall be deemed by the Parties to be
final and, immediately upon receipt of such no'ce of L termination,
MICHIGAN shall have the right to enter into agreements with others for the
manufacture, sale, and/or use Of Products. LU_La1_\T_M_F.UT.
15. ASSIGNMENT
Due to the unique relationship between the Parties, th 4S Agreement sha-1-1
not be assignable by either Party L. t-wizhou- the pr, - written consent of
the other Party. Any a temot to a 11 be void from assign this Agreement
withou~- such consent sh the beginning. MICH7GA_N shal' not unreasonably
withhold consent for 310T_HEPAP1-'ES to assign -his Agreemen-" to a
purchaser of all or substantially all Of BIOTHERAPIES's business. No
assignment shall be effective unless and until the intended assignee agrees
in writing to accep:: all of the terms and condi~- ions of this Agreement.
Further, B70THERAPIES shall refrain from pledging any of -he license rights
grante6 in this Agreement as security for any creditor.
14
<PAGE>
19. USE OF MICHIGAN'S NAME.
BIOTHERAPIES agrees to refrain from using and to require Affiliates and
Sublicensees to refrain from using the name of MICHIGAN in publicity or
advertising without the prior written approval of MICHIGAN. Reports in
scientific literature and presentations of joint research and development
work are not considered publicity.
20. PRODUCT MARKING.
BIOTHERAPIES agrees to mark, and to require Affiliates and Sublicensees to
mark, Products with the appropriate patent notice as approved by MICHIGAN
(when appropriate), such approval not to be unreasonably withh1ld.
21. ND-ZME3.
Any notice, request, report or payment required or permitted to be given or
made under this Agreement by either Party shall be given by sending such
notice by certified or registered mail, return receipt requested, to the
address set forth below or such other address as such Party shall have
specified by written notice given in conform4ty herewith. Any notice not so
given shall not be valid unless and until actually received, and any notice
given in accordance with the provisions of this Paragraph shall be e--
;:fective when mailed.
To MICHIGAN: The University of Michigan
Technology Management Office
Wolverine Tower, Room 2071
3003 S. State Street
Ann Arbor, M! 48109-1280
Attn: File Nc. 379/380/1061
To BIOTHERAPIES: Biotherapies, Inc.
3728 Plaza Drive, Suite 2
Ann Arbor, MI 48108
Attn: Dr. Paul R. Ervin, Jr.
22. INVALIDT Y.
In the event that any term, provision, or covenant o-F this Agreement shall be
determined by a court of competent jurisdiction to be invalid, illegal or
unenforceable, that term will be curtailed, limited or deleted, but only to the
extent necessary to remove such invalidity, illegality or unenforceability, and
the remaining terms, proV4 sions and covenants shall not in any way be affected
or impaired thereby.
16
<PAGE>
29. JURISDICTION AND FORUM.
The Parties hereby consent to the jurisdiction of the courts of the
State of Michigan over any dispute concerning this Agreement or the
relationship between the Parties. Should BIOTHERAPIES bring any claim,
demand or other action against MICHIGAN, its fellows, officers,
employees or agents, arising out of this Agreement or the relationship
between the Parties, BIOTHERAPIES agrees to bring said action only in
the Michigan Court of Claims.
IN WITNESS WHEREOF, the Parties hereto have executed this Agreement in duplicate
originals by their duly authorized officers or representatives.
FOR BIOTHERAPIES, INC. FOR THE REGENTS OF THE
UNIVERSITY OF MICHIGAN
By By
--------------------------- ---------------------------
(authorized representitive) (authorized representative)
Typed Name Paul R. Ervin Jr. Typed Name Robert L. Robb
------------------------- ---------------------------
Title President Title Director,
Technology Management Office
--------------------------- ---------------------------
Date 3/26/96 Date 3-29-96
--------------------------- ---------------------------
<PAGE>
UNIVERSITY OF MICHIGAN/BIOTHERAPIES LICENSE AGREEMENT (379/380/1061) OF
----------------
EXHIBIT A: BAILMENT OF BIOLOGICAL MATERIALS TO BIOTH-ERAPIES
The following description of biological materials ("MATERIALS11) is hereby
included as part of the definition of "TECHNOLOGY" in the License Agreement to
which this Exhibit A is attached, and the following terms are hereby
incorporated into and made a part of the License Agreement. BIOTI~MRAPIES
acknowledges that it currently has samples of MATERIALS in its possession.
"Derivatives" as used herein shall mean any progeny, sequences, clones, or
molecules replicated or derived from MATERIALS by BIOTHERAPIES, and products and
processes which would not have been made or developed but for BIOTHERAPIES's
access to MATERIALS.
The transfer of Materials to BIOTHERAPIES under this Exhibit A represents a
bailment by MICHIGAN, and ownership of the MATERIALS is not transferred to
BIOTHERAPIES. Upon an% termination of the License Agreement, BIOTHERAPIES shall
at MICHIGAN's discretion either destroy all remaining MATERIALS and Derivatives
(and certify such destruction to MICHIGAN's reasonable satisfaction), or return
them to MICHIGAN; except that upon ter-mmation of the License Agreement
according to its Paragraph 14.2, all MATERIALS shall be deemed assigned to
BIOTHERAPIES by MICHIGAN as of the termination date.
BIOTHERAPIES will use MATERLkLS and Derivatives only for the pActice of the
rights g-ranted to BIOTHERAPIES under the License Agreement.
BIOTHERAPIES will use MATERIALS and Derivatives only in compliance with all
applicable laws and regulations (including the NIH Recombinant DNA Guidelines,
where applicable). MATERIALS ARE NOT FOR USE IN HUMANS, except as authorized
under applicable laws and regulations.
BIOTHERAPIES shall not transfer MATERIALS and Derivatives to any other party,
except those of its Affiliates and Sublicensees who agree in writing to be bound
by the terms of this Exhibit A; and vdio also ag- ree in writing to return all
remaining MATERIALS and Derivatives to BIOTHERAPIES upon any te=ination of the
License Agreement (for their de5-ruction or return to MICHIGAN), unless assigned
to BIOTHERAPIES by MICHIGAN.
BICITHERAPIES assw-nes all resoonsibility for the safe use and handling of
MATERIALS and Derivatives, and will defend, indemnify and hold harmless
MICHIGAN, its employees, officers, fellows and agents against any and all claims
arising from BIOTHERAPIES's and its transferees' acceptance, use, storage,
handling, or disposal of MATERIALS and Derivatives.
MICHTGAN makes no representation that MATERIALS supplied by it or the methods
used in makinc, MATERIALS are free from liabilin, ior patent infringement.
BIOTHERAPIES acknowledges that MATERIALS are a part of the TECf-INOLOGY under
the License Agreement, and that all terms pertau-~ng to the TECHNOLOGY in the
License Agreement thus apply to MATERIALS, including all disclaimers of
warranties and requirements of defense and indemnity by BIOTHERAPIES. NOTE THAT
PURSUANT TO THE LICENSE AGREEMENT ALL TECHNOLOGY, INCLUDING MATERIALS, IS
PRO\"TDED WITHOUT WARRANTY OF MERCI-LAI\-TABILIT-Y OR FIT-NESS FOR A PARTICULAR
PURPOSE OR USE OR AN"YOTHER WARRANTY, EXPRESSED OR IMPLIED.
DESCRIPTTON OF BIOLOGICAL MATERIALS:
hybridoma 7G6 mouse and the monoclonal antibodies produced by the hybridoma
hybridoma 3C6 mouse and the monoclonal antibodies produced by the hybridoma
hybridoma 6B8 mouse and the monoclonal antibodies produced by the hybridoma
pMammA DNA clone
<PAGE>
THE UNIVERSITY OF MICHIGAN
Thomas Triinmer
Biotherapies Incorporated
5692 Plymouth Road
Ann Arbor, MI 48105
Dear Tom:
<PAGE>
SCHEDULE"B"
MAMMASTATIN SERUM ASSAY
The Mammastatin Serum Assay is a quantitative assay used for measuring
mammastatin in biological samples composed of monoclonal antibody against
mammastatin and marnmastatin protein standards. The serum assay may contain, in
addition, components of a "Kit" which would allow antibody based detection of
the mammastatin protein. Components of the Kit could include but not be limited
to: anti- mammastatin monoclonal antibody, marnmastatin protein , second
antibody to detect anti-mammastatin monoclonal antibody, substrates to develop
color from the assay, membrane to immobilize serum proteins, an apparatus to
perforrn the ~j ot, a scanner to read the blot, and a software program and
computer to interpret the blot.
The assay is performed by applying a sample (serum or other fluid) and
control protein (mammastatin protein in solution, human serum with known
amounts of mammastatin, or sorne otlier liquid containing marnmastatin of known
amounts) to a membrane using a dot-blot apparatus and suction. The membrane is
then incubated with anti-mammastatin antibody, washed and then incubated with a
second (detecting) antibody which is labeled by enzymatic means. The membrane
is then washed and developed with a substrate solution. Samples containing
mammastatin will show a colored reaction where the intensity of color is
proportional to the amount of marnmastatin in the sample. The developed
membrane is then analyzed by desktop scanner and interpreted using appropriate
software.
The assay may be modified to utilize additional anti -mammastatin
antibodies and different fon-nats. The Assay may be ELISA, or EIA based but
will, in any of its forms remain an antibody based system for measuring the
quantity of marnmastatin protein in a liquid. In all cases marnmastatin is
defined as a human derived protein with fon-ris of 53, 49 and 44 kD which is
growth inhibitory for breast cell, phosphorylated, and produced by nonnal human
mammary cells.
<PAGE>
SCHEDULE"C"
1. 26,250 common shares being held for the Directors of Biotherapies under
stock option agreements.
2. Biotherapies intends to Implement an employee stock option plan setting
aside a total of 5% of the total outstanding shares of Biotheraples for the
employees.
3. Biotherapies intends to grant an option to Thomas D. Trimmer, President of
Blotherapies, to purchase 10% of the total outstanding shares of
Biotherapies upon meeting certain conditions.
11
10.3 MANAGEMENT SERVICES AGREEMENT BIOLABS, INC. WITH
TYNEHEAD CAPITAL CORP.**
MINUTES OF A MEETING OF THE DIRECTORS OF BIOLABS, INC. (the "Company")
HELD AT 14084 - 28TH AVENUE,
SURREY, BRITISH COLUMBIA, ON THE IST DAY
OF SEPTEMBER, 1998
PRESENT IN PERSON:
E. Gregory McCartney
Lawrence Pasemko
Albert Klychak
Dr. Ian B. Woods
E. Gregory McCartney acted as Chairman and Lawrence Pasemko as
Secretary to the Meeting. A quorum of directors being present, the Chairman
called the Meeting to order.
The Chairman stated that the purpose of the Meeting was to
approve the Company entering into a Management Services Agreement with Tynehead
Capital Corp. ("Tynehead"). The Chairman also stated that the Company and
Tynehead have common directors, namely, Messrs. McCartney and Paseniko, and
further that Messrs. McCartney and Pasemko and Albert Klychak have a financial
interest respecting this Agreement. A general discussion ensued.
Accordingly, pursuant to Section 713 of the New York Business
Corporation Law, Messrs. McCartney and Pasemko each declared their common
directorships between Tynehead and the Company and, along with Mr. Klychak,
their respective financial interests in this transaction and abstained from
voting thereto.
UPON MOTION DULY MADE IT WAS RESOLVED BY THE SOLE DISINTERESTED
DIRECTOR THAT:
1. The Company be authorized to enter into an Management Services
Agreement with Tynehead substantially in the form attached hereto
(the "Agreement") with such changes, additions, amendments or
deletions thereto as may be approved by any one or more of the
directors or officers of the Company and the execution by such
directors or officers, under the corporate seal of the Company or
otherwise shall be conclusive evidence of the approval of the
Agreement.
2. Any one director or officer of the Company be and he is hereby
authorized, for and on behalf of the Company to execute and
deliver all such documents and instruments and take all,-,.,ch
action as such director or officer may determine to be necessary
or desirable to implement the Agreement referred to in the
preceding resolution, such determination to be conclusively
evidenced by the execution and delivery of any such documents or
instruments and the taking of any such actions.
- --------------------------- -------------------------------
CHARIMAN SECRETARY
<PAGE>
MANAGEMENT SERVICES AGREEMENT
THIS AGREEMENT dated and made effective the 1st day of September, 1998.
BETWEEN:
BIOLABS, INC., a company duly incorporated under the laws of the State
of New York, having its head ofice in British Columbia at P.O Box
10026 Pacific Centre South, Toronto Dominion Bank Tower, 700 West
Georgia Street, Vancouver, British Columbia V71B3
("BioLabs")
AND OF THE FIRST PART
TYNEHEAD CAPITAL CORP., a company duly incorporated under the laws of
the Province of British Columbia, having an office at 205 - 1676
Martin Drive, White Rock, British Columbia, V4A 6E 7
("Tynehead")
OF THE SECOND PART
WHEREAS:
A. Tynehead is in the business of providing executive management and
administrative services to private and public enterprises;
B. BioLabs and Tynehead have agreed to provide such services and Tynehead
wishes to provide such services to BioLabs;
C. Biol-abs and Tynehead have agreed to enter into this Agreement to set out
the terms and conditions relating to the provision of such services;
NOW THEREFORE in consideration of the mutual covenants and agreements
herein contained, the sum of ten dollars ($10.00), and other good and valuable
consideration, the receipt and sufficiency of which is hereby ackr-,~wledged by
each of the parties hereto, the parties to this Agreement covenant and agree
with each other as follows:
1. INTERPRETATION
1.1 Definitions. Where used in this Agreement, the following words and terms
will have the meanings indicated below:
(a) "Agreement" means this agreement and any Schedule thereto, as each may
be supplemental or amended from time to time by an instrument in
writing executed by the parties hereto;
<PAGE>
(b) "Board" refers to the board of directors of BioLabs as constituted
from time to time, including any executive committees thereof;
(c) "Change in Control" will be deemed to have occurred on the happening
of any of the following events:
(i) if any person (other than Tynehead) completes a transaction, bid,
arrangement or reorganization that results in that person (and
any persons acting in concert with that person by virtue of an
agreement, arrangement, commitment or understanding) holding, in
the aggregate, more than 20% of the voting rights attached to all
outstanding Voting Securities of Biol-abs;
(ii) if Biol-abs sells or otherwise disposes of all or substantially
all of its assets, except that no Change of Coi*rol will be
deemed to occur if such sale or disposition is made to a
subsidiary or subsidiaries of BioLabs;
(iii)if BioLabs enters into an amalgamation, consolidation or merger
with another company, except that no Change of Control will be
deemed to occur if such amalgamation, consolidation or merger is
with any subsidiary of Biol-abs;
(iv) if more than half the directors elected as directors of Biol-abs
at a meeting of Biol-abs' holders of Voting Securities are
comprised of persons who were not included in the slate for
election as directors proposed to such holders by the Board; or
(v) a determination by the Board that there has been a change,
whether by way of a change in the holding of the Voting
Securities, in the ownership of Biol-abs' assets or by any other
means, as a result of which any person (other than Tynehead,
persons controlled by Tynehead or persons controlled by such
persons), or any group of persons acting jointly or in concert,
is in a position to exercise effective control of Biol-abs;
(d) "Executives" means, collectively, the persons designated by Tynehead to
perform and to provide services to BioLabs pursuant to Section 2.2 hereof
and any person who replaces any of them in accordance with Section 2.2
hereof, and "Executive" means any one of the Executives;
(e) "Force Maieure" means any event or occurrence not within the control of the
party claiming Force Majeure and which by the exercise of reasonable
diligence such party is unable to prevent or overcome, Lcluding, without
limiting the generality of the foregoing, any act of God, strikes,
lockouts, or other industrial disturbances (and provided strikes, lockouts
and other industrial disturbances will be deemed not to be within the
control of the party claiming Force Majeure or able to be prevented or
overcome by such party where acceding to the demands of opposing persons is
inadvisable in the discretion of the party), sabotage, wars, blockades,
insurrections, riots, epidemics, landslides, lightning, earthquakes,
floods, storms, fires, washouts, arrests, restraints of rulers and peoples,
civil disturbances, explosions, breakages or accidents to machinery, the
inability to obtain materials or equipment, the inability to obtain or the
withdrawal or termination of permits, orders, licences, certificates or
other authorizations, and -
<PAGE>
the order or direction of any court, board or governmental or regulatory
authority having jurisdiction, but excludes any lack of funds or financing,
lack of credit, or other financial reason;
(f) "Incentive Management Fee" has that meaning as set forth in Section 3.2
hereof;
(g) "Management Fee" has that meaning as set forth in Section 3.1 hereof;
(h) "Management Services" has that meaning as set forth in Section 2.1 hereof;
(i) "Material" has that meaning as set forth in Section 5.1 hereof; and
(j) "Voting Securities" means a security of Biol-abs that is not a debt
security and carries a voting right either under all circumstances or under
some circumstances that have occurred and are continuing, and iticludes a
security that is convertible into or exchangeable for such a security.
1.2 Interpretation. For purposes of this Agreement, except as otherwise
expressly provided:
(a) all references in this Agreement to a designated "Section" is to the
designated Section and the subsections or subdivisions thereof;
(b) the words "herein", "hereof" and "hereunder" and other words of similar
import refer to this Agreement as a whole and not to any particular
Section, subsection or other subdivision or Schedule;
(c) all accounting terms not otherwise defined have the meanings assigned to
them in accordance with United States generally accepted accounting
principles;
(d) all references to currency are deemed to mean lawful money of the United
States
(unless expressed to be in some other currency) and all amounts to be
calculated or paid pursuant to this Agreement are to be calculated in lawful
money of the United States and to be paid by cheque certified by, or draft
drawn upon, a Canadian chartered bank payable at par in Vancouver, British
Columbia;
(e) any reference to a statute includes and is a reference to such statute and
to the regulations made pursuant thereto, with all amendments made thereto
and in force from time to time, and to any statute or regulations that may
be passed which has the effect of supplementing or superseding such statute
or such regulations;
(f) any reference to a corporate entity includes and is also - reference to any
corporate entity that is a successor to such entity;
(g) words imparting the masculine gender include the feminine or neuter gender
and words in the singular include the plural and vice versa; and
(h) the division of this Agreement into sections and the insertion of headings
are for convenience of reference only and will not affect the construction
or interpretation of this Agreement. -
<PAGE>
1.3 Schedules. The documents attached to this Agreement and referred to herein
are hereby
incorporated into and made a part of this Agreement, but the contractual effect
of such documents will be determined and limited entirely by the references to
such documents contained in the main body of this Agreement.
2. SERVICES AND TERM
2.1 Appointment. In accordance with the terms of this Agreement, BioLabs
retains Tynehead and Tynehead agrees to provide BioLabs with:
(a) the Management Services described in Schedule "A" hereto; and
(b) the services of the Executives to act as officers of BioLabs from time
to time provided that Biol-abs (i) will not be the employer of any
Executive acting as an officer thereof and will not be liable to
pay,jany amounts for such services other than the Management Fee and
the Incentive Management Fee payable to Tynehead and (ii) will provide
a suitable indemnity to any such Executive which will be unaffected
and remain in full force and effect notwithstanding any subsequent
cessation of the Executive's services pursuant to Section 2.4.
2.2 Scope of Duties. Tynehead will fulfil its obligations pursuant to Section
2.1 hereof by causing the services of the Executives to be provided to
Biol-abs on such basis as may be required to discharge such obligations.
2.3 Term of Agreement. Subject always to the rights of termination set out in
Part 9 hereof, the term of this Agreement will commence on and be effective
the date first above written and expire on the fifth anniversary thereof
and will continue thereafter unless terminated by either party in
accordance with this Agreement.
2.4 Cessation of Services of Executive. Notwithstanding the provisions of
Section 2.2 hereof:
(a) subject to Section 2.5 hereof, Biol-abs, having received the consent
of the Board, may direct Tynehead to cease providing the services of
one or more of the Executives provided to Biol-abs pursuant to Section
2.2 hereof provided any such direction will specify, in reasonable
detail, the reason or reasons which motivated BioLabs's decision to
provide such direction; and
(b) any Executive may require Tynehead to advise BioLabs of the withdrawal
of his or her services provided to Biol-abs pursuant to Section 2.2
hereof by giving 90 days written notice to such effect to Tynehead and
upon receiving such notice Tynehead will give similar notice to
BioLabs.
2.5 Replacement of Executive. Tynehead may, with the prior written consent of
Biol-abs and the Board, provide the services of another person or persons
to replace any Executive removed pursuant to Section 2.4 hereof.
3. FEES AND DISBURSEMENTS
3.1 Management Fee. In consideration of the provision by Tynehead to BioLabs of
the services contemplated by Sections 2.1 and 2.2 hereof, Biol-abs will pay
to Tynehead, upon receiving an invoice for same, a monthly management fee
(the "Management Fee") -
<PAGE>
of $15,000 in full payment of fees for Tynehead's provision of Management
Services to it which will be payable at the end of each month, the first
instalment to be payable on September 30, 1998, with the Management Fee to
increase to $22,833 commencing January 1, 1999. The Management Fee will be
further subject to at least an annual review by Biol-abs and Tynehead and,
following such review, may only be maintained at the amount in effect at the
time of such review or increased.
3.2 Incentive Management Fee. BioLabs may also pay to Tynehead an annual
incentive management fee (the "Incentive Management Fee") which will be
payable on or about January Ist of each year. The amount of the Incentive
Management Fee will be determined by Biol-abs on the basis of the
recommendations of the Board taking into account the financial performance
of BioLabs and such other factors as the Board considers relevant.
3.3 Stock Options. Subject to the receipt of.any required regulatory and
shareholder approval, if required, Biol-abs will grant options to each
Executive for the purchase of common shares of BioLabs pursuant to BioLabs'
1998 Stock Option Plan, in such an amount as determined by the Board to be
commensurate with the duties of each such Executive.
3.4 Disbursements. BioLabs will also reimburse Tynehead for any expenses
actually and properly incur-red by Tynehead in connection with its
performance of the Management Services, provided that for all such
expenses, Tynehead will furnish to Biol-abs statements and vouchers at the
end of each month in which the expenses were actually incur-red and
Tynehead will observe any limits from time to time fixed by the Board in
respect of expenses.
4. INDEPENDENT CONTRACTOR
4.1 Independent Contractor. Nothing in this Agreement will be constr-ued as
creating or *11 constitute a partnership between BioLabs and Tynehead-
Tynehead will be an wi independent contractor and not the servant,
employee, or agent of Biol-abs. As an independent contractor, Tynehead
will, at its own expense, pay all income taxes, employment insurance,
pension plan, workers' compensation contributions, and all other taxes,
charges and contributions levied or required by competent governmental
authorities in respect of income paid to under this Agreement or in respect
of the relationship of Tynehead to Biol-abs. If any competent government
authority determines that any source deductions from payments to Tynehead
or employer contributions or other payments should have been made by
Biol-abs on behalf of Tynehead, but were in fact not made, then, Biol-abs
will be entitled to deduct the full amount so determined by such
governmental authorities from any further payments required to be made to
Tynehead from Biol-abs.
4.2 Board Instructions. The Board, or the Board's designated management
appointee, may from time to time give any instructions to Tynehead that
they consider necessary in connection with the provision of the Management
Services but Tynehead will not be subject to the control of the Board or
such management appointee in respect of the manner in which these
instructions are carried out. -
<PAGE>
5. REPORTS
5.1 Reports by Tynehead. Tynehead will, upon the request, from time to time, of
BioLabs:
(a) fully inform BioLabs of the work done and to be done by Tynehead in
connection with the provision of the Management Services; and
(b) permit BioLabs at all reasonable times to inspect, examine, review and
copy any and all findings, data, client information, specifications,
drawings, working papers, reports, records, documents, and material
whether complete or otherwise (collectively the "Material") that have
been produced, received, acquired or provided by BioLabs to Tynehead
as a result of this Agreement.
6. OWNERSHIP
6.1 Ownership of Material. The Material produced, received, acquired or
provided by BioLabs to Tynehead as a result of this Agreement and any
equipment, machinery, or other property provided by BioLabs to Tynehead as
a result of this Agreement will:
(a) be the exclusive property of BioLabs; and
(b) immediately be delivered by Tynehead to BioLabs on BioLabs giving
notice to Tynehead requesting delivery of the Material, equipment,
machinery, or other property, whether such notice is given before,
upon, or after the termination of this Agreement pursuant to Pan 9
hereof.
7. CONFIDEN71ALITY
7.1 Tynehead. Tynehead will treat as confidential and will not, without the
prior written consent of BioLabs, publish, release, or disclose or permit
to be published, released, or disclosed either before or after the
termination of this Agreement, the Material, trade secrets, know-how or any
other information supplied to, obtained by, or which comes to the knowledge
of, Tynehead as a result of this Agreement except insofar as that
publication, release, or disclosure is necessary to enable Tynehead to
fulfil its obligations under this Agreement.
8. NON-COMPETITION
8.1 Non -Competition. Tynehead covenants and agrees that until one year after
thetermination of this Agreement pursuant to Part 9 hereof, it will not,
either alone or in partnership or in conjunction with any person,
syndicate, association or any other entity or group, whether as principal,
agent, employee, director, officer or shareholder or in any capacity or
manner whatsoever, whether directly or indirectly:
(a) carry on or be engaged in, concerned with or interested in, or advise,
lend money to or guarantee the debts or obligations of any business,
enterprise or undertaking that competes with the business of Biol-abs
anywhere within North America (the "Business");
(b) employ or take away from the Business, or attempt to do so, or solicit
for the purpose of doing so, any person who was employed by the
Business; or -
<PAGE>
(c) solicit, contract or communicate with any person, firm, corporation or
other entity that is or was a client, customer, supplier or
collaborator of the Business:
(i) for any business purpose involving a product or service that is of the
same or similar type or purpose as, or is competitive with, any
product or service with which the Business is or will have been
involved in selling, offering for sale, distributing or supplying;
(ii) for the purpose of selling or buying products or services competitive
with those of the Business, or any elements thereof; or
(iii)for the purpose of soliciting, diverting or taking away from the
Business, or attempting to do so, any business or prospects of the
Business.
8.2 Injunctions. Tynehead acknowledges and agreesi that Biol-abs would be
irreparably damaged if any provision of Section 8.1 hereof is not performed
by Tynehead in accordance with the terms of such provision. Accordingly,
Biol-abs will be entitled to an injunction or injunctions to prevent
breaches of any of the provisions of this Agreement and may specifically
enforce such provisions by an action instituted in a court having
jurisdiction. This remedy is in addition to any other remedy to which
Blol-abs may be entitled at law or in equity.
8.3 Executives. Tynehead will cause each Executive to enter into a separate
agreement with Biol-abs on substantially the same terms as contained in
this Part 8, mutatis mutandis.
9. TERMINATION
9.1 Termination by Tynehead. Subject to Section 9.4 hereof, Tynehead may
terminate this Agreement upon giving Blol-abs not less than 90 days prior
written notice of the effective date of the termination. In the giving of
any such notice by Tynehead, BioLabs may have the right to elect, in lieu
of the notice period, to pay Tynehead a lump sum equal to 90 days
compensation as calculated from time to time in accordance with Part 3
hereof.
9.2 Termination by BioLabs for Cause. Subject to Section 9.4 hereof, in the
event that Tynehead falls to materially discharge its obligations under
this Agreement, Blol-abs may give notice (a "Notice of Complaint") to
Tynehead which will specify such failure in reasonable detail. If, within
30 days of its receipt of any Notice of Complaint, Tynehead falls to
rectify such failure in a reasonable manner or if, because of the nature of
such failure, the rectification thereof reasonably requires a period of
time exceeding 30 days and Tynehead fails to proceed and continue
diligently to rectify such failure or give assurances to BioLabs with
respect thereto which are reasonably satisfactory to it that such failure
will be rectified within a reasonable period of time, BioLabs may terminate
this Agreement by notice (the "Notice of Termination") to Tynehead stating
that this Agreement is terminated and the reason for such termination. Such
termination will be effective as and from that such Notice of Termination
is received by Tynehead. If this Agreement is terminated for cause as
herein provided, accrued and unpaid compensation due to Tynehead as of the
date of termination pursuant to this Agreement will be paid by BloLabs
within 10 days following the date of termination.
9.3 Termination by BioLabs Without Cause. Subject to Section 9.4 hereof,
BioLabs may terminate this Agreement at any time without cause by giving
Tynehead written -
<PAGE>
9.4 notice of the effective date of such termination and in all respects except
as set out below, the termination of this Agreement will be effective
immediately. For greater certainty, any termination of Tynehead following a
Change of Control will be deemed to be without cause unless Tynehead
commits a material breach under this Agreement and it is not rectified in
accordance with Section 9.2 hereof. On the giving of any such notice,
Tynehead will cause the Executives to resign effective immediately and
Biol-abs will immediately pay Tynehead a lump sum equal to 24 months
compensation as calculated from time to time in accordance with Part 3
hereof. Such payments set out above will be in lieu of any applicable
notice period. All stock options granted to Executives under Section 3.3
hereof that have not yet vested, if any, will vest forthwith on the
termination of this Agreement under this Section. No Damages for
Termination. Neither BioLabs nor Tynehead will, as a result of the
termination of this Agreement, be entitled to any notice, fee, salary,
bonus, severance or other payments, benefits or damages in excess df what
is specified or provided for in Sections 9.1, 9.2 or 9.3, whichever is
applicable.
9.5 Duties Flo,"ing From Termination. On the termination of this Agreement,
BioLabs will:
(a) assume any contracts entered into by Tynehead at the direction of and
on behalf of Biol-abs and indemnify Tynehead against any liabilities
by reason of anything done or required to be done under any such
contract after the effective date of termination; and
(b) pay Tynehead all amounts owing to Tynehead pursuant to Part 3
including, without limitation, the Management Fee and the Incentive
Management Fee.
10. INDEN1[N'ITY
10.1 Indemnity of Tynehead. Tynehead covenants and agrees to indemnify and save
harmless biol- abs from and against any and all loss, damage, or expense
incurred or suffered by BioLabs:
(a) as a result of Tynehead exceeding Tynehead's authority hereunder;
(b) as a result of any of the terms or provisions of this Agreement being
breached by Tynehead; and
(c) arising from any and all claims, demands, assessments, and
reassessments made by any competent governmental authority in
connection with this Agreement including, but not limiting the
generality of the foregoing, payments required under income tax,
pension plan and employment insurance legislation, and for all costs
and expenses associated therewith. The said obligation to indemnify
will survive the termination of this Agreement.
10.2 Indemnity of BioLabs. BioLabs will indemnify and save Tynehead harmless
from and against all liabilities, losses, costs and damages which Tynehead
incurs or is called upon to pay in connection with the proper discharge of
its duties hereunder, except for liabilities, losses, costs and damages
arising from the wilful default or misconduct or
<PAGE>
negligence of Tynehead. The said obligation to indemnify will survive the
termination of this Agreement.
11. GENERAL
11.1 Assignment and Sub-Contracting. Tynehead will not, without the prior
written consent of BioLabs:
(a) assign, either directly or indirectly, this Agreement or any right of
Tynehead under this Agreement; or
(b) sub-contract any obligation of Tynehead under this Agreement.
No sub-contract entered into by Tynehead will relieve Tynehead from any of
its obligations under this Agreement or impose any obligation or liability
upon BioLabs to any sub-contractor.
11.2 Conflict. Tynehead will not, while this Agreement is in force, perform a
service for, or provide advice to, any person, firm, or corporation where
the performance of that service or the provision of that advice may or
does, in the reasonable opinion of the Board, give rise to a conflict of
interest between the obligations of Tynehead to Biol-abs under th is
Agreement and the obligations of Tynehead to any other person, f=, or
corporation.
11.3 Entire Agreement. This Agreement, including the Schedules hereto,
constitutes the entire agreement between the parties hereto and supersedes
any prior agreements. There are not and will not be any verbal statements,
representations, warranties, undertakings or agreements between the parties
and this Agreement may not be amended or modified in any respect except by
written instruments signed by all of the parties hereto.
11.4 Enurement. This Agreement will enure to the benefit of and be binding on
the respective successors and permitted assigns of each of the parties
hereto.
11.5 Force Majeure. If either party is prevented from performing any of its
obligations under this Agreement, in whole or in part, by reason of Force
Majeure, such party will be excused from performance for so long as and to
the extent that Force Majeure will so prevent such performance provided
that such party uses reasonable efforts to restore its ability to perform
its obligations hereunder, and provided that the settlement of strikes,
lockouts or other labour disputes will be entirely within the discretion of
each party and the foregoing requirement that a party will use reasonable
efforts to restore its ability to perform its obligations will not require
settlement of strikes or lockouts by acceding to the demands of opposing
persons when such course is inadvisable in the discretion of the party
affected. A party claiming Force Majeure will, with reasonable promptness,
give to the other party notice of the cause of the Force Majeure and its
expected duration.
11.6 Further Assurances. Each of the parties will execute such further
assurances and other documents and instruments and do such further and
other things as may be necessary to implement and carry out the intent of
this Agreement.
<PAGE>
notice of the effective date of such termination and in aIl respects except as
set out below, the termination of this Agreement will be effective immediately.
For greater certainty, any termination of Tynehead following a Change of Control
will be deemed to be without cause ualess Tynehead commits a material breach
under this Agreement and it is not rectified in accordance with Section 9.2
hereof. On the giving of any such notice, Tynehead will cause the Executives to
resign effective inunediately and BioLabs will immediately pay Tynehead a lump
sum equal to 24 months compensation as calculated from time to time in
accordance with Part 3 hereof. Such payments set out above will be in lieu of
any applicable notice period. All stock options granted to Executives under
Section 3.3 hereof that have not yet vested, if any, will vest forthwith on the
termination of this Agreement under this Section.
9.4 No Damages for Termination. Neither BioLabs nor Tynehead will, as a result
of the termination of this Agreement, be entitled to any notice, fee,
salary, bonus, severance or other payments, benefits or damages in excess
df what is specified or provided for in Sections 9.1, 9.2 or 9.3, whichever
is applicable.
9.5 Duties Flo,"ing From Termination. On the termination of this Agreement,
BioLabs will:
(a) assume any contracts entered into by Tynehead at the direction of and
on behalf of BioLabs and indemnify Tynehead against any liabilities by
reason of anything done or required to be done under any such contract
after the effective date of termination; and
(b) pay Tynehead all amounts owing to Tynehead pursuant to Part 3
including, without limitation, the Management Fee and the Incentive
Management Fee.
10. IN`DEN1N1TY
10.1 Indemnity of Tynehead. Tynehead covenants and agrees to indemnify and save
harmless bioLabs from and against any and all loss, damage, or expense
incurred or suffered by BioLabs:
(a) as a result of Tynehead exceeding Tynehead's authority hereunder;
(b) as a result of any of the terms or provisions of this Agreement being
breached by Tynehead; and
(c) arising from any and all claims, demands, assessments, and
reassessments made by any competent governmental authority in
connection with this Agreement including, but not limiting the
generality of the foregoing, payments required under income tax,
pension plan and employment insurance legislation, and for all costs
and expenses associated therewith.
The said obligation to indemnify will survive the termination of this
Agreement.
10.2 Indemnity of BioLabs. BioLabs will indemnify and save Tynehead harmless
from and against all liabilities, losses, costs and damages which Tynehead
incurs or is called upon to pay in connection with the proper discharge of
its duties hereunder, except for liabilities, losses, costs and damages
arising from the wilful default or misconduct or -
<PAGE>
11.7 Governing Law. This Agreement will be governed by and construed in
accordance with the laws of British Columbia and the laws of Canada
applicable thereto and the parties hereto submit and attorn to the
jurisdiction of the courts of British Columbia.
11.8 Headings. The division of this Agreement into sections and the insertion of
headings are for convenience of reference only and will not affect the
construction or interpretation of this Agreement.
11.9 No Obligation to Mitigate. Tynehead will not be required to mitigate the
amount of any payment or benefit provided for in this Agreement, or any
damages resulting from a failure of Biol-abs to make any such payment or to
provide any such benefit, by seeking other employment, or other-wise, nor
will the amount of any payment provided for in this Agreement be reduced by
any compensation earned by Tynehead as a result of its relationship with
another client after termination or otherwise.
11.10 Notice. Any notice required or permitted to be given hereunder will be in
writing and may be delivered in person or by registered mail or by fax or
by other recorded communication addressed to the respective parties at
their address set forth on page one to this Agreement or such changed
address as may be given by a party to the other by such written notice. Any
such notice will be considered to have been given when personally delivered
or five business days after the date of mailing, or upon receipt of
acknowledgement of receipt if sent by fax or other recorded communication.
11.11Severability. The invalidity of any provision of this Agreement or any
covenant herein contained on the part of any party will not affect the
validity of any other provision or covenant herein contained.
11.12Time of the Essence. Time will be of the essence of this Agreement and the
transactions contemplated hereby.
11.13 aiver. No provision of this Agreement and no breach by Tynehead of any
provision will be deemed to have been waived unless that waiver is in
writing signed by Biol-abs. Any waiver of a default by any party hereto in
the observance or performance of any part of this Agreement will not extend
to or be taken in any manner to affect any other default.
IN WITNESS WHEREOF the par-ties have executed -this Agreement as of the date
first above written.
BIOLABS, INC. TYNEHEAD CAPITAL CORP.
Per: Per:
-------------------- --------------------
Authorized Signatory Authorized Signatory
<PAGE>
SCHEDULE"A"
DESCRIPTION OF MANAGEMENT SERVICES
Review existing corporate objectives, strategies and utilization of resources.
Develop, present, implement and maintain an operational business plan which sets
out:
Objectives of BioLabs; Strategies for achieving objectives; Timeframe for
meeting objectives, milestones; Resources required; Allocation and utilization
of resources; and Other matters consistent with an operational business plan.
Performance compared to the operational business plan; Economic, industry and
business matters that may impact BioLabs; and Other matters of relevance.
Build organization (eg. facilities, personnel, contract research organizations,
collaborations, strategic alliances etc.) to successfully carry out the
operational business plan.
Ensure expenditures are in accordance with approved budgets and that adequate
funding is maintained.
Provide policy and executive direction to Biol-abs.
6. Initiate and manage projects (eg. acquisitions, collaborations, research
programs etc.) to provide new products, technologies and other growth
opportunities for Biolabs.
7. Keep investors, brokers, analysts and others apprised of developments and
activities of Biolabs.
