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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999
Commission File Number 000-27847
JACOBSON RESONANCE ENTERPRISES, INC.
NEVADA 65-0684400
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(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification Number)
9960 CENTRAL PARK BOULEVARD, #302
BOCA RATON, FLORIDA 33428
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(Address of principal executive offices) (Zip Code)
Company's telephone number, including area code: (561) 477-8020
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
COMMON STOCK, $.001 PAR VALUE
Check whether the Company (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the Company was required to file such
reports), and (2) has been subject to filing requirements for the past 90 days.
Yes [X] No [ ]
Check if disclosure of delinquent filers pursuant to Item 405 of Regulation S-B
is not contained herein, and will not be contained, to the best of the Company's
knowledge, in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-KSB or any amendment to this Form 10-KSB.
[ ]
The Company's revenues for fiscal year 1999 were $22,021.
The aggregate market value of the voting and non-voting common equity held by
non-affiliates of the Company is $33,990,200 based on the closing price of $1.28
as of April 12, 2000.*
As of April 12, 2000, the Company had a total of 39,650,660 shares of common
stock outstanding.
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*Affiliates for the purpose of this item refer to the officers, directors,
and/or persons or firms owning 5% or more of the Company's common stock, both of
record and beneficially.
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DOCUMENTS INCORPORATED BY REFERENCE
The following documents are incorporated by reference:
Portions of Proxy Statements for 2000 Annual Meeting - Part III
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PART I ....................................................................................................... 1
ITEM 1. DESCRIPTION OF BUSINESS..................................................................1
ITEM 2. DESCRIPTION OF PROPERTY.................................................................16
ITEM 3. LEGAL PROCEEDINGS.......................................................................17
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.....................................17
PART II .......................................................................................................18
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED SHAREHOLDER MATTERS................................18
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION...............................18
ITEM 7. FINANCIAL STATEMENTS....................................................................21
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE..............................................................................21
PART III .......................................................................................................22
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS: COMPLIANCE WITH
SECTION 16(a) OF THE EXCHANGE ACT.......................................................22
ITEM 10. EXECUTIVE COMPENSATION..................................................................22
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT..........................22
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS..........................................22
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K........................................................22
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SPECIAL NOTE - FORWARD-LOOKING STATEMENTS
CERTAIN STATEMENTS CONTAINED IN THIS REPORT, INCLUDING, WITHOUT
LIMITATION, STATEMENTS CONTAINING THE WORDS "BELIEVES," "ANTICIPATES," "EXPECTS"
AND WORDS OF SIMILAR IMPORT 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 AND UNCERTAINTIES.
THE COMPANY'S ACTUAL RESULTS MAY DIFFER MATERIALLY FROM THOSE ANTICIPATED IN
THESE FORWARD-LOOKING STATEMENTS AS A RESULT OF CERTAIN FACTORS, INCLUDING THE
SUCCESS AND SUBSEQUENT ACCEPTANCE OF NEW MEDICAL RESEARCH AND DEVELOPMENT; THE
REGULATORY FRAMEWORK OF THE HEALTH CARE INDUSTRY; THE COMPANY'S ABILITY TO
CREATE, SUSTAIN, MANAGE OR FORECAST ITS GROWTH; ITS ABILITY TO ATTRACT AND
RETAIN KEY PERSONNEL; ITS ABILITY TO PROTECT TECHNOLOGY; CHANGES IN ITS BUSINESS
STRATEGY OR DEVELOPMENT PLANS; COMPETITION; DEMOGRAPHIC CHANGES; BUSINESS
DISRUPTIONS; ADVERSE PUBLICITY; AND INTERNATIONAL, NATIONAL AND LOCAL GENERAL
ECONOMIC AND MARKET CONDITIONS.
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PART I
ITEM 1. DESCRIPTION OF BUSINESS
THE COMPANY
Jacobson Resonance Enterprises, Inc. (the "Company"), is in transition
from a development stage company to an operating company and has not had any
significant revenue from operations to date. The Company is a Nevada corporation
incorporated on March 6, 1988, and originally known as Pioneer Services
International, Ltd. On June 4, 1996, the Company acquired Jacobson Resonance
Machines, Inc., a closely-held Florida corporation, in exchange for 57,220,000
shares of the Company's common stock, or a 92% equity interest in the Company.
On July 30, 1998, the Company changed its name to Jacobson Resonance
Enterprises, Inc.
The Company is developing electromagnetic resonance technology patented
by Dr. Jerry I. Jacobson ("Jacobson Resonance") for medical, commercial,
agricultural and industrial applications. Jacobson Resonance utilizes weak,
low-frequency electromagnetic fields to beneficially alter molecular
characteristics. The Company is currently negotiating, and will continue to use,
joint venture and licensing arrangements, as well as its own resources, to
develop, manufacture, distribute and market various applications of Jacobson
Resonance.
THE TECHNOLOGY
The principles behind Jacobson Resonance are derived from physics. Dr.
Jerry I. Jacobson, trained as a dentist and oral surgeon, developed an interest
in magnetotherapy through his extensive research and study of the work of Albert
Einstein. Einstein tried in vain to develop an algebraic unified-field equation,
which could potentially provide a semblance of order to the way nature works.
Although he failed to isolate the principle, Einstein was certain of its
possibility and named the principle the "Unified Field Equation." Dr. Jacobson
pinpointed the principle that eluded Einstein and became the first person in the
world to file a specification with the U.S. Patent Office conceiving the idea of
how quantum physics united with relativity. While Dr. Jacobson's specification
did not change quantum physics or relativity, he demonstrated a practical way to
unite them, adding a new dimension to quantum physics and extending Einstein's
theory of relativity.
Dr. Jacobson has quantified gravity as it relates to matter. According
to Dr. Jacobson, energy, which equals mass times the speed of light squared,
also equals BVL-q where "B" stands for magnetic field, "V" for velocity, "L" for
length and "q" for a unit electrical charge of one coulomb. Dr. Jacobson
considers the Jacobson Resonance equation, mc2 = BVL-q, to be a fundamental law
of nature. Reduced to layperson terms, the right side of the equation equals
energy created by the interaction of any conductive body with a magnetic field.
The left side of the equation represents gravitational energy contained in a
mass within a conductor.
With this newly discovered law of nature, Dr. Jacobson ventured into
terrain that was previously believed nonexistent. According to the laws of
quantum physics, the pico tesla fields and nanogauss fields (similar to the
magnetic profile of the brain, the heart and the liver) were too weak to produce
heat or trigger chemical reactions. It followed that living systems could not be
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beneficially influenced. Dr. Jacobson set out to build a resonator machine (the
"Jacobson Resonator") that would track this new law of nature and, in due
course, discover the appropriate resonance for a patient. Once engaged, he
firmly believed that living systems could be beneficially influenced. The
challenge was connecting these very weak force-fields with biochemically induced
interactions.
The Company is developing, manufacturing, distributing and marketing
various applications of Jacobson Resonance. The Company believes that it must
focus its attention and resources on particular applications of Jacobson
Resonance. The core application of Jacobson Resonance is medical, followed by
commercial, agricultural and industrial applications.
MEDICAL APPLICATIONS
The Company designs and develops electromedical and electrotherapeutic
medical devices that utilize Jacobson Resonance for the non-invasive treatment
of disease and musculoskeletal injury. Recognizing that atoms are essentially
magnets, and that electromagnetism holds atoms together, Jacobson Resonance
manipulates atoms through electromagnetically-induced resonances. Put another
way, Jacobson Resonance is a kind of vibrational medicine that attempts to
manipulate atoms in order to return balance, or homeostasis of function, to the
human body, which in turn can potentially ameliorate symptoms. Jacobson
Resonance is based on the principle of magnetotherapy.
Magnetotherapy can treat human pathologies with magnetic force-fields.
In treating disease, Jacobson Resonance employs a weak electromagnetic
force-field in harmony with the human body's electromagnetic field to produce
gravity waves and electromagnetically-induced vibrations, which in turn appear
to render viruses and bacteria incapable of invading healthy cells and allow
infected cells to regain normalcy.
Magnetotherapy can provide cells with the stimulation necessary to
promote healing. In treating musculoskeletal injury, Jacobson Resonance attempts
to give the body's natural healing process a push, by altering the
electromagnetic force-field of a patient to increase the rate of production of
regenerative tissues. The natural process of musculoskeletal tissue healing
involves a complex interaction of several physiological processes, which include
the stimulation of specific cells such as osteoblasts, fibroblasts and
endothelial cells. When an injury occurs, growth factors are produced at the
healing site which stimulate selected cells to initiate the healing cascade. In
most cases, these cells are able to initiate repair in response to an injury and
restore the musculoskeletal tissue to its original strength and structure. Cell
stimulation is a necessary component of tissue regeneration and is dependent
upon certain triggering events that activate the production of connective
tissue.
While the Company is one of many engaged in magnetotherapy, the
Company's approach to magnetotherapy is substantially different from its
competitors in that Jacobson Resonance uniquely utilizes weak force-fields. Most
of the Company's competitors, including Biomagnetics, the Biomet division of
Electro-biology, Dispulse Corporation of America, Electropharmacology, Exogen,
Orthofix and Orthologic, produce electromagnetic devices which utilize magnetic
fields more than one million times the strength of the Jacobson Resonance
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fields. Strong force-fields can potentially jiggle very large masses within
biosystems, posing the risk of promoting tumorigenises and producing cancer. By
contrast, Jacobson Resonance uses magnetic force-fields that are normal to the
human body, utilizing very weak force-fields involving pico tesla fields,
nanogauss fields and even weaker force-fields. Pico tesla and nanogauss fields
are equivalent to the normal magnetic profiles of the brain, the heart and other
organs of the human body. Pico tesla fields are about 50,000,000 times weaker
than the earth's geomagnetic field, and nanogauss fields are about 500,000,000
times weaker. To place this in proper perspective, magnetic resonance imaging
("MRI") systems routinely use magnetic force-fields that are 20,000 times
STRONGER than the earth's geomagnetic field.
The Jacobson Resonators were originally fabricated at the Stennis Space
Center by NASA subcontractors and emit pico tesla and nanogauss force-fields.
These force-fields emit physiologic and benign non-ionizing electromagnetic
radiation, causing no impairment to atoms or their surrounding electrons. Most
human patients do not feel or sense the force-fields during treatment and, to
date, attendant effects have been limited to occasional tingling sensations.
Currently, in treating human patients, the selection of the appropriate
electromagnetic field for a particular type of disorder involves a mathematical
calculation and requires trial based upon theory. Achieving resonance has
required time and patience because various critical molecules must be identified
for a particular disorder in order to reorder electrophysiological states back
to normalcy. The Company is attempting to produce a peripheral product, an
"intensity sweep" device, which, once perfected, will be able to scan hundreds
of weak electromagnetic fields in a matter of minutes and identify the fields
that provide resonance. This technology will eliminate the time-consuming
methodology currently employed to determine resonance. To the Company's
knowledge, there is no other commercially available apparatus or device that is
attempting to lock into the patient's magnetic force field and produce
vibrations which reinforce and re-establish the normal structure of molecules
and coherent communication between atoms. There is increasing research and
interest in the phenomena discovered by Dr. Jacobson. Much of this interest has
been ignited by Dr. Jacobson's many articles and extensive testing.
The Company believes that it must focus its attention and resources on
particular medical applications of Jacobson Resonance. The core medical
application of Jacobson Resonance is the treatment of chronic pain, including
osteoarthritis of the knee joint. Other, secondary medical applications which
are currently under research and development include the treatment of
Alzheimer's Disease, cardiac pacing, epilepsy, Parkinson's Disease and Multiple
Sclerosis.
JACOBSON RESONATORS FOR CHRONIC PAIN REDUCTION
The Company is using Jacobson Resonance for the reduction of chronic
pain. Osteoarthritis, rheumatoid arthritis, lower back injuries, tendinitis,
muscle spasms, sports injuries, carpal tunnel and tarsal tunnel syndromes,
neuropathy and migraine, tension, cluster, sinus and menstrual headaches all
cause chronic pain. Based on data developed by the National Chronic Pain
Outreach Association, an estimated 34 million people in the United States of
America suffer from chronic pain and approximately 50 million work days are lost
annually because of chronic pain.
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The Company currently utilizes seven different models of the Jacobson
Resonator for the reduction of chronic pain, four of which are designed for
clinical use. The largest clinical model is comprised of a pair of Helmholtz
coils that are seven feet in diameter and placed on a common axis three and a
half feet apart (to encompass a full human frame). The next largest clinical
model is comprised of a pair of Helmholtz coils that are four feet in diameter
(to treat patients who are lying down.). A third clinical model is comprised of
a pair of Helmholtz coils that are 22 inches in diameter and placed on a common
axis eleven inches apart, which can be expanded to 16 inches or 20 inches. The
fourth clinical model is comprised of a pair of Helmholtz coils that are 18
inches in diameter and placed on a common axis nine inches apart. The latter two
models can encompass a human head, joint or portion of a limb.
The clinical resonators require Food and Drug Administration clearance
before they can be commercially used in the United States of America. See
"Government Regulation." The Company has not yet received FDA approval for the
commercialization of its clinical resonators in the United States of America.
However, the FDA has determined that the pico tesla and nanogauss force-fields
generated by the Jacobson Resonator are of non-significant risk, which
determination permits the Company to conduct studies on human subjects while
gathering data on safety and effectiveness. The Company completed double blind
and randomized clinical studies in early 1999 and submitted to the FDA on May
27, 1999, its pre-market notification report for the 18-inch Jacobson Resonator
in the treatment of osteoarthritic pain of the knee. At the request of the FDA,
the Company filed an addendum to the report on September 17, 1999. The Company
is currently awaiting the FDA response.
The clinical resonators also require CE Marking before they can be
commercially used in the European Economic Union. See "Government Regulation."
The Company has not yet received CE Marking for the commercialization of its
clinical resonators in the European Economic Union. In December 1998, the
Company filed its application for CE Marking for the entire chronic pain
spectrum for the 18-inch Jacobson Resonator. On April 28, 1999, the 18-inch
Jacobson Resonator passed the technical homologation process, meaning that it
met all of the electrical, mechanical and electromagnetic requirements so that
human clinical trials could begin in Europe. The Company performed the required
clinical trials from June to September 1999. Also in June 1999, the seven-foot
model passed the technical homologation process. Because of the 18-inch Jacobson
Resonator clinical trials, no clinical trials of the seven-foot model are
expected to be required.
In January 2000, the Company completed double blind and randomized
clinical studies demonstrating the efficacy of the Jacobson Resonators in the
treatment of arthrosis of the knees, and submitted its final report to the
Spanish Ministry of Health as part of its CE-Marking petition. The Company
anticipates receiving CE Marking for both the 18-inch and seven-foot models some
time in the second quarter of 2000. Once that approval is received, the 22-inch
and four-foot clinical models need only pass the technical homologation process
before they can be commercially used in the European Economic Union.
The other three models of the Jacobson Resonator are portable models.
One portable model consists of a Helmholtz coil that is nine inches in diameter
for use on human limbs. A second portable model is an oval of nine inches by six
inches for the treatment of lower back pain. The third model is a single coil
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that is five inches in diameter and designed for placement anywhere on the human
body. The portable models do not require either FDA approval for use in the
United States of America or CE-Mark approval for use in the European Economic
Union.
The Helmholtz coils are networks of flat and circular coils. Each coil
is connected in series to a power generator and attenuator. By design, Helmholtz
coils of equal diameter are paired and share a common axis that is equal in
length to the radius of either coil. An identical low-level current is conveyed
through each coil to ideally produce a homogeneous and evenly dispersed field of
magnetic intensity. The amplitudes used are in the pico tesla range and the
frequencies are extremely low, generally from 0-28 Hertz (EEG frequencies).
Quantum Resonance Technologies, Inc. ("QRTI"), builds the prototypes of
the Company's clinical and portable resonators and is also making the portable
resonators. Benvenutti Electrical Apparatus & Repair, Inc. ("B.E.A.R."), an
electrical apparatus manufacturer in Gulfport, Mississippi, collaborates with
QRTI and manufactures the Company's clinical resonators.
The Company plans to distribute the clinical models of the Jacobson
Resonators in the United States of America through existing medical device
distributors. With respect to the portable models, the Company plans to place
them in chain stores and other locations where magnet therapy products are
currently being sold. In December 1999, the Company entered into a licensing
agreement with ABM Manufacturing, Inc. and a distribution agreement with Akron
Bio-Medical Corporation for the portable models of the Jacobson Resonator, to be
sold under the product line "Back to Normal."
Alfonso Serrato is leading the European initiative. Mr. Serrato is a
director of the Company and a former executive officer of Medtronic, Inc., a New
York Stock Exchange company that is a leading manufacturer and distributor of
medical devices around the world. Mr. Serrato worked for Medtronic, Inc., in
various capacities, including Vice President of Worldwide Manufacturing and Vice
President of Pacing Operations, for approximately 18 years until 1996.
To date, the Company has entered into two agreements with Serrato
Enterprises L.L.C. ("Serrato Enterprises"), an entity controlled by Mr. Serrato.
In February 1999, the Company executed a ten-year license agreement with Serrato
Enterprises for the marketing and distribution of the Company's chronic pain
reduction products in Europe, Africa and the Middle East, excluding Israel and
the nations that formerly constituted the Union of Soviet Socialist Republics.
In January 2000, the Company executed a ten-year manufacturing agreement with
Serrato Enterprises, under which the Company will receive manufacturing
royalties based on type and production volume of resonators manufactured by
Serrato Enterprises.
In October 1999, in anticipation of receiving CE-Marking for the
commercialization of its clinical resonators, the Company opened a new training,
research and development facility in Marbella, Spain. The Company plans to
contract with Compania Aeronautica, S.A., a Spanish aircraft manufacturer, for
the partial manufacture of Jacobson Resonators, with final calibration and
assembly to be completed by Serrato Enterprises.
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OTHER PLANNED MEDICAL APPLICATIONS OF JACOBSON RESONANCE
In addition to chronic pain treatment applications, the Company plans
to develop Jacobson Resonance for other medical applications. Researchers are
currently investigating the effects of Jacobson Resonance on Alzheimer's
Disease, cardiac pacing, epilepsy, Parkinson's Disease, Multiple Sclerosis,
nerve regeneration, angina and cancer. See Item 6, "Management's Discussion and
Analysis, Research and Development." The Company is also examining the potential
application of Jacobson Resonance to veterinary medicine, including the
treatment of leg and back pain in horses. The physiologic force-fields of
Jacobson Resonance can also be utilized in health spa jacuzzis to provide
invigorating effects, which might improve health and well-being.
In one completed study, Jacobson Resonance demonstrated effectiveness
in the treatment of cardiac arrhythmias in dogs. The Company believes that this
study can lead to the Jacobson Resonator becoming a required medical device for
every hospital emergency room. It hopes to license this use to a larger medical
products company for development, marketing and distribution.
In February 2000, Dr. Jacobson received a U.S. Patent entitled, "Method
for Amerliorating the Aging Process and the Effects Thereof Utilizing
Electromagnetic Energy." He has licensed this patent to the Company. The
magnetic fields covered by the patent are physiological and occur naturally in
the human body. Aging may be referred to as collective changes within a
biological system that can prevent cellular functions, genetic information
transfer and chromatin structure. The Company plans to research how Jacobson
Resonance, through magnetic influence, can potentially enhance cellular
communications, cooperativity and reorient the spin angular momenta of basic
particles to slow down the aging process.
NON-MEDICAL APPLICATIONS OF JACOBSON RESONANCE
In addition to medical applications, the Company has developed and
plans to continue developing Jacobson Resonance for use in commercial,
agricultural and industrial applications. Jacobson Resonance can restructure
water molecules to create greater inter-atomic communication and improve
absorption, coherence, cooperativity and harmony between systems, and stability.
Studies have demonstrated that resonated drinking water may improve digestion,
speed absorption of nutrients in the gastrointestinal tract and provide
ancillary benefits such as greater regularity, increased stamina and improved
circulation.
In January 2000, the Company executed a licensing agreement with
RealPure Beverage Group, LLC, of Jackson, Mississippi, for the use of Jacobson
Resonance in multiple water and beverage products lines, including exclusive
marketing and distribution. Previously, B.E.A.R. built a new industrial model of
the Jacobson Resonator for the Company consisting of three coils, each ten feet
in diameter, placed vertically and connected in series for water resonation.
RealPure will use this machine to resonate its water products. The beverages
scheduled for resonation include RealPure spring water, as well as a new
pediatric beverage, a new geriatric beverage and the new "Real Pro" hi-energy
sport drink.
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Preliminary testing has shown that resonated water enhances the rate of
growth and increases the total weight of plants and fruits. See Item 6,
"Management's Discussion and Analysis, Research and Development." Other
potential agricultural applications include enhancing the health and growth
cycles of fish and shellfish, rice farming, forestry and lumber operations,
greenhouse facilities, citrus production, wine production and landscaping.
Resonation of cosmetics, nutraceuticals and pharmaceuticals should
promote their respective absorption rates and reduce their respective toxicity
to living systems. In July 1999, the Company announced the signing of a letter
of intent for technology transfer and licensing with O2 Marketing Group, Inc., a
manufacturer of consumer-oriented oxygen products for the cosmetics,
nutraceutical and pharmaceutical industries. The Company will grant O2 Marketing
Group, Inc. an exclusive license to use Jacobson Resonance for not less than ten
years covering the Republic of South Africa. O2 Marketing Group, Inc., will
grant the Company a license for not less than ten years covering O2's pure-air
system devices, technology and products. Also, in February 2000, the Company
signed a letter of intent with Genesis Group International (GGIC) to license the
use of Jacobson Resonance in the development, distribution, marketing and sale
of GGIC's all-natural and resonated family of nasal sprays worldwide.
Jacobson Resonance also has industrial applications. Resonated water
can potentially increase adhesion and bonding between mixtures of sawdust, sand
and cement. A licensing agreement is currently pending between the Company and
Enviro-Products, Ltd., a Canadian manufacturer of patented composite cement
building blocks. Resonated water might also lead to the development of
energy-efficient home water purification systems by providing a cleaner, less
toxic environment and preventing calcium and other mineral deposits which
restrict pipes and damage appliances. Preliminary testing is being conducted
regarding the effects of resonation on primers and alloys; if resonance promotes
improved adhesion and surface protection with less degradation, Jacobson
Resonance can potentially be utilized in the marine, aerospace and automotive
painting and coating industries.
GOVERNMENT REGULATION
UNITED STATES OF AMERICA
In the United States of America, the Company's four clinical Jacobson
Resonators for reduction of chronic pain and future clinical products, if any,
are extensively regulated as medical devices by the federal Food and Drug
Administration (the "FDA"). The FDA regulates the clinical testing,
manufacturing, labeling, distributing, and promoting of medical devices. Prior
to commercial sale in the United States, each of the Company's clinical products
must undergo an extensive regulatory approval process conducted by the FDA under
the Food, Drug and Cosmetic Act (the "FDC Act"). Noncompliance with applicable
requirements can result in failure to receive regulatory clearance or approval
of devices, total or partial suspension of production, fines, injunctions, civil
penalties, recall or seizure of products, and criminal prosecution.
Under the FDC Act, all medical devices are classified into three
classes: Class I, II or III. Classification identifies the level of regulatory
control that is necessary to assure the safety and effectiveness of a medical
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device, as well as the marketing process (either pre-market notification under
510(k) or pre-market approval ("PMA")) the manufacturer must complete, unless
exempt, in order to obtain FDA clearance for marketing.
Class I devices are subject to the least regulatory control because
they present minimal potential for harm to the user and are often simpler in
design than Class II or Class III devices. They are subject only to "general
controls," which require adherence to the requirements of (a) registration, (b)
medical device listing, (c) Good Manufacturing Practices, (d) labeling and (e)
pre-market notification. Class II devices are those for which general controls
alone are insufficient to assure safety and effectiveness, but for which
existing methods are available to provide such assurances, such as special
labeling requirements, mandatory performance standards and post-market
surveillance. Class III devices are subject to the most stringent regulatory
controls because insufficient information exists to assure safety and
effectiveness solely through general or special controls. They must satisfy the
PMA requirements.
The portable models of the Jacobson Resonator are classified as Class I
devices because they are battery-operated, are of "non-significant risk" and
have no medical claims associated with them. As a result, they are not subject
to FDA approval before marketing, distribution and sale.
After consultation with the FDA and subject to demonstration of
effectiveness through human clinical trials, the Company believes that its
clinical Jacobson Resonators will be classified as Class II devices. As Class II
devices, the clinical Jacobson Resonators will not be subject to PMA as required
of Class III devices, but will be subject to general controls and special
controls, including pre-market notification under 510(k). A 510(k) is a
pre-marketing submission made to the FDA to demonstrate that the device to be
marketed is as safe and effective as, or "substantially equivalent" to, a
legally marketed device that is not subject to PMA. Applicants must compare
their 510(k) device to one or more similar devices currently on the U.S. market
and make and support their substantial equivalency claims. The legally marketed
device(s) to which equivalence is drawn is known as the "predicate" device(s). A
device is deemed substantially equivalent to a predicate device if (a) it has
the same intended use as the predicate device, and (b) either has the same
technological characteristics as the predicate device, or has different
technological characteristics that do not raise new questions of safety and
effectiveness, and (c) the sponsor demonstrates that the device is as safe and
effective as the legally marketed device.
Investigational Device Exemptions ("IDE") allow manufacturers to ship
and use unapproved medical devices intended solely for investigational use
involving human subjects. The IDE regulation applies to most clinical studies in
the U.S. that are undertaken to gather safety and effectiveness data about a
medical device. There are two categories of devices covered by the IDE
regulation: (1) Significant Risk devices and (2) Non-Significant Risk ("NSR")
devices. Significant Risk devices require both FDA and Institutional Review
Board ("IRB") approval prior to initiation of a clinical study. NSR devices
require only IRB approval prior to initiation of a clinical study. Clinical
studies are often conducted to support pre-market notification or PMA. Thus, an
investigational device is one that has not been given 510(k) clearance or PMA
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for marketing in the U.S. but is exempted from these requirements in order to
collect safety and effectiveness data. Investigational use also includes
clinical evaluation of certain modifications or new intended uses of legally
marketed devices. The FDA requires that all clinical evaluations of
investigational devices, unless exempt, have an approved IDE before the study is
initiated.
The Company has not yet received FDA approval for the commercialization
of its clinical resonators in the United States. In 1997, the Company filed its
submission with the FDA seeking a determination that the 18-inch clinical
Jacobson Resonator qualified as an NSR device for the treatment of
osteoarthritis pain of the knee. On March 4, 1999, the FDA determined that the
Company's clinical study of the 18-inch clinical Jacobson Resonator to
demonstrate effectiveness was an NSR device study because the resonator did not
meet the definition of a Significant Risk device under the applicable provision
of the IDE. This determination in effect means that the resonator meets the FDA
requirements as to safety.
In 1999, the Company completed double-blind and randomized clinical
studies to demonstrate effectiveness of the 18-inch Jacobson Resonator in the
treatment of osteoarthritis pain of the knee, and submitted its pre-market
notification report (510(k)) to the FDA on May 27, 1999. At the request of the
FDA, the Company filed an addendum to the report on September 17, 1999. The
Company is currently awaiting the FDA response. The Company anticipates FDA
approval of its 18-inch clinical Jacobson Resonator for treatment of chronic
pain from osteoarthritis of the knee sometime in the second quarter of 2000.
There is not assurance that FDA approval will be granted then, if at all.
The Company will be required to obtain FDA approval of a new pre-market
application or pre-market application supplement before making any change to the
Jacobson Resonators affecting the safety or effectiveness of the device
including, but not limited to, new indications for use of the device, changes in
the device's performance or design specifications and device modifications and
future generation products. New pre-market applications and pre-market
application supplements generally require submission of information needed to
support the proposed change and often require additional clinical data. The
Company may decide, or may have to, obtain PMAs and PMA supplements for its
future products or other uses. A PMA application must be supported by extensive
data, including pre-clinical and clinical trial data, to demonstrate the safety
and effectiveness of the device for the uses specified in the PMA application.
The Company cannot guarantee that any PMA application relating to the Jacobson
Resonator that is filed will be granted. If the Company does obtain a PMA, it
may be required to file PMA supplements for new or expanded uses of the Jacobson
Resonator and for any material modifications to it. If a PMA supplement is not
accepted by the FDA for a new or expanded use or material modification of the
Jacobson Resonator, the Company must commence and complete the entire pre-market
approval process with respect to such use or modification. The Company cannot
guarantee that any PMA supplement that it files will be accepted.
Any products manufactured or distributed by the Company pursuant to FDA
clearance or approval are subject to pervasive and continuous regulation by the
FDA, including record-keeping requirements, reports of adverse experience with
the use of the device, post-market surveillance, post-market registry, and other
actions as deemed necessary by the FDA. The FDA actively enforces regulations
prohibiting marketing of products for non-indicated uses. The Company and its
agents may promote products only for the products' approved indications. The
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<PAGE> 13
labeling and advertising of most FDA-regulated products, including the Jacobson
Resonators, are also subject to the jurisdiction of the Federal Trade
Commission, the Occupational Safety and Health Administration and other
governmental entities. The Company cannot guarantee that the FDA will not impose
regulations that could adversely affect its ability to market, sell, or be
reimbursed for the Jacobson Resonator. In addition, the Company cannot guarantee
that it will not become subject to FDA actions should physicians prescribe the
Jacobson Resonator for unapproved uses.
As a medical device manufacturer registered with the FDA whose products
are listed with the FDA, the Company's products and facilities will be subject
to inspection on a routine basis by the FDA with regard to product designs,
manufacturing, testing, control, process validation and similar activities.
Future inspections could result in adverse findings and harm the Company's
ability to manufacture and market its Jacobson Resonators, which in turn would
significantly harm the Company's business.
The process of obtaining FDA and other required regulatory approvals is
lengthy, expensive and uncertain. Regulatory approvals may include regulatory
restrictions on the indicated uses for which a product may be marketed. The
Company cannot guarantee that the FDA will approve its current or future
products in a timely manner, if at all. If the Company experiences delays or
failure in obtaining such approvals, or if previously granted approvals are
rescinded, or if the Company fails to comply with existing or future regulatory
requirements, then its business, financial condition, results of operations and
cash flows will be materially and adversely affected. Furthermore, even if such
approvals are granted, the Company cannot guarantee that it will be successful
in commercializing or achieving market acceptance of the Jacobson Resonators for
the treatment of chronic pain or any other applications. The Company's inability
to commercialize successfully the Jacobson Resonators will severely harm its
business.
The Company is also subject to numerous federal, state, and local laws
relating to such matters as safe working conditions, manufacturing practices,
environmental protection, fire- hazard control, and disposal of hazardous or
potentially hazardous substances. The Company cannot guarantee that it will not
be required to incur significant costs to comply with such laws and regulations
in the future, or that such laws or regulations will not have a material adverse
effect upon its business, financial conditions, results of operations, or cash
flows.
EUROPE
In order to market and sell the Jacobson Resonator or any future
products in foreign markets, the Company must comply with foreign government
regulations. These laws differ substantially from country to country. In order
to market and sell the Jacobson Resonators in the European Union, the resonators
must bear CE Marking. In order to obtain CE Marking, the Company will be
required to comply with the Medical Device Directive, which became effective in
June 1998 and regulates most medical devices. The actual CE Marking consists of
the letters "CE" which a manufacturer affixes to its products for access to the
European market; the letters "CE" are an abbreviation of the French phrase
"Conformite Europeene." CE Marking on a medical device indicates that a
manufacturer has complied with all of the requirements of the Medical Device
Directive.
A medical device manufacturer applying for CE Marking privileges must
ensure that the device complies with various requirements. Medical devices must
conform to basic requirements concerning product design, testing and control, as
well as "Essential Requirements," which demonstrate safety and performance and
which justify potential side effects and risks. The Essential Requirements
impose, in part, requirements concerning labeling and instructions for use.
However, many countries have rather imprecise rules; not all countries have
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<PAGE> 14
decided whether to insist on inclusion of their own language on device labels,
while other countries require their national language only where necessary.
After achieving conformity with the requirements of the directive and meeting
the "harmonized standards" agreed upon by the various member states of the
European Community, the medical device manufacturer prepares a "declaration of
conformity," which contains identity information of the manufacturer or its
authorized European representative. Finally, subject to regulations pertaining
to placement, the CE Marking is placed on the device.
The Essential Requirements require every non-European medical device
manufacturer exporting to Europe to appoint an Authorized European Address, or
agent, to ensure that the responsibility for compliance with Medical Device
Reporting is delegated to a party who resides in Europe and is subject to
European law. The authorized European agent serves as an interface between a
manufacturer and governmental authorities and must verify whether the
manufacturer is in compliance with the European vigilance system, which covers
both post-market surveillance and adverse-incident reporting. The selection of
an authorized European agent by a manufacturer is significant because the agent
is required to have access to all confidential product documentation and master
files of the manufacturer. The Company has selected Serrato Enterprises, LLC of
Spain, an entity controlled by Alfonso Serrato, a director of the Company, to
function as its authorized representative.
The Medical Device Directive classifies all medical devices into one of
four classes, based upon a risk analysis which considers the design, method of
manufacturing and intended use of a medical device. Class I is comprised of the
least dangerous devices, and is subject to less restrictions than Class III,
which is comprised of the most dangerous devices. Between classes I and III are
Class IIa and Class IIb. The Class of a medical device determines "Conformity
Assessment Procedure," or the procedure by which conformity with Essential
Requirements will be assessed. A procedural option for minimal risk devices
includes self-certification, where the manufacturer itself prepares a
"Declaration of Conformity" to the Essential Requirements and self-affixes the
CE Marking to the device. Higher risk devices, on the other hand, require that
the assessment be performed and certified for "quality assurance" in
collaboration with a recognized European "notified body." There are a few
hundred notified bodies throughout Europe, which serve as independent test labs
and perform the steps required by the product directives. Notified bodies may be
private sector organizations or government agencies. Manufacturers may choose a
notified body in any member state of the European Union, a list of which is
published by the European Commission in the OFFICIAL JOURNAL OF THE EUROPEAN
COMMUNITIES. Higher risk devices sometimes also require preparation of a
technical file by the manufacturer verifying proper testing and compliance, as
well as an EC Type Examination performed by a notified body. The clinical
Jacobson Resonators are considered Class IIa, which is a moderate risk
classification. As such, limited third-party assessment is required. The Company
has applied for CE Marking through CETECOM, a Spanish firm certified by the
European Commission.
Members of the European Union must accept CE Marking for marketing
medical devices without imposing further requirements related to product safety
and performance. However, National Competent Authorities, which are required to
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<PAGE> 15
enforce compliance with the requirements of the Medical Device Directive, can
restrict, prohibit, and recall devices with CE Marking if considered unsafe.
Such a decision must be confirmed by the European Commission to be valid. Member
countries may impose additional requirements as long as they do not violate the
Medical Device Directive or constitute technical barriers to trade.
The Company has not yet received CE Marking for the commercialization
of its clinical resonators in the European Economic Union. In December 1998, the
Company filed its application for CE Marking for the entire chronic pain
spectrum for the 18-inch Jacobson Resonator. On April 28, 1999, the 18-inch
Jacobson Resonator passed the "technical homologation process," meaning that it
met all of the electrical, mechanical and electromagnetic requirements so that
human, clinical trials could begin in Europe. The Company performed the required
clinical trials beginning in early June 1999 and ending in early September 1999.
Also in early June 1999, the seven-foot model passed the technical homologation
process. Because of the 18-inch Jacobson Resonator clinical trials, no clinical
trials of the seven-foot model are expected to be required. In January 2000, the
Company completed double blind and randomized clinical studies demonstrating the
efficacy of the Jacobson Resonators in the treatment of arthrosis of the knees,
and submitted its final report to the Spanish Ministry of Health as part of its
CE-Marking petition. The Company anticipates receiving CE Marking for both the
18-inch and seven-foot models for treatment of the whole spectrum of chronic
pain some time in the second quarter of 2000; however, there is no assurance
that the Company will receive such approval then, if at all. Once that approval
is received, the 22-inch and four-foot clinical models need only pass the
technical homologation process before they can be commercially used in the
European Economic Union.
The Company cannot say with certainty that the European Union or any
foreign regulatory authority will grant CE Marking privileges to its current or
future products in a timely manner, if at all. If the Company experiences delays
or failure in obtaining such approvals, or if previously granted approvals are
rescinded, or if the Company fails to comply with existing or future regulatory
requirements, then its business, financial condition, results of operations and
cash flows will be materially and adversely affected.
RESEARCH AND DEVELOPMENT
Current university studies of the effects of Jacobson Resonance upon
biological systems consist of the following:
1. Alzheimer's Disease - Mississippi Baptist Health Systems
Hospitals is currently conducting a multi-site clinical study,
"The Utilization of Low Frequency Pico Tesla Range Magnetic
Fields for Treatment Symptom of Patients With Alzheimer's
Disease," under the supervision of James L. Parker, M.D.,
Board Certified Diplomat in Neuro-Opthalmology and Neurology.
Pre-clinical studies have shown that the Jacobson Resonator
can affect the regeneration of damaged neuronal cells.
2. Nerve repair, growth and regeneration - Cornell University
Medical College in New York City has completed IN VITRO
sciatic nerve studies in mice, which demonstrated that
application of Jacobson Resonance stimulated growth, repair
and regeneration of damaged sciatic nerves of mice. Jacobson
Resonance especially enhanced the growth, repair and
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regeneration of the myelin sheath without disturbing the
integrity of the cellular and subcellular structures. Similar
IN VIVO studies are ongoing in mice. The principal
investigator is Dr. Brij Saxena, a Professor of Endocrinology
and Biochemistry at the college, the Director of the Division
of Reproductive Endocrinology in the Department of Obstetrics
and Gynecology at Cornell Medical Center /New York Hospital,
and a member of the Company's Scientific Advisory Board.
3. Nerve regeneration - A study on the effect of Jacobson
Resonance upon a chemically induced motor neuropathy model in
mice is ongoing at Cornell University Medical College and
Fairleigh Dickinson University. The principal co-investigators
are the husband and wife team of Dr. Brij Saxena and Dr.
Anjali Saxena, Professor of Biology and a neuro-scientist at
Fairleigh Dickinson University.
4. Cardiac pacing - The Department of Cardiovascular Research of
the University of Oklahoma Health Sciences Center is
conducting studies in dogs and has determined that Jacobson
Resonance is effective in the treatment of cardiac arrhythmias
in dogs. The principal co-investigators are Dr. Benjamin
Scherlag, Research Director of the Cardiovascular Laboratory,
and Dr. William Yamanashi, Research Professor of Medicine and
a Medical Physicist. Drs. Scherlag and Yamanashi are both
members of the Company's Scientific Advisory Board.
5. Angina - Quantitative pain studies in rats to determine
whether Jacobson Resonance can reduce angina are occurring at
the University of Oklahoma Medical School. The initial data
appears promising. The principal investigator is Dr. Robert
Foreman, Chairman of Physiology.
6. Vegetable growth enhancement - The Vegetable Improvement
Center of Texas A&M University conducted a pilot study in late
1998 of the effects of resonated spring water on growth and
fruiting of yellow crookneck squash. Because of the promising
results of this study, the center conducted a second study
involving cucumber, radish and squash in 1999. The results
remain promising and studies will continue. The principal
investigator is Dr. Leonard Pike, the Director of the
Vegetable Improvement Center.
7. Epilepsy - A double blind and randomized clinical pilot study
was recently completed at the University of Oklahoma Health
Sciences Center to determine whether Jacobson Resonance can
reduce the frequency and severity of epileptic seizures. The
principal investigator was Dr. Kalarickal J. Oommen, Associate
Professor of Neurology and Director of Epilepsy Research. The
data from the study appears promising and the double blind
clinical trials are ongoing.
8. Cancer - In early October 1999, the Company announced that the
Veterinary Pharmacology Research Laboratory at Mississippi
State University has begun IN VITRO cancer research using the
22-inch clinical model of the Jacobson Resonator. The research
will evaluate the influence of electromagnetic fields in the
pico tesla range of strength upon cancer cells. The principal
investigator is Dr. Cody Coyne.
9. Osteoarthritis - A double blind randomized clinical study is
ongoing at Mississippi State University. The principal
investigator is John Lamberth, Ph.D. of the university's
Department of Health, Physical Education, Recreation and
Sports.
10. Osteoarthritis, Osteoporosis and Wound Healing - A basic
science study, entitled "Analgesic Effect of Low Level
Electromagnetic Fields on Osteoarthritic Knees: Determination
of Underlying Biological Mechanisms," is ongoing at
Mississippi State University, IN VITRO, to examine the effects
of Jacobson Resonance on chondrocytes and other molecules
significant to osteoarthritis, osteoporosis and wound healing.
The principal investigator is Steven H. Elder, Ph.D. of the
university's Agricultural and Biological Engineering
Department.
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During the years ended December 31, 1999 and 1998, the Company spent
$280,550 and $232,799, respectively, on research and development activities.
Since the Company's inception on June 4, 1996 through December 31, 1999, the
Company has spent a total of $761,486 on research and development activities.
INTELLECTUAL PROPERTY
The Company is the exclusive licensee of Jacobson Resonance from Dr.
Jacobson, who is the sole owner of all patents issued or pending. Dr. Jacobson
is also the sole owner of all relevant Jacobson Resonance intellectual property.
The Company has the exclusive rights to pursue whatever applications of Jacobson
Resonance that it wants. In return, the Company is obligated to pay Dr. Jacobson
a royalty on revenues, depending upon the application.
Legal standards relating to the validity of patents covering medical
devices and biotechnological inventions and the scope of claims made under such
patents are still developing. For this reason, the Company cannot guarantee any
of the following:
1. that patent applications will result in the issuance of
patents in foreign countries;
2. that any patents licensed to the Company will be free from
challenge and that if challenged, they would be held to be
valid;
3. that any such patents will provide commercially
significant protection to the Company's technology, products,
and processes; or
4. that others will not develop substantially equivalent
proprietary information that is not covered by patents to
which the Company has rights, or that others will not
otherwise obtain access to the Company's know-how.
The Company has not received any notices alleging, and is not aware of,
any infringement by the Company of any other entity's patents. However, because
of the volume of patents issued and patent applications filed relating to
medical devices, the Company cannot guarantee that current and potential
competitors and other third parties have not filed or will not file patent
applications, or have not received or will not receive patents, relating to
materials or processes it uses or propose to use. Accordingly, the Company
cannot guarantee that its products do not infringe any patents or proprietary
rights of third parties.
If another party claims subject matter identical to or overlapping with
subject matter Dr. Jacobson has claimed in a United States patent or patent
application, the Company may decide or be required to participate in
interference proceedings in the United States Patent and Trademark Office to
determine priority of invention. Loss of such an interference proceeding would
deprive the Company of patent protection sought or previously obtained by Dr.
Jacobson. Participating in such proceedings could result in substantial costs,
regardless of whether the eventual outcome is favorable.
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In addition to patent protection, the Company relies on trade secrets,
proprietary know-how, and confidentiality and assignment of invention agreements
with its consultants and medical advisors to protect its intellectual property.
The Company cannot say with certainty that any intellectual property that it has
will provide it with a competitive advantage or will not be challenged or
circumvented by its competitors. The Company cannot say with certainty that its
confidentiality and assignment of invention agreements will not be breached or
that it would have adequate remedies for any such breach. Finally, the Company
cannot say with certainty that its proprietary know-how and intellectual
property will not become known or be independently discovered by others.
Litigation may be necessary to defend against claims of infringement,
to enforce patents and copyrights issued or licensed to the Company, or to
protect trade secrets. If the Company must litigate such issues, it may be
forced to incur substantial costs and to devote substantial resources and time.
The Company furthermore cannot guarantee that it would prevail in such
litigation, should it arise. In addition, if any relevant claims of third-party
patents are upheld as valid and enforceable, the Company could be prevented from
selling its products or otherwise be required to obtain licenses from the owners
of such patents. The Company cannot guarantee that such licenses would be
available or, even if available, would be on acceptable terms to it. If the
Company is forced to incur substantial costs in litigation or fails to obtain a
license, its business, financial condition, results of operations, and cash
flows may be materially and adversely affected.
COMPETITION
The development of electromedical and electrotherapeutic medical
devices that can emit a weak electromagnetic field in resonance with the human
body's electromagnetic field is in its infancy. To the Company's knowledge,
there are only two groups of scientists in the world that are dealing with the
pico tesla magnetic-fields.
One group is at Democrition University of Thrace, Alexandroupolis,
Greece. They are primarily engaged in research, but some treatment is being
performed for epilepsy and Parkinson's Disease. The supervising professor is Dr.
Photios Anninos, the Director of Medical Physics for Democrition University, who
is also a member of the Company's Scientific Advisory Board.
The only other known party working on force-fields this weak is Dr.
Reuven Sandyk, a medical physician in Long Island, New York. Dr. Sandyk is a
neurologist and he has been treating patients with Parkinson's, Alzheimer's and
Multiple Sclerosis. To the Company's knowledge, Dr. Sandyk has not secured an
FDA registration number for his resonator device and does not appear to be
inclined to go into commercial production with this apparatus. His resonator is
merely an extension of his neurological practice .
Both Dr. Sandyk and Dr. Anninos engage in exploratory research as an
extension of their respective practices. Dr. Sandyk, the only U.S.-based group,
does not appear to be inclined to navigate the time-consuming and expensive
route of securing FDA approval for his apparatus, which is a mandatory
precondition for pursuing commercial production of the device. Dr. Anninos, on
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the other hand, limits his focus predominantly to epilepsy. Both Dr. Sandyk and
Dr. Anninos employ devices with multiple small coils producing heterogeneous
fields which, in the opinion of Dr. Jacobson, is not the correct approach.
Dr. Richard Markoll has established around the world about 150 clinics
focusing primarily on the treatment of osteoarthritis using magnetic
force-fields that are approximately one million to ten million times more
powerful than the force-fields emitted by the Jacobson Resonator. Dr. Markoll
seems to be content with limiting himself to this area. These clinics have been
in operation for many years. Dr. Markoll has secured CE Marking but he has not
obtained FDA approval.
Finally, there is a company in Japan called Nikken, which produces
permanent magnets. These are very strong magnets which emit force-fields that
are millions and even billions of times stronger than the force-fields emitted
by the Jacobson Resonator. These magnets claim to improve circulation or to
treat pain. To the Company's knowledge, these claims have not been medically
substantiated and the FDA has never passed on the validity of these treatments.
The Company does not regard these permanent magnets as a true competitor.
In sum, the Jacobson Resonator does not appear to face direct
competition in either the United States of America or abroad.
EMPLOYEES
The Company has four full-time employees, three of whom are executive
officers. They are Dr. Jerry I. Jacobson, Ms. Debra Jacobson and Mr. Frank
Chaviano. There are no collective bargaining agreements and no employment
contracts in force.
ITEM 2. DESCRIPTION OF PROPERTY
The Company is currently renting office space in Boca Raton, Florida,
on a month-to-month basis, and in Juno Beach, Florida, pursuant to a lease that
will expire on August 31, 2000. The Boca Raton office has 2,900 square feet of
space and a current annual rent of $98,400. The Juno Beach office has 325 square
feet of space and a current annual rent of $12,396.
In addition, in February 2000, the Company entered into a lease
agreement with Columbia/HCA Healthcare Corporation's J.F.K. Hospital for the
building of a new training, education and research facility at J.F.K. Medical
Pavilion II in Lake Worth, Florida. The new and expanded medical facility will
house a new research laboratory facility, educational training center, enhanced
clinical and medical treatment areas and administrative offices. Construction of
the new facility is expected to begin sometime in June 2000, and is expected to
be completed sometime in April 2000. The lease will expire five years from the
initial date of occupancy, sometime in April 2005. The Lake Worth facility has
4,000 square feet of space and an initial annual rent of $73,200.
In October 1999, in anticipation of receiving CE-Marking for the
commercialization of its clinical resonators, the Company opened a new training,
research and development facility in Marbella, Spain. The facility is owned by
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Serrato Enterprises, L.L.C., which is controlled by Alfonso Serrato, a director
of the Company. The Company does not pay any annual rent for the use of the
facility.
ITEM 3. LEGAL PROCEEDINGS
The Company is not a party to any pending legal proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the fourth quarter of the fiscal year covered by this report, no
matters were submitted to a vote of security holders through the solicitation of
proxies or otherwise.
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PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
The Company's Common Stock is traded on the OTC Bulletin Board(R) under
the Symbol "JRSE." The following table sets forth the range of the high and low
sales prices for the Common Stock on the OTC Bulletin Board(R) for each calendar
quarter of 1999 and 1998. The source of the following information is America
Online (AOL) quotation services. These prices reflect inter-dealer prices,
without retail markup, mark-down or commission and may not represent actual
transactions.
<TABLE>
<CAPTION>
QUARTER ENDING HIGH LOW
-------------- ---- ---
<S> <C> <C>
December 31, 1999 $0.34 $0.13
September 30, 1999 1.56 0.23
June 30, 1999 3.12 1.53
March 31, 1999 2.60 0.21
December 31,1998 0.50 0.18
September 30, 1998 0.6875 0.28
June 30, 1998 1.375 0.38
March 31, 1998 1.50 0.33
</TABLE>
As of April 12, 2000, the Company had 660 shareholders of record.
The Company has not declared or paid any dividends on its Common Stock.
The Company currently intends to retain future earnings to fund the development
and growth of its business, and therefore does not anticipate paying any cash
dividends in the foreseeable future. Any future determination to declare and pay
dividends will be made by the Board of Directors of the Company in light of the
Company's earnings, financial position, capital requirements, credit agreements
and such other factors as the Board of Directors deems relevant.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
PLAN OF OPERATION
The Company is in the development stage and has not had any significant
revenue from operations to date. It has incurred losses of $3,657,966 and
$952,276 for the years ended December 31, 1999 and 1998, and $5,217,866 since
its inception in 1996. Because of the foregoing, the Company's independent
auditors have included a "going-concern" qualification in their report on the
Company's audited financial statements as of December 31, 1999, and for the year
then ended. The qualification states that the Company's recurring losses and
lack of significant revenue raise substantial doubt about the Company's ability
to continue as a going concern.
However, the Company anticipates FDA approval of its 18-inch clinical
Jacobson Resonator for treatment of chronic pain from osteoarthritis of the knee
and CE Marking of its 18-inch and seven-foot clinical Jacobson Resonators for
treatment of chronic pain of the knee sometime in the second quarter of 2000. It
also expects CE Marking of those resonator models for treatment of the entire
spectrum of chronic pain sometime in the third quarter of 2000. Receipt of those
approvals will allow the Company's licensees to make, market, distribute and
sell those clinical products
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<PAGE> 22
on a commercial basis in the United States of America and Europe. In addition,
the Company's licensees are currently gearing up to make, market, distribute and
sell the Company's portable Jacobson resonators on a commercial basis. The
foregoing combination of events is expected to generate ongoing revenue for the
Company and thereby bring it out of the development stage into the operating
stage during the calendar year 2000.
Other possible sources of revenue for the Company during the calendar
year 2000 include the following:
1. Licensing revenue from a larger medical products company for
the development, marketing and distribution rights in
connection with the use of Jacobson Resonance in the treatment
of cardiac arrhythmias. The Company thinks that interest in
such a licensing arrangement will be generated by the
publication of the results of the completed research in
cardiac pacing at the University of Oklahoma Health Sciences
Center that Jacobson Resonance is effective in the treatment
of cardiac arrhythmias in dogs.
2. Licensing revenue from O2 Marketing Group, Inc., a
manufacturer of consumer-oriented oxygen products for the
cosmetics, nutraceutical and pharmaceutical industries, for an
exclusive license to use Jacobson Resonance for not less than
ten years covering the Republic of South Africa. The Company
has a letter of intent with O2 and is currently negotiating a
definitive license arrangement.
3. Licensing revenue from Comercializadora de Calidad S.A. of
Guatemala, for the distribution of resonators and the
establishment of treatment centers throughout Panama, El
Salvador, Costa Rica and Guatemala. The Company signed a
letter of intent with the Guatemalan distributor in March
2000.
4. Licensing revenue from Genesis Group International ("GGIC"),
for the use of Jacobson Resonance in the development,
distribution, marketing and sale of GGIC's all-natural and
resonated family of nasal sprays worldwide. The Company signed
a letter of intent with GGIC in February 2000.
5. Increases in revenue from its existing licensees for the
clinical Jacobson Resonators because of additional FDA
approvals and CE Marking. After receipt of the currently
pending applications for FDA approvals and CE Marking, the
Company plans to seek additional FDA approvals for the other
three clinical models of the Jacobson Resonator and for
treatment of the entire chronic pain spectrum, not just
osteoarthritis of the knee. It also plans to seek CE Marking
of the other two clinical models of the Jacobson Resonator.
These approvals would broaden the product line in both the
United States of America and Europe and would broaden the
applications for the clinical Jacobson Resonators in the
United States of America.
The Company will continue both use and product research and development
for Jacobson Resonance. The Company estimates that the ongoing university
research described in the part of Item 1 entitled "Description of Business -
Research and Development" will require about $200,000 of the Company's funds
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<PAGE> 23
through the middle of 2000. It anticipates continued prototyping of additional
models of the Jacobson Resonator for varying uses. It estimates that the costs
to the Company of such prototyping will be approximately $100,000 through the
middle of 2000.
LIQUIDITY AND CAPITAL RESOURCES AS OF DECEMBER 31, 1999
The Company's cash on hand at December 31, 1999, was $579,518, as
compared to $642,680 at December 31, 1998. Revenues for 1999 were $22,021, as
compared to $58,846 for 1998. The Company had a net loss of $3,657,966 for 1999,
as compared to a net loss of $952,276 for 1998, an increase of $2,705,690. Of
that amount, $2,094,158 comes from non-cash financing costs as a
result of the Company's sale of convertible debentures and warrants to purchase
common stock in early June 1999; $1,563,808 of the increased loss is
attributable to an increase in total operating expenses.
The Company's primary source of funds during 1999 was a private
offering of $999,100 in original principal amount of 2% Convertible Debentures
Due June 2, 2004, and warrants to purchase 900,000 shares of its common stock at
$.001 per share. The debentures were convertible at the option of the holders at
any time into shares of common stock at the lesser of (1) $3.00 per share or (2)
75% of the average closing bid price per share for the five trading days
immediately preceding the conversion date, subject to a minimum conversion price
of $0.50 per share. Interest on the debentures was payable at conversion or
maturity in the form of either cash or shares of common stock, at the option of
the Company. The Company received net offering proceeds of $891,390. All of the
debentures, plus accrued interest, were converted into 1,862,876 shares of
common stock and all of the warrants were exercised during 1999.
Since the beginning of the year, the Company has received an
additional $1,228,520 from the sale of securities and the exercise of stock
options. The Company anticipates that its existing resources will be sufficient
to fund its plan of operation through the latter part of 2000. By that time, the
Company expects to be generating sufficient revenue to fund its plan of
operation after then. However, if the Company by that time is not generating any
revenue or is generating insufficient revenue for such funding, then the Company
may have to seek additional funds through either debt or equity financing.
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ITEM 7. FINANCIAL STATEMENTS
Financial Statements contained in this report reflect no change from
the preceding year in any accounting principles or practices or in the method of
application of those principles or practices.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
On January 28, 2000, the Company's Board of Directors appointed
Goldstein Golub Kessler LLP ("GGK") as the Company's independent auditors for
the fiscal year ending December 31, 1999, and dismissed Millward & Co. CPAs
("Millward"), which had audited the Company's financial statements for the last
two fiscal years ended December 31, 1998 and 1997, respectively.
Through the end of 1999, the Company was a development stage company.
In 2000, the Company will begin the transition from the development stage to the
operating stage. The Company's Board of Directors believes that the appointment
of GGK to audit the Company's consolidated financial statements for the fiscal
year ended December 31, 1999, and thereafter is in the best interests of the
Company and its shareholders at this point in the development of the Company's
business.
None of Millward's reports on the Company's financial statements for
either of the Company's past two fiscal years contained an adverse opinion or
disclaimer of opinion, or was modified as to uncertainty, audit scope, or
accounting principles, except for a modification as to an uncertainty about the
Company's ability to continue as a going concern. During those two fiscal years,
there were no disagreements with Millward on any matter of accounting principles
or practices, financial statement disclosure, or auditing scope or procedure.
21
<PAGE> 25
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS: COMPLIANCE
WITH SECTION 16(a) OF THE EXCHANGE ACT
The response to this item will be included in a definitive proxy
statement filed within 120 days after the end of the Company's fiscal year,
which response is incorporated herein by reference.
ITEM 10. EXECUTIVE COMPENSATION
The response to this item will be included in a definitive proxy
statement filed within 120 days after the end of the Company's fiscal year,
which response is incorporated herein by reference.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The response to this item will be included in a definitive proxy
statement filed within 120 days after the end of the Company's fiscal year,
which response is incorporated herein by reference.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The response to this item will be included in a definitive proxy
statement filed within 120 days after the end of the Company's fiscal year,
which response is incorporated herein by reference.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits: See Exhibit Index.
(b) Reports on Form 8-K: The Company did not file any Current Reports on Form
8-K during the fiscal quarter ended December 31, 1999.
22
<PAGE> 26
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NUMBER EXHIBIT DESCRIPTION PAGE NUMBER
- -------------- ------------------- -----------
<S> <C> <C>
3.1 Articles of Incorporation, as amended*
3.2 Bylaws, as amended*
4.1 Specimen Common Stock Certificate*
4.2 Specimen Series A Convertible Preferred Stock Certificate*
4.3 Specimen 1998 Warrant Agreement*
4.4 Specimen 1998 Placement Agent Warrant Agreement*
4.5 Specimen 2% Convertible Debenture*
10.1 Patent License Agreement Dated October 6, 1999,
Between Dr. Jerry I. Jacobson and the Company*
10.2 License Agreement Dated February 23, 1999, Between
the Company and Serrato Enterprises L.L.C.*
10.3 1998 Stock Option Plan*
10.4 License Agreement Dated October 15, 1999, Between
the Company and Serrato Enterprises L.L.C.
10.5 Distribution Agreement Dated December 29, 1999,
Between the Company and Akron Bio-Medical Corporation
10.6 License Agreement Dated December 29, 1999,
Between the Company and ABM Manufacturing, Inc.
10.7 License Agreement Dated December 31, 1999, Between
the Company and REALPURE Beverage Group, LLC
27 Financial Data Schedule
</TABLE>
- --------------------------------------------
* Filed as Exhibits to the Company's Form 10-SB filed on October 27, 1999.
23
<PAGE> 27
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Date: April 13, 2000 JACOBSON RESONANCE ENTERPRISES, INC.
(Registrant)
By: /s/ JERRY I. JACOBSON
---------------------------------------
Jerry I. Jacobson, Chairman of the
Board and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the date indicated.
<TABLE>
<CAPTION>
<S> <C>
Date: April 13, 2000 By: /s/ JERRY I. JACOBSON
----------------------------------------------
Jerry I. Jacobson, Chairman of the Board
and Chief Executive Officer
Date: April 13, 2000 By: /s/ DEBRA M. JACOBSON
----------------------------------------------
Debra M. Jacobson, Director, Senior Vice
President, Treasurer and Secretary
(Principal Financial and Accounting
Officer)
Date: April , 2000 By:
----------------------------------------------
Alfonso Serrato, Director
</TABLE>
24
<PAGE> 28
JACOBSON RESONANCE ENTERPRISES, INC.
(a development stage company)
CONTENTS
- --------------------------------------------------------------------------------
INDEPENDENT AUDITOR'S REPORT .......................... F-2 - F-3
FINANCIAL STATEMENTS:
Balance Sheet ...................................... F-4
Statement of Operations ............................ F-5
Statement of Changes in Stockholders' Equity ....... F-6 - F-8
Statement of Cash Flows ............................ F-9
Notes to Financial Statements ...................... F-10 - F-17
F-1
<PAGE> 29
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors
Jacobson Resonance Enterprises, Inc.
We have audited the accompanying balance sheet of Jacobson Resonance Inc. (a
development stage company) as of December 31, 1999, and the related statements
of operations, stockholders' equity, and 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 the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Jacobson Resonance Enterprises,
Inc. as of December 31, 1999 and the results of its operations and its cash
flows for the year then ended in conformity with generally accepted accounting
principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company has suffered recurring losses and has no
significant revenue from operations that raise substantial doubt about its
ability to continue as a going concern. Management's plan in regard to these
matters is also described in Note 1. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
GOLDSTEIN GOLUB KESSLER LLP
New York, New York
March 7, 2000,
except for the last five paragraphs
of Note 6, as to which the
date is April 11, 2000
F-2
<PAGE> 30
To the Board of Directors
Jacobson Resonance Enterprises, Inc.
Boca Raton, Florida
INDEPENDENT AUDITORS' REPORT
We have audited the accompanying statements of operations, changes in
stockholders' equity, and cash flows of Jacobson Resonance Enterprises, Inc. (a
development stage company) for the year ended December 31, 1998. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audits to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the results of its operations and its cash flows of
Jacobson Resonance Enterprises, Inc. (a development stage company) for the year
ended December 31, 1998 in conformity with generally accepted accounting
principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. The Company is in the development
stage and has no significant revenue from operations. It is utilizing technology
which may require substantial expenditures to successfully market. The Company
must successfully complete its product development and marketing efforts. As a
result the Company may need additional funds. These factors raise substantial
doubt about the ability of the Company to continue as a going concern.
Management's plans in regard to these matters are described in Note 1. The
financial statements do not include any adjustments that might result from the
outcome of the foregoing uncertainties.
Millward & Co. CPAs
Fort Lauderdale, Florida
January 29, 1999
F-3
<PAGE> 31
JACOBSON RESONANCE ENTERPRISES, INC.
(a development stage company)
BALANCE SHEET
<TABLE>
<S> <C>
December 31, 1999
ASSETS
Current Assets:
Cash and cash equivalents $ 579,518
Prepaid expenses 31,317
-----------
TOTAL CURRENT ASSETS 610,835
Property and Equipment, net of accumulated depreciation 116,685
Deposits 1,395
Deferred Income Tax Asset, net of valuation allowance of $1,332,000
-----------
TOTAL ASSETS $ 728,915
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities - accounts payable and accrued expenses $ 148,154
-----------
Commitments and Contingencies
Stockholders' Equity:
Preferred stock - $.001 par value; authorized 5,000,000 shares
issued and outstanding 45,000 shares 45
Common stock - $.001 par value; authorized 100,000,000 shares
issued and outstanding 37,169,127 shares 37,169
Additional paid-in capital 5,806,107
Deficit accumulated during the development stage (5,217,886)
-----------
625,435
Less Common Stock in Treasury, 600,000 shares at cost, (600)
Subscriptions Receivable (44,074)
-----------
STOCKHOLDERS' EQUITY 580,761
-----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 728,915
===========
</TABLE>
The accompanying notes and independent auditor's report
should be read in conjunction with the financial statements
F-4
<PAGE> 32
JACOBSON RESONANCE ENTERPRISES, INC.
(a development stage company)
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
Year Ended Period From
December 31, June 4, 1996
------------------------------- (Inception) to
1999 1998 December 31, 1999
------------ ------------ -----------------
(unaudited)
<S> <C> <C> <C>
Revenue $ 22,021 $ 58,846 $ 147,153
------------ ------------ ------------
Costs and expenses:
General and administrative 1,413,636 794,977 2,634,406
Research and development 280,550 232,799 761,486
Financing costs 2,094,158 350 2,094,508
------------ ------------ ------------
Total operating expenses 3,788,344 1,028,126 5,490,400
------------ ------------ ------------
Other income:
Interest 29,776 17,004 46,780
Gain of sales of resonance machines 78,581 78,581
------------ ------------ ------------
Total other income 108,357 17,004 125,361
------------ ------------ ------------
Net loss $ (3,657,966) $ (952,276) $ (5,217,886)
============ ============ ============
Net loss per share:
Basic $ (.11) $ (.03)
============ ============
Diluted $ (.11) $ (.03)
============ ============
Weighted-average number of common shares outstanding:
Basic 34,120,883 29,374,150
============ ============
Diluted 34,120,883 29,678,400
============ ============
</TABLE>
The accompanying notes and independent auditor's report
should be read in conjunction with the financial statements
F-5
<PAGE> 33
JACOBSON RESONANCE ENTERPRISES, INC.
(a development stage company)
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
Year Ended December 31, 1999
<TABLE>
<CAPTION>
Deficit
Accumulated
Common Stock Preferred Stock Additional During
--------------------- ------------------- Paid-in Development
Shares Amount Shares Amount Capital Stage
------ ------ ------ ------ ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
(Unaudited)
Issuance of founders' stock at
par $.001 57,220,000 $ 57,220 $ (57,220)
Recapitalization at June 4, 1996 4,905,000 4,905 (4,905)
Issuance of common stock at
$.10 per share 10,000,000 10,000 990,000
Issuance of common stock at
$1.750 per share 18,857 19 32,981
Purchase of treasury stock, at cost
Conversion of common stock to
preferred stock (45,000,000) (45,000) 45,000 $45 44,955
Net loss $ (292,325)
Balance at December 31, 1996 27,143,857 27,144 45,000 45 1,005,811 (292,325)
Issuance of common stock for
services rendered at prices
between $.15 and $1.75 per share 40,114 40 12,744
Issuance of common stock from
private placement at prices
between $.15 and $.25 per share 760,000 760 139,240
Issuance of common stock out
of proceeds of subscription
receivable
Net loss (315,319)
</TABLE>
<TABLE>
<CAPTION>
Subscription Treasury Stockholders'
Receivable Stock Equity
---------- -------- -------------
<S> <C> <C> <C>
(Unaudited)
Issuance of founders' stock at
par $.001
Recapitalization at June 4, 1996
Issuance of common stock at
$.10 per share $(526,550) $ 473,450
Issuance of common stock at
$1.750 per share 33,000
Purchase of treasury stock, at cost $(600) (600)
Conversion of common stock to
preferred stock
Net loss (292,325)
Balance at December 31, 1996 (526,550) (600) 213,525
Issuance of common stock for
services rendered at prices
between $.15 and $1.75 per share 12,784
Issuance of common stock from
private placement at prices
between $.15 and $.25 per share 140,000
Issuance of common stock out
of proceeds of subscription
receivable 5,000 5,000
Net loss (315,319)
</TABLE>
(continued)
The accompanying notes and independent auditor's report
should be read in conjunction with the financial statements
F-6
<PAGE> 34
JACOBSON RESONANCE ENTERPRISES, INC.
(a development stage company)
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Deficit
Accumulated
Common Stock Preferred Stock Additional During
--------------------- ------------------- Paid-in Development
Shares Amount Shares Amount Capital Stage
------ ------ ------ ------ ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1997 27,943,971 $ 27,944 45,000 $45 $1,157,795 $ (607,644)
Reacquisition of common shares
and collection of subscription
receivable (3,000,000) (3,000) (450,000)
Cash collection of subscription
receivable
Issuance of common stock from
private placement at a price of
$.15 per share 4,675,850 4,676 659,294
Issuance of common stock from
private placement at a price of
$.35 per share 2,017,999 2,018 690,156
Issuance of common stock for
services rendered at prices
between $.15 and $.35 per share 663,223 663 176,415
Fair value of options issued to
consultants 2,063
Net loss (952,276)
</TABLE>
<TABLE>
<CAPTION>
Subscription Treasury Stockholders'
Receivable Stock Equity
---------- -------- -------------
<S> <C> <C> <C>
Balance at December 31, 1997 $(521,550) $(600) $ 55,990
Reacquisition of common shares
and collection of subscription
receivable 450,000 (3,000)
Cash collection of subscription
receivable 27,476 27,476
Issuance of common stock from
private placement at a price of
$.15 per share 663,970
Issuance of common stock from
private placement at a price of
$.35 per share 692,174
Issuance of common stock for
services rendered at prices
between $.15 and $.35 per share 177,078
Fair value of options issued to
consultants 2,063
Net loss (952,276)
</TABLE>
(continued)
The accompanying notes and independent auditor's report
should be read in conjunction with the financial statements
F-7
<PAGE> 35
JACOBSON RESONANCE ENTERPRISES, INC.
(a development stage company)
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Deficit
Accumulated
Common Stock Preferred Stock Additional During
--------------------- ------------------- Paid-in Development
Shares Amount Shares Amount Capital Stage
------ ------ ------ ------ ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1998 32,301,043 $ 32,301 45,000 $45 $2,235,723 $(1,559,920)
Issuance of common stock for
services rendered at prices
between $.18 and $2.69 per
share 1,313,903 1,314 420,375
Issuance of common stock upon
exercise of debt 291,305 291 60,883
Issuance of common stock upon
exercise of warrants 900,000 900 1,754,100
Issuance of shares at $.20 per share 500,000 500 99,500
Beneficial conversion feature of
convertible debentures 333,332
Issuance of common stock for
conversion of debentures 1,862,876 1,863 902,194
Net loss (3,657,966)
Balance at December 31, 1999 37,169,127 $ 37,169 45,000 $45 $5,806,107 $(5,217,886)
</TABLE>
<TABLE>
<CAPTION>
Subscription Treasury Stockholders'
Receivable Stock Equity
---------- -------- -------------
<S> <C> <C> <C>
Balance at December 31, 1998 $ (44,074) $(600) $ 663,475
Issuance of common stock for
services rendered at prices
between $.18 and $2.69 per
share 421,689
Issuance of common stock upon
exercise of debt 61,174
Issuance of common stock upon
exercise of warrants 1,755,000
Issuance of shares at $.20 per share 100,000
Beneficial conversion feature of
convertible debentures 333,332
Issuance of common stock for
conversion of debentures 904,057
Net loss (3,657,966)
Balance at December 31, 1999 $ (44,074) $(600) $ 580,761
</TABLE>
The accompanying notes and independent auditor's report
should be read in conjunction with the financial statements
F-8
<PAGE> 36
JACOBSON RESONANCE ENTERPRISES, INC.
(a development stage company)
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended Period From
December 31, June 4, 1996
----------------------------- (Inception) to
1999 1998 December 31, 1999
----------- ----------- ----------------
(unaudited)
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $(3,657,966) $ (952,276) $(5,217,886)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation 13,707 4,843 21,448
Amortization of deferred debt costs 7,742 7,742
Write off of licensing costs 126,582 126,582
Fair value of common stock issued for services rendered 421,689 177,078 611,769
Fair value of common stock issued for interest expense 6,649 6,781
Fair value of common stock warrants issued for interest 1,754,100 1,754,100
Beneficial conversion feature of debentures 333,332 333,332
Fair value of options issued 2,063 2,063
Changes in operating assets and liabilities:
Increase in prepaid expenses (10,683) (13,959) (31,317)
(Increase) decrease deposits 2,600 (320) (1,395)
Increase in accounts payable and accrued expenses 104,378 31,734 148,154
Increase in interest payable 350
----------- ----------- -----------
NET CASH USED IN OPERATING ACTIVITIES (897,870) (750,487) (2,238,627)
----------- ----------- -----------
Cash flows from investing activities:
Purchase of property and equipment (121,898) (9,647) (138,133)
Payment for licensing costs (34,784) (41,608) (126,582)
----------- ----------- -----------
CASH USED IN INVESTING ACTIVITIES (156,682) (51,255) (264,715)
----------- ----------- -----------
Cash flows from financing activities:
Purchase of treasury stock (600)
Proceeds from note payable 60,000 60,000
Proceeds from issuance of debentures 890,490 890,490
Proceeds from exercise of warrants 900 900
Proceeds from issuance of common stock from
subscription receivable 477,476 653,976
Proceeds from issuance of common stock 100,000 903,144 1,478,094
----------- ----------- -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 991,390 1,440,620 3,082,860
----------- ----------- -----------
Net increase (decrease) in cash and cash equivalents (63,162) 638,878 579,518
Cash at beginning of period 642,680 3,802
=========== =========== ===========
Cash at end of period $ 579,518 $ 642,680 $ 579,518
=========== =========== ===========
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
Issuance of common stock for repayment of debt $ 60,000 $ -0- $ 60,000
=========== =========== ===========
Subscriptions receivable for issuance of common stock $ -0- $ -0- $ 698,050
=========== =========== ===========
Conversion of debentures into common stock $ 1,000,000 $ -0- $ 1,000,000
=========== =========== ===========
</TABLE>
The accompanying notes and independent auditor's report
should be read in conjunction with the financial statements
F-9
<PAGE> 37
JACOBSON RESONANCE ENTERPRISES, INC.
(a development stage company)
NOTES TO FINANCIAL STATEMENTS
1. OPERATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Company was incorporated on March 6, 1988 in the state of Nevada as Pioneer
Services International, Ltd. ("Pioneer"). The Company is in the development
stage and its purpose was to locate suitable business ventures to acquire. On
June 4, 1996, the board of directors of Pioneer voted to acquire 100% of the
outstanding shares of Jacobson Resonance Machines, Inc. in exchange for the
issuance of 57,220,000 shares of its common stock. The Company and Jacobson
Resonance Machines, Inc. had no activity prior to the acquisition. In 1998, the
Company changed its name to Jacobson Resonance Enterprises, Inc.
As a result of the exchange of stock, the former stockholders of Jacobson
Resonance Machines, Inc. owned 57,220,000 restricted common shares or 92% after
the recapitalization of the Company. Accordingly, this transaction has been
treated, for financial reporting purposes, as a reverse acquisition in which
Jacobson Resonance Machines, Inc. was recapitalized by providing 4,905,000
shares of Pioneer Services International, Ltd. common stock to Pioneer's
existing stockholders. The 1996 stockholders' equity section reflects the change
in the capital structure due to the reverse acquisition. As a result, $4,905 was
transferred to common stock from additional paid-in capital.
The Company is a bio-tech and bio-medical enterprise involved in the development
of resonance and electro-magnetic equipment, process and applications.
Applications for the use of resonance technology in the medical, food,
agricultural, recreational, pharmaceutical, and environmental industries are
currently being pursued.
The Company is in the development stage and its operations are subject to all of
the risks inherent in an emerging business enterprise. The accompanying
financial statements have been prepared assuming the Company will continue as a
going concern. As shown in the financial statements, the Company has incurred
losses of $3,657,966 and $952,276 for the years ended December 31, 1999 and
1998, and $5,217,886 since its inception in 1996. The Company has had limited
revenue during those years. There is no assurance that the Company will not
encounter substantial delays and expenses related to financing the successful
completion of its product development and marketing efforts and/or other
unforeseen difficulties. The Company will be required to expand its management
and administrative capabilities in order to manage the aforementioned items as
well as respond to competitive conditions, and will require additional funds.
The Company may seek such funds through additional equity financing, debt
financing, collaborative arrangement or from other sources. Such funds may not
be available on terms acceptable to the Company. These factors indicate that the
Company may not be able to continue as a going concern. Based on the Company's
current plans and assumptions, the Company believes its cash on-hand and planned
subsequent financing will be sufficient to fund its anticipated operations
through fiscal 2000 and that it will be successful in marketing related
resonance products. The financial statements do not include adjustments relating
to the recoverability and classification of recorded assets.
Net loss per common share is based upon the weighted-average number of
F-10
<PAGE> 38
JACOBSON RESONANCE ENTERPRISES, INC.
(a development stage company)
NOTES TO FINANCIAL STATEMENTS
common shares outstanding during the year. Potential common stock is excluded
from the computation of net loss per share since their inclusion would be
antidilutive.
Cash and cash equivalents consist of cash and highly liquid debt instruments
with an original maturity of less than three months.
Property and equipment are stated at cost. Depreciation is provided for by the
straight-line method over the estimated useful lives of the related assets.
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 revenue and expenses during the reporting period. Actual
results could differ from those estimates.
Research and development costs are charged to operations when incurred and are
included in operating expenses.
The Company adopted Statement of Financial Accounting Standard ("SFAS") No. 123,
ACCOUNTING FOR STOCK-BASED COMPENSATION. SFAS 123 allows either the adoption of
a fair value method of accounting for stock-based compensation plans or
continuation of accounting under Accounting Principles Board ("APB") Opinion No.
25, ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES, and related interpretations with
supplemental disclosures. The Company has elected to apply APB No. 25 and the
related interpretations in accounting for its common stock options issued to
employees and has adopted the disclosure only provisions of SFAS No. 123.
Financial instruments which potentially subject the Company to concentrations of
credit risk are primarily cash and accounts receivable. The Company invests its
excess cash in high quality short-term liquid money market instruments with
major financial institutions and the carrying value approximates market value.
The Company does not have significant trade receivables. The Company maintains
cash in bank accounts which, at times, may exceed federally insured limits. The
Company has not experienced any losses on these accounts.
Management does not believe that any recently issued, but not yet effective,
accounting standards if currently adopted would have a material effect on the
accompanying financial statement.
Revenue from the sale of resonance equipment is recorded when the equipment is
shipped.
The Company has charged operations for costs representing legal expenses
associated with the application to obtain certain patents awarded to the
Company's principal stockholder. The Company has a licensing agreement for the
use of the patents. This stockholder received approximately $4,000 in royalties
from the Company during 1999.
For comparability, certain 1998 amounts have been reclassified, where
F-11
<PAGE> 39
JACOBSON RESONANCE ENTERPRISES, INC.
(a development stage company)
NOTES TO FINANCIAL STATEMENTS
appropriate, to conform to the financial statement presentation used in 1999.
2. PROPERTY AND EQUIPMENT:
Property and equipment at December 31, 1999, at cost, consists of:
<TABLE>
<CAPTION>
Depreciation/
Amortization
Period
-------------
<S> <C> <C>
Furniture and fixtures $ 18,182 3 to 5 years
Resonance equipment 119,951 5 years
----------
138,133
Less accumulated depreciation and amortization (21,448)
----------
$ 116,685
==========
</TABLE>
Depreciation expense for the years ended December 31, 1999 and 1998 amounted to
$13,707 and $4,843, respectively.
3. SUBSCRIPTION RECEIVABLE:
During 1998, the subscription receivable was reduced by $450,000, which
represented the acquisition of 3,000,000 common shares. The Company received a
note receivable as security for the outstanding balance. The balance on the note
receivable at December 31, 1999 was $44,074 and has been treated for accounting
purposes as a reduction of stockholders' equity.
4. COMMITMENTS AND CONTINGENCIES
The Company is currently renting office space in Juno Beach, Florida, pursuant
to an operating lease which expires August 31, 2000. The Company also rents
office space in Boca Raton, Florida on a month-to-month basis. Rent expense for
the years ended December 31, 1999 and 1998 amounted to $101,029 and $81,676,
respectively. Future minimum lease payments for the noncancelable operating
lease over the remaining term of the lease is $8,200.
Subsequent to year-end, the Company signed an operating lease for office space
commencing on April 1, 2000. This agreement is for five years and requires
minimum monthly rental payments of approximately $6,100.
The minimum lease payments are as follows:
Year ending December 31,
2000 $ 54,900
2001 73,200
2002 73,200
2003 73,200
2004 73,200
2005 18,300
--------
$366,000
========
F-12
<PAGE> 40
JACOBSON RESONANCE ENTERPRISES, INC.
(a development stage company)
NOTES TO FINANCIAL STATEMENTS
5. STOCK OPTION PLAN:
In November 1998, the Company's board of directors approved the 1998 Stock
Option Plan (the "Plan"). The Plan authorizes the granting of both incentive
stock options and nonstatutory stock options up to a total of 10,000,000 shares.
The option price for nonstatutory stock options may be less than, equal to, or
greater than the market price on the date the option is granted, whereas for
incentive stock options, the price will be at least 100% of the fair market
value. Compensation expense, representing the difference between the exercise
price and the fair market price at date of grant, is recognized over the vesting
or service period. For all the periods presented all of the options were granted
at an exercise price equal to the fair market value of the Company's common
stock at the date of grant. The board of directors granted 998,500 options to
eligible persons. The right to exercise the options vests annually as follows:
(1) The right to exercise the options and to acquire 50% of the shares of
stock underlying the options vests at the date granted.
(2) The right to exercise the option and acquire 30% of the shares of stock
underlying the options vests one year after the date it is granted.
(3) The right to exercise the option and acquire 10% of the shares of stock
underlying the options vests two years after the date it is granted.
(4) The right to exercise the option and acquire 10% of the shares of stock
underlying the options vests three years after the date it is granted.
A summary of the status of the Company's options as of December 31, 1999 and
1998, and changes during the years then ended, is presented below:
<TABLE>
<CAPTION>
1999 1998
--------------------- ----------------------
Weighted- Weighted-
Number Average Number Average
of Exercise of Exercise
Shares Price Shares Price
------ -------- ------ ---------
<S> <C> <C> <C> <C>
Outstanding at beginning
of year 608,500 $.35 -0- $ -0-
Granted 390,000 .20 608,500 $ .35
Outstanding at end of year 998,500 $.29 608,500 $ .35
Options exercisable at
year-end 681,800 $.31 304,250 $ .35
Weighted-average fair
value of options granted
during the year $ 72,618 $ 91,275
</TABLE>
F-13
<PAGE> 41
JACOBSON RESONANCE ENTERPRISES, INC.
(a development stage company)
NOTES TO FINANCIAL STATEMENTS
The following table summarizes information about fixed stock options outstanding
at December 31, 1999:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------------------------- ----------------------
Weighted-
Average Weighted- Weighted-
Remaining Average Average
Range of Number Contractual Exercise Number Exercise
Exercise Prices Outstanding Life Price Exercisable Price
--------------- ----------- ----------- -------- ----------- -------
<S> <C> <C> <C> <C> <C> <C>
$.20 - $.35 998,500 4.25 $.31 681,800 $.35
</TABLE>
Had compensation expense for the Company's stock option plans been determined
based on the fair value of the options at the grant dates, consistent with SFAS
No. 123 the Company's net loss and net loss per share amounts would have been as
follows:
<TABLE>
<CAPTION>
December 31, 1999 1998
------------- -------------
<S> <C> <C>
Net loss:
As reported $ (3,531,384) $ (952,276)
Pro forma (3,604,002) (1,043,551)
Basic and diluted loss per share:
As reported $ (.11) $ (.03)
Pro forma (.11) (.04)
</TABLE>
The fair value for these options was estimated at the date of grant using a
Black-Scholes option pricing model with the following weighted-average
assumptions for the years ended December 31, 1999 and 1998, respectively,
risk-free interest rates of 6.3% and 5.5%, dividend yields of 0% and 0%,
volatility factors of the expected market price of the Company's common stock of
243.41% and 131.09%, and an expected life of the options of five years.
The Black-Scholes option pricing model was developed for use in estimating the
fair value of traded options which have no vesting restrictions and are fully
transferable. In addition, option pricing models require the input of highly
subjective assumptions including the expected stock price volatility. Because
the Company's employee stock options have characteristics significantly
different from those of traded options and because changes in the subjective
input assumptions can materially affect the fair value estimate, in management's
opinion the existing models do not necessarily provide a reliable single measure
of the fair value of its employee stock options.
F-14
<PAGE> 42
JACOBSON RESONANCE ENTERPRISES, INC.
(a development stage company)
NOTES TO FINANCIAL STATEMENTS
6. STOCKHOLDERS' EQUITY:
During May 1997, the Company's board of directors authorized the conversion of
45,000,000 shares of its common stock into 45,000 shares of its Preferred Stock.
These shares belonged to the Company's president. The shares were converted at a
conversion rate of 1 share of Series A Preferred stock for 1,000 shares of
common stock. Each share of Preferred Stock is convertible into 1,000 shares of
common stock as follows: 1/3 at the option of the holder beginning three years
from issuance, 1/3 at the option of the holder, beginning four years from
issuance, and the final 1/3 beginning five years from issuance. The May 1997
conversion has been accounted for as if it had occurred as of December 31, 1996.
In 1997, the Company issued 40,114 shares of common stock for services with a
fair value of $12,784. The Company completed a private placement of 760,000
shares of common stock for net proceeds of $140,000.
The Company completed two private placements during 1998. In March 1998, the
Company issued 4,404,663 shares of common stock pursuant to a private placement
for a price of $.15 per share. In connection with this private placement, the
Company also issued 271,187 shares for commissions.
In June 1998, there was a second private placement whereby the Company issued
2,017,999 shares for a price of $.35 per share. Each share includes a warrant to
purchase additional common shares at a price of $.45 per share for a four-year
period ending December 2002. Fees paid relating to this private placement were
$14,126 and have been charged to additional paid-in capital. In addition, 40,360
warrants were issued to purchase 40,360 common shares at $.35 per share. The
warrants expire December 2002 and were issued for services relating to the
private placement.
The Company reacquired 3,000,000 common shares issued in 1996 and cancelled a
subscription receivable in the amount of $450,000 for the purchase of such
shares and received a note receivable in the amount of $71,550. During the year
ended December 31, 1998, $27,476 was collected from the note.
During 1998, the Company issued 663,223 common shares for services. The services
were charged to operations and have been recorded at the quoted market value at
the date of issuance. Included in the shares are 140,000 shares pursuant to a
continuing agreement for endorsements at a quoted market value of $.35 per
share. At December 31, 1999, the Company included in accrued expenses and
charged operations for $68,250, which represented the value attributable to
195,000 shares of common stock to be issued. The continuing agreement requiring
personality endorsements provides for the issuance of 195,000 shares of common
stock in 1999 and 205,000 shares of common stock in 2000.
In addition, the Company issued an aggregate of 142,857 options to purchase
common shares at $.35 per share (the quoted market value) for a three-year
period ended October 15, 2001. The value of the options using the Black-Scholes
formula amounted to $37,142 and was charged to operations.
F-15
<PAGE> 43
JACOBSON RESONANCE ENTERPRISES, INC.
(a development stage company)
NOTES TO FINANCIAL STATEMENTS
At various dates during the year ended December 31, 1999, the Company issued
1,313,903 common shares for services. The services for consultants and for
officers compensation were charged to operations and have been recorded at the
quoted market value at the date of issuance which aggregated $421,689.
On November 30, 1998, the Company received a short-term loan in the amount of
$60,000 from a related party. This loan was due and payable on November 30, 1999
together with interest which accrued at 7% per annum. The holder of the note was
given an option to convert the note and any accrued interest at any time prior
to maturity into fully-paid shares of the Company's common stock, par value
$.001 per share at a rate of $.21 per share, the quoted market value at November
30, 1998. During 1999, the notes and accrued interest of $1,174 were converted
into 291,305 common shares.
In 1999, the Company through a private sale of shares issued 500,000 shares of
common stock for an aggregate of $100,000. The Company also issued $1,000,000 in
2% convertible debentures due June 2, 2004, and warrants to purchase 900,000
shares of its common stock at $.001 per share. The Company received net proceeds
of approximately $890,000 after costs which are being amortized over the term of
the debentures. As a result of the conversion feature (75% of the quoted market
of the common stock) and the beneficial aspect to the recipient, the Company
recognized an interest charge of $333,332. The debentures were immediately
convertible and the $333,332 of interest has been charged to operations in June
1999.
Additionally, the warrants to purchase 900,000 shares of the Company's common
stock were exercised for $900 when the market price was $1.95 a share. As these
warrants were issued and exercised at the time of the issuance of the
debentures, the difference between the market value and the warrant exercise
price was also considered a beneficial conversion price for accounting purposes.
Accordingly, this transaction resulted in a $1,754,100 charge to interest
expense in June 1999.
On July 16, 1999, $100,000 of principal plus interest was converted into 144,645
shares of common stock; on July 22, 1999, $225,000 of principal plus interest
was converted into 363,892 shares of common stock; August 6, 1999, $549,280 of
principal plus interest was converted into 1,102,466 shares of common stock and
on November 12, 1999, the remaining $124,280 of principal and interest were
converted into 251,873 shares of the Company's common stock for an aggregate of
1,862,876 shares.
The Company entered into an agreement to sell 5,000,000 restricted shares of its
common stock to an investor at the price of $.20 per share. Payments for such
shares will be made to the Company at various times in 2000. As of December 31,
1999, this investor had purchased 500,000 shares of commons stock for $100,000.
In addition, the Company granted this investor an option to purchase 2,222,222
shares of its common stock at a price of $.45 per share. This option requires
the investor to advise the Company of his intent to exercise the option by
January 31, 2001, and exercise and execute the option on or before June 30, 2001
according to a defined schedule.
On January 21, 2000 the Company sold 54,750 shares of common stock for an
aggregate of $19,045, on February 14, 2000 the Company sold 300,000 shares of
common stock for an aggregate of $60,000, on February 16, 2000 the Company sold
375,000 shares of common stock for an aggregate of $187,500, on April 7, 2000
the Company sold 307,693 shares of common stock and a warrant to purchase an
additional 307,693 shares of common stock at an exercise price of $.85 per share
for an aggregate of $200,000, on April 10, 2000 the Company sold 664,193 shares
of common stock and a warrant to purchase an additional 664,193 shares of common
stock at an exercise price of $.90 per share for an aggregate of $431,725, and
on April 11, 2000 the Company sold 269,231 shares of common stock and a warrant
to purchase an additional 269,231 shares of common stock at an exercise price of
$.90 per share for an aggregate of $175,000. These shares of common stock and
warrants were all issued for cash.
In addition, on February 14, 2000 the Company issued 22,500 shares of common
stock, on February 16, 2000 the Company issued 200,000 shares of common stock,
on February 22, 2000 the Company issued 700 shares of common stock. These shares
of common stock were issued to employees and consultants for services. The
Company will record a charge to operations for the fair value of these shares on
the date of their issuance.
The Company also issued options to purchase 599,000 shares of common stock to
employees and consultants on April 4, 2000. These options are exercisable at
$1.28 per share. Any charge related to the issuance of these options will be
charged to operations at the time of issuance.
Additionally, on February 16, 2000 the Company issued 40,000 shares of common
stock for an aggregate of $16,000, on April 7, 2000 the Company issued 112,142
shares of common stock for an aggregate of $39,250. These shares were issued
upon exercise of options.
7. INCOME TAXES:
The Company has net operating loss carryforwards of approximately $3,917,000
available to reduce future taxable income which expire in various years through
2019.
The utilization of the net loss carryforwards may be limited as a result of
cumulative changes in the Company's stock ownership.
Deferred income taxes reflect the impact of net operating loss carryforwards. In
recognition of the uncertainty regarding the ultimate amount of income tax
benefits to be derived from the Company's net operating loss carryforwards, the
F-16
<PAGE> 44
JACOBSON RESONANCE ENTERPRISES, INC.
(a development stage company)
NOTES TO FINANCIAL STATEMENTS
Company has recorded a valuation allowance for the entire amount of the deferred
tax asset. The deferred income tax asset is comprised of the following at
December 31, 1999:
<TABLE>
<S> <C>
Gross deferred tax asset resulting from net operating
loss carryforwards $ 1,332,000
Valuation allowance (1,332,000)
-----------
Net deferred income tax asset $ -0-
===========
</TABLE>
The reconciliation of the effective income tax rate to the federal statutory
rate is as follows:
<TABLE>
<CAPTION>
December 31, 1999 1998
------ ------
<S> <C> <C>
Federal income tax rate (34.0)% (34.0)%
Valuation allowance on net operating loss carryfor 34.0 34.0
------ ------
Effective income tax rate 0 % 0 %
====== ======
</TABLE>
F-17
<PAGE> 1
Exhibit 10.4
LICENSE AGREEMENT
THIS LICENSE AGREEMENT ("Agreement") is made and entered into as of the
15th day of October, 1999, in duplicate originals by and between JACOBSON
RESONANCE ENTERPRISES, INC., a Nevada corporation authorized to do business in
the State of Florida, having an office and place of business at 9960 Central
Park Boulevard, Suite 302, Boca Raton, Florida 33428 ("Licensor"); and SERRATO
ENTERPRISES, a Florida corporation having an office and place of business at
4605 South Ocean Boulevard, Boca Raton, Florida 33487 ("Licensee").
WHEREAS, Licensor has expended considerable resources to researching,
developing, testing and treating pain by means of a device known as the
"Jacobson Resonator" (the "Licensed Property"); and,
WHEREAS, Licensee possess the experience, contacts and expertise to
manufacture the Licensed Property; and
WHEREAS, Licensee desires to manufacture the Licensed Property in the
Territory (hereinafter defined); and,
WHEREAS, Licensee agrees to comply with all provisions of the United
States Foreign Corrupt Practices Act.
NOW, THEREFORE, in consideration of the mutual covenants hereinafter
set forth, Licensor and Licensee do hereby respectively grant, covenant and
agree as follows:
1. DEFINITIONS.
1.1 TERRITORY. The countries specified on the annexed Exhibit A.
In the event Licensee seeks to expand the countries of the Territory, approval
shall not be unreasonably withheld or delayed and if given, Licensor will
attempt to register the Licensed Property in such additional countries for
manufacturing approvals.
1.2 LICENSED PROPERTY. The Jacobson Resonator (18", 22", 4', 7'
and specialty industrial application resonators) and such other products as the
parties may agree in writing.
1.3 LICENSE YEAR. A twelve (12) month period beginning on January
1 and ending on December 31, except that the first License Year begins on the
date hereof and ends on December 31, 1999.
2. GRANT OF LICENSE.
2.1 GRANT OF LICENSE AND PRODUCT DESIGNATIONS. Subject to the
terms of this Agreement, Licensor hereby grants to Licensee, during the term of
this Agreement, and upon the
<PAGE> 2
terms and conditions hereinafter set forth, a nonassignable right and license to
manufacture the Licensed Property within the Territory. Licensee shall have the
right, upon receipt of written approval of Licensor, to sublicense any of the
rights and licenses granted herein to third parties. Licensee shall have no
rights with respect to the Licensed Property outside the Territory.
All other rights specifically not granted to Licensee herein are
reserved for Licensor.
2.2 LICENSEE'S EFFORTS. Licensee agrees to use its best efforts
to manufacture the Licensed Property throughout the Territory.
3. TERM. The term of this Agreement shall commence on the date of
execution hereof and shall continue for a period of ten (10) License Years, and
shall automatically renew for two (2) succeeding five (5) License Year terms
unless earlier terminated by either party upon not less than 180 days' prior
written notice to the other. No termination of this Agreement shall relieve
Licensee from paying any obligation owed by it to Licensor up to the date of
termination. Upon termination of this Agreement, Licensee shall cease
manufacturing of the Licensed Property, and effective on the date of
termination, Licensee shall have no further right to the Licensed Property.
4. QUALITY CONTROL, STANDARDS, AND OWNERSHIP.
4.1 QUALITY CONTROL. Licensee shall acquire the Licensed Property
technology, systems, and/or components only from the Licensor. Any Licensed
Property manufactured by Licensee shall meet all of the product designs and
specifications imposed by Licensor. Licensee's failure to adhere to the
foregoing requirements shall be grounds for the immediate termination of this
Agreement by Licensor.
4.2 USE OF LICENSED PROPERTY. Licensee agrees not to manufacture
or otherwise use the Licensed Property in any manner whatsoever without first
obtaining all required permits, licenses and approvals required by the laws of
any jurisdiction in which the Licensed Property is manufactured by Licensee or
its Sublicensees.
4.3 OWNERSHIP OF LICENSED PROPERTY. Nothing in this Agreement
shall confer upon Licensee any ownership interest in the Licensed Property, all
such indicia of ownership in the Licensed Property being retained by Licensor.
4.4 CERTIFICATE OF CONFORMANCE: Licensee shall apply for the
Certificate of Conformance (hereinafter referred to as "CE Mark") in the
European Common Market for the Licensor's proprietary bioelectromagnetic medical
equipment (Licensed Property), and shall meet any and all manufacturing
standards imposed by the CE Mark. The CE Mark shall be in the name of the
Licensor or its designee. The Licensor shall retain all ownership of the CE
Mark.
4.4.1 COST OF CE MARK: Licensee acknowledges that fifty
thousand dollars ($50,000.) has been paid by the Licensor to offset expenses in
procuring the Mark.
2
<PAGE> 3
5. CONFIDENTIAL INFORMATION.
5.1 CONFIDENTIAL INFORMATION. Licensee acknowledges that
Licensor's trade secrets, private or secret processes, methods and ideas, as
they exist from time to time, contracts, customer lists and other information
concerning the Jacobson Resonator and Licensor's other products, services,
business records and plans, product design information, price structure, price
methods, price programs, pricing, product suppliers, discounts, costs, computer
programs and listings, copyright, trademark, proprietary information, formulae,
protocols, forms, procedures, training methods, development, technical
information, know-how, show-how, new product and service development,
advertising budgets, past, present and future marketing, activities and
procedures, method for operating its business, credit and financial data
concerning Licensor and Licensor's clients and client lists, sales
presentations, research information, revenues, acquisitions, practices and plans
and information which is embodies in written or otherwise recorded form, and
other information of a confidential nature not known publicly or by other
companies selling to the same markets and specifically including information
which is mental, not physical (collectively, the "Confidential Information") are
proprietary, valuable, special and unique assets of Licensor, access to and
knowledge of which have been or will be provided to Licensor by virtue of
Licensor's association with Licensee.
5.2 APPLICABILITY. Licensee agrees and covenants that, during the
term of this Agreement and at all times thereafter, Licensee and each of its
officers, directors, managers, employees, agents and representatives shall (a)
hold in confidence and not disclose or make available to any third party any
Confidential Information obtained directly or constructively from Licensor,
unless such disclosure is authorized in writing by the President of Licensor;
(b) exercise all reasonable efforts to prevent third parties from gaining access
to the Confidential Information; (c) not use, directly or indirectly, the
Confidential Information in any respect of its business, except as necessary to
evaluate the information as contemplated by this Agreement; (d) restrict the
disclosure or availability of the Confidential Information to those who have
read and understand this Agreement and who have a need to know the information
in order to achieve the purposes of this Agreement without the prior consent of
Licensor; (e) not modify any Confidential Information without the prior written
consent of Licensor; (f) take such other protective measures as may be
reasonably necessary to preserve the confidentiality of the Confidential
Information; and (g) relinquish and require all of its employees, officers, and
agents, to relinquish all rights it may have in any matter, such as drawings,
documents, models, samples, photographs, patterns, templates, molds, tools or
prototypes, which may contain, embody or make use of the Confidential
Information; promptly deliver to Licensor any such matter as Licensor may direct
at any time; and not retain any copies or other reproductions thereof.
5.3 EXCLUSIONS. Confidential Information does not include the
following: (a) information already known or independently developed by Licensee,
provided that the burden shall be upon Licensee to establish that this exclusion
is applicable; (b) information in the public domain through no wrongful act of
Licensee; or (c) information received by Licensee from a third party who was
free to disclose it, provided that the burden shall be upon Licensee to
establish that this exclusion is applicable.
3
<PAGE> 4
5.4 REMEDIES. Licensee acknowledges and agrees that Licensor's
remedy at law for a breach or threatened breach of any of the provisions of this
Section 5 would be inadequate and the breach shall be per se deemed as causing
irreparable harm to Licensor. In recognition of this fact, in the event of a
breach by Licensee of any of the provisions of this Section 5, Licensee agrees
that, in addition to any remedy at law available to Licensor, including, but not
limited to monetary damages, without posting any bond, shall be entitled to
obtain equitable relief in the form of specific performance, temporary
restraining order, temporary or permanent injunction or any other equitable
remedy which may then be available to Licensor.
In the event that, despite the express agreement of the parties, any
provision stated herein shall be determined by any court or other tribunal of
competent jurisdiction to be unenforceable for any reason whatsoever, the
parties agree that the provision shall be interpreted to extend only to the
maximum extent in any and all other respects as to which it may be enforceable,
all as determined by such court or tribunal.
Nothing herein contained shall be construed as prohibiting Licensor
from pursuing any other remedies available to it for such breach or threatened
breach.
5.5 EXECUTION OF AGREEMENT BY LICENSEE'S PERSONNEL. Licensee
agrees that Licensee's assigned personnel, including Sublicensees engaged by
Licensee, will, prior to commencement of their activities relating to the
Licensed Property, acknowledge, in writing, (a) that they agree to be bound by
the provisions of this Section 5, and (b) that their services constitute work
made for hire and ownership of the Custom Work made for hire and ownership of
the Custom Work Product belongs to Licensor. Licensee further agrees that
Licensee's assigned personnel, including Sublicensees engaged by Licensee, will
prior to commencement of their activities relating to the Licensed Property,
acknowledge, in writing, that they understand the provisions of the United
States Foreign Corrupt Practices Act, and agree to comply with its terms as well
as any provisions of local law or Licensor's corporate policy and procedure.
6. NON-COMPETITION.
6.1 RESTRICTION. During the term of this Agreement, and for a
period of one (1) year following completion of all services rendered by Licensee
pursuant to this Agreement, Licensee agrees that it will not, directly or
indirectly, either for itself or on behalf of any third party, develop,
engineer, manufacture, produce or consult to do any of the foregoing, relating
to any device employing magnetic technology, whose purpose is the alleviation of
pain.
6.2 REMEDIES. Licensee acknowledges and agrees that Licensor's
remedy at law for a breach or threatened breach of the provisions of this
Section 6 would be inadequate and the breach shall be per se deemed as causing
irreparable harm to Licensor. In recognition of this fact, in the event of a
breach by Licensee of any of the provisions of this Section 6, Licensee agrees
that, in addition to any remedy at law available to Licensor, including, but not
limed to monetary damages, without posting any bond, shall be entitled to obtain
equitable relief in the form of specific performance, temporary restraining
order, temporary or permanent injunction or any other equitable remedy which may
then be available to Licensor.
4
<PAGE> 5
In the event that, despite the express agreement of the parties, any
provision stated herein shall be determined by any court or other tribunal of
competent jurisdiction to be unenforceable for any reason whatsoever, the
parties agree that the provision shall be interpreted to extend only to the
maximum extent in any and all other respects as to which it may be enforceable,
all as determined by such court or tribunal.
Nothing herein contained shall be construed as prohibiting Licensor
from pursuing any other remedies available to it for such breach or threatened
breach.
7. ADVERTISING AND ADVERTISING MATERIALS. A copy of all materials that
Licensee proposes to use in connection with its marketing of the Licensed
Property shall be provided to Licensor (together with an English translation
thereof if such materials are prepared in a language other than English) prior
to use. No such advertisement may be utilized by Licensee prior to Licensee's
receipt of the prior written approval of Licensor.
8. ROYALTIES.
8.1 MANUFACTURING ROYALTY.
8.1.1 ROYALTY REQUIREMENT. In consideration for the Licensee
granted hereunder, Licensee shall pay to Licensor a manufacturing royalty fee
per each resonator manufactured and shipped, of one thousand dollars ($1,000.)
USD for each eighteen-inch (18") and (22") resonator and one thousand five
hundred dollars ($1,500.) USD or equivalent for each four-foot (4') or
seven-foot (7') resonator and two thousand dollars ($2,000.) USD or equivalent
for each industrial and/or non-medical use resonator manufactured. Manufacturing
royalty fee shall be fixed for one year with annual inflation adjustments based
on the CPI European Index.
8.1.2 PAYMENT OF MANUFACTURING ROYALTY. The Manufacturing
Royalty payments hereunder shall be accounted for and paid quarterly within
thirty (30) days after the close of each three (3) month period during each
License Year, provided the first report will be due on or before April 30, 2000.
The Royalty and Manufacturing Royalty payable for each such accounting period
during each License Year shall be computed on the basis of gross business volume
from the beginning of each License Year through the last day of the most recent
accounting period during such year.
8.2 STATEMENTS.
8.2.1 SALES STATEMENTS. Licensee shall deliver to Licensor,
at the time each Sales Royalty payment is due, a statement signed by a duly
authorized officer of Licensee certifying (a) the amount of Gross Sales made
during the period covered by such Sales Royalty payment; and, (b) the basis for
computation of the amount of Sales Royalty included in such statement. Such
statement shall be furnished to Licensor whether or not any Licensed Property
have been sold during the period for which such statement is due. Upon
Licensor's request, Licensee shall also provide together with said statements,
to assist in verification thereof, copies of Licensee's price lists for Licensed
Property.
5
<PAGE> 6
8.2.2 ANNUAL STATEMENTS. Licensee shall deliver to Licensor,
not later than ninety (90) days after the close of each fiscal year during the
term of this Agreement (or portion thereof in the event of prior termination for
any reason), a statement signed by a financial officer of Licensee relating to
said entire fiscal year, setting forth the same information required to be
submitted by Licensee in accordance with Section 8.2.1 above and also the
information setting forth the total amount expended by Licensee during such
fiscal year (including and stating separately shipping, custom, duty and
importation costs), as well as a letter from the certified public accountants
then regularly engaged by Licensee certifying the accuracy of those amounts of
sales.
9. BOOKS AND RECORDS; AUDITS. Licensee shall prepare and maintain
complete and accurate books of account and records (specifically including
without limitation the originals or copies of documents supporting entries in
the books of account) covering all transactions required to be reported to
Licensor under this Agreement. Subject to the provisions of Section 9.2 herein,
at Licensor's sole cost, Licensor and its duly authorized representatives have
the right, upon reasonable notice, during regular business hours at Licensee's
principal offices in Florida, for the duration of this Agreement and for five
(5) years thereafter, to audit said books of account and records of Licensee and
examine all other documents and material in the possession or under the control
of Licensee with respect to matters which are required to be reported to
Licensor under this Agreement within three (3) years after the end of each
License Year, and to make extracts and copies thereof. Licensee's accounting
records of sales and shall be maintained separately from Licensee's accounting
records relating to other items manufactured or sold by Licensee. All such books
of account, records and documents shall be kept available by Licensee for at
least five (5) years after the end of each year to which they relate. In
connection with any audit or examination pursuant to this paragraph, Licensor
and its duly authorized representatives shall have the right to examine and
inspect Licensee's physical inventory of Licensed Property, wherever same is
kept. Licensor shall have a period of time of six months following the close of
any audit to assert any claims for discrepancies. Any claims not asserted within
the six month period following the close of any audit will be barred.
10. OWNERSHIP AND PROTECTION OF THE LICENSED PROPERTY.
10.1 RESTRICTIONS ON USE AS NAME. Licensee shall NOT have the
right to use the Licensor's name in the name of its corporation or as an assumed
name of its corporation.
10.2 OWNERSHIP OF LICENSED PROPERTY. Licensee acknowledges that
Licensor is the owner of all rights, title and interest in and to the Licensed
Property and is also the owner of the goodwill attached or which shall become
attached to the Licensed Property in connection with the business and goods in
relation to which the same has been, is or shall be used. Sales by Licensee
shall be deemed to have been made by Licensor for purposes of trademark
registration and, subject to this Agreement, all uses of the Licensed Property
by Licensee shall inure to the benefit of Licensor. Licensee shall not, at any
time, do or suffer to be done any act or thing which may in any way adversely
affect any rights of Licensor in and to the Licensed Property or any
registrations thereof or which, directly or indirectly, may reduce the value of
the Licensed Property or detract from its reputation. To the extent that any use
of the Licensed Property by
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Licensee confers rights to the Licensed Property on Licensee, Licensee hereby
assigns its entire right, title and interest in and to such rights to the
Licensed Property to Licensor subject to all of the terms hereof.
10.3 LICENSEE'S COOPERATION. At Licensor's request, Licensee
shall execute any documents reasonably required by Licensor to confirm
Licensor's ownership of all rights in and to the Licensed Property in the
Territory and the respective rights of Licensor and Licensee pursuant to this
Agreement. Licensee shall cooperate with Licensor in connection with the filing
and prosecution of applications to register the Licensed Property in the
Territory and the maintenance and renewal of such registrations as may issue at
no cost to Licensee.
10.4 LEGAL REQUIREMENTS: Licensee shall use the Licensed Property
in the Territory strictly in compliance with the legal requirements pertaining
thereto in connection therewith as may be required by applicable legal
provisions. Licensee shall cause to appear on all Licensed Property and on all
materials on or in connection with which the Licensed Property is used, such
legends, markings and notices as may be reasonably necessary in order to give
appropriate notice of any trademark, trade name or other rights therein or
pertaining thereto.
10.5 PROHIBITION AGAINST CHALLENGES BY LICENSEE: Licensee never
shall challenge Licensor's ownership of or the validity of the Licensed Property
or any application for registration thereof, or any trademark registration
thereof, or any rights of Licensor therein.
10.6 INFRINGEMENT ACTIONS. In the event that either Licensor or
Licensee learns of any infringement or imitation of the Licensed Property or of
any use by any person of a Patent similar to the Licensed Property, they
promptly shall notify the other party. Licensor thereupon shall take such action
as it deems advisable for the protection of its rights in and to the Licensed
Property and, if requested to do so by Licensor, Licensee shall cooperate with
Licensor in all reasonable respects, at Licensor's sole expense. In no event,
however, shall Licensor be required to take any action if it deems it
inadvisable to do so. If Licensor deems it inadvisable to take any action,
Licensee may then take such action at its own expense provided it first obtains
the written approval of Licensor which shall not be unreasonably withheld.
Licensor recognizes that in regard to any counterfeiting of the Licensed
Property, Licensee may take immediate legal action, at its own expense, upon
prior notification and approval by Licensor. Such approval shall be deemed to
have been granted unless within four (4) business days after the receipt of such
a request Licensor notifies Licensee in writing of its disapproval, Licensor
shall cooperate with Licensee in taking such legal action, at no cost to
Licensor. Any award or recovery obtained by Licensor commenced by Licensor shall
be solely retained by Licensor. Any award or recovery obtained by Licensee in a
permitted action commenced by Licensee may be solely retained by Licensee.
Licensee shall not defend any action brought against it challenging its right to
use the Licensed Property unless it shall first make written demand upon
Licensor to do so and Licensor fails to defend such action on behalf of
Licensee.
11. INDEMNITY; INSURANCE.
11.1 INDEMNITY. Excepting in regard to trademark infringement
actions (which is governed by Section 16 hereof), Licensee does hereby save and
hold Licensor harmless of and
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from and indemnify them against any and all losses, liability, damages and
expenses (including reasonable attorneys' fees, costs and expenses through
appeal) which they may incur or may be obligated to pay, or for which they may
become liable or be compelled to pay in any action, claim or proceeding against
them, for or by reason of any acts, whether of omission or commission, that may
be claimed to be or are actually committed or suffered by Licensee or any of its
contractors, servants, agents or employees in connection with Licensee's
performance of this Agreement. Licensor shall give prompt notice to Licensee of
any claim, action or suit that may give rise to liability hereunder. Licensee
shall defend any such claim, action or suit and shall have the right to select
counsel, control the defense, assert counterclaims and crossclaims, bond any
lien or judgment, take any appeal and to settle on such terms as Licensee deems
advisable. Licensee will take no such action without first consulting with
Licensor (and where a settlement of such claim, action or suit relates to
Licensor's ownership of or the validity or value of the Licensed Property
without first obtaining Licensor's approval), and will keep Licensor apprised of
all ongoing actions as they occur and, where practicable, in advance of any
action to be taken by Licensee.
The provisions of this paragraph and Licensee's obligations hereunder
shall survive the expiration or termination of this Agreement.
11.2 LICENSED PROPERTY LIABILITY INSURANCE. Licensee shall
procure and maintain at its own expense in full force and effect at all times
during which Licensed Property is being sold and for so long as Licensee remains
in business, with a responsible insurance carrier reasonably acceptable to
Licensor, a products liability insurance policy with respect to Licensed
Property with a limit of liability of not less than $500,000.00 USD. Such
insurance policy shall name Licensor as additional insureds and shall provide
for at least thirty (30) days prior written notice to said parties of the
cancellation or substantial modification thereof. Such insurance may be obtained
by Licensee in conjunction with a policy of products liability insurance which
covers products other than Licensed Property. Licensee shall deliver a
certificate of such insurance to Licensor promptly upon issuance of said
insurance policy and, from time to time upon reasonable request by Licensor
promptly shall furnish to Licensor evidence of the maintenance of said insurance
policy. Nothing contained in this Section 11.2 shall be deemed to limit in any
way the indemnification provisions of Section 11.1 above. The provisions of this
paragraph and Licensee's obligations hereunder shall survive the expiration or
termination of this Agreement. (*Explanation of liability for manufacturing, see
addendum.)
11.3 RELATIONSHIP OF THE PARTIES. The Licensee is not granted any
right or authority to assume or create any obligation or responsibility, express
or implied, on behalf of or in the name of the Licensor or to bind the Licensor
in any manner or thing whatsoever. The Licensee shall obtain all required
workers' compensation and employer's liability insurance covering all sales
persons and other employees. The Licensee accepts full and exclusive liability
for the payment of any and all taxes, contributions or other sums payable for
unemployment compensation insurance and retirement benefits, as well as all of
the payroll taxes payable by reason of employment of sales persons or other
employees. The Licensee shall be responsible for and hold the Licensor harmless
for all claims, demands and suits resulting from any misconduct or negligence of
the Licensee's sales persons and other employees.
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12. PAYMENT DEFAULTS.
12.1 EIGHT TO TERMINATE AGREEMENT. If Licensee fails to make any
payment due hereunder, (a) Licensee shall pay interest thereon from and
including the date such payment becomes due until the date the entire amount is
paid in full at a rate equal to one percent (1%) per annum over the prime rate
being charged by CitiBank, N.A. in New York as of the close of the business on
the date the payment first becomes due, but in no event greater than the highest
rate permitted by law, and (b) if such default shall continue uncured for a
period of sixty (60) days after written notice is received by Licensee, Licensor
shall have the right, subject to the compliance with Section 18.3 to terminate
this Agreement thirty (30) days (or as determined by country law) after a
further written notice is received by Licensee. Licensee shall have the option
of preventing the termination of this Agreement by taking corrective action that
cures the default, if such corrective action is taken prior to the end of the
time period stated in the previous sentence and if there are no other defaults
during such time period. Licensor shall not, however, be required to comply with
the provisions of Section 18.3 in the event of a default in the Minimum Royalty
Payment and may, following the cure period provided above, immediately terminate
this agreement for such default by providing the required notice in this Section
12.1
12.2 BREACH OF MATERIAL CONDITION. If Licensee or Licensor
otherwise fails to perform any of the material terms, conditions, agreements or
covenants in this Agreement on its part to be performed (hereinafter referred to
as "Other Default") and such Other Default is not curable, or if such default is
curable but continues uncured for a period of thirty (30) days after notice
thereof has been given to the defaulting party in writing by the other party or
all reasonable steps necessary to cure such Other Default have not been taken by
the defaulting party within said thirty (30) day period, the other party, at its
sole election, may, subject to the compliance with the provisions of Section
19.3, terminate this Agreement forthwith by written notice.
12.3 BANKRUPTCY, INSOLVENCY, AND RELATED OCCURRENCES.
12.3.1 AUTOMATIC TERMINATION. In the event that Licensee,
files a petition in bankruptcy, is adjudicated as bankrupt or files a petition
or otherwise seeks relief under or pursuant to any bankruptcy, insolvency or
reorganization statute or proceeding, or if a petition in bankruptcy is files
against it, which is not vacated within sixty (60) days, or it becomes insolvent
or makes an assignment for the benefit of its creditors or a custodian, receiver
or trustee is appointed for it or a substantial portion of its business or
assets, which custodian, receiver or trustee is not discharged within ninety
(90) days, this Agreement shall terminate forthwith, by written notice.
12.3.2 NO RIGHT OF LICENSEE REPRESENTATIVES TO CONTINUE
AGREEMENT. The rights granted herein are personal to Licensee and no assignee
for the benefit of creditors, custodian, receiver, trustee in bankruptcy,
sheriff or any other officer of the court or official charged with taking over
custody of Licensee's assets or business shall have any right to continue this
Agreement or to exploit or in any way use the Licensed Property if this
Agreement terminates pursuant to Section 12-3.1 above.
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12.3.3 LICENSOR RIGHT OF FIRST REFUSAL. Notwithstanding the
provisions of Section 12.3.2 above, in the event that, pursuant to local
bankruptcy law, a trustee in bankruptcy of Licensee or Licensee, as debtor, is
permitted to assume this Agreement and does so and thereafter desires to assign
this Agreement to a third party, which assignment satisfies the requirements of
that bankruptcy law, the trustee or Licensee, as the case may be, shall notify
Licensor of same in writing, Said notice shall set forth the name and address of
the proposed assignee, the proposed consideration of the assignment and all
other relevant details thereof. The giving of such notice shall be deemed to
constitute an offer to Licensor to have this Agreement assigned to it or to its
designee for such consideration, or its equivalent in money, and upon such terms
as are specified in the notice. The aforesaid offer may be accepted only by
written notice given to the trustee or Licensee, as the case may be, by Licensor
within fifteen (15) days after Licensor's receipt of the notice from such party.
If Licensor fails to give its notice to such party within the said fifteen (15)
days, such party may complete the assignment referred to in its notice, but only
if such assignment is to the entity named in said notice and for the
consideration and upon the terms specified herein. Nothing contained herein
shall be deemed to preclude or impair any rights which Licensor may have as a
creditor in any bankruptcy proceeding.
13. RIGHTS ON EXPIRATION OR TERMINATION.
13.1 LICENSOR CLAIMS FOR DAMAGES: In the event of termination in
accordance with Section 12 above, as the result of a breach by Licensee,
Licensor shall have the option of, subject to the compliance with Section 18.3,
(a) demanding, in writing, that Licensee pay to it, in addition to any Sales
Royalty then owed to it pursuant to Section 8 above or otherwise, and any monies
owed it for additional services provided to Licensee, as liquidated damages and
not as a penalty, a sum equal to the total annual Minimum Royalty payments
remaining unpaid for the balance of the then current term of this Agreement if
Licensor does not collect such amount from a new licensee in an arms-length
transaction for the same period of time such Minimum Royalty covers, upon
reasonable efforts by Licensor to obtain a new licensee or unless Licensor
retains the license for itself or any affiliate, or (b) waiving its claim for
liquidated damages by asserting a claim for actual damages in a judicial or
other proceeding.
13.2 INJUNCTIVE RELIEF WITH RESPECT TO LICENSED PROPERTY.
Licensee hereby acknowledges the irreparable harm that Licensor will incur from
any unauthorized use of the Licensed Property. Notwithstanding any termination
or expiration of this Agreement, Licensor shall have and hereby reserves all
rights and remedies which it has, or which are granted to it by operation of
law, or equity to prohibit the unlawful or unauthorized use of the Licensed
Property, including but not limited to seeking a temporary restraining order,
preliminary and/or permanent injunction. The provisions of 19.3 requiring a
cooling off period and compulsory arbitration shall not apply to this section.
13.3 INVENTORY. Upon the expiration or termination of this
Agreement, Licensee immediately shall deliver to Licensor a complete and
accurate schedule of Licensee's inventory of Licensed Property and of related
work in process then on hand ("Inventory").
13.4 SALE OF INVENTORY BY LICENSEE. If this Agreement expires or
is terminated other than by Licensor pursuant to Section 12.1 above, Licensee
shall be entitled, for an
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additional period of six (6) months only on a non-exclusive basis to sell and
dispose of its Inventory. Such sales shall be made subject to all of the
provisions of this Agreement and to an accounting for and the payment of Sales
Royalty thereon. Such accounting and payment shall be due within thirty (30)
days after the close of the said six (6) month period. Licensor shall have the
right for a period of fifteen (15) days following such expiration or termination
to purchase all of Licensee's Inventory at Licensee's cost plus twenty percent
(20%).
13.5 REVERSION OF RIGHTS TO LICENSOR; APPOINTMENT OF
ATTORNEY-IN-FACT; RETURN OF MATERIALS. Except as specifically provided in
Section 10.1 above, on the expiration or termination of this Agreement, all of
the rights of Licensee under this Agreement shall terminate forthwith and shall
revert immediately to Licensor, all royalties on sales theretofore made shall
become immediately due and payable and Licensee shall discontinue forthwith all
use of the Licensed Property, no longer shall have the right to use the Licensed
Property or any variation or simulation thereof, and shall promptly transfer to
Licensor, free of charge, all registrations, filings, and rights with regard to
the Licensed Property which it may have possessed at any time.
Licensee hereby irrevocably appoints Licensor as Licensee's
attorney-in-fact, effective upon the termination or expiration of this
Agreement, to take any necessary steps on Licensee's behalf in the Territory to
cancel any recordation of the license granted hereunder and to execute any
instruments necessary or desirable to confirm termination of Licensee's rights
under this Agreement.
14. BROKERAGE INDEMNITY. Each of the parties represents that a broker
was not used in connection with the introduction of the parties and the
consummation of this Agreement. Each of the Licensor and Licensee hereby
indemnifies the other and holds it harmless from any and all liabilities
(including, without limitation, reasonable attorneys' fees and disbursements
paid or incurred in connection with any such liabilities) for any brokerage
commissions or finders' fees in connection with this Agreement or the
transactions contemplated hereby insofar as such liabilities shall be based on
arrangements or agreements made by it or on its behalf.
15. REPRESENTATION AND WARRANTIES; INDEMNITY. Licensor represents and
warrants that Licensor has full right, power and authority to enter into this
Agreement and to perform all of its obligations hereunder. Licensor further
represents and warrants that it has granted no other license to use the Licensed
Property for the sale at wholesale or distribution at wholesale of Licensed
Property in the Territory, and will not grant such a license prior to the
termination hereof. Licensor shall defend and hereby indemnifies and otherwise
holds Licensee harmless from and against any and all losses, liability, claims,
damages, and expenses (including reasonable attorneys' fees and expenses) which
Licensee may sustain by reason of a third party actin or claim arising out of or
resulting from a breach by Licensor of Licensor's representations and warranties
hereunder. Licensee must give Licensor prompt written notice of any such action,
claim or proceeding and Licensor, in its sole discretion, then may take such
action as it deems advisable to defend such action, claim or proceeding on
behalf of Licensee. In the event appropriate action is not taken by Licensor
within thirty (30) days after its receipt of notice from Licensee, Licensee
shall have the right to defend such action, claim or proceeding, but no
settlement thereof may be made without the approval of Licensor,
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which approval shall not be unreasonably withheld. In either case, Licensee and
Licensor shall keep each other fully advised of all developments, shall provide
each other with copies of all documents exchanged in court, and shall cooperate
fully with each other in all respects in connection with any such defense as is
made. Such indemnification shall be deemed to apply solely to (a) the amount of
the judgment, if any, against Licensee, (b) any sums paid by Licensee in
settlement, and (c) the expenses incurred by Licensee in connection with its
defense. Such indemnification by Licensor shall not apply to any damages
sustained by Licensee by reason of such infringement other than those specified
above, and in no event shall apply to consequential damages, unless those
consequential damages are included in the amount of the judgment against
Licensee. The provisions of this paragraph and Licensor's obligations hereunder
shall survive the expiration or termination of this Agreement.
The current registrations of the Licensed Property throughout the
Territory are shown in the annexed Exhibit B.
15.1 UNITED STATES FOREIGN CORRUPT PRACTICES ACT. Licensee
warrants and represents that Licensee understands the provisions of the Foreign
Corrupt Practices Act (hereinafter referred to as "FCPA") and shall comply with
its terms as well as any provisions of local law or corporate policy and
procedure. Licensee further warrants and represents that none of Licensee's
principals, staff, officers or key employees are government officials,
candidates of political parties, or other persons who might assert influence on
the Licensor's behalf. Licensee further warrants and represents that Licensee
will make annual certifications of its compliance with the FCPA, local law and
the Licensor's corporate policies and procedures.
15.2 AUTOMATIC TERMINATION. This agreement will automatically
terminate in the event of an improper payment in violation of the FCPA or local
law.
16. NOTICE AND PAYMENT.
16.1 NOTICE REQUIREMENTS. All reports, approvals, requests,
demands, and notices (collectively, "notices") required or permitted by this
Agreement to be given to a party shall be in writing and shall be deemed to be
duly given if personally delivered or if sent (by facsimile or overnight
courier) to the party concerned at its address set forth on page 1 above (or at
such other address as a party may specify by notice to the other).
Copies of all notices to Licensor and
all payments required to be made
to Licensor, shall be sent to: Jacobson Resonance Enterprises, Inc.
9960 Central Park Boulevard
Suite 302
Boca Raton, FL 33428
Copies of all notices to Licensee
shall be sent to: Serrato Enterprises
4605 S. Ocean Boulevard 6D
Boca Raton, FL 33487
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17. ASSIGNABILITY; BINDING EFFECT.
17.1 ASSIGNABILITY; BINDING EFFECT. The performance of Licensee
hereunder is of a personal nature and, therefor, neither this Agreement nor the
license or other rights granted hereunder may be assigned, sublicensed or
transferred by Licensee unless Licensee receives prior written approval from
Licensor, which approval shall not be unreasonably withheld or delayed. Such
proposed sub-licensee shall agree in writing to be bound by the substantive
terms hereof. Except as otherwise provided herein, this Agreement shall inure to
the benefit of and shall be binding upon the parties, their respective
successors, Licensor's transferee and assigns and Licensee's permitted
transferee and assigns.
17.2 SALE OR TRANSFER OF SHARES IN LICENSEE'S CORPORATION. No
transfer of any shares of Licensee's corporation shall be allowed unless
approved by Licensor, which approval shall not be unreasonably withheld. The
approval of any proposed private transfer shall take into account the proposed
transferee's: (i) financial security, (ii) market experience or access to market
experience for couture products, and (iii) business character; and (iv) the type
of products being sold by the proposed transferee and whether the proposed
transferee's products are competitive to products sold by Licensor.
Licensor, or its assignee, shall have the right of first refusal to
accept the bona fide terms of purchase being offered by the proposed transferee
of shares and if Licensor refuses to accept the offer to purchase such shares,
then Licensee may sell these shares to the proposed transferee on the same terms
and conditions such shares were offered to Licensor.
18. RESOLUTION OF DISPUTES.
18.1 JURISDICTION. Except as provided in paragraph 16.3 hereof,
the parties hereby irrevocably submit to the personal jurisdiction of the
federal and state courts of the State of Florida, in the venue of Palm Beach
County (the "Courts") in any action or proceeding arising out of or relating to
this Agreement. In any court proceeding, the Courts shall have exclusive
jurisdiction over the subject matter of this Agreement. Licensor agrees that
service may be made upon it by serving Atlas, Pearlman, Trop & Borkson, P.A. in
the manner provided for the giving of notice. Licensee agrees that it may be
served process in the manner provided for the giving of notice. The parties
hereby irrevocably waive, to the fullest extent they may effectively do so, the
defense of an inconvenient forum to the maintenance of such action or
proceeding.
18.2 WAIVER OF IMMUNITY. To the extent that the parties have or
hereafter may acquire any immunity from jurisdiction of any court or from any
legal process with respect to itself or its property, the parties hereby
irrevocably waive such immunity with respect to their obligations under this
Agreement.
18.3 SOLE METHOD OF DISPUTE RESOLUTION. In the event of a dispute
between the parties, including all events of default, except failure to pay the
Minimum Sales Royalty, neither party may commence formal legal action or
commence arbitration proceedings unless and until the senior level executives
(and their representatives, if they wish) of both parties meet face to
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face in a meeting(s) in an attempt to settle the dispute (the "Cooling Off
Period"). This Cooling Off Period shall last for fifteen (15) days from the
first date one of the parties identifies to the other party the existence of a
dispute. In the event that the senior executives of the parties are unable to
work out a mutually agreeable resolution during the Cooling Off Period, the
parties hereby agree to binding arbitration before a single arbitrator mutually
agreeable to both parties who shall follow the Rules of the American Arbitration
Association. The arbitrator shall be an attorney specializing in licensing at
one of the intellectual property firms in Florida and neither the attorney nor
the firm have any prior or current relationship with either party. The fees of
the arbitrator shall be evenly shared between the parties. If within thirty (30)
days, the parties cannot mutually agree upon a single arbitrator, either party
may file an arbitration in accordance with the Rules of the American Arbitration
Association in Florida. An arbitrator's decision that a breach has occurred
which would permit the Licensor to terminate this Agreement must provide that
the Licensee shall have a period of thirty (30) days from the date of the
decision to cure the breach before this Agreement may be terminated. If the
breach is one which is not curable, the arbitrator's decision must include a
provision that this Agreement may not be terminated if Licensee shall pay to
Licensor an amount which the arbitrator shall determine will compensate Licensor
for the breach. Notwithstanding the foregoing, Licensor shall have the right to
seek immediate relief in court, including but not limited to a temporary
restraining order, a preliminary injunction and/or a permanent injunction if
Licensee or any of its officers, agents and employees does anything to damage
the value of the Licensed Property. Licensee shall have the right to seek
equitable relief to enforce its rights hereunder in the event Licensee believes
it is being irreparably harmed. In the event either party is seeking equitable
relief from a court in accordance herewith, the party seeking such relief shall
provide the other party with prior written notice of the application for relief
and a copy thereof. The Cooling Off Period shall not apply in the event Licensor
or Licensee should decide to seek immediate relief in court in accordance
herewith.
19. MISCELLANEOUS.
19.1 SERVICES. Unless otherwise provided, in the event Licensee
elects as evidenced by an agreement in writing to purchase any services from
Licensor, it shall pay for such services at Licensor's rates then currently in
effect for such services as set forth in such writing. Invoices for such
services shall be paid by Licensee within ten (10) business days after receipt
thereof.
19.2 EXPENSES. Whenever, at the request of Licensee, Licensor
travels to meet with Licensee on matters relating to this Agreement, Licensee
will be responsible for direct shipping costs, customs, duties, and importation
incidentals. Licensor will be responsible for European Business Development
Expenses. Licensee will be responsible for Country Business Development
Expenses. Shipments and payment terms for the manufacture of resonators will be
agreed to by individual order terms as defined in a separate addendum to this
Agreement. European development expenses to be paid by Licensor to be defined
and approved in writing by Licensor in advance of any expenditure.
19.3 GOVERNING LAW; ENTIRE AGREEMENT; AMENDMENT; TERMINATION.
This Agreement shall be construed and interpreted in accordance with the laws of
the State of Florida;
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contains the entire understanding and agreement between the parties hereto with
respect to the subject matter hereof, supersedes all prior oral and written
understandings and agreements relating thereto and may not be amended, modified,
discharged, or terminated orally except by a writing signed by the party against
whom the modification, discharge or termination is sought to be enforced.
19.4 WARRANTIES. Neither party makes any warranties with respect
to the use, sale of other transfer of the Licensed Property by the other party
or by any third party. In no event will Licensor be liable for direct, indirect,
special, incidental, or consequential damages, that are in any way related to
the Licensed Property.
19.5 RELATIONSHIP BETWEEN PARTIES. Nothing herein contained shall
be construed to constitute the parties hereto as partners or as joint ventures,
or either as agent of the other, and no party shall have any power to obligate
or bind the other in any manner whatsoever.
19.6 WAIVERS. No waiver by either party, whether express or
implied, of any provision of this Agreement, or of any breach or default
thereof, shall constitute a continuing waiver of such provision or of any other
provision of this Agreement. Acceptance of payments by Licensor shall not be
deemed a waiver by Licensor of any violation of or default under any of the
provisions of this Agreement by Licensee.
19.7 SEVERABILITY. If any provision or any portion of any
provision of this Agreement shall be held to be void or unenforceable, the
remaining provisions of this Agreement and the remaining portion of any
provision held void or unenforceable in part shall continue in full force and
effect.
19.8 DESCRIPTIVE HEADINGS. The descriptive headings used and
inserted in this Agreement are for convenience only and shall not be deemed to
affect the meaning or construction of any provision of this Agreement.
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IN WITNESS THEREOF, the parties hereto have duly executed this
Agreement as of the day and year first above written.
JACOBSON RESONANCE ENTERPRISES, INC.
By: /s/ Dr. Jerry I. Jacobson
----------------------------------
Jerry I. Jacobson, Chairman of the
Board and Chief Executive Officer
SERRATO ENTERPRISES
By: /s/ Alfonso Serrato
----------------------------------
Alfonso Serrato, Chairman and
Chief Executive Officer
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TERRITORY
1.1 TERRITORY, DEFINITION ADDENDUM. Territories specified will include the
European continent, Africa and the Middle East, excluding Israel and the
countries of the former USSR.
11.2 (ADDENDUM). Serrato Enterprises and/or its subsidiaries will be responsible
for the liability insurance for the product manufactured in Europe. Jacobson
Resonance Enterprises will be responsible for insurance coverage liability
dealing with the design and protocols used.
<PAGE> 1
Exhibit 10.5
DISTRIBUTION AGREEMENT
This DISTRIBUTION AGREEMENT (the "Agreement") is entered into as of the
29th day of December, 1999, by and between AKRON BIO-MEDICAL CORP., an Ohio
corporation ("ABMC") and JACOBSON RESONANCE ENTERPRISES, INC., a Nevada
corporation ("JRSE").
WITNESSETH, THAT:
WHEREAS, JRSE has developed and has an exclusive license with respect
to certain technologies for use in the production of magnetic resonance
machines; and
WHEREAS, JRSE and ABM Manufacturing, Inc. ("ABM Manufacturing"), a
corporation affiliated with ABMC, have entered into a certain License Agreement
of even date herewith (the "License Agreement") whereby JRSE has granted to ABM
Manufacturing the right to manufacture said magnetic resonance machines; and
WHEREAS, JRSE has agreed to grant to ABMC a license to sell and
distribute certain magnetic resonance machines, upon the terms and subject to
the conditions set forth in this Agreement; and
WHEREAS, JRSE has further agreed to grant to ABMC a non-exclusive
license to use the Proprietary Marks (as such term is hereinafter defined) in
connection with the sale and distribution of certain magnetic resonance
machines, upon the terms and subject to the conditions set forth in this
Agreement.
<PAGE> 2
Prior to following-up on any Sales Lead (as such term is hereinafter defined)
received by ABMC with respect to the distribution of one or more Other Unit,
ABMC shall first notify JRSE, and then all other distributors to whom JRSE has
granted the right to distribute the Other Units, concerning the Sales Lead. In
the event any other distributor sells one or more Other Units as a result of a
Sales Lead received from ABMC, ABMC shall be entitled to receive a royalty
payment of two percent (2%) thereon in accordance with the terms of Section 5(b)
hereof. The parties agree that JRSE has final decision-making authority as to
the selection of representation concerning the Other Units. JRSE agrees that the
terms of any distributorship agreement, whether written or oral, that it may
enter into with another distributor with respect to the Other Units shall be
consistent with the terms of this Section 2(b) and Section 5(b) hereof. For
purposes of this Agreement, the term "Sales Lead" shall mean any lead that ABMC
or JRSE may receive with respect to the sale or distribution of the Portable
Units or the sale, distribution or leasing of the Other Units, as the case may
be.
(c) JRSE agrees that in the event it receives any Sales Leads
with respect to the Portable Units or the Other Units, it shall promptly notify
ABMC and, if it so chooses, any other distributor who would have the right to
sell said units, concerning the Sales Lead.
(d) For purposes of this Agreement, the term "Territory" shall
mean all geographical locations within the United States (including Alaska and
Hawaii), Mexico, Canada and the Caribbean (as such term is defined on Exhibit
"A" hereto).
(e) JRSE agrees that, except as expressly provided herein, the
rights granted to ABMC hereunder with respect to the marketing, sale and
distribution of the Portable Units via electronic media shall be exclusive in
nature. JRSE further agrees that in the event JRSE or any third party intend to
sell the Portable Units via electronic media with the prior written approval of
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ABMC, as required hereunder, JRSE or said third party shall purchase said
Portable Units from ABMC unless ABMC agrees otherwise.
3. GRANT OF LICENSE. Subject to the additional terms set forth in this
Agreement, JRSE hereby grants to ABMC a non-exclusive license to use the
Proprietary Marks in connection with the distribution and marketing of the
Portable Units and the Other Units as described in Section 2 hereof.
4. TERM AND TERMINATION.
(a) TERM OF AGREEMENT. Subject to the terms of this Section 4,
the initial term of this Agreement shall commence as of the date first written
above and shall continue for a period of eight (8) years thereafter (the
"Initial Term"). This Agreement shall be automatically renewed for two (2)
additional terms of eight (8) years each (the "Renewal Terms") following the
expiration of the Initial Term unless ABMC provides JRSE with written notice of
its desire not to renew this Agreement at least ninety (90) days prior to the
expiration thereof. For purposes of this Agreement, the terms "Initial Term" and
"Renewal Terms" are sometimes collectively referred to as the "Term". If this
Agreement has been renewed for both Renewal Terms and has not been earlier
terminated, then, during the last ninety (90) days of the second of the Renewal
Terms, JRSE and ABMC shall negotiate in good faith to reach a mutually
acceptable agreement for the further extension of this Agreement. If JRSE and
ABMC are unable to reach such an agreement within that period of time, then this
Agreement shall automatically terminate at the end of the second of the Renewal
Terms.
(b) RIGHT TO TERMINATE - PERFORMANCE CRITERIA. JRSE and ABMC
agree that notwithstanding anything to the contrary contained herein, JRSE shall
have no right to terminate this Agreement during the first one (1) year period
of the Initial Term, except for breach of this
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Agreement by ABMC. At the end of said initial one (1) year period, JRSE and
ABMC shall mutually determine reasonable performance criteria with respect to
ABMC's sale of the Portable Units hereunder based upon the results of ABMC's
test marketing and realistic business growth patterns. If JRSE and ABMC are
unable to reach an agreement on reasonable performance criteria within thirty
(30) days after the end of the initial one (1) year period, then either party
may terminate this Agreement by written notice of termination to the other party
delivered within forty-five (45) days after the end of the initial one (1) year
period. For purposes hereof, "reasonable performance criteria" is defined as
that which is logically attainable in terms related to the empirical data
gleaned from market analyses established during the course of the first year of
this Agreement from the date of execution based upon mutual and independent
inquiry by both parties hereto. If ABMC fails to adhere to said performance
criteria at any time following the end of said initial one (1) year period, JRSE
agrees to provide ABMC with written notice of ABMC's failure to perform. ABMC
shall have one (1) month following the date on which it receives the written
notice from JRSE to begin taking reasonable steps to cure its failure to perform
and shall have three (3) months from said date to cure said failure to JRSE's
reasonable satisfaction. If it fails to do so, JRSE shall have the right to
terminate this Agreement upon five (5) days written notice to ABMC.
(c) RIGHT TO TERMINATE - FAILURE TO PAY FEE. If ABMC fails to
make any payment due hereunder within thirty (30) days of the date on which said
payment is due, the following shall apply: (i) ABMC shall pay interest thereon
from and including the thirty-first (31st) day after the date on which such
payment becomes due until the date the entire amount is paid in full at a rate
equal to one percent (1%) per annum over the prime rate being charged by
CitiBank, N.A., in New York as of the close of the business on the date the
payment first becomes due, but in no event greater than the highest rate
permitted by law; and (ii) if such default shall continue
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uncured for a period of forty-five (45) days after said payment is due, JRSE
shall have the right to terminate this Agreement upon written notice of
termination to ABMC. ABMC shall have the option of preventing the termination of
this Agreement by taking corrective action that cures the default, if such
corrective action is taken prior to the end of the time period stated in the
previous sentence and if there are no other defaults during such time period.
(d) RIGHT TO TERMINATE - TERMINATION OF LICENSE AGREEMENT. If the
License Agreement is terminated for any reason and JRSE is unable to provide
Portable Units or Other Units to AMBC for distribution and sale because of such
termination, then JRSE shall have a grace period of 180 calendar days in which
to license other manufacturers to produce Portable Units and the Other Units and
to restore production of Portable Units and Other Units to a sufficient level to
permit ABMC to distribute and sell substantially the same number of Portable
Units and Other Units as ABMC had been distributing and selling prior to the
disruption in production caused by the termination of the License Agreement. If
JRSE fails to cause production of the Portable Units and the Other Units to so
resume with such period of 180 calendar days, then ABMC, at its sole discretion,
may terminate this Agreement forthwith by written notice.
(e) OTHER MATERIAL BREACH. If ABMC or JRSE otherwise fails to
perform any of the material terms, conditions, agreements or covenants in this
Agreement on its part to be performed (hereinafter referred to as "Other
Default") and such Other Default is not curable, or if such default is curable
but continues uncured for a period of thirty (30) days after notice thereof has
been given to the defaulting party in writing by the other party or all
reasonable steps necessary to cure such Other Default have not been taken by the
defaulting party within said
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NOW, THEREFORE, in consideration of the foregoing and for other good
and valuable consideration, the receipt and sufficiency of which are hereby
expressly acknowledged, the parties hereto do hereby agree as follows:
1. DESCRIPTION OF UNITS AND PROPRIETARY MARKS.
(a) JRSE has developed and has an exclusive license with respect
to certain technologies (collectively, the "Technology") used in the production
of a portable magnetic resonance machine (the "Portable Unit") and non-portable
magnetic resonance machines (collectively, the "Other Units"). For purposes
hereof, the terms "Portable Units" and "Other Units" shall be deemed to include
any improvements, upgrades or modifications made to the Portable Units or the
Other Units, as the same exist as of the date of this Agreement, or any future
models thereof.
(b) The parties further agree and acknowledge that JRSE has
obtained or may during the term of this Agreement obtain rights to various trade
names, trademarks, service marks and related logos associated with the Portable
Units and/or the Other Units (collectively, the "Proprietary Marks"). For
purposes of this Agreement, the term Proprietary Marks shall be deemed to
include any trade names, trademarks, service marks and logos associated with the
Portable Units and/or the Other Units, including but not limited to those names,
marks and logos which are registered with the Federal Patent and Trademark
Office or any state agency.
2. APPOINTMENT.
(a) Upon the terms and subject to the conditions set forth in
this Agreement, JRSE hereby appoints ABMC as the exclusive distributor of the
Portable Units in the Territory (as such term is hereinafter defined) and grants
to ABMC the exclusive right to market the Portable Units via television
(including all cable television outlets), radio and direct mailings and the
non-exclusive right to market the Portable Units via the internet, newspapers
and magazines.
(b) In addition, JRSE hereby appoints ABMC as a non-exclusive
distributor of the Other Units in the Territory; provided, however, that ABMC
shall not be entitled to distribute or enter into any arrangement for the
distribution of Other Units without the prior approval of JRSE.
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thirty (30) day period, the other party, at its sole election, may terminate
this Agreement forthwith by written notice.
(f) BANKRUPTCY, INSOLVENCY AND RELATED OCCURRENCES.
(i) AUTOMATIC TERMINATION. In the event that ABMC files a
petition in bankruptcy, is adjudicated as bankrupt or files a petition or
otherwise seeks relief under or pursuant to any bankruptcy, insolvency or
reorganization statute or proceeding, or if a petition in bankruptcy is filed
against it, which is not vacated within sixty (60) days, or it becomes insolvent
or makes an assignment for the benefit of its creditors or a custodian, receiver
or trustee is appointed for it or a substantial portion of its business or
assets, which custodian, receiver or trustee is not discharged within ninety
(90) days, this Agreement shall terminate automatically and forthwith.
(ii) NO RIGHT OF ABMC REPRESENTATIVES TO CONTINUE AGREEMENT.
The rights granted herein are personal to ABMC and no assignee for the benefit
of creditors, custodian, receiver, trustee in bankruptcy, sheriff or any other
officer of the court or official charged with taking over custody of ABMC's
assets or business shall have any right to continue this Agreement or to exploit
or in any way use the Technology or the Proprietary Marks if this Agreement
terminates pursuant to this subsection 3(e).
(iii) JRSE RIGHT OF FIRST REFUSAL. Notwithstanding the
provisions of subsection 3(f)(ii) above, in the event that, pursuant to local
bankruptcy law, a trustee in bankruptcy of ABMC or ABMC, as debtor, is permitted
to assume this Agreement and does so and, thereafter, desires to assign this
Agreement to a third party, which assignment satisfies the requirements of that
bankruptcy law, the trustee or ABMC, as the case may be, shall notify JRSE of
same in writing. Said notice shall set forth the name and address of the
proposed assignee, the proposed
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consideration of the assignment and all other relevant details thereof. The
giving of such notice shall be deemed to constitute an offer to JRSE to have
this Agreement assigned to it or to its designee for such consideration, or its
equivalent in money, and upon such terms as are specified in the notice. The
aforesaid offer may be accepted only by written notice given to the trustee or
ABMC, as the case may be, by JRSE within fifteen (15) days after JRSE's receipt
of the notice from such party. If JRSE fails to give its notice to such party
within the said fifteen (15) days, such party may complete the assignment
referred to in its notice, but only if such assignment is to the entity named in
said notice and for the consideration and upon the terms specified herein.
Nothing contained herein shall be deemed to preclude or impair any rights which
JRSE may have as a creditor in any bankruptcy proceeding.
5. LICENSING FEE.
(a) In consideration of the rights granted to it hereunder, ABMC
hereby agrees to pay the following to JRSE:
(i) ABMC shall pay a one-time fee in the amount of Fifty
Thousand Dollars ($50,000.00), payable as follows:
A. ABMC shall pay Twenty Thousand Dollars ($20,000.00)
to JRSE in readily available funds upon the execution of this Agreement by both
parties hereto.
B. ABMC shall pay the remaining Thirty Thousand Dollars
($30,000.00) to JRSE in three (3) consecutive annual installments of Ten
Thousand Dollars ($10,000.00) each, with interest on the outstanding principal
balance due hereunder from time to time at the Prime Rate (as such term is
hereinafter defined) in effect as of the date hereof. The principal amount due
hereunder and the interest due thereon shall be payable in three (3) consecutive
annual installments commencing on the first year anniversary of this Agreement
and
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continuing annually thereafter until all amounts due hereunder have been paid in
full. ABMC shall be entitled to prepay all or any portion of the amount due
hereunder at any time without penalty. For purposes hereof, the term "Prime
Rate" shall mean the rate publicly announced by ABMC's primary commercial lender
as its base rate for commercial lending purposes.
(ii) In addition, ABMC shall pay to JRSE an amount equal to
fifteen percent (15%) of ABMC's Net Sales Revenue (as such term is hereinafter
defined) with respect to all sales or leases of the Portable Units or the Other
Units made by ABMC during the Term, payable no later than thirty (30) days
following the end of each (A) calendar quarter during the first year of the Term
and (B) month thereafter for the rest of the Term. For purposes of this
Agreement, the term "Net Sales Revenue" shall mean all revenue that ABMC
collects from its sale or leasing of the Portable Units or the Other Units
during the period in question, minus the following: (i) the amount of any
federal, state and local taxes that ABMC is required to pay in connection
therewith, other than taxes on ABMC's income; (ii) the amount of any costs and
expenses reasonably incurred by ABMC with respect to the shipment of said units;
and (iii) customer returns of said units. Notwithstanding the foregoing, in the
event a customer returns a Portable Unit or Other Unit that ABMC sold to it
after ABMC has paid a royalty with respect to said unit to JRSE, ABMC shall be
entitled to deduct the amount of said royalty from the royalties due to JRSE for
the next fiscal period. With respect to any bulk sales of the Portable Units
made hereunder, said Portable Units shall be deemed to have been sold and the
sales revenue collected at the time of shipment to a customer, F.O.B. point of
departure.
(iii) Within thirty (30) days following the end of each (A)
calendar quarter during the first year of the Term and (B) month thereafter for
the rest of the Term, ABMC shall furnish to JRSE its report for the preceding
period prepared in accordance with the
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terms hereof. Each report that ABMC furnishes to JRSE shall contain the
following information: (i) a description of each Portable Unit or Other Unit
sold or leased by ABMC during the period in question; (ii) the amount of revenue
that ABMC collected during the period in question from its sale or leasing of
and the price of each of the Portable Units or Other Units and the amount of
federal, state and local taxes, if any, that ABMC is required to pay in
connection therewith; (iii) the amount of the royalty payment being paid to JRSE
hereunder; and (iv) such additional information as JRSE may reasonably request.
(b) With respect to any Other Units sold or leased by another
distributor following ABMC notifying the distributor of a Sales Lead in
accordance with Section 2(b) hereof, the parties agree that JRSE shall pay to
ABMC an amount equal to one-eighth (1/8) of the royalty that JRSE is entitled to
receive from the other distributor with respect to the sale or leasing of the
Other Unit(s), payable no later than thirty (30) days following the month of
JRSE's receipt thereof. In order to provide JRSE with the information necessary
to pay to ABMC any amounts owed to it under this subsection (b), ABMC shall
periodically during the Term provide JRSE with an updated list of any Sales
Leads of which it notifies another distributor pursuant to Section 2(b) hereof.
6. OWNERSHIP AND USE OF TECHNOLOGY AND PROPRIETARY MARKS.
(a) ABMC hereby acknowledges that Jacobson is and shall at all
times remain the owner, and that JRSE is and shall at all times remain the sole
and exclusive licensor, of all right, title and interest in and to the
Technology and the Proprietary Marks and that its distribution of the Portable
Units and Other Units and use of the Proprietary Marks hereunder shall not
create in ABMC's favor any right, title or interest in or to the Technology or
the Proprietary Marks or any goodwill associated therewith. During the Term and
at all times thereafter, ABMC shall not
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knowingly do or cause to be done any act or thing which may in any way impair or
tend to impair the rights, title and interest of JRSE in and to the Technology
or the Proprietary Marks or any registrations with respect thereto, or which may
reduce the value of the Technology or detract from its reputation, nor shall
ABMC in any manner represent that it has any interest therein except as set
forth herein. ABMC further acknowledges and agrees that as the sole and
exclusive licensee of the Technology and the Proprietary Marks, JRSE shall have
the sole and exclusive right to use, license or otherwise transfer any and all
of its rights, title and interest in and to the Technology and the Proprietary
Marks, in accordance with the terms of this Agreement, the License Agreement and
any other agreement affecting JRSE's right, title and interest in and to the
Technology or the Proprietary Marks that JRSE may be a party to or may enter
into at a later date. Upon the termination of this Agreement for any reason, all
rights to distribute the Portable Units and Other Units and to use the
Proprietary Marks granted to ABMC hereunder shall terminate and revert to JRSE,
except to the extent said rights are sublicensed, assigned or transferred to
another party with the prior consent of JRSE in accordance with Section 9
hereof. To the extent that any use of the Technology or Proprietary Marks by
ABMC confers rights therein to ABMC other than those granted herein, ABMC hereby
assigns said rights to JRSE, subject to all of the terms hereof.
(b) With respect to ABMC's use of the Proprietary Marks
hereunder, the parties hereby agree as follows:
(i) No use of the Proprietary Marks shall state that the
owner of the Proprietary Marks is any party other than Jerry I. Jacobson, D.D.S.
("Jacobson").
(ii) All uses of the Proprietary Marks shall at all times be
in accordance with applicable laws and regulations.
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(iii) ABMC shall at no time make the Proprietary Marks
available for use by any third party except as authorized by JRSE in writing.
7. WARRANTIES AND REPRESENTATIONS OF PARTIES.
(a) WARRANTIES AND REPRESENTATIONS OF JRSE. JRSE represents and
warrants to ABMC the following:
(i) JRSE is a corporation duly organized and existing under
the laws of the State of Nevada and has the full corporate power and authority
to enter into and perform this Agreement and has taken all necessary corporate
action to authorize and approve the execution, delivery and performance hereof;
(ii) This Agreement constitutes a legal, valid and binding
obligation of JRSE, enforceable in accordance with the terms hereof;
(iii) With the exception of those rights granted to ABM
Manufacturing in the License Agreement, Jacobson owns all rights to and interest
in the Technology, as well as certain design and engineering drawings, tooling
and fixture data, specifications, written descriptions, procedure documentation,
operating and maintenance manuals and like materials associated with the
Technology, and has granted to JRSE an exclusive license therein pursuant to
which JRSE has the right and the ability to grant to ABMC the right to
distribute the Portable Units and Other Units as set forth herein;
(iv) Jacobson owns all rights to and interest in the
Proprietary Marks and has granted to JRSE an exclusive license in the
Proprietary Marks pursuant to which JRSE has the right and ability to grant to
ABMC a license to use the same as set forth herein; and
(v) Jacobson and/or JRSE, as appropriate, have taken all
necessary actions and has obtained all necessary governmental approvals,
opinions, certifications, licenses and permits that may be required in
connection with the manufacture, sale and leasing of the Portable
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Units and the Other Units, including but not limited to those actions and
approvals which are required for the retail sale of the Portable Units to the
general public.
(b) JRSE shall defend and hereby indemnifies and otherwise holds
ABMC harmless from and against any and all losses, liability, claims, damages
and expenses (including reasonable attorneys' fees and expenses) which ABMC may
sustain by reason of a third party action or claim arising out of or resulting
from a breach JRSE of their representations and warranties hereunder. ABMC must
give JRSE prompt written notice of any such action, claim or proceeding and
JRSE, in its sole discretion, then may take such action as it deems advisable to
defend such action, claim or proceeding on behalf of ABMC. In the event
appropriate action is not taken by JRSE within thirty (30) days after its
receipt of notice from ABMC, ABMC shall have the right to defend such action,
claim or proceeding, but no settlement thereof may be made without the approval
of JRSE, which approval shall not be unreasonably withheld. In either case, ABMC
and JRSE shall keep each other fully advised of all developments, shall provide
each other with copies of all documents exchanged in court, and shall cooperate
fully with each other in all respects in connection with any such defense as is
made. Such indemnification shall be deemed to apply solely to (a) the amount of
the judgment, if any, against ABMC, (b) any sums paid by ABMC in settlement, and
(c) the expenses incurred by ABMC in connection with its defense. Such
indemnification by JRSE shall not apply to any damages sustained by ABMC by
reason of such infringement other than those specified above, and in no event
shall apply to consequential damages, unless those consequential damages are
included in the amount of the judgment against ABMC. The provisions of this
subsection (7)(b) and JRSE's obligations hereunder shall survive the expiration
or termination of this Agreement.
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(d) WARRANTIES AND REPRESENTATIONS OF ABMC. ABMC represents and
warrants to JRSE the following:
(i) ABMC is a corporation duly organized and existing under
the laws of the State of Ohio and has the full corporate power and authority to
enter into and perform this Agreement and has taken all necessary corporate
action to authorize and approve the execution, delivery and performance hereof;
(ii) This Agreement constitutes a legal, valid and binding
obligation of ABMC, enforceable in accordance with the terms hereof; and
(iii) ABMC shall at all times use the Proprietary Marks in
accordance with the terms of this Agreement.
(d) OWNER'S ASSURANCE. Jacobson acknowledges that he is the owner
of the Technology and the Proprietary Marks and that he has granted a license
therein to JRSE that enables JRSE to grant a license therein to ABMC.
8. INDEMNIFICATION.
(a) ABMC agrees to indemnify and hold harmless JRSE and its
officers, directors, shareholders, employees, agents, successors and assigns
from and against any and all claims, demands, defenses, injuries, set-offs,
counterclaims, damages, losses, judgments, liabilities, penalties or fines of
any nature whatsoever (including any damage to person or property), and any
reasonable costs and expenses related thereto, including reasonable attorneys'
fees, arising out of or relating to ABMC's breach of any of its covenants,
obligations, warranties or representations arising under the terms of this
Agreement, including but not limited to those warranties and representations set
forth in Section 7 hereof.
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(b) JRSE agrees to indemnify and hold harmless ABMC and its
officers, directors, shareholders, employees, agents, successors and assigns
from and against any and all claims, demands, defenses, injuries, set-offs,
counterclaims, damages, losses, judgments, liabilities, penalties or fines of
any nature whatsoever (including any damage to person or property), and any
reasonable costs and expenses related thereto, including reasonable attorneys'
fees, arising out of or relating to the following:
(i) JRSE's breach of any of its covenants, obligations,
warranties or representations arising under the terms this Agreement, including
but not limited to those warranties and representations set forth in Section 7
hereof; or
(ii) Any failure of the Portable Units or the Other Units to
perform in a reasonably satisfactory manner according to specifications if such
failure is attributable to any act or omission of JRSE, its employees or agents
(with the exception of ABM Manufacturing).
9. ASSIGNMENT, SUBLICENSE OR TRANSFER. The rights and benefits
conferred upon ABMC hereunder shall inure to the sole benefit of ABMC, shall not
be deemed to be coupled with an interest and shall not, in whole or in part, be
assigned, sublicensed or otherwise transferred by ABMC to any third party
without the prior written consent of JRSE. Notwithstanding the foregoing, the
parties agree that ABMC shall be entitled to sublicense, with the written
consent of JRSE (which consent may not be unreasonably withheld), all or a
portion of its rights to distribute the Portable Units and/or the Other Units
hereunder if, after considering the sales and marketing capabilities and other
related performance criteria with respect to the potential sublicensee, it may
reasonably be concluded that said sublicensee could perform such activities in a
manner that is reasonably consistent with ABMC's performance thereof.
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10. AGENCY. Both parties agree and acknowledge that ABMC and its
respective employees and agents shall not, at any time for any reason, be deemed
to be employees or agents of JRSE.
11. NON-DISCLOSURE. Neither party shall release, or cause or permit to
be released, any press notices, publicity (oral or written) or advertising, or
otherwise announce or disclose, or cause or permit to be announced or disclosed,
in any manner whatsoever, the existence of this Agreement and its contents
without first obtaining the express written consent of the other party hereto.
Notwithstanding the foregoing, nothing set forth in the preceding sentence shall
be deemed to: (a) prevent either party from discussing this Agreement and its
contents with said parties' legal counsel and accountants, or any employees and
agents who, in the normal course of the parties' business, have a need to know
such information; (b) prevent ABMC from marketing the Portable Units in the
manner it deems appropriate and without the prior consent of JRSE, subject to
the terms of this Agreement; or (c) prevent JRSE from making any public
disclosure or filing of this Agreement without ABMC's consent if JRSE's legal
counsel deems such disclosure and/or filing necessary or advisable to comply
with applicable federal and/or state laws.
12. BOOKS AND RECORDS; RIGHT TO AUDIT. ABMC shall prepare and maintain
complete and accurate books of account and records (specifically including
without limitation the originals or copies of documents supporting entries in
the books of account) covering all transactions required to be reported to JRSE
under this Agreement. JRSE and its duly authorized representatives shall have
the right, at JRSE's sole cost, upon no less than five (5) days prior notice,
during regular business hours at ABMC's principal offices, for the duration of
this Agreement and for six (6) months thereafter, to audit said books of account
and records of ABMC and examine all other documents and material in the
possession or under the control of ABMC with respect to matters which are
required to be reported to JRSE under this Agreement and to make extracts and
copies thereof.
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ABMC's accounting records of sales shall be maintained separately from ABMC's
accounting records relating to other items manufactured or sold by ABMC. All
such books of account, records and documents shall be kept available by ABMC for
at least five (5) years after the end of each year to which they relate. In
connection with any audit or examination pursuant to this Section 12, JRSE and
its duly authorized representatives shall have the right to examine and inspect
ABMC's physical inventory of Portable Units and Other Units, wherever same is
kept. JRSE shall have a period of time of six (6) months following the close of
any audit to assert any claims for discrepancies. Any claims not asserted within
the six (6) month period following the close of any audit will be barred.
13. RESTRICTIONS ON USE OF NAME. ABMC shall not have the right to use
the name "Jacobson Resonance Enterprises" in the name of its corporation, as an
assumed name or in connection with any of its trademarks, logos, etc. without
JRSE's prior written permission.
14. ABMC'S COOPERATION. At JRSE's request, ABMC shall execute any
documents reasonably required by JRSE to confirm Jacobson's ownership of all
rights in and to the Technology and the Proprietary Marks and the respective
rights of JRSE and ABMC pursuant to this Agreement. ABMC shall cooperate with
JRSE in connection with the filing and prosecution of applications to register
the Technology and the Proprietary Marks and the maintenance and renewal of such
registrations as may issue, at no cost to ABMC.
15. LEGAL REQUIREMENTS. ABMC shall use the Technology and the
Proprietary Marks strictly in compliance with the legal requirements pertaining
thereto in connection therewith as may be required by applicable legal
provisions. ABMC shall cause to appear on all Portable Units and Other Units
that it distributes hereunder, and on all materials on or in connection
therewith, such legends, markings and notices as may be reasonably necessary in
order to give appropriate notice of any trademark, trade name or other rights
therein or pertaining thereto.
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16. PROHIBITION AGAINST CHALLENGES BY ABMC. ABMC never shall challenge
Jacobson's ownership of or the validity of the Technology or the Proprietary
Marks, or any application for registration thereof, or any trademark
registration thereof, or any rights of JRSE therein.
17. INFRINGEMENT ACTIONS. In the event that either JRSE or ABMC learns
of any infringement or imitation of the Technology or Proprietary Marks or of
any use by any person of a Patent similar to the Technology, they promptly shall
notify the other party. JRSE thereupon shall take such action as it deems
advisable for the protection of its rights in and to the Technology and the
Proprietary Marks and, if requested to do so by JRSE, ABMC shall cooperate with
JRSE in all reasonable respects, at JRSE's sole expense. In no event, however,
shall JRSE be required to take any action if it deems it inadvisable to do so.
If JRSE deems it inadvisable to take any action, ABMC may then take such action
at its own expense provided it first obtains the written approval of JRSE, which
approval shall not be unreasonably withheld. JRSE recognizes that in regard to
any counterfeiting of the Technology, ABMC may take immediate legal action, at
its own expense, upon prior notification and approval by JRSE. Such approval
shall be deemed to have been granted unless within four (4) business days after
the receipt of such a request, JRSE notifies ABMC in writing of its disapproval.
JRSE shall cooperate with ABMC in taking such legal action, at no cost to JRSE.
Any award or recovery obtained by JRSE in an action commenced by JRSE shall be
solely retained by JRSE. Any award or recovery obtained by ABMC in a permitted
action commenced by ABMC may be solely retained by ABMC. ABMC shall not defend
any action brought against it challenging its right to use the Technology or the
Proprietary Marks unless it shall first make written demand upon JRSE to do so
and JRSE fails to defend such action on behalf of ABMC.
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18. INSURANCE.
(a) LIABILITY INSURANCE. ABMC shall procure and maintain at its
own expense in full force and effect at all times during the Term, with a
responsible insurance carrier reasonably acceptable to JRSE, a products
liability insurance policy with respect to Licensed Property with a limit of
liability of not less than One Million Dollars ($1,000,000). Such insurance
policy shall name JRSE as an additional insured and shall provide for at least
thirty (30) days prior written notice to said parties of the cancellation or
substantial modification thereof. Such insurance may be obtained by ABMC in
conjunction with a policy of products liability insurance which covers products
other than the Portable Units or the Other Units. ABMC shall deliver a
certificate of such insurance to JRSE promptly upon issuance of said insurance
policy and, from time to time, promptly shall furnish to JRSE evidence of the
maintenance of said insurance policy. Nothing contained in this Section 18 shall
be deemed to limit in any way the indemnification provisions of Section 8
hereof.
(b) RELATIONSHIP OF THE PARTIES. ABMC is not granted any right or
authority to assume or create any obligation or responsibility, express or
implied, on behalf of or in the name of JRSE or to bind JRSE in any manner or
thing whatsoever. ABMC shall obtain all required workers' compensation and
employer's liability insurance covering all sales persons and other employees.
ABMC accepts full and exclusive liability for the payment of any and all taxes,
contributions or other sums payable for unemployment compensation insurance and
retirement benefits, as well as all of the payroll taxes payable by reason of
employment of sales persons or other employees. ABMC shall be responsible for
and hold JRSE harmless for all claims, demands and suits resulting from any
misconduct or negligence of ABMC's sales persons and other employees.
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<PAGE> 20
19. RIGHTS ON EXPIRATION OR TERMINATION.
(a) INJUNCTIVE RELIEF WITH RESPECT TO LICENSED PROPERTY. ABMC
hereby acknowledges the irreparable harm that JRSE will incur from any
unauthorized use of the Technology and the Proprietary Marks. Notwithstanding
any termination or expiration of this Agreement, JRSE shall have and hereby
reserves all rights and remedies which it has, or which are granted to it by
operation of law or equity, to prohibit the unlawful or unauthorized use of the
Technology and the Proprietary Marks, including but not limited to, seeking a
temporary restraining order, preliminary and/or permanent injunction. The
provisions of Section 21 hereof requiring a cooling off period and compulsory
arbitration shall not apply to this section.
(b) INVENTORY. Upon the expiration or termination of this
Agreement, ABMC immediately shall deliver to JRSE a complete and accurate
schedule of ABMC's inventory of Portable Units and Other Units and of related
work in process then on hand ("Inventory").
(c) SALE OF INVENTORY BY ABMC. If this Agreements expires or is
terminated, ABMC shall be entitled, for an additional period of six (6) monthly
only on a non-exclusive basis to sell and dispose of its Inventory. Such sales
shall be made subject to all of the provisions of this Agreement and to an
accounting for and the payment of Sales Royalty thereon. Such accounting and
payment shall be due within thirty (30) days after the close of the said six (6)
month period. JRSE shall have the right for a period of fifteen (15) days
following such expiration or termination to purchase all of ABMC's Inventory at
ABMC's cost plus twenty percent (20%).
(d) REVERSION OF RIGHTS TO JRSE, APPOINTMENT OF ATTORNEY-IN-FACT,
RETURN OF MATERIALS. Except as specifically provided in subsection 19(c) above,
on the expiration or termination of this Agreement, all of the rights of ABMC
under this Agreement shall terminate forthwith and shall revert immediately to
JRSE, all royalties on sales theretofore made shall become
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<PAGE> 21
immediately due and payable and ABMC shall discontinue forthwith all use of the
Technology and the Proprietary Marks, no longer shall have the right to use the
Technology and the Proprietary Marks or any variation or simulation thereof, and
shall promptly transfer to JRSE, free of charge, all registrations, filings, and
rights with regard to the Technology and the Proprietary Marks which it may have
possessed at any time.
ABMC hereby irrevocably appoints JRSE as ABMC's attorney-in-fact,
effective upon the termination or expiration of this Agreement, to take any
necessary steps on ABMC's behalf to cancel any recordation of the license
granted hereunder and to execute any instruments necessary or desirable to
confirm termination of ABMC's rights under this Agreement.
20. BROKERAGE INDEMNITY. Each of the parties represents that a broker
was not used in connection with the introduction of the parties and the
consummation of this Agreement. Both JRSE and ABMC hereby indemnifies the other
and holds it harmless from any and all liabilities (including, without
limitation, reasonable attorneys' fees and disbursements paid or incurred in
connection with any such liabilities) for any brokerage commissions or finders'
fees in connection with this Agreement or the transactions contemplated hereby
insofar as such liabilities shall be based on arrangements or agreements made by
it or on its behalf.
21. RESOLUTION OF DISPUTES.
(a) JURISDICTION. The parties hereby irrevocably submit to the
personal jurisdiction of the federal and state courts of the State of Florida,
in the venue of Palm Beach County (the "Courts"), in any action or proceeding
arising out of or relating to this Agreement. In any court proceeding, the
Courts shall have exclusive jurisdiction over the subject matter of this
Agreement. JRSE agrees that service may be made upon it by serving Broad and
Cassel in the manner provided for the giving of notice. ABMC agrees that it may
be served process in the manner provided for the
21
<PAGE> 22
giving of notice. The parties hereby irrevocably waive, to the fullest extent
they may effectively do so, the defense of an inconvenient forum to the
maintenance of such action or proceeding.
(b) WAIVER OF IMMUNITY. To the extent that the parties have or
hereafter may acquire any immunity from jurisdiction of any court or from any
legal process with respect to itself or its property, the parties hereby
irrevocably waive such immunity with respect to their obligations under this
Agreement.
(c) SOLE METHOD OF DISPUTE RESOLUTION. In the event of a dispute
between the parties, including all events of default, except failure to pay any
licensing fee or royalty pursuant to Section 5 of this Agreement, neither party
may commence formal legal action or commence arbitration proceedings unless and
until the senior level executives (and their representatives, if they wish) of
both parties meet face to face in a meeting(s) in an attempt to settle the
dispute (the "Cooling Off Period"). This Cooling Off Period shall last for
fifteen (15) days from the first date one of the parties identifies to the other
party the existence of a dispute. In the event that the senior executives of the
parties are unable to work out a mutually agreeable resolution during the
Cooling Off Period, the parties hereby agree to binding arbitration before a
single arbitrator mutually agreeable to both parties who shall follow the Rules
of the American Arbitration Association. The arbitrator shall be an attorney
specializing in licensing at one of the intellectual property firms in Florida
and neither the attorney nor the firm have any prior or current relationship
with either party. The fees of the arbitrator shall be evenly shared between the
parties. If within thirty (30) days the parties cannot mutually agree upon a
single arbitrator, either party may file an arbitration in accordance with the
Rules of the American Arbitration Association in Florida. If the breach is one
which is not curable, the arbitrator's decision must include a provision that
this Agreement may not be terminated if ABMC shall pay to JRSE an amount which
the arbitrator shall determine will
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<PAGE> 23
compensate JRSE for the breach. Notwithstanding the foregoing, JRSE shall have
the right to seek immediate relief in court, including but not limited to, a
temporary restraining order, a preliminary injunction and/or a permanent
injunction if ABMC or any of its officers, agents and employees does anything to
damage the value of the Technology or the Proprietary Marks. ABMC shall have the
right to seek equitable relief to enforce its rights hereunder in the event ABMC
believes it is being irreparably harmed. In the event either party is seeking
equitable relief from a court in accordance herewith, the party seeking such
relief shall provide the other party with prior written notice of the
application for relief and a copy thereof. The Cooling Off Period shall not
apply in the event JRSE or ABMC should decide to seek immediate relief in court
in accordance herewith.
22. MISCELLANEOUS.
(a) ENTIRE AGREEMENT. This Agreement represents the entire
understanding of the parties with respect to the subject matter hereof.
(b) AMENDMENT OR MODIFICATION OF THIS AGREEMENT. This Agreement
may be amended or modified from time to time only by a written instrument
executed by both of the parties hereto.
(c) NOTICE. All notices required or permitted by this Agreement
shall be in writing and shall be deemed to have been duly given if delivered in
person or sent by overnight delivery, confirmed telecopy or prepaid first class
registered or certified mail, return receipt requested, to the following
addresses, or such other addresses as are given to the other parties to this
Agreement in the manner set forth herein:
JRSE: Jacobson Resonance Enterprises, Inc.
14255 U.S. Highway One, Suite 239
Juno Beach, FL 33428
Attn: Jerry I. Jacobson, D.D.S.,
Chairman and CEO
Telephone: (561) 626-8483
Telecopier: (561) 626-7764
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<PAGE> 24
Jacobson: Jerry I. Jacobson, D.D.S.
2006 Mainsail Circle
Jupiter, FL 33477-1418
Telephone: (561) 746-8719
Telecopier: (561) 748-8870
With a copy to: Broad and Cassel
Suite 1130, Broward Financial Centre
500 E. Broward Boulevard
Ft. Lauderdale, FL 33394
Attn: William C. Phillippi, P.A.
Telephone: (954) 764-7060
Telecopies: (954) 761-8135
ABMC: 82 N. Miller Road
Akron, OH 44333
Attn: Ronald Winer
Telephone: (330) 867-3578
Telecopies: (330) 867-6251
With a copy to: Stark & Knoll Co., LPA
76 South Main Street, Suite 1512
Akron, OH 44308-1824
Attn: Thomas G. Knoll, Esq.
Telephone: (330) 376-3300
Telecopier: (330) 376-6237
Any such notices shall be effective when delivered in person or sent by
telecopy, one (1) business day after being sent by overnight delivery or five
(5) business days after being sent by registered or certified mail. Any of the
foregoing addresses may be changed by giving notice of such change in the
foregoing manner, except that notices for changes of address shall be effective
only upon receipt.
(d) FLORIDA LAW CONTROLLING. The laws of the state of Florida
shall govern the validity of this Agreement, the construction of its terms and
the interpretation of the rights and duties of the parties hereto.
(e) BINDING NATURE. Except as otherwise provided in Section 9
hereof, this Agreement shall be binding upon and shall inure to the benefit of
the parties hereto and their respective successors and assigns.
[THE NEXT PAGE IS THE SIGNATURE PAGE]
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<PAGE> 25
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
SIGNED IN THE PRESENCE OF: "JRSE"
JACOBSON RESONANCE ENTERPRISES, INC.
/s/ Debra Jacobson By: /s/ Dr. Jerry I. Jacobson
- ----------------------------------- -----------------------------------
Jerry I. Jacobson, D.D.S.,
Its Chairman and CEO
/s/ F.A. Chaviano
- ------------------------------------
"ABMC"
AKRON BIO-MEDICAL CORP.
/s/ Sue E. Borden By: /s/ Fred Borden
- ------------------------------------ -----------------------------------
Fred Borden, President
/s/ Jim Manfield
- ------------------------------------
As to Section 7(d) only:
/s/ Debra Jacobson /s/ Dr. Jerry I. Jacobson
- ------------------------------------ ---------------------------------------
JERRY I. JACOBSON, D.D.S., individually
/s/ F.A. Chaviano
- ------------------------------------
25
<PAGE> 26
EXHIBIT "A"
The following countries will be deemed to constitute the "Caribbean"
for purposes of this letter agreement:
Antigua and Barbuda
Anguilla
Aruba
The Bahamas
Barbados
Belize
Bermuda
The British Virgin Islands
The Cayman Islands
Cuba
Dominica
The Dominican Republic
Grenada
Haiti
Jamaica
Montserrat
Puerto Rico
St. Kitts and Nevis
St. Lucia
St. Vincent and the Grenadines
Trinidad
Turks and Caicos Islands
The United States Virgin Islands
<PAGE> 1
Exhibit 10.6
LICENSE AGREEMENT
This LICENSE AGREEMENT (the "Agreement") is entered into as of the 29th
day of December, 1999, by and between ABM MANUFACTURING, INC., an Ohio
corporation ("ABM Manufacturing") and JACOBSON RESONANCE ENTERPRISES, INC., a
Nevada corporation ("JRSE").
WITNESSETH, That:
WHEREAS, JRSE has developed and has an exclusive license with respect
to certain technologies, as more specifically described in Section 1 hereof, for
use in the production of magnetic resonance machines; and
WHEREAS, JRSE and Akron Bio-Medical Corp. ("ABMC") have entered into a
certain Distribution Agreement of even date herewith (the "Distribution
Agreement") whereby JRSE has granted to ABMC a non-exclusive license to
distribute said magnetic resonance machines; and
WHEREAS, JRSE has agreed to grant to ABM Manufacturing a non-exclusive
license to use the Technology (as such term is hereinafter defined) for the
purposes herein specified, upon the terms and subject to the conditions set
forth in this Agreement; and
WHEREAS, JRSE has further agreed to grant to ABM Manufacturing a
non-exclusive license to use the Proprietary Marks (as such term is hereinafter
defined) for the purposes herein specified, upon the terms and subject to the
conditions set forth in this Agreement.
<PAGE> 2
NOW, THEREFORE, in consideration of the foregoing and for other good
and valuable consideration, the receipt and sufficiency of which are hereby
expressly acknowledged, the parties hereto do hereby agree as follows:
1. Description of Technology and Proprietary Marks.
(a) The parties agree and acknowledge that JRSE has developed and
has an exclusive license with respect to certain technologies used in the
production of a portable magnetic resonance machine (the "Portable Unit") and
non-portable magnetic resonance machines (collectively, the "Other Units"). For
purposes hereof, the terms "Portable Units" and "Other Units" shall be deemed to
include any improvements, upgrades or modifications made to the Portable Units
or the Other Units, as the same exist as of the date of this Agreement, and any
future models thereof. In addition, JRSE has an exclusive license with respect
to certain design and engineering drawings, tooling and fixture data,
specifications, written descriptions, procedure documentation, operating and
maintenance manuals and like materials associated with the Portable Units and
the Other Units (the "Technological Data"). The technologies described
hereinabove and the Technological Data are sometimes collectively referred to in
this Agreement as the "Technology".
(b) The parties further agree and acknowledge that JRSE has
obtained or may during the term of this Agreement obtain rights to various trade
names, trademarks, service marks and related logos associated with the Portable
Units and the Other Units (collectively, the "Proprietary Marks"). For purposes
of this Agreement, the term Proprietary Marks shall be deemed to include any
trade names, trademarks, service marks and logos associated with the Portable
Units or the Other Units, including but not limited to those names, marks and
logos which are registered with the U.S. Patent and Trademark Office or any
state agency.
2. Grant of License.
(a) Upon the terms and subject to the conditions set forth in
this Agreement including, but not limited to, the right of termination set forth
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<PAGE> 3
in Section 3 hereof, JRSE hereby grants to ABM Manufacturing, and ABM
Manufacturing hereby accepts from JRSE, the following:
(i) A non-exclusive license to manufacture the Portable
Units and the Other Units (and to perform all testing and related activities
associated therewith) and to sell the Portable Units and the Other Units to
third-party distributors, provided that ABM Manufacturing shall only be entitled
to sell and/or ship the Portable Units and the Other Units to those other
distributors who have entered into distributorship arrangements with JRSE; and
(ii) A non-exclusive license to use the Proprietary Marks in
connection with the activities described in the preceding Section 2(a)(i).
(b) The parties agree that, subject to the terms of this Agreement, ABM
Manufacturing shall have the right and ability to determine the exact manner in
which it performs the activities described in Section 2(a)(i) hereof and shall
have the right to subcontract with third parties to perform any function or
process associated with the manufacturing and testing of the Portable Units or
the Other Units, subject to JRSE's oversight and quality controls.
Notwithstanding the foregoing, the parties hereto contemplate that ABM
Manufacturing shall enter into an agreement with Clayton whereby Clayton will be
responsible for instituting and overseeing all of ABM Manufacturing's quality
control procedures and processes.
3. Term and Termination.
(a) Term of Agreement. Subject to the terms of this Section 3,
the initial term of this Agreement shall commence as of the date first written
above and shall continue for a period of eight (8) years thereafter (the
"Initial Term"). This Agreement shall be automatically renewed for two (2)
additional terms of eight (8) years each (the "Renewal Terms") following the
expiration of the Initial Term unless ABM Manufacturing provides JRSE with
written notice of its desire not to renew this Agreement at least ninety (90)
days prior to the expiration thereof. For purposes of this Agreement, the terms
"Initial Term" and "Renewal Terms" are sometimes collectively referred to as
3
<PAGE> 4
the "Term". If this Agreement has been renewed for both Renewal Terms and has
not been earlier terminated, then, during the last ninety (90) days of the
second of the Renewal Terms, JRSE and ABM Manufacturing shall negotiate in good
faith to reach a mutually acceptable agreement for the further extension of this
Agreement. If JRSE and ABM Manufacturing are unable to reach such an agreement
within that period of time, then this Agreement shall automatically terminate at
the end of the second of the Renewal Terms.
(b) Right to Terminate - Performance Criteria. JRSE and ABM
Manufacturing agree that notwithstanding anything to the contrary contained
herein, JRSE shall have no right to terminate this Agreement during the first
one (1) year period of the Initial Term, except for breach of this Agreement by
ABM Manufacturing or JRSE's right to terminate this Agreement pursuant to
Section 3(d) hereof. At the end of said initial one (1) year period, JRSE and
ABM Manufacturing shall mutually determine reasonable performance criteria with
respect to ABM Manufacturing's manufacture of the Portable Units and the Other
Units based upon the results of ABMC's test marketing and realistic business
growth patterns. If JRSE and ABM Manufacturing are unable to reach an agreement
on reasonable performance criteria within thirty (30) days after the end of the
initial one (1) year period, then either party may terminate this Agreement by
written notice of termination to the other party delivered within forty-five
(45) days after the end of the initial one (1) year period. For purposes hereof,
"reasonable performance criteria" is defined as that which is logically
attainable in terms related to the empirical data gleaned from market analyses
established during the course of the first year of this Agreement from the date
of execution based upon mutual and independent inquiry by both parties hereto.
If ABM Manufacturing fails to adhere to said performance criteria at any time
following the end of said initial one (1) year period, JRSE agrees to provide
ABM
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<PAGE> 5
Manufacturing with written notice of ABM Manufacturing's failure to perform. ABM
Manufacturing shall have one (1) month following the date on which it receives
the written notice from JRSE to begin taking reasonable steps to cure its
failure to perform and shall have three (3) months from the date of notice to
cure said failure to JRSE's reasonable satisfaction. If it fails to do so, JRSE
shall have the right to terminate this Agreement upon five (5) days written
notice to ABM Manufacturing.
(c) Right to Terminate - Failure to Pay Fee. If ABM Manufacturing
fails to make any payment due hereunder within thirty (30) days of the date on
which said payment is due, the following shall apply: (i) ABM Manufacturing
shall pay interest thereon from and including the thirty-first (31st) day after
date such payment becomes due until the date the entire amount is paid in full
at a rate equal to one percent (1%) per annum over the prime rate being charged
by CitiBank, N.A., in New York as of the close of the business on the date the
payment first becomes due, but in no event greater than the highest rate
permitted by law; and (ii) if such default shall continue uncured for a period
of forty-five (45) days after said payment is due, JRSE shall have the right to
terminate this Agreement upon written notice of termination to ABM
Manufacturing. ABM Manufacturing shall have the option of preventing the
termination of this Agreement by taking corrective action that cures the
default, if such corrective action is taken prior to the end of the time period
stated in the previous sentence and if there are no other defaults during such
time period.
(d) Right to Terminate - ABM Manufacturing's Loss of Clayton's
Services. Except as otherwise provided herein, if ABM Manufacturing fails to
enter into the agreement with Clayton contemplated by Section 2(b) of this
Agreement within ninety (90) days of the date of this Agreement or, if at any
time thereafter, Clayton is no longer responsible for the institution
5
<PAGE> 6
and oversight of all of ABM Manufacturing's quality control procedures and
processes without the prior written consent of JRSE, which consent shall not be
unreasonably withheld, JRSE may terminate this Agreement upon five (5) days
written notice to ABM Manufacturing. Notwithstanding the foregoing, JRSE shall
not have the right to terminate this Agreement pursuant to the preceding
sentence (i)(A) if ABM Manufacturing's inability to enter into an agreement with
Clayton is due to Clayton's decision not to enter into such an agreement or (B)
if said agreement subsequently terminates as a result of Clayton's breach
thereof and (ii) in either case specified in Section 3(d)(i), ABM Manufacturing
has secured the services of a substitute person or firm to institute and
oversee, as appropriate, its quality control procedures and processes who is
reasonably satisfactory to JRSE (the "Substitute"). In the case specified in
Section 3(d)(i)(A), ABM Manufacturing must have engaged the services of the
Substitute within ninety (90) days of the date of this Agreement. In the case
specified in Section 3(d)(i)(B), ABM Manufacturing must have engaged the
services of the Substitute within five (5) days after the termination of the
agreement with Clayton and begun receiving such services within fifteen (15)
days after such termination.
(e) Other Material Breach. If ABM Manufacturing or JRSE otherwise
fails to perform any of the material terms, conditions, agreements or covenants
in this Agreement on its part to be performed (hereinafter referred to as "Other
Default") and such Other Default is not curable, or if such default is curable
but continues uncured for a period of thirty (30) days after notice thereof has
been given to the defaulting party in writing by the other party or all
reasonable steps necessary to cure such Other Default have not been taken by the
defaulting party within said thirty (30) day period, the other party, at its
sole election, may terminate this Agreement forthwith by written notice.
6
<PAGE> 7
(f) Bankruptcy, Insolvency and Related Occurrences.
(i) Automatic Termination. In the event that ABM
Manufacturing files a petition in bankruptcy, is adjudicated as bankrupt or
files a petition or otherwise seeks relief under or pursuant to any bankruptcy,
insolvency or reorganization statute or proceeding, or if a petition in
bankruptcy is filed against it, which is not vacated within sixty (60) days, or
it becomes insolvent or makes an assignment for the benefit of its creditors or
a custodian, receiver or trustee is appointed for it or a substantial portion of
its business or assets, which custodian, receiver or trustee is not discharged
within ninety (90) days, this Agreement shall terminate automatically and
forthwith.
(ii) No Right of ABM Manufacturing Representatives to
Continue Agreement. The rights granted herein are personal to ABM Manufacturing
and no assignee for the benefit of creditors, custodian, receiver, trustee in
bankruptcy, sheriff or any other officer of the court or official charged with
taking over custody of ABM Manufacturing's assets or business shall have any
right to continue this Agreement or to exploit or in any way use the Technology
or the Proprietary Marks if this Agreement terminates pursuant to this
subsection 3(f).
(iii) JRSE Right of First Refusal. Notwithstanding the
provisions of subsection 3(f)(ii) above, in the event that, pursuant to local
bankruptcy law, a trustee in bankruptcy of ABM Manufacturing or ABM
Manufacturing, as debtor, is permitted to assume this Agreement and does so and,
thereafter, desires to assign this Agreement to a third party, which assignment
satisfies the requirements of that bankruptcy law, the trustee or ABM
Manufacturing, as the case may be, shall notify JRSE of same in writing. Said
notice shall set forth the name and address of the proposed assignee, the
proposed consideration of the assignment and all other relevant details
7
<PAGE> 8
thereof. The giving of such notice shall be deemed to constitute an offer to
JRSE to have this Agreement assigned to it or to its designee for such
consideration, or its equivalent in money, and upon such terms as are specified
in the notice. The aforesaid offer may be accepted only by written notice given
to the trustee or ABM Manufacturing, as the case may be, by JRSE within fifteen
(15) days after JRSE's receipt of the notice from such party. If JRSE fails to
give its notice to such party within the said fifteen (15) days, such party may
complete the assignment referred to in its notice, but only if such assignment
is to the entity named in said notice and for the consideration and upon the
terms specified herein. Nothing contained herein shall be deemed to preclude or
impair any rights which JRSE may have as a creditor in any bankruptcy
proceeding.
4. Licensing Fee.
(a) In consideration of the rights granted to it hereunder, ABM
Manufacturing hereby agrees to pay the following to JRSE:
(i) Fifty Dollars ($50.00) for each Portable Unit sold to
distributors by ABM Manufacturing (as determined in accordance with Section 4(b)
hereof), payable no later than thirty (30) days following the end of each (A)
calendar quarter during the first year of the Term and (B) month thereafter for
the rest of the Term;
(ii) One Thousand Dollars ($1,000.00) for each Other Unit
measuring eighteen (18) inches or twenty-two (22) inches (including twenty-two
inch expandable models) sold to distributors by ABM Manufacturing (as determined
in accordance with Section 4(b) hereof), payable no later than thirty (30) days
following the end of each (A) calendar quarter during the first year of the Term
and (B) month thereafter for the rest of the Term; and
(iii) One Thousand Five Hundred Dollars ($1,500.00) for each
Other Unit measuring four (4) feet or seven (7) feet sold to distributors by ABM
Manufacturing (as
8
<PAGE> 9
determined in accordance with Section 4(b) hereof), payable no
later than thirty (30) days following the end of each (A) calendar quarter
during the first year of the Term and (B) month thereafter for the rest of the
Term.
(b) For purposes of subsections 4(a)(i), 4(a)(ii) and 4(a)(iii)
hereinabove, the number of Portable Units and Other Units sold by ABM
Manufacturing to distributors hereunder shall be calculated by determining the
total revenue received by ABM Manufacturing with respect to each type of
Portable Unit and Other Unit sold, then dividing said amount by the
manufacturer's retail list price for the type of Portable Unit or Other Unit in
question. The amount of the licensing fee payable to JRSE with respect to each
Portable Unit and Other Unit shall equal the number of Portable Units and Other
Units sold during the quarter in question, times the amount of the licensing fee
for each Portable Unit or Other Unit as set forth in subsections 4(a)(i),
4(a)(ii) and 4(a)(iii) hereinabove. For example, if ABM Manufacturing received
total revenue of Eight Hundred Dollars ($800.00) for Portable Units that it sold
during the quarterly period in question and the manufacturer's retail list price
for each Portable Unit sold was Two Hundred Dollars ($200.00), the number of
Portable Units sold for purposes of subsection 4(a)(i) hereinabove would be four
(4) and the fee payable to JRSE would be Two Hundred Dollars ($200.00).
(c) Within thirty (30) days following the end of each (A)
calendar quarter during the first year of the Term and (B) month thereafter
during the rest of the Term, ABM Manufacturing shall furnish to JRSE a report
regarding the Portable Units and the Other Units that it sold to distributors
during the preceding period prepared in accordance with the terms hereof. Each
report that ABM Manufacturing furnishes to JRSE shall contain the following
information: (i) a description of each Portable Unit and Other Unit sold or
leased during the
9
<PAGE> 10
period in question; (ii) the amount of total revenue received during the period
in question with respect to Portable Units and Other Units; (iii) the amount of
the royalty payment being paid to JRSE on each sale pursuant to the terms
hereof; and (iv) such additional information as JRSE may reasonably request.
5. Additional Covenants of JRSE.
(a) JRSE agrees that it will supply, as soon as practically
possible following the execution of this Agreement and the execution of the
agreement between ABM Manufacturing and Clayton or the Substitute contemplated
by Section 2(b) of this Agreement, copies of the Technological Data to ABM
Manufacturing in order to allow ABM Manufacturing to pursue the activities
described in Section 2(a)(i) hereof. JRSE further agrees to supply to ABM
Manufacturing, on a timely basis, copies of any additional Technological Data,
including but not limited to that pertaining to any improvements to the Portable
Units or the Other Units, created during the Term which become available during
the Term.
(b) JRSE agrees to use its reasonable best efforts during the
Term to develop a market for the Portable Units and the Other Units and to enter
into arrangements with third parties for the distribution of the Portable Units
and the Other Units on such terms as JRSE reasonably believes will benefit the
interests of both parties hereto.
(c) The parties contemplate that Jerry I. Jacobson, D.D.S.
("Jacobson"), the owner of the Technology, or JRSE has applied or may in the
future apply with the U.S. Patent and Trademark Office for a patent or patents
with respect to the Portable Units and/or the Other Units. The parties further
contemplate that Jacobson or JRSE has applied or may in the future apply with
the U.S. Patent and Trademark Office and/or appropriate state agencies for the
registration of one or more of the Proprietary Marks. The parties agree that
Jacobson and/or JRSE, as said parties shall
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<PAGE> 11
determine, shall be solely responsible for any and all costs and fees associated
with any such registrations and the maintenance and protection thereof.
6. Ownership and Use of Technology and Proprietary Marks.
(a) ABM Manufacturing hereby acknowledges that Jacobson is and
shall at all times remain the owner, and that JRSE is and shall at all times
remain the sole and exclusive licensor, of all right, title and interest in and
to the Technology and the Proprietary Marks and that its manufacture of the
Portable Units and Other Units and use of the Proprietary Marks hereunder shall
not create in ABM Manufacturing's favor any right, title or interest in or to
the Technology or the Proprietary Marks or any goodwill associated therewith.
During the Term and at all times thereafter, ABM Manufacturing shall not
knowingly do or cause to be done any act or thing which may in any way impair or
tend to impair the rights, title and interest of JRSE in and to the Technology
or the Proprietary Marks or any registrations with respect thereto, or which may
in any way reduce the value of the Technology or detract from its reputation,
nor shall ABM Manufacturing in any manner represent that it has any interest
therein except as set forth herein. ABM Manufacturing further acknowledges and
agrees that as the sole and exclusive licensee of the Technology and the
Proprietary Marks, JRSE shall have the sole and exclusive right to use, license
or otherwise transfer any and all of its rights, title and interest in and to
the Technology and the Proprietary Marks, subject only to the terms of this
Agreement, the Distribution Agreement and any other agreement affecting JRSE's
right, title and interest in and to the Technology or the Proprietary Marks that
JRSE may be a party to or may enter into at a later date. Upon the termination
of this Agreement for any reason, all rights to distribute the Units and to use
the Proprietary Marks granted to ABM Manufacturing hereunder shall terminate and
revert to JRSE, except to the extent that said rights are sublicensed, assigned
or transferred to a third party with the consent of JRSE in
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<PAGE> 12
accordance with Section 9 hereof. To the extent that any use of the Technology
or Proprietary Marks by ABM Manufacturing confers rights therein to ABM
Manufacturing other than those granted herein, ABM Manufacturing hereby assigns
said rights to JRSE, subject to all of the terms hereof.
(b) Notwithstanding the terms of the preceding Section 6(a), the
parties agree that, during the existence of this Agreement, ABM Manufacturing
shall be the sole and exclusive user of any methods or procedures that ABM
Manufacturing may develop in connection with the manufacturing and/or testing of
the Units and all technical data or other documentation related thereto. Upon
the termination of this Agreement for any reason, ABM Manufacturing's rights to
use the foregoing methods, procedures, technical data and other documentation
related thereto shall terminate and revert to JRSE, except to the extent that
said rights are sublicensed, assigned or transferred to a third party with the
consent of JRSE in accordance with Section 9 hereof.
(c) With respect to ABM Manufacturing's use of the Proprietary
Marks hereunder, the parties hereby agree as follows:
(i) No use of the Proprietary Marks shall state that the
owner of the Proprietary Marks is any party other than Jacobson.
(ii) All uses of the Proprietary Marks shall at all times
be in accordance with applicable laws and regulations.
(iii) ABM Manufacturing shall at no time make the
Proprietary Marks available for use by any third party except as authorized by
JRSE in writing.
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<PAGE> 13
7. Warranties and Representations of Parties.
(a) Warranties and Representations of JRSE. JRSE represents and
warrants to ABM Manufacturing the following:
(i) JRSE is a corporation duly organized and existing under
the laws of the State of Nevada and has the full corporate power and authority
to enter into and perform this Agreement and has taken all necessary corporate
action to authorize and approve the execution, delivery and performance hereof;
(ii) This Agreement constitutes a legal, valid and binding
obligation of JRSE, enforceable in accordance with the terms hereof;
(iii) Jacobson owns all rights to and interest in the
Technology and has granted to JRSE an exclusive license in the Technology
pursuant to which JRSE has the right and the ability to grant to ABM
Manufacturing a sublicense to use the same as set forth herein;
(iv) Jacobson owns all rights to and interest in the
Proprietary Marks and has granted to JRSE an exclusive license in the
Proprietary Marks pursuant to which JRSE has the right and ability to grant to
ABM Manufacturing a sublicense to use the same as set forth herein; and
(v) Jacobson and/or JRSE, as appropriate, have taken all
necessary actions and has obtained all necessary governmental approvals,
opinions, certifications, licenses and permits that may be required in
connection with the manufacture and sale and leasing of the Portable Units and
the Other Units, including but not limited to those actions and approvals which
are required for the retail sale of the Portable Units to the general public.
(b) JRSE shall defend and hereby indemnifies and otherwise holds
ABM Manufacturing harmless from and against any and all losses, liability,
claims, damages and expenses (including reasonable attorneys' fees and expenses)
which ABM Manufacturing may sustain by reason of a third party action or claim
arising out of or resulting from a breach by Jacobson or JRSE of their
representations and warranties hereunder. ABM Manufacturing must
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<PAGE> 14
give JRSE prompt written notice of any such action, claim or proceeding and
JRSE, in its sole discretion, then may take such action as it deems advisable to
defend such action, claim or proceeding on behalf of ABM Manufacturing. In the
event appropriate action is not taken by JRSE within thirty (30) days after its
receipt of notice from ABM Manufacturing, ABM Manufacturing shall have the right
to defend such action, claim or proceeding, but no settlement thereof may be
made without the approval of JRSE, which approval shall not be unreasonably
withheld. In either case, ABM Manufacturing and JRSE shall keep each other fully
advised of all developments, shall provide each other with copies of all
documents exchanged in court, and shall cooperate fully with each other in all
respects in connection with any such defense as is made. Such indemnification
shall be deemed to apply solely to (a) the amount of the judgment, if any,
against ABM Manufacturing, (b) any sums paid by ABM Manufacturing in settlement,
and (c) the expenses incurred by ABM Manufacturing in connection with its
defense. Such indemnification by JRSE shall not apply to any damages sustained
by ABM Manufacturing by reason of such infringement other than those specified
above, and in no event shall apply to consequential damages, unless those
consequential damages are included in the amount of the judgment against ABM
Manufacturing. The provisions of this subsection (7)(b) and JRSE's obligations
hereunder shall survive the expiration or termination of this Agreement.
(c) Warranties and Representations of ABM Manufacturing. ABM
Manufacturing represents and warrants to JRSE the following:
(i) ABM Manufacturing is a corporation duly organized and
existing under the laws of the State of Ohio and has the full corporate power
and authority to enter into and perform this Agreement and has taken all
necessary corporate action to authorize and approve the execution, delivery and
performance hereof;
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<PAGE> 15
(ii) This Agreement constitutes a legal, valid and binding
obligation of ABM Manufacturing, enforceable in accordance with the terms
hereof; and
(iii) ABM Manufacturing shall at all times use the
Proprietary Marks in accordance with the terms of this Agreement.
(d) Owner's Assurance. Jacobson acknowledges that he is the owner
of the Technology and the Proprietary Marks and that he has granted a license
therein to JRSE that enables JRSE to grant a license therein to ABM
Manufacturing.
8. Indemnification.
(a) ABM Manufacturing agrees to indemnify and hold harmless JRSE
and its officers, directors, shareholders, employees, agents, successors and
assigns from and against any and all claims, demands, defenses, injuries,
set-offs, counterclaims, damages, losses, judgments, liabilities, penalties or
fines of any nature whatsoever (including any damage to person or property), and
any reasonable costs and expenses related thereto, including reasonable
attorneys' fees, arising out of or relating to ABM Manufacturing's breach of any
of its covenants, obligations, warranties or representations arising under the
terms of this Agreement, including but not limited to those warranties and
representations set forth in Section 7 hereof.
(b) JRSE agrees to indemnify and hold harmless ABM Manufacturing
and its officers, directors, shareholders, employees, agents, successors and
assigns from and against any and all claims, demands, defenses, injuries,
set-offs, counterclaims, damages, losses, judgments, liabilities, penalties or
fines of any nature whatsoever (including any damage to person or property), and
15
<PAGE> 16
any reasonable costs and expenses related thereto, including reasonable
attorneys' fees, arising out of or relating to the following:
(i) JRSE's breach of any of its covenants, obligations,
warranties or representations arising under the terms this Agreement, including
but not limited to those warranties and representations set forth in Section 7
hereof; or
(ii) Any failure of the Portable Units or the Other Units to
perform in a reasonably satisfactory manner according to specifications, if such
failure is attributable to any act or omission of JRSE or its employees or
agents.
9. Assignment, Sublicense or Transfer. The rights and benefits
conferred upon ABM Manufacturing hereunder shall inure to the sole benefit of
ABM Manufacturing, shall not be deemed to be coupled with an interest and shall
not, in whole or in part, be assigned, sublicensed or otherwise transferred by
ABM Manufacturing to any third party without the prior written consent of JRSE.
Notwithstanding the foregoing, the parties hereto agree that ABM Manufacturing
shall be entitled, with JRSE's written consent (which consent may not be
unreasonably withheld), to sublicense all or a portion of its rights hereunder
to manufacture and/or distribute the Portable Units and/or the Other Units if,
after considering the manufacturing and distribution capabilities (including
quality control procedures and processes) of the potential sublicensee, it may
reasonably be concluded that said licensee could perform such activities in a
manner that is reasonably consistent with ABM Manufacturing's performance
thereof.
10. Agency. Both parties agree and acknowledge that ABM Manufacturing
and its employees and agents shall not, at any time for any reason, be deemed to
be employees or agents of JRSE.
11. Non-Disclosure. Neither party shall release, or cause or permit to
be released, any press notices, publicity (oral or written) or advertising, or
otherwise announce or disclose, or cause or permit to be announced or disclosed,
in any manner whatsoever, the existence of this Agreement
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<PAGE> 17
and its contents without first obtaining the express written consent of the
other party hereto. Notwithstanding the foregoing, nothing set forth in the
preceding sentence shall be deemed to: (a) prevent either party from discussing
this Agreement and its contents with said parties' legal counsel and
accountants, or any employees and agents who, in the normal course of the
parties' business, have a need to know such information; (b) prevent ABM
Manufacturing from selling the Portable Units to third party distributors in the
manner it deems appropriate and without the prior consent of JRSE, subject to
the terms of this Agreement; or (c) prevent JRSE from making any public
disclosure or filing of this Agreement without ABM Manufacturing's consent if
JRSE's legal counsel deems such disclosure and/or filing necessary or advisable
to comply with applicable federal and/or state laws.
12. Books and Records; Right to Audit. ABM Manufacturing shall prepare
and maintain complete and accurate books of account and records (specifically
including without limitation the originals or copies of documents supporting
entries in the books of account) covering all transactions required to be
reported to JRSE under this Agreement. JRSE and its duly authorized
representatives shall have the right at JRSE's sole cost, upon no less than five
(5) days prior notice, during regular business hours at ABM Manufacturing's
principal offices, for the duration of this Agreement and for six (6) months
thereafter, to audit said books of account and records of ABM Manufacturing and
examine all other documents and material in the possession or under the control
of ABM Manufacturing with respect to matters which are required to be reported
to JRSE under this Agreement and to make extracts and copies thereof. ABM
Manufacturing's accounting records of sales shall be maintained separately from
ABM Manufacturing's accounting records relating to other items manufactured or
sold by ABM Manufacturing. All such books of account, records and documents
shall be kept available by ABM Manufacturing for at least five (5) years after
the end of
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<PAGE> 18
each year to which they relate. In connection with any audit or examination
pursuant to this Section 12, JRSE and its duly authorized representatives shall
have the right to examine and inspect ABM Manufacturing's physical inventory of
Portable Units and Other Units, wherever same is kept. JRSE shall have a period
of time of six (6) months following the close of any audit to assert any claims
for discrepancies. Any claims not asserted within the six (6) month period
following the close of any audit will be barred.
13. Restrictions on Use of Name. ABM Manufacturing shall not have the
right to use the name "Jacobson Resonance Enterprises" in the name of its
corporation, as an assumed name or in connection with any of its trademarks,
logos, etc. without JRSE's prior written permission.
14. ABM Manufacturing's Cooperation. At JRSE's request, ABM
Manufacturing shall execute any documents reasonably required by JRSE to confirm
Jacobson's ownership of all rights in and to the Technology and the Proprietary
Marks and the respective rights of JRSE and ABM Manufacturing pursuant to this
Agreement. Subject to Section 5(c) hereof, ABM Manufacturing shall cooperate
with JRSE in connection with the filing and prosecution of applications to
register the Technology and the Proprietary Marks and the maintenance and
renewal of such registrations as may issue, at no cost to ABM Manufacturing.
15. Legal Requirements. ABM Manufacturing shall use the Technology and
the Proprietary Marks strictly in compliance with the legal requirements
pertaining thereto in connection therewith as may be required by applicable
legal provisions. ABM Manufacturing shall cause to appear on all Portable Units
and Other Units that it manufactures hereunder, and on all materials on or in
connection therewith, such legends, markings and notices as may be reasonably
necessary in order to give appropriate notice of any trademark, trade name or
other rights therein or pertaining thereto.
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<PAGE> 19
16. Prohibition Against Challenges by ABM Manufacturing. ABM
Manufacturing never shall challenge Jacobson's ownership of or the validity of
the Technology or the Proprietary Marks, or any application for registration
thereof, or any trademark registration thereof, or any rights of JRSE therein.
17. Infringement Actions. In the event that either JRSE or ABM
Manufacturing learns of any infringement or imitation of the Technology or
Proprietary Marks, or of any use by any person of a Patent similar to the
Technology, they promptly shall notify the other party. JRSE thereupon shall
take such action as it deems advisable for the protection of its rights in and
to the Technology or Proprietary Marks and, if requested to do so by JRSE, ABM
Manufacturing shall cooperate with JRSE in all reasonable respects, at JRSE's
sole expense. In no event, however, shall JRSE be required to take any action if
it deems it inadvisable to do so. If JRSE deems it inadvisable to take any
action, ABM Manufacturing may then take such action at its own expense provided
it first obtains the written approval of JRSE, which approval shall not be
unreasonably withheld. JRSE recognizes that in regard to any counterfeiting of
the Technology, ABM Manufacturing may take immediate legal action, at its own
expense, upon prior notification and approval by JRSE. Such approval shall be
deemed to have been granted unless within four (4) business days after the
receipt of such a request, JRSE notifies ABM Manufacturing in writing of its
disapproval. JRSE shall cooperate with ABM Manufacturing in taking such legal
action, at no cost to JRSE. Any award or recovery obtained by JRSE in an action
commenced by JRSE shall be solely retained by JRSE. Any award or recovery
obtained by ABM Manufacturing in a permitted action commenced by ABM
Manufacturing may be solely retained by ABM Manufacturing. ABM Manufacturing
shall not defend any action brought against it challenging its right to use the
Technology or the Proprietary Marks unless it
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<PAGE> 20
shall first make written demand upon JRSE to do so and JRSE fails to defend such
action on behalf of ABM Manufacturing.
18. Insurance.
(a) Liability Insurance. ABM Manufacturing shall procure and
maintain at its own expense in full force and effect at all times during the
Term with a responsible insurance carrier reasonably acceptable to JRSE, a
products liability insurance policy with respect to Licensed Property with a
limit of liability of not less than One Million Dollars ($1,000,000). Such
insurance policy shall name JRSE as an additional insured and shall provide for
at least thirty (30) days prior written notice to said parties of the
cancellation or substantial modification thereof. Such insurance may be obtained
by ABM Manufacturing in conjunction with a policy of products liability
insurance which covers products other than the Portable Units or the Other
Units. ABM Manufacturing shall deliver a certificate of such insurance to JRSE
promptly upon issuance of said insurance policy and, from time to time, promptly
shall furnish to JRSE evidence of the maintenance of said insurance policy.
Nothing contained in this Section 18 shall be deemed to limit in any way the
indemnification provisions of Section 8 hereof.
(b) Relationship of the Parties. ABM Manufacturing is not granted
any right or authority to assume or create any obligation or responsibility,
express or implied, on behalf of or in the name of JRSE or to bind JRSE in any
manner or thing whatsoever. ABM Manufacturing shall obtain all required workers'
compensation and employer's liability insurance covering all employees. ABM
Manufacturing accepts full and exclusive liability for the payment of any and
all taxes, contributions or other sums payable for unemployment compensation
insurance and retirement benefits, as well as all of the payroll taxes payable
by reason of employment of sales persons or other employees. ABM Manufacturing
shall be responsible for and hold JRSE
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<PAGE> 21
harmless for all claims, demands and suits resulting from any misconduct or
negligence of ABM Manufacturing's employees.
19. Rights on Expiration or Termination.
(a) Injunctive Relief with Respect to Licensed Property. ABM
Manufacturing hereby acknowledges the irreparable harm that JRSE will incur from
any unauthorized use of the Technology and the Proprietary Marks.
Notwithstanding any termination or expiration of this Agreement, JRSE shall have
and hereby reserves all rights and remedies which it has, or which are granted
to it by operation of law or equity, to prohibit the unlawful or unauthorized
use of the Technology and the Proprietary Marks, including but not limited to,
seeking a temporary restraining order, preliminary and/or permanent injunction.
The provisions of Section 21 hereof requiring a cooling off period and
compulsory arbitration shall not apply to this section.
(b) Inventory. Upon the expiration or termination of this
Agreement, ABM Manufacturing immediately shall deliver to JRSE a complete and
accurate schedule of ABM Manufacturing's inventory of Portable Units and Other
Units and of related work in process then on hand ("Inventory").
(c) Sale of Inventory by ABM Manufacturing. If this Agreements
expires or is terminated, ABM Manufacturing shall be entitled, for an additional
period of six (6) monthly only on a non-exclusive basis to sell and dispose of
its Inventory. Such sales shall be made subject to all of the provisions of this
Agreement and to an accounting for and the payment of license fees thereon
pursuant to Section 4 of this Agreement. Such accounting and payment shall be
due within thirty (30) days after the close of the said six (6) month period.
JRSE shall have the right for a period of fifteen (15) days following such
expiration or termination to purchase all of ABM Manufacturing's Inventory at
ABM Manufacturing's cost plus twenty percent (20%).
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<PAGE> 22
(d) Reversion of Rights to JRSE, Appointment of Attorney-In-Fact,
Return of Materials. Except as specifically provided in subsection 19(c) above,
on the expiration or termination of this Agreement, all of the rights of ABM
Manufacturing under this Agreement shall terminate forthwith and shall revert
immediately to JRSE, all royalties on sales theretofore made shall become
immediately due and payable and ABM Manufacturing shall discontinue forthwith
all use of the Technology and the Proprietary Marks, no longer shall have the
right to use the Technology and the Proprietary Marks or any variation or
simulation thereof, and shall promptly transfer to JRSE, free of charge, all
registrations, filings, and rights with regard to the Technology and the
Proprietary Marks which it may have possessed at any time.
ABM Manufacturing hereby irrevocably appoints JRSE as ABM
Manufacturing's attorney-in-fact, effective upon the termination or expiration
of this Agreement, to take any necessary steps on ABM Manufacturing's behalf to
cancel any recordation of the license granted hereunder and to execute any
instruments necessary or desirable to confirm termination of ABM Manufacturing's
rights under this Agreement.
20. Brokerage Indemnity. Each of the parties represents that a broker
was not used in connection with the introduction of the parties and the
consummation of this Agreement. Both JRSE and ABM Manufacturing hereby
indemnifies the other and holds it harmless from any and all liabilities
(including, without limitation, reasonable attorneys' fees and disbursements
paid or incurred in connection with any such liabilities) for any brokerage
commissions or finders' fees in connection with this Agreement or the
transactions contemplated hereby insofar as such liabilities shall be based on
arrangements or agreements made by it or on its behalf.
22
<PAGE> 23
21. Resolution of Disputes.
(a) Jurisdiction. The parties hereby irrevocably submit to the
personal jurisdiction of the federal and state courts of the State of Florida,
in the venue of Palm Beach County (the "Courts"), in any action or proceeding
arising out of or relating to this Agreement. In any court proceeding, the
Courts shall have exclusive jurisdiction over the subject matter of this
Agreement. JRSE agrees that service may be made upon it by serving Broad and
Cassel in the manner provided for the giving of notice. ABM Manufacturing agrees
that it may be served process in the manner provided for the giving of notice.
The parties hereby irrevocably waive, to the fullest extent they may effectively
do so, the defense of an inconvenient forum to the maintenance of such action or
proceeding.
(b) Waiver of Immunity. To the extent that the parties have or
hereafter may acquire any immunity from jurisdiction of any court or from any
legal process with respect to itself or its property, the parties hereby
irrevocably waive such immunity with respect to their obligations under this
Agreement.
(c) Sole Method of Dispute Resolution. In the event of a dispute
between the parties, including all events of default, except failure to pay any
licensing fee pursuant to Section 4 of this Agreement, neither party may
commence formal legal action or commence arbitration proceedings unless and
until the senior level executives (and their representatives, if they wish) of
both parties meet face to face in a meeting(s) in an attempt to settle the
dispute (the "Cooling Off Period"). This Cooling Off Period shall last for
fifteen (15) days from the first date one of the parties identifies to the other
party the existence of a dispute. In the event that the senior executives of the
parties are unable to work out a mutually agreeable resolution during the
Cooling Off period, the parties hereby agree to binding arbitration before a
single arbitrator mutually agreeable to both parties who shall follow the Rules
of the American Arbitration Association. The arbitrator shall be
23
<PAGE> 24
an attorney specializing in licensing at one of the intellectual property firms
in Florida and neither the attorney nor the firm have any prior or current
relationship with either party. The fees of the arbitrator shall be evenly
shared between the parties. If within thirty (30) days the parties cannot
mutually agree upon a single arbitrator, either party may file an arbitration in
accordance with the Rules of the American Arbitration Association in Florida. If
the breach is one which is not curable, the arbitrator's decision must include a
provision that this Agreement may not be terminated if ABM Manufacturing shall
pay to JRSE an amount which the arbitrator shall determine will compensate JRSE
for the breach. Notwithstanding the foregoing, JRSE shall have the right to seek
immediate relief in court, including but not limited to, a temporary restraining
order, a preliminary injunction and/or a permanent injunction if ABM
Manufacturing or any of its officers, agents and employees does anything to
damage the value of the Technology or the Proprietary Marks. ABM Manufacturing
shall have the right to seek equitable relief to enforce its rights hereunder in
the event ABM Manufacturing believes it is being irreparably harmed. In the
event either party is seeking equitable relief from a court in accordance
herewith, the party seeking such relief shall provide the other party with prior
written notice of the application for relief and a copy thereof. The Cooling Off
Period shall not apply in the event JRSE or ABM Manufacturing should decide to
seek immediate relief in court in accordance herewith.
22. Miscellaneous.
(a) Entire Agreement. This Agreement represents the entire
understanding of the parties with respect to the subject matter hereof.
(b) Amendment or Modification of this Agreement. This Agreement
may be amended or modified from time to time only by a written instrument
executed by both of the parties hereto.
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<PAGE> 25
(c) Notice. All notices required or permitted by this Agreement
shall be in writing and shall be deemed to have been duly given if delivered in
person or sent by overnight delivery, confirmed telecopy or prepaid first class
registered or certified mail, return receipt requested, to the following
addresses, or such other addresses as are given to the other parties to this
Agreement in the manner set forth herein:
JRSE: Jacobson Resonance Enterprises, Inc.
14255 U.S. Highway One, Suite 239
Juno Beach, FL 33428
Attn: Jerry I. Jacobson, D.D.S.,
Chairman and CEO
Telephone: (561) 626-8483
Telecopier: (561) 626-7764
Jacobson: Jerry I. Jacobson, D.D.S.
2006 Mainsail Circle
Jupiter, FL 33477-1418
Telephone: (561) 746-8719
Telecopier: (561) 748-8870
With a copy to: Broad and Cassel
Suite 1130, Broward Financial Centre
500 E. Broward Boulevard
Ft. Lauderdale, FL 33394
Attn: William C. Phillippi, P.A.
Telephone: (954) 764-7060
Telecopier: (954) 761-8135
ABM Manufacturing: 82 N. Miller Road
Akron, OH 44333
Attn: Ronald Winer
Telephone: (330) 867-3578
Telecopier: (330) 867-6251
With a copy to: Stark & Knoll Co., LPA
76 South Main Street, Suite 1512
Akron, OH 44308-1824
Attn: Thomas G. Knoll, Esq.
Telephone: (330) 376-3300
Telecopies: (330) 376-6237
Any such notices shall be effective when delivered in person or sent by
telecopy, one business day after being sent by overnight delivery or five
business days after being sent by registered or certified
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mail. Any of the foregoing addresses may be changed by giving notice of such
change in the foregoing manner, except that notices for changes of address shall
be effective only upon receipt.
(d) Florida Law Controlling. The laws of the state of Florida
shall govern the validity of this Agreement, the construction of its terms and
the interpretation of the rights and duties of the parties hereto.
(e) Binding Nature. Except as otherwise provided in Section 9
hereof, this Agreement shall be binding upon and shall inure to the benefit of
the parties hereto and their respective successors and assigns.
[THE NEXT PAGE IS THE SIGNATURE PAGE]
<PAGE> 27
IN WITNESS WHEREOF, the parties have executed this Agreement as of
the date first written above.
SIGNED IN THE PRESENCE OF: "JRSE"
JACOBSON RESONANCE ENTERPRISES, INC.
/s/ Debra Jacobson By: /s/ Dr. Jerry I. Jacobson
- ---------------------------------- ----------------------------------
Jerry I. Jacobson, D.D.S.
Its Chairman and CEO
/s/ F.A. Chaviano
- ----------------------------------
"ABM Manufacturing"
ABM MANUFACTURING, INC.
/s/ Sue. E. Borden By: /s/ Fred Borden
- ---------------------------------- ----------------------------------
Fred Borden, President
/s/ Jim Manfield
- ----------------------------------
As to Section 7(d) only:
/s/ Debra Jacobson /s/ Dr. Jerry I. Jacobson
- ---------------------------------- --------------------------------------
JERRY I. JACOBSON, D.D.S., individually
/s/ F. A. Chaviano
- ----------------------------------
26
<PAGE> 1
Exhibit 10.7
EXCLUSIVE LICENSE AGREEMENT
THIS EXCLUSIVE LICENSE AGREEMENT ("Agreement") is made and entered into
on this the ____ day of December, 1999, by and between JACOBSON RESONANCE
ENTERPRISES, INC., 9960 Central Park Boulevard, Suite 302, Boca Raton, Florida
33428 ("Jacobson"), and REALPURE BEVERAGE GROUP, LLC, 317 East Capitol Street,
Suite 108, Jackson, Mississippi 39201 ("RealPure").
WHEREAS, Jacobson has developed a patented medical technology by which
homogenous magnetic fields are produced by Helmholtz coils or solenoids,
consisting of two identical coils equal in diameter and separated from each
other by a distance equal to the radius of each coil and connected in series to
a power source. The device has a beneficial effect upon all matter that is
treated by the device, including human and animal tissue. The device can be used
to restructure the molecular and sub-atomic activity of water and other liquids
which, when consumed by humans or animals, has a beneficial effect; and
WHEREAS, RealPure is a manufacturer of beverage products and desires to
obtain an exclusive license for the use of the resonance technology in
connection with the manufacture, sale and distribution of beverage products.
NOW, THEREFORE, in consideration of the mutual promises and covenants
set forth herein, and for other good and valuable consideration, the parties
hereby agree as follows:
1. GRANT OF EXCLUSIVE LICENSE.
1.1 Jacobson hereby grants to RealPure the exclusive right and
license to utilize the resonance technology and all patents, final and pending,
in connection with the resonance technology in conjunction with the manufacture,
sale and distribution of any and all types of beverage products in the
territory, as hereafter defined, subject however to the restrictions and
conditions set forth in this Agreement. RealPure acknowledges Jacobson's
exclusive rights in the resonance technology and agrees that it will use the
same only so long as and only in the manner authorized by this Agreement. The
license granted herein includes the right to sub-license the use of the
resonance technology in connection with the manufacture, sale and distribution
of beverage products. In the event of a sub-license agreement with any other
person or entity, RealPure agrees that the grant of a sub-license shall not in
any way reduce RealPure's obligations to Jacobson under this Agreement,
1.2 Jacobson shall not enter into any other license or
distribution arrangements with any person or entity for the use of the resonance
technology in connection with the manufacturer, distribution or sale of any
beverage product of any kind, regardless of whether such beverage product shall
be intended for human or animal consumption. In the event that Jacobson breaches
the exclusive nature of this Agreement, or in the event that Jacobson licenses
the resonance technology for some other use and its licensee(s) adapts or
otherwise uses the resonance technology in connection with the manufacture,
distribution and sale of beverage products, Jacobson shall take immediate legal
action to enjoin any such use of the resonance
<PAGE> 2
technology. In the event that Jacobson does not take such action satisfactory to
RealPure, RealPure may, with or without notice to Jacobson, take such action, in
which event Jacobson shall be responsible for any and all fees, expenses, costs
or other charges incurred in connection with the enforcement of the exclusive
nature of the license granted hereby, including, but not limited to, attorneys'
fees and court costs.
2. TERRITORY. The territory in which RealPure may exercise its
exclusive license shall include the United States, including Hawaii, Alaska, and
its territories and possessions, Canada, Mexico and tile Caribbean Basin.
3. TERM. The term of this Agreement shall commence on the January 1,
2000 and shall terminate on December 31, 2006, RealPure may, in its sole
discretion, elect to renew and extend this Agreement for four three-year renewal
periods. In the event that RealPure desires to renew this Agreement, it shall do
so by giving Jacobson written notice of its intent to renew at least ninety (90)
days prior to the expiration of the primary term or the expiration of each
applicable renewal period.
4. ROYALTY. In consideration of the grant of the exclusive license and
the right to grant sub-licenses, RealPure shall pay Jacobson a royalty payment
for each case of finished product sold which is enhanced by the resonance
technology as set forth in the Royalty Addendum attached hereto as Exhibit "A."
Payment of the royalty shall be made in U.S. dollars and shall be paid on a
monthly basis. Payment of the royalty will be made for each calendar month
within forty-five (45) days following the end of each calendar month. The
royalty payment shall be accompanied with a sales report, broken down by
regions.
5. MANUFACTURE OF PRODUCT. RealPure will manufacture, bottle, label and
package the product in accordance with the specifications provided by Jacobson.
RealPure shall not be obligated to enhance all of its products with the
resonance technology and may select, in its sole discretion, the type and amount
of product to be enhanced. Jacobson shall furnish, at its sole cost, one
Industrial 12" Resonator, complete with all equipment which is necessary in
order to manufacture beverage products enhanced by the resonance technology.
Jacobson shall, at its own cost, maintain such equipment and keep such equipment
in good operating order. In the event that additional equipment is necessary to
accommodate additional manufacturing requirements due to an expansion of
RealPure's market, RealPure shall be responsible for obtaining and maintaining
any such additional equipment. Jacobson shall furnish, at its own cost, any and
all training requested by RealPure in connection with the use of the resonance
technology equipment. RealPure shall be responsible for obtaining property and
casualty insurance and shall be responsible for the payment of any ad valorem
taxes assessed by local and state authorities upon the equipment, Upon the
expiration or termination of this Agreement, RealPure shall return to Jacobson
all resonance technology equipment furnished by Jacobson and Jacobson shall
purchase from RealPure a resonance technology equipment furnished by RealPure
for eighty percent (80%) of the book value of such resonance technology
equipment on the date of expiration or termination of this Agreement, which
shall be determined pursuant to generally accepted accounting principles.
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<PAGE> 3
6. MARKETING. RealPure will use diligent efforts to promote the sale
and distribution of the product and shall be responsible for all costs
associated with the advertising, sale and promotion of the product. RealPure
shall provide customer service in connection with the marketing, sale and
distribution of the product. The product shall initially be marketed in the
United States pursuant to a marketing plan to be mutually agreed upon by the
parties. Thereafter, upon thirty (30) days advanced written notice by RealPure
to Jacobson to manufacture, distribute or sale the product outside the United
States and the geographic location outside the United States in which RealPure
desires to market the product, the parties shall mutually agree upon a marketing
plan for such geographic area.
7. WARRANTIES OF JACOBSON. Jacobson hereby represents and warrants that
(i) it is the exclusive owner of the resonance technology; (ii) the resonance
technology for use with beverage products has been issued patents by the United
States Patent Office; (iii) such patent grants Jacobson the exclusive and sole
right to use the resonance technology in connection with the manufacture, sale
and distribution of beverage products and to grant licenses to the resonance
technology in connection with the manufacture, sale and distribution of beverage
products; (iv) Jacobson has not granted any license to use the patents in
connection with the manufacture, sale and distribution of beverage products to
any third person or entity; (v) Jacobson has maintained the confidentiality of
the resonance technology specifications at all times; (vi) the exclusive
proprietary rights of Jacobson to the resonance technology specifications do not
infringe upon any other person's ownership or proprietary rights or interest;
and (vii) the beverage products, when prepared in accordance with the resonance
technology specifications, will yield products that am good and merchantable and
fit for human and animal consumption and will not violate any federal rule or
regulation or any provision of the Federal Food, Drug and Cosmetic Act, as
amended, the Federal Insecticide, Fungicide and Rodenticide Act, the Federal
Hazardous Substance Act, or any application state pure foods acts and any other
applicable federal, state or local laws or regulations.
8. WARRANTIES OF REALPURE. RealPure hereby represents and warrants that
(i) the beverage products manufactured by it, except as altered by the resonance
technology, shall be good and merchantable and fit for human and animal
consumption and will not violate any rule or regulation of the Federal Food and
Drug Administration, the Federal Food, Drug and Cosmetic Act, as amended, the
Federal Insecticide, Fungicide and Rodenticide Act, the Federal Hazardous
Substance Act, or any other applicable state pure foods acts and any other
applicable federal, state or local laws or regulations; 00 Jacobson is the owner
of the proprietary rights and the resonance technology specifications and the
patent; and (iii) the resonance specifications constitute trade secrets of
Jacobson,
9. CONFIDENTIALITY. RealPure shall not disclose, duplicate, sell or
reveal any portion of the resonance technology specifications and will take
reasonable measures to insure that none of its employees, representatives,
manufacturers and sub-distributors to whom the specifications may be revealed
keep and respect the confidence extended to them by Jacobson, provided, however,
RealPure shall be authorized to reveal and disclose any portion of the
specifications reasonably necessary in order to grant sub-licenses to third
persons or entities, but any such disclosure shall be subject to a written
sub-license agreement which shall contain confidentiality provisions similar to
those set forth herein.
3
<PAGE> 4
10. INSURANCE. RealPure shall, at all times during the term of this,
Agreement, and for a period of five (5) years following the termination or
expiration of this Agreement, maintain in full force and effect general
liability insurance coverage on its operations, including broad form vendor's
coverage and product liability insurance. Such insurance shall be in an amount
of not less than $1,000,000,00 for each accident or occurrence, with an
aggregate of $2,000,000,00, and a $3,000,000.00 umbrella with a company which
has a rating of not less than "A-Class X11" in the Best Insurance Guide.
Jacobson shall, at all times during the terms of this Agreement and for a period
of five (5) years following the termination or expiration of this Agreement,
maintain in full force and effect its current comprehensive general liability
insurance coverage Policy No. DOM3001008, underwritten by Lloyd's of London. On
the effective date of this Agreement, and on each annual anniversary date
thereafter, the parties to this Agreement shall furnish to each other a
certificate of insurance evidencing that each of them has such insurance
coverage in full force and effect. Such insurance coverage shall contain an
endorsement which provides that the coverage will not be canceled or materially
modified except upon thirty (30) days written prior notice to the other party to
this Agreement.
11. INDEMNITY.
11.1 RealPure shall defend, indemnify and hold Jacobson harmless
from (i) any and all claims made against Jacobson based upon, arising out of or
related to the operation or condition of any part of RealPure's bottling plants;
(ii) the preparation, manufacture, bottling storage, warehousing, distribution
and sale of the beverage product except with respect to the implementation and
use of the resonance technology; (iii) any negligent act, misfeasance or
nonfeasance by RealPure or any of its agents, contractors, servants, or
employees, except with respect to the implementation and use of the resonance
technology; and (iv) any and all fees, costs and expenses incurred by or on
behalf of Jacobson in the investigation of or defense against any and all of the
foregoing claims. However, upon RealPure's notice to Jacobson that RealPure has
assumed the defense of any legal action or proceeding, RealPure shall not be
liable to Jacobson for any legal or other expense subsequently incurred by
Jacobson in connection with the defense thereof. Jacobson shall provide RealPure
with prompt written notice upon receipt of any of the foregoing claims, and
Jacobson shall not settle any such claim without RealPure's prior knowledge and
consent.
11.2 Jacobson shall defend, indemnify and hold RealPure harmless
against and from any and all claims made against RealPure based upon, arising
out of, or any way related to (i) the conduct of Jacobson's business; (ii)
Jacobson's ownership or possession of property; (iii) the use and implementation
of the resonance technology and the manufacture of beverage product in
conjunction with the resonance technology; (iv) any negligent act, misfeasance
or nonfeasance by Jacobson or any of its agents, servants or employees; (v)
Jacobson's breach of any of its representations, warranties or covenants made
herein; (vi) advertising, promotional materials, statements or any other
representations made by RealPure to any third party, including the public or any
governmental agency, concerning the resonance technology, but only to the extent
that such representations are based upon information and/or materials provided
to RealPure by Jacobson for such purpose; and (vii) any and all fees, costs and
expenses, including, without limitation, attorneys' fees incurred by or on
behalf of RealPure in the investigation of or
4
<PAGE> 5
defense against any and all of the foregoing claims. However, upon notice to
RealPure that Jacobson has assumed the defense of any legal action or
proceeding, Jacobson shall not be liable to RealPure for any legal or other
expense subsequently incurred by RealPure in connection with the defense
thereof. RealPure shall provide Jacobson prompt notice of receipt of any such
claim and RealPure shall not settle any such claim without Jacobson's prior
knowledge and consent.
12. RELATIONSHIP OF THE PARTIES. Nothing in this Agreement shall be
construed to create an agency relationship between RealPure and Jacobson,
RealPure is independent of and from Jacobson and RealPure's sole relationship to
Jacobson shall be as a licensee of the resonance technology pursuant to the
terms and conditions of this Agreement, Accordingly, neither patty shall be
liable for any debts, accounts, obligations or other liabilities or torts of the
other party, or its agents or employees.
13. TERMINATION.
13.1 Either party may terminate this Agreement prior to the
expiration of the primary term, or any renewal term, only in the event of a
material breach of one or more terms and conditions of this Agreement which has
not been cured within thirty (30) days following written notice to the breaching
party. Jacobson may elect to terminate, after the second annual anniversary of
the effective date of this Agreement and each annual anniversary date
thereafter, in the event that the number of cases of beverage products sold
during the preceding calendar year does not exceed 120% of the sales for the
preceding year, provided, however, that RealPure may avoid termination by paying
the difference between royalties actually paid and royalties which would have
been payable in the event that the 120% minimum sales amount was achieved.
13.2 Upon the expiration or termination of this Agreement,
RealPure shall cease the use of the resonance technology in connection with the
manufacture, distribution and sale of beverage product, but shall have the right
to distribute and sell any beverage product enhanced by the resonance technology
which is manufactured prior to the expiration or termination of this Agreement.
ReaPure shall continue to be obligated to pay Jacobson the royalty payments
provided for herein on all beverage products manufactured prior to the
expiration or termination of this Agreement, but sold subsequent to the
expiration or termination of this Agreement. Within thirty (30) days after the
expiration or termination of this Agreement, RealPure shall return all resonance
technology equipment provided to RealPure by Jacobson, along with any and all
confidential, proprietary information which relates to the use of the resonance
technology in the manufacture of beverage products.
14. LIMITATION OF REMEDIES. Notwithstanding any provision herein to the
contrary, in the event of a breach of any one or more terms and conditions of
this Agreement by RealPure, RealPure's liability to Jacobson shall be limited to
the obligations of RealPure to make royalty payments as provided for herein, and
for any other breach, RealPure's liability shall be limited to the extent of
insurance coverage for the act, omission or occurrence which is the proximate
cause of the breach. Nothing contained in this paragraph shall limit or
otherwise affect Jacobson's right to terminate this Agreement prior to the
expiration of the primary term, or any applicable renewal term, as provided for
hereinabove. Jacobson shall have no other remedy, including, but not limited to,
the remedy of specific performance with respect to RealPure's performance, or
the
5
<PAGE> 6
lack thereof, pursuant to the terms and conditions of this Agreement. In no
event shall RealPure be liable for any debts of Jacobson which may be incurred
upon reliance of this Agreement, or for any loss of profit, good will or any
other benefit except for the royalty payment.
15. NOTICE. All notices sent pursuant to this Agreement shall be in
writing, signed by the party sending the notice, and shall be sent either by
certified mail, postage prepaid, hand delivered to the recipient at the address
below, or forwarded via facsimile to the address and telephone number listed
below:
If to RealPure, to: REALPURE Beverage Group, LLC-
Mr. David M. Cox, President
Post Office Box 16647
Jackson, Mississippi 39236-6647
Telecopier: (601) 944-1090
If to Jacobson, to: Jacobson Resonance Enterprises, Inc.
Dr. Frank A. Chaviano
Chief Operating Officer
9960 Central Park Boulevard, Suite 302
Boca Raton, Florida 33428
Telecopier: (561) 477-6101
16. ENTIRE AGREEMENT. This Agreement represents the entire agreement
between the parties and supercedes all other prior oral or written arrangements
and agreements. This Agreement may not be modified or amended, except by further
written instrument, or by an amendment to this Agreement, signed by both of the
parties hereto.
17. WAIVER. Any failure by any party hereto to exercise any of its
rights hereunder shall not be construed as a waiver of such rights, nor shall
any such failure preclude the existence of any such rights at any later time.
18. APPLICABLE LAW, JURISDICTION AND VENUE. Jacobson acknowledges and
agrees that substantial performance of this Agreement is to be performed in the
State of Mississippi, United States of America, and agrees that this Agreement
shall be governed by and construed in accordance with the laws of the State of
Mississippi. Jacobson hereby irrevocably submits to the jurisdiction of all
federal and state courts lying within the State of Mississippi and covenants and
agrees not to assert any challenge to the jurisdiction of any federal or state
court within the State of Mississippi, or to the venue of any action or the
personal jurisdiction of such courts to the parties hereto.
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<PAGE> 7
DATED this the date first set forth hereinabove.
REALPURE BEVERAGE GROUP, LLC
By: /s/ DAVID M. COX
----------------------------------
David M. Cox, President
JACOBSON RESONANCE ENTERPRISE INC.
By: FRANK A. CHAVIANO
----------------------------------
Frank A. Chaviano,
Chief Operating Officer
7
<PAGE> 8
EXHIBIT "A"
ROYALTY ADDENDUM
Water $0.30 per case
Sports Drink $0.50 per case
Pedialite (pediatric drink) $0.60 per case
Active Adult (geriatric drink) $0.45 per case
The royalty payments set forth above shall be increased at the
beginning of the first renewal period and each renewal period thereafter in an
amount equal to the inflation rate occurring during the prior period as
published by the United States Department of Treasury and Commerce.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM JACOBSON
RESONANCE ENTERPRISES, INC.'S AUDITED FINANCIAL STATEMENTS, FOR THE YEARS ENDED
DECEMBER 31, 1999 AND 1998, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 579,518
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 610,835
<PP&E> 116,685
<DEPRECIATION> 13,707
<TOTAL-ASSETS> 728,915
<CURRENT-LIABILITIES> 148,154
<BONDS> 0
0
45
<COMMON> 37,169
<OTHER-SE> 543,347
<TOTAL-LIABILITY-AND-EQUITY> 728,915
<SALES> 22,021
<TOTAL-REVENUES> 22,021
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,694,186
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,094,158
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 3,657,966
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,657,966
<EPS-BASIC> (0.11)
<EPS-DILUTED> (0.11)
</TABLE>
