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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-SB
GENERAL FORM FOR REGISTRATION OF SECURITIES OF SMALL BUSINESS ISSUERS UNDER
SECTION 12(b) OR 12(g) OF THE SECURITIES EXCHANGE ACT OF 1934
MANHATTAN SCIENTIFICS, INC.
(Name of Small Business Issuer in its Charter)
Delaware 850460639
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(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
641 Fifth Avenue, Suite 36F, New York, New York 10022
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(Address of Principal Executive Offices) (Zip Code)
(212) 752-0505
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(Issuer's Telephone Number)
Securities to be registered pursuant to Section 12 (b) of the Act:
Title of Each Class Name of Each Exchange on Which
To be so Registered Each Class is to be Registered
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Securities to be registered pursuant Section 12 (g) of the Act:
Common Stock, $0.001 par value
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(Title of Class)
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TABLE OF CONTENTS
Forward Looking Statements
PART I
Item 1. Description of Business
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Item 3. Description of Property
Item 4. Security Ownership of Certain Beneficial Owners and Management
Item 5. Directors, Executive Officers, Promoters and Control Persons
Item 6. Executive Compensation
Item 7. Certain Relationships and Related Transactions
Item 8. Description of Securities
PART II
Item 1. Market Price of and Dividends on our Common Equity and Related
Stockholder Matters
Item 2. Legal Proceedings
Item 3. Changes in and Disagreements with Accountants
Item 4. Recent Sales of Unregistered Securities
Item 5. Indemnification of Officers and Directors
PART F/S
Financial Statements
PART III
Index to Exhibits
SIGNATURES
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FORWARD LOOKING STATEMENTS
This Form 10-SB contains certain forward-looking statements, including
statements regarding our expectations of our future operations. For this
purpose, any statements contained in this Form 10-SB that are not statements of
historical fact may be deemed to be forward-looking statements. Without limiting
the foregoing, words such as "may," "will," "expect," "believe," "anticipate,"
"estimate," or "continue" or comparable terminology are intended to identify
forward-looking statements. These statements by their nature involve substantial
risks and uncertainties, and actual results may differ materially depending on a
variety of factors, many of which are not within our control. These factors
include, but are not limited to, economic conditions generally and in the
industries in which we may participate, competition within our chosen industry,
including competition from much larger competitors, technological advances, and
the failure by us to successfully develop business relationships. In addition,
these forward looking statements are subject to our successful completion of the
research and development with respect to the micro fuel cell and our other
technologies, successful commercialization of the micro fuel cell and
holographic storage devices for mass production, successful protection of our
patents, and effective significant industry competition from various entities
whose research and development, financial, sales and marketing and other
capabilities far exceeds ours. In light of these risks and uncertainties there
can be no assurances that the forward-looking statements in this Form 10-SB will
in fact transpire or prove to be accurate.
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PART I
Item 1. Description of Business
Manhattan Scientifics, Inc., a development stage company, is a
technology incubator that seeks to acquire, develop and bring to market
life-enhancing technologies in various fields of endeavor, with emphasis in the
area of consumer and commercial electronics. We identify emerging technologies
through strategic alliances with scientific laboratories, educational
institutions, scientists and leaders in industry and government. We believe that
our scientific and business expertise, resourcefulness and creativity place us
in a position to advance these technologies from the development stage through
commercialization.
We are currently working with four technologies:
o Micro fuel cell technology for portable electronic devices,
including cellular telephones. We believe this technology has the
potential to significantly increase battery life over the current
state-of-the-art technology;
o Mid-range fuel cell technology with potential applications for
cordless appliances, power tools, wheelchairs, bicycles, boats, home
energy fuel cell systems, and laptop computers.
o Holographic data storage technology that we believe is capable of
storing and retrieving large amounts of data in small spaces. We
believe this technology has the potential to increase the volume of
electronic data storage, as well as retrieval times, over the
current state-of-the-art technology; and
o Filtration technology based upon a nanoporous polymer for consumer
and restaurant water and air purification. Based upon independent
research, we believe this technology has the potential to be up to
100,000 times more efficient than the carbon filter most commonly in
use today.
In addition, Manhattan Scientifics has acquired 5,416,300 shares of
common stock, approximately a 27% interest in NMXS.Com, Inc. (f/k/a New Mexico
Software, Inc.) a public company, that owns and is marketing what it believes to
be a fast and efficient Internet technology for the management of digital
images.
We are also working to identify potential new technologies for possible
acquisition and development although we have no agreements or arrangements for
any other technologies as of the date of this Form 10-SB.
Manhattan Scientifics, Inc. was formed through a reverse merger
involving a public company in January 1998. The public company was incorporated
in the state of Delaware on August 1, 1995 under the name Grand Enterprises,
Inc. Grand was initially organized to market an unrelated patented product, but
subsequently determined that its business plan was not feasible. In January
1998, Grand effected the reverse merger in a transaction involving
Projectavision, Inc., another public company that was co-founded by our CEO.
Projectavision was the owner of approximately 98% of Tamarack Storage Devices,
Inc., a privately held Texas
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corporation formed in 1992 to develop and market products based on the
holographic data storage technology described above. In January 1998, Grand
formed a wholly-owned subsidiary named Grand Subsidiary, Inc. Grand Subsidiary
and Tamarack merged, Tamarack being the surviving corporation, and via the
merger, Tamarack became a subsidiary of Grand. As consideration for merging
Tamarack with Grand Subsidiary, Grand gave Projectavision and the other
shareholders of Tamarack 44,000,000 shares of our common stock. In addition, in
exchange for a note payable of $1.5 million plus accrued interest of $330,000
due to Projectavision from Tamarack, Grand gave Projectavision 182,525 shares of
Series A Preferred Stock and a warrant to purchase 750,000 shares of our common
stock at an exercise price of $0.10 per share, exercisable at any time prior to
January 8, 2003, which warrant as of the date of this Form 10-SB, remains
unexercised and outstanding. The Series A Preferred Stock was subsequently
converted into 9,435,405 shares of our common stock. In connection with this
transaction, new personnel assumed the management of Grand, former management
resigned, and Grand changed its name to Manhattan Scientifics, Inc.
Our Development Model
Manhattan Scientifics, a development stage company, is a technology
incubator that seeks to acquire, develop and bring to market life-enhancing
technologies. Our goal is to influence the future through the development of
technologies in an intense and focused way. We identify emerging technologies
through strategic alliances with various scientific laboratories, educational
institutions, scientists and leaders in industry and government. Technology
development is accomplished using scientific resources and our strategic
alliances. By fostering the development of multiple technologies at the same
time, we believe we increase our likelihood of success while decreasing our risk
through diversification.
We have assembled a team of management and professionals that is
working to achieve our corporate mission. In the highly competitive environment
of emerging technologies, we believe swiftness of identification, evaluation and
acquisition is essential to success. We believe we have the ability to act and
react rapidly as well as comprehensively, and we believe this has enabled us to
acquire technologies notwithstanding competition from larger companies and
government entities.
Manhattan Scientifics has not yet realized any revenue from any of our
technologies, since they are still in their development phase and we do not
anticipate any revenues in the near future. As such, the need for operating and
acquisition capital is a continuous concern and requires and will continue to
require the ongoing efforts of our management. Because we believe the
traditional process of securing capital funding is often cumbersome and slow, we
therefore generally attempt to accelerate the capital financing process. We have
and intend to continue to raise capital on an as needed basis through a series
of private placements. (See "Part II - Item 4 - Recent Sales of Unregistered
Securities")
We also try to coordinate our resources to ensure our technologies have
a promising chance for commercial success. For example, as needed, we intend to
continue to enlist the assistance of experts who we believe will help bring a
particular technology to market.
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We do not have nor do we plan to establish large production facilities.
Rather, we intend to maintain research labs and small pilot production
facilities to produce key components and prototypes of our technologies, and/or
to involve third parties with demonstrated expertise in large-scale
manufacturing and production.
We currently consider ourselves to operate in one business segment.
Our Technologies
Fuel Cell Technologies
Manhattan Scientifics is conducting research efforts to develop both
micro and mid-range fuel cell technologies. Fuel cells, which have no moving
parts, create electricity not by burning fuel, but by the process of
electrochemically arranging the fuel's atoms to produce electric current. Water
or water vapor and carbon dioxide are the only emissions. In addition to
producing harmless emissions, certain fuel cells have the potential to be an
alternative to traditional energy sources because they use methanol and other
sources of hydrogen as fuels. Methanol can be produced inexpensively from a
variety of plant sources and is considered a renewable resource. Methanol is
also regarded to be stable and safe.
We have acquired technologies in the fields of both micro fuel cells
and mid-range fuel cells.
1. Micro Fuel Cell Technology
We believe that micro fuel cell-based power sources have the potential
to replace conventional batteries to provide portable power sources. If
perfected, we believe micro fuel cell technology could supply power to consumer
electronic products such as cellular phones, pagers, and other microelectronic
devices more efficiently than conventional batteries. We believe micro fuel
cells would be refuelable with insignificant amounts of methanol and water and
would significantly increase battery life over current state-of-the-art battery
technology. Until recently, fuel cell technology had not been practical for
consumer electronics because of the size of the devices necessary to produce
electrical energy. We believe that new materials and miniaturization technology
has the potential to make micro fuel cell technology commercially feasible.
Mr. Robert Glenn Hockaday is the inventor of our micro fuel cell. In
January 1998, we acquired the rights to Mr. Hockaday's micro fuel cell
invention, as well as another invention known as a "solar cell," and secured Mr.
Hockaday's continued efforts for a limited period of time, to develop the
invention via a research and development agreement with Mr. Hockaday's company,
Energy Related Devices, Inc. ("Energy Related Devices"). Mr. Hockaday owns
approximately 99% of Energy Related Devices, and that company agreed to provide
Mr. Hockaday's personal services for a limited period of time, as independent
contractor, not as employee to Manhattan Scientifics, along with a $2 million
key man life insurance policy, which we are obligated to pay for, naming
Manhattan Scientifics as the beneficiary.
Mr. Hockaday received, through the merger of DKY, Inc. (see the next
paragraph for a discussion of DKY) into Tamarack, 7,200,000 shares of our common
stock in exchange for 4
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micro fuel cell patents, 2 patent applications, and any resulting patents or
inventions from this technology and his solar cell invention. We also secured
Mr. Hockaday's continued involvement for a limited period of time by agreeing to
fund Mr. Hockaday's research and development efforts in connection with the
technology through Energy Related Devices pursuant to a milestone timetable up
to $1,000,000, which was disbursed as of August 1999. Mr. Hockaday is also to
receive royalties on future revenues and sublicenses from any invention or any
derivative of the acquired technology. In May 1999, we formally established a
milestone timetable for Mr. Hockaday's development of the micro fuel cell and,
subject to certain conditions and limitations, agreed to fund up to an
additional $300,000 for research and development, of which no funds have been
disbursed as of October 31, 1999.
Our arrangements with Mr. Hockaday were effected through a series of
transactions involving Energy Related Devices, Mr. Hockaday, Manhattan
Scientifics, and our wholly owned subsidiary Tamarack Storage Devices, Inc.
Specifically, the shareholders of Energy Related Devices, Mr. Hockaday and one
other individual, formed a new corporation specifically for this transaction
named DKY, Inc., with whom Mr. Hockaday entered into a patent license/assignment
agreement regarding the micro fuel cell and solar cell. Subsequently, Manhattan
Scientifics acquired the agreement via the merger of DKY with and into Tamarack,
for which the shareholders of DKY received the 7,200,000 shares of our common
stock described above. The research and development agreement was entered into
separately and independently by Energy Related Devices, Mr. Hockaday, Manhattan
Scientifics and Tamarack.
Our agreements with Mr. Hockaday also relate to an additional
technology invented by Mr. Hockaday known as a solar cell, with respect to which
there is no activity at present. We are obligated to pay Mr. Hockaday royalties
on future revenues and sublicenses from any invention or any derivative of this
acquired technology.
We believe we have achieved promising results through our research to
date. For example, in the fourth quarter of 1998, we demonstrated a
pre-prototype of our micro fuel cell technology by completing a fuel-cell driven
cellular telephone call. In the first quarter of 1999, we demonstrated that an
eight cell array, which is approximately the size of a credit card, running on
methanol and water, was able to run a pager. As of the date of this Form 10-SB,
we are working to build an actual size prototype of a cellular phone powered by
fuel cells. Once we have completed initial development of the micro fuel cell,
we will attempt to secure a manufacturing and distribution arrangement with an
established commercial partner. On November 16, 1999, we were informed that
Industry Week Magazine selected us to receive a Technology of the Year Award in
recognition of our work on the micro fuel cell.
2. Mid Range Fuel Cell Technology
In addition to micro fuel cells, we have also begun efforts to develop
mid-range fuel cell technologies. Mid range fuel cell technologies are directed
toward high current, low voltage applications such as laptop computers, cordless
appliances and power tools, wheelchairs, bicycles, boats, and home energy fuel
cell systems. In contrast, micro fuel cell technologies address low current,
high voltage applications such as cellular phones, pagers and other
microelectronics devices.
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In August 1999, we acquired a mid-range fuel cell technology from
Novars Gesellschaft fur neue Technologien, GmbH, a private company based in
Germany, and Dr. Arthur E. Koschany and Petra Koschany, the company's founders
and inventors of the technology. In exchange for the technology, we agreed to
issue 1,000,000 shares of our common stock to Novars and the Koschanys, and to
pay royalties on revenue from the technology. Of the 1,000,000 shares, we agreed
to issue 250,000 shares to Novars, and 750,000 to Petra Koschany, subject to
escrow release provisions tied to effective transfer of intellectual property.
Pursuant to this agreement, Novars and the Koschanys agreed to further research
and develop the technology for a limited period of time. Funding under this
agreement depends upon the achievement of development milestones. As of the date
of this Form 10-SB, we have paid Novars and the Koschanys $200,000 for research
and development efforts. Novars and the Koschanys have agreed to use their best,
exclusive full-time efforts in conducting research and development for a limited
period of time. In addition, they have agreed to secure $2,000,000 in key-man
life insurance, at our expense, on Dr. Koschany naming Manhattan Scientifics as
the beneficiary. As of the date of this Form 10-SB, this policy has not been
issued.
We also acquired rights of first refusal on new technologies developed
by Novars and the Koschanys.
After execution of agreements in August 1999, Novars and the Koschanys
relocated their operations to eastern Bavaria and completed the set up of
laboratory and administrative facilities. They hired three professional
associates and have begun the research and development. One of the immediate
goals is to develop a lightweight, efficient, easy to handle, fuel cell stack
appropriate for mass production and worldwide distribution in the year 2000.
Holographic Data Storage Technology
Manhattan Scientifics' wholly owned subsidiary, Tamarack Storage
Devices, Inc., (a/k/a/ Holostor(TM)) has conducted research and development
activities relating to holographic data storage technology since approximately
1992. Manhattan Scientifics acquired Tamarack in 1998 via merger with Grand
Subsidiary, Inc. (see "Part I - Item 1 - Description of Business").
We currently have thirty nine patents filed relating to holographic
data storage technology, of which 14 patents have been issued or are issuing and
25 are pending. The patents cover a range of concepts from optical design to
media chemistry. Prior to the merger, Tamarack was engaged in the development of
holographic data storage technology both independently and as member of a
consortium of microelectronics companies funded privately and by the United
States government through its Defense Advanced Research Projects Agency
("DARPA"). This research and development has continued independent of the
consortium and DARPA since our acquisition of Tamarack.
We believe holographic storage technology provides significantly
greater storage densities than conventional magnetic surface recording, and
significantly faster retrieval times. The theoretical limits for the holographic
storage density is measured in terabits, that is, millions of bits per cubic
centimeter. Holographic data storage provides greater storage capabilities
because data is stored in three dimensional light patterns. Holographic storage
also makes data retrieval more efficient. In contrast to single bits of data
being stored and retrieved in a stream
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from conventional magnetic medium, holographic data storage retrieves pages of
information. In addition, the means of reading data is faster than traditional
storage.
We believe a principal disadvantage of holographic data storage is that
presently there is no established industry standard for this new way to record
and retrieve data.
To date, holographic data storage in general has not advanced into the
marketplace as a viable storage method because of technical challenges inherent
in developing a suitable holographic storage medium. For this reason, we have
focused our research and development work upon the development of a suitable
holographic storage medium that overcomes these technical challenges,
specifically in the field of photopolymers. For this purpose, we previously
entered into and completed a cooperative research and development agreement with
the University of California, a nonprofit educational institution that conducts
research development for the United States Government at facilities located at
Los Alamos, New Mexico ("Los Alamos National Laboratory"), and subsequently
hired who we believe to be one of the foremost polymer scientists in the world.
We believe that our continuing research and development work will eventually
result in the commercialization of holographic data storage technologies,
although we do not expect to be able to commercialize this technology until a
suitable storage medium is developed.
Nanoporous Polymer Filter Technology
In August 1999, we acquired an exclusive option from the Los Alamos
National Laboratory to license and sublicense the exclusive worldwide rights for
nanoporous polymer water and air filtration technology in consumer and
restaurant applications. The cost of the option was $10,000, which amount will
not be credited against any future license or sublicense. The option extends to
applications including whole house water filters, water faucet filters,
standalone water and air filters, water fountain and water cooler filters,
restaurant applications, and portable devices to purify water from a lake, pond,
river or other source, for individual consumption. The nanoporous polymer filter
technology is a polymer-based material that forms nanometer-sized pores that
absorb and trap organic contaminants.
Research conducted by scientists at the Los Alamos National Laboratory
indicates that the binding between organic contaminants and the nanoporous
polymer is 100,000 times greater than the binding between contaminants and the
most widely used activated carbon filters, reducing organic compounds to the
parts per trillion range, and that the material is reusable. Unlike activated
carbon, the polymers do not allow leaching of the organic contaminants once they
are trapped. In addition, a simple alcohol rinse releases the collected
contaminants from the polymer, allowing it to be reused numerous times.
The option gives Manhattan Scientifics the right to exclusively license
the technology from the Los Alamos National Laboratory and sublicense the
technology in the United States, and a right of first refusal for such rights in
foreign countries. The initial term of the option expires on February 29, 2000
and may be extended for an additional year for an additional option fee of
$10,000. As of the date of this Form 10-SB, we intend to renew the option.
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We believe there is a growing worldwide market for clean, pure water.
We believe this market is evident at the consumer level through the increasing
sales of bottled water. We are looking to form an alliance with a corporate
partner, well-positioned in the water purification industry that could assist in
successful product development and subsequent market penetration. As of the date
of this Form 10-SB, we have no such agreement or understanding with any partner.
We also believe there may also be applications for the nonoporous polymer filter
for swimming pools, hot tubs, as well as air filtration in homes automobiles and
restaurants.
Digital Image Management Technology (Investment in NMXS.Com, Inc.)
In 1999, Manhattan Scientifics acquired 5,416,300 shares of common
stock, approximately 27%, of NMXS.Com, Inc., a public company located in
Albuquerque, New Mexico, at a cost of $100,000. NMXS.Com markets Internet
technology-based software for the high-speed transmission of high-resolution
graphic images, video clips and audio recordings. NMXS.Com's proprietary
software provides image archiving, asset packaging, data mining and secure
e-commerce transaction capabilities.
Our acquisition of shares in NMXS.Com was effected through a
transaction with its predecessor, New Mexico Software, Inc., a privately held
New Mexico corporation. New Mexico Software became public pursuant to a reverse
merger transaction. Prior to the reverse merger, we invested $100,000 in New
Mexico Software and agreed to provide New Mexico Software business and
management consulting services. In return, we contracted for equity, which
equaled the 5,416,300 shares of NMXS.Com, upon consummation of the reverse
merger. The investment agreement also provided that the investment would convert
to a loan in the event that the reverse merger was not consummated. The reverse
merger was consummated in August 1999 and the 5,416,300 shares were issued to
Manhattan Scientifics at such time.
We believe NMXS.Com has mature, market-ready, turnkey products and is
positioned to capitalize on the growing trend of businesses migrating their
graphic image assets to digital formats. The company provides solutions
particularly suited to companies seeking to develop a web presence or become
involved in e-commerce.
Pursuant to contract, NMXS.Com has agreed that Manhattan Scientifics
shall hold at least one of its three board of director seats, and that the size
of its board cannot be increased without our approval. At present, two of our
directors are also directors of NMXS.Com. (Messrs. Maslow and Bach). In
addition, per our contract with NMXS.Com, Manhattan Scientifics provided
NMXS.Com with business and management advice through August 1999. Also, our CEO
receives a salary and a leased car from NMXS.Com as consideration for
independent services to NMXS.Com.
Competition
The markets in which we compete are highly competitive and constantly
evolving. We face competition from leading researchers and manufacturers
worldwide. For example, in the last few years there has been a much greater
interest in using fuel cells as an energy source for practical applications such
as automobiles and portable electronic devices. In addition, Ford
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Motor Company has indicated it will contribute several hundred million dollars
as part of a global alliance with other entities to develop automotive engines
powered by fuel cells.
The markets in which we compete have no substantial barriers to entry.
Accordingly, there are others working toward similar objectives in order to
penetrate these markets and we anticipate additional companies to pursue the
same goals. Those whose efforts of which we are aware include Medis El, Inc. in
the area of micro fuel cells, H Power Corp. in the area of mid-range fuel cells,
Polaroid in the area of holographic storage media, and Affiniti Water
Technologies in the area of filtration technologies.
We believe that the principal competitive factors in our technology
markets are:
o proprietary technology;
o product quality;
o ability to customize technology to a customer's particular use;
o manufacturing capabilities; and
o price.
Many of our competitors have longer operating histories and
significantly greater financial, marketing and other resources than we have.
Furthermore, our competitors may introduce new products that address our
potential markets. There can be no assurance that our competitors will not
develop products that achieve greater market acceptance than the products we
plan to offer. Competition could have a material adverse effect on our business,
financial condition and results of our operations.
Intellectual Property
Our ability to compete depends in part on the protection of our
proprietary technology and on the goodwill associated with our trade names,
service marks and other proprietary rights. We cannot make assurances, however,
that current laws will provide us with sufficient protection, that others will
not develop technologies similar or superior to ours, or that third parties will
not copy or otherwise obtain or use our technologies without our authorization.
With respect to the technologies that we are developing, we have 18
patents that have been issued to us and 31 patents pending in the U.S. Patent
and Trademark Office. We also have five trademark registration applications
pending. Of these, with respect to the micro fuel cell device, 4 patents have
been issued, 2 are pending, and there are 5 trademark registration applications
pending. With respect to the mid-range fuel cell, we have 4 patents pending.
With respect to the holographic storage technology, we have 14 patents issued
and 25 patents pending. In addition, we continue to evaluate whether to pursue
additional applications to protect our intellectual property.
The success of our business will depend, in part, on our ability to
secure issuance of our pending patents, obtain related patents, protect and
enforce patents once issued and operate
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without infringing the proprietary rights of others. Our success will also
depend on our ability to maintain exclusive rights to trade secrets and
proprietary technology we own, are currently developing and will develop. We can
give no assurance that any issued patents will provide us with competitive
advantages or will not be challenged by others, or that the patents of others
will not restrict our ability to conduct business.
In addition, we rely on certain technology licensed from third parties
and may be required to license additional technologies in the future. There can
be no assurance that these third-party licenses will be available or will
continue to be available to us on acceptable commercial terms or at all. The
inability to enter into and maintain any of these licenses could have a material
adverse effect on our business, financial condition or results of our
operations.
Policing unauthorized use of our proprietary technology and other
intellectual property rights could entail significant expense. In addition,
there can be no assurance that third parties will not bring claims of copyright
or trademark infringement against us or claim that our use of certain
technologies violates a patent. Any claims of infringement, with or without
merit, could be time consuming and expensive to defend, result in costly
litigation, divert management attention, require us to enter into costly royalty
or licensing arrangements or prevent us from using important technologies or
methods any of which could have a material adverse effect on our business,
financial condition or results of our operations.
Sales and Marketing
Although our technologies presently are in the development stage, we
are engaged in an early marketing program intended to facilitate the transition
from development to manufacturing and sales. This program consists of
preliminary dialogue with potential strategic partners, investors, and
manufacturers concerning the funding and implementation of manufacturing and
distribution activities.
Employees
As of October 31, 1999, we had 3 full-time employees, including 2
uncompensated employees in general management, and 1 compensated employee in
research and development and two part-time uncompensated employees. None of our
employees is a member of any union or collective bargaining organization. We
consider our relationship with employees to be good.
A significant portion of our research and development is performed by
independent contractors from whom we acquired certain technologies. As of
October 31, 1999, we have two independent contractors conducting research and
development for us (as described above, Robert Hockaday performs research and
development under contract through his company Energy Related Devices, Inc., and
the inventor of the mid-range fuel cell technology acquired by Manhattan
Scientifics, Dr. Arthur Koschany, also performs research and development under
contract through his company Novars). Our independent contractors rely upon a
number of their respective personnel to satisfy their research and development
obligations to Manhattan Scientifics.
Reports to Security Holders
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We have voluntarily elected to file this Form 10-SB registration
statement in order to become a reporting company under the Securities Exchange
Act of 1934. Following the effective date of this registration statement, we
will be required to comply with the reporting requirements of the Exchange Act.
We will file annual, quarterly and other reports with the Securities and
Exchange Commission. We will also be subject to the proxy solicitation
requirements of the Exchange Act and, accordingly, will furnish an annual report
with audited financial statements to our stockholders.
Available Information
Copies of this registration statement may be inspected, without charge,
at the SEC's public reference rooms in Washington, D.C., New York, New York and
Chicago, Illinois. Please call the SEC at 1-800-SEC-0300 for further information
on the operation of its public reference rooms. In addition, copies of this
material also should be available through the Internet by using the SEC's
Electronic Data Gathering, Analysis and Retrieval System, which is located at
http://www.sec.gov. You may also obtain information about us on the Over the
Counter Bulletin Board's web site which is located at http://www.otcbb.com.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The following discussion and analysis should be read in conjunction
with our financial statements and accompanying notes appearing elsewhere in this
Form 10-SB.
Overview
In January 1998, Manhattan Scientifics, Inc., then a non-operating
public corporation with nominal net assets, known as Grand Enterprises, Inc.,
acquired all of the outstanding common stock of Tamarack Storage Devices, Inc.
in a transaction that gave the stockholders of Tamarack actual control of the
combined company. For accounting purposes, the acquisition has been treated as a
capital stock transaction rather than a business combination. This transaction
has been recorded as a recapitalization of Tamarack with Tamarack as the
acquiror, reverse acquisition, and no goodwill or other intangible was
recognized. The historical financial statements prior to the date of the reverse
acquisition are those of Tamarack with the accounting acquiror's stockholders
equity prior to the merger retroactively restated i.e., recapitalized, for the
equivalent number of shares received in the transaction and the difference
between the par value of Grand's and Tamarack's stock recorded as an offset to
additional paid-in capital. Historical deficit accumulated during the
development stage of Tamarack is being carried forward after the acquisition.
Loss per share has similarly been restated for all periods prior to the
acquisition to include the number of equivalent shares received by Tamarack's
stockholders.
Since the reverse merger we have been acquiring technologies,
directing, supervising and coordinating our research and development efforts,
raising capital, and initiating marketing activities and dialogue with potential
customers.
Manhattan Scientifics has not received any revenues since the reverse
merger and we have incurred losses. As of December 31, 1998, we have had an
accumulated loss since inception, 1992, of $10,596,000, of which $6,676,000
predated the reverse merger and relates to
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the activities of our subsidiary, Tamarack Storage Devices, Inc., and as of
September 30, 1999, we had an accumulated loss since inception of $18,252,000.
We expect operating losses to continue for the foreseeable future because we
will be continuing to fund research and development efforts as well as general
and administrative expenses prior to receiving any revenues from our
technologies.
There can be no assurance that our research and development and
marketing efforts will be successful, that we will ever have commercially
acceptable products, or that we will achieve significant sales of any such
products. We operate in an environment of rapid change in technology and we are
dependent upon the services of our employees, consultants and independent
contractors. If we are unable to successfully bring our technologies to
commercialization, we would likely have to significantly alter our business plan
and may cease operations.
Results of Operations
Comparison of nine months ending September 30, 1999 to nine months ended
September 30, 1998.
Net Loss We reported a net loss of $7,656,000 or $0.08 per common share, basic
and diluted, for operations for the nine months ended September 30, 1999 versus
a net loss of $3,736,000 or $0.06 per common share, basic and diluted, for the
nine months ended September 30, 1998. The increase of $3,920,000 or 105% is
primarily a result of the issuance of options with an exercise price below fair
market value on the date of grant and the issuance of stock for services.
Revenues We had no revenues during the nine months ended September 30, 1999 and
had no revenues during the nine months ended September 30, 1998, although we
received a final payment of $21,700 in August 1999 in connection with research
performed by our subsidiary, Tamarack Storage Devices, Inc., for DARPA.
Costs and Expenses Costs and expenses for the nine months ended September 30,
1999 totaled $7,673,000, an increase of $3,937,000 or 105%, versus costs and
expenses of $3,736,000 for the nine months ended September 30, 1998. These costs
and expenses are detailed below.
Salaries and Employee Benefits Salaries related to research and development and
employee benefits were $9,000 for the nine months ended September 30, 1999 which
consisted of salary to our Chief Polymer Scientist, which is included in
Research and Development for such period, versus salaries and employee benefits
of $0 for the nine months ended September 30, 1998. This increase of $9,000 is a
result of paying our Chief Polymer Scientist his first month's salary. We
anticipate an increase in these costs as we intend to enter into employment
agreements with our now uncompensated executive officers and implement certain
employee benefit plans including a healthcare plan.
Consulting Fees Consulting fees were $108,000 for the nine months ended
September 30, 1999 which primarily consisted of the granting of options to our
consultants with an exercise price below fair market value on the date of grant,
versus consulting fees of $1,279,000 for the nine months ended September 30,
1998. This decrease of $1,171,000 or 92% is a result of the
14
<PAGE>
fact that we made a number of one time payments to consultants in 1998. We
intend to continue to rely upon these consultants.
General and Administrative General and administrative expenses were $6,730,000
for the nine months ended September 30, 1999 which consisted of accounting,
legal, travel and other expense reimbursements, rent, telephone and other day to
day operating expenses and the granting of options to our consultants with an
exercise price below fair market value on the date of grant, versus general and
administrative expenses of $1,827,000 for the nine months ended September 30,
1998. This increase of $4,903,000 or 268% is primarily a result of the granting
of options to our officers and directors with an exercise price below fair
market value on the date of grant. We anticipate a decrease of general and
administrative expenses in the future, as we do not presently intend to grant
significant numbers of options with an exercise price below fair market value on
the date of grant, which decrease will be offset by increased costs as we become
a reporting company, expand our operations and effectuate our business plan.
Research and Development Research and development expenses were $835,000 for
the nine months ended September 30, 1999 which consisted of payments to Energy
Related Devices, Inc., Novars, amortization of patents, CRADA payments, the
nanoporous polymer license option payment, and salary to our Chief Polymer
Scientist, versus research and development expenses of $630,000 for the nine
months ended September 30, 1998. This increase of $205,000 or 33% is a result of
research and development payments to Novars. We expect research and development
costs to increase in proportion to the pace we develop our technologies.
Year ending December 31, 1998
Net Loss We reported a net loss of $3,920,000 or $0.05 per common share, basic
and diluted, for our operations from the reverse merger to December 31, 1998.
The loss is primarily a result of the fact that we had no revenues and incurred
the costs and expenses detailed below.
Revenues We had no revenues during 1998.
Costs and Expenses Costs and expenses for 1998 totaled $3,920,000. These cost
and expenses are detailed below.
Salaries and Employee Benefits Salaries and employee benefits were $0.00 for
1998. We anticipate an increase in these costs as we intend to enter into
employment agreements with our now uncompensated executive officers and
implement certain employee benefit plans including a healthcare plan.
Consulting Fees Consulting fees were $1,308,000 for 1998 which consisted
primarily of a number of one time payments to various parties for financial,
investor relations, public relations, scientific, strategic, and other business
consulting services. We intend to continue to rely upon these consultants.
General and Administrative General and administrative expenses were $1,949,000
in 1998 which consisted of accounting, legal, travel and other expense
reimbursements, rent, telephone and other day to day operating expenses and
granting options and warrants to our officers, directors, third party service
providers and others with an exercise price below fair market value
15
<PAGE>
on the date of grant. We expect these costs to increase as we become a reporting
company, expand our operations and effectuate our business plan.
Research and Development Research and development expenses were $663,000 in 1998
which consisted primarily of funds used to develop our micro fuel cell
technology and amortization of our fuel cell patents. We expect research and
development costs to increase in proportion to the pace that we develop our
technologies.
Liquidity
At present, Manhattan Scientifics is a development stage company and is
in the technology acquisition and development phase of its operations.
Accordingly, we have relied primarily upon private placements and subscription
sales of stock to fund our continuing activities and acquisitions. To a limited
extent, and as described below, we have also relied upon borrowing from
non-traditional lenders who are also shareholders of ours. Until there is
revenue from sales and licensing of technology, or a large infusion of cash from
a potential strategic partner, we intend to continue to rely upon these methods
of funding operations during the next year.
The significant assets of Manhattan Scientifics include our portfolio
of intellectual property relating to the various technologies, our contracts
with third parties pertaining to technology development and acquisition, our
holdings of approximately 5.4 million shares of common stock in NMXS.Com, Inc.,
our cash on hand, and our strategic alliances with various scientific
laboratories, educational institutions, scientists and leaders in industry and
government.
Stockholders' equity totaled $2,192,000 on December 31, 1998 and the
working capital was $831,000 on such date. Stockholders' equity totaled
$1,888,000 on September 30, 1999 and the working capital deficit was $526,000 on
such date.
Commencing with the reverse merger transaction in January 1998, there
have been three groups of private placements intended to raise capital for us.
These have consisted of the following:
1. In January 1998, in connection with the reverse merger transaction described
above (see "Part I - Item 1 - Description of Business"), we raised $1,000,000
through the sale of 5 million shares of common stock to 40 investors at a
price of 20 cents per share (see "Part II - Item 4 Recent Sales of
Unregistered Securities").
2. On April 16, 1998, in order to raise us additional capital, we raised $50,000
through the sale of 275,000 shares of common stock to a single individual,
Mr. Stephen Guarino, at 18.18 cents per share (see "Part II Item 4 - Recent
Sales of Unregistered Securities").
3. From July 28, 1998 through December 31, 1998, in order to raise us additional
capital, we raised $1,017,000 through the sale of 20,340,000 shares of common
stock to 51 individuals and entities at 5 cents per share. The right to
purchase these shares was originally granted to one entity (Lancer Partners,
L.P.) on July 28, 1998, together with the right to assign the right to
purchase such shares. That entity effectively assigned its rights to the 51
individuals and
16
<PAGE>
entities between July 28, 1998 and December 31, 1998 (see "Part II - Item 4 -
Recent Sales of Unregistered Securities"). Finders fees aggregating $25,000
were paid to one entity.
In addition to the foregoing private placements, we received additional
capital through the exercise of options by one of our option holders. On or
about October 14, 1999, we received $20,000 from Mr. Donald Sandstrom, who has
served us from time to time as a scientific advisor, in connection with his
exercise of 100,000 options at 20 cents per share.
In October 1999, Manhattan Scientifics borrowed $500,000 from the
Peters Corporation of Santa Fe, New Mexico. The loan bears interest at the rate
of Citicorp prime plus 1% and matures on December 19, 1999. The Peters
Corporation is a shareholder of ours and may also become a direct private
investor in us. The proceeds of the loan were used to retire a bridge loan in
the same amount that had been made by the Orbiter Fund in August 1999. Among
other things, interest on the Orbiter loan had been payable at the rate of
13.5%, and Orbiter had the right to convert the loan into 2,000,000 shares of
common stock if unpaid by May 18, 2000. The Orbiter Fund is a shareholder of
ours and an affiliate of our largest shareholder.
Manhattan Scientifics borrowed $275,000 from Jack Harrod, our Chief
Operating Officer, effective as of August 8, 1999. The loan bears interest at
the annual rate of 5.5% and is due together with interest upon the earlier of
(i) eighteen (18) months from August 8, 1999, or (ii) the date we complete a
private placement of a class of our securities aggregating at least $1,500,000.
We may prepay the loan at any time, in whole or in part, without penalty.
Over the next 12 months, we intend to spend significant time and
resources developing each of our technologies.
We do not presently maintain a line of credit with any financial
institution.
On November 24, 1999, Lancer Management Group, LLC, the beneficial
owner of 34.9% of our securities, expressed its willingness to advance us funds
as needed to continue our operations through December 15, 2000, upon reasonable
terms and conditions to be agreed.
We do not expect any significant change in the total number of
employees over the next twelve months. We intend to continue to identify and
target appropriate technologies for possible acquisition over the next twelve
months, although we have no agreements regarding any such technologies as of the
date of this Form 10-SB.
Based upon current projections, our principal cash requirements for the
next 12 months consists of (1) fixed expenses in categories including rent,
payroll, investor relations services, public relations services, bookkeeping
services, graphic design services, consultant services, and reimbursed expenses;
and (2) variable expenses in categories including technology research and
development, milestone payments, intellectual property protection, utilities and
telephone, office supplies, additional consultants, legal and accounting. As of
December 31, 1998, we had $665,000 in cash. As of September 30, 1999, we had
$419,000 in cash. We intend to satisfy our capital requirements for the next 12
months by our cash on hand and continuing to pursue private placements to raise
capital and use our common stock as payment for services in
17
<PAGE>
lieu of cash where appropriate. There can be no assurance that those resources
will be adequate to cover our capital requirements.
Year 2000
Many existing software programs may not accurately process dates
arising in the year 2000 and beyond because they use only two digits to identify
a year and assume that the two missing digits are always "19." Year 2000
disruptions could result in system failures or miscalculations that could
temporarily shut down or impede our operations.
We have completed a preliminary review of our computer systems and
operations to determine the extent to which our business will be vulnerable to
potential errors and failures as a result of the year 2000 problem. Based on
this limited review, we have concluded that our computer programs and operations
will not be materially affected by the year 2000 problem. We cannot assure you,
however, that the systems of other companies with whom we may do business will
be in compliance and this could have a material adverse effect on our
operations.
We do not have any material contracts with external contractors to
assist us in completing our year 2000 compliance effort. In addition, no
employees have been hired or reassigned to complete our year 2000 compliance.
Recently Issued Accounting Standards
We do not believe any recently issued accounting standards have had or
will have a material impact on our operations.
Item 3. Description of Property
Our principal executive facility is located at 641 Fifth Avenue, New
York, New York. We lease approximately 1,200 square feet of space pursuant to a
two-year lease that terminates on December 31, 2001. In 1999, the rental cost
for this space is $5,000 per month, of which Manhattan Scientifics pays 20%
($1,000). The remaining 80% ($4,000) is paid on a month to month basis by
Normandie Capital Corp., a private corporation owned by our Chief Executive
Officer, in consideration of its occasional use of the facility. Our lease
provides for renewal at the end of the initial term for up to an additional two
years at the rental cost of $5,500 per month.
In addition to our principal executive facility, we also lease space at
127 Eastgate Industrial Park, Los Alamos, New Mexico. We lease approximately
2,500 square feet pursuant to a three-year lease that terminates on April 30,
2001. In part, the space is used as a laboratory to conduct research and
development of our technologies. The aggregate rental cost for this space in
1999 will be $35,640, plus approximately $3,500 to use certain phone services
provided by the landlord, of which Manhattan Scientifics will pay approximately
15%. The other 85% is paid by Energy Related Devices, Inc., a corporation which
is 99% owned by Robert Hockaday, who is an independent contractor to us and is
using a portion of the space for research and development of the micro fuel cell
technology (See "Part I Description of Business - Our Technologies - Fuel Cell
Technologies"). Our lease provides for renewal at the end of the initial term
for up to an additional two years, subject to adjustments in the rental rate
based on the Consumer Price Index.
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<PAGE>
We believe our facilities are adequate for our current and planned
business operations.
Item 4. Security Ownership of Certain Beneficial Owners and Management
The following table sets forth information regarding the beneficial
ownership of our common stock as of the date of this Form 10-SB. The information
in this table provides the ownership information for:
o each person known by us to be the beneficial owner of more than 5%
of our common stock;
o each of our directors;
o each of our executive officers; and
o each of our executive officers and directors as a group.
Beneficial ownership has been determined in accordance with the rules
and regulations of the Securities and Exchange Commission and includes voting or
investment power with respect to the shares and may exceed 100%. Unless
otherwise indicated, the persons named in the table have sole voting and
investment power with respect to the number of shares indicated as beneficially
owned by them. The number of shares of common stock outstanding used in
computing beneficial ownership of each person listed below includes shares of
common stock underlying options or warrants held by that person that are
exercisable within 60 days of the date of this Form 10-SB, but excludes shares
of common stock underlying options or warrants held by another person. The
percentage of beneficial ownership is based on 97,056,405 shares of common stock
outstanding as of October 31, 1999.
Unless otherwise indicated, the address of each beneficial owner is c/o
Manhattan Scientifics, Inc., 641 Fifth Avenue, Suite 36F, New York, New York
10022. In addition to the shares outstanding as of October 31, 1999, there are
2,500,869 additional shares of common stock which we are contractually obligated
to issue but which have not yet been issued to the appropriate recipients, of
which we agreed to issue 101,600 shares in October 1999. These unissued shares
are not included in the aggregate amount of outstanding shares indicated above.
However, for purposes of accurately computing the percentage of beneficial
ownership for each particular individual set forth in the following table, the
quantity of unissued shares owed to each particular individual has been added to
the aggregate amount of outstanding shares.
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<PAGE>
TABLE I Number of
shares
Name and beneficially
title of beneficial owner owned Percentage
- ------------------------- ----- ----------
Marvin Maslow, President, Chairman of the
Board, Chief Executive Officer.................... 15,000,000(1) 13.4%
Jack Harrod, Chief Operating Officer.............. 4,750,000(2) 4.8%
Robert Hockaday, Chief Fuel Cell Scientist(3)..... 7,200,000 7.4%
Scott L. Bach, Esq., Secretary and Director....... 1,150,000(4) 1.2%
David A. Teich, CPA, Director .................... 502,000(5) .5%
Lancer Management Group, LLC...................... 33,895,512(6) 34.9%
Lancer Management Group II, LLC................... 22,000,000(7) 20.5%
Lancer Offshore, Inc.............................. 28,150,000(8) 29.0%
- ----------------
(1) Consists of 15,000,000 currently exercisable, "cashless" and assignable
options at an exercise price of $0.05 per share.
(2) Consists of 2 million shares of common stock, and 2,750,000 currently
exercisable ten year options that have an exercise price of 20 cents per share.
(3) Mr. Hockaday is an independent contractor to Manhattan Scientifics through
his company Energy Related Devices, Inc. Though Mr. Hockaday has the title of
Chief Fuel Cell Scientist, Mr. Hockaday is not an employee, officer or director
of Manhattan Scientifics.
(4) Consists of 150,000 shares of common stock and 1,000,000 currently
exercisable ten year options which are "cashless," assignable and have an
exercise price of 5 cents per share.
(5) Consists of 2,000 shares of common stock and 500,000 currently exercisable
ten year options which are "cashless," assignable and have an exercise price of
5 cents per share.
(6) Consists of the following shareholders of record: Lancer Offshore, Inc.
(28,150,000 million shares), Lancer Voyager Fund (3 million shares), Michael
Lauer (2,245,512 shares), and The Orbiter Fund (500,000 shares). Michael Lauer
is the Managing Member of Lancer Management Group, LLC. Lancer Management
Group, LLC has voting and dispositive power over the shares held by the
business entities listed above, and is thus deemed the beneficial owner of such
shares.
(7) Consists of 12 million shares and 10 million ten year warrants at an
exercise price of 5 cents per share held by Lancer Partners, L.P. Lancer
Management Group II, LLC has voting and dispositive power over these shares and
thus is deemed the beneficial owner of such shares. Michael Lauer is the
Managing Member of Lancer Management Group II, LLC.
(8) Lancer Management Group, LLC has voting and dispositive power over these
shares and thus is deemed the beneficial owner of such shares.
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<PAGE>
Lancer Partners, L.P.............................. 22,000,000(9) 20.5%
All executive officers and directors as
a group (4 persons)............................... 21,402,000 18.4%
Item 5. Directors, Executive Officers, Promoters and Control Persons
The names and ages of our directors and executive officers are set
forth below. Biographical information for each of these persons is also
presented below. There are no existing family relationships between or among any
of our executive officers or directors.
Name Age Position
- ---- --- --------
Marvin Maslow....................... 62 President, Chief Executive Officer,
Chairman of the Board
Jack Harrod......................... 58 Chief Operating Officer
Scott L. Bach, Esq.................. 37 Secretary, Director
David A. Teich, CPA................. 43 Director
Pursuant to our bylaws, directors are to be elected at each annual meeting
and serve until their successors have been elected. We have not held an
annual meeting since the reverse merger. Officers are appointed by the board
of directors and serve for one year terms.
Marvin Maslow has served as our chief executive officer and chairman of
the board since our reverse merger in January 1998. From June 1990 through
September 1996, prior to joining Manhattan Scientifics, Mr. Maslow served as
chief executive officer of Projectavision, Inc., a company he co-founded to
develop and market video projection technology. Since November 1996, Mr. Maslow
has also served as chief executive officer and chairman of the board of Tamarack
Storage Devices, Inc., a wholly owned subsidiary of Manhattan Scientifics. Since
August 1999, Mr. Maslow has also served as a director of NMXS.Com, Inc., a
company in which Manhattan Scientifics owns approximately 27%. For more than
twenty years, Mr. Maslow has been President of Normandie Capital Corp., a
private investment and consulting company. Mr. Maslow received an A.A.S. degree
from the Rochester Institute of Technology in 1957.
Jack Harrod has served as our chief operating officer since August
1998. From November 1966 to March 1998, Mr. Harrod held a variety of
executive positions at Texas Instruments, including executive vice
president. Mr. Harrod received a B.S. in Electrical Engineering from the
College of Engineering, University of Arkansas in 1964.
- ---------------------
(9) Consists of 12 million shares and 10 million ten year warrants at an
exercise price of 5 cents per share. Lancer Management Group II, LLC has voting
and dispositive power over these shares and thus is deemed the beneficial owner
of such shares.
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<PAGE>
Scott L. Bach, Esq. has served as our secretary and as a director of
ours since January 1998. Since November 1996, Mr. Bach has served as secretary
and director of Tamarack Storage Devices, Inc., a wholly owned subsidiary of
Manhattan Scientifics. Since August 1999, Mr. Bach has also served as a director
of NMXS.Com, Inc., a company in which Manhattan Scientifics owns approximately
27%. Mr. Bach founded Bach & Associates in 1995, a law firm specializing in
commercial matters. From 1988 to 1995, he was associated with the law firm of
Robinson Silverman Pearce Aronsohn & Berman. From 1987 to 1988, he was
associated with the law firm of Zalkin, Rodin & Goodman. Mr. Bach received a
B.A. from Queens College, City University of New York in 1984 and a J.D. from
Hofstra Law School in 1987.
David A. Teich, CPA has served as a director of ours since May 1999 and
is the managing partner of Teich, Beim & Moro, CPA's, P.C. Since January 1999,
Mr. Teich's accounting firm has acted as our internal controller. Mr. Teich
graduated with a B.B.A. degree from Pace University in 1979, became a CPA in
1982, and has been employed by his firm in various capacities including
accountant, manager, partner and managing partner since 1977.
Item 6. Executive Compensation
The following table sets forth information as to the compensation
awarded by us to our executive officers and directors for the fiscal year ended
December 31, 1998, and through October 31, 1999.
<TABLE>
<CAPTION>
Annual Compensation Long Term Compensation
------------------- ----------------------
Awards Payouts
------ -------
Other Restricted
Annual Stock Options Com-
Name Title Year Salary Bonus Compensation(1) Awarded SARs Payouts pensation
- ---- ----- ---- ------ ----- --------------- ------- ---- ------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Marvin Maslow Pres., 1998 $0 $0 $30,000 -0- 2.5mm(2) -0- -0-
CEO, 1999 $0 $0 $40,000 -0- 12.5mm(3) -0- -0-
Chrmn
</TABLE>
- ----------------------
(1) Throughout 1998, we granted a monthly non-accountable expense allowance to
our uncompensated full-time CEO (Mr. Maslow) at the rate of $2,500 per month,
and granted a non-accountable expense allowance in the aggregate of $8,000 to
our uncompensated full-time COO (Mr. Harrod). Commencing in January 1999, we
increased the allowance to our CEO and COO at the uniform rate of $4,000 each
per month.
(2) On January 8, 1998, Mr. Maslow was granted 7.5 million options at a 20 cent
exercise price. In connection with a private placement to a third party in
July, 1998, Mr. Maslow relinquished these options. Five million of these
options were recast as warrants to purchase shares of our common stock at a 5
cent exercise price and given to the third party as a portion of the
consideration for the private placement. The remaining 2.5 million of these
options were also recast as warrants at a 5 cent exercise price and given to
Mr. Maslow. On May 6, 1999, (1) Mr. Maslow's 2.5 million warrants were recast
as 2.5 million options at an exercise price of 5 cents per share, and (2) we
granted Mr. Maslow 12.5 million additional options at
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<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Jack Harrod COO 1998 $0 $0 $ 8,000 -0- 2.75mm(4) -0- -0-
1999 $0 $0 $40,000 -0- -0- -0- -0-
Scott L. Bach Sec'y, 1998 $0 $0 $0 -0- 500k(5) -0- -0-
Dirctr 1999 $0 $0 $0 -0- 500k(6) -0- -0-
David A. Teich Dirctr 1998 $0 $0 $0 -0- -0- -0- -0-
1999 $0 $0 $0 -0- 500k(7)
Martin Holleran Dirctr 1998 $0 $0 $0 -0- 7.5mm(8) -0- -0-
1999 $0 $0 $0 -0- -0- -0- -0-
Jules Zimmerman Dirctr(9) 1998 $0 $0 $0 -0- 500k -0- -0-
1999 $0 $0 $0 -0- -0- -0- -0-
</TABLE>
- ----------------------
an exercise price of 5 cents per share. At that time, it was determined that
the duration of all of Mr. Maslow's options, 15 million in the aggregate, would
be 10 years from May 6, 1999, and that the options would be immediately
exercisable, "cashless" and assignable.
(3) See footnote 2, above.
(4) Mr. Harrod's options were granted on August 10, 1998, at the exercise price
of 20 cents per share, and with a life of 10 years.
(5) On January 8, 1998, Mr. Bach was granted 500,000 options for his services
as a director of ours at an exercise price of 20 cents per share. These options
were recast at an exercise price of 5 cents per share on May 6, 1999.
(6) On May 6, 1999, Mr. Bach was granted 500,000 options for his services as an
officer of ours, at the exercise price of 5 cents per share. At that time, it
was determined that the duration of all of Mr. Bach's options, 1 million in the
aggregate, would be 10 years from May 6, 1999, and that the options would be
"cashless" and assignable.
(7) On May 6, 1999, Mr. Teich was granted 500,000 immediately exercisable,
"cashless," assignable options for his services as a director of ours, at the
exercise price of 5 cents per share, and having a duration of 10 years from May
6, 1999.
(8) Resigned as a director of ours during the first quarter of 1999. On January
8, 1998, Mr. Holleran was granted 7.5 million options at a 20 cent exercise
price, with a duration of 10 years. In connection with a private placement to a
third party in 1998, Mr. Holleran relinquished these options. 5 million of
these options were recast as warrants at a 5 cent exercise price and given to
the third party as a portion of the consideration for the private placement.
The remaining 2.5 million options were also recast as warrants at a 5 cent
exercise price and given to Mr. Holleran. Mr. Holleran thus has 2.5 million
warrants at an exercise price of 5 cents per share.
(9) Resigned as a director of ours during the first quarter of 1999. On January
8, 1998, Jules Zimmerman was granted 500,000 options at a 20 cent exercise
price, with a duration of 10 years, for his services as a director of ours.
23
<PAGE>
Compensation of Directors and Officers
Our officers and directors do not presently receive any cash
compensation from us for their service as officers and/or directors. However,
officers and directors do receive equity in the form of stock options in lieu of
cash, at the discretion of the Board of Directors. Also, our officers and/or
directors who are uncompensated full time employees of ours, Messrs. Maslow and
Harrod, each presently receive a $4,000 per month non-accountable expense
allowance.
Employment Agreements
We have entered into an employment agreement with Robert E. Hermes,
Ph.D., our Senior Staff Scientist and polymer expert. This agreement commenced
on September 1, 1999. The initial term is for one year with automatic renewals
for two additional one year terms unless either party provides notice to the
other of intention not to renew. Mr. Hermes receives an annual salary
approximately equal to his compensation at the Los Alamos National Laboratory,
his former employer, and will receive 500,000 stock options, subject to a three
year vesting schedule, of which none have been issued as of the date of this
Form 10-SB.
At present, we have no employment agreements with our other officers or
directors, although we intend to enter into such agreements with our full time
management executives.
Item 7. Certain Relationships and Related Transactions
During 1998, a number of potential accredited investors were introduced
to us by Alan Cohen, a shareholder of ours. Subsequently, during 1998, we sold
2.5 million shares of our common stock to 12 accredited investors at $0.05 per
share. Of the 2.5 million shares sold, 1,250,000 shares were purchased by Mr.
Cohen who utilized funds provided by the 12 private investors to purchase his
shares.
Our 1999 annual rental for our principal executive offices is $60,000.
80% of the monthly rental is paid by Normandie Capital Corp., a private
corporation owned by our Chief Executive Officer.
On November 24, 1999, Lancer Management Group, LLC, the beneficial
owner of 34.9% of our securities, expressed its willingness to advance us funds
as needed to continue our operations through December 15, 2000, upon reasonable
terms and conditions to be agreed.
In August 1999, the Orbiter Fund, a shareholder of ours and an
affiliate of our largest shareholder, granted us a bridge loan in the principal
amount of $500,000 bearing interest at the rate of 13.5%. We retired the loan in
October 1999.
In October 1999, we borrowed $500,000 from the Peters Corporation, a
shareholder of ours. The loan bears interest at the rate of Citicorp prime plus
1% and matures on December 19, 1999. In connection with this loan, we arranged
for the Peters Corporation to receive 150,000 shares of our common stock from a
third party corporation controlled by a stockholder of ours. We subsequently
agreed to issue to the Peters Corporation 150,000 shares
24
<PAGE>
of our common stock in replacement of the shares granted by the third party. As
of the date of this Form 10-SB, we have not yet issued the 150,000 replacement
shares. We used the proceeds of this loan to retire the Orbiter Loan.
In 1998, we issued Zuckerman, Gore & Brandeis a total of 500,000
currently exercisable options, each exercisable to purchase one share of our
common stock at $0.20 per share as compensation, in addition to cash
compensation, for legal services rendered to us and to our wholly owned
subsidiary, Tamarack Storage Devices, Inc.
NMXS.Com pays our CEO a yearly salary of $60,000 and leases a car for
our CEO as consideration for his services.
During 1998, Bach & Associates, the law firm of Scott L. Bach, our
secretary and a director of ours, received $43,123 as compensation for legal
services rendered to us at a discounted rate.
From January 1, 1999 to October 31, 1999, Bach & Associates received
$62,944 as compensation for legal services rendered to us at a discounted rate.
From January 1, 1999 to October 31, 1999, Teich, Beim & Moro, P.C., the
accounting firm of David A. Teich, CPA, a director of ours, received $15,000 as
compensation for accounting services rendered to us at a discounted rate.
In September 1999, the partners of David A. Teich, a director of ours,
in the firm of Teich, Beim & Moro, P.C., received an aggregate of 200,000
options to purchase our common stock at an exercise price of 5 cents per share
as consideration for Mr. Teich's reduced availability to attend to partnership
duties as a result of his activities on behalf of Manhattan Scientifics. Michael
Beim received 150,000 of such options and Christopher Moro received 50,000 of
such options.
Manhattan Scientifics borrowed $275,000 from Jack Harrod, our Chief
Operating Officer, effective as of August 8, 1999. The loan bears interest at
the annual rate of 5.5% and is due together with interest upon the earlier of
(1) eighteen (18) months from August 8, 1999, or (2) the date we complete a
private placement of a class of our securities aggregating at least $1,500,000.
We may prepay the loan at any time, in whole or in part, without penalty. Mr.
Harrod had originally delivered us the $275,000 to exercise options, each
exercisable to purchase our common stock, but such exercise was rescinded and
the options have been treated as if not exercised.
Item 8. Description of Securities
Our authorized stock consists of 150,000,000 shares of common stock,
par value $0.001 per share, and 1,000,000 shares of preferred stock, par value
$0.001 per share.
Common Stock
Each holder of our common stock is entitled to one vote for each share
held on all matters to be voted upon by our stockholders. Holders of our common
stock have no cumulative
25
<PAGE>
voting rights. Holders of our common stock are entitled to receive ratably
dividends, if any, as may be declared from time to time by our board of
directors out of legally available funds, except that holders of preferred stock
may be entitled to receive dividends before the holders of the common stock.
In the event of a liquidation, dissolution or winding up of us, holders
of our common stock would be entitled to share in our assets remaining after the
payment of liabilities and the satisfaction of any liquidation preference
granted the holders of any then outstanding shares of preferred stock. Holders
of our common stock have no preemptive or conversion rights or other
subscription rights. In addition, there are no redemption or sinking fund
provisions applicable to our common stock. All outstanding shares of our common
stock are duly authorized, validly issued, fully paid and nonassessable.
The rights, preferences and privileges of the holders of common stock
may be adversely affected by the rights of the holders of shares of any series
of preferred stock that we designate in the future.
Preferred Stock
Our board of directors is authorized, without stockholder approval, to
issue up to an aggregate of 1,000,000 shares of preferred stock, par value,
$0.001 per share, in one or more series. Each series will have the rights and
preferences as determined by our board of directors, including:
o voting rights;
o sinking fund terms;
o dividend rights;
o dividend rates;
o conversion rights;
o the number of shares constituting any series;
o redemption privileges; and
o liquidation privileges.
Preferred stock may have voting, dividend and liquidation rights superior to our
common stock which may adversely affect the rights of holders of our common
stock.
Series A Preferred Stock
On January 8, 1998, in connection with the reverse merger described in
"Part I - Item 1 - Description of Business," we issued 182,525 shares of Series
A Voting Redeemable, Convertible Preferred Stock to Projectavision, Inc.
Projectavision converted these shares, on a
26
<PAGE>
cashless basis, into 9,435,405 shares of our common stock on July 28, 1998.
Accordingly, as of October 31, 1999, there were no shares of Series A Preferred
Stock outstanding.
Series B Preferred Stock
On October 25, 1999, our Board of Directors authorized 180,000 shares
of Series B Preferred Stock in connection with a private offering of preferred
stock to raise additional capital for us. These shares have voting rights and
dividend rights as if each share had been converted to our common stock.
Upon liquidation, holders of Series B Preferred Stock will be treated
as if each holder converted their shares into shares of our common stock,
immediately prior to such liquidation. The shares of Series B Preferred Stock
may be converted into our common stock at any time on a one for ten basis. If
the average closing bid piece of our common stock shall have for any one hundred
twenty trading days within a period of eight months from the issuance of the
Series B Preferred Stock, equaled or been less than $0.50, then the conversion
ratio shall automatically be adjusted so that each share of Series B Preferred
Stock shall be convertible into twenty shares of our common stock. In the event,
during the 18 month period after any sale of Series B Preferred Stock, we sell
or issue our common stock or any security convertible into our common stock,
other than pursuant to stock options granted pursuant to our stock option plan,
for a cash price (the "Sale Price") or a conversion price, as the case may be,
less than the then applicable conversions ratio, we are obligated to issue or
reserve for issuance, such number of shares of common stock as shall be
necessary to reduce the conversion price of the Series B Preferred Stock to the
Sale Price. The shares of Series B Preferred Stock are not entitled to dividends
and have piggyback registration rights.
As of November 30, 1999, there were no shares of Series B Preferred
Stock outstanding.
Outstanding Options
We have reserved 30,000,000 shares of our common stock for issuance
under our 1998 Stock Option Plan. As of October 31, 1999, we have agreed to
issue 23,275,000 options, all of which are immediately exercisable to purchase
one share of our common stock. Of these options, 100,000 have been exercised.
16,700,000 of such options have an exercise price of 5 cents per share.
6,475,000 of such options have an exercise price of 20 cents per share. Some of
our outstanding options have net exercise provisions under which the holder may,
in lieu of payment of the exercise price in cash, surrender the option and
receive a net amount of shares, based on the fair market value of our common
stock at the time of the exercise and the option, after deducting the exercise
price. The foregoing options expire on dates ranging from January 2008 to
September 2009.
Outstanding Warrants
We currently have 15,250,000 common stock purchase warrants outstanding
and/or contracted for. Of these 15,250,000 warrants, (a) 10,000,000 are held by
one beneficial owner, or his designees, and are exercisable during the 10-year
period commencing July 28, 1998 at the exercise price of 5 cents per share; (b)
750,000 are held by one beneficial owner and are
27
<PAGE>
exercisable during the 5-year period commencing January 8, 1998 at an exercise
price of 10 cents per share; (c) 1,000,000 are contracted for to one beneficial
owner at an exercise price of 75 cents per share, (d) 1,000,000 are contracted
for to one beneficial owner at an exercise price of 75 cents per share, and (e)
2,500,000 are held by one beneficial owner and are exercisable during the ten
year period commencing July 28, 1998 at an exercise price of 5 cents per share.
Certain shares of common stock underlying the warrants contain piggyback
registration rights.
Transfer Agent
Interwest Transfer Company, Inc., of Salt Lake City, Utah, is the
transfer agent and registrar for our shares of common stock.
28
<PAGE>
PART II
Item 1. Market Price of and Dividends of our Common Equity and Related
Stockholder Matters
Market Information. Since January 1998, our common stock has traded on
the OTC Bulletin Board under the symbol "MHTX." We went public through a reverse
merger transaction on January 8, 1998 (see description of reverse merger
transaction at "Part I - Item 1 - Description of Business").
The following table sets forth, for the periods indicated, the high and
low per share bid information for our common stock on the OTC Bulletin Board.
Such high and low bid information reflects inter-dealer quotes, without retail
mark-up, mark down or commissions and may not represent actual transactions.
Bid Prices
----------
1998 High Low
- ---- ---- ---
First Quarter........................................... $0.69 $0.25
Second Quarter.......................................... 0.63 0.16
Third Quarter........................................... 0.52 0.20
Fourth Quarter.......................................... 0.70 0.20
Bid Prices
----------
1999 High Low
- ---- ---- ---
First Quarter........................................... $0.75 $0.31
Second Quarter.......................................... 1.95 0.35
Third Quarter........................................... 2.28 0.81
We are filing this Form 10-SB for the purpose of enabling our shares to
continue to trade on the OTC Bulletin Board. If our Form 10-SB has not been
declared effective by the Securities and Exchange Commission prior to February
9, 2000, then we may be required to file appropriate documentation with Nasdaq
in order for our shares to be quoted on the "pink sheets" and following the
effective date of the Form 10-SB, we will then file to have our shares quoted
again on the OTC Bulletin Board.
Approximate Number of Holders. As of November 30, 1999, we had
approximately 226 registered holders of record of our common stock. Some of
those registered holders are brokers who are holding shares for multiple clients
in street name. Accordingly, we believe the
29
<PAGE>
number of actual shareholders of our common stock exceeds the number of
registered holders of record.
Dividends. We have never paid any cash or stock dividends. We presently
intend to reinvest earnings, if any, to fund the development and expansion of
our business and therefore, do not anticipate paying dividends on our common
stock in the foreseeable future. The declaration of dividends will be at the
discretion of our board of directors and will depend upon our earnings, capital
requirements, financial position, general economic conditions and other
pertinent factors.
Item 2. Legal Proceedings
We are not currently subject to any legal proceedings. We may from time
to time become a party to various legal proceedings arising in the ordinary
course of business.
Item 3. Changes in and Disagreements with Accountants
On August 2, 1999, we appointed Richard A. Eisner & Company, LLP as our
independent accountants for the purpose of conducting an audit. We have no
disagreements to report.
Item 4. Recent Sales of Unregistered Securities
During the past three years, and subsequent to the reverse merger
transaction through which we came to be, we have issued unregistered securities
in the following transactions:
1. On October 15, 1999, we agreed to issue 1,600 shares of our common
stock to Joshua Rigsby as compensation in lieu of cash for computer repair and
crash recovery services rendered to us.
2. On August 5, 1999, we agreed to issue 1,000,000 shares of our common
stock, subject to Rule 144 restrictions, to Novars Gesellschaft fur neu
Technologien GmbH and/or its designees for the acquisition of certain mid-range
fuel cell technologies. 500,000 of these shares were delivered to Novars on or
about September 2, 1999, and the remaining 500,000 are being held in escrow
pending satisfaction of certain conditions to their release.
3. On May 6, 1999, we agreed to issue 10,000 shares of our common stock
to McKee Wallwork, in lieu of cash, for conducting a market survey in connection
with NMXS.Com, Inc. prior to our investing in that company.
4. On May 6, 1999, we agreed to issue 100,000 shares of our common
stock to the Peters Corporation or its designee, in lieu of cash, as
compensation for corporate furnishings.
5. As of January 4, 1999, we agreed to issue options to Stanton
Crenshaw Communications to purchase 350,000 shares of common stock at a price
per share of $0.20, and having a duration of 10 years. The options were issued
in exchange for public relations services. In addition, we agreed to issue to
Stanton Crenshaw $2,500 worth of our common stock per month, commencing as of
April 1, 1999, also in exchange for ongoing public relations services.
30
<PAGE>
The shares accrue monthly based upon the closing price of our stock on the last
day of each month, and are to be issued quarterly. As of October 31, 1999,
Manhattan Scientifics is obligated to issue, although we have not done so as of
the date of this Form 10-SB, 12,657 shares to Stanton Crenshaw for the quarter
ended June 30, 1999 and 4,612 shares for the quarter ended September 30, 1999.
6. On July 28, 1998, as part of a private placement to raise capital
for us, we agreed to (a) issue to Lancer Partners, L.P. 10,000,000 common stock
purchase warrants at the exercise price of 5 cents per share; (b) arrange for
Lancer to purchase 43,170,512 shares of ours common stock from Projectavision,
Inc. and (c) issue to Lancer 20,000,000 shares of our common stock at a price of
5 cents per share, together with rights to assign the right to acquire such
shares to certain third parties. Between August 1, 1998 and December 31, 1998,
Lancer effectively assigned its right to acquire such shares to 51 individuals
and entities, and accordingly, we issued and sold an aggregate of 20,000,000
shares to such individuals during such time. In connection with these issuances,
we sold an additional 340,000 shares to raise additional capital. Also, finder's
fees aggregating $25,000 were paid to First Internet Capital (see "Part I - Item
7 - Certain Relationships and Related Transactions").
7. On April 16, 1998, in order to raise capital for us, we agreed to
issue 275,000 shares of common stock to Mr. Stephen Guarino at a purchase price
of 18.18 cents per share.
8. On February 10, 1998, we agreed to issue 1,000,000 shares of common
stock to Equilink, L.L.C. in exchange for financial consulting services to be
rendered. We also agreed to issue warrants to purchase up to 2,000,000 shares of
common stock at a price of $0.75, in exchange for financial consulting services
to be rendered.
9. In February 1998, we agreed to issue 10,000 shares of our common
stock to Sherman Langer, in lieu of cash, as compensation for general business
consulting services rendered to us. These shares have not yet been issued.
10. In February 1998, we agreed to issue 25,000 shares of our common
stock to Owen Coleman, in lieu of cash, as compensation for corporate identity
and logo design services rendered to us. These shares have not yet been issued.
11. In February 1998, we agreed to issue 3,000 shares of our common
stock to Fred Ferguson, in lieu of cash, as compensation for general business
consulting services rendered to us. These shares have not yet been issued.
12. In February 1998, we agreed to issue 10,000 shares of our common
stock to Crane Digital Media, Inc. in lieu of cash, as compensation for web
design and maintenance services rendered to us. These shares have not yet been
issued.
13. In February 1998, we agreed to issue 30,000 shares of our common
stock to Star Tree, Inc., or its designee, in lieu of cash, as compensation for
public relations services rendered to us. These shares have not yet been issued.
31
<PAGE>
14. On January 14, 1998, in connection with our acquisition of the
intellectual property for the Micro Fuel Cell and Solar Cell inventions, we
issued to Robert G. Hockaday 7,200,000 shares of our common stock.
15. On January 8, 1998, in order to raise our initial $1.0 million
capital, we sold 5,000,000 shares of common stock to 40 individuals/entities at
a purchase price per share of $0.20.
16. On January 8, 1998, in order to consummate the reverse merger
transaction, we agreed to issue (a) 44,000,000 shares of our common stock to the
shareholders of Tamarack Storage Devices, Inc., (b) 182,525 shares of Series A
voting redeemable convertible preferred stock, which was converted into
9,435,405 shares of our common stock on July 28, 1998, to Projectavision, Inc.,
Tamarack's majority shareholder, and (c) a warrant to Projectavision to purchase
750,000 shares of our common stock at $0.10 per share, exercisable at any time
prior to January 8, 2003. These securities were issued in exchange for all of
the issued and outstanding securities of Tamarack , which we acquired through
merger with our subsidiary, Grand Subsidiary, Inc. (see "Part I - Item 1 -
Description of Business").
Exemption from registration for the transactions described above was
claimed pursuant to Section 4(2) of the Securities Act of 1933, as amended,
regarding transactions by the issuer not involving a public offering, in that
these transactions were made without general solicitation or advertising, to
sophisticated investors with all relevant information necessary to evaluate
these investments and who represented to the registrant that the shares were
being acquired for investment.
Item 5. Indemnification
Our certificate of incorporation and bylaws contain provisions
indemnifying our directors and executive officers against liabilities. In our
certificate of incorporation, we have eliminated the personal liability of our
directors and executive officers to Manhattan Scientifics and our stockholders
for monetary damages for breach of their fiduciary duty, including acts
constituting gross negligence. However, in accordance with Delaware law, a
director will not be indemnified for a breach of its duty of loyalty, acts or
omissions not in good faith or involving intentional misconduct or a knowing
violation or any transaction from which the director derived improper personal
benefit. In addition, our bylaws further provide that we may advance to our
directors and officers expenses incurred in connection with proceedings against
them for which they are entitled to indemnification.
We do not currently maintain Directors and Officers Liability
Insurance, although we plan to obtain such insurance within the next two
quarters.
We have also agreed to indemnify, defend, and hold harmless each of our
officers and directors to the fullest extent permissible by law with regard to
any and all loss, expense or liability, including payment and advancement of
reasonable attorney's fees, arising out of or relating to claims of any kind,
whether actual or threatened, relating in any way to their service to us. We
plan to memorialize these agreements as written contracts.
32
<PAGE>
MANHATTAN SCIENTIFICS, INC.
AND SUBSIDIARY
(a development stage enterprise)
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998 and 1997
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders Manhattan Scientifics, Inc.
We have audited the accompanying consolidated balance sheet of Manhattan
Scientifics, Inc. (formerly Grand Enterprises, Inc.) (a development stage
enterprise) and subsidiary ("the Company") as of December 31, 1998 and the
related consolidated statements of operations, stockholders' equity and cash
flows for the years ended December 31, 1998 and 1997 and the amounts for each of
the years ended December 31, 1998, 1997, 1996 and 1995, included in the
cumulative amounts for the period from July 31, 1992 (inception) through
December 31, 1998. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements enumerated above present fairly, in all
material respects, the consolidated financial position of Manhattan Scientifics,
Inc. and subsidiary as of December 31, 1998, and the consolidated results of
their operations and their consolidated cash flows for the years ended December
31, 1998 and 1997 and the amounts for each of the years ended December 31, 1998,
1997, 1996 and 1995, included in the cumulative amounts for the period from July
31, 1992 (inception) through December 31, 1998, in conformity with generally
accepted accounting principles.
Richard A. Eisner & Company, LLP
Florham Park, New Jersey
November 5, 1999
F-1
<PAGE>
MANHATTAN SCIENTIFICS, INC. AND SUBSIDIARY
(a development stage enterprise)
Consolidated Balance Sheet
December 31, 1998
ASSETS
Current assets:
Cash $ 665,000
Stock subscriptions receivable 260,000
Prepaid expenses 5,000
-----------
Total current assets 930,000
Property and equipment, net 22,000
Other assets:
Patent, net 1,332,000
Security deposit 7,000
-----------
$ 2,291,000
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 99,000
-----------
Commitments
Stockholders' equity:
Capital stock $.001 par value
Series A convertible, redeemable, preferred stock,
10 percent cumulative; authorized 182,525 shares;
issued and outstanding - none
Preferred stock, authorized 1,000,000 shares;
issued and outstanding - none
Common stock, authorized 150,000,000 shares;
98,250,405 shares issued and outstanding 98,000
Additional paid-in capital 12,690,000
Deficit accumulated during the development stage (10,596,000)
-----------
Total stockholders' equity 2,192,000
-----------
$ 2,291,000
===========
The accompanying notes are an integral part of these financial statements
F-2
<PAGE>
MANHATTAN SCIENTIFICS, INC. AND SUBSIDIARY
(a development stage enterprise)
Consolidated Statements of Operations
<TABLE>
<CAPTION>
Period From
Inception
(July 31, 1992)
Year Ended December 31, Through
------------------------- December 31,
1998 1997 1998
----------- --------- ------------
<S> <C> <C> <C>
Revenues $ 0 $ 0 $ 0
---------- --------- ------------
Operating costs and expenses:
Salaries and employee benefits 167,000 4,429,000
Consulting fees 1,308,000 146,000 4,338,000
Materials and supplies 4,000 987,000
General and administrative 1,909,000 89,000 3,001,000
Rent and utilities 40,000 24,000 504,000
Research and development 663,000 663,000
---------- ---------- ------------
Total operating costs and expenses 3,920,000 430,000 13,922,000
----------- ---------- ------------
Loss from operations before other income and
expenses (3,920,000) (430,000) (13,922,000)
Other income and expenses:
Contract revenue 185,000 3,602,000
Interest expense and other (91,000) (338,000)
Interest income 1,000 62,000
----------- ---------- ------------
Net loss/comprehensive loss (3,920,000) (335,000) $(10,596,000)
============
Cumulative preferred dividends (100,000)
---------- ----------
Net loss attributable to common stockholders $(4,020,000) $(335,000)
=========== ==========
Basic and diluted loss per share:
Weighted average number of common shares
outstanding 73,634,000 42,801,000
=========== ==========
Basic and diluted loss per share $(.05) $(.01)
=========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements
F-3
<PAGE>
MANHATTAN SCIENTIFICS, INC. AND SUBSIDIARY
(a development stage enterprise)
Consolidated Statements of Stockholders' Equity
(Notes A and D)
For the Cumulative Period From July 31, 1992 (Inception) Through December 31,
1998
<TABLE>
<CAPTION>
Deficit
Common Stock Amounts Accumulated
Series A $.001 Par Value Additional Receivable During the
Preferred ----------------------- Paid-in From Development
Stock Shares Amount Capital Stockholders Stage
--------- ---------- ---------- ----------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Initial issuance of shares to founders on
contribution of tangible assets 14,391,627 $ 14,500 $ 500
Additional founders' contribution 40,000 (40,000)
Issuance of 1,037,000 shares of Series
A preferred stock, net of issuance costs $ 10,000 1,020,000 (286,000)
Net loss $ (543,000)
--------- ------------ --------- ------------- ---------- -----------
Balance, March 31, 1993 10,000 14,391,627 14,500 1,060,500 (326,000) (543,000)
Issuance of shares to investor at
approximately $.21 per share 14,391,627 14,500 2,985,500
Issuance of shares on exercise of options 479,720 1,000 49,000
Services performed in exchange for Series
A preferred stock issued in fiscal 1993 127,000
Net loss (2,292,000)
--------- ------------ --------- ------------- ---------- -----------
Balance, March 31, 1994 10,000 29,262,974 30,000 4,095,000 (199,000) (2,835,000)
Services performed for Series A preferred
stock issued in fiscal 1993 159,000
Issuance of shares at approximately
$.52 per share 345,399 182,000
Net loss (2,250,000)
--------- ------------ --------- ------------- ---------- ------------
Balance, December 31, 1994 10,000 29,608,373 30,000 4,277,000 (40,000) (5,085,000)
Issuance of 163,000 shares of Series A
preferred stock 2,000 161,000
Write-off of amounts receivable
from stockholders (40,000) 40,000
Net loss (972,000)
--------- ------------ --------- ------------- ---------- ------------
Balance, December 31, 1995 12,000 29,608,373 30,000 4,398,000 0 (6,057,000)
Issuance of shares upon exercise of option
for $15,000 14,391,627 14,000 1,000
Net loss (284,000)
--------- ------------ --------- ------------- ---------- ------------
Balance, December 31, 1996 12,000 44,000,000 44,000 4,399,000 0 (6,341,000)
Purchase and retirement of 1,200,000 shares
of Series A preferred stock (12,000) (58,000)
Purchase of 7,195,814 treasury shares
of common stock for $15,000
Net loss/comprehensive loss (335,000)
--------- ------------ --------- ------------- ---------- ------------
Balance, December 31, 1997 (carried forward) 0 44,000,000 44,000 4,341,000 0 (6,676,000)
<CAPTION>
Treasury
Stock Total
------------ ------------
<S> <C> <C>
Initial issuance of shares to founders on
contribution of tangible assets $ 15,000
Additional founders' contribution 0
Issuance of 1,037,000 shares of Series
A preferred stock, net of issuance costs 744,000
Net loss (543,000)
------------
Balance, March 31, 1993 216,000
Issuance of shares to investor at
approximately $.21 per share 3,000,000
Issuance of shares on exercise of options 50,000
Services performed in exchange for Series
A preferred stock issued in fiscal 1993 127,000
Net loss (2,292,000)
------------
Balance, March 31, 1994 1,101,000
Services performed for Series A preferred
stock issued in fiscal 1993 159,000
Issuance of shares at approximately
$.52 per share 182,000
Net loss (2,250,000)
------------
Balance, December 31, 1994 (808,000)
Issuance of 163,000 shares of Series A
preferred stock 163,000
Write-off of amounts receivable
from stockholders 0
Net loss (972,000)
------------
Balance, December 31, 1995 (1,617,000)
Issuance of shares upon exercise of option
for $15,000 15,000
Net loss (284,000)
------------
Balance, December 31, 1996 (1,886,000)
Purchase and retirement of 1,200,000 shares
of Series A preferred stock (70,000)
Purchase of 7,195,814 treasury shares
of common stock for $15,000 $ (15,000) (15,000)
Net loss/comprehensive loss (335,000)
----------- ------------
Balance, December 31, 1997 (carried forward) (15,000) (2,306,000)
</TABLE>
The accompanying notes are an integral part of these financial statements
F-4
<PAGE>
MANHATTAN SCIENTIFICS, INC. AND SUBSIDIARY
(a development stage enterprise)
Consolidated Statements of Stockholders' Equity (continued)
(Notes A and D)
For the Cumulative Period From July 31, 1992 (Inception) Through
December 31, 1998
(continued)
<TABLE>
<CAPTION>
Deficit
Common Stock Amounts Accumulated
Series A $.001 Par Value Additional Receivable During the
Preferred ----------------------- Paid-in From Development
Stock Shares Amount Capital Stockholders Stage
--------- ---------- ---------- ----------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1997 (brought forward) 0 44,000,000 $ 44,000 $ 4,341,000 $ 0 $ (6,676,000)
Purchase of 7,195,813 treasury shares of
common stock for $15,000
Special distribution of 14,391,627 shares
of common stock to Projectavision, Inc. (30,000)
Shares deemed issued in connection
with reverse merger 11,000,000 11,000 365,000
Issuance of 182,525 shares of Series A
preferred stock and warrants for
750,000 shares of common stock
exercisable at $.10 per share
in exchange for note payable and
accrued interest 1,830,000
Issuance of shares at $.20 per share, net of
issuance costs 5,000,000 5,000 970,000
Issuance of shares to purchase intangible
assets 7,200,000 7,000 1,433,000
Issuance of shares at $.58 per share for
consulting services 1,000,000 1,000 579,000
Issuance of shares at $.18 per share 275,000 50,000
Issuance of shares on conversion of 182,525
shares of Series A preferred stock 9,435,405 10,000 (10,000)
Issuance of shares at $.05 per share 20,340,000 20,000 997,000
Issuance of stock options at fair value for
services 2,165,000
Net loss/comprehensive loss (3,920,000)
--------- ---------- ---------- ------------ --------- ------------
Balance, December 31, 1998 0 98,250,405 $ 98,000 $ 12,690,000 $ 0 $(10,596,000)
========= ========== ========== ============ ========= ============
<CAPTION>
Treasury
Stock Total
------------ ------------
<S> <C> <C>
Balance, December 31, 1997 (brought forward) $ (15,000) $(2,306,000)
Purchase of 7,195,813 treasury shares of
common stock for $15,000 (15,000) (15,000
Special distribution of 14,391,627 shares
of common stock to Projectavision, Inc. 30,000 0
Shares deemed issued in connection
with reverse merger 376,000
Issuance of 182,525 shares of Series A
preferred stock and warrants for
750,000 shares of common stock
exercisable at $.10 per share
in exchange for note payable and
accrued interest 1,830,000
Issuance of shares at $.20 per share, net of
issuance costs 975,000
Issuance of shares to purchase intangible
assets 1,440,000
Issuance of shares at $.58 per share for
consulting services 580,000
Issuance of shares at $.18 per share 50,000
Issuance of shares on conversion of 182,525
shares of Series A preferred stock 0
Issuance of shares at $.05 per share 1,017,000
Issuance of stock options at fair value for
services 2,165,000
Net loss/comprehensive loss (3,920,000)
----------- -----------
Balance, December 31, 1998 $ 0 $ 2,192,000
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements
F-5
<PAGE>
MANHATTAN SCIENTIFICS, INC. AND SUBSIDIARY
(a development stage enterprise)
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Period
From
Inception
(July 31, 1992)
Year Ended December 31, Through
------------------------ December 31,
1998 1997 1998
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $(3,920,000) $(335,000) $(10,596,000)
Adjustments to reconcile net loss to net
cash used in operating activities:
Common stock issued for services 580,000 580,000
Preferred stock issued for services 598,000
Stock options issued for services 2,165,000 2,165,000
Depreciation and amortization 112,000 10,000 492,000
Changes in:
Prepaid expenses (5,000) 19,000 (5,000)
Accounts payable and accrued liabilities (156,000) 284,000 432,000
----------- ---------- ----------
Net cash used in operating activities (1,224,000) (22,000) (6,334,000)
----------- ---------- ----------
Cash flows from investing activities:
Purchase of equipment (24,000) (355,000)
Proceeds from sale of equipment 14,000
---------- ----------
Net cash used in investing activities (24,000) (341,000)
---------- ----------
Cash flows from financing activities:
Purchase of treasury stock (15,000) (85,000) (100,000)
Proceeds from notes payable to stockholders 214,000 1,874,000
Proceeds from issuance of Series A preferred
stock, net of issuance costs 698,000
Proceeds from issuance of common stock, net 1,782,000 5,029,000
Loan repayment to preferred stockholder (148,000)
Capital lease payments (13,000)
----------- ---------- -----------
Net cash provided by financing
activities 1,767,000 129,000 7,340,000
----------- ---------- -----------
Net increase in cash 519,000 107,000 665,000
Cash, beginning of period 146,000 39,000
----------- ---------- -----------
Cash, end of period $ 665,000 $ 146,000 $ 665,000
=========== ========== ===========
Supplemental disclosures of noncash investing and
financing activities:
Fixed assets contributed to the Company in
exchange for Series A preferred stock $ 45,000
=========
Issuance of 14,391,627 common shares to
acquire intangible assets $ 15,000
=========
Issuance of 7,200,000 common shares to
acquire intangible assets $ 1,440,000 $1,440,000
=========== ==========
Issuance of Series A preferred stock and
warrants in settlement of note payable
and accrued interest $ 1,830,000 $1,830,000
=========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements
F-6
<PAGE>
MANHATTAN SCIENTIFICS, INC. AND SUBSIDIARY
(a development stage enterprise)
Notes to Financial Statements
December 31, 1998
NOTE A - ORGANIZATION AND OPERATIONS
Manhattan Scientifics, Inc. (formerly Grand Enterprises, Inc. ("Grand")), and
its wholly-owned subsidiary Tamarack Storage Devices, Inc. (collectively "the
Company"), a development stage enterprise, operates in a single business segment
as a technology incubator that seeks to acquire, develop and bring to market
technologies in various fields with an emphasis in the area of consumer and
commercial electronics. At December 31, 1998, approximately 44 percent of the
Company's common stock was owned by the Lauer Entities, (see Note D).
In January 1998, Manhattan Scientifics, Inc., then a non-operating public
corporation with nominal net assets acquired all of the outstanding common stock
of Tamarack Storage Devices, Inc. ("Tamarack") in a transaction that gave the
stockholders of Tamarack actual control of the combined company. For accounting
purposes, the acquisition has been treated as a capital stock transaction rather
than a business combination. This transaction has been recorded as a
recapitalization of Tamarack with Tamarack as the acquiror ("Reverse
Acquisition") and no goodwill or other intangible was recognized. The historical
financial statements prior to the date of the reverse acquisition are those of
Tamarack with the accounting acquiror's stockholders equity prior to the merger
retroactively restated (i.e., recapitalized) for the equivalent number of shares
received in the transaction and the difference between the par value of Grand's
and Tamarack's stock recorded as an offset to additional paid-in capital. The
historical deficit accumulated during the development stage of Tamarack is being
carried forward after the acquisition. Loss per share has similarly been
restated for all periods prior to the acquisition to include the number of
equivalent shares received by Tamarack's stockholders.
Grand was incorporated in the State of Delaware on August 1, 1995. Grand was
initially organized to market an unrelated potential product but subsequently
determined that its business plan was not feasible. In January 1998, Grand
effected the reverse merger in a transaction involving Projectavision, Inc.,
("Projectavision") another public company that was co-founded by the Chief
Executive Officer of Manhattan Scientifics, Inc. Projectavision, Inc. in a
series of transactions through January 1998 acquired approximately 98% of
Tamarack Storage Devices, Inc. ("Tamarack"). Tamarack, a development stage
enterprise and Texas corporation, was formed in July 1992. During 1994, Tamarack
changed its year end from March 31 to December 31. Prior to the Reverse
Acquisition Tamarack was involved in the research and development of products
based on holographic data storage technology.
In January 1998, Grand formed a wholly-owned subsidiary named Grand Subsidiary,
Inc. ("GSI"). GSI and Tamarack merged with Tamarack being the surviving
corporation and at that time, becoming a wholly-owned subsidiary of Grand. In
the exchange, Grand issued to Projectavision and other stockholders of Tamarack,
44 million shares of Grand's common stock. In addition, Grand issued 182,525
shares Series A preferred stock and a warrant to purchase 750,000 shares of
Grand's common stock at an exercise price of 10 cents per share in exchange for
a note payable of $1.5 million plus accrued interest of $330,000 due to
Projectavision from Tamarack. In connection with this transaction, Grand changed
its name to Manhattan Scientifics, Inc. in January 1998.
In January 1998, Tamarack merged with DKY, Inc., a newly formed company. In
connection with this transaction, Tamarack, as the surviving entity, obtained
certain license/intellectual property assignment rights held by DKY, Inc. In
addition, the Company issued 7,200,000 common shares to acquire certain
intangible assets from DKY, Inc.'s stockholder valued at $1.4 million. (See Note
D).
Since its inception, Tamarack, and more recently the Company, has been engaged
primarily in directing, supervising and coordinating research and development
efforts in the continuing development of its products and raising funds. The
Company conducts its operations primarily in the United States.
F-7
<PAGE>
MANHATTAN SCIENTIFICS, INC. AND SUBSIDIARY
(a development stage enterprise)
Notes to Financial Statements
December 31, 1998
NOTE A - ORGANIZATION AND OPERATIONS (CONTINUED)
There is no assurance that the Company's research and development and marketing
efforts will be successful, that the Company will ever have commercially
accepted products, or that the Company will achieve significant sales of any
such products. The Company has incurred net losses and negative cash flows from
operations since its inception. In addition, the Company operates in an
environment of rapid change in technology and is dependent upon the services of
its employees and its consultants. If the Company is unable to successfully
bring its technologies to commercialization, it is unlikely that the Company
could continue its business. The Company has obtained a commitment from a major
stockholder to provide sufficient funds if needed to support the Company's
normal operations through December 15, 2000.
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
[1] Principles of consolidation:
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiary. All material intercompany accounts and
transactions have been eliminated.
[2] Property and equipment:
Property and equipment are recorded at cost. The cost of maintenance and
repairs is charged against results of operations as incurred. Depreciation
is charged against results of operations using the straight-line method
over the estimated economic useful life.
[3] Patents:
Patents are recorded at cost. Amortization is charged against results of
operations using the straight-line method over the estimated economic
useful life. Patents related to the micro fuel cell and solar fuel cell
technologies are estimated to have an economic useful life of 10 years.
[4] Income taxes:
The Company recognizes deferred tax liabilities and assets for the
expected future tax consequences of events that have been included in the
financial statements or tax returns. Under this method, deferred tax
liabilities and assets are determined on the basis of the differences
between the tax basis of assets and liabilities and their respective
financial reporting amounts ("temporary differences") at enacted tax rates
in effect for the years in which the differences are expected to reverse.
[5] Per share data:
The basic and diluted per share data has been computed on the basis of the
net loss available to common stockholders for the period divided by the
historic weighted average number of shares of common stock outstanding.
All potentially dilutive securities (see Note D) have been excluded from
the computations since they would be antidilutive.
[6] Research and development expenses:
Costs of research and development activities are expensed as incurred.
F-8
<PAGE>
MANHATTAN SCIENTIFICS, INC. AND SUBSIDIARY
(a development stage enterprise)
Notes to Financial Statements
December 31, 1998
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
[7] Advertising expenses:
The Company expenses advertising costs which consist primarily of
promotional items and print media, as incurred. Advertising expenses
amounted to $5,000, $7,000 and $12,000 for the years ended December 31,
1998, 1997 and for the cumulative period July 31, 1992 (inception) through
December 31, 1998, respectively.
[8] Use of estimates:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amount of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenue and expenses
during the reporting period.
NOTE C - PROPERTY AND EQUIPMENT
Property and equipment as of December 31, 1998 consist of the following:
Useful Lives
In Years
------------
Furniture and fixtures 5 $ 8,000
Computers 5 32,000
Equipment 5 113,000
---------
153,000
Less accumulated depreciation 131,000
---------
$22,000
=========
NOTE D - CAPITAL TRANSACTIONS
Common Stock:
The following common stock transactions include the effects of restating of
stockholders' equity for the shares received in the recapitalization as a result
of the reverse merger. The exchange rate of such shares was 9.59 Grand common
shares for each Tamarack common share. Accordingly, the Company's financial
statement presentation indicates that there were 44,000,000 common shares
outstanding immediately prior to consummating the reverse merger.
Effective July 31, 1992, the Company issued 14,391,627 shares of common stock to
the founders for certain intangible assets.
During 1994, the Company effected the following stock transactions:
Issued 14,391,627 shares of common stock to Projectavision, Inc. at
approximately $.21 per share in accordance with a stock purchase agreement.
Issued 479,720 shares of common stock on exercise of options at a price of
approximately $.10 per share.
Issued 345,399 shares of common stock at a price of approximately $.52 per
share.
F-9
<PAGE>
MANHATTAN SCIENTIFICS, INC. AND SUBSIDIARY
(a development stage enterprise)
Notes to Financial Statements
December 31, 1998
NOTE D - CAPITAL TRANSACTIONS (CONTINUED)
During 1996, the Company issued 14,391,627 shares of common stock for $15,000.
During 1997, the Company repurchased 7,195,814 shares of common stock for
$15,000.
During 1998, the Company effected the following transactions:
In January 1998, repurchased 7,195,813 shares of common stock for $15,000.
In January 1998, the Company made a special distribution to Projectavision of
14,391,627 shares of common shares held in treasury.
In January 1998, in accounting for the reverse merger transaction, the
Company was deemed to have issued 11 million common shares for the net
monetary assets of Grand which was nominal.
In January 1998, issued 5,000,000 shares of its common stock for $.20 per
share in a private placement offering.
In January 1998, issued 7,200,000 shares of its common stock at $.20 per
share to acquire certain intangible assets.
In February 1998, issued 1,000,000 shares of its common stock with a fair
market value of $.58 per share for consulting services.
In April 1998, issued 275,000 shares of its common stock at $.18 per share to
an individual in a private placement offering.
In July 1998, issued 9,435,405 shares of its common stock on conversion of
182,525 shares of Series A convertible preferred stock.
In July 1998, as part of the private placement transaction described below,
the Company issued 10 million common stock purchase warrants at an exercise
price of $.05 per share to the "Lauer Entities". In addition, the Company
arranged for this third party to purchase 43,170,512 shares of the Company's
common stock from Projectavision, Inc. Furthermore, the Company agreed to
issue 20 million shares of common stock to this third party at a price of
$.05 per share, together with rights to assign such shares to certain other
third parties. Such rights were assigned to the certain other third parties
as noted directly below.
From August 1998 through December 1998, issued 20,340,000 shares of its
common stock at $.05 per share in a private placement offering.
Preferred Stock:
During 1993, in accordance with a Share Purchase Agreement, the Company issued
1,037,000 shares of its Series A preferred stock in exchange for consideration
of $1,037,000 in cash, goods and services provided to the Company by an
unrelated third party.
During 1995, the Company issued an additional 163,000 shares of its Series A
preferred stock in settlement of all amounts due to the above mentioned third
party in exchange for services value at $163,000.
During 1997, the Company repurchased all outstanding shares of its Series A
preferred stock from the above mentioned third party for $70,000. In conjunction
with this transaction, the Board of Directors canceled and retired the then
existing Series A preferred stock.
F-10
<PAGE>
MANHATTAN SCIENTIFICS, INC. AND SUBSIDIARY
(a development stage enterprise)
Notes to Financial Statements
December 31, 1998
NOTE D - CAPITAL TRANSACTIONS (CONTINUED)
Preferred Stock: (continued)
On January 8, 1998, the Board of Directors of the Company authorized 1,000,000
shares of preferred stock having a par value of $.001 per share to be issued in
such series and to have such rights, preferences and designations as determined
by the Board of Directors.
On January 8, 1998, the Board of Directors of the Company authorized 182,525
shares of Series A convertible redeemable preferred stock having a par value of
$.001. Dividends, which are cumulative, are paid semi-annually in cash or common
stock at the Company's option at a rate of ten percent per share based on a
liquidation value of $10 per share. The Series A shares are convertible at the
rate of fifty shares of the Company's common stock for each Series A preferred
share, are redeemable at the option of the Company at $15 per share, have
preference in case of liquidation, and have voting rights equal to fifty votes
per share.
On January 8, 1998, in connection with the reverse merger transaction, the
Company issued 182,525 shares of its Series A convertible redeemable preferred
stock and a warrant to purchase 750,000 shares of the Company's common stock at
a price of $.10 per share in settlement of a note payable due to Projectavision,
Inc. in the amount of $1,500,000 plus accrued interest of $330,000. The note
required interest at 6% per annum. Interest expense related to this note payable
for 1997 amounted to $90,000.
On July 28, 1998, the holder of the Series A convertible redeemable preferred
stock converted their shares into 9,435,405 shares of the Company's common
stock. At the time of the conversion, cumulative dividends in arrears amounted
to approximately $100,000.
Stock Options:
The Company has elected to account for its employee stock options in accordance
with Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to
Employees ("APB No. 25"). Under APB No. 25, generally, no compensation expense
is recognized in the accompanying financial statements in connection with the
awarding of stock option grants to employees provided that, as of the grant
date, all terms associated with the award are fixed and the quoted market price
of the Company's stock, as of the grant date, is not more than the amount an
employee must pay to acquire the stock as defined; however, to the extent that
stock options are granted to non employees, for goods or services, the fair
value of these options are included in operating results as an expense.
A summary of the Company's stock option activity and related information is as
follows:
<TABLE>
<CAPTION>
Weighted Number of
Number of Exercise Average Common
Common Price Per Exercise Shares
Shares Share Price Exercisable
<S> <C> <C> <C> <C>
Outstanding as of December 31,
1997
Granted 21,325,000 $.20 $.20
Exercised
Canceled (15,000,000) $.20 $.20
------------
Outstanding as of December 6,325,000 $.20 $.20 6,325,000
31,1998 ============ ===========
</TABLE>
All options issued during 1998 vested immediately and expire at various dates
during 2008.
F-11
<PAGE>
MANHATTAN SCIENTIFICS, INC. AND SUBSIDIARY
(a development stage enterprise)
Notes to Financial Statements
December 31, 1998
NOTE D - CAPITAL TRANSACTIONS (CONTINUED)
Stock Options: (continued)
Tamarack Storage Devices, Inc. 1992 Stock Option Plan was terminated in
connection with the reverse merger transaction. All options outstanding were
canceled at that time.
On January 8, 1998, the Company adopted its 1998 Stock Option Plan (the "Plan").
Under the Plan, incentive and non-qualified stock options may be granted to key
employees and consultants at the discretion of the Board of Directors. Any
incentive option granted under the Plan will have an exercise price of not less
than 100% of the fair market value of the shares on the date on which such
option is granted. With respect to an incentive option granted to a Participant
who owns more than 10% of the total combined voting stock of the Company or of
any parent or subsidiary of the Company, the exercise price for such option must
be at least 110% of the fair market value of the shares subject to the option on
the date on which the option is granted. A non-qualified option granted under
the Plan (i.e., an option to purchase the common stock that does not meet the
Internal Revenue Code's requirements for incentive options) must have an
exercise price of not less than 100% of the fair market value of the stock on
the date of grant. The directors determine the vesting of the options under the
Plan at the date of grant. A maximum of 30,000,000 options can be awarded under
the Plan. The terms of grant permit a noncash exercise.
On July 28, 1998 in connection with a private placement transaction, the holders
of 15 million options relinquished those options. 10 million of such options
were recast as warrants to purchase shares of the Company's common stock at an
exercise price of $.05 per share and given to a third party as a portion of the
consideration for the private placement. The remaining 5 million options were
also recast as warrants to purchase shares of the Company's common stock at an
exercise price of $.05 per share and given to the original option holders.
Disclosures required by Statement of Financial Accounting Standards No. 123,
Accounting for Stock-Based Compensation ("SFAS No. 123"), including pro forma
operating results had the Company prepared its financial statements in
accordance with the fair value based method of accounting for stock-based
compensation are shown below.
Exercise prices and weighted-average contractual lives of stock options
outstanding as of December 31, 1998 are as follows:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------------------------------- ----------------------------
Weighted
Average Weighted Weighted
Remaining Average Average
Exercise Number Contractual Exercise Number Exercise
Price Outstanding Life Price Exercisable Price
------------ -------------- -------------- ----------- -------------- ------------
<S> <C> <C> <C> <C> <C>
$.20 6,325,000 9.3 $.20 6,325,000 $.20
</TABLE>
The following table summarizes the pro forma operating results of the Company
had compensation costs for the stock options and warrants granted to employees
been determined in accordance with the fair value based method of accounting for
stock based compensation as prescribed by SFAS No. 123.
Pro forma net loss available to common shareholders $(4,578,000)
===========
Pro forma basic and diluted loss per share $(.06)
===========
F-12
<PAGE>
MANHATTAN SCIENTIFICS, INC. AND SUBSIDIARY
(a development stage enterprise)
Notes to Financial Statements
December 31, 1998
NOTE D - CAPITAL TRANSACTIONS (CONTINUED)
For the purpose of the above pro forma information, the fair value of these
options was estimated at the date of grant using the Black-Scholes option
pricing model. The weighted-average fair value of the options granted during
1998 was $.24. The following weighted-average assumptions were used in computing
the fair value of option grants for 1998: weighted-average risk-free interest
rate of 5.48%; zero dividend yield; volatility of the Company's common stock of
43%; and an expected life of the options of ten years.
WARRANTS:
The Company issued or agreed to issue the following warrants during 1998:
Number of Exercise Contractual Number of Shares
Date Warrants Price Life Exercisable
---- -------- ----- ---- -----------
January 8, 1998 750,000 $.10 10 years 750,000
February 10, 1998 2,000,000 $.75 A 2,000,000
July 28, 1998 15,000,000 $.05 10 years 15,000,000
----------- -----------
17,750,000 17,750,000
=========== ===========
A - Warrants have no stated contractual life.
The fair value of the options and warrants issued during 1998 with an exercise
price below the market price approximated $2,289,000.
NOTE E - INCOME TAXES
There is no provision for federal, state or local income taxes for the years
ended December 31, 1998 and 1997, since the Company has incurred net operating
losses.
The Company's deferred tax asset as of December 31, 1998 represents benefits
from deferred compensation and net operating loss carryforwards of approximately
$365,000 and $296,000, respectively which is reduced by a valuation allowance of
approximately $661,000 since the future realization of such tax benefit is not
presently determinable.
As of December 31, 1998, the Company has a net operating loss carryforward of
$10,208,000 expiring in 2008 through 2019 for federal income tax purposes and
2003 for state income tax purposes. As a result of ownership changes, internal
revenue code Section 382 limits the amount of such net operating loss
carryforward available to offset future taxable income to approximately
$750,000.
The difference between the statutory federal income tax rate applied to the
Company's net loss and the Company's effective income tax rate for the years
ended December 31, 1998 and 1997 is summarized as follows:
Year Ended
December 31,
------------------
1998 1997
------- -------
Statutory federal income tax rate 34.0 34.0 %
Increase in valuation allowance (34.0)% (34.0)%
----- -----
0.0% 0.0%
===== ====
F-13
<PAGE>
MANHATTAN SCIENTIFICS, INC. AND SUBSIDIARY
(a development stage enterprise)
Notes to Financial Statements
December 31, 1998
NOTE F - COMMITMENTS
[1] License and development agreements:
In March 1997, the Company entered into a Cooperative Research and
Development Agreement (the "CRADA Agreement") with the Regents of the
University of California to develop a polymeric based recording media that
will satisfy all of the requirements for an holographic media storage
device. The work was to be completed within 25 months from the original
date of execution. Each party shall have the first option to retain title
to any subject inventions made by its employees during the work under this
agreement. The agreement provides that the Company's contribution to
funding will be $264,000. The CRADA research and development expenses
charged to the statement of operations for the years ended December 31,
1998 and 1997 for the cumulative period from inception through December 31,
1998 amounted to $52,000, $-0-and $52,000, respectively.
On January 11, 1998, the Company entered into a research and development
agreement with Energy Related Devices, Inc. ("ERDI"). The term of the
agreement is for the later of three years from the commencement date as
defined in the agreement or the delivery of a prototype suitable for
commercial sale or license regarding the fuel cell product defined in the
agreement. The Company is obligated to fund up to $1 million in accordance
with certain milestones as defined in the agreement. Upon the delivery of a
prototype suitable for commercial sale or license regarding the fuel cell
product, the Company's obligation will be to pay ERDI $10,000 per month
until the Company funds or determines not to fund the research and
development of ERDI's solar cell invention. Through December 31, 1998, the
Company has provided $500,000 to ERDI for research and development
activities. In addition, the Company will incur insurance expense beginning
in 1999 related to key-man life insurance coverage on the primary
stockholder of ERDI. In May 1999, the Company committed to funding an
additional $300,000 under the ERDI agreement, subject to conditions.
[2] Consulting agreements:
During 1998, the Company entered into a consulting agreement (the
"Agreement") with a former stockholder of Tamarack to provide research
related activities. In connection with the Agreement, the consultant
receives approximately $2,300 per month for such services and is eligible
for a lump sum payment of $50,000 upon the attainment of a revenue
milestone as defined in the Agreement. In accordance with the Agreement,
the Company issued stock options to purchase 250,000 shares of the
Company's common stock at $.20 per share.
[3] Leases:
The Company is obligated under two separate operating leases for office
space located in Los Alamos, New Mexico and New York City. Both leases
expire in 2001. Rent expense charged to operations was approximately
$37,000 for 1998 and $13,000 in 1997.
Minimum future rental payments under these leases are as follows:
Year Ending
December 31,
-------------
1999 $ 96,000
2000 99,000
2001 12,000
F-14
<PAGE>
MANHATTAN SCIENTIFICS, INC. AND SUBSIDIARY
(a development stage enterprise)
Notes to Financial Statements
December 31, 1998
NOTE G - RELATED PARTY TRANSACTIONS
The law firm of one director received $43,000 compensation for legal services
rendered to the Company.
During 1998, the Company entered into a research and development agreement with
Energy Related Devices, Inc. ("ERDI"), ERDI is majority owned by a shareholder
of the Company (see Note F[1]).
NOTE H- SUBSEQUENT EVENTS
Investment - NMXS.com, Inc.:
On June 3, 1999, the Company entered into an agreement with NMXS.com, Inc.
(formerly New Mexico Software, Inc., a public company) and invested $100,000 for
5,416,300 shares of common stock. As a result of this investment, the Company
owns approximately 27% of NMXS.com, Inc. The Company expects to account for its
investment in NMXS.com, Inc. under the equity method.
License agreement:
In August 1999, the Company entered into a license option agreement with the
Regents of the University of California for Cyclodextrin Polymer Saporation
materials. The agreement grants the Company an exclusive option to negotiate an
exclusive world-wide license under University's patent rights. The initial term
will expire on February 29, 2000 and may be extended for a second term to
February 28, 2001. Upon exercise of the agreement, the Company paid to the
University a fee of $10,000. If the term of the agreement is extended to the
second term, the Company will be obligated to pay an additional $10,000 fee (see
Note F[1]).
Intangible asset acquisition:
On August 6, 1999, the Company entered into an agreement with Novars
Gesellschaft Furneve Technologies mbh ("Novars") to acquire all of the
intellectual property rights of Novars. As compensation, the Company issued
1,000,000 shares of its common stock. 500,000 of such shares will be held in
escrow pending issuance of certain patents as defined in the agreement. The
initial purchase price was estimated at $1,000,000 based upon the value of the
common shares issued at the date of the transaction as determined by management.
However, the eventual purchase price can not be determined until such time the
shares held in escrow have been released to the third party. In addition, the
Company is obligated to pay a three percent royalty in perpetuity on the net
revenues earned by the Company as defined in the agreement.
In conjunction with the above, the Company entered into a three year research
and development agreement with Novars with automatic one year renewals unless
terminated by either party. In accordance with this agreement, the Company
advanced $200,000 in August 1999. The Company is obligated to advance an
additional $400,000 based on certain milestones.
F-15
<PAGE>
MANHATTAN SCIENTIFICS, INC. AND SUBSIDIARY
(a development stage enterprise)
Notes to Financial Statements
December 31, 1998
NOTE H - SUBSEQUENT EVENTS (CONTINUED)
Employment agreement:
On August 30, 1999, the Company entered into an employment and noncompetiton
agreement with an individual to provide research related activities. The term of
the agreement is for one year commencing on September 1, 1999. The agreement
allows for two one year renewal options unless terminated by either party. Base
salary is $90,000 per annum with available additional cash compensation as
defined in the agreement. In addition, the employee is eligible to receive stock
options to purchase 500,000 shares of common stock at $.40 per share.
Bridge financing:
In August 1999, a stockholder provided bridge financing to the Company in the
amount of $500,000. Interest on the loan was at 13.5% per annum. The loan was
repaid in October 1999 with a subsequent borrowing from another stockholder as
described below. The stockholder had the right to convert the loan into
2,000,000 shares of common stock if unpaid by May 18, 2000.
In October 1999, the Company obtained a $500,000 loan from a stockholder (the
"Peters Corporation") with interest at prime plus 1%. The loan is due in
December 1999. In connection with this loan, the Company arranged to have
150,000 common shares of the Company delivered to the Peters Corporation from
another stockholder. The fair market value of the Company's stock was
approximately $1.27 per share at the date of the transaction. Subsequently, the
Company agreed to issue to the Peters Corporation 150,000 common shares in
replacement of the shares provided by the third party. The Company will
recognize a charge for the value of the shares provided offset by a contribution
to additional paid-in capital.
Note payable:
In August 1999, the Company borrowed $275,000 from the Chief Operating Officer.
The loan bears interest at the rate of 5.5% per annum and is due upon the
earlier of 18 months or the date a private placement raising at least $1,500,000
occurs. The loan may be prepaid at any time. The Chief Operating Officer had
originally delivered the Company $275,000 to exercise options each exercisable
to purchase common stock but such exercise was rescinded and the options have
been treated as if not exercised. No shares were delivered as a result of this
transaction.
Preferred stock:
On October 25, 1999, the Board of Directors authorized 180,000 shares of Series
B preferred stock. The preferred shares have voting and dividend rights. The
preferred shares are convertible into common shares at anytime on a one for ten
basis.
Stock options:
In October 1999, one shareholder exercised 100,000 options at $.20 per share
with cash proceeds to the Company of $20,000.
Common stock:
In May 1999, the Company agreed to issue 100,000 shares of common stock valued
at $49,000 in exchange for corporate furnishings.
F-16
<PAGE>
MANHATTAN SCIENTIFICS, INC. AND SUBSIDIARY
(a development stage enterprise)
CONSOLIDATED BALANCE SHEET
(UNAUDITED)
SEPTEMBER 30, 1999
<TABLE>
<S> <C>
ASSETS
Current assets:
Cash $ 419,000
Miscellaneous receivable 6,000
-------------
Total current assets 425,000
Property and equipment, net 67,000
Other assets:
Patents, net 2,251,000
Investment -NMXS.Com, Inc. 89,000
Security deposit 7,000
-------------
$ 2,839,000
=============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 176,000
Notes payable - stockholders' 775,000
-------------
Total current liabilities 951,000
-------------
Commitments
STOCKHOLDERS' EQUITY
Capital stock $.001 par value
Series A convertible redeemable preferred stock, 10 percent cumulative;
authorized, 182,525 shares; issued and outstanding - none
Series B convertible redeemable preferred stock, authorized 180,000 shares;
issued and outstanding - none
Preferred stock, authorized 1,000,000 shares; issued and outstanding - none
Common stock, authorized 150,000,000 shares;
99,250,405 shares issued and outstanding 99,000
Additional paid-in capital 20,041,000
Deficit accumulated during development stage (18,252,000)
-------------
Total stockholders' equity 1,888,000
-------------
$ 2,839,000
=============
</TABLE>
The accompanying notes are an integral part of these financial statements F-17
<PAGE>
MANHATTAN SCIENTIFICS, INC. AND SUBSIDIARY
(a development stage enterprise)
Consolidated Statements of Operations
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended
September 30, Period From Inception
--------------------------- July 31, 1992 Through
1999 1998 September 30, 1999
----------- ----------- ---------------------
<S> <C> <C> <C>
Revenues $ 0 $ 0 $ 0
----------- ----------- ------------
Operating costs and expenses:
Salaries and employee benefits 4,429,000
Consulting fees 108,000 1,279,000 4,446,000
Materials and supplies 987,000
General and administrative 6,721,000 1,800,000 9,722,000
Rent and utilities 9,000 27,000 513,000
Research and development 835,000 630,000 1,498,000
----------- ----------- ------------
Total operating costs and expenses 7,673,000 3,736,000 21,595,000
----------- ----------- ------------
Loss from operations before other
income and expenses (7,673,000) (3,736,000) (21,595,000)
Other income and expenses:
Contract revenue 21,700 3,623,700
Interest expense and other (7,700) (345,700)
Interest income 14,000 76,000
Equity in net loss of investment (11,000) (11,000)
----------- ----------- ------------
Net loss/comprehensive loss (7,656,000) (3,736,000) $(18,252,000)
============
Cumulative
preferred dividends 100,000
----------- -----------
Net loss attributable to common
stockholders $(7,656,000) $(3,836,000)
=========== ===========
Basic and diluted loss per share:
Weighted average number of
common shares outstanding 98,417,000 68,334,000
=========== ===========
Basic and diluted loss per share: $(.08) $(.06)
===== =====
</TABLE>
The accompanying notes are an integral part of these financial statements F-18
<PAGE>
MANHATTAN SCIENTIFICS, INC. AND SUBSIDIARY
(a development stage enterprise)
Consolidated Statements of Stockholders' Equity
(Notes A and F)
For the Cumulative Period From July 31, 1992 (Inception) Through
September 30, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
Common Stock Amounts
Series A $.001 Par Value Additional Receivable
Preferred ------------------------ Paid-in From
Stock Shares Amount Capital Stockholders
--------- ----------- --------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Initial issuance of shares to founders on
of intangible assets 14,391,627 $ 14,500 $ 500
Additional founders' contribution 40,000 $ (40,000)
Issuance of 1,037,000 shares of Series A preferred
stock, net of issuance costs $ 10,000 1,020,000 (286,000)
Net loss
--------- ------------ --------- ----------- -----------
Balance, March 31, 1993 10,000 14,391,627 14,500 1,060,500 (326,000)
Issuance of shares to investor at approximately
$.21 per share 14,391,627 14,500 2,985,500
Issuance of shares on exercise of options 479,720 1,000 49,000
Services performed in exchange for Series A
preferred stock issued in fiscal 1993 127,000
Net loss
--------- ------------ --------- ----------- -----------
Balance, March 31, 1994 10,000 29,262,974 30,000 4,095,000 (199,000)
Services performed for Series A preferred stock
issued in fiscal 1993 159,000
Issuance of shares at approximately $.52 per share 345,399 182,000
Net loss
--------- ------------ --------- ----------- -----------
Balance, December 31, 1994 10,000 29,608,373 30,000 4,277,000 (40,000)
Issuance of 163,000 shares of Series A
preferred stock 2,000 161,000
Write-off of amounts receivable from stockholders (40,000) 40,000
Net loss
--------- ------------ --------- ----------- -----------
Balance, December 31, 1995 12,000 29,608,373 30,000 4,398,000 0
Issuance of shares upon exercise of option for
$15,000 14,391,627 14,000 1,000
Net loss
--------- ------------ --------- ----------- -----------
Balance, December 31, 1996 12,000 44,000,000 44,000 4,399,000 0
Purchase and retirement of 1,200,000 shares of
Series A preferred stock (12,000) (58,000)
Purchase of 7,195,814 treasury shares of common
stock for $15,000
Net loss/comprehensive loss
--------- ------------ --------- ----------- ----------
Balance, December 31, 1997 (carried forward) 0 44,000,000 44,000 4,341,000 0
<CAPTION>
Deficit
Accumulated
During the
Development Treasury
Stage Stock Total
----------- -------- ------------
<S> <C> <C> <C>
Initial issuance of shares to founders on
of intangible assets $ 15,000
Additional founders' contribution 0
Issuance of 1,037,000 shares of Series A preferred
stock, net of issuance costs 744,000
Net loss $ (543,000) (543,000)
------------ ------------
Balance, March 31, 1993 (543,000) 216,000
Issuance of shares to investor at approximately
$.21 per share 3,000,000
Issuance of shares on exercise of options 50,000
Services performed in exchange for Series A
preferred stock issued in fiscal 1993 127,000
Net loss (2,292,000) (2,292,000)
------------ ------------
Balance, March 31, 1994 (2,835,000) 1,101,000
Services performed for Series A preferred stock
issued in fiscal 1993 159,000
Issuance of shares at approximately $.52 per share 182,000
Net loss (2,250,000) (2,250,000)
------------ ------------
Balance, December 31, 1994 (5,085,000) (808,000)
Issuance of 163,000 shares of Series A
preferred stock 163,000
Write-off of amounts receivable from stockholders 0
Net loss (972,000) (972,000)
------------ ------------
Balance, December 31, 1995 (6,057,000) (1,617,000)
Issuance of shares upon exercise of option for
$15,000 15,000
Net loss (284,000) (284,000)
------------ ------------
Balance, December 31, 1996 (6,341,000) (1,886,000)
Purchase and retirement of 1,200,000 shares of
Series A preferred stock (70,000)
Purchase of 7,195,814 treasury shares of common
stock for $15,000 $ (15,000) (15,000)
Net loss/comprehensive loss (335,000) (335,000)
------------ ----------- ------------
Balance, December 31, 1997 (carried forward) (6,676,000) (15,000) (2,306,000)
</TABLE>
MANHATTAN SCIENTIFICS, INC. AND SUBSIDIARY
(a development stage enterprise)
Consolidated Statements of Stockholders' Equity (continued)
(Notes A and F)
For the Cumulative Period From July 31, 1992 (Inception) Through
September 30, 1999
(UNAUDITED)
(continued)
<TABLE>
<CAPTION>
Common Stock Amounts
Series A $.001 Par Value Additional Receivable
Preferred ------------------------ Paid-in From
Stock Shares Amount Capital Stockholders
--------- ----------- --------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1997 (brought forward) 0 44,000,000 $ 44,000 $4,341,000 $ 0
Purchase of 7,195,813 treasury shares of common
stock for $15,000
Special distribution of 14,391,627 shares of
common stock to Projectavision, Inc. (30,000)
Shares deemed issued in connection
with reverse merger 11,000,000 11,000 365,000
Issuance of 182,525 shares of Series A preferred
stock and warrants for 750,000 shares of
common stock exercisable at $.10 per share
in exchange for note payable and accrued
interest 1,830,000
Issuance of shares at $.20 per share, net of
issuance costs 5,000,000 5,000 970,000
Issuance of shares to purchase intangible assets 7,200,000 7,000 1,433,000
Issuance of shares at $.58 per share for
consulting services 1,000,000 1,000 579,000
Issuance of shares at $.18 per share 275,000 50,000
Issuance of shares on conversion of 182,525 shares
of Series A preferred stock 9,435,405 10,000 (10,000)
Issuance of shares at $.05 per share 20,340,000 20,000 997,000
Issuance of stock options at fair value for
services 2,165,000
Net loss/comprehensive loss
----------- ------------ ---------- ----------- --------------
Balance, December 31, 1998 0 98,250,405 $ 98,000 $12,690,000 $ 0
=========== ============ ========== =========== ==============
<CAPTION>
Deficit
Accumulated
During the
Development Treasury
Stage Stock Total
----------- -------- ------------
<S> <C> <C> <C>
Balance, December 31, 1997 (brought forward) $ (6,676,000) $ (15,000) $(2,306,000)
Purchase of 7,195,813 treasury shares of common
stock for $15,000 (15,000) (15,000)
Special distribution of 14,391,627 shares of
common stock to Projectavision, Inc. 30,000 0
Shares deemed issued in connection
with reverse merger 376,000
Issuance of 182,525 shares of Series A preferred
stock and warrants for 750,000 shares of
common stock exercisable at $.10 per share
in exchange for note payable and accrued
interest 1,830,000
Issuance of shares at $.20 per share, net of
issuance costs 975,000
Issuance of shares to purchase intangible assets 1,440,000
Issuance of shares at $.58 per share for
consulting services 580,000
Issuance of shares at $.18 per share 50,000
Issuance of shares on conversion of 182,525 shares
of Series A preferred stock 0
Issuance of shares at $.05 per share 1,017,000
Issuance of stock options at fair value for
services 2,165,000
Net loss/comprehensive loss (3,920,000) (3,920,000)
------------ ----------- -----------
Balance, December 31, 1998 $(10,596,000) $ 0 $ 2,192,000
============ =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements F-19
<PAGE>
MANHATTAN SCIENTIFICS, INC. AND SUBSIDIARY
(a development stage enterprise)
Consolidated Statements of Stockholders' Equity (continued)
(Notes A and F)
For the Cumulative Period From July 31, 1992 (inception) Through
September 30, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
Common Stock Amounts
Series A $.001 Par Value Additional Receivable
Preferred Paid-in From
Stock Shares Amount Capital Stockholders
--------- ---------- -------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1998 0 98,250,405 $ 98,000 $12,690,000 $ 0
Issuance of shares to purchase
intangible assets 1,000,000 1,000 999,000
Issuance of stock options at
fair value for services 6,352,000
Net loss/comprehensive loss
for the nine months ended
September 30, 1999
--------- ------------- -------- ----------- ----------
Balance September 30, 1999 0 99,250,405 $ 99,000 $20,041,000 $ 0
========= ============= ======== =========== ==========
(unaudited)
<CAPTION>
Deficit
Accumulated
During the
Development Treasury
Stage Stock Total
------------- -------- -----------
<S> <C> <C> <C>
Balance, December 31, 1998 $(10,596,000) $ $ 2,192,000
Issuance of shares to purchase
intangible assets 1,000,000
Issuance of stock options at
fair value for services 6,352,000
Net loss/comprehensive loss
for the nine months ended
September 30, 1999 (7,656,000) (7,656,000)
------------ ------- -----------
Balance September 30, 1999 $(18,252,000) $ 0 $ 1,888,000
============ ======= ===========
(unaudited)
</TABLE>
The accompanying notes are an integral part of these financial statements F-20
<PAGE>
MANHATTAN SCIENTIFICS, INC. AND SUBSIDIARY
(a development stage enterprise)
Consolidated Statements of Cash Flows
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended Period From Inception
September 30, (July 31, 1992) Through
1999 1998 September 30, 1999
----------- ------------- ----------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $(7,656,000) $ (3,736,000) $(18,252,000)
Adjustment to reconcile net loss to net
cash used in operating activities:
Common stock issued for services 580,000 580,000
Preferred stock issued for services 598,000
Stock options issued for services 6,352,000 2,165,000 8,517,000
Equity in net loss of investment 11,000 11,000
Depreciation and amortization 85,000 85,000 577,000
Changes in:
Prepaid expenses and miscellaneous receivable (1,000) (6,000)
Accounts payable and accrued liabilities 28,000 (200,000) 460,000
----------- ------------- ------------
Net cash used in operating activities (1,181,000) (1,106,000) (7,515,000)
----------- ------------- ------------
Cash flows from investing activities:
Purchase of equipment (24,000) (355,000)
Purchase of investment (100,000) (100,000)
Proceeds from sale of equipment 14,000
----------- ------------- ------------
Net cash used in investing activities (100,000) (24,000) (441,000)
----------- ------------- ------------
Cash flows from financing activities:
Purchase of treasury stock (15,000) (100,000)
Proceeds from notes payable to stockholders 775,000 2,649,000
Proceeds from issuance of Series A preferred stock,
net of issuance costs 698,000
Proceeds from issuance of common stock and collection
of stock subscription receivable, net 260,000 1,620,000 5,289,000
Loan repayment to preferred stockholder (148,000)
Capital lease payments (13,000)
----------- ------------- ------------
Net cash provided by financing activities 1,035,000 1,605,000 8,375,000
----------- ------------- ------------
Net increase (decrease) in cash (246,000) 475,000 419,000
Cash, beginning of period 665,000 146,000
----------- ------------- ------------
Cash, end of period $ 419,000 $ 621,000 $ 419,000
=========== ============= ============
</TABLE>
F-21
<PAGE>
MANHATTAN SCIENTIFICS, INC. AND SUBSIDIARY
(a development stage enterprise)
Consolidated Statements of Cash Flows (continued)
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended Period From Inception
September 30, (July 31, 1992) Through
1999 1998 September 30, 1999
----------- ---------- -----------------------
<S> <C> <C> <C>
Supplemental disclosures of noncash investing and financing activities:
Fixed assets contributed to the Company in
exchange for Series A preferred stock $ 45,000
============
Issuance of 14,391,627 common shares to acquire
intangible assets $ 15,000
============
Issuance of 7,200,000 common shares to acquire intangible
assets $1,440,000 $ 1,440,000
========== ============
Issuance of Series A preferred stock and warrants in
settlement of note payable and accrued interest $1,830,000 $ 1,830,000
========== ============
Issuance of 1,000,000 shares to acquire intangible
assets $ 1,000,000 $ 1,000,000
=========== ============
Obligation for acquisition of fixed assets $ 49,000 $ 49,000
=========== ============
</TABLE>
The accompanying notes are an integral part of these financial statements F-22
<PAGE>
MANHATTAN SCIENTIFICS, INC. AND SUBSIDIARY
(a development stage enterprise)
Notes to Financial Statements
September 30, 1999 (UNAUDITED)
NOTE A - ORGANIZATION AND OPERATIONS
Manhattan Scientifics, Inc. (formerly Grand Enterprises, Inc. ("Grand")), and
its wholly-owned subsidiary Tamarack Storage Devices, Inc. (collectively "the
Company"), a development stage enterprise, operates in a single business segment
as a technology incubator that seeks to acquire, develop and bring to market
technologies in various fields with an emphasis in the area of consumer and
commercial electronics. At September 30, 1999, approximately 46 percent of the
Company's common stock was owned by the Lauer Entities, (see Note F).
In January 1998, Manhattan Scientifics, Inc., then a non-operating public
corporation with nominal net assets acquired all of the outstanding common stock
of Tamarack Storage Devices, Inc. ("Tamarack") in a transaction that gave the
stockholders of Tamarack actual control of the combined company. For accounting
purposes, the acquisition has been treated as a capital stock transaction rather
than a business combination. This transaction has been recorded as a
recapitalization of Tamarack with Tamarack as the acquiror ("Reverse
Acquisition") and no goodwill or other intangible was recognized. The historical
financial statements prior to the date of the reverse acquisition are those of
Tamarack with the accounting acquiror's stockholders equity prior to the merger
retroactively restated (i.e., recapitalized) for the equivalent number of shares
received in the transaction and the difference between the par value of Grand's
and Tamarack's stock recorded as an offset to additional paid-in capital. The
historical deficit accumulated during the development stage of Tamarack is being
carried forward after the acquisition. Loss per share has similarly been
restated for all periods prior to the acquisition to include the number of
equivalent shares received by Tamarack's stockholders.
Grand was incorporated in the State of Delaware on August 1, 1995. Grand was
initially organized to market an unrelated potential product but subsequently
determined that its business plan was not feasible. In January 1998, Grand
effected the reverse merger in a transaction involving Projectavision, Inc.,
("Projectavision") another public company that was co-founded by the Chief
Executive Officer of Manhattan Scientifics, Inc. Projectavision, Inc. in a
series of transactions through January 1998 acquired approximately 98% of
Tamarack Storage Devices, Inc. ("Tamarack"). Tamarack, a development stage
enterprise and Texas corporation, was formed in July 1992. During 1994, Tamarack
changed its year end from March 31 to December 31. Prior to the Reverse
Acquisition Tamarack was involved in the research and development of products
based on holographic data storage technology.
In January 1998, Grand formed a wholly-owned subsidiary named Grand Subsidiary,
Inc. ("GSI"). GSI and Tamarack merged with Tamarack being the surviving
corporation and at that time, becoming a wholly-owned subsidiary of Grand. In
the exchange, Grand issued to Projectavision and other s tockholders of
Tamarack, 44 million shares of Grand's common stock. In addition, Grand issued
182,525 shares Series A preferred stock and a warrant to purchase 750,000 shares
of Grand's common stock at an exercise price of 10 cents per share in exchange
for a note payable of $1.5 million plus accrued interest of $330,000 due to
Projectavision from Tamarack. In connection with this transaction, Grand changed
its name to Manhattan Scientifics, Inc. in January 1998.
In January 1998, Tamarack merged with DKY, Inc., a newly formed company. In
connection with this transaction, Tamarack, as the surviving entity, obtained
certain license/intellectual property assignment rights held by DKY, Inc. In
addition, the Company issued 7,200,000 common shares to acquire certain
intangible assets from DKY, Inc.'s stockholder valued at $1.4 million. (See Note
F).
Since its inception, Tamarack, and more recently the Company, has been engaged
primarily in directing, supervising and coordinating research and development
efforts in the continuing development of its products and raising funds. The
Company conducts its operations primarily in the United States.
There is no assurance that the Company's research and development and marketing
efforts will be successful, that the Company will ever have commercially
accepted products, or that the Company will achieve significant sales of any
such products. The Company has incurred net losses and negative cash flows from
operations since its inception. In addition, the Company operates in an
environment of rapid change in technology and is
F-23
<PAGE>
MANHATTAN SCIENTIFICS, INC. AND SUBSIDIARY
(a development stage enterprise)
Notes to Financial Statements
September 30, 1999 (UNAUDITED)
NOTE A - ORGANIZATION AND OPERATIONS (CONTINUED)
dependent upon the services of its employees and its consultants. If the Company
is unable to successfully bring its technologies to commercialization, it is
unlikely that the Company could continue its business. The Company has obtained
a commitment from a major stockholder to provide sufficient funds if needed to
support the Company's normal operations through December 15, 2000.
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
[1] Principles of consolidation:
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiary. All material intercompany accounts and
transactions have been eliminated.
[2] Property and equipment:
Property and equipment are recorded at cost. The cost of maintenance and
repairs is charged against results of operations as incurred. Depreciation
is charged against results of operations using the straight-line method
over the estimated economic useful life.
[3] Patents:
Patents are recorded at cost. Amortization is charged against results of
operations using the straight-line method over the estimated economic
useful life. Patents related to the micro fuel cell and solar fuel cell
technologies are estimated to have an economic useful life of 10 years.
[4] Income taxes:
The Company recognizes deferred tax liabilities and assets for the expected
future tax consequences of events that have been included in the financial
statements or tax returns. Under this method, deferred tax liabilities and
assets are determined on the basis of the differences between the tax basis
of assets and liabilities and their respective financial reporting amounts
("temporary differences") at enacted tax rates in effect for the years in
which the differences are expected to reverse.
[5] Per share data:
The basic and diluted per share data has been computed on the basis of the
net loss available to common stockholders for the period divided by the
historic weighted average number of shares of common stock outstanding. All
potentially dilutive securities (see Note F) have been excluded from the
computations since they would be antidilutive.
[6] Research and development expenses:
Costs of research and development activities are expensed as incurred.
F-24
<PAGE>
MANHATTAN SCIENTIFICS, INC. AND SUBSIDIARY
(a development stage enterprise)
Notes to Financial Statements
September 30, 1999 (UNAUDITED)
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
[7] Advertising expenses:
The Company expenses advertising costs which consist primarily of
promotional items and print media, as incurred. Advertising expenses
amounted to $9,000, $3,000 and $21,000 for the nine months ended September
30, 1999 and 1998 and for the cumulative period July 31, 1992 (inception)
through September 30, 1999, respectively.
[8] Use of estimates:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amount of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenue and expenses
during the reporting period.
[9] Investment - NMXS. Com, Inc.:
The company initially recorded its investment in NMXS.Com., Inc. at cost
and uses the equity method of accounting to record its share of income or
loss.
[10] Interim financial statements:
Financial statements as of September 30, 1999 and the nine months ended
September 30, 1999 and 1998 and the period from inception July 31, 1992 are
unaudited but in the opinion of management the financial statements include
all adjustments consisted of normal recurring accruals necessary for a fair
presentation of the comparative financial position and results of
operations. Results of operations for interim periods are not necessarly
indicative of those to be achieved or expected for the entire year.
NOTE C - PROPERTY AND EQUIPMENT
Property and equipment as of September 30, 1999 consist of the following:
Useful Lives
In Years
-------------
Furniture and fixtures 5 $57,000
Computers 5 32,000
Equipment 5 113,000
--------
202,000
Less accumulated depreciation 135,000
--------
$ 67,000
========
F-25
<PAGE>
MANHATTAN SCIENTIFICS, INC. AND SUBSIDIARY
(a development stage enterprise)
Notes to Financial Statements
September 30, 1999 (UNAUDITED)
NOTE D - INVESTMENT - NMXS. COM, INC.
On June 3, 1999, the Company entered into an agreement with NMXS.Com, Inc.
(formerly New Mexico Software, Inc., a public company) and invested $100,000 for
5,416,300 shares of common stock. As a result of this investment, the Company
owns approximately 27% of NMXS.Com, Inc. For the period from date of
acquisition, June 3, 1999 through September 30, 1999, the Company recorded an
$11,000 loss representing its share of the equity in the loss of the investment.
In addition, per out contract with NMXS.Com, Manhattan Scientifics provided
NMXS.Com with business and management advice through August 1999. Also, our CEO
receives a salary and a leased car from NMXS.Com as consideration for
independent services to NMXS.Com.
NOTE E - NOTES PAYABLE
In August 1999, a stockholder provided bridge financing to the Company in the
amount of $500,000. Interest on the loan was at 13.5% per annum. The loan was
repaid in October 1999 with a subsequent borrowing from another stockholder as
described below.
In October 1999, the Company obtained a $500,000 loan from a stockholder (the
Peters Corporation) with interest at prime plus 1%. The loan is due in December
1999. In connection with this loan, the Company arranged to have 150,000 common
shares of the Company delivered to the Peter Corporations from another
stockholder. The fair market value of the Company's stock was approximately
$1.27 per share at the date of the transaction. Subsequently, the Company agreed
to issue to the Peters Corporation 150,000 common shares in replacement of
shares provided by the third party. The Company will recognize a charge for the
value of the shares provided offset by a contribution to addition paid-in
capital.
In August 1999, the Company borrowed $275,000 from the Chief Operating Officer.
The loan bears interest at the rate of 5.5% per annum and is due upon the
earlier of 18 months or the date of a private placement raising at least
$1,500,000. The loan may be prepaid at any time. The Chief Operating Officer had
originally delivered the Company $275,000 to exercise options each exercisable
to purchase common stock but such exercise was rescinded and the options have
been treated as if not exercised. No shares were delivered as a result of this
transaction.
NOTE F - CAPITAL TRANSACTIONS
Common Stock:
The following common stock transactions include the effects of restating of
stockholders' equity for the shares received in the recapitalization as a result
of the reverse merger. The exchange rate of such shares was 9.59 Grand common
shares for each Tamarack common share. Accordingly, the Company's financial
statement presentation indicates that there were 44,000,000 common shares
outstanding immediately prior to consummating the reverse merger.
Effective July 31, 1992, the Company issued 14,391,627 shares of common stock to
the founders for certain intangible assets.
During 1994, the Company effected the following stock transactions:
Issued 14,391,627 shares of common stock to Projectavision, Inc. at
approximately $.21 per share in accordance with a stock purchase agreement.
Issued 479,720 shares of common stock on exercise of options at a price of
approximately $.10 per share.
Issued 345,399 shares of common stock at a price of approximately $.52 per
share.
During 1996, the Company issued 14,391,627 shares of common stock for $15,000.
F-26
<PAGE>
MANHATTAN SCIENTIFICS, INC. AND SUBSIDIARY
(a development stage enterprise)
Notes to Financial Statements
September 30, 1999 (UNAUDITED)
NOTE F - CAPITAL TRANSACTIONS (CONTINUED)
Common Stock: (continued)
During 1997, the Company repurchased 7,195,814 shares of common stock for
$15,000.
During 1998, the Company effected the following transactions:
In January 1998, repurchased 7,195,813 shares of common stock for $15,000.
In January 1998, the Company made a special distribution to Projectavision
of 14,391,627 shares of common shares held in treasury.
In January 1998, in accounting for the reverse merger transaction, the
Company was deemed to have issued 11 million common shares for the net
monetary assets of Grand which was nominal.
In January 1998, issued 5,000,000 shares of its common stock for $.20 per
share in a private placement offering.
In January 1998, issued 7,200,000 shares of its common stock at $.20 per
share to acquire certain intangible assets.
In February 1998, issued 1,000,000 shares of its common stock with a fair
market value of $.58 per share for consulting services.
In April 1998, issued 275,000 shares of its common stock at $.18 per share
to an individual in a private placement offering.
In July 1998, issued 9,435,405 shares of its common stock on conversion of
182,525 shares of Series A convertible preferred stock.
In July 1998, as part of the private placement transaction described below,
the Company issued 10 million common stock purchase warrants at an exercise
price of $.05 per share to the "Lauer Entities". In addition, the Company
arranged for this third party to purchase 43,170,512 shares of the
Company's common stock from Projectavision, Inc. Furthermore, the Company
agreed to issue 20 million shares of common stock to this third party at a
price of $.05 per share, together with rights to assign such shares to
certain other third parties. Such rights were assigned to the certain other
third parties as noted directly below.
From August 1998 through December 1998, issued 20,340,000 shares of its
common stock at $.05 per share in a private placement offering.
In August 1999, issued 1,000,000 shares of its common stock for $1 per
share to acquire certain intangible assets.
Preferred Stock:
During 1993, in accordance with a Share Purchase Agreement, the Company issued
1,037,000 shares of its Series A preferred stock in exchange for consideration
of $1,037,000 in cash, goods and services provided to the Company by an
unrelated third party.
During 1995, the Company issued an additional 163,000 shares of its Series A
preferred stock in settlement of all amounts due to the above mentioned third
party in exchange for services value at $163,000.
F-27
<PAGE>
MANHATTAN SCIENTIFICS, INC. AND SUBSIDIARY
(a development stage enterprise)
Notes to Financial Statements
September 30, 1999 (UNAUDITED)
NOTE F - CAPITAL TRANSACTIONS (CONTINUED)
Preferred Stock: (continued)
During 1997, the Company repurchased all outstanding shares of its Series A
preferred stock from the above mentioned third party for $70,000. In conjunction
with this transaction, the Board of Directors canceled and retired the then
existing Series A preferred stock.
On January 8, 1998, the Board of Directors of the Company authorized 1,000,000
shares of preferred stock having a par value of $.001 per share to be issued in
such series and to have such rights, preferences and designations as determined
by the Board of Directors.
On January 8, 1998, the Board of Directors of the Company authorized 182,525
shares of Series A convertible redeemable preferred stock having a par value of
$.001. Dividends, which are cumulative, are paid semi-annually in cash or common
stock at the Company's option at a rate of ten percent per share based on a
liquidation value of $10 per share. The Series A shares are convertible at the
rate of fifty shares of the Company's common stock for each Series A preferred
share, are redeemable at the option of the Company at $15 per share, have
preference in case of liquidation, and have voting rights equal to fifty votes
per share.
On January 8, 1998, in connection with the reverse merger transaction, the
Company issued 182,525 shares of its Series A convertible redeemable preferred
stock and a warrant to purchase 750,000 shares of the Company's common stock at
a price of $.10 per share in settlement of a note payable due to Projectavision,
Inc. in the amount of $1,500,000 plus accrued interest of $330,000. The note
required interest at 6% per annum. Interest expense related to this note payable
for 1997 amounted to $90,000.
On July 28, 1998, the holder of the Series A convertible redeemable preferred
stock converted their shares into 9,435,405 shares of the Company's common
stock. At the time of the conversion, cumulative dividends in arrears amounted
to approximately $100,000.
Stock Options:
The Company has elected to account for its employee stock options in accordance
with Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to
Employees ("APB No. 25"). Under APB No. 25, generally, no compensation expense
is recognized in the accompanying financial statements in connection with the
awarding of stock option grants to employees provided that, as of the grant
date, all terms associated with the award are fixed and the quoted market price
of the Company's stock, as of the grant date, is not more than the amount an
employee must pay to acquire the stock as defined; however, to the extent that
stock options are granted to non employees, for goods or services, the fair
value of these options are included in operating results as an expense.
A summary of the Company's stock option activity and related information is as
follows:
<TABLE>
<CAPTION>
Weighted
Number of Exercise Average Number of
Common Price Per Exercise Common Shares
Shares Share Price Exercisable
------ ----- ----- -----------
<S> <C> <C> <C> <C>
Outstanding as of December 31, 1998 6,325,000 $.20 $.20 6,325,000
Granted 13,700,000 $.05 $.05 13,700,000
Granted 50,000 $.20 $.20 50,000
---------- ----------
Outstanding as of September 30, 1999 20,075,000 $.09 20,075,000
========== ===========
</TABLE>
F-28
<PAGE>
MANHATTAN SCIENTIFICS, INC. AND SUBSIDIARY
(a development stage enterprise)
Notes to Financial Statements
September 30, 1999 (UNAUDITED)
NOTE F - CAPITAL TRANSACTIONS (CONTINUED)
Stock Options: (continued)
All options issued during 1999 and 1998 vested immediately and expire at various
dates during 2008 and 2009.
Tamarack Storage Devices, Inc. 1992 Stock Option Plan was terminated in
connection with the reverse merger transaction. All options outstanding were
canceled at that time.
On January 8, 1998, the Company adopted its 1998 Stock Option Plan (the "Plan").
Under the Plan, incentive and non-qualified stock options may be granted to key
employees and consultants at the discretion of the Board of Directors. Any
incentive option granted under the Plan will have an exercise price of not less
than 100% of the fair market value of the shares on the date on which such
option is granted. With respect to an incentive option granted to a Participant
who owns more than 10% of the total combined voting stock of the Company or of
any parent or subsidiary of the Company, the exercise price for such option must
be at least 110% of the fair market value of the shares subject to the option on
the date on which the option is granted. A non-qualified option granted under
the Plan (i.e., an option to purchase the common stock that does not meet the
Internal Revenue Code's requirements for incentive options) must have an
exercise price of not less than 100% of the fair market value of the stock on
the date of grant. The directors determine the vesting of the options under the
Plan at the date of grant. A maximum of 30,000,000 options can be awarded under
the Plan. The terms of grant permit a noncash exercise.
On July 28, 1998 in connection with a private placement transaction, the holders
of 15 million options relinquished those options. 10 million of such options
were recast as warrants to purchase shares of the Company's common stock at an
exercise price of $.05 per share and given to a third party as a portion of the
consideration for the private placement. The remaining 5 million options were
also recast as warrants to purchase shares of the Company's common stock at an
exercise price of $.05 per share and given to the original option holders.
Disclosures required by Statement of Financial Accounting Standards No. 123,
Accounting for Stock-Based Compensation ("SFAS No. 123"), including pro forma
operating results had the Company prepared its financial statements in
accordance with the fair value based method of accounting for stock-based
compensation are shown below.
Exercise prices and weighted-average contractual lives of stock options
outstanding as of September 30, 1999 are as follows:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------------------------------ ------------------------
Weighted
Average Weighted Weighted
Remaining Average Average
Exercise Number Contractual Exercise Number Exercise
Price Outstanding Life Price Exercisable Price
----- ----------- ---- ----- ----------- -----
<S> <C> <C> <C> <C> <C> <C>
$.05 13,700,000 9.30 $.05 13,700,000 $.05
$.20 6,375,000 8.60 $.20 6,375,000 $.20
</TABLE>
The following table summarizes the pro forma operating results of the Company
had compensation costs for the stock options and warrants granted to employees
been determined in accordance with the fair value based method of accounting for
stock based compensation as prescribed by SFAS No. 123.
Pro forma net loss available to common shareholders $(7,954,000)
===========
Pro forma basic and diluted loss per share $(.08)
======
F-29
<PAGE>
MANHATTAN SCIENTIFICS, INC. AND SUBSIDIARY
(a development stage enterprise)
Notes to Financial Statements
September 30, 1999 (UNAUDITED)
NOTE F - CAPITAL TRANSACTIONS (CONTINUED)
Stock Options: (continued)
For the purpose of the above pro forma information, the fair value of these
options was estimated at the date of grant using the Black-Scholes option
pricing model. The weighted-average fair value of the options granted during
1999 was $.48. The following weighted-average assumptions were used in computing
the fair value of option grants for 1999: weighted-average risk-free interest
rate of 5.53%; zero dividend yield; volatility of the Company's common stock of
51%; and an expected life of the options of ten years.
The fair value of the options issued during 1999 with an exercise price below
the market price approximated $6,615,000.
WARRANTS:
The following warrants are outstanding at September 30, 1999:
Number of Exercise Contractual Number of Shares
Date Warrants Price Life Exercisable
---- -------- ----- ---- -----------
January 8, 1998 750,000 $.10 10 years 750,000
February 10, 1998 2,000,000 $.75 A 2,000,000
July 28, 1998 12,500,000 $.05 10 years 12,500,000
---------- ----------
15,250,000 15,250,000
========== ==========
A - Warrants have no stated contractual life.
NOTE G - INCOME TAXES
There is no provision for federal, state or local income taxes for the nine
months ended September 30, 1999 and 1998, since the Company has incurred net
operating losses.
The Company's deferred tax asset as of September 30, 1999 represents benefits
from deferred compensation and net operating loss carryforwards of approximately
$2,870,000 and $810,000 which is reduced by a valuation allowance of
approximately $3,680,000 since the future realization of such tax benefit is not
presently determinable.
As of September 30, 1999, the Company has a net operating loss carryforward of
$11,512,000 expiring in 2008 through 2020 for federal income tax purposes and
2004 for state income tax purposes. As a result of ownership changes, internal
revenue code Section 382 limits the amount of such net operating loss
carryforward available to offset future taxable income to approximately
$2,054,000.
The difference between the statutory federal income tax rate applied to the
Company's net loss and the Company's effective income tax rate for the nine
months ended September 30, 1999 and 1998 is summarized as follows:
Nine Months Ended
September 30,
------------------
1999 1998
---- ----
Statutory federal income tax rate 34.0 34.0 %
Increase in valuation allowance (34.0)% (34.0)%
----- -----
0.0 % 0.0 %
===== =====
F-30
<PAGE>
(UNAUDITED)
MANHATTAN SCIENTIFICS, INC. AND SUBSIDIARY
(a development stage enterprise)
Notes to Financial Statements
September 30, 1999
NOTE H - COMMITMENTS
[1] License and development agreements:
In March 1997, the Company entered into a Cooperative Research and
Development Agreement (the "CRADA Agreement") with the Regents of the
University of California to develop a polymeric based recording media that
will satisfy all of the requirements for an holographic media storage
device. The work was to be completed within 25 months from the original
date of execution. Each party shall have the first option to retain title
to any subject inventions made by its employees during the work under this
agreement. The agreement provides that the Company's contribution to
funding will be $264,000. The CRADA research and development expenses
charged to the statement of operations for the nine months ended September
30, 1999 and 1998 for the cumulative period from inception through
September 30, 1999 amounted to $31,000, $47,000 and $83,000, respectively.
On January 11, 1998, the Company entered into a research and development
agreement with Energy Related Devices, Inc. ("ERDI"). The term of the
agreement is for the later of three years from the commencement date as
defined in the agreement or the delivery of a prototype suitable for
commercial sale or license regarding the fuel cell product defined in the
agreement. The Company is obligated to fund up to $1 million in accordance
with certain milestones as defined in the agreement. Upon the delivery of a
prototype suitable for commercial sale or license regarding the fuel cell
product, the Company's obligation regarding research and development
funding will be $10,000 per month until the Company funds, or determines
not to fund the research and development of ERDI's solar cell invention.
Through December 31, 1998, the Company has provided $500,000 to ERDI for
research and development activities. In addition, the Company will incur
insurance expense beginning in 1999 related to key-man life insurance
coverage on the primary stockholder of ERDI. In May 1999, the Company
committed to funding an additional $300,000 under the ERDI agreement of
which none has been paid through September 30, 1999.
In August 1999, the Company entered into a license option agreement with
the Regents of the University of California for Cyclodextrin Polymer
Saporation materials. The agreement grants the Company an exclusive option
to negotate an exclusive world-wide license under University's patent
rights. The initial term will expire on February 29, 2000 and may be
extended for a second term to February 28, 2001. Upon exercise of the
agreement, the Company paid to the University a fee of $10,000. If the
terms of the agreement is extended to the second term, the Company will be
obligated to pay an additional $10,000 fee.
[2] Consulting agreements:
During 1998, the Company entered into a consulting agreement (the
"Agreement") with a former stockholder of Tamarack to provide research
related activities. In connection with the Agreement, the consultant
receives approximately $2,300 per month for such services and is eligible
for a lump sum payment of $50,000 upon the attainment of a revenue
milestone as defined in the Agreement. In accordance with the Agreement,
the Company issued stock options to purchase 250,000 shares of the
Company's common stock at $.20 per share.
[3] Employment agreement
On August 30, 1999, the Company entered into an employment and
noncompetition agreement with an individual to provide research related
activities. The term of the agreement is for one year commencing on
September 1, 1999. The agreement allows for two one year renewal options
unless terminated by either party. Base salary is $90,000 per annum with
available additional cash compensation as defined in the agreement. In
addition, the employee is eligible to receive stock options to purchase
500,000 shares of common stock at $.40 per share.
F-31
<PAGE>
(UNAUDITED)
MANHATTAN SCIENTIFICS, INC. AND SUBSIDIARY
(a development stage enterprise)
Notes to Financial Statements
September 30, 1999
NOTE H - COMMITMENTS (CONTINUED)
[4] Intangible asset acquisition:
On August 6, 1999, the Company entered into an agreement with Novars
Gesellschaft Furneve Technologies mbh ("Novars") to acquire all of the
intellectual property rights of Novars. As compensation, the Company issued
1,000,000 shares of its common stock. 500,000 of such shares will be held
in escrow pending issuance of certain patents as defined in the agreement.
The initial purchase price was estimated at $1,000,000 based upon the value
of the common shares issued at the date of the transaction as determined by
management. However, the eventual purchase price can not be determined
until such time the shares held in escrow have been released to the third
party. In addition, the Company is obligated to pay a three percent royalty
in perpetuity on the net revenues earned by the Company as defined in the
agreement.
In conjunction with the above, the Company entered into a three year
research and development agreement with Novars with automatic one year
renewals unless terminated by either party. In accordance with this
agreement, the Company advanced $200,000 in August 1999. The Company is
obligated to advance $400,000 based on certain milestones included in this
three year research and development agreement as amended.
[5] Leases:
The Company is obligated under two separate operating leases for office
space located in Los Alamos, New Mexico and New York City. Both leases
expire in 2001. The Company received reimbursement of $27,000 against rent
charges for the nine months ended September 30, 1999 from a related party.
Rent expense charged to operations was approximately $9,000 for the nine
months ended September 30, 1999 and $27,000 for 1998.
Minimum future rental payments under these leases are as follows:
Twelve Months
Ending
September 30,
-------------
2000 $ 99,000
2001 12,000
NOTE I - RELATED PARTY TRANSACTIONS
The law firm of one director received $50,100 compensation for legal services
rendered to the Company through September 30, 1999.
The accounting firm of one of our director's received $14,000 compensation for
accounting services rendered to the Company through September 30, 1999.
The partners of one director received an aggregate of 200,000 options to
purchase Company common stock at $.05 per share as consideration for the
director's reduced availability to attend to partnership duties as a result of
his activities on behalf of the Company.
F-32
<PAGE>
(UNAUDITED)
MANHATTAN SCIENTIFICS, INC. AND SUBSIDIARY
(a development stage enterprise)
Notes to Financial Statements
September 30, 1999
NOTE I - RELATED PARTY TRANSACTIONS (CONTINUED)
NMXS.Com pays our CEO a yearly salary of $60,000 and leases a car for our CEO as
consideration for his services.
During 1998, the Company entered into a research and development agreement with
Energy Related Devices, Inc. ("ERDI"), ERDI is majority owned by a shareholder
of the Company (see Note H[1]).
NOTE J- SUBSEQUENT EVENTS
Preferred stock:
On October 25, 1999, the Board of Directors authorized 180,000 shares of Series
B preferred stock. The preferred shares have voting and dividend rights. The
preferred shares are convertible into common shares at anytime on a one for ten
basis.
Stock options:
In October 1999, one shareholder exercised 100,000 options at $.20 per share
with cash proceeds to the Company of $20,000.
F-33
<PAGE>
PART III
Index to Exhibits
Exhibit
Number Description of Exhibit
- ------ ----------------------
2.1 Agreement and Plan of Reorganization
2.2 Agreement and Plan of Merger
2.3 Certificate of Incorporation
2.4 Amendment to Certificate of Incorporation
2.5 Bylaws
4.1 Specimen Common Stock Certificate
10.1 License/Assignment Agreement with Robert
Glenn Hockaday, and DKY, Inc.
10.2 Research and Development Agreement with
Energy Related Devices, Inc.
10.3 Letter Agreement with Energy Related
Devices, Inc. and Robert Glenn Hockaday
10.4 Intellectual Property Assignment and
Research and Development Agreement with
Novars Gesellschaft fur neue Technologien
GmbH
10.5 License Option Agreement with The Regents
of the University of California
10.6 Lease of Executive Offices
10.7 Lease of New Mexico Facilities
10.8 1998 Stock Option Plan
10.9 Employment Agreement with Robert Hermes
10.10 Agreement with Stanton Crenshaw
Communications
10.11 Agreement with Equilink
21.1 List of Subsidiaries
27.1 Financial Data Schedule
34
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 12 of the Securities Exchange
Act of 1934, the registrant has duly caused this registration statement to be
signed on its behalf by the undersigned, thereunto duly authorized.
MANHATTAN SCIENTIFICS, INC.
Dated: December 2, 1999 By: /s/ Marvin Maslow
-------------------------
Marvin Maslow
Chief Executive Officer
<PAGE>
AGREEMENT AND PLAN OF REORGANIZATION
This Agreement and Plan of Reorganization (hereinafter the "Agreement") is
entered into effective as of this 27th day of December, 1997, by and among Grand
Enterprises, Inc., a Delaware corporation (hereinafter "Grand"); Grand
Subsidiary, Inc., a newly-formed Texas corporation (hereinafter "G.S.I."); Lynn
Dixon, the sole officer and director of Grand and G.S.I. (hereinafter "Dixon");
and Tamarack Storage Devices, Inc., a Texas corporation (hereinafter
"Tamarack").
RECITALS:
WHEREAS, Grand desires to acquire Tamarack as a wholly-owned subsidiary
and to issue shares of Grand common stock to the shareholders of Tamarack upon
the terms and conditions set forth herein. G.S.I. is a wholly-owned subsidiary
corporation of Grand which shall be merged into Tamarack, whereupon Tamarack
shall be the surviving corporation of said merger and shall become a
wholly-owned subsidiary of Grand (G.S.I. and Tamarack are sometimes collectively
hereinafter referred to as the "Constituent Corporations").
WHEREAS, the boards of directors of Grand and Tamarack, respectively, deem
it advisable and in the best interests of such corporations and their respective
shareholders that G.S.I. merge with and into Tamarack pursuant to this Agreement
and Articles of Merger in the form attached hereto as Exhibit "A" and pursuant
to applicable provisions of law (such transaction hereafter referred to as the
"Merger").
WHEREAS, G.S.I. has an authorized capitalization consisting of 5,000
shares of no par value common stock, of which 1,000 shares shall be issued and
outstanding and owned by Grand as of the closing of the Merger; and Tamarack has
an authorized capitalization consisting of 10,000,000 shares of common stock,
$.01 par value ("Tamarack Common Stock"), of which 4,586,464 shares are issued
and outstanding as of the date hereof, and 6,000,000 shares of preferred stock,
$.01 par value, of which no shares are issued or outstanding as of the date
hereof. All of said outstanding shares of Tamarack Common Stock, are owned by
the shareholders of Tamarack as set forth on the attachment Exhibit "B"
(hereafter "Tamarack Shareholders").
NOW THEREFORE, for the mutual consideration set out herein, and other good
and valuable consideration, the sufficiency of which is hereby acknowledged, the
parties agree as follows:
AGREEMENT
1. Plan of Reorganization. The parties hereto do hereby agree that G.S.I.
shall be merged with and into Tamarack upon the terms and conditions set forth
herein. It is the intention of the parties hereto that this transaction qualify
as a tax-free reorganization under Section 368(a)(2)(E) of the Internal Revenue
Code of 1986, as amended, and related sections thereunder.
<PAGE>
2. Terms of Merger. In accordance with the provisions of this Agreement
and the requirements of applicable law, G.S.I. shall be merged with and into
Tamarack as of the Effective Date (the terms "Closing" and "Effective Date" are
defined in Section 6 hereof). Tamarack shall be the surviving corporation
(hereinafter sometimes the "Surviving Corporation") and the separate existence
of G.S.I. shall cease when the Merger shall become effective. Consummation of
the Merger shall be upon the following terms and subject to the following
conditions:
(a) Corporate Existence
(1) At the Effective Date, the Surviving Corporation shall continue
its corporate existence as a Texas corporation and (i) it shall thereupon
and thereafter possess all rights, privileges, powers, franchises and
property (real, personal and mixed) of each of the Constituent
Corporations; (ii) all debts due to either of the Constituent
Corporations, on whatever account, all causes in action and all other
things belonging to either of the Constituent Corporations shall be taken
and deemed to be transferred to and shall be vested in the Surviving
Corporation by virtue of the Merger without further act or deed; and (iii)
all rights of creditors and all liens upon any property of any of the
Constituent Corporations shall be preserved unimpaired, limited in lien
to the property affected by such liens immediately prior to the Effective
Date, and all debts, liabilities and duties of the Constituent
Corporations shall thenceforth attach to the Surviving Corporation.
(2) At the Effective Date, (i) the Articles of Incorporation and the
By-laws of the Surviving Corporation, as existing immediately prior to the
Effective Date, shall be and remain the Articles of Incorporation and
By-Laws of the Surviving Corporation; (ii) the members of the Board of
Directors of the Surviving Corporation holding office immediately prior to
the Effective Date shall remain as the members of the Board of Directors
of the Surviving Corporation (if on or after the Effective Date a vacancy
exists on the Board of Directors of the Surviving Corporation, such
vacancy may thereafter be filled in a manner provided by applicable law
and the By-laws of the Surviving Corporation); and (iii) until the Board
of Directors of the Surviving Corporation shall otherwise determine, all
persons who hold offices of the Surviving Corporation at the Effective
Date shall continue to hold the same offices of the Surviving Corporation.
(b) Pre-Merger Events and Recapitalizations.
(1) Grand shall have completed the sale in its limited offering (the
"Limited Offering") of shares of Grand common stock pursuant to the
Limited Offering Memorandum (the "Memorandum") dated November 12, 1997,
wherein Grand Shall have sold 5,000,000 post-split shares of its common
stock at $.20 per share for aggregate gross proceeds of $1,000,000. The
shares sold in such offering shall be subject to a six (6) month lock-up
arrangement.
2
<PAGE>
(2) Grand shall have effectuated a forward stock split of its common
stock (the "Grand Common Stock") so that it has 11,000,000 shares of Grand
Common Stock outstanding immediately prior to consummation of the Merger,
not taking into consideration the shares sold in the Limited Offering or
the shares to be issued hereunder.
(c) Conversion of Securities.
As of the Effective Date and without any action on the part of Grand,
G.S.I., Tamarack or the holders of any of the securities of any of these
corporations each of the following shall occur:
(1) Each share of Tamarack Common Stock issued and outstanding
immediately prior to the Effective Date shall be converted into
9.593447152 shares of Grand Common Stock, up to a maximum aggregate amount
of 44,000,000 shares. All such shares of Tamarack Common Stocky shall no
longer be outstanding and shall automatically be canceled and shall cease
to exist, and each certificate previously evidencing any such shares shall
thereafter represent the right to receive, upon the surrender of such
certificate in accordance with the provisions of Section 3 hereof,
certificates evidencing such number of shares of Grand Common Stock into
which such shares of Tamarack Common Stock were converted. The holders of
such certificates previously evidencing shares of Tamarack Common Stock
outstanding immediately prior to the Effective Date shall cease to have
any rights with respect to such shares of Tamarack Common Stock except as
otherwise provided herein or by law;
(2) Any shares of Tamarack Common Stock held in the treasury of
Tamarack immediately prior to the Effective Date shall automatically be
canceled and extinguished without any conversion thereof and no payment
shall be made with respect thereto;
(3) Each share of capital stock of G.S.I. issued and outstanding
immediately prior to the Effective Date shall be canceled in the Merger.
Tamarack shall issue ten (10) shares of its common stock to Grand which
shall constitute all of the issued and outstanding common stock of
Tamarack;
(4) The 11,000,000 shares of Grand Common Stock previously issued
and outstanding immediately prior to the Merger (but adjusted to reflect
the forward split) will remain outstanding so that after conversion of the
Tamarack Common Stock and the issuance of 5,000,000 shares of Grand Common
Stock in the Limited Offering, Grand shall have no more than 60,000,000
shares of Grand Common Stock outstanding at Closing;
(d) Other Events.
3
<PAGE>
(1) On the Closing Date, Grand shall file an amendment to its
Certificate of Incorporation with the Secretary of State of the State of
Delaware in substantially the form attached hereto as Exhibit "C"
effecting an amendment to its Certificate of Incorporation to (i) change
its corporate name to Manhattan Scientifics, Inc. or a derivation thereof,
(ii) give effect to the forward split, (iii) increase its authorized
shares of common stock from 50,000,000 to 150,000,000 shares, and (iv)
authorize the Series A Preferred Stock as more particularly described in
Exhibit "C" attached hereto.
(2) Grand, as of the date hereof, shall have received all requisite
director and shareholder approval of the matters set forth herein.
(e) Other Matters.
Prior to Closing:
(1) There shall be no stock dividend, stock split, recapitalization,
or exchange of shares with respect to or rights issued in respect of
Grand's Common Stock after the date hereof and there shall be no dividends
paid on Grand's Common Stock after the date hereof, in each case through
and including the Effective Date, except as otherwise described herein.
(2) Tamarack shall have received all requisite director and
shareholder approval of all matters set forth herein as required under
Texas law and no shareholder of Tamarack shall have exercised any
dissenters rights under applicable corporate law.
(3) At or prior to Closing, Grand (through its board of directors
and shareholders) shall adopt a stock option plan as described in the
Memorandum and shall grant those options described in said Memorandum or
as otherwise directed by Tamarack.
(4) Tamarack shall have settled all outstanding matters with
Microelectronics Computer Corporation ("MCC") in a manner reasonably
satisfactory to Grand and shall have retired the 1,200,000 shares of
Series I Preferred Stock previously owned by MCC.
(5) Projectavision, Inc., a Delaware corporation and majority
shareholder of Tamarack ("Projectavision") shall have purchased the
outstanding shares of Tamarack common stock of John Stockton and Steve
Redfield. The shareholders of Tamarack shall be as listed on Exhibit "B",
attached hereto.
At Closing:
(1) Grand shall issue a Common Stock Purchase Warrant, to purchase
up to 750,000 shares of its common stock to Projectavision in exchange for
a warrant to purchase Tamarack shares (the "Tamarack Warrant"), which
Tamarack Warrant is
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<PAGE>
currently owned by Projectavision. The terms of the Grand Warrant are set
forth in Exhibit "D", attached hereto.
(2) Grand shall designate a series of preferred stock (the "Series A
Preferred Stock") to have the rights and preferences set forth on Exhibit
"C", attached hereto, which Series A Preferred Stock shall be issued to
extinguish an existing $1,500,000 debt obligation of Tamarack to
Projectavision including all interest accrued on such debt to the date of
Closing.
(3) Grand shall file for listing in Standard and Poor's Corporation
Manual and pay for accelerated listing service and shall thereafter keep
Standard and Poors current with respect to the business and financial
affairs of the Corporation on at least an annual basis.
3. Delivery of Shares. On or as soon as practicable after the Effective
Date, Tamarack will use its best efforts to cause the Tamarack Shareholders to
surrender for cancellation certificates representing their shares of Tamarack
Common Stock, against delivery of certificates representing the shares of Grand
Common Stock for which the shares of Tamarack Common Stock are to be converted
in the Merger. Until surrendered and exchanged as herein provided, each
outstanding certificate which, prior to the Effective Date, represented a
Tamarack certificate shall be deemed for all corporate purposes to evidence
ownership of the same number of shares of Grand Common Stock into which the
Tamarack certificate shall have been so converted pursuant to the terms of this
Agreement.
4. Representations of Tamarack. Tamarack hereby represents and warrants as
follows, which warranties and representations shall also be true as of the
Effective Date:
(a) Except as noted on Exhibit "B", the Tamarack Shareholders listed
on the attached Exhibit "B" are the sole owners of record and beneficially
of the issued and outstanding Tamarack Common Stock.
(b) The Tamarack Common Stock constitutes duly authorized, validly
issued shares of common stock of Tamarack, fully paid and nonassessable
and are the only capital shares of Tamarack authorized or outstanding. At
Closing, there will be no outstanding rights, options, warrants or similar
agreements which authorize the holder thereof to acquire shares of capital
stock of Tamarack.
(c) The Tamarack unaudited financial statements as of December 31,
1996, and June 30, 1997 which have been delivered to Grand (hereinafter
referred to as the "Tamarack Financial Statements") are complete, accurate
and fairly present the financial condition of Tamarack as of the dates
thereof and the results of its operations for the periods covered. There
are no material liabilities, commitments or obligations, either fixed or
contingent, not disclosed in the Tamarack Financial Statements or in any
exhibit thereto or notes thereto other than contracts or obligations in
the ordinary course of
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business; and no such contracts or obligations in the ordinary course of
business constitute liens or other liabilities which materially alter the
financial condition of Tamarack as reflected in the Tamarack Financial
Statements. Tamarack has good title to all assets shown on the Tamarack
Financial Statements subject only to dispositions and other transactions
in the ordinary course of business, the disclosures set forth therein and
liens and encumbrances of record. The Tamarack financial statement have
been prepared in accordance with generally accepted accounting principles
consistently applied (except as may be indicated therein or in the notes
thereto).
(d) Since June 30, 1997, there have not been any material adverse
changes in the financial condition of Tamarack except changes arising in
the ordinary course of business, which changes will in no event materially
and adversely affect the financial condition of Tamarack.
(e) Tamarack is not a party to any material pending litigation or,
to its best knowledge, any governmental investigation or proceeding, not
reflected in the Tamarack Financial Statements, and to its best knowledge,
no material litigation, claims, assessments or any governmental
proceedings are threatened against Tamarack.
(f) Tamarack is in good standing in its state of incorporation, and
is in good standing and duly qualified to do business in each state where
required to be so qualified except where the failure to so qualify would
have no material negative impact on Tamarack.
(g) Tamarack has, or by the Effective Date will have, filed all
material tax, governmental and/or related forms and reports (or extensions
thereof) due or required to be filed and has (or will have) paid or made
adequate provisions for all taxes or assessments which have become due as
of the Effective Date.
(h) Tamarack has not materially breached any material agreement to
which it is a party. Tamarack has previously given Grand copies or access
thereto of all material contracts, commitments and/or agreements to which
Tamarack is a party including all relationships or dealings with related
parties or affiliates.
(i) Tamarack has no subsidiary corporations.
(j) Tamarack has made its corporate financial records, minute books,
and other corporate documents and records available for review to present
management of Grand prior to the Effective Date, during reasonable
business hours and on reasonable notice.
(k) The execution of this Agreement does not materially violate or
breach any material agreement or contract to which Tamarack is a party and
this Agreement has been duly authorized by all appropriate and necessary
corporate action and Tamarack,
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to the extent required, has obtained all necessary approvals or consents
required by any agreement to which Tamarack is a party.
(l) All information regarding Tamarack which is set forth in the
Memorandum or otherwise used in connection with the Limited Offering is
true, complete and accurate in all material respects.
5. Representations of Grand, G.S.I. and Dixon. Grand, G.S.I. and Dixon
hereby jointly and severally represent and warrant as follows, each of which
representations and warranties shall continue to be true as of the Effective
Date:
(a) As of the Effective Date, the shares of Grand Common Stock and
the Series A Preferred Stock to be issued and delivered to the Tamarack
Shareholders hereunder will, when so issued and delivered, constitute duly
authorized, validly and legally issued shares of Grand capital stock,
fully-paid and nonassessable.
(b) Grand has the corporate power to enter into this Agreement and
to perform its obligations hereunder. The execution and delivery of this
Agreement and the consummation of the transactions contemplated hereby
have been or will be duly authorized by the respective Boards of Directors
and shareholders of Grand and G.S.I. The execution and performance of
this Agreement will not constitute a material breach of any agreement,
indenture, mortgage, license or other instrument or document to which
Grand or G.S.I. is a party and will not violate any judgment, decree,
order, writ, rule, statute, or regulation applicable to Grand, G.S.I. or
their properties. The execution and performance of this Agreement will not
violate or conflict with any provision of the respective articles of
incorporation or by-laws of Grand or G.S.I.
(c) Grand has delivered to Tamarack a true and complete copy of its
audited financial statements for the fiscal years ended December 31, 1996
and 1995, and interim unaudited financial statements for the six months
ended June 30, 1997, (the "Grand Financial Statements"). The Grand
Financial Statements are complete, accurate and fairly present the
financial condition of Grand as of the dates thereof and the results of
its operations for the periods then ended. There are no material
liabilities or obligations either fixed or contingent not reflected
therein. The Grand audited financial statements have been prepared in
accordance with generally acceptable accounting principles applied on a
consistent basis (except as may be indicated therein or in the notes
thereto) and fairly present the financial position of Grand as of the
dates thereof and the results of its operations and changes in financial
position for the periods then ended. G.S.I. has no financial statements
because it has only recently been formed for the purpose of effectuating
the Merger and it has no assets, liabilities, contracts or obligations of
any kind. Grand has no subsidiaries except for G.S.I., and G.S.I. has no
subsidiaries.
(d) Since June 30, 1997, there have not been any material adverse
changes in the financial condition of Grand. At Closing, Grand will have
no assets and no liabilities
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<PAGE>
other than the net proceeds of its Limited Offering, which shall not be
less than $975,000, to be delivered in good funds at Closing as directed
by the newly appointed board of directors of Grand.
(e) Neither Grand nor G.S.I. is a party to or the subject of any
pending litigation, claims, or governmental investigation or proceeding
not reflected in the Grand Financial Statements or otherwise disclosed
herein, and there are no lawsuits, claims, assessments, investigations, or
similar matters, to the best knowledge of Dixon, threatened or
contemplated against or affecting G.S.I., Grand, its management or its
properties.
(f) Grand and G.S.I. are each duly organized, validly existing and
in good standing under the laws of the jurisdiction of their
incorporation; each has the corporate power to own its property and to
carry on its business as now being conducted and is duly qualified to do
business in any jurisdiction where so required except where the failure to
so qualify would have no material negative impact.
(g) Grand and G.S.I. have filed all federal, state, county and local
income, excise, property and other tax, governmental and/or related
returns, forms, or reports, which are due or required to be filed by it
prior to the date hereof and have paid or made adequate provision in the
Grand Financial Statements for the payment of all taxes, fees, or
assessments which have or may become due pursuant to such returns or
pursuant to any assessments received. Neither Grand nor G.S.I. is
delinquent or obligated for any tax, penalty, interest, delinquency or
charge.
(h) Grand's authorized capital stock presently consists of: (i)
50,000,000 shares of Common Stock, $.001 par value, of which 1,000,000
shares are presently issued and outstanding. G.S.I.'s capitalization
consists of 5,000 shares of no par value common stock ("G.S.I.'s Common
Stock"), of which 1,000 shares shall be outstanding, all of which shall be
owned by Grand, free and clear of all liens, claims and encumbrances. All
outstanding shares of capital stock of Grand and G.S.I. are, or shall be
at Closing, validly issued, fully paid and nonassessable. There are no
existing options, calls, warrants, preemptive rights or commitments of any
character relating to the issued or unissued capital stock or other
securities of either Grand or G.S.I.
(i) Grand and G.S.I. have (and at the Closing they will have)
disclosed in writing all events, conditions and facts materially affecting
the business, financial conditions or results of operations of either
Grand or G.S.I..
(j) The corporate financial records, minute books, and other
documents and records of Grand and G.S.I. have been made available to
Tamarack prior to the Closing.
(k) Grand has not breached, nor is there any pending, or to the
knowledge of management, any threatened claim that Grand has breached, any
of the terms or
8
<PAGE>
conditions of any agreements, contacts or commitments to which it is a
party or by which it or its properties is bound. The execution and
performance hereof will not violate any provisions of applicable law or
any agreement to which Grand is subject. Grand hereby represents that it
is not a party to any material contact or commitment other than
appointment documents with its transfer agent, and that it has disclosed
to Tamarack all relationships or dealings with related parties or
affiliates.
(l) Grand has complied with the provisions for registration under
the Securities Act of 1933 and all applicable blue sky laws in connection
with its initial public stock offering. There are no outstanding, pending
or threatened stop orders or other actions or investigations relating
thereto.
(m) All information regarding Grand which has been provided to
Tamarack by Grand or set forth in the Memorandum is true, complete and
accurate in all material respects.
6. Closing. The Closing of the transactions contemplated herein shall take
place on such date (the "Closing") as mutually determined by the parties hereto
when all conditions precedent have been met and all required documents have been
delivered, which Closing is expected to be during the month of January 1998, but
not later than January 31, 1998. The "Effective Date" of the Merger shall be
that date on which executed copies of the attached Articles of Merger are filed
with the Secretary of State of Texas.
7. Conditions Precedent to the Obligations of Tamarack. All obligations of
Tamarack under this Agreement are subject to the fulfillment, prior to or as of
the Closing and/or the Effective Date, as indicated below, of each of the
following conditions:
(a) The representations and warranties by or on behalf of Grand,
G.S.I. and Dixon contained in this Agreement or in any certificate or
document delivery pursuant to the provisions hereof shall be true in all
material respects at and as of the Closing and Effective Date as though
such representations and warranties were made at and as of such time.
(b) Grand and G.S.I. shall have performed and complied with all
covenants, agreements, and conditions set forth in, and shall have
executed and delivered all documents required by this Agreement to be
performed or complied with or executed and delivered by them prior to or
at the Closing.
(c) On or before the Closing, the sole director of Grand and G.S.I.,
and Grand as sole shareholder of G.S.I. shall have approved in accordance
with applicable state corporation law the execution and delivery of this
Agreement and the consummation of the transactions contemplated herein.
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<PAGE>
(d) On or before the Closing Date, Grand and G.S.I. shall have
delivered certified copies of resolutions of the sole shareholder and
director of G.S.I. and of the sole director and shareholders of Grand
approving and authorizing the execution, delivery and performance of this
Agreement and authorizing all of the necessary and proper action to enable
Grand and G.S.I. to comply with the terms of this Agreement including the
election of Tamarack's nominees to the Board of Directors of Grand and all
matters outlined herein.
(e) Grand shall have completed the sale of 5,000,000 shares in the
Limited Offering (at $.20 per share) in accordance with the terms of the
Limited Offering as set forth in the Memorandum.
(f) The Merger shall be permitted by applicable state law and Grand
shall have sufficient shares of its capital stock authorized to complete
the Merger.
(g) At Closing, Dixon shall have resigned in writing from his
positions as sole director and officer of Grand effective upon the
election and appointment of the Tamarack nominees as set forth in the
Memorandum.
(h) At the Closing, all instruments and documents delivered to
Tamarack Shareholders pursuant to the provisions hereof shall be
reasonably satisfactory to legal counsel for Tamarack.
(i) At the Closing, upon consummation of the Merger, Grand shall
have the same authorized capital as at present except as described in
Section 2(d)(1) hereof.
(j) The shares of restricted Grand capital stock to be issued to
Tamarack Shareholders at Closing will be validly issued, nonassessable and
fully-paid under Delaware corporation law and will be issued in a
nonpublic offering and isolated transaction in compliance with all
federal, state and applicable securities haws.
(k) Tamarack shall have received the advice of its tax advisor that
this transaction is a tax free reorganization as to the exchanging
Tamarack common shareholders.
(l) Tamarack shall have received all necessary and required
approvals and consents from required parties and its shareholders.
(m) At the Closing, Grand and G.S.I. shall have delivered to
Tamarack an opinion of its counsel dated as of the Closing to the effect
that:
(i) Grand and G.S.I., each is a corporation duly organized,
validly existing and in good standing under the laws of the
jurisdiction of incorporation;
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<PAGE>
(ii) This Agreement has been duly authorized, executed and
delivered by Grand and G.S.I. and is a valid and binding obligation
of Grand and G.S.I. enforceable in accordance with its terms;
(iii) Grand and G.S.I. each through its Board of Directors and
stockholders have taken all corporate action necessary for
performance under this Agreement;
(iv) The documents executed and delivered to Tamarack and
Tamarack Shareholders hereunder are valid and binding in accordance
with their terms and vest in Tamarack Shareholders, as the case may
be, all right, title and interest in and to the shares of Grand's
Common Stock and Series A Preferred Stock to be issued pursuant to
Section 2 hereof, and the shares of such Grand capital stock when
issued will be duly and validly issued, fully-paid and
nonassessable; and
(v) Grand and G.S.I. each has the corporate power to execute,
deliver and perform under this Agreement.
(vi) Legal counsel for Grand and G.S.I. is not aware of any
liabilities, claims or lawsuits involving Grand or G.S.I..
8. Conditions Precedent to the Obligations of Grand and G.S.I.. All
obligations of Grand and G.S.I. under this Agreement are subject to the
fulfillment, prior to or at the Closing, of each of the following conditions:
(a) The representations and warranties by Tamarack contained in this
Agreement or in any certificate or document delivered pursuant to the
provisions hereof shall be true in all material respects at and as of the
Closing as though such representations and warranties were made at and as
of such time.
(b) Tamarack shall have performed and complied with, in all material
respects, all covenants, agreements, and conditions required by this
Agreement to be performed or complied with by them prior to or at the
Closing;
(c) Tamarack shall cause each of its shareholders to deliver to
Grand, a letter commonly known as an "Investment Letter," in substantially
the form attached hereto as Exhibit "E", acknowledging that the shares of
Grand Common Stock are being acquired by said shareholders for investment
purposes.
(d) Grand shall have completed the sale of 5,000,000 shares (at $.20
per share) as described in the Memorandum.
(e) Tamarack shall deliver an opinion of its legal counsel to the
effect that:
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(i) Tamarack is a corporation duly organized, validly existing
and in good standing under the laws of the state of its
incorporation and is duly qualified to do business in any
jurisdiction where so required except where the failure to so
qualify would have no material adverse impact on the company;
(ii) Tamarack has the corporate power to carry on its business
as now being conducted; and
(iii) This Agreement has been duly authorized, executed and
delivered by Tamarack.
(f) Projectavision shall surrender the Tamarack Warrant in exchange
for the Grand Warrant described in Exhibit D.
(g) Projectavision shall deliver the original promissory note of
Tamarack in exchange for the Grand Series A Preferred Stock as described
on Exhibit "E" as payment in full for outstanding indebtedness (including
accrued interest) owed to it by Tamarack pursuant to said note.
9. Indemnification. For a period of one year from the Closing, Dixon,
Grand and G.S.I. agree to jointly and severally indemnify and hold harmless
Tamarack, and Tamarack agrees to indemnify and hold harmless Dixon, Grand and
G.S.I., against and in respect of any liability, damage or deficiency, all
actions, suits, proceedings, demands, assessments, judgments, costs and expenses
including attorney's fees incident to any of the foregoing, resulting from any
material misrepresentations made by an indemnifying party to an indemnified
party, an indemnifying party's breach of covenant or warranty or an indemnifying
party's nonfulfillment of any agreement hereunder, or from any material
misrepresentation in or omission from any certificate furnished or to be
furnished hereunder.
10. Nature and Survival of Representations. All representations,
warranties and covenants made by any party in this Agreement shall survive the
Closing and the consummation of the transactions contemplated hereby for two
years from the Closing. All of the parties hereto are executing and carrying out
the provisions of this Agreement in reliance solely on the representations,
warranties and covenants and agreements contained in this Agreement and not upon
any investigation upon which it might have made or any representation, warranty,
agreement, promise or information, written or oral, made by the other party or
any other person other than as specifically set forth herein.
11. Documents at Closing. At the Closing, the following documents shall be
delivered:
(a) Tamarack will deliver, or will cause to be delivered, to Grand
the following:
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(i) a certificate executed by the President and Secretary of
Tamarack to the effect that all representations and warranties made
by Tamarack under this Agreement are true and correct as of the
Closing, the same as though originally given to Grand or G.S.I. on
said date;
(ii) a certificate from the state of Tamarack's incorporation
dated at or about the Closing to the effect that Tamarack is in good
standing under the laws of said state;
(iii) Investment Letters in the form attached hereto as
Exhibit "E" executed by each Tamarack Shareholder;
(iv) such other instruments, documents and certificates, if
any, as are required to be delivered pursuant to the provisions of
this Agreement;
(v) executed copies of the Articles of Merger for filing; and
certified copies of resolutions by the shareholders and directors of
Tamarack authorizing this transaction; and
(vi) all other items, the delivery of which is a condition
precedent to the obligations of Grand and G.S.I., as set forth
herein.
(vii) the legal opinion required by Section 8(e) hereof.
(b) Grand and G.S.I. will deliver or cause to be delivered to
Tamarack:
(i) common and preferred stock certificates and the Grand
Warrant representing those securities of Grand to be issued as a
part of the exchange as described in Section 2 hereof;
(ii) a certificate of the President/Secretary of Grand and
G.S.I., respectively, to the effect that all representations and
warranties of Grand and G.S.I. made under this Agreement are true
and correct as of the Closing, the same as though originally given
to Tamarack on said date;
(iii) certified copies of resolutions adopted by Grand's and
G.S.I.'s Board of Directors and Grand's and G.S.I.'s Stockholders
authorizing the Merger and all related matters;
(iv) certificates from the jurisdiction of incorporation of
Grand and G.S.I. dated at or about the Closing Date that each of
said corporations is in good standing under the laws of said state;
(v) opinion of Grand's counsel as described in Section 7(m)
above;
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(vi) such other instruments and documents as are required to
be delivered pursuant to the provisions of this Agreement;
(vii) resignation of Dixon as the sole officer and director of
Grand and G.S.I.; and
(viii) all other items, the delivery of which is a condition
precedent to the obligations of Tamarack, as set forth in Section 7
hereof.
12. Finder's Fees. Dixon, Grand and G.S.I., jointly and severally,
represent and warrant to Tamarack, and Tamarack represents and warrants to each
of Dixon, Grand and G.S.I., that none of them, or any party acting on their
behalf, has incurred any liabilities, either express or implied, to any "broker"
of "finder" or similar person in connection with this Agreement or any of the
transactions contemplated hereby, other than as described in the Memorandum. In
this regard, Dixon, Grand and G.S.I., jointly and severally, on the one hand,
and Tamarack on the other hand, will indemnify and hold the other harmless from
any claim, loss, cost or expense whatsoever (including reasonable fees and
disbursements of counsel) from or relating to any such express or implied
liability, other than as described in the Memorandum.
13. Miscellaneous.
(a) Further Assurances. At any time, and from time to time, after
the Effective Date, each party will execute such additional instruments
and take such action as may be reasonably requested by the other party to
confirm or perfect title to any property transferred hereunder or
otherwise to carry out the intent and purposes of this Agreement.
(b) Waiver. Any failure on the part of any party hereto to comply
with any of its obligations, agreements or conditions hereunder may be
waived in writing by the party to whom such compliance is owed.
(c) Termination. All obligations hereunder may be terminated at the
discretion of either party's Board of Directors if (i) the closing
conditions specified in Sections 7 and 8 are not met by January 31, 1998
unless unanimously extended, or (ii) any of the representations and
warranties made herein have been materially breached.
(d) Amendment. This Agreement may be amended only in writing as
agreed to by all parties hereto.
(e) Notices. All notices and other communications hereunder shall be
in writing and shall be deemed to have been given if delivered in person
or sent by prepaid first class registered or certified mail, return
receipt requested to the last known address of the noticed party.
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<PAGE>
(f) Headings. The section and subsection headings in this Agreement
are inserted for convenience only and shall not affect in any way the
meaning or interpretation of this Agreement.
(g) Counterparts. This Agreement may be executed simultaneously in
two or more counterparts, each of which shall be deemed an original, but
all of which together shall constitute one and the same instrument.
(h) Binding Effect. This Agreement shall be binding upon the parties
hereto and inure to the benefit of the parties, their respective heirs,
administrators, executors, successors and assigns.
(i) Entire Agreement. This Agreement and the attached Exhibits
including the Certificate and Articles of Merger attached hereto as
Exhibit "A" is the entire agreement of the parties covering everything
agreed upon or understood in the transaction. There are no oral promises,
conditions, representations, understandings, interpretations or terms of
any kind as conditions or inducements to the execution hereof.
(j) Time. Time is of the essence.
(k) Severability. If any part of this Agreement is deemed to be
unenforceable the balance of the Agreement shall remain in full force and
effect.
(l) Responsibility and Costs. Whether the Merger is consummated or
not, all fees, expenses and out-of-pocket costs and expenses, including,
without limitation, fees and disbursements of counsel, financial advisors
and accountants, incurred by the parties hereto shall be borne solely and
entirely by the party that has incurred such costs and expenses, unless
the failure to consummate the Merger constitutes a breach of the terms
hereof, in which event the breaching party shall be responsible for all
costs of all parties hereto. The direct costs of the Limited Offering and
the Merger, not to exceed $100,000 (only $25,000 of which shall be used to
pay Grand's costs), shall be paid from the proceeds of the Limited
Offering.
(m) Applicable Law. This Agreement shall be construed and governed
by the laws of the State of Delaware.
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IN WITNESS WHEREOF, the parties have executed this Agreement the day and
year first above written.
GRAND SUBSIDIARY, INC. GRAND ENTERPRISES, INC.
By:/s/ Lynn Dixon By:/s/ Lynn Dixon
------------------------------- -----------------------------
Lynn Dixon, President/Secretary Lynn Dixon
President/Secretary
By:/s/ Lynn Dixon
-----------------------------
Lynn Dixon, individually
TAMARACK STORAGE DEVICES, INC.
By:/s/ Scott L. Bach By:/s/ Marvin Maslow
------------------------------- -----------------------------
Secretary President
16
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement the day and
year first above written.
GRAND SUBSIDIARY, INC. GRAND ENTERPRISES, INC.
By: By:
------------------------------- -----------------------------
Lynn Dixon, President/Secretary Lynn Dixon
President/Secretary
By:
-----------------------------
Lynn Dixon, individually
TAMARACK STORAGE DEVICES, INC.
By:/s/ Scott L. Bach By: /s/ Marvin Maslow
------------------------------- -----------------------------
Secretary President
16
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement the day and
year first above written.
GRAND SUBSIDIARY, INC. GRAND ENTERPRISES, INC.
By: By:
------------------------------- -----------------------------
Lynn Dixon, President/Secretary Lynn Dixon
President/Secretary
By:
-----------------------------
Lynn Dixon, individually
TAMARACK STORAGE DEVICES, INC.
By: By: /s/ Marvin Maslow
------------------------------- -----------------------------
Secretary President
16
<PAGE>
AGREEMENT AND PLAN OF MERGER
In consideration of the mutual promises and covenants contained herein,
the receipt and sufficiency of which are hereby acknowledged, DKY, Inc., a New
Mexico business corporation (Merging Corporation) and Tamarack Storage Devices,
Inc., a Texas business corporation (Surviving Corporation) and Manhattan
Scientifics, Inc. ("MSI") a Delaware business corporation owning one hundred
percent (100%) of the outstanding shares of the Surviving Corporation, hereby
stipulate and agree as follows ("this Agreement"):
SECTION 1. MERGER
On the Effective Date, the Merging Corporation shall be merged with and
into the Surviving Corporation. The separate existence of the Merging
Corporation shall cease, and both the Merging and Surviving Corporation shall be
a single corporation which shall be the Surviving Corporation. The title to all
real estate and other property owned by the Merging Corporation and the
Surviving Corporation shall be vested in the Surviving Corporation without
reversion or impairment, and without further act or deed. The Surviving
Corporation shall assume all liabilities and obligations of the Merging
Corporation and the Surviving Corporation as of the Effective Date. Any
proceeding pending against the Merging Corporation or the Surviving Corporation
may be continued as if the merger did not occur, or the Surviving Corporation
may be substituted in the proceeding for the Merging Corporation.
SECTION 2. SHAREHOLDER APPROVAL
Forthwith upon the full execution of this agreement, the Merging
Corporation and the Surviving Corporation shall each submit this agreement to
its shareholders for approval in accordance with Business Corporation Act of the
states of New Mexico (Merging Corporation) and Texas (Surviving Corporation).
SECTION 3. EFFECTIVE DATE AND CLOSING
3.1 Effective Date. The merger of the Merging Corporation and the
Surviving Corporation shall be effective (Effective Date) upon the filing of the
Articles of Merger in accordance with the Business Corporation Act of the states
of Texas and New Mexico.
3.2 Closing. Subject to the satisfaction of the conditions set forth in
Sections 10 and 11 of this agreement, the closing of this merger shall take
place at such place or at such time as may be agreed upon by the Surviving
Corporation and the Merging Corporation. At the time of the closing:
3.2.1 Filing of Articles of Merger. The Surviving Corporation and the
Merging Corporation shall cause the Articles of Merger to be filed.
3.2.2 Certificates. The Merging Corporation and the Surviving Corporation
shall each deliver to the other certified copies of the resolutions of the
Board of Directors and Shareholders of the delivering corporation approving the
merger.
3.3 Further Assurances. From time to time after the closing, the parties
shall execute and deliver such other documents and take such other actions as
may reasonably be required to accomplish the merger.
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SECTION 4. SHARES OF STOCK, RESTRICTIONS ON RESALE
4.1 Exchange of Shares. On the Effective Date the Surviving Corporation
shall issue to the shareholders of the Merging Corporation stock certificates
representing 72,000 shares of the fully paid and nonassessable common stock (the
"Common Stock") of MSI for each one share of the Merging Corporation held by the
shareholders.
4.2 Cancellation of Shares. On the Effective Date, each share of stock of
the Merging Corporation that is then issued and outstanding shall, by virtue of
the merger and without any action on the part of the Merging Corporation or the
Surviving Corporation, be immediately canceled.
4.3 Continuation of Shares. Each share of stock of the Surviving
Corporation that is issued and outstanding as of the Effective Date shall
continue to be an issued and outstanding share of the Surviving Corporation
notwithstanding the merger.
4.4 Right of First Refusal; Matching Right. (i) In the event that any
shareholder of the Merging Corporation (the "Offeree Shareholder") desires to
transfer, sell or otherwise dispose of, or offer to do any of same, in a private
transaction, all of the shares of Common Stock now or hereafter beneficially
owned by such Offeree Shareholder, the Offeree Shareholder, before making such
offer or effecting such transfer, sale or disposition, the Offeree Shareholder
shall first give written notice (the "Seller's Notice") to the Surviving
Corporation. The Seller's Notice shall state the Offeree Shareholder's desire to
make such offer, transfer, sale or disposition of the number of shares of Common
Stock proposed to be offered or transferred (the "Offered Shares"), and the
proposed per share consideration therefor (the "ROFR Price") and any other
material terms and conditions with respect to the proposed transfer, sale or
disposition of the Offered Shares.
Upon receipt of the Seller's Notice, the Surviving Corporation shall have
the irrevocable and exclusive option (the "ROFR Option") for thirty (30) days to
purchase all of the Offered Shares subject to the Matching Notice at the price
and upon the terms set forth therein. The ROFR Option shall be at the ROFR Price
and upon such other material terms and conditions as set forth in the Seller's
Notice; it being expressly understood and agreed that the Surviving Corporation
may, at its discretion, agree to purchase any or all of the Offered Shares in
order to effect the ROFR Option.
In the event that the Surviving Corporation does not elect to purchase all
of the Offered Shares specified in the Seller's Notice, the Offeree Shareholder
may, within thirty (30) days following the expiration of the ROFR Option,
transfer, sell or dispose to a third party those Offered Shares not purchased by
the Surviving Corporation on terms and conditions to be negotiated by the
Offeree Shareholder and a third party (the "Third Party Offer"); provided,
however, that the Offeree Shareholder, before effecting such transfer, sale or
other disposition, shall first give written notice (the "Matching Notice") to
the Surviving Corporation which Matching Notice shall state the Offeree
Shareholder's desire to make such sale, transfer, or disposition of the number
of shares of Common Stock proposed to be transferred, sold or disposed of
pursuant to the Third Party Offer and any other material terms and conditions
with respect to the Third Party Offer.
Upon receipt of the Matching Notice, the Surviving Corporation shall have
the irrevocable and exclusive right for thirty (30) days (the "Matching Right")
to purchase all of Offered Shares subject to the Matching Notice; it being
expressly understood and agreed that the Surviving Corporation may, at its sole
discretion, agree to purchase any or all of the Offered Shares subject to the
Matching Notice.
In the event that the Surviving Corporation does not elect to purchase all
of the Offered Shares subject to the Matching Notice, the Offeree Shareholder
may, following the
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expiration of the Surviving Corporation's Matching Right, sell within five (5)
business days therefrom the Offer Shares to a third party upon the terms of the
Third Party Offer. All shares of Common Stock sold by the Offeree Shareholder to
a third party hereunder shall be expressly subject to such third party's
agreement to be bound to all of the provisions of this Agreement.
Notwithstanding any other term or condition in this Section 4.4, nothing
in this Section 4.4 shall act to inhibit nor apply to any transfer, assignment,
sale, bequest, devise, gift or testamentary disposition of Common Stock by any
shareholder of the Merging Corporation to their respective heirs, descendants,
children (natural issue or otherwise) or to trusts or other mechanisms set up
for the benefit of such persons or such persons' heirs or beneficiaries.
4.5 The shareholders of the Merging Corporation shall have the unfettered
right to sell the shares of Common Stock received hereunder into the public
marketplace subject only to (i) any restriction imposed upon such shareholders
by any underwriter or other financing source relative to the Surviving
Corporation, and (ii) federal and state securities laws.
SECTION 5. CORPORATE INCIDENTS
5.1 Articles of Incorporation. The Articles of Incorporation of the
Surviving Corporation, as in effect immediately prior to the Effective Date,
shall be the Articles of Incorporation of the Surviving Corporation following
this merger.
5.2 Bylaws. The Bylaws of the Surviving Corporation, as in effect
immediately prior to the Effective Date, shall be the Bylaws of the Surviving
Corporation following this merger.
5.3 Board of Directors and Officers. The Board of Directors of the
Surviving Corporation following this merger shall consist of the persons who are
members of the Board of Directors of the Surviving Corporation immediately prior
to the Effective Date, and they shall hold office until their successors have
been elected and qualified. The officers of the Surviving Corporation following
this merger shall be the persons who are the officers of the Surviving
Corporation immediately prior to the Effective Date, and they shall hold office
at the pleasure of the Board of Directors of the Surviving Corporation.
SECTION 6. REPRESENTATIONS AND WARRANTIES OF
MERGING CORPORATION
6.1 Organization. The Merging Corporation is a corporation duly organized
and existing in good standing under the laws of the state of New Mexico and
has the corporate power to own its properties and to carry on its business as
now conducted, and is qualified to do business in no other jurisdiction. No
proceeding is pending or threatened involving the Merging Corporation in which
it is alleged that the nature of its business makes qualification necessary in
any additional jurisdiction.
6.2 Capitalization. The issued and outstanding stock of the Merging
Corporation consists solely of one hundred (100) shares of common stock without
par value. All of the issued and outstanding shares of the Merging Corporation
are validly issued and outstanding, fully paid and nonassessable. There are no
existing options, warrants, calls, preemptive rights (except certain statutory
rights not affecting the transactions hereunder), or commitments of any kind
relating to the Merging Corporation's authorized and unissued capital stock.
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6.3 Subsidiaries. The Merging Corporation has no subsidiaries.
6.4 Valid and Binding Agreement. The execution and delivery of this
agreement has been approved by the Board of Directors of the Merging
Corporation, and this agreement constitutes a valid and binding obligation of
the Merging Corporation in accordance with its terms. The execution and delivery
of this agreement and the consummation thereof do not and will not violate any
provision of any judicial or governmental decree, order, or judgment or conflict
with, or result in a breach of, or constitute a default under, the Articles of
Incorporation or bylaws of the Merging Corporation, or any material agreement or
instrument to which the Merging Corporation is a party or by which it is bound.
6.5 Newly Formed Company. The Merging Company has been formed solely for
the purpose of entering into each of that certain Exclusive Patent Licensing
Agreement between the Merging Corporation and Robert G. Hockaday dated January
11, 1998 (the "License Agreement") and this Agreement. Other than the License
Agreement and this Agreement, the Merging Corporation (i) has not engaged in any
operations whatsoever, (ii) has not entered into any agreements or transactions
of any kind with any third parties, and (iii) does not have any assets or
liabilities in excess of the transaction costs and filing fees associated with
New Mexico State Corporation Commission and filings concerning its formation
this Merger and registrations and filings associated with its formation.
6.6 Undisclosed Liabilities. Except as disclosed in Section 6.5 of this
Agreement, the Merging Corporation has no liabilities or obligations, absolute
or contingent, including without limitation, liabilities for federal, state,
local or foreign taxes.
6.7 Title to Properties. The Merging Corporation has good and marketable
title to all of its properties and assets, real and personal, free and clear of
all liens and encumbrances. The Merging Corporation has received no notice of
violation of any law, regulation, ordinance, or other requirement relating to
its business or operations or its owned or leased real or personal properties.
6.8 Obligations; Litigation. The Merging Corporation has performed all
material obligations required to be performed by it to date, and is not in
default under any agreement, lease or other document to which it is a party, or
under any law or order of any court or other governmental agency. There are no
claims, actions, suits, or proceedings pending or threatened at law or in equity
or before or by any federal, state, or other governmental agency with respect to
the Merging Corporation. No party with whom the Merging Corporation has an
agreement, lease or other arrangement is in default thereunder.
6.9 Compliance With Laws. The business of the Merging Corporation has been
conducted consistent with the material provisions of all applicable laws and
regulations of federal, state, and local governments (including, without
limitation, any applicable building, zoning, health, safety, or environmental
ordinance or regulation). No improper gifts or illegal payments have been made
or received on behalf of the Merging Corporation by any of its officers,
directors, employees, or agents.
6.10 Debt. The Merging Corporation has no obligations for the repayment of
borrowed money whatsoever.
6.11 Tax Matters. The Merging Corporation has filed all federal, state,
local, and foreign tax returns required to be filed by it and has paid all
federal, state, local, and foreign tax required to be paid. All taxes and
governmental charges levied or assessed against the property or the business of
the Merging Corporation have been paid.
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6.12 Labor Matters. The Merging Corporation is not a party to any
collective bargaining agreement, and there is no pension or profit-sharing plan
for the Merging Corporation's employees. The Merging Corporation has complied
with all laws and regulations which relate to employee civil rights and equal
employment opportunities and there are no presently pending or threatened labor
problems which do or may in the future adversely affect the business,
operations, or financial condition of the Merging Corporation.
6.13 Completeness of Disclosure. Neither this agreement nor any
certificate, exhibit, schedule, or other instrument furnished or to be furnished
by the Merging Corporation to the Surviving Corporation pursuant to this
Agreement, or in connection with the merger, contains or will contain any untrue
statement of a material fact or omits or will omit to state a material fact
necessary in order to make the statements contained herein not misleading. There
is no fact which materially adversely affects or may, in the future, materially
adversely affect the business, operations, or condition (financial or otherwise)
of the Merging Corporation which has not been set forth in this agreement or in
any Exhibit, certificate, or schedule furnished under this agreement.
SECTION 7. REPRESENTATIONS AND WARRANTIES OF SURVIVING CORPORATION
7.1 Organization. The Surviving Corporation is a corporation duly
organized and existing in good standing under the laws of the state of Texas and
has the corporate power to own its properties and to carry on its business as
now conducted.
7.2 Capitalization. All of the issued and outstanding shares of the
Surviving Corporation are validly issued and outstanding, fully paid and
nonassessable.
7.3 Shares Issued in Merger. The shares of stock of the Surviving
Corporation to be issued to the shareholders of the Merging Corporation in the
merger shall be fully paid and nonassessable. However, the issuance of shares by
the Surviving Corporation will not be registered under the Securities Act of
1933, as amended (Act), nor the securities law of any state, and the Certificate
for the Shares shall bear a legend stating that the shares shall not be offered,
sold, pledged, hypothecated, or otherwise transferred or disposed of without
registration under the Act and any applicable state securities law or an opinion
of counsel or other evidence satisfactory to counsel for the Corporation that an
exemption from such registrations is available. The Surviving Corporation is
under no obligation to register the shares or to assist shareholders of the
Merging Corporation in complying with an exemption from registration.
7.4 Valid and Binding Agreement. The execution and delivery of this
agreement has been approved by the Board of Directors of the Surviving
Corporation, and this agreement constitutes a valid and binding obligation of
the Surviving Corporation in accordance with its terms. The execution and
delivery of this agreement and the consummation thereof do not and will not
violate any provision of any judicial or governmental decree, order, or
judgement or conflict with, or result in a breach of, or constitute a default
under, the Articles of Incorporation or bylaws of the Surviving Corporation, or
any material agreement or instrument to which the Surviving Corporation is a
party or by which it is bound.
7.5 Litigation. Except as disclosed in that certain limited offering
memorandum of Grand Enterprises, Inc, (the Surviving Corporation's predecessor)
dated November 12, 1997, there are no claims, actions, suits, or proceedings
pending or threatened at law or in
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equity or before or by any federal, state, or other governmental agency, which
if adversely determined would have an adverse effect on the business,
operations, or financial condition of the Surviving Corporation or would prevent
or hinder the consummation of the merger.
7.6 Completeness of Disclosure. Neither this agreement nor any
certificate, exhibit, schedule, or other instrument furnished or to be furnished
by the Surviving Corporation to the Merging Corporation pursuant to this
agreement, or in connection with the merger contains or will contain any untrue
statement of a material fact or omits or will omit to state a material fact
necessary in order to make the statements contained herein not misleading. There
is no fact which materially adversely affects the business, operations, or
condition (financial or otherwise) of the Surviving Corporation which has not
been set forth in this agreement or in any exhibit, certificate, or schedule
furnished under this agreement.
SECTION 8. SURVIVAL OF REPRESENTATIONS AND WARRANTIES
All representations and warranties of the Merging Corporation and the
Surviving Corporation shall be true and complete as of the closing and shall
survive the closing.
SECTION 9. CONDUCT OF BUSINESS PENDING CLOSING
Pending the closing of the merger, the Merging Corporation shall not, without
the prior written consent of the Surviving Corporation engage in any
transactions or agreements, make any changes in its articles of incorporation or
bylaws; issue, reclassify, or alter any shares of its outstanding or unissued
capital stock; grant options, warrants, or other rights of any kind to purchase,
or issuing any shares of their capital stock; purchasing, redeeming, or
otherwise acquiring for a consideration any shares of their capital stock;
declaring, paying, setting aside, or making any dividends or other distributions
or payment in respect to their capital stock.
SECTION 10. CONDITIONS PRECEDENT TO OBLIGATIONS OF MERGING CORPORATION
The obligation of the Merging Corporation to consummate the merger is, at
the option of the Merging Corporation, subject to the fulfillment, prior to or
at the closing, of each of the following conditions:
10.1 Representations and Performance. The representations and warranties
made under this agreement by the Surviving Corporation shall be true and correct
in all material respects at the time of the closing, and the Surviving
Corporation shall have performed and complied with all agreements, covenants,
and conditions required of the Surviving Corporation by the closing under the
terms of this agreement.
10.2 Adverse Changes. There shall not have been any material adverse
changes in the conditions, financial or otherwise, or business of the Surviving
Corporation since the date hereof.
10.3 Shareholder Approval. This agreement shall have been approved by the
holders of a majority of the issued and outstanding shares of the stock of the
Merging Corporation as required under the Business Corporation Act of the state
of New Mexico.
10.4 Dissenters' Rights. Prior to the approval of this agreement by the
shareholders of the Merging Corporation, the Merging Corporation shall not have
received written notice of intent to assert dissenters' rights and demand
payment of fair value for shares by reason of
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this merger from the holders of more than five percent of the issued and
outstanding shares of stock of the Merging Corporation.
10.5 Opinion of Counsel for Surviving Corporation. The Merging Corporation
shall receive an opinion, addressed to the Merging Corporation and the
shareholders of the Merging Corporation, dated as of the date of the closing, of
Surviving Corporation's Counsel, in form satisfactory to the Merging Corporation
to the effect that:
10.5.1 The Surviving Corporation and MSI are corporations duly organized,
validly existing, and in good standing under the laws of the states of Texas and
Delaware, respectively.
10.5.2 The execution, delivery and performance of this agreement by the
Surviving Corporation and MSI have been duly authorized by all requisite
corporate action, and this agreement has been duly executed and delivered and
constitutes a valid and binding obligation of the Surviving Corporation and MSI
in accordance with its terms.
10.5.3 The shares of stock of MSI to be received by the shareholders of
the Merging Corporation pursuant to this agreement have been validly authorized
and issued and upon delivery will be fully paid and nonassessable.
10.5.4 Except as may be specified in writing by such counsel, counsel does
not know of any material default or any meritorious basis for any claim of such
default of any litigation, proceeding, or governmental investigation which is
pending or threatened against or relates to the Surviving Corporation or MSI, as
the case may be, its property or business, or which seeks to restrain or obtain
damages or other relief in connection with this agreement or the consummation of
the merger.
SECTION 11. CONDITIONS TO OBLIGATIONS OF SURVIVING CORPORATION
The obligation of the Surviving Corporation to consummate the merger is,
at the option of the Surviving Corporation, subject to the fulfillment, prior to
or at the closing, of each of the following conditions:
11.1 Representations and Performance. The representations and warranties
made under this agreement by the Merging Corporation shall be true and correct
in all material respects at the time of the closing, and the Merging Corporation
shall have performed and complied with this agreement, covenants, and conditions
required of the Merging Corporation by the closing under the terms of this
agreement.
11.2 Adverse Changes. There shall not have been any material adverse
change in the conditions, financial or otherwise, or business of the Merging
Corporation since the date hereof.
11.3 Shareholder Approval. This agreement shall have been approved by the
holders of a majority of the issued and outstanding shares of the stock of the
Surviving Corporation as required under the Business Corporation Act of the
state of Delaware.
11.4 Dissenters' Rights. Prior to the approval of this agreement by the
shareholders of the Surviving Corporation, the Surviving Corporation shall not
have received written notice of intent to assert dissenters' rights and demand
payment of fair value for shares by reason of this merger from the holders of
more than five percent of the issued and outstanding shares of stock of the
Surviving Corporation.
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11.5 Investment Representations. The shareholders of the Merging
Corporation receiving stock of the Surviving Corporation in the merger shall
execute and deliver to Surviving Corporation an investment representation
certificate warranting and representing that the shareholder:
11.5.1 Has sufficient knowledge and experience to evaluate the merits and
risks of his or her investment in the shares of the Surviving Corporation.
11.5.2 Has been provided with, or given reasonable access to, full and
fair disclosure of all information material to his or her investment in the
shares of the Surviving Corporation.
11.5.3 Understands that no market is likely to exist for the shares of the
Surviving Corporation and does not anticipate the need to sell the shares in the
foreseeable future.
11.5.4 Is acquiring the shares of the Surviving Corporation for the
shareholder's own account for investment purposes only and not with a view to
their distribution.
11.5.5 Understands that the shares will not be registered under the
Securities Act of 1933, as amended (Act), nor the securities law of any state,
and accordingly these securities may not be offered, sold, pledged,
hypothecated, or otherwise transferred or disposed of in the absence of
registration or the availability of an exemption from registration under the Act
and any applicable state securities law. The shareholder further understands
that the Surviving Corporation is under no obligation to register the shares on
behalf of the shareholder or to assist the shareholder in complying with an
exemption from registration.
11.5.6 Understands that the certificate for the shares of the Surviving
Corporation will bear a legend that the shares shall not be offered, sold,
pledged, hypothecated, or otherwise transferred or disposed of without
registration under the Act and any applicable state securities law or an opinion
of counsel or other evidence satisfactory to counsel for the Corporation that an
exemption from such registrations is available.
11.5.7 Is a resident of the state of New Mexico.
11.6 Opinion of Counsel for Merging Corporation. The Surviving Corporation
shall receive an opinion, addressed to the Surviving Corporation and dated as of
the date of the closing, of Timothy L. Butler, Esq., in form satisfactory to the
Surviving Corporation to the effect that:
11.6.1 The Merging Corporation is a corporation duly organized, validly
existing, and in good standing under the laws of the state of Texas and has the
corporate power to own its property and to conduct its business as then being
conducted.
11.6.2 The execution, delivery, and performance of this agreement by
Merging Corporation have been duly authorized by all requisite corporate action,
and this agreement has been duly executed and delivered and constitutes a valid
and binding obligation of the Merging Corporation in accordance with its terms.
11.6.3 The authorized, issued, and outstanding capital stock of the
Merging Corporation is correctly set forth and described in Section 6.2 of this
agreement. All of the issued and outstanding shares of the Merging Corporation
are duly authorized, validly issued and outstanding, fully paid, and
nonassessable.
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11.6.4 The execution and delivery of this agreement and the consummation
of the merger do not conflict with, or result in a breach of, or constitute a
default under, the Articles of Incorporation or bylaws of the Merging
Corporation, or any agreement or instrument, of which such counsel has knowledge
and to which the Merging Corporation is a party or by which it is bound.
11.6.5 Except as may be specified in writing by such counsel, counsel does
not know of any material default or any meritorious basis for any claim of such
default of any litigation, proceeding, or governmental investigation which is
pending or threatened against or relates to the Merging Corporation, its
property or business, or which seeks to restrain or obtain damages or other
relief in connection with this agreement or the consummation of the merger.
11.6.6 Condition to Obligations of Both Corporations. The obligations of
the Merging Corporation and the Surviving Corporation to consummate the merger
are, at the option of either party, subject to the condition that, at the time
of the closing, no suit, action, or other proceeding is pending or threatened
before any court or other governmental agency in which it is sought to restrain
or prohibit or to obtain damages or other relief in connection with this
Agreement or the consummation of the merger.
11.6.7 Hockaday License Status. Except as may be specified in writing by
such counsel, counsel does not know of any material default or any meritorious
basis for any claim of such default or any litigation, proceeding, or
governmental investigation which is pending or threatened against Merging
Corporation or relates to the enforceability, validity or in any way adversely
affects the status of that certain Exclusive Patent License between Merging
Corporation and Robert G. Hockaday, dated January 11, 1998.
SECTION 12. EXPENSES
The Surviving Corporation and the Merging Corporation shall each bear
their own expenses, including legal and accounting fees, incurred in connection
with this transaction.
SECTION 13. INTENT
It is the intent of the parties that the transaction contemplated by this
agreement shall constitute a merger under the Business Corporation Acts of the
states of Texas and New Mexico and qualify as a tax-free corporate
reorganization within the meaning of IRC Section 368(a)(1)(A).
SECTION 14. MISCELLANEOUS PROVISIONS
14.1 Time of Essence. Time is of the essence of this agreement.
14.2 Commissions. Each of the parties represents to the other that, to the
best of the party's knowledge, no person has right to a fee, commission, or
other payment for services in connection with the merger. Each of the parties
shall indemnify the other and hold the other harmless from any claim for any
such fee, commission, or other payment arising out of the actual or purported
act or agreement of the party.
14.3 Binding Effect. The provisions of this agreement shall be binding
upon and inure to the benefit of the successors and assigns of the parties.
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14.4 Notice. Any notice or other communication required or permitted to be
given under this agreement shall be in writing and shall be mailed by certified
mail, return receipt requested, postage prepaid, addressed to the parties as
follows:
Merging Corporation:
Robert G. Hockaday, President
DKY, Inc.
3025 Arizona Ave.
Los Alamos, NM 87544
Surviving Corporation:
Marvin Maslow, Chairman
c/o Projectavision, Inc.
2 Penn Plaza Suite 640
New York, NY 10121
Bach & Associates
1 Rockefeller Plaza
New York, NY 10022
Attn: Scott Bach
Clifford Brandeis, Esq.
Zukerman, Gore & Brandeis
900 3rd Ave.
New York, NY 10009
All notices and other communications shall be deemed to be given at the
expiration of three days after the date of mailing. The address of a party to
which notices or other communications shall be mailed may be changed from time
to time by giving written notice to the other party.
14.5 Litigation Expense. In the event of a default under this Agreement,
the defaulting party shall reimburse the nondefaulting party or parties for all
costs and expenses reasonably incurred by the nondefaulting party or parties in
connection with the default, including without limitation attorney's fees.
Additionally, in the event a suit or action is filed to enforce this agreement
or with respect to this agreement, the prevailing party or parties shall be
reimbursed by the other party for all costs and expenses incurred in connection
with the suit or action, including without limitation reasonable attorney's fees
at the trial level and on appeal.
14.6 Waiver. No waiver of any provision of this agreement shall be deemed,
or shall constitute, a waiver of any other provision, whether or not similar,
nor shall any waiver constitute a continuing waiver. No waiver shall be binding
unless executed in writing by the party making the waiver.
14.7 Applicable Law. This agreement shall be governed by and shall be
construed in accordance with the laws of the state of New York without reference
to conflict of laws and may be enforced in any court of competent jurisdiction,
the parties expressly consenting to venue and personal jurisdiction of the
federal and state courts within the States of New Mexico and New York.
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14.8 Condition Precedent to Performance. Notwithstanding any other term or
condition of this Agreement: (1) the parties hereto acknowledge that their
respective performance under this Agreement is expressly contingent upon the
written notification from Tamarack Storage Devices, Inc. regarding the
consummation of each of (i) the Limited Offering of Grand Enterprises, Inc. as
set forth in the Limited Offering Memorandum related thereto dated November 12,
1997, and (ii) the Agreement and Plan of Reorganization among Grand Enterprises,
Inc., Grand Subsidiary, Inc. and Tamarack Storage Devices, Inc..
14.9 Entire Agreement. This agreement constitutes the entire agreement
between the parties pertaining to its subject matter, and it supersedes all
prior contemporaneous agreements, representations, and understandings of the
parties. No supplement, modification, or amendment of this agreement shall be
binding unless executed in writing by all parties.
14.10 Counterparts. This Agreement may be executed simultaneously in one
or more original or facsimile counterparts, each of which shall be deemed an
original, but all of which when taken together shall constitute one and the same
instrument.
DATED: 1/11/98
/s/ Marvin Maslow
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Tamarack Storage Devices, Inc.
By Marvin Maslow, Chairman/CEO
/s/ Marvin Maslow
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Manhattan Scientifics, Inc.
By Marvin Maslow, Chairman/CEO
/s/ Robert G. Hockaday
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DKY, Inc.
By Robert Hockaday, President
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CERTIFICATE OF INCORPORATION
OF
GRAND ENTERPRISES, INC.
----------------------------
FIRST. The name of this corporation shall be:
GRAND ENTERPRISES, INC.
SECOND. Its registered office in the State of Delaware is to be located at
1013 Centre Road, in the city of Wilmington, County of New Castle and its
registered agent at such address is CORPORATION SERVICE COMPANY.
THIRD. The purpose or purposes of the corporation shall be:
To engage in any lawful act or activity for which corporations may be
organized under the General Corporation Law of Delaware.
FOURTH. The total number of shares of stock which this corporation is
authorized to issue is:
(a) Common. 50,000,000 shares of Common stock having a par value of $.001
per share;
(b) Preferred. 500,000 shares of Preferred stock having a par value of
$.001 per share and to be issued in such series and to have such rights,
preferences, and designation as determined by the Board of Directors of the
Corporation.
FIFTH. The name and address of the incorporator is as follows:
Sharon J. Branscome
Corporation Service Company
1013 Centre Road
Wilmington, DE 19805
SIXTH. The Board of Directors shall have the power to adopt, amend or
repeal the by-laws.
<PAGE>
SEVENTH. No director shall be personally liable to the Corporation or its
stockholders for monetary damages for any breach of fiduciary duty by such
director as a director. Notwithstanding the foregoing sentence, a director shall
be liable to the extent provided by applicable law, (i) for breach of the
director's duty of loyalty to the Corporation or its stockholders, (ii) for acts
or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) pursuant to Section 174 of the Delaware General
Corporation Law or (iv) for any transaction from which the director derived an
improper personal benefit. No amendment to or repeal of this Article Seventh
shall apply to or have any effect on the liability or alleged liability of any
director of the Corporation for or with respect to any acts or omissions of such
director occurring prior to such amendment.
IN WITNESS WHEREOF, the undersigned, being the incorporator hereinbefore
named, has executed, signed and acknowledged this certificate of incorporation
this first day of August, A.D., 1995.
/s/ Sharon J. Branscome
-----------------------
Sharon J. Branscome
Incorporator
<PAGE>
Ex-2.4
GRAND ENTERPRISES, INC.
CERTIFICATE OF AMENDMENT
TO
CERTIFICATE OF INCORPORATION
Grand Enterprises, Inc., a corporation organized and existing under and by
virtue of the General Corporation Law of the State of Delaware.
DOES HEREBY CERTIFY:
1st: That by unanimous written consent of the Board of Directors of Grand
Enterprises, Inc., a resolution was duly adopted setting forth a proposed
amendment to the Certificate of Incorporation of said corporation, declaring
said amendment to be advisable and proposing approval by the stockholders of
said corporation for consideration thereof. The resolution setting forth the
proposed amendment is as follows:
RESOLVED, that the Certificate of Incorporation of this corporation
be amended by changing the FIRST and FOURTH articles thereof so that, as
amended, said Articles shall read as set forth below:
FIRST: The name of this corporation shall be: Manhattan Scientifics,
Inc.
FOURTH: The total number of shares of stock which this corporation
is authorized to issue is:
(a) Common. 150,000,000 shares of Common Stock having a par value of
$.001 per share;
(b) Preferred. 1,000,000 shares of Preferred Stock having a par
value of $.001 per share and to be issued in such series and to have such
rights, preferences, and designations as determined by the Board of
Directors of the Corporation.
(c) Series A Preferred. 182,525 shares of Series A Preferred Stock
("Series A") having a par value of $.001 per share with the following
rights, preferences and designations:
A. Dividends
(a) The holders of shares of Series A Preferred Stock shall be
entitled to receive, out of any assets at the time legally available
therefor and when, as and if declared by the Board of Directors,
cumulative semi-annual dividends, payable in cash or common stock of the
Company, at its option, at the rate of ten percent
<PAGE>
(10%) per share per annum based on the liquidation value of $10.00 per
share, and no more, payable to holders of record, accruing, without
interest thereon, from the initial date of issuance, and first payable in
arrears, as soon as practicable after the end of each semi-annual period
ending June 30th and December 31st, commencing June 30, 1998, and
thereafter for each semi-annual period that any such shares shall be
outstanding. Such dividends on Series A Preferred Stock are prior and in
preference to any declaration or payment of any distribution (as defined
below) on any other outstanding shares of preferred stock or the common
stock of this Corporation. Such dividends shall accrue on each share of
Series A Preferred Stock from day to day from the date of initial issuance
thereof whether or not earned or declared so that if such dividends with
respect to any previous dividend period at the rate provided for herein
have not been paid on, or declared and set apart for, all shares of Series
A Preferred Stock at the time outstanding, the deficiency shall (without
interest thereon) be fully paid on, or declared and set apart for, such
shares before any distribution shall be paid on, or declared and set apart
for any other outstanding shares of preferred stock or common stock.
(b) In the event the Corporation elects to pay accrued dividends on
the Series A Preferred Stock in the form of its common stock rather than
cash, such common stock shall be valued based upon the average closing
price (averaged among market makers) for the five (5) trading days
preceding the declaration of the dividend.
B. Conversion
(a) At any time the holders of the outstanding shares of Series A
Preferred Stock may, at their option, convert all or part of the
outstanding shares of the Series A Preferred Stock at the Conversion Rate
set forth in subparagraph (b) below, provided that the holders shall give
written notice by mail, postage prepaid, to the Corporation of such stock
to be converted. Such notice shall state the Conversion Date, the number
of shares of Series A Preferred Stock of such holders to be converted and
the agreement of such holders to surrender to the Corporation on the
Conversion Date at the Corporation's principal place of business or such
other place designated by the Corporation such holder's conversion stock.
If no Conversion Date is stated, such conversion Date shall be the date
the notice is received by the Corporation. On or after the Conversion
Date, each holder of shares of Series A Preferred Stock requesting
conversion shall surrender the certificate evidencing such shares to the
Corporation at the place designated by the Corporation and shall thereupon
be entitled to received shares of common stock at the Conversion Rate.
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(b) The Series A Preferred Stock shall be converted at the rate of
fifty (50) shares of the Corporation's common stock for each share of
Series A Preferred Stock. At the time of conversion all accumulated and
unpaid dividends to the Conversion Date shall be paid in cash, or at the
option of the Corporation, in additional shares of its Common Stock at
fair market value as defined herein.
(c) From and after the Conversion Date the holders of the shares of
the Series A Preferred Stock so converted shall cease to have any rights
as Series A Preferred stockholders of the Corporation.
(d) There shall be no conversion of any shares of Preferred Stock of
the Corporation where such action would be in violation of applicable law.
(e) The shares of the Corporation's common stock issued in the
conversion of Series A Preferred stock shall be restricted stock issued
pursuant to an exemption from registration under the Securities Act of
1933. The recipient of said common stock shall make such representations
as are required by the Corporation so as to qualify for said exemptions
from registration.
(f) The number of shares of common stock issuable upon conversion of
the Series A Preferred Stock shall be adjusted to reflect an equivalent
number of shares, as required, to reflect any stock split or similar
recapitalization of the Corporation's outstanding common stock.
(g) The Corporation shall reserve and shall have at all times
available the shares of common stock issuable upon conversion of the
Series A Preferred Stock.
C. Redemption
(a) At any time the corporation may, at the option of the Board of
Directors, redeem all or part of the outstanding shares of the Series A
Preferred Stock at the redemption price set forth in subparagraph (2)
below, provided that the corporation shall give written notice by mail,
postage prepaid, to the holders of the Series A Preferred Stock to be
redeemed at least ninety (90) days prior to the date specified for
redemption (the Redemption Date). Such notice shall be addressed to each
such shareholder at the address of such holder appearing on the books of
the corporation or given by such holder to the corporation for the purpose
of notice, or if no such address appears or is so given, at the place
where the principal office of the corporation is located. Such notice
shall state the Redemption Date, the Redemption Price (as hereinafter
defined) and the number of shares of Series A Preferred Stock of such
holders to be redeemed and shall call upon such holder to surrender to the
corporation on the Redemption Date at the place designated in the notice
such holder's redeemed stock. On or after the
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Redemption Date, each holder of shares of Series A Preferred Stock called
for redemption, unless previously converted to common stock of the
Corporation prior to the Redemption Date, pursuant to the terms contained
herein, shall surrender the certificate evidencing such shares to the
corporation at the place designated in such notice and shall thereupon be
entitled to receive payment of the Redemption Price. If less than all of
the outstanding shares of Series A Preferred Stock are to be redeemed,
then the corporation shall redeem a pro rata portion from each holder of
Series A Preferred Stock according to the respective number of shares of
Series A Preferred Stock held by such holder.
(b) The Series A Preferred Stock may be redeemed at a cash price
equal to Fifteen Dollars and no/100 Cents ($15.00) per share (the
Redemption Price); provided, however, that payment of the Redemption Price
shall be made from any funds of the corporation legally available
therefor.
(c) From and after the Redemption Date (unless default shall be made
by the corporation in duly paying the Redemption Price in which case all
the rights of the holders of such shares shall continue) the holders of
the shares of the Series A Preferred Stock called for redemption shall
cease to have any rights as stockholders of the corporation except the
right to receive, without interest, the Redemption Price thereof upon
surrender of certificates representing the shares of Series A Preferred
Stock, and such shares shall not thereafter be transferred (except with
the consent of the corporation) on the books of the corporation and shall
not be deemed outstanding for any purpose whatsoever.
(d) There shall be no redemption of any shares of Series A Preferred
Stock of the corporation where such action would be in violation of
applicable law.
D. Preferences on Liquidation
(a) In the event of any voluntary or involuntary liquidation,
dissolution, or winding up of the corporation, the holders of shares of
the Series A Preferred Stock then outstanding shall be entitled to be
paid, out of the assets of the corporation available for distribution to
the assets of the corporation available for distribution to its
stockholders, whether from capital, surplus or earnings, before any
payment shall be made in respect of the corporation's common stock, an
amount equal to Ten Dollars and no/100 Cents ($10.00) per share. After
setting apart or paying in full the preferential amounts due the holders
of the Series A Preferred Stock, the remaining assets of the corporation
available for distribution to stockholders, if any, shall be distributed
exclusively to the holders of common stock, each such issued and
outstanding share of common stock entitling the holder thereof to receive
an equal proportion of said remaining assets. If upon liquidation,
dissolution, or winding up of the corporation, the assets of the
corporation available for distribution to its shareholders shall be
insufficient to pay
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the holders of the Series A Preferred Stock the full amounts to which they
respectively shall be entitled, the holders of the Series A Preferred
Stock shall share ratably in any distribution of assets according to the
respective amounts which would be payable in respect of the shares held by
them upon such distribution if all amounts payable on or with respect to
said shares were paid in full. The merger or consolidation of the
corporation into or with another corporation in which this corporation
shall not survive and the shareholders of this corporation shall own less
than 50 percent of the voting securities of the surviving corporation or
the sale, transfer or lease (but not including a transfer or lease by
pledge or mortgage to a bona fide lender) of all or substantially all of
the assets of the corporation shall be deemed to be a liquidation,
dissolution or winding up of the corporation as those terms as used in
this paragraph.
(b) In the event of any voluntary or involuntary liquidation,
dissolution, or winding up of the corporation, the corporation shall,
within ten (10) days after the date the Board of Directors approves such
action, or within twenty (20) days prior to any shareholders meeting
called to approve such action, or within twenty (20) days after the
commencement of any involuntary proceeding, whichever is earlier, give
each holder of shares of Series A Preferred Stock initial written notice
of the proposed action. Such initial written notice shall describe the
material terms and conditions of such proposed action, including a
description of the stock, cash, and property to be received by the holders
of shares of Series A Preferred Stock upon consummation of the proposed
action and the date of delivery thereof. If any material change in the
facts set forth in the initial notice shall occur, the corporation shall
promptly give written notice to each holder of shares of Series A
Preferred Stock of such material change.
The corporation shall not consummate any voluntary or involuntary
liquidation, dissolution, or winding up of the corporation before the
expiration of twenty (20) days after the mailing of the initial notice or
ten (10) days after the mailing of any subsequent written notice,
whichever is later; provided that any such twenty-day or ten-day period
may be shortened upon the written consent of the holders of a majority of
the outstanding shares of Series A Preferred Stock.
(c) In the event of any voluntary or involuntary liquidation,
dissolution or winding up of the corporation which will involve the
distribution of assets other than cash, the corporation shall promptly
engage competent independent appraisers to determine the value of the
assets to be distributed to the holders of shares of Series A Preferred
Stock and the holders of shares of common stock (it being understood that
with respect to the valuation of securities, the corporation shall engage
such appraiser as shall be approved by the holders of a majority of shares
of the corporation's outstanding Series A Preferred Stock). The
corporation shall, upon receipt of such appraiser's valuation, give prompt
written
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<PAGE>
notice to each holder of shares of Series A Preferred Stock of the
appraiser's valuation.
E. Voting Rights
Except as otherwise required by law or set forth herein, each holder
of shares of Series A Preferred Stock will be entitled to the number of
votes equal to the number of shares of common stock into which such
holder's shares of Series A Preferred Stock could be converted at the time
of the vote, will have voting rights equal to the voting rights of such
number of shares of common stock voting together with the common stock as
a single class on all matters submitted to the holders of common stock and
shall be entitled to notice of any stockholders' meeting. Any fractional
voting rights resulting from the above formula (after aggregating all
shares of common stock into which shares of Series A Preferred Stock held
by a single holder are converted) will be disregarded.
F. Negative Covenants
This corporation will not, by amendment of its certificate of
incorporation or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities, or any
other voluntary action, avoid or seek to avoid the observance or
performance of any of the terms to be observed or performed hereunder by
this corporation, but will at all times in good faith assist in the
carrying out of all the provisions of this section and in the taking of
all such action as may be necessary or appropriate in order to protect the
rights of the holders of the Series A Preferred Stock against impairment.
G. Status
In case any outstanding shares of Series A Preferred Stock shall be
redeemed, the shares so redeemed shall be deemed to be permanently
canceled and shall not resume the status of authorized but unissued shares
of Series A Preferred Stock.
H. Changes Affecting Series A
So long as any shares of Series A Preferred Stock are outstanding,
the corporation shall not, without first obtaining the approval by vote or
written consent, in the manner provided by law, of the holders of at least
eighty percent (80%) of the total number of shares of Series A Preferred
Stock outstanding, voting separately as a class, (1) alter or change any
of the powers, preferences, privileges, or rights of the Series A
Preferred Stock; or (2) amend the provisions of this paragraph (H); or
(3) create any new class or series of shares having preferences prior to
or being on a parity with the Series A Preferred Stock as to
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<PAGE>
dividends or assets; or (4) sell, lease, convey, exchange, transfer or
otherwise dispose of all or substantially all of its assets (other than
for the purposes of securing payment of any contract or obligation); or
(5) merge or consolidate with or into any other corporation except into or
with a wholly owned subsidiary.
2nd: That thereafter, pursuant to resolution of its Board of Directors, a
written approval by majority consent of the stockholders of said corporation was
duly received in accordance with the General Corporation law of the State of
Delaware, by which consent the necessary number of shares as required by statute
were voted in favor of the amendment.
3rd: That said amendment were duly adopted in accordance with the
provisions of Section 242 of the General Corporation Law of the State of
Delaware, and the necessary number of shares as required by statute were voted
in favor of the amendment.
IN WITNESS WHEREOF, said Grand Enterprises, Inc., has caused this
certificate to be signed by Lynn Dixon, its President and its Secretary -
Treasurer, this day 8th of January, 1998.
By: /s/ Lynn Dixon
-------------------------
Lynn Dixon, President and
Secretary - Treasurer
<PAGE>
Ex-2.5
BY-LAWS
OF
GRAND ENTERPRISES, INC.
ARTICLE I - OFFICES
Section 1. The registered office of the corporation in the State of
Delaware shall be at 1013 Centre Road, Wilmington, Delaware 19805-1297.
The registered agent in charge thereof shall be CSC Networks.
Section 2. The corporation may also have offices at such other places as
the Board of Directors may from time to time appoint or the business of the
corporation may require.
ARTICLE II - SEAL
Section 1. The corporate seal shall have inscribed thereon the name of the
corporation, the year of its organization and the words "Corporate Seal,
Delaware".
ARTICLE III - STOCKHOLDERS' MEETINGS
Section 1. Meetings of stockholders shall be held at the registered office
of the corporation in this state or at such place, either within or without this
state, as may be selected from time to time by the Board of Directors.
Section 2. ANNUAL MEETINGS: The annual meeting of the stockholders shall
be held on such date as is determined by the Board of Directors for the purpose
of electing directors and for the transaction of such other business as may
properly be brought before the meeting.
Section 3. ELECTION OF DIRECTORS: Elections of the directors of the
corporation shall be by written ballot.
Section 4. SPECIAL MEETINGS: Special meetings of the stockholders may be
called at any time by the President, or the Board of Directors, or stockholders
entitled to cast at least one-fifth of the votes which all stockholders are
entitled to cast at the particular meeting. At any time, upon written request of
any person or persons who have duly called a special meeting, it shall be the
duty of the Secretary to fix the date of the meeting, to be held not more than
sixty days after receipt of the request, and to give due notice thereof. If the
Secretary shall neglect or refuse to fix the date of the meeting and give notice
thereof, the person or persons calling the meeting may do so.
<PAGE>
Business transacted at all special meetings shall be confined to the
objects stated in the call and matters germane thereto, unless all stockholders
entitled to vote are present and consent.
Written notice of a special meeting of stockholders stating the time and
place and object thereof, shall be given to each stockholder entitled to vote
thereat at least ten days before such meeting, unless a greater period of notice
is required by statute in a particular case.
Section 5. QUORUM: A majority of the outstanding shares of the corporation
entitled to vote, represented in person or by proxy, shall constitute a quorum
at a meeting of stockholders. If a majority of the outstanding shares entitled
to vote is represented at a meeting, a majority of the shares so represented may
adjourn the meeting from time to time without further notice. At such adjourned
meeting at which a quorum shall be present or represented, any business may be
transacted which might have been transacted at the meeting as originally
noticed. The stockholders present at a duly organized meeting may continue to
transact business until adjournment, notwithstanding the withdrawal of enough
stockholders to leave less than a quorum.
Section 6. PROXIES: Each stockholder entitled to vote at a meeting of
stockholders or to express consent or dissent to corporate action in writing
without a meeting may authorize another person or persons to act for him by
proxy, but no such proxy shall be voted or acted upon after three years from its
date, unless the proxy provides for a longer period.
A duly executed proxy shall be irrevocable if it states that it is
irrevocable and if, and only as long as, it is coupled with an interest
sufficient in law to support an irrevocable power. A proxy may be made
irrevocable regardless of whether the interest with which it is coupled is an
interest in the stock itself or an interest in the corporation generally. All
proxies shall be filed with the Secretary of the meeting before being voted
upon.
Section 7. NOTICE OF MEETINGS: Whenever stockholders are required or
permitted to take any action at a meeting, a written notice of the meeting shall
be given which shall state the place, date and hour of the meeting, and, in the
case of a special meeting, the purpose or purposes for which the meeting is
called.
Unless otherwise provided by law, written notice of any meeting shall be
given not less than ten nor more than sixty days before the date of the meeting
to each stockholder entitled to vote at such meeting.
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Section 8. CONSENT IN LIEU OF MEETINGS: Any action required to be taken at
any annual or special meeting of stockholders of a corporation, or any action
which may be taken at any annual or special meeting of such stockholders, may be
taken without a meeting, without prior notice and without a vote, if a consent
in writing, setting forth the action so taken, shall be signed by the holders of
outstanding stock having not less than the minimum number of votes that would be
necessary to authorize or take such action at a meeting at which all shares
entitled to vote thereon were present and voted. Prompt notice of the taking of
the corporate action without a meeting by less than unanimous written consent
shall be given to those stockholders who have not consented in writing.
Section 9. LIST OF STOCKHOLDERS: The officer who has charge of the stock
ledger of the corporation shall prepare and make, at least ten days before every
meeting of stockholders, a complete list of the stockholders entitled to vote at
the meeting, arranged in alphabetical order, and showing the address of each
stockholder and the number of shares registered in the name of each stockholder.
No share of stock upon which any installment is due and unpaid shall be voted at
any meeting. The list shall be open to the examination of any stockholder, for
any purpose germane to the meeting, during ordinary business hours, for a period
of at least ten days prior to the meeting, either at a place within the city
where the meeting is to be held, which place shall be specified in the notice of
the meeting, or, if not so specified, at the place where the meeting is to be
held. The list shall also be produced and kept at the time and place of the
meeting during the whole time thereof, and may be inspected by any stockholder
who is present.
ARTICLE IV - DIRECTORS
Section 1. The business and affairs of this corporation shall be managed
by its Board of Directors, no less than one in number or such other minimum
number as is required by law. The directors need not be residents of this state
or stockholders in the corporation. They shall be elected by the stockholders of
the corporation or in the case of a vacancy by remaining directors, and each
director shall be elected for the term of one year, and until his successor
shall be elected and shall qualify or until his earlier resignation or removal.
Section 2. REGULAR MEETINGS: Regular meetings of the Board shall be held
without notice other than this by-law immediately after, and at the same place
as, the annual meeting of stockholders. The directors may provide, by
resolution, the time and place for the holding of additional regular meetings
without other notice than such resolution.
By-Laws
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Section 3. SPECIAL MEETINGS: Special Meetings of the Board may be called
by the President or any director upon two day notice. The person or persons
authorized to call special meetings of the directors may fix the place for
holding any special meeting of the directors called by them.
Section 4. QUORUM: A majority of the total number of directors shall
constitute a quorum for the transaction of business.
Section 5. CONSENT IN LIEU OF MEETING: Any action required or permitted to
be taken at any meeting of the Board of Directors, or of any committee thereof,
may be taken without a meeting if all members of the Board or committee, as the
case may be, consent thereto in writing, and the writing or writings are filed
with the minutes of proceedings of the Board or committee. The Board of
Directors may hold its meetings, and have an office or offices, outside of this
state.
Section 6. CONFERENCE TELEPHONE: One or more directors may participate in
a meeting of the Board, of a committee of the Board or of the stockholders, by
means of conference telephone or similar communications equipment by means of
which all persons participating in the meeting can hear each other;
participation in this manner shall constitute presence in person at such
meeting.
Section 7. COMPENSATION: Directors as such, shall not receive any stated
salary for their services, but by resolution of the Board, a fixed sum and
expenses of attendance, if any, may be allowed for attendance at each regular or
special meeting of the Board provided, that nothing herein contained shall be
construed to preclude any director from serving the corporation in any other
capacity and receiving compensation therefor.
Section 8. REMOVAL: Any director or the entire Board of Directors may be
removed, with or without cause, by the holders of a majority of the shares then
entitled to vote at an election of directors, except that when cumulative voting
is permitted, if less than the entire Board is to be removed, no director may be
removed without cause if the votes cast against his removal would be sufficient
to elect him if then cumulatively voted at an election of the entire Board of
Directors, or, if there be classes of directors, at an election of the class of
directors of which he is a part.
ARTICLE V - OFFICERS
Section 1. The executive officers of the corporation shall be chosen by
the directors and shall be a President, Secretary and Treasurer. The Board of
Directors may also choose a Chairman, one
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or more Vice Presidents and such other officers as it shall deem necessary. Any
number of offices may be held by the same person.
Section 2. SALARIES: Salaries of all officers and agents of the
corporation shall be fixed by the Board of Directors.
Section 3. TERM OF OFFICE: The officers of the corporation shall hold
office for one year and until their successors are chosen and have qualified.
Any officer or agent elected or appointed by the Board may be removed by the
Board of Directors whenever in its judgment the best interest of the corporation
will be served thereby.
Section 4. PRESIDENT: The President shall be the chief executive officer
of the corporation; he shall preside at all meetings of the stockholders and
directors; he shall have general and active management of the business of the
corporation, shall see that all orders and resolutions of the Board are carried
into effect, subject, however, to the right of the directors to delegate any
specific powers, except such as may be by statute exclusively conferred on the
President, to any other officer or officers of the corporation. He shall execute
bonds, mortgages and other contracts requiring a seal, under the seal of the
corporation. He shall be EX-OFFICIO a member of all committees, and shall have
the general power and duties of supervision and management usually vested in the
office of President of a corporation.
Section 5. SECRETARY: The Secretary shall attend all sessions of the Board
and all meetings of the stockholders and act as clerk thereof, and record all
the votes of the corporation and the minutes of all its transactions in a book
to be kept for that purpose, and shall perform like duties for all committees of
the Board of Directors when required. He shall give, or cause to be given,
notice of all meetings of the stockholders and of the Board of Directors, and
shall perform such other duties as may be prescribed by the Board of Directors
or President, and under whose supervision he shall be. He shall keep in safe
custody the corporate seal of the corporation, and when authorized by the Board,
affix the same to any instrument requiring it.
Section 6. TREASURER: The Treasurer shall have custody of the corporate
funds and securities and shall keep full and accurate accounts of receipts and
disbursements in books belonging to the corporation, and shall keep the moneys
of the corporation in a separate account to the credit of the corporation. He
shall disburse the funds of the corporation as may be ordered by the Board,
taking proper vouchers for such disbursements, and shall render to the President
and directors, at the regular meetings of the Board, or whenever they may
require it, an account of all his transactions as Treasurer and of the financial
condition of the corporation.
By-Laws
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ARTICLE VI - VACANCIES
Section 1. Any vacancy occurring in any office of the corporation by
death, resignation, removal or otherwise, shall be filled by the Board of
Directors. Vacancies and newly created directorships resulting from any increase
in the authorized number of directors may be filled by a majority of the
directors then in office, although less than a quorum, or by a sole remaining
director. If at any time, by reason of death or resignation or other cause, the
corporation should have no directors in office, then any officer or any
stockholder or an executor, administrator, trustee or guardian of a stockholder,
or other fiduciary entrusted with like responsibility for the person or estate
of a stockholder, may call a special meeting of stockholders in accordance with
the provisions of these By-Laws.
Section 2. RESIGNATIONS EFFECTIVE AT FUTURE DATE: When one or more
directors shall resign from the Board, effective at a future date, a majority of
the directors then in office, including those who have so resigned, shall have
power to fill such vacancy or vacancies, the vote thereon to take effect when
such resignation or resignations shall become effective.
ARTICLE VII - CORPORATE RECORDS
Section 1. Any stockholder of record, in person or by attorney or other
agent, shall, upon written demand under oath stating the purpose thereof, have
the right during the usual hours for business to inspect for any proper purpose
the corporation's stock ledger, a list of its stockholders, and its other books
and records, and to make copies or extracts therefrom. A proper purpose shall
mean a purpose reasonably related to such person's interest as a stockholder. In
every instance where an attorney or other agent shall be the person who seeks
the right to inspection, the demand under oath shall be accompanied by a power
of attorney or such other writing which authorizes the attorney or other agent
to so act on behalf of the stockholder. The demand under oath shall be directed
to the corporation at its registered office in this state or at its principal
place of business.
ARTICLE VIII - STOCK CERTIFICATES, DIVIDENDS, ETC.
Section 1. The stock certificates of the corporation shall be numbered and
registered in the share ledger and transfer books of the corporation as they are
issued. They shall bear the corporate seal and shall be signed by the president.
Section 2. TRANSFERS: Transfers of shares shall be made on the books of
the corporation upon surrender of the certificates therefor, endorsed by the
person named in the certificate or by
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attorney, lawfully constituted in writing. No transfer shall be made which is
inconsistent with law.
Section 3. LOST CERTIFICATE: The corporation may issue a new certificate
of stock in the place of any certificate theretofore signed by it, alleged to
have been lost, stolen or destroyed, and the corporation may require the owner
of the lost, stolen or destroyed certificate, or his legal representative to
give the corporation a bond sufficient to indemnify it against any claim that
may be made against it on account of the alleged loss, theft or destruction of
any such certificate or the issuance of such new certificate.
Section 4. RECORD DATE: In order that the corporation may determine the
stockholders entitled to notice of or to vote at any meeting of stockholders or
any adjournment thereof, or to express consent to corporate action in writing
without a meeting, or entitled to receive payment of any dividend or other
distribution or allotment of any rights, or entitled to exercise any rights in
respect of any change, conversion or exchange of stock or for the purpose of any
other lawful action, the Board of Directors may fix, in advance, a record date,
which shall not be more than sixty nor less than ten days before the date of
such meeting, nor more than sixty days prior to any other action. If no record
date is fixed:
(a) The record date for determining stockholders entitled to notice of or
to vote at a meeting of stockholders shall be at the close of business on the
day next preceding the day on which notice is given, or, if notice is waived, at
the close of business on the day next preceding the day on which the meeting is
held.
(b) The record date for determining stockholders entitled to express
consent to corporate action in writing without a meeting, when no prior action
by the Board of Directors is necessary, shall be the day on which the first
written consent is expressed.
(c) The record date for determining stockholders for any other purpose
shall be at the close of business on the day on which the Board of Directors
adopts the resolution relating thereto.
(d) A determination of stockholders of record entitled to notice of or to
vote at a meeting of stockholders shall apply to any adjournment of the meeting;
provided, however, that the Board of Directors may fix a new record date for the
adjourned meeting.
Section 5. DIVIDENDS: The Board of Directors may declare and pay dividends
upon the outstanding shares of the corporation, from time to time and to such
extent as they deem advisable, in the manner and upon the terms and conditions
provided by statute and the Certificate of Incorporation.
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Section 6. RESERVES: Before payment of any dividend there may be set aside
out of the net profits of the corporation such sum or sums as the directors,
from time to time, in their absolute discretion, think proper as a reserve fund
to meet contingencies, or for equalizing dividends, or for repairing or
maintaining any property of the corporation, or for such other purpose as the
directors shall think conducive to the interests of the corporation, and the
directors may abolish any such reserve in the manner in which it was created.
ARTICLE IX - MISCELLANEOUS PROVISIONS
Section 1. CHECKS: All checks or demands for money and notes of the
corporation shall be signed by such officer or officers as the Board of
Directors may from time to time designate.
Section 2. FISCAL YEAR: The fiscal year shall begin on the first day of
January.
Section 3. NOTICE: Whenever written notice is required to be given to any
person, it may be given to such person, either personally or by sending a copy
thereof through the mail, or by telegram, charges prepaid, to his address
appearing on the books of the corporation, or supplied by him to the corporation
for the purpose of notice. If the notice is sent by mail or by telegraph, it
shall be deemed to have been given to the person entitled thereto when deposited
in the United States mail or with a telegraph office for transmission to such
person. Such notice shall specify the place, day and hour of the meeting and, in
the case of a special meeting of stockholders, the general nature of the
business to be transacted.
Section 4. WAIVER OF NOTICE: Whenever any written notice is required by
statute, or by the certificate or the By-Laws of this corporation a waiver
thereof in writing, signed by the person or persons entitled to such notice,
whether before or after the time stated therein, shall be deemed equivalent to
the giving of such notice. Except in the case of a special meeting of
stockholders, neither the business to be transacted at nor the purpose of the
meeting need be specified in the waiver of notice of such meeting. Attendance of
a person either in person or by proxy, at any meeting shall constitute a waiver
of notice of such meeting, except where a person attends a meeting for the
express purpose of objecting to the transaction of any business because the
meeting was not lawfully called or convened.
Section 5. DISALLOWED COMPENSATION: Any payments made to an officer or
employee of the corporation such as a salary, commission, bonus, interest, rent,
travel or entertainment expense incurred by him, which shall be disallowed in
whole or in part as a deductible expense by the Internal Revenue Service, shall
be
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reimbursed by such officer or employee to the corporation to the full extent of
such disallowance. It shall be the duty of the directors, as a Board, to enforce
payment of each such amount disallowed. In lieu of payment by the officer or
employee, subject to the determination of the directors, proportionate amounts
may be withheld from his future compensation payments until the amount owed to
the corporation has been recovered.
Section 6. RESIGNATIONS: Any director or other officer may resign at any
time, such resignation to be in writing and to take effect from the time of its
receipt by the corporation, unless some time be fixed in the resignation and
then from that date. The acceptance of a resignation shall not be required to
make it effective.
ARTICLE X - ANNUAL STATEMENT
Section 1. The President and the Board of Directors shall present at each
annual meeting a full and complete statement of the business and affairs of the
corporation for the preceding year. Such statement shall be prepared and
presented in whatever manner the Board of Directors shall deem advisable and
need not be verified by a Certified Public Accountant.
ARTICLE XI - INDEMNIFICATION AND INSURANCE:
Section 1. (a) RIGHT TO INDEMNIFICATION. Each person who was or is made a
party or is threatened to be made a party or is involved in any action, suit or
proceeding, whether civil, criminal, administrative or investigative
(hereinafter a "proceeding"), by reason of the fact that he or she, or a person
of whom he or she is the legal representative, is or was a director or officer,
of the Corporation or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation or of a partnership,
joint venture, trust or other enterprise, including service with respect to
employee benefit plans, whether the basis of such proceeding is alleged action
in an official capacity as a director, officer, employee or agent or in any
other capacity while serving as a director, officer, employee or agent, shall be
indemnified and held harmless by the Corporation to the fullest extent
authorized by the Delaware General Corporation Law, as the same exists or may
hereafter be amended (but, in the case of any such amendment, only to the extent
that such amendment permits the Corporation to provide broader indemnification
rights than said law permitted the Corporation to provide prior to such
amendment), against all expense, liability and loss (including attorneys' fees,
judgments, fines, ERISA excise taxes or penalties and amounts paid or to be paid
in settlement) reasonably incurred or suffered by such person in connection
therewith and such indemnification shall continue as to a person who has ceased
to be a director, officer, employee or agent and
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shall inure to the benefit of his or her heirs, executors and administrators;
provided, however, that, except as provided in paragraph (b) hereof, the
corporation shall indemnify any such person seeking indemnification in
connection with a proceeding (or part thereof) initiated by such person only if
such proceeding (or part thereof) was authorized by the Board of Directors of
the Corporation. The right to indemnification conferred in this Section shall be
a contract right and shall include the right to be paid by the Corporation the
expenses incurred in defending any such proceeding in advance of its final
disposition: provided, however, that, if the Delaware General Corporation Law
requires, the payment of such expenses incurred by a director or officer in his
or her capacity as a director or officer (and not in any other capacity in which
service was or is rendered by such person while a director or officer,
including, without limitation, service to an employee benefit plan) in advance
of the final disposition of a proceeding, shall be made only upon delivery to
the corporation of an undertaking, by or on behalf of such director or officer,
to repay all amounts so advanced if it shall ultimately be determined that such
director or officer is not entitled to be indemnified under this Section or
otherwise. The Corporation may, by action of its Board of Directors, provide
indemnification to employees and agents of the Corporation with the same scope
and effect as the foregoing indemnification of directors and officers.
(b) RIGHT OF CLAIMANT TO BRING SUIT:
If a claim under paragraph (a) of this Section is not paid in full by the
Corporation within thirty days after a written claim has been received by the
Corporation, the claimant may at any time thereafter bring suit against the
Corporation to recover the unpaid amount of the claim and, if successful in
whole or in part, the claimant shall be entitled to be paid also the expense of
prosecuting such claim. It shall be a defense to any such action (other than an
action brought to enforce a claim for expenses incurred in defending any
proceeding in advance of its final disposition where the required undertaking,
if any is required, has been tendered to the Corporation) that the claimant has
not met the standards of conduct which make it permissible under the Delaware
General Corporation law for the Corporation to indemnify the claimant for the
amount claimed, but the burden of proving such defense shall be on the
Corporation. Neither the failure of the Corporation (including its Board of
Directors, independent legal counsel, or its stockholders) to have made a
determination prior to the commencement of such action that indemnification of
the claimant is proper in the circumstances because he or she has met the
applicable standard of conduct set forth in the Delaware General Corporation
Law, nor an actual determination by the Corporation (including its Board of
Directors, independent legal counsel, or its stockholders) that the claimant has
not met such applicable standard or conduct, shall be a defense to the action or
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create a presumption that the claimant has not met the applicable standard or
conduct.
(c) Notwithstanding any limitation to the contrary contained in
sub-paragraphs (a) and 8 (b) of this section, the corporation shall, to the
fullest extent permitted by Section 145 of the General Corporation Law of the
State of Delaware, as the same may be amended and supplemented, indemnify any
and all persons whom it shall have power to indemnify under said section from
and against any and all of the expenses, liabilities or other matters referred
to in or covered by said section, and the indemnification provided for herein
shall not be deemed exclusive of any other rights to which those indemnified may
be entitled under any By-law, agreement, vote of stockholders or disinterested
Directors or otherwise, both as to action in his official capacity and as to
action in another capacity while holding such office, and shall continue as to a
person who has ceased to be director, officer, employee or agent and shall inure
to the benefit of the heirs, executors and administrators of such a person.
(d) INSURANCE:
The Corporation may maintain insurance, at its expense, to protect itself
and any director, officer, employee or agent of the Corporation or another
corporation, partnership, joint venture, trust or other enterprise against any
such expense, liability or loss, whether or not the Corporation would have the
power to indemnify such person against such expense, liability or loss under the
Del General Corporation Law.
ARTICLE XII - AMENDMENTS
Section 1. These By-Laws may be amended or repealed by the vote of
directors.
ARTICLE XIII - SPECIFIC CORPORATE PURPOSE
Section 1. The corporate purpose of the Company is to raise money and to
enter into a contract with 21st Century Hair Design, Inc. (the "Producer"),
wherein the Company shall acquire the exclusive rights to market a hair product
known as "Halo Hair" in one specified market area. The Company will be required
to spend a specified minimum dollar amount to purchase television broadcast time
in order to air an infomercial produced by the Producer during an initial
marketing period which will commence with the selection of the market (the
"Market") by mutual agreement between the Company and the Producer and will
terminate at the end of the first full calendar month after said selection. The
Company will maintain the exclusive rights to said Market by purchasing
television air time each subsequent calendar month in an amount equal to the
greater of (a) 50% of the revenues received from hair product sales by the
Company in the preceding month, or (b) 50% of
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the amount spent for purchase of broadcast time during the initial marketing
period. This continuing obligation to purchase air time shall commence in the
second calendar month after the initial marketing period.
The Producer has identified seven categories of television markets based
on the size of the markets, i.e., number of households and percentage of market
share. Each category has a list of currently available markets supplied by a
commercial provider of television air time and has a dollar amount established
by Producer which must be expended in the initial marketing period in order to
secure the exclusive rights to said market. The Company and the Producer will
mutually agree in good faith to the Market assigned to the Company on a "first
come -- first served" basis and based on the funds available to be spent by the
Company.
In the event the Company is unable to expend the funds necessary to
maintain the minimum requirements on an ongoing basis under the contract with
the Producer, it will forfeit all rights to the specified Market and will have
no further right to market the Halo Hair product or to broadcast the
infomercial.
In such event, the Company will call a shareholders' meeting and by
majority vote of all nonaffiliated shareholders will make a decision as to
whether to liquidate the Company or as to what business direction the Company
will pursue, if any. It is the announced intent of the Company at the present
time to not pursue marketing of hair products, should it be unsuccessful in its
original efforts to market the Halo Hair product.
In the event the Company is successful in marketing Halo Hair and is able
to maintain its contractual relationship with the Producer, it currently intends
to maintain that business and to pursue marketing the Halo Hair product in its
designated Market. In such case the Company intends to distribute as dividends
to shareholders those funds earned but not required to be reinvested in
marketing the product or needed for operations.
The Company acknowledges that its current sole officer and director is or
may be an officer and/or director of other companies which will have the same
business purpose as Grand Enterprises, Inc., except that said entities will each
have its own specified exclusive market. Therefore, based on the limited
business purpose of this Company and its exclusive Market, it does not believe
that there is any conflict of interest with any other entity controlled by its
current sole director.
/s/ Lynn Dixon
---------------------
Lynn Dixon, Secretary
September _______, 1995
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NOT VALID UNLESS COUNTERSIGNED BY TRANSFER AGENT
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
CUSIP NO. 563122 10 0
NUMBER SHARES
- ------------ ------------
[LOGO]
- ------------ ------------
MANHATTAN SCIENTIFICS, INC.
AUTHORIZED COMMON STOCK: 150,000,000 SHARES
PAR VALUE: $.001
THIS CERTIFIES THAT
- --------------------------------------------------------------------------------
IS THE RECORD HOLDER OF
Shares of MANHATTAN SCIENTIFICS, INC. COMMON STOCK
- ------------------------
transferable on the books of the Corporation in person or by duly authorized
attorney upon surrender of this Certificate properly endorsed. This Certificate
is not valid until countersigned by the Transfer Agent and registered by the
Registrar.
Witness the facsimile seal of the Corporation and the facsimile signatures
of its duly authorized officers.
Dated:
[CORPORATE SEAL OF MANHATTAN SCIENTIFICS, INC.]
/s/ Scott L. [illegible] /s/ Marvin Maslow
- ------------------------ ------------------
SECRETARY C.E.O.
COUNTERSIGNED & REGISTERED
-------------------------------------------------
COUNTERSIGNED Transfer Agent-Authorized Signature
[LOGO] INTERWEST TRANSFER CO. INC. P.O. BOX 17136 / SALT LAKE CITY, UTAH 84117
<PAGE>
NOTICE: Signature must be guaranteed by a firm which is a member of a registered
national stock exchange, or by a bank (other than a saving bank), or a
trust company. The following abbreviations, when used in the inscription
on the face of this certificate, shall be construed as though they were
written out in full according to applicable laws or regulations:
TEN COM -- as tenants in common
TEN ENT -- as tenants by the entireties
JT TEN -- as joint tenants with right of survivorship and not
as tenants in common
UNIF GIFT MIN ACT -- Custodian
-----------------------------
(Cust) (Minor)
under Uniform Gifts to Minors
Act
--------------------------
(State)
Additional abbreviations may also be used though not in the above list.
For Value Received, hereby sell, assign and transfer unto
------------
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
- --------------------------------------
- --------------------------------------
- --------------------------------------------------------------------------------
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Shares
- --------------------------------------------------------------------------
of the capital stock represented by the within certificate, and do hereby
irrevocably constitute and appoint
Attorney
- ------------------------------------------------------------------------
to transfer the said stock on the books of the within named Corporation with
full power of substitution in the premises.
Dated
-------------------------
----------------------------------------------------------------------------
NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME AS
WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR WITHOUT
ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATEVER.
<PAGE>
LICENSE AGREEMENT
AGREEMENT, made this 11th day of January, 1998, by and between Robert
Glenn Hockaday, an individual whose principal residence is 3025 Arizona Avenue,
Los Alamos, NM 87544 ("Licensor") and DKY, Inc., a New Mexican corporation
having its principal place of business at 3025 Arizona Avenue, Los Alamos, NM
87544 ("Licensee")
W I T N E S S E T H:
WHEREAS, Licensor is the owner of certain issued patents and patent
applications set forth in Exhibit A hereto;
WHEREAS, the Licensee desires to obtain the exclusive right and license
under Licensed Patents (hereinafter defined), including the right to develop,
enjoy, commercialize, exploit, manufacture, use and sell and/or license third
parties to manufacture, use and sell products utilizing the inventions, methods,
processes and apparatuses of the Licensed Patents;
WHEREAS, Energy Related Devices, Inc. (a New Mexico corporation in which
Licensor owns 99% of the issued and outstanding shares and Patrick Sean Turner
owns the remaining 1% of the issued and outstanding shares) ("ERDI") has entered
into a Research and Development Agreement, dated of even date herewith, with
Tamarack Storage Devices, Inc, a Texas corporation (and together with Manhattan
Scientifics, Inc., a Delaware corporation and the owner of 100% of the issued
outstanding shares of Tamarack Storage Devices, Inc., collectively referred to
as
<PAGE>
"MSI"), pursuant to which MSI will fund certain research and development
activities relating to the subject matter of the Patents; and
NOW, THEREFORE, in consideration of the promises and faithful performance
of the mutual covenants herein contained, and for other good and valuable
consideration, the receipt of which, and legal sufficiency of which, are hereby
acknowledged by each party hereto, it is agreed:
Article 1 - Definitions
1. "The R&D Agreement" shall mean the agreement between ERDI and MSI,
dated of even date herewith.
1.2 "Licensed Patents" shall mean and include any and all patents and
patent applications set forth in Exhibit A hereto. and
1.3 "Products" shall mean any product or process relating to micro fuel
cells, or to solar cells, or to any substitute technology agreed to between
Licensor and Licensee in writing, pursuant to the R&D Agreement.
1.4 "Licensed Products" shall mean any Product utilizing the inventions,
methods, processes or apparatus of the Licensed Patents.
1.5 "Territory" shall mean the world.
1.6 "Net Sales" shall mean the total price payable to Licensee by
purchasers from Licensee of Licensed Products, less any freight, sales, excise,
or use taxes, export or import duties
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or fees, bona fide trade and cash discounts or allowances, returns and
commissions.
1.7 "Royalty Income" shall mean all income, including, without limitation,
any and all fees, payments, royalties, stock or convertible equity, or other
items of monetary value, actually received by Licensee pursuant to any agreement
between Licensee and any sublicensee relating to the use, distribution,
manufacturing, production or other commercial exploitation of the Licensed
Patents.
Article 2 - Grant
2.1 The Licensor hereby grants to the Licensee the exclusive right and
license throughout the Territory, to develop, enjoy, commercialize, exploit,
manufacture, use and sell Licensed Products.
Article 3 - Right to Sublicense
3.1 Licensee shall also have the right at any time to sublicense its
rights hereunder, or any part of said rights, by granting sublicenses to third
parties under the Licensed Patents. Licensor shall have the right to approve any
sublicense, which approval shall not be unreasonably withheld.
Article 4 - Royalties
4.1 Licensee shall pay to the Licensor (i) a royalty of three percent (3%)
of Net Sales for each Licensed Product sold by Licensee and (ii) a royalty of
six percent (6%) of Royalty Income received by Licensee based on sublicenses
granted by Licensee for Licensed Products.
3
<PAGE>
4.2 Within thirty (30) days after every quarterly period during the term
of this Agreement, Licensee shall pay to the Licensor the amount of royalties
accrued during the preceding corresponding quarterly period. Licensee shall
prepare a royalty report for each quarterly period during the term of this
Agreement.
4.3 Licensee shall keep an accurate account and records of the operations
coming under the scope of its license and any sublicense granted by Licensee in
ample detail so as to enable the manner in which the royalties payable hereunder
are to be determined.
4.4 Licensor shall have the right, at its own expense and not more often
than once in any calendar year, on reasonable notice to Licensee, to have a
certified public accountant or auditor examine the books of Licensee with
respect to the previous year, during normal business hours, to verify the
payments required hereunder. Any dispute concerning the accounting shall be
determined according to the principles, practices, procedures and opinions of
the American Institute of Certified Public Accountants. Said accountant or
auditor shall make a report to the Licensor in such manner that the names of
customers or other information considered confidential by Licensee and its
sublicensees, as the case may be, shall not be disclosed to the Licensor.
4
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Article 5 - Term Effective Date
5.1 Unless sooner terminated in accordance with the provisions hereof, the
term of this Agreement shall be for a period commencing on the Commencement Date
(as hereinafter defined) and ending on the last day of the last term of any
Licensed Patent except with respect to trade secrets and know-how in which case
the term of this Agreement shall be perpetual. For purposes of this Agreement,
the term "Commencement Date" shall mean the first date on which each of the
following shall have been consummated: (i) that certain Limited Offering of
Grand Enterprises, Inc. (a predecessor of MSI) as set forth in that certain one
million dollar ($1,000,000) Limited Offering Memorandum related thereto dated
November 12, 1997 and (ii) that certain Agreement and Plan of Reorganization
among Grand Enterprises, Inc., Grand Subsidiary, Inc. and Tamarack Storage
Devices, Inc.
Article 6 - Representations, Covenants and
Obligations of Licensor Warranty
6.1 Licensor hereby represents and warrants that:
(i) it is the sole owner of the entire right, title, and interest in
and to the patents and patent applications set forth in Schedule A hereof;
(ii) it has the exclusive right to grant this exclusive license;
(iii) such patents and patent applications are not subject to any
loan agreement, conditional sale or title retention agreement, equipment
obligation, lease
5
<PAGE>
purchase agreement, mortgage, indenture, pledge, security agreement,
guaranty, lien, charge, security interest, encumbrance, restriction,
lease, license, easement, liability or adverse claim of any nature
whatsoever (excluding trade and account payables) direct or indirect,
whether accrued, absolute, contingent or otherwise and charges or other
payments, or conditions or restrictions whatsoever;
(iv) no claim or demand has been made nor is there any proceeding
that is pending or threatened, which (A) challenges the rights of the
Licensor in respect of any of such patents and patent applications, or (B)
asserts that Licensor is infringing or otherwise in conflict with, or is
required to pay any royalty, license fee, charge or other amount with
regard to, any of such patents and patent applications; none of such
patents or patent applications are subject to any outstanding order,
ruling, decree, judgment or stipulation by or with any court, arbitrator,
or administrative agency; and
(v) such patents have been duly registered with, filed in or issued
by, as the case may be, the United States Patent and Trademark Office,
United States Copyright Office or such other filing offices or the
Licensor has taken such other commercially reasonable actions, to ensure
adequate protection under relevant
6
<PAGE>
applicable laws or regulations, and such registrations, filings, issuances
and other actions remain in full force and effect.
6.2 Licensor agrees that it shall be responsible for all activities in
connection with the prosecution and maintenance of the Licensed Products other
than (i) reasonable expenses related thereto, including, but not limited to,
expenses related to the assignment of the Licensed Patents pursuant to Article 9
hereof, which shall be paid by the Licensee and (ii) selecting in which
countries or localities to prosecute and maintain the Licensed Patents, which
shall be determined by mutual agreement of the parties hereto; provided,
however, that in the event that MSI or its affiliates are not the Licensee
hereunder, Licensor shall have no duties pursuant to this Section 6.2 other than
to cooperate with such other licensees with respect to activities in connection
with the prosecution and maintenance of the Licensed Patents.
6.3 Licensor does not warrant and hereby expressly disclaims any and all
express and implied warranties regarding the validity and enforceability of the
Licensed Patents.
Article 7 - Litigation
7.1 The Licensee shall, without the right of indemnification from
Licensor, defend and pay any and all costs, including, without limitation,
attorneys' fees, disbursements, judgments and settlement awards, in connection
with infringement actions brought against Licensor, Licensee or Licensee's
7
<PAGE>
sublicensees on account of the manufacture, use and sale of Licensed Products.
Licensor shall cooperate and assist Licensee in connection with any such action
so that Licensee can properly defend the action.
Article 8 - Infringement
8.1 Licensor and Licensee shall notify each other immediately if either
becomes aware of any infringement or suspected infringement of the Licensor's
rights in the Licensed Patents.
8.2 Licensee shall have the right to take such action as, in its opinion,
may be necessary or appropriate with a view to eliminating such infringement.
Licensor shall cooperate and assist Licensee in connection with any such action,
at no cost to Licensor. Licensee shall be entitled to any recovery in such
action.
Article 9 - Assignment of Licensed Patents
9.1 In the event that MSI, pursuant to the R&D Agreement, deposits
$500,000 into the ERDI Account (as such term is defined in the R&D Agreement),
then Licensor shall automatically be deemed to have assigned to Licensee all of
its rights in and to those Licensed Patents related to micro fuel cells
including, without limitation, Licensed Patents related to micro fuel cells not
yet then developed, provided; however, that notwithstanding such assignment,
Licensee shall remain obligated to make payments to Licensor in accordance with
Section 4 hereof. In addition, in the event that MSI, pursuant to the R&D
Agreement,
8
<PAGE>
either (i) fully funds research and development activities with respect to the
Solar Cell Product (as such term is defined in the R&D Agreement) in an amount
to be agreed upon by the parties to the License Agreement pursuant to the terms
and conditions of the License Agreement, (ii) ERDI delivers a prototype of the
Solar Cell Product acceptable to MSI, or (iii) ERDI materially breaches the R&D
Agreement, then upon written notice thereof by Licensee to Licensor, Licensor
shall automatically be deemed to have assigned to Licensee all of its rights in
and to those Licensed Patents related to solar cells including, without
limitation, Licensed Patents related to solar cells not yet then developed;
provided, however, that, notwithstanding such assignment Licensee shall remain
obligated to make payments to Licensor in accordance with Section 4 hereof.
Article 10 - Other Events Resulting In Termination
10.1 If Licensee fails to pay to Licensor the royalties payable under the
terms hereof, or if either Licensor or Licensee violates or fails to keep or
perform any material obligation, term or condition hereof, then Licensee or
Licensor, as the case may be, may, at its option, cancel and terminate this
Agreement by giving sixty (60) days written notice, specifying the default
complained of; provided, however, that if Licensor or Licensee, as the case may
be, shall, within such sixty (60) days, cure the default complained of, then the
notice shall cease to be operative and this Agreement shall
9
<PAGE>
continue in full force and effect as though such default had not occurred.
Article 11 - Exclusive Patent License W/ Assignment
11.1 Unless or until the Licensed Patents are assigned by Licensor to
Licensee pursuant to the terms and conditions of this Agreement, Licensee agrees
that ownership of the Licensed Patents and all other intellectual property
rights and title thereto and to any confidential information and materials
Assigned or delivered to Licensee by Licensor under this Agreement shall reside
in Licensor and that Licensee possesses no ownership or claim to ownership of
such rights or title.
11.2 Licensee agrees to add Licensor to Licensee's product liability
insurance policy as an insured party with regard to the Licensed Patents and
will provide Licensor with written proof thereof to be given to Licensor from
Licensee's insurance company within sixty (60) days of the testing of commercial
prototypes of products embodying or utilizing the Licensed Patents.
11.3 The Parties hereto agree that they each shall be liable for their own
respective income, sales, gross receipts or other U.S. or foreign income, sales
or other taxes.
Article 12 - Miscellaneous
12.1 This Agreement and the R&D Agreement constitute the entire
understanding between the parties with respect to the subject matter hereof and
supersedes and replaces all prior
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<PAGE>
agreements, understandings, writings and discussions between the parties
relating to said subject matter.
12.2 This Agreement may be amended only by a written instrument executed
by the parties. The failure of either party at any time or times to require
performance of any provision hereof shall in no manner affect its rights at a
later time to enforce the same. No waiver by either party of any condition or
term in any one or more instances shall be construed as a further or continuing
waiver of such condition or term or any other condition or term.
12.3 This Agreement shall be binding upon and inure to the benefit of and
be enforceable by the parties hereto and their respective successors and
permitted assigns.
12.4 Any delays in or failure of performance by either party under this
agreement shall not be considered a breach of this Agreement if and to the
extent caused by occurrences beyond the reasonable control of the party
affected, including but not limited to acts of God; acts, regulations or laws of
any government; strikes or other considered acts of workers; fires; floods;
explosions; riots; wars; rebellion; and sabotage; and any time for performance
hereunder shall be extended by the actual time of delay caused by such
occurrence.
12.5 Any notice required or permitted to be given hereunder shall be in
writing, delivered in person or sent by telex, telecopier, or by registered or
certified mail, postage prepaid, to the address of the other party hereto set
forth in this
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Agreement or to such address as such party shall have theretofore designated in
writing. Such notice, request or other communication shall be deemed delivered
at the expiration of three (3) days in the case of a telex, telecopy, cable,
registered or certified mail postage prepaid, or immediately upon delivery in
person.
12.6 This Agreement shall be governed by and construed and interpreted in
accordance with the laws of the State of New York, United States of America,
without giving the effect to conflict of laws, and the parties hereto hereby
consent to submit to the jurisdiction of the state and federal courts of the
State of New York, City of New York and the State of New Mexico, City of Santa
Fe or Albuquerque in connection with any dispute arising out of or concerning
this Agreement.
12.7 This Agreement shall not be assignable by Licensor without Licensee's
prior written consent, except for the right to receive royalties payable
hereunder.
12.8 This Agreement shall not be assignable by Licensee without Licensor's
prior written consent, which approval shall not be unreasonably withheld.
12.9 If any provision(s) of this Agreement are or become invalid, or ruled
illegal by any court of competent jurisdiction, or are deemed unenforceable
under then current applicable laws from time to time in effect during the term
hereof, it is the intention of the parties that the remainder of this Agreement
shall not be affected thereby. It is further the intention of
12
<PAGE>
the parties that in lieu of each such provision which is invalid, illegal or
unenforceable, there be substituted or added as part of this Agreement, a
provision which shall be similar as possible in economic and business objectives
as intended by the parties to such invalid, illegal, or unenforceable provision,
but which shall be valid, legal and enforceable.
12.10 Each party agrees that after the delivery of this Agreement, it will
execute such further documents and do such further acts and things as the other
party may reasonably request in order to carry out the terms of this Agreement.
12.11 The article and paragraph headings contained herein are for
reference purposes only and shall not in any way affect the meaning of this
Agreement.
12.12 This Agreement may be executed in any number of counterparts, each
of which shall be an original, but all of which together shall constitute one
instrument.
IN WITNESS WHEREOF, the parties have executed this agreement as of the
date first above written.
LICENSOR:
/s/ Robert G. Hockaday
---------------------------------------
ROBERT GLENN HOCKADAY
LICENSEE:
DKY INC.
By: /s/ Robert G. Hockaday
---------------------------------------
Name: Robert Glenn Hockaday
Title: President
13
<PAGE>
RESEARCH AND DEVELOPMENT AGREEMENT
AGREEMENT (this "Agreement") made this 11th day of January, 1998, by and
between Energy Related Devices, Inc., a New Mexico corporation having its
principal office at 3025 Arizona Avenue, Los Alamos, New Mexico 87544 ("ERDI"),
and Tamarack Storage Devices, Inc., a Texas corporation having its principal
office at 632 Agua Fria, Santa Fe, NM 87501 (and together with Manhattan
Scientifics, Inc., a Delaware corporation and the sole shareholder of Tamarack
Storage Devices, Inc., collectively referred to as "MSI").
W I T N E S S E T H:
WHEREAS, MSI has the exclusive license to all of those patents (the
"Patents") pursuant to that certain License Agreement between DKY. Inc. (MSI's
predecessor-in-interest) and Robert Glenn Hockaday, the owner of 99% of the
issued and outstanding stock of ERDI (the remaining 1% of the issued and
outstanding stock being owned by Patrick Sean Turner), a copy of which is
attached hereto as Schedule A (the "License Agreement"), which License Agreement
relates to the exclusive worldwide rights with respect to (i) all of the Patents
relating to an invention referred to as the micro fuel cell (the "Fuel Cell
Patents"), and (ii) all of the Patents relating to an invention referred to as
the solar cell (the "Solar Cell Patents"); and
WHEREAS, MSI desires to commercialize, market, sell and license products
based on the Fuel Cell Patents (the "Fuel Cell Products") and products based on
the Solar Cell Patents (the "Solar Cell Products"); and
WHEREAS, MSI desires to engage ERDI to conduct all necessary research and
development efforts with respect to the Patents to produce a prototype suitable
for commercial sale or license and further development of each of the Fuel Cell
Product and the Solar Cell Product; and
WHEREAS, ERDI desires to provide such research and development services to
MSI to produce a prototype suitable for commercial sale or license and further
development of each of the Fuel Cell Product and the Solar Cell Product upon the
terms and conditions hereinbelow set forth; and
NOW THEREFORE, in consideration of the premises and the mutual covenants
and agreements hereinafter set forth, and for other good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged, the
parties hereto covenant and agree as follows:
<PAGE>
1. Scope of Duties of ERDI.
ERDI agrees to use its best efforts in connection with its research and
development efforts with respect to the Patents to produce a prototype suitable
for commercial sale or license and further development of each of the Fuel Cell
Product and the Solar Cell Product as such products are described in ERDI's
business plan dated February 11, 1997, a copy of which is attached hereto as
Schedule B. ERDI agrees to provide the exclusive services of Mr. Robert Glenn
Hockaday in connection with the rendering of those services reasonably capable
of being performed by Mr. Hockaday pursuant to this Agreement and Mr. Hockaday
shall have primary responsibility for performing and overseeing all services to
be provided hereunder. Notwithstanding the foregoing, Mr. Hockaday shall be
entitled to devote up to five (5%) percent of his business time on a monthly
basis to providing personal services with respect to that certain electrostatic
print product referred to as "Permacharge," provided that such activities do not
have a material adverse effect on the performance of his duties hereunder. At
MSI's request, ERDI shall also provide to MSI the exclusive services of Mr.
Hockaday in those aspects reasonably capable of being performed by Mr. Hockaday
relative to the commercialization of the Fuel Cell Product and Solar Cell
Product, including but not limited to (i) raising capital in the United States
and any other geographic locations, (ii) participating in road shows, public
relations events, press conferences and other similar events, (iii) working on
matters related to the Los Alamos National Laboratory, the University of
California and United States Department of Energy, (iv) prototyping applications
of the Patents for potential users (by way of example, building a cellular phone
with a working micro fuel cell power source) and (v) managing the ERDI facility
located within MSI's facility in Los Alamos, New Mexico. The research and
development activities required of ERDI hereunder shall be conducted in Los
Alamos, New Mexico, or such other location or locations as the Parties shall
mutually agree upon from time to time.
2. Term of Agreement. This Agreement shall be for a term commencing on the
Commencement Date (as hereinafter defined) and terminating on the later of (i)
three (3) years after the Commencement Date or (ii) the date ERDI delivers to
MSI a prototype suitable for commercial sale or license with respect to each of
the Fuel Cell Product and Solar Cell Product (or substitute products therefor in
accordance with Section 9 hereof). For purposes of this Agreement, the term
"Commencement Date" shall mean the first date on which (i) that certain Limited
Offering of Grand Enterprises, Inc. (the predecessor-in-interest of MSI),
pursuant to the Limited Offering Memorandum dated November 12, 1997, shall have
been consummated, (ii) the Agreement and Plan of Reorganization among Grand
Enterprises, Inc., Grand Subsidiary, Inc. and Tamarack Storage Devices, Inc.
2
<PAGE>
shall have been consummated, and (iii) MSI and ERDI shall have agreed upon the
Milestone Timetable (as hereinafter defined). Notwithstanding anything herein to
the contrary, each party shall have the right to terminate this Agreement on
sixty (60) days prior written notice (which written notice to be effective must
describe the alleged default with specificity) in the event that the other party
shall have materially breached this Agreement; provided, however, that in the
event that MSI or ERDI, as the case may be, shall, within such sixty (60) days,
cure the default complained of, then the notice shall cease to be operative and
this Agreement shall continue in full force and effect as though such default
has not occurred.
3. Payment to ERDI. As full and total consideration for the services to be
provided by MSI to ERDI hereunder, MSI shall pay to ERDI the following:
(a) the aggregate sum (the "Aggregate Sum") of up to one million dollars
($1,000,000), all in accordance with the terms and conditions of the Milestone
Timetable to be attached hereto and made a part hereof (for purposes of this
Agreement, the term "Milestone Timetable" shall mean a twelve (12) month
timetable commencing on the Commencement Date, to be agreed upon by MSI and ERDI
in writing after the date hereof, setting forth certain milestones that ERDI
must achieve within certain periods of time (each a "Milestone Period") prior to
receiving a portion of the Aggregate Sum), and in connection therewith, MSI and
ERDI hereby agree that (i) with respect to the six month period immediately
following the Commencement Date, the Milestone Timetable shall provide that ERDI
may receive no more than the sum of two hundred fifty thousand dollars
($250,000), and (ii) with respect to the seventh through twelfth months after
the Commencement Date, the Milestone Timetable shall provide that ERDI may
receive no more than the sum of seven hundred fifty thousand dollars ($750,000)
(the "$750,0000 Payment");
(b) in the event that ERDI delivers to MSI a prototype of a Fuel Cell
Product that MSI determines, in good faith, is suitable for commercial sale or
license, then MSI shall not be obligated to make any further payments to ERDI
pursuant to Section 3 (a) hereof and MSI shall immediately thereafter commence
to pay to ERDI the sum of ten thousand dollars ($10,000) per month until such
time as MSI is able to provide additional capital in an amount that MSI and ERDI
mutually determine, in good faith, to be sufficient to fund the research and
development efforts with respect to the Solar Cell Product; and
(c) in addition to the sums set forth in Sections 3(a) and 3(b) hereof,
MSI shall use its best efforts to provide up to an additional five hundred
thousand ($500,000) of funding to ERDI hereunder, subject to appropriate
modifications to be made to the Milestone Timetable to be agreed upon by the
parties hereto as a
3
<PAGE>
result of such additional funding, in the event ERDI should receive same to
fulfill its obligation to deliver a prototype of a Fuel Cell Product that MSI
determines, in good faith, is suitable for commercial sale or license and
further development.
(d) Ten (10) days prior to the earlier of the completion of a milestone or
the expiration of the applicable Milestone Period, ERDI shall provide MSI with
(i) a detailed written report describing the extent to which ERDI is in
compliance with its milestones in respect of such Milestone Period, and (ii)
books of account of its expenditure of funds in respect of such Milestone
Period. In the event that the parties hereto, within ten (10) days after receipt
of (i) and (ii) in the preceding sentence (collectively, the "Milestone Report")
with respect to the applicable Milestone Period, mutually agree that ERDI has
achieved the milestones referred to in the Milestone Report, then the funds for
the next Milestone Period will promptly be transferred via wire transfer by MSI
to ERDI. In the event that (i) the parties hereto cannot agree that ERDI has
achieved the milestones with respect to a Milestone Period relative to the
Milestone Report, or (ii) MSI does not have sufficient funds available to make
the payment with respect to the next applicable Milestone Period notwithstanding
the fact that the parties are in agreement with respect to the Milestone Report,
then the payment of the funds for such next Milestone Period shall be delayed
and not transferred by MSI to ERDI until such time as such milestones have been
achieved by ERDI or MSI obtains the funds to make the applicable payment, as the
case may be (such period of time shall be referred to herein as the "Delayed
Payment Period"); provided; however, that in the event that there occurs a
Delayed Payment Period because MSI does not have sufficient funds to make a
payment with respect to the next Milestone Period, then MSI shall MSI shall pay
to ERDI the sum of seven thousand dollars ($7,000) per month until such time as
MSI obtains the funds to make the applicable payment, and in such event MSI
shall be entitled to offset from the Aggregate Sum five thousand dollars
($5,000) for each seven thousand dollar ($7,000) payment by MSI to ERDI during
the Delayed Payment Period.
In the event that upon eighteen (18) months after the Commencement Date
(excluding the elapsed time during the Delayed Payment Period, which such
elapsed time shall be subject to an eighteen (18) month limit), MSI shall not
have secured financing sufficient to fund the lesser of (i) the entire Aggregate
Sum or (ii) the full development of the prototype of the Fuel Cell Product in
accordance with the Milestone Timetable then MSI shall (i) grant to ERDI a
non-exclusive license to use, research, develop, market, and otherwise
commercialize the Patents pursuant to which ERDI shall be obligated to (i) make
payments to MSI upon the same royalty and net sales percentage terms and
conditions forth in Section 3 of the Assignment Agreement and (ii) release
4
<PAGE>
ERDI and Robert Hockaday from all obligations and restrictions in Sections 1, 8
and 9 of this Agreement.
(e) On the date hereof, MSI shall deposit five hundred thousand dollars
($500,000) of the Aggregate Sum into a bank account of ERDI (the "ERDI
Account"). With respect to the first $250,000 of payments of the Aggregate Sum
to be paid to ERDI in accordance with the Milestone Timetable and the provisions
of Section 3 hereof, such $250,000 shall be payable from the ERDI Account to
ERDI and shall require only a signature of ERDI to be released from the ERDI
Account. With respect to the second $250,000 of payments of the Aggregate Sum to
be paid to ERDI in accordance with the Milestone Timetable and the provisions of
Section 3 hereof, such $250,000 shall be payable from the ERDI Account to ERDI
and shall require both the signature of ERDI and MSI to be released from the
ERDI Account. The parties hereto shall mutually agree on the banking
arrangements, including, without limitation, the type and number of accounts,
necessary to effectuate the matters set forth in this section 3(e).
4. Confidential Proprietary Information and Trade Secrets. Each party
hereto acknowledges that it shall receive written and oral confidential
information concerning the other in connection with this Agreement and
otherwise. Accordingly, each party agrees that all such confidential information
shall be treated as proprietary and strictly confidential by such party, and its
affiliates, principals, shareholders, officers, directors, employees and agents,
including professional advisors, and the confidential information shall only be
revealed to those affiliates, principals, shareholders, officers, directors,
employees and agents (including professional advisors) of such party who have a
need to know such information.
The obligations of this paragraph shall not apply to information that is
(i) independently publicly disclosed by parties unaffiliated to either of the
parties hereto, (ii) known to either party prior to the date hereof, or (iii)
readily and legitimately available from public sources.
It is expressly agreed that the provisions of this paragraph 4 shall apply
to all confidential information received by the parties hereto whether under
this Agreement or otherwise and that the provisions of this paragraph 4 shall
survive the expiration or termination hereof.
5. Status as Independent Contractor; Representations of the Parties. (a)
ERDI's engagement pursuant to this Agreement shall be as independent contractor
and not as an employee, officer or other agent of MSI. Neither party to this
Agreement shall represent or hold itself out to be the employer or employee of
the other.
5
<PAGE>
(b) Each party hereby represents and warrants to the other that it has the
full right, power and authority to enter into this Agreement and upon the
execution hereof, this Agreement shall constitute a valid and binding agreement
of such party and be enforceable against such party in accordance with its
terms.
(c) ERDI represents and warrants that:
(i) ERDI is a corporation duly organized, validly existing and in
good standing under the laws of the State of New Mexico, and has all the
necessary corporate powers to own its properties, and carry on its business as
now owned and operated.
(ii) The execution and delivery of this Agreement and the
consummation by ERDI of the transactions described herein have been duly
authorized, and no further corporate action or authorization is necessary in
connection therewith.
(iii) The consummation by ERDI of the transactions contemplated
herein will not result in or constitute any of the following: a breach of any
term or condition of any agreements to which ERDI is a party; a default or an
event that, with notice or lapse of the time or both, would constitute a
default, breach or violation of the Articles of Incorporation or Bylaws of ERDI
or any license, promissory note or other agreement, instrument or arrangement to
which ERDI is a party; or an event that would permit any party to terminate an
agreement or accelerate the maturity of any obligation of ERDI.
(iv) ERDI shall use its best, diligent efforts to perform the duties
required of it hereunder as set out in the Milestone Timetable.
(v) ERDI in good faith believes that, based on facts now known to
ERDI and its research and development efforts to date concerning the Patents,
that inventions to be derived from the Patents will work, that they will be
commercially mass-producible at low cost, that they are practical and safe, that
they will substantially perform to the standards described to MSI in ERDI's
Business Plan attached hereto as Schedule B; provided, however that the parties
hereto expressly acknowledge that this assessment may change as the services to
be provided pursuant to this Agreement progress.
(vi) THE REPRESENTATIONS AND WARRANTIES SET FORTH IN SECTIONS
5(i)-(v) above, ARE IN LIEU OF ALL OTHER REPRESENTATIONS AND WARRANTIES, AND
ERDI DISCLAIMS ALL OTHER WARRANTIES, WHETHER EXPRESS OR IMPLIED, INCLUDING,
WITHOUT LIMITATION, ANY IMPLIED WARRANTY OF MERCHANTABILITY OR FITNESS FOR A
PARTICULAR PURPOSE, AND ANY WARRANTIES, REPRESENTATIONS OR AFFIRMATIONS OF FACT
(EXPRESS OR IMPLIED) CONTAINED IN THE SCHEDULES TO THIS AGREEMENT RELATING TO
PATENT SCOPE, VALIDITY, AND ENFORCEABILITY, R&D COST
6
<PAGE>
AND THE SCHEDULES HERETO (EXCEPT FOR THE GOOD FAITH BASIS OF THE SAME), AND
CONTENT CONTAINED IN ERDI BUSINESS PLAN PERTAINING TO MARKET SIZE, POTENTIAL
PRODUCTS AND COMMERCIAL OPPORTUNITIES OR COMMERCIAL VIABILITY OF PRODUCTS
RELATING TO THE PATENTS. NO ORAL OR WRITTEN INFORMATION OR ADVICE GIVEN BY ERDI
OR A ERDI AUTHORIZED REPRESENTATIVE SHALL CREATE A WARRANTY OR IN ANY WAY
INCREASE THE SCOPE OF THIS WARRANTY OR ACT TO DEROGATE OR LIMIT ITS DISCLAIMER.
(d) MSI represents and warrants that:
a. MSI is a corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware, and has all necessary
corporate powers to own its properties, and carry on its business as now owned
and operated.
b. The execution and delivery of this Agreement and the consummation
by MSI of the transactions described herein have been duly authorized, and no
further corporate action or authorization is necessary in connection therewith.
c. The consummation by MSI of the transactions contemplated herein
will not result in or constitute any of the following: a breach of any term or
condition of this Agreement; a default or an event that, with notice or lapse of
time or both, would constitute a default, breach or violation of the Articles of
Incorporation or Bylaws of MSI or any license, promissory note or other
agreement, instrument or arrangement to which MSI is a party; or an event that
would permit any party to terminate an agreement or to accelerate the maturity
of any obligation of MSI.
6. Lease. MSI hereby agrees to sublet space to ERDI at MSI's offices
located in Los Alamos, New Mexico on terms and conditions to be mutually
negotiated by MSI and ERDI in good faith.
7. Life Insurance; Patent Infringement Insurance. Prior to January 31,
1998, ERDI hereby agrees to obtain a key-man life insurance policy on the life
of Robert Hockaday, at MSI's cost and expense, in the amount of two million
dollars ($2,000,000) listing MSI as the owner and beneficiary of such policy. In
addition, as soon as practicable after the Commencement Date, ERDI hereby agrees
to obtain patent infringement insurance with respect to the Patents, to be paid
for by ERDI with funds provided to ERDI by MSI which are allocated for this
purpose.
8. Robert Hockaday's Responsibilities. Robert Hockaday hereby personally
agrees to provide his services as ERDI's employee hereunder, and shall be
personally obligated to perform the covenants, relative to his personal services
set forth herein. In addition, Robert Hockaday hereby represents and warrants to
MSI that in good faith he believes that, based on
7
<PAGE>
facts now known to Robert Hockaday and his research and development efforts to
date concerning the Patents, that inventions to be derived from the Patents will
work, that they will be commercially mass-producable at low cost, that they are
practical and safe, that they will substantially perform to the standards
described to MSI in ERDI's Business Plan attached hereto as Schedule B. The
parties hereto expressly acknowledge that this assessment may change as the
services to be provided pursuant to this Agreement progress. Further, with
respect to the representations and warranties set forth in this Section 8,
Robert Hockaday hereby also personally makes, to the same extent as ERDI, the
same disclaimers made by ERDI in Section 5(c) (vi) hereof.
9. Patent Substitution. In the event that ERDI is unable to deliver the
Fuel Cell Product and/or Solar Cell Product in accordance with terms and
conditions of this Agreement, Hockaday shall be obligated to substitute the Fuel
Cell Patents and/or Solar Cell Patents, respectively, with one portfolio of
patents now existing or hereafter created (or two portfolios of patents in the
event that he is unable to deliver both the Fuel Cell Product and the Solar Cell
Product) unrelated to the Fuel Cell Patents and Solar Cell Patents, which
substitute technology, by mutual agreement of the parties, could be
significantly different from the Fuel Cell or Solar Cell, and any such portfolio
of patents with respect to the substitution technology and products based on
such patents shall be subject to the terms and conditions of the Assignment
Agreement and this Agreement to the same extent as the Fuel Cell Patents (and
the Fuel Cell Product) or Solar Cell Patents (and the Solar Cell Product), as
the case may be; provided; however, that in the event that a substitution of the
Fuel Cell Patents or Solar Cell Patents, as the case may be, occurs pursuant to
this Section 9, then all of Licensee's right, title and interest to the Fuel
Cell Patents or Solar Cell Patents, respectively, shall automatically be deemed
to have been assigned to the Licensor. In connection with the immediately
preceding sentence, from time to time during the term hereof as the parties
hereto shall mutually determine, ERDI shall seek to develop other technologies
other than those related to the Fuel Cell Patents and Solar Cell Patents that
ERDI believes, in good faith, are capable of being commercialized.
10. Third Party Funding. MSI shall have the right to engage third parties
to provide all or part of the Aggregate Sum due to ERDI hereunder, and any funds
so provided by such third parties shall automatically be deemed (to the extent
of such payments) to fulfill MSI's obligations hereunder with respect to the
Aggregate Sum.
11. Exports. The Parties agree that neither the Patents nor any other
technical data, nor the direct product thereof, will be exported outside the
United States except as authorized
8
<PAGE>
and as permitted by the laws and regulations of the United States.
12. Insurance. The parties hereto shall maintain in effect at all times
during the term hereof commercially reasonable insurance (including, without
limitation, worker's compensation, public liability, product liability, property
damage and automobile liability insurance) against reasonable business losses,
claims, demands, proceedings, damages, costs, charges and expenses for injuries
or damage to any person or property arising out of or in connection with this
Agreement which are the result of the fault or negligence of themselves, their
agents or subcontractors.
13. Waiver. The waiver by either party of a breach of any provision of
this Agreement shall not operate or be construed as a continuing waiver of any
subsequent breach by either party. No waiver by either party of any provision or
condition to be performed shall be deemed a waiver of similar or dissimilar
provisions or conditions at the same time or any prior or subsequent time.
14. Entire Agreement. This Agreement and the License Agreement embody and
constitute the full and complete understanding and agreement of the parties with
respect to the subject matter hereof, supersedes all prior understandings and
agreements, whether oral or written between ERDI and MSI, and shall not be
amended, modified or changed except by an instrument in writing executed by the
party to be charged. The invalidity or partial invalidity of one or more
provisions of this Agreement shall not invalidate any other provision of this
Agreement.
15. Notices. All notices, requests, and other communications hereunder
shall be deemed to be duly given if sent postage prepaid, by registered or
certified mail, return receipt requested, or by U.S. express mail or by private
overnight mail service (e.g., Federal Express) addressed to the other party at
the address as set forth herein below:
If to MSI, to:
Manhattan Scientifics, Inc.
c/o Projectavision, Inc.
2 Penn Plaza Suite 640
New York, NY 10121
Attention: Marvin Maslow
With a copy simultaneously by like means to:
Zukerman Gore & Brandeis, LLP
900 Third Avenue
New York, NY 10022
Attention: Clifford A. Brandeis, Esq.
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If to ERDI, to:
Energy Related Devices, Inc.
3025 Arizona Avenue
Los Alamos, MA 87544
Attention: Robert Glenn Hockaday
With a copy simultaneously by like means to:
Timothy Butler, P.C.
121 Sandoval St., Suite 217
Santa Fe, NM 87501
16. Choice of Law. Regardless of the place of execution or performance,
this Agreement shall be governed by and construed and enforced in accordance
with the laws of the State of New York, without giving effect to such State's
conflict of laws provisions.
17. Jurisdiction and Venue. With respect to any controversy or claim
arising out of or relating to this Agreement, or the alleged breach thereof,
each of the parties hereto irrevocably consent to the jurisdiction and venue of
the federal and state courts located in either the State of New York, City of
New York or the State of New Mexico, City of Santa Fe or Albuquerque.
18. No Assignment by ERDI. ERDI may not assign or delegate any of its
rights, duties or obligations under this Agreement without the express prior
written consent of MSI.
19. Binding Effect. This Agreement shall inure to the benefit of, be
binding upon and enforceable against, the parties hereto and their respective,
successors, heirs, beneficiaries and permitted assigns, which permission shall
not be unreasonably withheld.
20. Headings. The headings contained in this Agreement are for convenience
of reference only and shall not affect in any way the meaning or interpretation
of this Agreement.
21. Counterparts. This Agreement may be executed simultaneously in one or
more original or facsimile counterparts, each of which shall be deemed an
original, but all of which when taken together shall constitute one and the same
instrument.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the day and year first above written.
ENERGY RELATED DEVICES, INC.
By: /s/ Robert G. Hockaday 1/11/98
` -------------------------------------
Name: Robert Glenn Hockaday
Title: President
TAMARACK STORAGE DEVICES, INC.
By: /s/ Marvin Maslow
` -------------------------------------
Name: Marvin Maslow
Title: President 1/11/98
MANHATTAN SCIENTIFICS, INC.
By: /s/ Marvin Maslow
` -------------------------------------
Name: Marvin Maslow
Title: President 1/11/98
Solely with respect to
Sections 8 and 9 hereof:
/s/ Robert G. Hockaday 1/11/98
- -----------------------------------
Robert Glenn Hockaday
<PAGE>
BACH & ASSOCIATES
SCOTT L. BACH* ATTORNEYS AT LAW COMMERCIAL LITIGATION
CORPORATE MATTERS
OF COUNSEL: ------------- FORECLOSURES
ALAN H. KRESS** ONE ROCKEFELLER PLAZA DEBTOR-CREDITOR
JOEL A. ACKERMAN*** NEW YORK, NEW YORK 10020 ENTERTAINMENT LAW
INTELLECTUAL PROPERTY
-------------
TELEPHONE: 212-332-3330 FACSIMILE: 212-332-3315
E-MAIL: [email protected]
NEW JERSEY AFFILIATE:
* N.Y., CA., N.J. & D.C. BARS ZUCKER, GOLDBERG, BECKER & ACKERMAN
** N.Y., N.J. & D.C. BARS 1139 SPRUCE DRIVE / P.O. BOX 1024
*** N.Y., CA. & N.J. BARS MOUNTAINSIDE, NEW JERSEY 07092
May 12, 1999
VIA FACSIMILE 505-662-1468
Mr. Robert Glenn Hockaday
Energy Related Devices, Inc.
3025 Arizona Avenue
Los Alamos, New Mexico 87544
Re: (i) Research and Development Agreement ("R&D Agreement") dated January
11, 1998 among Energy Related Devices, Inc. ("ERD"), Manhattan
Scientifics, Inc. ("MSI"), and Tamarack Storage Devices, Inc.
("Tamarack"); and
(ii) License Agreement ("License Agreement") dated January 11, 1998
between Robert Glenn Hockaday ("Hockaday") and DKY, Inc.
Dear Bob:
I write to set forth certain matters pertaining to the R&D Agreement
and the License Agreement, as follows:
1. (a) Immediately upon the execution of this document, MSI shall pay
$100,000.00 (one hundred thousand dollars) to ERD pursuant to paragraph
3(a) of the R&D Agreement, in continued partial payment of the Aggregate
Sum (as that term is defined in paragraph 3(a) of the R&D Agreement) of
$1,000,000.00 (one million dollars). To date (and including the aforesaid
$100,000.00 payment), MSI has paid ERD $757,200.00 (seven hundred
fifty-seven thousand, two hundred dollars) toward the Aggregate Sum. The
remaining portion of the Aggregate Sum will be paid in accordance with the
R&D Agreement within 90 (ninety) days of the date this document is fully
executed.(1)
(b) Provided that ERD and Hockaday meet Milestones 3(C)(1) and 3(C)(5)
below;
- ----------
(1) Based upon ERD's budget projection that it is expending approximately
$50,000 per month to support its activities under the R&D Agreement, it is
acknowledged that the aforesaid $100,000.00 payment will support such
activities through the month of June, 1999. In disbursing the balance of
the Aggregate Sum to ERD, MSI will use its best efforts to ensure that ERD
will receive at least $50,000.00 (or such smaller amount as will satisfy
the Aggregate Sum in full) per month at the inception of any month
following June, 1999 in which the Aggregate Sum has not been paid in full.
<PAGE>
BACH & ASSOCIATES
Mr. Robert Glenn Hockaday
May 12, 1999
Page 2
and/or Milestones 3(C)(3) and 3(C)(6) below; and provided that such
Milestones are constructed and packaged as protypes designed by an outside
industrial design firm of MSI's selection (e.g., Lunar Design, Inc. of
Palo Alto, California); and further subject to MSI's ability to raise
additional funds; MSI will pay an additional $300,000.00 (three hundred
thousand dollars) over and above the Aggregate Sum to ERD pursuant to
Section 3(c) of the R&D Agreement during the six (6) month period
commencing on the later to occur of the following: (i) the date such
Milestones are delivered to MSI, and (ii) the date MSI fully funds the
Aggregate Sum to ERD. Such additional amounts shall be used by ERD and
Hockaday in the further performance of their duties under the R&D
Agreement as it pertains to the micro-fuel cell device.
2. The "Commencement Date" referred to in paragraph 2 of the R&D Agreement
was April 1, 1998.
3. Following is the "Milestone Timetable" referred to in paragraphs 2 and 3
of the R&D Agreement, as it pertains to the micro fuel cell invention (not
the solar cell invention). Wherever the word "prototype" is used, the
meaning is a working prototype suitable for commercial sale or license.
The phrase "tickle charger" refers to a micro-fuel cell array configured
to charge conventional state-of-the-art cellular telephone battery
material by delivery of a steady stream of electrical current to that
material, all self-contained within a customary battery case.
A. 06/01/98 Move into laboratory facility at 127 Eastgate Drive, Los
Alamos, New Mexico, and start tests.
B. 11/04/98 First micro fuel cell-powered cellular telephone calls
with Nokia 6190 analog cellular telephone. Demonstrate a
direct alcohol fuel cell that can provide 120% of the
power for a cellular phone continuously in standby mode
with a battery voltage buffer.
C. 07/31/99 One (1) of the six (6) proposed milestones listed below
(the "First Major Milestone"). It is understood and
agreed that ERD and Hockaday will use their best efforts
to deliver the First Major Milestone as a fuel cell
system production prototype with demonstrated ability to
achieve 5 times the present Lithium Ion batteries'
stored energy performance of 56.25 days of standby or 25
hours of transmit time and would be under 60 grams (1.9
Oz). Notwithstanding the foregoing, it is understood and
agreed that the First Major Milestone will be deemed
satisfied if it consists of a direct alcohol fuel cell
system prototype that can provide at least 120% of
standby power and be within a case of similar dimensions
to existing current cellular phone
<PAGE>
BACH & ASSOCIATES
Mr. Robert Glenn Hockaday
May 12, 1999
Page 3
battery packs for existing current cellular telephones, and
enable the cellular phone to make at least 15 minutes of
calls within a 24 hour period. The decision as to which of
the following six (6) milestones listed below will become the
First Major Milestone shall depend upon the performance
characteristics that ERD and Hockaday obtain from the fuel
cell arrays with which they are working. The six proposed
milestones from which the First Major Milestone will be drawn
are as follows:
(1) A methanol/water mixture-fueled fuel cell plus a
battery, supporting a Nokia 6190 cellular phone. Both
the battery and fuel cell will be confined within a
battery pack case similar in dimensions and weight to
those manufactured by Nokia and intended to be used
with this phone.
(2) Same as option one except that the fuel cell system
supports a Nokia 2180 phone with its larger and squarer
case.
(3) Same as option one except that the fuel cell system
supports a digital Motorola "StarTac" cellular phone
and the fuel cell fits into the typical second battery
pack case manufactured by Motorola and intended to be
used with this phone.
(4) Same as option one except that the fuel cell system
supports an analog Motorola "StarTac" cellular phone
and the fuel cell fits into the typical second battery
pack case manufactured by Motorola and intended to be
used with this phone.
(5) Form a "Power Holster" type device(2) with a
methanol/water mixture fueled fuel cell that couples to
a Nokia 6190 cellular phone with a typical battery pack
in place. The power holster must be small enough to be
held in the hand and permit usage and full function of
the telephone when the phone is coupled together to the
Power Holster.
(6) Form a "Power Holster" type device with a
methanol/water
- ----------
(2) A standalone trickle charger designed to be worn on the belt (but not
necessitating such use), and of compact dimension. For the sake of
clarification, it is understood that the Power Holster refers to a
pre-existing, pre-planned design, and that the device is intended to
trickle-charge the telephone battery when the telephone is inserted into
the holster.
<PAGE>
BACH & ASSOCIATES
Mr. Robert Glenn Hockaday
May 12, 1999
Page 4
mixture fueled fuel cell that couples to a StarTac
(digital or analog) cellular phone with a typical
battery pack in place. The power holster must be small
enough to be held in the hand and permit usage and full
function of the telephone when the phone is coupled
together to the Power Holster.
D. FUTURE Subsequent milestones will be established by the
parties on a case-by-case basis upon attainment of the
immediately preceding milestone(s).
4. The duration of the "Milestone Timetable" referred to in paragraphs 2 and
3 of the R&D Agreement, as it applies to the micro fuel cell invention
(not the solar cell invention), has been extended from 12 (twelve) months
to 20 (twenty) months, per agreement of the parties.
5. (a) ERD agrees that ownership of and title to the Licensed Patents (as
that term is defined in the License Agreement and the R&D Agreement) and
any and all intellectual property rights arising out of or relating
thereto (including, without limitation, patents, trademarks, copyrights,
trade secrets, know-how, discoveries, techniques, designs, specifications
and the like) reside exclusively in MSI and that ERD possesses no
ownership or claim to ownership thereto, and that such rights effectively
have been assigned by ERD and/or Hockaday to MSI.
(b) All discoveries, improvements, inventions, copyrightable expressions,
trademarks, trade secrets and the like, conceived or first reduced to
practice or fixed, know-how, ideas, concepts, techniques, designs,
specification, and the like, whether now known or hereinafter created,
conceived or otherwise developed by ERD in its performance of its
obligations under the R&D Agreement and/or the License Agreement, as those
terms are used in the U.S. Patent, Copyright, Trademark, Trade Secret and
other intellectual property statutory and common laws, and applicable
state statutory and common laws, shall be the sole and exclusive property
of MSI and MSI shall retain any and all rights to file any patent,
copyright, and trademark applications or the like thereon and to otherwise
protect and commercialize the same. Notwithstanding the foregoing, it is
understood and agreed that all intellectual property of ERD and Hockaday
that does not arise out of work performed by ERD under the R&D Agreement,
or out of the License Agreement, has not been assigned to MSI and Tamarack
and shall remain the exclusive property of ERD and Hockaday, as the case
may be.
(c) ERD shall, upon the reasonable request of MSI, and at MSI's expense,
execute any documents necessary to confirm any ownership in rights or
title to such materials in and to MSI.
<PAGE>
BACH & ASSOCIATES
Mr. Robert Glenn Hockaday
May 12, 1999
Page 5
This letter is intended to modify and amend the R&D Agreement and
the Licensing Agreement, and will only become effective when all of the parties
set forth below have affixed their countersignatures. For the sake of
convenience, this document may be executed in counterparts. Except where
otherwise noted, all of the terms and conditions of the R&D Agreement and the
Licensing Agreement shall remain in full force and effect. In the event of an
ambiguity between (a) this document and (b) the R&D Agreement and/or the
Licensing Agreement, this document shall control.
If the foregoing meets with your approval, kindly countersign this
letter in the space provided below, and return the countersigned copy to me via
facsimile, with the original to follow by overnight courier. After I receive
your facsimile countersignature, I will initiate the payment referred to in
paragraph 4 above.
I look forward to finalizing this matter promptly.
Regards,
/s/ Scott L. Bach
Scott L. Bach
cc: Marvin Maslow Timothy Butler, P.C.
Jack Harrod 121 Sandoval St., Suite 217
Santa Fe, NM 87501
AGREED AS AFORESAID:
ENERGY RELATED DEVICES, INC. MANHATTAN SCIENTIFICS, INC.
By:______________________________ By:_______________________________
Robert G. Hockaday, President Marvin Maslow, President, CEO and Chairman
TAMARACK STORAGE DEVICES, INC.
By:_______________________________
_________________________________ Marvin Maslow, President, CEO and Chairman
ROBERT G. HOCKADAY, individually
<PAGE>
Beglaubigte Abschrift
INTELLECTUAL PROPERTY ASSIGNMENT
AND RESEARCH AND DEVELOPMENT AGREEMENT
THIS AGREEMENT, made as of this 6th day of August, 1999 by and
between MANHATTAN SCIENTIFICS, INC., a publicly traded Delaware (USA)
corporation having offices located at 641 Fifth Avenue, New York, New York, USA
("MHTX"), Novars Gesellschaft fur neue Technologien mbH, a German corporation
having offices located at Pfarrweg 5, 94121 Strabkirchen/Salzweg, Germany
("Novars"), Dr. Arthur E. Koschany ("A. Koschany"), and Petra Koschany ("P.
Koschany," and together with A. Koschany, the "Koschanys").
W I T N E S S E T H:
WHEREAS, MHTX is engaged in, among other things, research and
development of certain proprietary technologies, and products incorporating such
technologies, including without limitation micro fuel cell technologies (the
"MHTX Technologies"); and
WHEREAS, Novars and the Koschanys are engaged in research and
development of certain proprietary fuel cell technologies, and products
incorporating such technologies (the "Novars Technologies"); and WHEREAS NOVARS
AND THE KOSCHANYS MAY INVENT NON-FUEL-CELL RELATED CONCEPTS; AND --
WHEREAS, the Koschanys and Novars own 100 % (one hundred percent) of
Novars and the Novars Technologies; and
WHEREAS, MHTX wishes to acquire the exclusive worldwide ownership
rights to the Novars Technologies and to engage the services of Novars and the
Koschanys in connection with the further research and development, and the
bringing to market, of the Novars Technologies;
NOW, THEREFORE, upon good and valuable consideration, the receipt
and legal sufficiency of which are hereby acknowledged, the parties hereto do
hereby agree as follows:
1. Compensation to Novars and/or the Koschanys. In consideration for
the Assignment (as hereinafter defined), MHTX shall provide the following
compensation to Novars and/or the Koschanys:
(a) THE GRANT SHALL BE 1,000,000 SHARES OF MHTX. The Shares
will be subject to SEC Rule 144 restrictions. 50% (fifty percent) of the Shares
will immediately be transferred to the Koschanys as non-refundable compensation
for their privately owned intellectual property rights, including without
limitation patent applications, pertaining to the Novars Technologies. The
remaining 50% (fifty percent) of the Shares will be held in escrow by MHTX
counsel (the "Escrowed Shares") pending issuance of certain patents upon the
BACH & ASSOCIATES, N.Y., N.Y.
<PAGE>
Novars Technologies and the effective transfer and assignment of same to MHTX,
according to the schedule forth in paragraph 7 of this agreement.
(b) A perpetual royalty of 3% (three percent) of Net Revenue
(as hereinafter defined) from the sale or licensing of the Novars Technologies
and/or products incorporating the Novars Technologies. "Net Revenue" means total
revenue paid to MHTX from the sale or licensing of the Novars Technologies
and/or products incorporating the Novars Technologies, less costs of shipping,
freight, taxes and duties of all kinds, and other actual costs directly related
to the activities generating such revenue (exluding costs of research and
development).
2. Intellectual Property Assignment.
(a) Novars and the Koschanys hereby transfer, assign and
convey to MHTX (the "Assignment") all of the existing worldwide intellectual
property rights arising out of or relating to the Novars Technologies, including
without limitation patents, patent applications, trademarks, trademark
applications, copyrights, copyright applications, know-how, trade secrets,
discoveries, ideas, concepts, techniques, designs, specifications, and the like.
The Novars Technologies include, without limitation, the technologies described
on Schedule A attached hereto.
(b) With respect to the Novars Technologies, all discoveries,
improvements, inventions, patents, copyrightable expressions, trademarks, trade
secrets and the like, conceived or first reduced to practice or fixed, know-how,
ideas, concepts, techniques, designs, specification, and the like, whether now
known or hereinafter created, conceived or otherwise developed by Novars, the
Koschanys, and/or their employees, contractors or affiliates in the performance
of their obligations hereunder, are included in the Assignment, and shall be the
sole and exclusive property of MHTX and MHTX shall retain any and all rights to
file any patent, copyright, trademark and other intellectual property protection
applications or the like thereon and to otherwise protect and commercialize the
same throughout the world at MHTX's expense.
(c) Novars and the Koschanys agree to execute any and all
documents and instruments necessary to effect, register and/or document the
Assignment, and hereby appoint Marvin Maslow, Jack Harrod, and Scott Bach as
their lawful agents and attorneys-in-fact, with powers of attorney, for the
limited purpose of executing any and all documents and instruments necessary to
effect the Assignment, in the name, place and stead of Novars and the Koschanys.
3. Research and Development.
BACH & ASSOCIATES, N.Y., N.Y.
<PAGE>
(a) MHTX hereby engages Novars and the Koschanys to conduct
all necessary research and development efforts with respect to the Novars
Technologies to (i) produce working production prototype(s) (as described in the
Milestone Timetable, as hereinafter defined) of products incorporating the
Novars Technologies suitable for commercial sale or license as soon as
reasonably possible; (ii) on a continuing basis, to further develop, advance and
evolve the Novars Technologies and products incorporating the Novars
Technologies on an accelerated timetable; and (iii) on a continuing basis, to
collaborate with MHTX and its affiliates as needed on other fuel-cell related
products and projects (collectively, the "Research and Development").
(b) MHTX shall fund (or cause to be funded) the Research and
Development. Novars and the Koschanys shall conduct and direct the Research and
Development, and shall do so in accordance with the milestone timetable annexed
hereto as Schedule B, as same may be amended from time to time by agreement of
the parties (the "Milestone Timetable"). Upon completion of each milestone set
forth in the Milestone Timetable, Novars shall render a written report, in
English, to MHTX detailing the particulars of the milestone completion,
including without limitation the technical particulars (each, a "Milestone
Report"). Receipt and acceptance by MHTX of each Milestone Report shall be a
condition of MHTX's obligation to continue to fund the Research and Development
pursuant to the Milestone Timetable. It is understood and agreed that the
Milestone Timetable is intended to advance MHTX's corporate goals and plans as
established by MHTX in its sole discretion.
(c) It is understood and agreed that the initial production
prototypes called for under the Milestone Timetable shall be demonstration
prototypes using manufacturing processes and materials suitable for production
but not necessarily tailored to specific products. It is intended that the
initial prototypes will be used to demonstrate in general the Novars
Technologies to third parties who may subsequently contract for the development
of product specific production prototypes, in which event the obligation of
Novars and the Koschanys shall then be to deliver such product specific
production prototypes.
(d) If at any time during the term of this contract Novars and
the Koschanys shall have completed one of the milestones set forth on the
Milestone Timetable and the subsequent milestone has not been established and/or
funded, MHTX shall pay to Novars and the Koschanys the aggregate sum of
$25,000.00 (twenty-five thousand dollars) per month until such time as the
subsequent milestone has been established and funded or until such time as the
term of this contract expires. Such funds shall be used to maintain the Research
and Development capabilities of Novars and the Koschanys pursuant to this
agreement.
BACH & ASSOCIATES, N.Y., N.Y.
<PAGE>
(e) Novars and the Koschanys personally shall use their best
and exclusive full-time efforts in conducting the Research and Development, and
shall use their best efforts to expedite the Research and Development. The
Koschanys personally will have primary responsibility for performing, directing
and overseeing all of the Research and Development. At MHTX's request and
expense, Novars and the Koschanys shall also assist generally in commercializing
the Novars Technologies, including without limitation by (i) assisting in
raising capital; (ii) participating in public relations events, press
conferences, media interviews, and similar events; (iii) working on matters
related to the Los Alamos National Laboratory, the University of California, and
the United States Department of Energy; and (iv) prototyping applications for
specific potential users of the Novars Technologies on a case-by-case basis,
subject to agreement of the parties as to the particulars of such applications.
Novars and the Koschanys shall disclose and introduce to MHTX all third parties
with whom they previously have or subsequently shall have discussions regarding
the Novars Technologies.
(f) Within 30 days of the date this agreement becomes
effective, Novars and the Koschanys shall provide MHTX with a key-man life
insurance policy on the life of A. Koschany, at MHTX's expense, in the amount of
US$2,000,000.00 (two million dollars) listing MHTX as the owner and beneficiary
of such policy. In addition, as soon as reasonably practicable after this
agreement becomes effective, Novars shall obtain (at MHTX's expense), or shall
assist MHTX in obtaining, patent infringement insurance covering any and all
patents related to the Novars Technologies.
(g) The term of this agreement, as it pertains to the Research
and Development, shall be 3 (three) years from the date this agreement becomes
effective. Thereafter, this agreement shall automatically renew in perpetuity
for successive terms of 1 (one) year, unless terminated by either party upon not
fewer than 6 (six) months' prior written notice. The termination of this
agreement shall not affect MHTX's obligation to pay royalties pursuant to
paragraph 1(b) hereof.
(h) It is understood and agreed that Novars and the Koschanys
are independent contractors of MHTX and not employees, officers, or agents, nor
will they hold themselves out as such.
(i) Notwithstanding any other provision of this agreement, in
the event of a breach of the obligations of Novars and the Koschanys under
section 3(c) of this agreement, MHTX shall be entitled to the following
remedies, in addition to any other legal or equitable remedies to which it may
be entitled: (i) injunctive relief (whether temporary, preliminary or permanent)
preventing and/or restricting the provision of services to third parties by
Novars and the Koschanys; and (ii) termination of
BACH & ASSOCIATES, N.Y., N.Y.
<PAGE>
MHTX's obligations under section 1(b) of this agreement.
4. Representations, Warranties and Covenants.
Novars and the Koschanys each covenant, represent and warrant
the following:
(a) that as of the date of this agreement, the Novars
Technologies are original, are solely owned by Novars and the Koschanys, are not
subject to claims by any third parties, and do not infringe upon the rights of
any third parties;
(b) that (i) Novars and the Koschanys believe in good faith
(and are aware of no contradictory facts) that the Novars Technologies are
patentable or otherwise protectable; and (ii) Novars and the Koschanys have
employed all reasonable and available means to invoke formal protection of the
intellectual property arising out of or relating to the Novars Technologies in
all jurisdictions which provide such protection, or will do so as soon as
reasonably practicable after this agreement becomes effective, at MHTX's
expense;
(c) that entry into this agreement (and all related documents)
with MHTX, has been duly authorized and approved by the directors, officers, and
shareholders of Novars, and that Novars and the Koschanys have all requisite
authority to make the Assignment and enter into this agreement;
(d) that the Koschanys presently devote their best efforts on
a full-time basis to the activities of Novars, and will continue to do so in
connection with the Research and Development, it being understood by MHTX that
A. Koschany is employee under an employment contract with Proton Motor Fuel Cell
GmbH that will expire on August 31, 1999;
(e) that Novars has secured (or promptly shall secure) the
services of all key personnel to continue the Research and Development;
(f) that the existing employees of Novars have executed
confidentiality and non-competition agreements in favor of Novars and MHTX (and
acceptable to MHTX), or will do so prior to the date this agreement becomes
effective, and that no employees will be hired in the future who have not signed
such an agreement in favor of Novars and MHTX;
(g) that there are no claims, whether actual or threatened,
against Novars and the Koschanys, and that Novars and the Koschanys are in
compliance with all laws, rules, and regulations to which they are subject;
(h) that there are no liens, judgments or security interests
of record to which Novars, the Koschanys, and/or the
BACH & ASSOCIATES, N.Y., N.Y.
<PAGE>
Novars Technologies, are subject;
(i) that Novars and the Koschanys have no agreements with any
third parties (including without limitation Samsung Electronics Co., Ltd. or its
affiliates) that would (a) prevent Novars and the Koschanys from entering into
this agreement, making the Assignment, and conducting the Research and
Development; (b) be breached by this agreement becoming effective or the
fulfillment of the obligations of Novars and the Koschanys; and/or (c)
invalidate this agreement in any respect;
(j) that Novars and the Koschanys believe in good faith (and
are aware of no contradictory facts) that the inventions to be derived from the
Novars Technologies will work, that they will be commercially mass-producible
at low cost, that they are practical and safe, and that they will substantially
perform to the standards set forth in the Milestone Timetable;
(k) that Novars is a corporation duly organized and existing
under the laws of Germany; and
(l) that Samsung Electronics Co., Ltd. or its affiliates have
no claim of ownership in and to the Novars Technologies.
5. Non-Disclosure Provisions.
On June 28, 1999, the parties entered into a Non-Disclosure
Agreement, a copy of which is attached hereto as Schedule C and is incorporated
herein by reference and made a part hereof (the "NDA") . It is agreed that the
NDA shall be in force and effect for so long as this agreement is in effect,
notwithstanding any provision to the contrary in the NDA.
6. Indemnification:
(a) Novars and the Koschanys hereby agree to indemnify, defend
and hold MHTX harmless from and against any and all liability, damage, claims
(whether actual or threatened) or expense (including without limitation
reasonable legal fees) arising out of or relating to the breach by Novars and/or
the Koschanys or either of them of any representation, warranty, covenant, or
provision of this agreement.
(b) MHTX hereby agrees to indemnify, defend and hold Novars
and the Koschanys harmless from and against any and all liability, damage,
claims (whether actual or threatened) or expense (including without limitation
reasonable legal fees) arising out of or relating to the breach by MHTX of any
representation, warranty, covenant, or provision of this agreement.
7. Conditional Obligations.
BACH & ASSOCIATES, N.Y., N.Y.
<PAGE>
MHTX's obligations under paragraph 1(a) of this agreement
(release of the Escrowed Shares) are conditional and contingent upon issuance
(and transfer of ownership to MHTX) of the 4 (four) patents identified in
Schedule A in each of the following jurisdictions: Germany and the United States
(8 [eight] patents in total, collectively referred to hereinafter as the
"Conditional Patents"). MHTX shall release to Novars and the Koschanys 1/8 (one
eighth) of the Escrowed Shares upon issuance and effective transfer of ownership
to MHTX of each of the Conditional Patents. Issuance and transfer to MHTX of the
Conditional Patents shall not be construed to limit the continuing obligations
of Novars and the Koschanys with respect to protection of intellectual property
arising out of or relating to the Novars Technologies.
8. Notices. Any notice or other communication in connection with
this agreement shall be in writing and delivered by overnight courier and
facsimile addressed to a party hereto at the addresses provided below (or to
such person or address as such party shall specify in writing to the other
parties hereto):
If to Novars or the Koschanys:
Dr. Arthur and Ms. Petra Koschany
Novars Gesellschaft fur neue Technologien mbH
Pfarrweg 5
94121 Strabkirchen/Salzweg
Germany
If to MHTX:
Marvin Maslow, CEO
Manhattan Scientifics, Inc.
641 Fifth Avenue, Suite 36F
New York, New York 10022
And
Jack Harrod, COO
Manhattan Scientifics, Inc.
127 Eastgate Drive
Los Alamos, New Mexico 87544
With a Copy to
Scott L. Bach, Esq.
Bach & Associates
One Rockefeller Plaza, Suite 210
New York, New York 10020
BACH & ASSOCIATES, N.Y., N.Y.
<PAGE>
Each party may designate a change of address by notice to the other
party, given at least five (5) days before such change of address is to become
effective.
Any written notice shall be deemed to have been served forty-eight
(48) hours after the date it was transmitted in accordance with the foregoing
provisions.
9. Miscellaneous.
(a) Modification. Except with respect to the NDA, this
agreement contains the entire understanding between the parties with respect to
the subject matter hereof, and any promises, representations, warranties or
guarantees not herein contained shall have no force or effect unless in writing,
signed by all parties. Neither this agreement nor any portion or provision
hereof may be changed, modified, amended, waived, supplemented, discharged,
cancelled or terminated orally or by any course of dealing, or in any manner
other than by an agreement in writing, signed by the party to be charged.
(b) Governing Law and Other Matters. This agreement and the
rights and obligations of the parties hereunder shall be governed by and
construed in accordance with the laws of the State of New York. Novars and the
Koschanys hereby (i) waive any right to trial by jury in any legal proceeding
related in any way to this agreement; (ii) agree that venue of all disputes
shall be in New York County; and (iii) waive any objection and consent to
personal jurisdiction, subject matter jurisdiction and venue of and in the
courts located in New York County.
(c) Invalidity. If any part of this agreement is contrary to,
prohibited by, or deemed invalid under applicable laws or regulations, such
provision shall be inapplicable and deemed omitted to the extent so contrary,
prohibited or invalid, but the remainder hereof shall not be invalidated thereby
and shall be given effect so far as possible.
(d) Benefit of Agreement. This agreement shall be binding upon
and inure to the benefit of the parties hereto and their respective successors
and assigns only and is not intended for the benefit of any other party.
Notwithstanding the foregoing, it is understood and agreed that the services of
the Koschanys hereunder are personal and unique, are not assignable, and the
loss thereof would irreparably injure MHTX.
(e) Captions. The captions of the various sections and
paragraphs of this agreement have been inserted only for the purpose of
convenience. Such captions are not a part of this agreement and shall not be
deemed in any manner to modify, explain, enlarge or restrict any of the
provisions of the agreement.
BACH & ASSOCIATES, N.Y., N.Y.
<PAGE>
(f) Incorporation by Reference. All of the "Whereas" clauses
at the beginning of this agreement, and all of the Schedules annexed hereto, are
hereby incorporated by reference and made a part hereof.
(g) Counterparts; When Effective. This agreement may be
executed in counterparts. This agreement shall become effective and enforceable
upon MHTX's receipt of a fully and properly executed original copy hereof
bearing complete and mutually agreed copies of Schedules A and B.
Notwithstanding the foregoing, it is understood and agreed that the obligations
of MHTX under this agreement, and the obligations of Novars and the Koschanys
under paragraphs 2 and 3 of this agreement, shall not become effective until
September 5, 1999.
(h) Escrow Agent. The parties hereby appoint Bach & Associates
("Bach") as escrow agent hereunder for the limited purpose of holding the
Escrowed Shares in escrow pending satisfaction of the condition set forth in
paragraph 7 of this agreement. Upon satisfaction of such condition, MHTX shall
direct Bach to release the Shares to Novars and the Koschanys, whereupon Bach
shall so release the shares. Bach shall have no liability to the parties other
than for gross negligence or intentional misconduct.
(i) NEW INVENTIONS AND CONCEPTS UNRELATED TO FUEL CELL
TECHNOLOGIES CREATED BY NOVARS/KOSCHANYS SHALL BE OFFERED TO MHTX AS A RIGHT OF
FIRST REFUSAL FOR DEVELOPMENT AND COMMERCIALIZATION. DETAILS OF THIS RIGHT OF
FIRST REFUSAL TO BE ADDED AS A SUPPLEMENT TO THIS CONTRACT.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed as of the day and year first above written.
MANHATTAN SCIENTIFICS, INC.
By: /s/ JB Harrod
------------------------------------------------
COO, MANHATTAN SCIENTIFICS, INC.
/s/ Marvin Maslow, CEO
NOVARS GESELLSCHAFT FUR NEUE TECHNOLOGIEN MBH
By: /s/ Petra Koschany /s/ Petra Koschany
------------------------------------------------
Petra Koschany, Individually and as
Manager
By: /s/ Arthur Koschany /s/ Arthur Koschany
------------------------------------------------
Dr. Arthur Koschany, Individually and as
President
BACH & ASSOCIATES
BACH & ASSOCIATES, N.Y., N.Y.
<PAGE>
URNr. P 2256 / 1999
I, Herbert Poppelmann, notary public at Munich/Bavaria, hereby certify, that
1. Mrs. Petra K o s c h a n y ,
name of birth Rosenmayer,
born 10th of July 1969,
Adress: Pfarrweg 5,
94121 Strasskirchen/Salzweg,
has subscribed this document by own hand.
Mrs. Koschany was identified by her german
identity card with number 836 004 0670.
2. Mr. Dr. Arthur Ernst K o s c h a n y ,
born 20th of April 1963,
Adress: Pfarrweg 5,
94121 Strasskirchen/Salzweg,
has subscribed this document by own hand.
Mr. Koschany was identified by his german
identity card with number 846 201 1287.
3. Mr. Jack H a r r o d ,
born 30th of June 1941,
Adress: Olympic Tower,
641 Fifth Ave., Suite 36F,
New York, NY 10022,
has subscribed this document by own hand.
Mr. Harrod was identified by his american pass-
port with number 131 214 368.
4. Mr. Marvin M a s l o w ,
born 24th of June 1937,
Adress: Olympic Tower,
641 Fifth Ave., Suite 36F,
New York, NY 10022,
has subscribed this document by own hand.
Mr. Maslow was identified by his driving licence
with number 339 736 050.
Notary public doesn't confirm, that Mr. and Mrs. Koschany are authorized to sign
for NOVARS limited liability company and Mr. Harrod and Mr. Maslow are
authorized to sign for the company Manhattan Scientifics, Inc..
Munich, the 6th of August 1999
/s/ Herbert Poppelmann
(Herbert Poppelmann)
Notary Public
[NOTARIAL SEAL]
HERBERT POPPELMANN
NOTAR IN MUNCHEN
<PAGE>
(with regard to escrow provisions only)
By:
NOTARIZATION OF PARTY SIGNATURES:
MHTX:
NOVARS:
A. KOSCHANY:
P. KOSCHANY:
Schedule A - Description of Included Technologies
Schedule B - Milestone Timetable
Schedule C - NDA previously entered into
BACH & ASSOCIATES, N.Y., N.Y.
<PAGE>
SCHEDULE A
Description of the Novars Technologies
The Novars Technologies consist of any and all technologies and
attendant intellectual property arising out of or relating to fuel cells of any
kind that are proprietary to Novars, the Koschanys, and/or any entities owned
and/or controlled by them, regardless of when developed.
Specifically, the Novars Technologies include, without limitation,
technologies covered by the patents listed below, including without limitation a
conventional fuel cell array that has been miniaturized substantially over the
current state of the art in fuel cell technology and which is compact, light,
ambient air ventilated, and formed of composite materials.
The patents listed below have been filed in Germany and cover, among
other things, the following Novars Technologies: (i) a hollow bolt for fueling
and stack compression; (ii) a method of forming silicon rubber gaskets onto the
fuel cell electrodes and assemblies that allows the cells to be assembled and
tested individually before being assembled into stacks; (iii) a method of
retaining water on the oxygen electrode electrolyte; and (iv) A composite cell
separator.
List of the Patents
- --------------------------------------------------------------------------------
Patent Title Date of
Number Application
- --------------------------------------------------------------------------------
Gasdichter Verbund aus 30.06.1998
DE 198 29 142.6 Bipolarplatte und MEA v.
PEM-Brennstoffzellen
- --------------------------------------------------------------------------------
Elektrisch leitfahiges 11.08.1998
DE 198 36 267.6 Schichtmaterial
- --------------------------------------------------------------------------------
Gasdiffusionsstruktur 04.09.1998
DE 198 40 517.0 senkrecht zur Membran
v. PEM-Brennstoffzellen
- --------------------------------------------------------------------------------
Vorrichtung zur 20.04.1999
DE 199 17 722.8 Pressung und
Medienversorgung eines
Festelektrolytbrennstoffz
ellenstapels
- --------------------------------------------------------------------------------
BACH & ASSOCIATES, N.Y., N.Y.
<PAGE>
- --------------------------------------------------------------------------------
PTC/DE Gasdichter Verbund aus 30.06.1999
99/01890 Bipolarplatte und MEA v.
PEM-Brennstoffzellen
- --------------------------------------------------------------------------------
Schedule B - Milestone Timetable
Phase 1: Development of a high energy density portable
power supply unit
Technical Target Data:
Rated power: 300 W
Peak power: 400 W
Voltage: 12 V DC at rated power
19 V DC at open circuit
Current: 25 A at rated power
Energy content: 1 kWh el (at rated power)
Weight: about 3.2 kg
Energy density: > 300 Wh/kg (with respect to the complete system)
System Components:
Hydrogen Storage (300 bars, 2.2 l)
Main valve
Pressure reducer
Blow out valve
Fuel cell stack(s)
Blower
Electronics
Mechanical construction
Service Components:
BACH & ASSOCIATES, N.Y., N.Y.
<PAGE>
Main valve
On / Off switch
LED's displaying: system o.k. / system error
Development Steps:
(a) Investigation of different stack configurations in order to achieve the
optimum for the demonstrator
- single stack design
- multiple stack design
- stack(s) with new cooling system
Included:
- adjustment of electrode structures
- improvement of bipolar plates
(b) Investigation of different hydrogen storages to decide in order to achieve
the optimum for the demonstrator:
- carbon fiber pressure vessels in cooperation with Diehl and SGL
- metal hydride storage systems in cooperation with Ergenics and GfE
(metal hydrides have increased weight but reduced volume compared to
pressure vessels)
(c) Development of pressure reducer and valves with support of the company
Drukon
(d) Development of appropriate blowers
(e) Electronics
- development of appropriate steering strategies
- implementation into a microprocessor controlled compact unit
(f) Mechanical assembly:
- integration of all system components in a lightweight mechanical
fixture
(g) Manufacturing of a demonstration load
BACH & ASSOCIATES, N.Y., N.Y.
<PAGE>
Time and cost plan with milestones:
All described steps will start more or less at once in order to fulfill the
tight schedule. After movement of Novars to a new representable location is
planned within that period.
Start 95/09/05
Developmental steps:
Decision of the stack configuration
Decision of the integrated hydrogen storage system
Decision with the development of all vents and the
blower
Starting with the orders of the electronic devices
2000/02/05
1st Milestone
- -------------
1st milestone
- -------------
Developmental steps:
- - Manufacturing and assembling of the fuel cell stack
- - Assembling the total power unit and implementation into a microprocessor
controlled compact unit
- - Manufacturing of a demonstration load
$200K
2000/05/04
- -------------------
2nd milestone (end)
- -------------------
$200K
/s/ Marvin Maslow /s/ Arthur Koschany
Definition of the 1st milestone:
1. Detailed definition of the used stack design as a result of the
investigation of different configurations (documented test data of the
investigations and drawings of the defined stack)
2. Detailed definition of the integrated hydrogen storage system as a result
of the investigations (documented test data of the investigations and
drawings of the defined stack)
3. Just in developing all other components for the power unit
Definition of the 2nd milestone:
All the technical target data are essentially fulfilled.
BACH & ASSOCIATES, N.Y., N.Y.
<PAGE>
Phase 2: Development of Prototypes
In the second phase Novars will develop prototypes for different applications
for specific potential user on a case-by-case basis.
BACH & ASSOCIATES, N.Y., N.Y.
<PAGE>
NON-DISCLOSURE AGREEMENT
NON-DISCLOSURE AGREEMENT, made this _____ day of June, 1999, by and
between (i) Novars Gesellschaft fur neue Technologien mbH (Lindenberg 56, 82343
Pocking, Germany), its affiliates, parent companies, subsidiaries, officers,
directors, employees, contractors, consultants, and their successors and assigns
(collectively, "Novars"); Samsung Electronics Co., Ltd. (416 Maetan-dong,
Paldal-Du, Suwon, Kyungki-Do, Korea), its affiliates, parent companies,
subsidiaries, officers, directors, employees, contractors, consultants, and
their successors and assigns (collectively, "Samsung"); and (iii) Manhattan
Scientifics, Inc. and Energy Related Devices, Inc. (127 Eastgate Drive, Los
Alamos, New Mexico 87544 USA)
(collectively, "Company").
RECITALS
A. Company is presently researching and developing Company's proprietary
micro fuel cell devices and/or technologies, among other things.
B. Novars is presently researching and developing Novars' proprietary fuel
cell devices and/or technologies.
C. The Company and Novars desire to evaluate the feasibility of a possible
business relationship with each other ("Purpose");
D. Novars and Samsung have a prior contractual relationship with respect
to Novars' proprietary fuel cell devices and/or technologies.
E. The parties may, in connection with the aforesaid, disclose to each
other certain proprietary and/or confidential information, including relating to
Company's proprietary micro-fuel cell devices and/or technologies, Novars'
proprietary fuel cell devices and/or technologies, and the details of Novars'
contractual relationship with Samsung, which information includes, but is not
limited to, discoveries, ideas, concepts, know-how, techniques, designs,
specifications, drawings, blueprints. tracings, diagrams, models, samples, flow
charts, data, computer programs, disks, diskettes, tapes, marketing plans,
contracts, customer names and other technical, financial or commercial
information and intellectual properties, whether in written, oral or other
tangible or intangible forms ("Information") and the parties are willing to
undertake to restrict the use and further disclosure of the Information.
NOW THEREFORE, for good and valuable consideration, receipt of which is
hereby acknowledged, the parties hereby agree as follows:
1. Each party who receives Information ("Receiving Party") shall keep all
Information received from the other party ("Disclosing Party") in whatever form
as strictly confidential and shall not disclose it to third parties without the
prior written consent of the Disclosing Party.
2. The Receiving Party shall not use information for any purpose other
than the Purpose set forth without the prior written consent of the
Disclosing Party. Information for any other use beyond the Purpose shall require
a separate written agreement between the parties.
<PAGE>
3. Each Receiving Party shall restrict access to Information received from
the other Disclosing Party to only those of its employees, representatives,
contractors or advisors to whom such access is reasonably necessary or
appropriate for carrying out the Purpose. Upon request, each Receiving Party
agrees to obtain Non-Disclosure Agreements in substantially the same form as
this agreement from such individuals prior to disclosing Information to the
individuals.
4. Each Receiving Party agrees to exercise at least the same degree of
care in protecting Information from such disclosure as it exercises in respect
of its own confidential information and business secrets.
5. The foregoing obligations shall not apply to any Information which:
(a) is unprotected and is generally known to the public at the time
of disclosure through no fault of the Receiving Party; or
(b) was actually known to the Receiving Party prior to disclosure by
the Disclosing Party as proven by clear and convincing evidence by the
contemporaneous written records of the Receiving Party, and is unprotected; or
(c) is unprotected and is disclosed to the Receiving Party by a
third party who did not obtain such Information, directly or indirectly, from
the Disclosing Party, and who is not in any way infringing the rights of the
Disclosing Party, all of the foregoing to be proven by clear and convincing
evidence;
(d) has previously been independently developed by the Receiving
Party as proven by clear and convincing evidence by its contemporaneous written
records, and is unprotected, or
(e) is required by law, court order or a governmental agency to be
disclosed (in which case the Receiving Party will give the Disclosing Party as
much notice thereof as reasonably practicable and disclosure will be done only
to the extent required, and subject to confidentiality protection to the extent
reasonably possible).
6. The parties recognize that each of them may be part of an organization
of multiple legal entities in several jurisdictions and that it may be necessary
or appropriate for each party to provide Information to its affiliated
companies. For this purpose, each party agrees (both as the Disclosing Party and
as the Receiving Party hereunder) that:
(a) the Receiving Party may disclose Information to an Affiliate
(defined below) but only to the extent that such Affiliate reasonably has a need
to know such Information in order to carry out the Purpose;
(b) disclosure by or to an Affiliate of a party hereto shall be
deemed to be a disclosure by or to that party, as applicable; and
(c) each party guarantees that each of its Affiliates shall agree in
writing to this
<PAGE>
agreement, and that each Affiliate shall observe and properly perform the terms
and conditions of this Agreement.
For the purpose of this paragraph 6, an "Affiliate" means
another entity which is controlled by a party hereto, which controls a party
hereto or which is under common control with a party hereto and "control" means
the direct or indirect ownership of more than 50% of the shares or interests
entitled to vote for the directors thereof or the equivalent, for so long as
such entitlement subsists, or equivalent power over management thereof.
7. The obligations set forth in this Non-Disclosure Agreement shall
survive the termination or expiration of this Agreement for any reason.
Accordingly, all Information obtained by a Receiving Party shall remain strictly
confidential in accordance with the provisions hereof, notwithstanding
termination of this Agreement.
8. Information shall be deemed the property of the Disclosing Party, and
the Receiving Party, upon request of the Disclosing Party, will return all
Information received in tangible form to the Disclosing Party or destroy all
such Information and all copies thereof or documents containing Information.
9. To the extent required by U.S. Export Administration Regulations, the
Receiving Party shall not disclose or otherwise export or reexport Information
(i) into (or to a national or resident of) Cuba, Iraq, Libya, North Korea, Iran,
Syria, or any other country which the U.S. has embargoed; or (ii) to anyone on
the U.S. Treasury Department's list of Specially Designated Nationals or the
U.S. Commerce Department's Table of Deny Orders.
10. The parties mutually acknowledge that the Disclosing Party makes no
representation or warranty as to the reliability, accuracy or completeness of
Information. It is agreed that neither party, nor any of its respective
officers, directors, employees, or agents shall have any liability to the other
party or any of its representatives arising from the use of Information in
compliance with this Agreement.
11. The parties further mutually acknowledge that, except for this
Non-Disclosure Agreement, neither party shall be committed to the other party in
any way unless and until a further formal agreement is duly executed and
delivered and that neither party is obligated in any way to enter into any such
agreement.
12. The parties acknowledge that the breach or threatened breach of this
Non-Disclosure Agreement may result in irreparable injury to the Disclosing
Party and that, in addition to its other remedies, the Disclosing Party shall be
entitled to injunctive relief to restrain any threatened or continued breach of
this Non-Disclosure Agreement. The parties hereby waive any requirement for the
posting of a bond or other security in connection with the granting to the
Disclosing Party of such injunctive relief.
13. No failure or delay of either party in exercising its rights herein
shall be deemed to be a waiver of such rights unless expressly made in writing
by the party waiving its rights. This Non-Disclosure Agreement contains the
entire understanding between the parties in respect of the subject matter
described above and supersedes all prior agreements in respect of the subject
matter hereof. The Non-Disclosure Agreement may not be terminated, modified,
amended or waived orally but only through a writing signed by an authorized
representative of the party against whom it is sought to be enforced. There are
no
<PAGE>
representations or warranties except as expressly stated herein. Neither party
shall assign or transfer this Non-Disclosure Agreement to any third party
without the prior written consent of the other party. Consent is hereby given
with respect to the sale of, or the sale of substantially all of the assets of,
Company and/or Novars and/or Samsung.
14. Any notice to a party shall be deemed properly given if specifically
acknowledged by the other party in writing or when delivered to the recipient by
overnight courier and facsimile to the following addresses:
(a) if to the Company, to:
Manhattan Scientifics, Inc.
2 Penn Plaza, Suite 640
New York, NY 10121
Attn: Marvin Maslow
with a copy to:
Bach & Associates
One Rockefeller Plaza
New York, NY 10020
Attn: Scott L. Bach, Esq.
(b) if to Novars, to:
Novars Gesellschaft fur neu Technologien mbH
Lindenberg 56
82343 Pocking, Germany
Attn: Dr. Arthur E. Koschany
(c) N/A
or to such other address or addresses as a party shall designate by
notice given in such manner to the other party.
15. This Non-Disclosure Agreement is governed and interpreted in
accordance with the laws of the State of New York, without regard to its
conflict of laws principles, as if wholly performed therein. In the event of a
dispute, the parties hereby consent to the jurisdiction of courts, both federal
and state, located within the state of New York, and agree that venue shall be
in New York County, notwithstanding any other provision of law in any
jurisdiction in the world. The parties waive all rights to jurisdiction and
venue elsewhere in the world, and shall be estopped from making any motions to
change venue.
<PAGE>
16. This Non-Disclosure Agreement may be executed by facsimile and in any
number of counterparts, each of which shall constitute an original, but all of
which, when taken together, shall be considered one document. Facsimile copies
of execution pages shall have the same weight, force and effect as originals.
17. This agreement shall remain in effect until terminated in writing by
all of the parties hereto.
WHEREFORE, the duly authorized representatives of each party have signed this
Non-Disclosure Agreement.
COMPANY: NOVARS:
MANHATTAN SCIENTIFICS, INC. Novars Gesellschaft fur neue Technologien mbH
By: /s/ JB Harrod 27/6/99 By: /s/ Petra Koschany
--------------------- ----------------------------
Jack Harrod Petra Koschany, Manager
Chief Operating Officer
/s/ Arthur E. Koschany
----------------------------
DR. ARTHUR E. KOSCHANY, Individually and
as President of Novars
ENERGY RELATED DEVICES, INC. N/A
27/6/99
By: /s/ Robert G. Hockaday
----------------------
Robert G. Hockaday
President
<PAGE>
Vorstehende Abschrift stimmt
mit der Urschrift uberein.
Munchen, den 06.08.1999
/s/ Herbert Poppelmann
(Herbert Poppelmann)
N o t a r
<PAGE>
Executed
Document Control Number 99-32-00729
Ex-10.5
LICENSE OPTION AGREEMENT
between
THE REGENTS OF THE UNIVERSITY OF CALIFORNIA
and
MANHATTAN SCIENTIFICS, INC.
for
CYCLODEXTRIN POLYMER SEPARATION MATERIALS
<PAGE>
Document Control Number 99-32-00729
TABLE OF CONTENTS
1. DEFINITIONS ..............................................................1
2. OPTION FOR LICENSE .......................................................3
3. FEE ......................................................................4
4. EXERCISE OF THE OPTION ...................................................4
5. TERMS OF PROPOSED LICENSE ................................................4
6. DUE DILIGENCE ............................................................5
7. PATENT PROSECUTION AND MAINTENANCE .......................................5
8. LIFE OF THE LICENSE OPTION AGREEMENT .....................................5
9. TERMINATION BY THE REGENTS ...............................................6
10. TERMINATION BY THE LICENSEE ..............................................6
11. USE OF NAMES AND TRADEMARKS ..............................................6
12. LIMITED WARRANTY .........................................................7
13. RESERVED .................................................................7
14. NOTICES ..................................................................8
15. ASSIGNABILITY ............................................................8
16. RESERVED .................................................................8
17. WAIVER ...................................................................8
18. RESERVED .................................................................9
19. MISCELLANEOUS ............................................................9
APPENDIX A -- University Patent Rights .......................................11
APPENDIX B -- Approved Press Releases ........................................12
Manhattan Scientifics, Inc. -- University of California ii
<PAGE>
Document Control Number 99-32-00729
DEVELOPMENT LICENSE AGREEMENT
(CYCLODEXTRIN POLYMER SEPARATION MATERIALS)
THIS LICENSE OPTION AGREEMENT LICENSE OPTION AGREEMENT is entered into by and
between THE REGENTS OF THE UNIVERSITY OF CALIFORNIA, a nonprofit educational
institution and a public corporation of the State of California, hereinafter
referred to as the "University;" and MANHATTAN SCIENTIFICS, INC., 641 Fifth
Ave., Suite 36F, New York, NY 10022, hereinafter referred to as the "Licensee,"
the parties to this License Option Agreement being referred to individually as a
"Party," and collectively as "Parties."
BACKGROUND
The University conducts research and development at the Los Alamos National
Laboratory (LANL) for the U.S. Government under Contract No. W-7405-ENG-36 with
the U.S. Department of Energy (DOE).
Rights in inventions and technical data made in the course of the University's
research and development at LANL are governed by the terms and conditions of the
Contract.
Certain technology relating to the removal of certain organics from water and
air has been developed in the course of the University's research and
development at LANL.
The University desires that such technology be developed and utilized to the
fullest extent possible so as to enhance the accrual of economic and
technological benefits to the U.S. domestic economy.
Licensee is desirous of obtaining certain rights from the University which would
allow it to explore the commercial potential of the University's Patent Rights ,
and the University is willing to grant such rights.
The Parties agree as follows:
1. DEFINITIONS
1.1 "UNIVERSITY'S PATENT RIGHTS" means the University's rights arising
from the U.S. patents or applications, including any continuing applications,
divisionals, and reissues thereof (but not including continuations-in-part); and
the patents issuing on applications, identified in Appendix A, incorporated
herein by reference.
1.2 "LICENSED PRODUCT" means any article of manufacture, machine or
Manhattan Scientifics, Inc. -- University of California Page 1 of 11
<PAGE>
Document Control Number 99-32-00729
composition of matter covered by University's Patent Rights or whose
manufacture, use, or sale by an unlicensed third party would constitute an
infringement of any pending or issued claim within University's Patent Rights.
1.3 "LICENSED METHOD" means any method either that is covered by
University's Patent Rights or whose use or practice by an unlicensed third party
would constitute an infringement of any pending or issued claim within
University's Patent Rights.
1.4 "LICENSE AGREEMENT" means a license agreement between the University
and Licensee that shall result if Licensee exercises its option pursuant to
Article 4.
1.5 "BUSINESS PLAN" means a reasonably detailed plan containing
information regarding, but not limited to, projected sales for the Licensed
Products, dates of such sales, projected costs and profits and containing other
terms commonly included in business plans, such Business Plan to be submitted to
the University by Licensee prior to the negotiation and the execution of the
contemplated License Agreement.
1.6 "FIELD OF USE" means (i) residential entry points for individual
consumption or single family consumption, (ii)point of use applications for
individual consumption or single family consumption, and (iii) commercial entry
points and commercial point of use applications limited to restaurants,
cafeterias, catering halls, and other premises where upon food and beverages are
sold to the public. By way of example, the Field Of Use includes the removal of
organic contaminants from water at the entry point to or immediately before an
outlet faucet (such as a faucet in a kitchen or bathroom) in a private home or
apartment or restaurant or an outlet faucet for other single family home
consumer use applications such as filtering water for a hot-tub or swimming
pool. By further way of example, the Field Of Use includes filter applications
prior to and proximate to a single water cooler, drinking fountain, soda
machine, or sink in an office common area. By further way of example, the Field
of Use includes the removal of organic contaminants when used in a portable
devise by a person to purify lake, pond, river or stream, or any other source of
water for his/her own consumption or public consumption in a restaurant. By
further way of example, the Field Of Use includes whole-house point-of-entry
filtration systems for single family dwellings including without limitation
private homes and individual apartments and restaurants. By further way of
example, the Field Of Use includes air filtration systems for individual use,
single family dwelling use, and restaurant use including without limitation air
filtration for central heating systems, central air condition conditioning
systems, central vacuum systems, and single stand-alone units of air
conditioners, heaters, vacuums, and electric/electornics air filters.
The Field of Use does not include removing organic contaminants from
aqueous streams and from other liquids or from air and other gases where such
use is for industrial applications, commercial applications except for the
limited
Manhattan Scientifics, Inc. -- University of California Page 2 of 12
<PAGE>
Document Control Number 99-32-00729
commercial applications as set forth in the foregoing paragraph, and government
applications.
By way of example, the Field Of Use does not include volume removal of
organic contaminants from municipal and community water wells, municipal and
community reservoirs, and groundwater; removal of organic contaminants from
biological fluids; and volume removal of organic compounds from aqueous and
other liquid process streams as well as from air and other gases. By further way
of example, The Field Of Use does not include the removal of organic
contaminants at the entry and exit points of industrial processes, the entry
points into commercial, industrial and multi-family residential buildings such
as apartment complexes and other small water systems such as the water entry
point into campgrounds, trailer parks, and small community water systems.
2. OPTION FOR LICENSE
2.1(a) Subject to the limitations set forth in this License Option
Agreement, the University hereby grants to Licensee an exclusive option to
negotiate an exclusive world-wide license under University's Patent Rights to
make, have made, use and sell Licensed Products and to practice the Licensed
Method in the United States, and in other countries subject to paragraph 2.1(b),
and to sublicense all of the foregoing, limited to the Field of Use.
2.1(b) Subject to the limitations set forth in this License Option
Agreement, the University hereby grants to Licensee a first right of refusal to
obtain a license under University's Patent Rights to make, have made, use and
sell Licensed Products and to practice Licensed Method and to sublicense all of
the foregoing in foreign countries where the University has filed international
cases corresponding to the University's Patent Rights, provided however, that
Licensee agrees to share all costs associated with international cases pro rata
with other extant licensees who have license rights to such international cases.
The University is not under any obligation to file, prosecute, or maintain any
international cases.
2.2 Said option shall commence on the effective date of this License
Option Agreement and shall expire on February 29, 2000 (Initial Term). Licensee
may extend the life of this License Option Agreement to February 28, 2001
(Second Term) in accordance with Paragraph 3.2.
2.3 This License Option Agreement does not constitute a license to make,
have made, use or sell Licensed Products or to practice the Licensed Method
except for the sole purpose of evaluating Licensee's interest in exercising the
option. Licensee acknowledges its obligations under Article 6 (Due Diligence).
2.4 Licensee's right to exercise its option in accordance with this
License Option Agreement is subject to:
Manhattan Scientifics, Inc. -- University of California Page 3 of 12
<PAGE>
Document Control Number 99-32-00729
(a) The University's export control review concluding that the University
may proceed with commercially licensing UNIVERSITY'S PATENT RIGHTS, and;
(b) the University obtaining the U.S. Department of Energy's approval of
such export control review.
3. FEE
3.1 As consideration for this License Option Agreement, Licensee agrees to
pay to the University a fee of ten thousand Dollars ($ 10,000.00) to be paid
within five business days (5) days from the effective date of this License
Option Agreement. This fee is neither refundable nor deductible nor an advance
against future royalties.
3.2 As consideration for the Second Term of this License Option Agreement,
Licensee agrees to pay to the University a Second Option Fee of ten thousand
U.S. dollars ($10,000.00) to be paid prior to the expiration of the Initial Term
of this Agreement and such payment must include a written statement that
Licensee elects to extend the life of this Agreement for a Second Term of twelve
months. This Second Option Fee is neither refundable nor deductible nor an
advance against future royalties.
4. EXERCISE OF THE OPTION
4.1 If Licensee elects to exercise its option rights to a License
Agreement under paragraph 2.1 hereof, Licensee shall notify the University in
writing pursuant to Article 14 (Notices) prior to the expiration of this License
Option Agreement with a copy of Licensee's Business Plan attached to the notice.
Failure of Licensee to so notify the University shall be deemed to be an
election by Licensee not to exercise its option rights.
4.2 When Licensee notifies the University pursuant to paragraph 4.1, it
shall specify in writing those particular patent applications, fields of use and
territory for which it desires a license from the University and those in which
it has no interest.
5. TERMS OF PROPOSED LICENSE
5.1 If Licensee exercises its option under Article 4, Licensee and the
University shall thereupon negotiate in good faith to arrive at mutually
agreeable, reasonable terms and conditions for the license, subject to the
University's pre-existing contractual obligations to the U.S. Government, and
limitation of University's warranties
5.2 The Licensee acknowledges and agrees that the U.S. Government has
Manhattan Scientifics, Inc. -- University of California Page 4 of 12
<PAGE>
Document Control Number 99-32-00729
a nonexclusive, nontransferable, irrevocable, paid-up license to practice or
have practiced throughout the world, for or on behalf of the United States,
inventions covered by the University's Patent Rights, and has certain other
rights under 35 U.S.C. 200-212 and applicable implementing regulations and under
the U.S. Department of Energy Assignment and Confirmatory License.
5.3 The Licensee is informed and acknowledges that under 35 U.S.C. 203 the
U.S. Department of Energy has the right to require the Licensee to grant a
nonexclusive, partially exclusive or exclusive license in any field of use to a
responsible applicant or applicants, under the circumstances and in accordance
with the procedures prescribed at 48 CFR 27.304-1(g).
5.4 The University will reserve the right to grant a limited license for
use by a CRADA partner(s) to use the University Patent Rights for CRADA or
developmental purposes.
6. DUE DILIGENCE
6.1 Subject to paragraph 2.3, Licensee shall diligently undertake the
requisite market research to evaluate its interest in exercising the option,
including the preparation of a Business Plan.
6.2 Licensee shall be entitled to exercise prudent and reasonable business
judgment in meeting its due diligence obligations hereunder.
7. PATENT PROSECUTION AND MAINTENANCE
7.1 The University will file, prosecute, and maintain the U.S patent
applications and patents listed in Appendix A.
7.2 The costs associated with U.S. cases will be borne by the University.
8. LIFE OF THE LICENSE OPTION AGREEMENT
8.1 This License Option Agreement shall be effective upon execution by the
Parties and the University's receipt of the License Issue Fee.
8.2 Unless otherwise terminated by operation of law or by acts of the
parties in accordance with the terms of this License Option Agreement, this
License Option Agreement shall be in full force and effect from the effective
date and shall remain in effect for the period specified in Article 2 (OPTION).
8.3 Any termination of this License Option Agreement shall not affect the
Manhattan Scientifics, Inc. -- University of California Page 5 of 12
<PAGE>
Document Control Number 99-32-00729
rights and obligations set forth in the following Articles:
Article 7 Patent Prosecution and Maintenance
Article 11 Use of Names and Trademarks
Article 16 Late Payments
8.4 Any termination of this License Option Agreement shall not relieve
Licensee of its obligation to pay any moneys due or owing at the time of such
termination and shall not impair any accrued right of the University.
9. TERMINATION BY THE REGENTS
9.1 If Licensee should violate or fail to perform any term or covenant of
this License Option Agreement, then the University may give written notice of
such default (Notice of Default) to Licensee. If Licensee should fail to repair
such default within thirty (30) days of the effective date of such notice, the
University shall have the right to terminate this License Option Agreement by a
second written notice (Notice of Termination) to Licensee. If a Notice of
Termination is sent to Licensee, this License Option Agreement shall
automatically terminate on the effective date of such notice. These notices
shall be subject to Article 14 (Notices).
10. TERMINATION BY THE LICENSEE
10.1 Licensee shall have the right at any time to terminate this License
Option Agreement in whole or as to any portion of University's Patent Rights by
giving notice in writing to the University. Such Notice of Termination shall be
subject to Article 14 (Notices) and such termination shall be effective thirty
(30) days from the effective date of such notice.
11. USE OF NAMES AND TRADEMARKS
11.1 Except as specifically approved in Appendix B, nothing contained in
this License Option Agreement shall be construed as conferring any right to use
in advertising, publicity, or other promotional activities any name, trade name,
trademark, or other designation of either party hereto (including contraction,
abbreviation or simulation of any of the foregoing). Unless required by law, the
use of the name, "The University of California", "Los Alamos National
Laboratory" or the name of any campus of The University of California is
expressly prohibited.
11.2 The University may disclose to third parties the existence of this
License Option Agreement, but shall not disclose information identified as
proprietary by Licensee under 11.3, except where the University is required to
release such information under either the California Public Records Act or other
applicable law.
Manhattan Scientifics, Inc. -- University of California Page 6 of 12
<PAGE>
Document Control Number 99-32-00729
11.3 Licensee agrees to mark those portions of a copy of this License
Option Agreement which Licensee believes contain proprietary business
information of Licensee and return such copy to the University within thirty
days of the effective date of this License Option Agreement.
12. LIMITED WARRANTY
12.1 The University warrants that it has the lawful right to grant this
license, subject to DOE assignment of rights in the technology to the University
in the event such rights are not owned by the University, and that it has not
granted any rights under the University's Patent Rights to any other party,
except as required by action of law or by the University's prime contract with
DOE.
12.2 This License Option Agreement and the associated technology and
University's Patent Rights are provided WITHOUT WARRANTY OF MERCHANTABILITY OR
FITNESS FOR A PARTICULAR PURPOSE OR ANY OTHER WARRANTY, EXPRESS OR IMPLIED.
NEITHER THE UNIVERSITY NOR THE U.S. GOVERNMENT MAKES ANY REPRESENTATION OR
WARRANTY THAT THE LICENSED PRODUCTS OR LICENSED METHODS WILL NOT INFRINGE ANY
PATENT OR OTHER PROPRIETARY RIGHT. IN NO EVENT WILL THE UNIVERSITY OR THE U.S.
GOVERNMENT BE LIABLE FOR ANY INCIDENTAL, SPECIAL, OR CONSEQUENTIAL DAMAGES
RESULTING FROM EXERCISE OF THIS LICENSE OR THE USE OF LICENSED PRODUCTS OR
LICENSED METHODS.
12.3 Nothing in this License Option Agreement shall be construed as:
a. a warranty or representation by the University or the U.S.
Government as to the validity or scope of University's Patent
Rights; or
b. an obligation to bring or prosecute actions or suits against
third parties for patent infringement; or
c. conferring by implication, estoppel, or otherwise any license
or rights under any patents of the University or the U.S.
Government other than University's Patent Rights as defined
herein; or
d. an obligation by University or the U. S. Government to furnish
any know-how, technical assistance, or technical data that is
unrelated or unnecessary to the transfer of the Technology to
the Licensee for the purpose of implementing this License
Option Agreement.
13. RESERVED
Manhattan Scientifics, Inc. -- University of California Page 7 of 12
<PAGE>
Document Control Number 99-32-00729
14. NOTICES
14.1 Any payment, notice, or other communication required or permitted to
be given to either party hereto shall be deemed to have been properly given and
to be effective on the date of delivery if delivered in person, or by facsimile
with confirmation or by first-class certified mail, postage paid, to the
respective address given below, or to such other address as it shall designate
by written notice given to the other party as follows:
In the case of the Licensee:
Manhattan Scientifics, Inc. 641 Fifth Ave., Suite 36F
New York, NY 10022
Attn: Marvin Maslow, Chairman and CEO
In the case of the University: Fee Payments:
Los Alamos National Laboratory Industrial Partnership Office
Industrial Partnership Center ATTN: License Administrator
P.O. Box 1663, Mail Stop M899 P.O. Box 462
Los Alamos, New Mexico 87545 Los Alamos, NM 87544
Attention: Licensing Coordinator
15. ASSIGNABILITY
15.1 This License Option Agreement is binding upon and shall inure to the
benefit of the University, their successors and assigns, but shall be personal
to and assignable by Licensee only with the written consent of the University,
which consent shall not be unreasonably withheld.
16. RESERVED
17. WAIVER
17.1 It is agreed that no waiver by either party hereto of any breach or
default of any of the covenants or terms herein set forth shall be deemed a
waiver as to any subsequent and/or similar breach or default.
Manhattan Scientifics, Inc. -- University of California Page 8 of 12
<PAGE>
Document Control Number 99-32-00729
18. RESERVED
19. MISCELLANEOUS
19.1 The headings of the several sections of this License Option Agreement
are included for convenience of reference only and are not intended to be a part
of or to affect the meaning or interpretation of this License Option Agreement.
19.2 No amendment or modification of this License Option Agreement shall
be binding on the Parties unless made in a writing executed by duly authorized
representatives of the Parties.
19.3 This License Option Agreement embodies the entire understanding of
the Parties and shall supersede all previous communications, representations, or
understandings, either oral or written, between the Parties relating to the
subject matter hereof.
19.4 In the event any one or more of the provisions of this License Option
Agreement shall for any reason be held to be invalid, illegal, or unenforceable
in any respect, such invalidity, illegality, or unenforceability shall not
affect any other provisions hereof, and this License Option Agreement shall be
construed as if such invalid or illegal or unenforceable provisions had never
been contained herein.
19.5 This License Option Agreement shall be interpreted and construed in
accordance with the laws of the New Mexico.
Manhattan Scientifics, Inc. -- University of California Page 9 of 12
<PAGE>
Document Control Number 99-32-00729
IN WITNESS WHEREOF, both the University and Licensee have executed this
License Option Agreement, in duplicate originals, by their respective officers
hereunto duly authorized, the day and year hereinafter written.
THE REGENTS OF THE UNIVERSITY OF CALIFORNIA:
By /s/ John C. Browne
-----------------------------------------
John C. Browne, Director
Los Alamos National Laboratory
Date August 31, 1999
---------------------------------------
LICENSEE:
By: /s/ Marvin Maslow
----------------------------------------
Printed Name: Marvin Maslow
------------------------------
Title: CEO
-------------------------------------
Date: August 31, 1999
--------------------------------------
Manhattan Scientifics, Inc. -- University of California Page 10 of 12
<PAGE>
Document Control Number 99-32-00729
APPENDIX A
UNIVERSITY'S PATENT RIGHTS
1. LANL Case No. S-84,978, U.S. patent application number 09/214,216, filed on
November 21, 1997, "Cyclodextrin Polymer Separation Materials," by DeQuan Li and
Min Ma.
Manhattan Scientifics, Inc. -- University of California Page 11 of 12
<PAGE>
Document Control Number 99-32-00729
APPENDIX B
The attached press releases are approved by the University.
Manhattan Scientifics, Inc. -- University of California Page 12 of 12
<PAGE>
UNIVERSITY'S PRESS RELEASE:
- --------------------------------------------------------------------------------
Los Alamos news release
National Laboratory
- --------------------------------------------------------------------------------
A Department Of Energy/University of California Laboratory
CONTACT: Ternel Martinez, 505-665-7778, [email protected] 98-013
LABORATORY LICENSES NANOSPONGE TECHNOLOGY
Los Alamos, N.M., July ??, 1999 -- The Department of Energy's Los Alamos
National Laboratory has signed a six-month license option agreement with
Manhattan Scientifics, Inc., to further develop nanoporous polymer water
filtering technology for home consumer commercialization.
The technology, more commonly called a nanosponge, is a polymer-based
material that forms nanometer-sized pores that absorb and trap organic
contaminants in water, reducing their concentrations to parts-per-trillion
levels.
In addition, nanosponges can be fabricated into granular solids, powders
and optical quality thin films, enabling users to customize the polymer for
multiple applications and formats. A simple alcohol rinsing releases the
collected contaminants from the polymer, which can then be reused. DeQuan Li and
Min Ma of Los Alamos' Bioscience and Biotechnology Group developed the
nanosponge technology.
Cindy Boone of Los Alamos' Civilian and Industrial Technology Program
Office said Manhattan Scientifics received the license agreement based on Los
Alamos' prior interactions with the company -- via two unrelated cooperative
research and development agreements -- and Manhattan's aggressive management
style in pursuing market opportunities.
"Consumers now pay more for bottled water in the supermarket than they pay
for gasoline," said Manhattan Scientifics CEO Marvin Maslow. "Our intention is
to reverse this trend by bringing a low cost, reusable water filtering device
into the American home and bring fresh water costs back to a real-world
alignment." Manhattan plans to form a strategic alliance with a corporate
partner already well-established in the consumer water business to manufacture
and market a home consumer product, he added.
-- more --
For more Los Alamos news releases, visit World Wide Web site
http://www.lanl.gov/external/News/pressreleases
<PAGE>
Nanosponge License Agreement
Page 2
Manhattan Scientifics also develops and commercializes technologies such
as micro fuel cell technology, holographic media for data storage and
Internet-based image management and transmission. Its research headquarters are
located in Los Alamos, with its business offices located in New York City. For
more information, contact Maslow at 917-923-3300 or Boone at 505-667-1229.
Los Alamos National Laboratory is operated by the University of California
for the U.S. Department of Energy.
-30-
<PAGE>
LICENSEE'S PRESS RELEASE
For Immediate Release
Manhattan Scientifics Acquires Option to Consumer Rights For Filtering
Technology From Los Alamos National Laboratory
Los Alamos, NM, (July 00, 1999) -- Manhattan Scientifics, Inc. (OTC BB: MHTX)
announced today that it has acquired a six-month exclusive option to the global
consumer rights to the nanoporous polymer water filtering technology developed
at the Los Alamos National Laboratory (LANL).
The technology has the ability to reduce concentrations of organic compounds in
water to parts-per-trillion levels. The binding between organic contaminants and
the nanoporous polymer is 100,000 times greater than the binding between
contaminants and the widely used activated carbon. Unlike activated carbon, the
polymers do not allow leaching of the organic contaminants once they are
trapped. However, a simple alcohol rinse will release the organic contaminant
from the polymer allowing the polymer to be used time and time again.
Cindy Boone, a spokesperson for LANL, said, "Our decision to offer the exclusive
option covering consumer applications of the nanoporous polymer technology to
Manhattan Scientifics was based upon our assessment of the management,s level of
aggressiveness in pursuing market opportunities. Within the past year we've
watched this Los Alamos-based high tech group aggressively enter into the micro
fuel cell arena and participate in two cooperative research and development
agreements with LANL, one dedicated to developing the long sought-after media
for holographic data storage and the other in portable energy for consumers
area."
Marvin Maslow, CEO of Manhattan Scientifics, said, "Consumers now pay more for
bottled water in the supermarket than they pay for gasoline. Our intention is to
reverse this trend by bringing a low cost, re-usable water filtering device to
the market and to bring fresh water costs back to a real-world alignment. Our
business plan for this remarkable technology is to form a strategic alliance
within the six month option period with a corporate partner already well
established in the water business and to work together to manufacture and market
an effective consumer application. We intend to pursue this aggressively and
have already identified a number of potential partners."
Maslow said, "This agreement with LANL represents our fourth major technology
initiative. We are confident we can successfully shepherd all of these four
diverse undertakings because of the business model we have developed. The model
us based on establishing strategic alliances with scientists and technical
experts together with corporate partners who have the ability to
<PAGE>
provide the capital and marketing to transform these technology initiatives into
successful businesses. We know we can,t be all things to all people. That is why
our business plan focuses on our primary capabilities, namely technology
transfer, our experience in working with government labs, our ability to provide
early stage capital and manpower resources, our patent skills and our ability to
select of appropriate corporate partners to quickly bring product to market."
Manhattan Scientifics, Inc. is developing and commercializing proprietary
technologies in the advancement of consumer and commercial electronics including
micro fuel cell technology and holographic media for data storage,
Internet-based image management and transmission and consumer water filtering.
Manhattan Scientifics, research headquarters are located in Los Alamos, NM. Its
business offices are in New York City. Copies of Manhattan Scientifics press
releases, current quotes, stock charts and other useful information for
investors may be found on the websites www.mhtx.com and www.hawkassociates.com.
For further information contact Manhattan Scientifics CEO Marvin Maslow (917)
923-3300 or Cindy Boone, spokesperson for the Los Alamos National Laboratories
at (505) 667-1229. Manhattan Scientifics, business address is 641 5th Avenue,
New York, N.Y. 10022. (212) 752-0505/ Fax (212) 752-0077.
Media Contact Institutional Investor Relations:
Alex Stanton, Peter Engel Frank Hawkins, Julie Marshall
Stanton-Crenshaw Hawk Associates
Email: alex@stanton Email: [email protected]
crenshaw.com http://www.hawkassociates.com
Tel: (212) 780-1900 Tel: (305) 852-2383
The foregoing press release contains forward-looking statements, including
statements regarding the company's expectation of its future business. These
forward looking statements are based largely on the company's expectations and
are subject to a number of risks and uncertainties, certain of which are beyond
the company's control. Actual results could differ materially from these forward
looking statements as a result of a variety of factors including the taking
public of New Mexico Software, successfully completing the research and
development with respect to the micro fuel cell and other technologies,
successfully commercializing the micro fuel cell and holographic storage devices
for mass production, successfully protecting the company,s patents, and
effective significant industry competition from various entities whose research
and development, financial, sales and marketing and other capabilities far
exceeds the company,s. In light of these risks and uncertainties there can be no
assurances that the forward-looking statements in this press release will in
<PAGE>
Ex 10-6
[LOGO] BLUMBERG LAW PRODUCTS A 101--Lease of a Condominium unit, 12-96
Prepared by Arnold Mandell, Esq.
(copyright) 1987 by Blumberg Excelsior, Publisher, NYC 10013
LEASE OF A CONDOMINIUM UNIT
The Landlord and Tenant agree to lease the Unit and Landlord's interest in
the Common Elements located in the Condominium at: 641 Fifth Avenue, New York,
NY 10022, Unit 36F (Premises)
LANDLORD: Alex and Susan Cocoziello TENANT: Manhattan Scientifics, Inc.
One Broadway, Room 102 One Rockefeller Plaza
Elmwood, New Jersey 07407 Address New York, NY 10020
for c/o Scott Bach, Esq.
Notices
Unit (and terrace, if any) 36F Garage space (if any) None
Bank_________________________________________________
Lease date December 4, 1998
Broker* Sandy Neuringer & Associates, Inc.
Coldwell Banker, Hunt Kennedy
Term Two (2) years beginning January 1, 1999 ending December 31, 2001
Tenant's Insurance $
Yearly Rent $60,000
Monthly Rent $ 5,000**
Security $ 5,000
Garage Fee $
** Second Yr: $5,250
Declaration of Condominium: __________________________ (Declarant)
Name of Condominium: Olympic Tower Condominium (Declaration)
1. Lease is subject and subordinate
This Lease is subject and subordinate to (A) the By-Laws, Rules and
Regulations and Provisions of the Declaration Establishing a Plan for
Condominium Ownership of the Premises and (B) Powers of Attorney granted to the
Board of Managers, leases, agreements, mortgages, renewals, modifications,
consolidations, replacements and extensions to which the Declaration or the Unit
are presently or may in the future be subject. Tenant shall not perform any act,
or fail to perform an act, if the performance or failure to perform would be a
violation of or default in the Declaration or a document referred to in (B).
Tenant shall not exercise any right or privilege under this Lease, the
performance of which would be a default in or violation of the Declaration or a
document referred to in subdivision (B). Tenant must promptly execute any
certificate(s) that Landlord requests to show that this Lease is so subject and
subordinate. Tenant authorizes Landlord to sign these certificate(s) for Tenant.
Tenant acknowledges that Tenant has had the opportunity to read the Declaration
of Condominium Ownership for the Condominium, including the By-Laws. Tenant
agrees to observe and be bound by all the terms contained in it which apply to
the occupant or user of the Unit or a user of Condominium common areas and
facilities. Tenant agrees to observe all of the Rules and Regulations of the
Association and Board of Managers.
2. Lender Changes
Landlord may borrow money from a lender who may request an agreement for
changes in this Lease. Tenant shall sign the agreement if it does not change the
rent or the Term, and does not alter the Unit.
3. Use
The Unit must be used only as a private residence and for no other reason.
Only a party signing this Lease and the spouse and children of that party may
use the Unit.
4. Rent, added rent
A. The rent payment for each month must be made on the first day of that
month at Landlord's address. Landlord need not give notice to pay the rent. Rent
must be paid in full and no amount subtracted from it. The first month's rent is
to be paid when Tenant signs this Lease. Payment of rent in installments is for
Tenant's convenience only. If Tenant defaults, Landlord may give notice to
Tenant that Tenant may no longer pay rent in installments. The entire rent for
the remaining part of the Term will then be due and payable.
B. This Lease and the obligation of Tenant to pay rent and perform all of
the agreements on the part of Tenant to be performed shall not be affected,
impaired or excused, nor shall there be any apportionment or abatement of rent
for any reason including, but not limited to, damage to the Unit or inability to
use the Common Elements.
5. Failure to give possession:
Landlord shall not be liable for failure to give Tenant possession of the
Unit on the beginning date of the Term. Rent shall be payable as of the
beginning of the Term unless Landlord is unable to give possession. Rent shall
then be payable as of the date possession is available. Landlord will notify
Tenant as to the date possession is available. The ending date of the Term will
not change.
6. Security
Tenant has given security to Landlord in the amount stated above. The
security has been deposited in the Bank named above and delivery of this Lease
is notice of the deposit. If the Bank is not named, Landlord will notify Tenant
of the Bank's name and address in which the security is deposited.
If Tenant does not pay rent on time, Landlord may use the security to pay
for rent past due. If Tenant fails to perform any other term in this Lease,
Landlord may use the security for payment of money Landlord may spend, or
damages Landlord suffers because of Tenant's failure. If the Landlord uses the
security Tenant shall, upon notice from Landlord, send to Landlord an amount
equal to the sum used by Landlord. At all times Landlord is to have the amount
of security stated above.
If Tenant fully performs all terms of this Lease, pays rent on time and
leaves the Unit in good condition on the last day of the Term, then Landlord
will return the security being held.
If Landlord sells or leases the Unit, Landlord may give the security to
the buyer or lessee. In that event Tenant will look only to the buyer or lessee
for the return of the security. The security is for Landlord's, use as stated in
this Section. Landlord may put the security in any place permitted by law. If
the law states the security must bear interest, unless the security is used by
Landlord as stated Landlord will give Tenant the interest less the sum Landlord
is allowed to keep for expenses. If the law does not require security to bear
interest, Tenant will not be entitled to it. Landlord need not give Tenant
interest on the security if Tenant is not fully performing any term in this
Lease.
7. Alterations
Tenant must obtain Landlord's prior written consent to install any
panelling, flooring, "built in" decorations, partitions, railings or make
alterations or to paint or wallpaper the Unit. Tenant must not change the
plumbing, ventilating, air conditioning, electric or heating systems. If consent
is given the alterations and installations shall become the property of Landlord
when completed and paid for. They shall remain with and as part of the Unit at
the end of the Term. Landlord has the right to demand that Tenant remove the
alterations and installations before the end of the Term. The demand shall be by
notice, given at least 15 days before the end of the Term. Tenant shall comply
with the demand at Tenant's own cost. Landlord is not required to do or pay for
any work unless stated in this Lease.
If a Mechanic's Lien is filed on the Unit or building for Tenant's failure
to pay for alterations or installations in the Unit, Tenant must immediately pay
or bond the amount stated in the Lien. Landlord may pay or bond the Lien
immediately, if Tenant fails to do so within 20 days after Tenant is given
notice about the Lien. Landlord's costs shall be added rent.
8. Repairs
Tenant must take good care of the Unit and all equipment and fixtures in
it. Tenant must, at Tenant's cost make all repairs and replacements whenever the
need results from Tenant's act or neglect. If Tenant fails to make a needed
repair or replacement, Landlord may do it. Landlord's expense will be added
rent. Subject to Tenant's obligations under this Lease, Landlord will require
the Association (to the extent that the Association is obligated under the terms
of the Declaration or other agreement) to maintain the Unit, or repair any
damage to it, except where caused in whole or in part by the act, failure to
act, or negligence of Tenant, or Tenant's licensees, invitees, guests,
contractors or agents. Tenant must give Landlord prompt notice of required
repairs or replacements.
9. Fire, accident, defects, damage
Tenant must give Landlord prompt notice of fire, accident, damage or
dangerous or defective condition. If the Unit can not be used because of fire or
other casualty, Tenant is not required to pay rent for the time the Unit is
unusable. If part of the Unit can not be used, Tenant must pay rent for the
usable part. Landlord shall have the right to decide which part of the Unit is
usable. Landlord need only arrange for the damaged structural parts of the Unit
to be repaired. Landlord is not required to arrange for the repair or
replacement of any equipment, fixtures, furnishings or decorations. Landlord is
not responsible for delays due to settling insurance claims, obtaining
estimates, labor and supply problems or any other cause not fully under
Landlord's control.
If the fire or other casualty is caused by an act or neglect of Tenant or
guest of Tenant, or at the time of the fire or casualty Tenant is in default in
any term of this Lease, then all repairs will be
* If no broker, insert "None."
<PAGE>
made at Tenant's expense and Tenant must pay the full rent with no adjustment.
The cost of the repairs will be added rent.
If there is more than minor damage to the Unit by fire or other casualty,
Landlord may cancel this Lease within 30 days after that fire or casualty by
giving notice. The Lease will end 30 days after Landlord's cancellation notice
to Tenant. Tenant must deliver the Unit to Landlord on or before the
cancellation date in the notice and pay all rent due to the date of the fire or
casualty. If the Lease is cancelled Landlord is not required to arrange for the
repair of the Unit. The cancellation does not release Tenant of liability in
connection with the fire or casualty. This Section, when permitted, is intended
to replace the terms of applicable statutory law. Tenant has no right to cancel
this Lease due to fire or casualty.
10. Liability
Landlord is not liable for loss, expense, or damage to any person or
property, unless due to Landlord's negligence. Landlord is not liable to Tenant
it anyone is not permitted or is refused entry into the Building.
Tenant must pay for damages suffered and money spent by Landlord relating
to any claim arising from any act or neglect of Tenant. If an action is brought
against Landlord arising from Tenant's act or neglect Tenant shall defend
Landlord at Tenant's expense with an attorney of Landlord's choice.
Tenant is responsible for all acts of Tenant's family, employees, guests
or invitees. Tenant must carry whatever property or liability insurance Landlord
may require and will name Landlord as a party insured. The insurance shall be no
less than a Tenant's Homeowners Insurance Policy in the minimum amount stated
above. Tenant shall deliver a copy of the binder to Landlord prior to taking
possession of the Unit.
11. Entry of Landlord
Landlord or parties authorized by Landlord may enter the Unit at
reasonable hours to: repair, inspect, exterminate, install or work on systems
and cause performance of other work that Landlord decides is necessary. At
reasonable hours Landlord my show the Unit to possible buyers, lenders or
tenants.
If Landlord enters the Unit, Landlord will try not to disturb Tenant.
Landlord may cause to be kept in the Unit all equipment necessary to make
repairs or alterations to the Unit or Building. Landlord is not responsible for
disturbance or damage to Tenant because of work being performed on or equipment
kept in the Unit. Landlord's or the Association's use of the Unit does not give
Tenant a claim of eviction. Landlord or those authorized by Landlord may enter
the Unit to get to any part of the Building.
Landlord has the right at any time to permit the following people into the
Unit: (i) receiver, trustee, assignee for benefit of creditors; or (ii) sheriff,
marshall or court officer; and (iii) any person from the fire, police, building,
or sanitation departments or other state, city or federal government and (iv)
the Association, Board of Managers and any other party permitted or authorized
by the Declaration or Management Agreement covering the Unit or Condominium.
Landlord has no responsibility for damage or loss as a result of those persons
being in the Unit.
12. Construction or demolition
Construction or demolition may be performed in or near the Building. Even
if it interferes with Tenant's ventilation, view or enjoyment of the Unit is
shall not affect Tenant's obligations in this Lease.
13. Assignment and sublease
Tenant must not assign this Lease or sublet all or part of the Unit or
permit any other person to use the Unit. If Tenant does, Landlord has the right
to cancel the Lease as stated in the Default section. Tenant must get Landlord's
written permission each time Tenant wants to assign or sublet. Permission to
assign or sublet is good only for that assignment or sublease. Tenant remains
bound to the terms of this Lease after a permitted assignment or sublet even if
Landlord accepts rent from the assignee or subtenant. The amount accepted will
be credited toward rent due from Tenant. The assignee or subtenant does not
become Landlord's tenant. Tenant is responsible for acts of any person in the
Unit.
14. Tenant's certificate
Upon request by Landlord, Tenant shall sign a certificate stating the
following; (1) This Lease is in full force and unchanged (or if changed, how it
was changed); and (2) Landlord has fully performed all of the terms of this
Lease and Tenant has no claim against Landlord; and (3) Tenant is fully
performing all the terms of the Lease and will continue to do so; and (4) rent
and added rent have been paid to date. The certificate will be addressed to the
party Landlord chooses.
15. Condemnation
If all or a part of the Building or Unit is taken or condemned by a legal
authority, Landlord may, on notice to Tenant, cancel the Term. If Landlord
cancels, Tenant's rights shall end as of the date the authority takes title to
the Unit or Building. The cancellation date must not be less than 30 days from
the date of the Landlord's cancellation notice. On the cancellation date Tenant
must deliver the Unit to Landlord together with all rent due to that date. The
entire award for any taking including the portion for fixtures and equipment
belongs to Landlord. Tenant gives Landlord any interest Tenant may have to any
part of the award. Tenant shall make no claim for the value of the remaining
part of the Term.
16. Tenant's duty to obey laws and regulations
Tenant must, at Tenant's expense, promptly comply with all laws, orders,
rules, requests, and directions, of all governmental authorities, Landlord's,
insurers, Board of Fire Underwriters, or similar groups. Notices received by
Tenant from any authority or group must be promptly delivered to Landlord.
Tenant will not do anything which may increase Landlord's insurance premiums. If
Tenant does, Tenant must pay the increase in premium as added rent.
17. [Deleted]
18. No liability for property
Neither Landlord, the Association or Board of Managers is liable or
responsible for (a) loss, theft, misappropriation or damage to the personal
property, or (b) injury caused by the property or its use.
19. Playground, pool, parking and recreation areas
If there is a playground, pool, parking or recreation area, or other
common areas, Landlord may give Tenant permission to use it. If Landlord gives
permission, Tenant will use the area at Tenant's own risk and must pay all fees
Landlord or the Association charges. Landlord is not required to give Tenant
permission.
20. Terraces and balconies
The Unit may have a terrace or balcony. The terms of this Lease apply to
the terrace or balcony as if part of the Unit. The Landlord may make special
rules for the terrace and balcony. Landlord will notify Tenant of such rules.
Tenant must keep the terrace or balcony clean and free from snow, ice,
leaves and garbage and keep all screens and drains in good repair. No cooking
allowed on the terrace or balcony. Tenant may not keep plants, or install a
fence or any addition on the terrace or balcony. If Tenant does, Landlord has
the right to remove and store them at Tenant's expense.
21. Correcting Tenant's defaults
If Tenant fails to correct a default after notice from Landlord, Landlord
may correct it at Tenant's expense. Landlord's cost to correct the default shall
be added rent.
22. Notices
Any bill, statement or notice must be in writing. If to Tenant, it must be
delivered or mailed to the Tenant at the Unit. If to Landlord it must be mailed
to Landlord's address. It will be considered delivered on the date mailed or if
not mailed, when left at the proper address. A notice must be sent by certified
mail. Landlord must notify Tenant if Landlord's address is changed. The
signatures of all Tenants in the Unit are required on every notice by Tenant.
Notice by Landlord to one named person shall be as though given to all those
persons. Each party shall accept notices of the other.
23. Tenant's default
A. Landlord must give Tenant notice of default. The following are defaults
and must be cured by Tenant within the time stated:
(1) Failure to pay rent or added rent on time, 3 days.
(2) [Deleted]
(3) Issuance of a court order under which the Unit may be taken by another
party, 5 days.
(4) Failure to perform any term in another lease between Landlord and
Tenant (such as a garage lease), 5 days.
(5) Improper conduct by Tenant annoying other tenants, 3 days.
(6) Failure to comply with any other term or Rule in the Lease, 5 days.
If Tenant fails to cure in the time stated, Landlord may cancel the Lease
by giving Tenant a cancellation notice. The cancellation notice will state the
date the Term will end which may be no less than 3 days after the date of the
notice. On the cancellation date in the notice the Term of this lease shall end.
Tenant must leave the Unit and give Landlord the keys on or before the
cancellation date. Tenant continues to be responsible as stated in this Lease.
B. If Tenant's application for the Unit contains any misstatement of fact,
Landlord may cancel this Lease. Cancellation shall be by cancellation notice as
stated in Paragraph 23, A.
C. If (1) the Lease is cancelled; or (2) rent or added rent is not paid on
time; or (3) Tenant vacates the Unit, Landlord may in addition to other remedies
take any of the following steps: (a) enter the Unit and remove Tenant and any
person or property, and (b) use eviction or other lawsuit method to take back
the Unit.
D. If this Lease is cancelled, or Landlord takes back the Unit, the
following takes place:
(1) Rent and added rent for the unexpired Term becomes due and payable.
Tenant must also pay Landlord's expenses as stated in Paragraph 23, D(3).
(2) Landlord may re-rent the Unit and anything in it. The re-renting may
be for any Term. Landlord may charge any rent or no rent and give allowances to
the new tenant. Landlord may, at Tenant's expense, do any work Landlord feels is
needed to put the Unit in good repair, and prepare it for renting. Tenant
remains liable and is not released in any manner.
(3) Any rent received by Landlord for the re-renting shall be used first
to pay Landlord's expenses and second to pay any amounts Tenant owes under this
Lease. Landlord's expenses include the costs of getting possession and
re-renting the Unit, including, but not only, reasonable legal fees, brokers
fees, cleaning and repairing costs, decorative costs and advertising costs.
(4) From time to time Landlord may bring actions for damages. Delay or
failure to bring an action shall not be a waiver of Landlord's rights. Tenant is
not entitled to any excess of rents collected over the rent paid by Tenant to
Landlord under this Lease.
(5) If Landlord re-rents the Unit combined with other space an adjustment
will be made based on square footage. Money received by Landlord from the next
tenant, other than the monthly rent, shall be considered as part of the rent
paid to Landlord. Landlord is entitled to all of it.
Landlord has no duty to re-rent the Unit. If Landlord does re-rent the
fact that all or part of the next tenant's rent is not
<PAGE>
collected does not affect Tenant's liability. Landlord has no duty to collect
the next tenant's rent. Tenant must continue to pay rent, damages, losses and
expenses without offset.
E. If Landlord takes possession of the Unit by Court order, or under the
Lease, Tenant has no right to return to the Unit.
24. Jury Trial and counterclaims
Landlord and Tenant agree not to use their right to a Trial by Jury in any
action or proceeding brought by either against the other, for any matter
concerning this Lease or the Unit. The giving up of the right to a Jury Trial is
a serious matter. There are rules of law that protect that right and limit the
type of action in which a Jury Trial may be given up. Tenant gives up any right
to bring a counterclaim or set-off in any action by Landlord against Tenant on
any matter directly or indirectly related to this Lease.
25. Bankruptcy, insolvency
If (1) Tenant assigns property for the benefit of creditors, (2) Tenant
files a voluntary petition or an involuntary petition is filed against Tenant
under any bankruptcy or insolvency law, or (3) a trustee or receiver of Tenant
or Tenant's property is appointed, Landlord may give Tenant 30 days notice of
cancellation of the Term of this Lease. If any of the above is not fully
dismissed within the 30 days, the Term shall end as of the date stated in the
notice. Tenant must continue to pay rent. damages, losses and expenses without
offset.
26. No Waiver
Landlord's failure to enforce, or insist that Tenant comply with a term in
this Lease is not a waiver of Landord's rights. Acceptance of rent by Landlord
is not a waiver of Landlord's rights. The rights and remedies of Landlord are
separate and in addition to each other. The choice of one does not prevent
Landlord from using another.
27. Illegality
If a term in this Lease is illegal that term will no longer apply. The
rest of this Lease remains in full force.
28. Representations, changes in Lease
Tenant has read this Lease. All promises made by the Landlord are in this
Lease. There are no others. This Lease may be changed only by an agreement in
writing signed by and delivered to each party.
29. Inability to perform
If due to labor trouble, government order, lack of supply, Tenant's act or
neglect or any other cause not fully within the Association's reasonable
control, the Association, or Board of Managers is delayed or unable to carry out
any of their respective obligations, requirements, promises or agreements, if
any, this Lease shall not be ended or Tenant's obligations affected in any
manner.
30. Limit of recovery against Landlord
Tenant is limited to Landlord's interest in the Unit for payment of a
judgment or other court remedy against Landlord.
31. End of Term
At the end of the Term, Tenant must: leave the Unit clean and in good
condition, subject to ordinary wear and tear; remove all of Tenant's property
and all Tenant's installations and decorations; repair all damages to the Unit
and Building caused by moving; and restore the Unit to its condition at the
beginning of the Term. If the last day of the Term is on a Saturday, Sunday or
State or Federal holiday the term shall end on the prior business day.
32. Space "as is"
Tenant has inspected the Unit and Building. Tenant states that they are in
good order and repair and takes the Unit as is. Sizes of rooms stated in
brochures or plans of the Building or Unit are approximate and subject to
change. This Lease is not affected or Landlord liable if the brochure or plans
do not show obstructions or are incorrect in any manner.
33. Quiet enjoyment
Subject to the terms of this Lease, as long as Tenant is not in default
Tenant may peaceably and quietly have, hold, and enjoy the Unit for the Term.
34. Landlord's consent
If Tenant requires Landlord's consent to any act and such consent is not
given, Tenant's only right is to ask the Court to force Landlord to give
consent. Tenant agrees not to make any claim against Landlord for money or
subtract any sum from the rent because such consent was not given.
35. Lease binding on
This Lease is binding on Landlord and Tenant and their heirs,
distributees, executors, administrators, successors and lawful assigns.
36. Landlord
Landlord means the owner of the Unit. Landlord's obligations end when
Landlord's interest in the Unit is transferred. Any acts Landlord may do may be
performed by Landlord's agents.
37. Broker
If the name of a Broker appears in the box at the top of the first page of
this Lease, Tenant states that this is the only Broker that showed the Unit to
Tenant. If a Broker's name does not appear Tenant states that no agent or broker
showed Tenant the Unit. Tenant will pay Landlord any money Landlord may spend if
either statement is incorrect.
38. Paragraph headings
The paragraph headings are for convenience only.
39. Rules
Tenant must comply with these Rules. Notice of new or changed Rules will
be given to Tenant. Landlord, the Association or Board of Managers need not
enforce Rules against other tenants. Landlord is not liable to Tenant if another
tenant violates these Rules. Tenant receives no rights under these Rules:
(1) The comfort or rights of other tenants must not be interfered with.
Annoying sounds, smells and lights are not allowed.
(2) No one is allowed on the roof. Nothing may be placed on or attached to
fire escapes, sills, windows or exterior walls of the Unit or in the hallway or
public areas. Clothes, linens or rugs may not be aired or dried from the Unit or
on terraces.
(3) Tenant must give the Landlord keys to all locks. Locks may not be
changed or additional locks installed without Landlord's consent. Doors must be
locked at all times. Windows must be locked when Tenant is out. All keys must be
returned to Landlord at the end of the Term.
(4) Floors of the Unit must be covered by carpets or rugs. Waterbeds or
furniture containing liquid are not allowed in the Unit.
(5) Dogs, cats or other animals or pets are not allowed in the Unit or
Building. Feeding of birds or animals from the Unit, terraces or public areas is
not permitted.
(6) Garbage disposal rules must be followed. Wash lines, vents amid
plumbing fixtures must be used for their intended purpose.
(7) Laundry machines, if any, are used at Tenant's risk and cost.
Instructions must be followed. Landlord may stop their use at any time.
(8) Moving furniture, fixtures or equipment must be scheduled with
Landlord. Tenant must not send Landlord's employees on personal errands.
(9) Improperly parked cars may be removed without notice at Tenant's cost.
(10) Tenant must not allow the cleaning of the windows or other part of
the Unit or Building from the outside.
(11) Tenant shall conserve energy.
(12) Tenant may not operate manual elevators. Smoking or carrying lighted
pipes, cigarettes or cigars is not permitted in elevators. Messengers and trade
people must only use service elevators and service entrances.
(13) The entrances, halls and stairways may only be used to go to or leave
the Unit.
(14) Professional tenants must not allow patients to wait in public areas.
(15) Inflammable or dangerous things may not be kept or used in the Unit.
(16) No tour of the Unit or Building may be conducted. Auctions or tag
sales are not permitted in Units.
(17) Bicycles, scooters, skate boards or skates may not be kept or used in
lobbies, halls or stairways. Carriages and sleds may not be kept in lobbies,
halls or stairways.
40. Appliances, etc., included in Lease
The Lease includes only personal property itemized on the annexed schedule
called the Personal Property schedule.
41. Definitions
a) "Association" means the Unit Owners Association and/or any
organization, whether or not incorporated, whose membership is essentially
limited to owners of units in the Condominium or in condominiums located in the
vicinity.
b) Words defined in applicable statutes have the meanings therein set
forth.
c) "Condominium" -- See Heading.
d) "Unit" -- See Heading.
e) "Board of Managers" -- group of persons selected, authorized and
directed to manage and operate a condominium, as provided by the Condominium
Act, and the Declaration.
f) "Building" -- See Article I.
g) "Common Charges" -- each unit's share of the Common Expenses in
accordance with its Common Interest in the Common Elements of the Condominium.
h) "Common Elements" -- that which is described in the Declaration.
i) "Common Expenses" -- the actual and estimated expenses of operating the
Condominium and any reasonable reserve for such purposes, as found and
determined by the Board of Managers plus all sums designated Common Expenses,
including, but not limited to, real estate taxes, if applicable, by or pursuant
to the Condominium Act, or the declaration.
l) "Common Interest" -- the proportionate, undivided interest each
Unit-owner has in the Common Elements.
k) "Unit-owner" -- the person or persons owning 1 or more units in the
Condominium in fee simple.
42. [Deleted]
43. No Liability
A. Landlord, the Board of Managers, the Association and their respective
agents, contractors and employees, shall not be liable for, injury to any
person, or for property damage sustained by Tenant, its licensees, invitees,
guests, contractors and agents, or by any other person for any reason except for
negligence of Landlord, the Board of Managers or the Association.
B.Tenant agrees to protect, indemnify and save harmless Landlord, the
Board of Managers and the Association from all losses, costs, or damages
suffered by reason of any act or other occurrence which causes injury to any
person or property and is related in any way to the use of the Unit.
44. Automobiles
The use or storage of Tenant's or any other person's automobile
whether or not parked or being driven in or about the Building
<PAGE>
parking areas or garages, if any, shall at all times be at the sole risk of
Tenant. Should any employee of the Condominium assist Tenant or take part in the
parking, moving or handling of Tenant's or any other person's automobile or
other property given to the custody of any employee for any reason whatsoever,
that employee is considered the agent of Tenant or such other person and not of
Landlord, the Condominium, the Board of Managers on the Association and none of
them shall be liable to Tenant or to any other person for the acts or omission
of any employee or for the loss of or damage to the automobile or any of its
contents.
Any vehicle or personal property belonging to Tenant, which in the opinion
of Landlord, the Association or Board of Managers is considered abandoned, shall
be removed by Tenant within 1 day after delivery of written notice to Tenant. If
Tenant does not remove it, Landlord or the Association may remove the property
from the area at Tenant's cost.
45. Garage Space
If a garage space is included in this Lease the fee that Tenant must pay
Landlord appears in the box at the top of the first page of this Lease. It is
payable as added rent. The number of the garage space will also appear in the
box. If a garage space number does not appear Tenant states that no garage space
is leased to Tenant.
46. Voting
This Lease relates solely to the use and occupancy of the Unit and as
specifically stated. This Lease does not include the transfer or exchange of any
voting rights nor is it to be construed as reducing Landlord's sole right to
vote without restriction, with respect to any matter related to the Unit.
47. No Affirmative Obligations of Landlord
Landlord is not obligated to provide or render any services whatsoever to
the Tenant or perform any affirmative obligations under the terms of this Lease.
Landlord is not liable for damages or otherwise in the event Tenant suffers them
as a result of any act committed or omitted to be performed by the Association,
Board of Managers, or any other party. Landlord shall not be liable to Tenant,
its successors, assigns or subtenants with respect to any of the affirmative
obligations to be performed by any third party including the Association or
Board of Managers under the Declaration and Landlord is released from liability.
Tenant must continue to pay all rent and added rent as required under the terms
of this Lease in spite of any failure of performance. None of the terms of this
Lease shall in any way be affected as a result of that failure. Landlord will
use its reasonable efforts (provided at no expense to Landlord) in demanding the
performance, by the party obligated, of its obligations under the applicable
agreement including any obligation to provide services. Tenant agrees to
indemnify and save Landlord harmless from and against any and all claims,
liabilities or demands arising from the Declaration or other agreement related
to any act, omission or negligence of Tenant.
Rider Additional terms on annexed page(s) initialed at the end by the parties
is attached and made a part of this Lease.
Signatures, effective date Landlord and Tenant have signed this Lease as of the
above date. It is effective when Landlord delivers to Tenant a copy signed by
all parties.
LANDLORD: ALEX COCOZIELLO TENANT: MANHATTAN SCIENTIFICS, INC.
SUSAN COCOZIELLO
/s/ Alex Cocoziello /s/ Marvin Maslow, CEO
-------------------------- -----------------------------
/s/ Susan Cocoziello
WITNESS -------------------------- -----------------------------
(An Officer of the Corporation)
GUARANTY OF PAYMENT Date of Guaranty _________ 19__.
Guarantor and address___________________________________________________________
1. Reason for guaranty I know that the Landlord would not rent the Unit to the
Tenant unless I guarantee Tenant's performance. I have also requested the
Landlord to enter into the Lease with the Tenant. I have a substantial interest
in making sure that the Landlord rents the Premises to the Tenant.
2. Guaranty I guaranty the full performance of the Lease by the Tenant. This
Guaranty is absolute and without any condition. It includes, but is not limited
to, the payment of rent and other money charges.
3. Changes in Lease have no effect This Guaranty will not be affected by any
change in the Lease, whatsoever. This includes, but is not limited to, any
extension of time or renewals. The Guaranty will bind me even if I am not a
party to these changes.
4. Waive of Notice I do not have to be informed about any default by Tenant. I
waive notice of nonpayment or other default.
5. Performance If the Tenant defaults, the Landlord may require me to perform
without first demanding that the Tenant perform.
6. Waiver of jury trial I give up my right to trial by jury in any claim related
to the Lease or this Guaranty.
7. Changes This Guaranty can be changed only by written agreement signed by all
parties to the Lease and this Guaranty.
Signatures GUARANTOR:________________________________
WITNESS:___________________________ Guarantor's address:______________________
- --------------------------------------------------------------------------------
EPA and HUD Lead Paint Regulations, Effective September 6, 1996(1)
Landlords must disclose known lead-based paint and lead-based paint hazards of
pre-1978 housing to tenants.(2) Use the following BLUMBERG LAW PRODUCTS (800 LAW
MART) to comply:
3140 Lead Paint Information Booklet 3141 Lead Paint Lease Disclosure Form
(1) December 6, 1996 for owners of 1 to 4 residential dwellings.
(2) Leases for less than 100 days, 0-bedroom units, elderly and handicapped
housing (unless children live there) and housing found to be lead-free by
a certified inspector are excluded.
- --------------------------------------------------------------------------------
<PAGE>
RIDER ANNEXED TO AND FORMING A PART OF
THE LEASE DATED DECEMBER 4, 1998 BETWEEN
ALEX AND SUSAN COCOZIELLO AS LANDLORDS
AND MANHATTAN SCIENTIFICS, INC., AS TENANT
COVERING RESIDENTIAL UNIT NUMBER 36F AT 641 FIFTH AVENUE
NEW YORK, NEW YORK, 10022
48. Unless the context requires a different meaning, the term "Lease" whenever
used in this Rider, shall mean the Lease to which this Rider is annexed, this
Rider and all other Riders to the Lease.
49. In the event of any inconsistency between the provisions of the printed
Lease or any other Rider thereto and those contained in this Rider, the
provisions of this Rider shall govern and be binding.
50. All terms not otherwise defined herein shall have the same meanings ascribed
to them in that certain (i) Declaration ("Declaration") establishing condominium
ownership of the land and the building erected thereon (forming a part of
Section 5, Block 1287, Lot 1 on the tax map of the Borough of Manhattan, City,
State and County of New York, recorded in reel 351, at page 1, in the Office of
the Registrar of the City of New York, in the County and State of New York),
comprising Olympic Tower Condominium ("Condominium"), made by Olympic Tower
Associates ("Sponsor" under such Declaration) pursuant to Article 9-B of the
Real Property Law of the State of New York; and (ii) the By-Laws ("By-Laws") of
such Condominium appended to said Declaration.
51. All terms and provisions of this Lease shall be subject and subordinate to
the Declaration and By-Laws and the House Rules of the Condominium, and all
amendments thereto made in accordance with the Declaration and By-Laws. The
Declaration, By-Laws and said House Rules, and all amendments thereto, are
hereafter collectively called the "Condominium Documents". In the event of any
inconsistency between the terms and provisions of this Lease and those contained
in the Condominium Documents, the terms and provisions of the Condominium
Documents shall govern and be binding.
52. Tenant agrees to faithfully observe and comply with the Condominium
Documents, other than those provisions pertaining to the payment of the Common
Charges and special assessments. Tenant shall not perform or suffer any action
or other matter which if performed or suffered by Landlord would constitute a
violation, breach or default under the Condominium Documents.
53. This Lease, or any provision hereof, may not be modified, amended, extended,
waived, or abrogated without the prior written consent of the Owner/Lessor and
the Board of Managers of the
1
<PAGE>
Condominium in each instance.
54. Tenant shall not assign Tenant's interest in this Lease or subject the
demised premises or any part thereof without obtaining the prior written consent
of the Owner/Lessor and the Board of Managers.
55. Landlord and Tenant acknowledge and agree that if (i) Tenant defaults in the
performance of Tenant's obligations under this Lease, or (ii) Landlord fails to
pay the Common Charges or any special assessment or other charges payable
pursuant to the Condominium Documents and as a result the lien granted by
Section 399-z of the Real Property Law of the State of New York is foreclosed
or a deed in lieu of foreclosure is given the Board of Mangers, then the Board
of Managers shall have the right to cancel this Lease on written notice to
Tenant. In the event the Board exercises such right of cancellation, this Lease
shall terminate and come to an end effective on the date specified in such
cancellation notice, but in no event less than fifteen (15) days after giving of
such cancellation notice.
56. In order to induce the Board of Managers to not exercise its right of first
refusal contained in Article VIII of the By-Laws, and pursuant to the rights,
powers and benefits granted and reserved to the Board of Managers under the
Condominium Documents, it is agreed that the provisions of this Lease, and more
particularly all the provisions contained in this Rider, shall inure to the
benefit of, and be enforceable by, the Board of Managers.
57. At Tenant's option, Tenant may continue the Lease for a third year by
informing Sandy Neuringer & Associates, Inc. by certified mail one hundred
twenty (120) days prior to the expiration of the second year of the Lease that
Tenant is exercising its option to continue the Lease for a third year. The rent
during the third year will be $5500. In the event that Tenant continues the
Lease for a third year, at Tenant's option, Tenant may continue the Lease for a
fourth year by informing Sandy Neuringer & Associates, Inc. by certified mail
one hundred twenty (120) days prior to the expiration of the third year of the
Lease that Tenant is exercising its option to continue the Lease for a fourth
year. The rent during the fourth year will be $5500. These options shall only
apply in the event that Tenant is not in default of the Lease.
58. The sole brokers to be recognized in this Lease transaction are Sandy
Neuringer & Associates, Inc. and Coldwell Banker Hunt Kennedy.
59. The rent shall be received by the first day of each month by Owner/Lessor at
the address set forth on this Lease. No monthly notices will be sent. In the
event that the rent is not received
2
<PAGE>
by the first day of the month, a late charge of $100 shall be assessed.
60. Tenant shall obtain and keep in full force and effect during the term of
this Lease, at its own cost and expense, to protect Tenant and Landlord, and any
of their respective agents, as insureds or additional insureds, liability
insurance in the sum of $1,000,000.00 and insurance for all property within the
Premises in the sum of not less than $200,000.00. Landlord shall be named under
said insurance policy as an additional insured.
61. The unit is rented unfurnished.
62. Landlord will paint the apartment prior to the occupancy date. Landlord
consents to Tenant's installation of lighting (including track lighting) and a
"Murphy" bed. However, prior to vacating the Unit, Tenant must restore the Unit
to its original condition, and all furnishings will remain the property of
Tenant.
63. Tenant is responsible for paying the monthly utilities. Tenant will
establish their own accounts with the utility companies and be billed directly
by the companies. Landlord will have no responsibility or obligation in this
regard.
64. Tenant can assign or sublet to any parent or subsidiary company, or any
officer or director subject to Landlord's approval, which will not be
unreasonably withheld. In the event that Landlord approves an assignee or
sublessee, the assignee or sublessee shall be subject to all of the terms and
conditions of this Lease. At all times, Tenant Manhattan Scientifics, Inc. will
remain responsible for the monthly rent payments.
65. If Landlord is unable to make the Unit available to Tenant by February 1,
1999 by reason of any act on the part of Landlord, the Lease will terminate. The
Lease shall also terminate in the event that the Board exercises its right of
first refusal.
3
<PAGE>
66. The Unit may be used as a corporate apartment.
LANDLORD:
/s/ Alex Cocoziello
- ----------------------------------
Alex Cocoziello
/s/ Susan Cocoziello
- ----------------------------------
Susan Cocoziello
TENANT
/s/ Marvin Maslow, CEO
- ----------------------------------
Manhattan Scientifics, Inc.
4
<PAGE>
Disclosure of Information on Lead-Based Paint
and/or Lead-Based Paint Hazards
(Leases)
LEAD WARNING STATEMENT
Housing built before 1978 may contain lead-based paint. Lead from paint, paint
chips, and dust can pose health hazards if not managed properly. Lead exposure
is especially harmful to young children and pregnant women. Before renting
pre-1978 housing lessors must disclose the presence of known lead-based paint
and/or lead-based paint hazards in the dwelling. Lessees must also receive a
federally approved pamphlet on lead poisoning.
- --------------------------------------------------------------------------------
Lessor's Disclosure
(a) Presence of lead-based paint and/or lead-based paint hazards (Check (i) or
(ii) below): /s/ Alex Cocoziello
(i) |_| Known lead-based paint and/or lead-based paint hazards are
present in the housing. (Explain below. If the space provided is not
adequate, attach additional sheets).
--------------------------------------------------------------------
--------------------------------------------------------------------
(ii) |X| Lessor has no knowledge of lead-based paint and/or lead-based
paint hazards in the housing.
(b) Records and reports available to the lessor (Check (i) or (ii) below):
(i) |_| Lessor has provided the lessee with all available records and
reports pertaining to lead-based paint and/or lead-based paint
hazards in the housing (list documents below).
--------------------------------------------------------------------
--------------------------------------------------------------------
(ii) |X| Lessor has no reports or records pertaining to lead-based paint
and/or lead-based paint hazards in the housing.
- --------------------------------------------------------------------------------
Lessee's Acknowledgement (Initial)
(c) |_| Lessee has received copies of all information listed above.
(d) |_| Lessee has received the pamphlet Protect Your Family from Lead in Your
Home.
/s/ Martin Maslow, CEO
- --------------------------------------------------------------------------------
Agent's Acknowledgment (Initial)
(e) Agent has informed the lessor of the lessor's obligations
under 42 U.S.C. 4852d and is aware of his/her responsibility to ensure
compliance.
Continued on following page
Page 1 of 2
<PAGE>
CERTIFICATION OF ACCURACY
The following parties have reviewed the information above and certify, to the
best of their knowledge, that the information they have provided is true and
accurate.
/s/ Alex Cocoziello Alex and Susan
/s/ Susan Cocoziello Cocoziello
- ----------------------- ----------------------- -----------------------
Lessor (Print Name) Date
Manhattan Scientifics,
Inc.
- ----------------------- ----------------------- -----------------------
Lessee (Print Name) Date
Sandy Neuringer & Assoc.
Coldwell Banker
/s/ [Illegible] Hunt Kennedy 12/10/98
- ----------------------- ----------------------- -----------------------
Agent (Print Name) Date
**********
NOTE: The use of this form and the preparation of its contents may have
significant legal consequences. Consult your attorney as to the proper use and
preparation of this form. Retain this record and copies of all documents to
which it refers for at least three years.
Page 2 of 2
<PAGE>
SANDY NEURINGER & ASSOCIATES, INC.
(212) 355-4456
Dear Resident:
You are hereby notified that, under Section 131.15 of the New York City Health
Code, we are required to install window guards in your apartment if a child or
children ten (10) years old or under resides in your apartment.
Each resident is required by the Code to advise the Owner or Managing Agent
whether or not there are children under ten years of age residing in the
apartment. In order that you can fulfill your obligation regarding this matter,
we are requesting that you complete the form below. Please fill in the
identification information requested at the top of the form. Thereafter, either
place a checkmark in Part "A" or "B". After dating and signing the form, return
it to your Building Superintendent within seven (7) days of the date of this
letter.
If at some future time a child ten (10) years of age or younger becomes a
resident of your apartment, the Code further requires that you then inform us in
writing in order to have window guards installed.
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PLEASE PRINT ALL INFORMATION
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Landlord: Alex and Susan Cocoziello Tenants Name: Manhattan Scientifics, Inc.
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Landlord's Address: Tenant's Street Address: Apt.
One Broadway, Room 102 One Rockefeller Plaza
Elmwood, NJ 07407 New York, NY 10020
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PART "A" |_| There are no children 10 years of age or younger who are
residents in my apartment at the present time. (If this box is
checked, do not complete PART "B" below.)
PART "B" |_| I have children 10 years of age or younger living in my
apartment. Their names and birth dates are as follows:
Date of Birth Age
--------------------------
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/s/ Martin Maslow, CEO 12/10/98
- ----------------------------- ------------------
Tenant's Signature Date
- ----------------------------- ------------------
Tenant's Signature Date
<PAGE>
[LETTERHEAD OF SANDY NEURINGER & ASSOCIATES, INC.]
APPLICATION FOR WAIVER
OF RIGHT OF FIRST REFUSAL ON PROPOSED
CONDOMINIUM LEASE
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New York, NY December 4, 1998
1. CONDOMINIUM UNIT NO.: 36F NAME OF OWNER: Alex and Susan Cocoziello
2. ADDRESS OF OWNER: One Broadway, Room 102 TELEPHONE NO.:_________________
Elmwood, NJ 07407
3. ATTORNEY FOR OWNER: Debra J. Guzov TELEPHONE NO.: (212) 371-8008
4. ATTORNEY'S FIRM AND ADDRESS: 950 Third Avenue, 26th Floor
New York, NY 10022
**********
5. LESSEE: Manhattan Scientifics, Inc.
6. LESSEE'S HOME ADDRESS: One Rockefeller Plaza TELEPHONE NO.:_________________
New York, NY 10020
7. LESSEE'S ATTORNEY: Scott L. Bach, Esq. TELEPHONE NO.: (212) 332-3330
8. LESSEE'S ATTORNEY'S FIRM AND ADDRESS: Bach & Associates
One Rockefeller Plaza NY, NY 10020
9. LESSEE'S BUSINESS ADDRESS: See above. TELEPHONE NO.:_________________
10. LESSEE'S OCCUPATION:_______________________________________________________
11. PROPOSED DATE OF OCCUPANCY: 1/1/99
12. MONTHLY RENTAL: $5,000 year one LEASE TERM: Two (2) years
$5,250 year two
13. SPECIAL CONDITIONS: None
14. IF LESSEE IS A CORPORATION, NAME OR DESCRIBE THE INDIVIDUAL(S) TO BE THE
OCCUPANT(S) OF THE APARTMENT UNIT AND STATE FOR HOW LONG A TERM.
Marvin Maslow
and other corp
officers and RELATION TO Chairman
a. NAME(S) OF DESIGNATED OCCUPANT(S): directors LESSEE: & CEO
b. LENGTH OF OCCUPANCY: Two (2) years
15. NAMES OF ALL PERSONS WHO WILL RESIDE IN THE APARTMENT AND IF CHILDREN, STATE
NUMBER AND THEIR APPROXIMATE AGES: See response to 14.
16. WILL THERE BE ANY BUSINESS OR PROFESSION CONDUCTED AT THIS APARTMENT: Yes,
occasional meetings of executives
17. IF SO, WHAT IS THE NATURE OF THE BUSINESS OR PROFESSION? Scientific research
and development
<PAGE>
18. WILL THERE BE ANY EMPLOYEES OF LESSEE LIVING OR WORKING IN THE APARTMENT?
Occasionally, Executive Assistants
a. IF SO, HOW MANY?________________________________________________________
b. DOMESTIC _______________________________________________________________
c. BUSINESS _______________________________________________________________
19. a. WILL THERE BE ANY BUSINESS OR PROFESSIONAL VISITORS TO THE APARTMENT?
See Response 16.
b. IF SO, ESTIMATED NUMBER PER DAY:________________________________________
20. DOES LESSEE WISH TO MAINTAIN ANY PETS? IF SO PLEASE SPECIFY: No
21. a. STATE NAME AND ADDRESS OF LESSEE'S CURRENT LANDLORD OR MANAGING AGENT OF
BUILDING:_______________________________________________________________
LESSEE'S
______________________________ LENGTH OF OCCUPANCY:_____________________
b. IF PRIOR RESIDENCE WAS OCCUPIED FOR LESS THAN TWO (2) YEARS, STATE NAME
AND ADDRESS OF PREVIOUS LANDLORD(S) OR AGENT(S) FOR PAST FIVE (5)
YEARS_________________________ LESSEE'S
LENGTH OF OCCUPANCY:_____________________
22. LESSEE HEREBY AUTHORIZES A TRW CREDIT CHECK OR SIMILAR TO BE MADE.
23. LESSEE AND OWNER HEREBY AGREE TO ABIDE BY ALL THE TERMS, COVENANTS,
PROVISIONS AND CONDITIONS SET FORTH IN THE BYLAWS AND OTHER APPLICABLE
DOCUMENTS OF THE CONDOMINIUM.
OWNER WILL HAVE A MAXIMUM OF 30 DAYS WITHIN WHICH TO ACCEPT OR REJECT THE OFFER
TO LEASE UNIT AFTER RECEIVING A WAIVER FROM THE BOARD OF MANAGERS.
/s/ Martin Maslow, CEO
-------------------------------
SIGNATURE OF LESSEE
/s/ Alex Cocoziello
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Signature of Condominium Owner or
Authorized Agent
FIRM NAME OF BROKER: Sandy Neuringer & Associates, Inc./Coldwell Banker Hunt
Kennedy
NAME OF INDIVIDUAL BROKER: Susan Neuringer/Heather Stein
<PAGE>
[CERTIFIED CHECK DATED 12/1/98 IN THE AMOUNT OF $5,000
PAYABLE TO DRS. ALEX & SUSAN COCOZIELLO]
<PAGE>
[CERTIFIED CHECK DATED 12/1/98 IN THE AMOUNT OF $5,000
PAYABLE TO DRS. ALEX & SUSAN COCOZIELLO]
<PAGE>
[CERTIFIED CHECK DATED 12/1/98 IN THE AMOUNT OF $4,500
PAYABLE TO SANDY NEURINGER & ASSOCIATES]
<PAGE>
[CERTIFIED CHECK DATED 12/1/98 IN THE AMOUNT OF $4,500
PAYABLE TO COLDWELL BANKER, HUNT KENNEDY]
<PAGE>
Exhibit 10.7
LEASE AGREEMENT
This LEASE AGREEMENT is entered into this 24th day of APRIL, 1998, by and
between LOS ALAMOS ECONOMIC DEVELOPMENT CORPORATION, a New Mexico corporation
("Landlord") and MANHATTAN SCIENTIFICS, INC. ("Tenant");
WHEREAS, Landlord owns the land and building located at the Small Business
Center Annex, 127 Eastgate Drive, Los Alamos, New Mexico (the "Property");
WHEREAS, Tenant desires to lease certain space from Landlord within the
Property for the purposes described herein;
WHEREAS, the parties are willing to enter into a Lease Agreement upon the
terms and conditions hereinafter set forth.
NOW, THEREFORE, the parties hereby agree as follows:
1. LEASE. Landlord hereby leases to Tenant and Tenant hereby hires and
takes from Landlord that certain space more particularly described as suite 114,
illustrated in attached Exhibit "A", incorporated herein by reference (the
"Leased Premises") together with a right to the non-exclusive use, in common
with the other Tenants of the common areas of the property provided, however,
that Tenant agrees to abide by all reasonable rules and regulations instituted
by or on behalf of Landlord in relation to the common areas.
2. TERM. The term of this lease shall be for a period of 36 MONTHS
commencing on MAY 1, 1998, and terminating at midnight, APRIL 30, 2001, both
dates inclusive, unless sooner terminated as herein provided. Tenant must give
Landlord 30 days written notice before expiration of this Lease Agreement
regarding vacating Leased Premises or negotiation of new Lease. Tenant may
extend the term of this lease in either in one year increments for up to an
additional two years or for a single two year increment by providing notice of
extension to the Landlord. Such notice shall be provided in writing to the
Landlord at least 60 days prior to the expiration of the existing lease term. At
its sole discretion, the Landlord may, for each option year, require a
percentage adjustment in the rental rate equal to the percentage change in the
Consumer Price Index (CPI) produced by the U.S. Bureau of Labor Statistics over
the previous year. The adjustment shall not exceed 4% in any one year.
Alternatively, if there is a decrease in the CPI from the immediately preceding
year, the Landlord shall make a percentage adjustment in the rental rate equal
to the percentage change in the CPI based on request of this adjustment from
Tenant in the notice of extension. Any decrease shall not exceed 1% in any one
year.
3. RENT. The base rental rate is $2,255.00 per month. For years one
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LEASE AGREEMENT - Page 2
and two of the lease period, Tenant agrees to pay a total rent of FIFTY-FOUR
THOUSAND ONE HUNDRED TWENTY Dollars ($54,120.00) in lawful money of the United
States of America in equal monthly installments of TWO THOUSAND TWO HUNDRED
FIFTY-FIVE Dollars ($2,255.00) due every month, in advance, to Landlord. For
year three of the lease period, at its sole discretion, the Landlord may require
a percentage adjustment in the base rental rate equal to the percentage change
in the CPI over the previous year. The adjustment shall not exceed 2%.
Alternatively, if there is a decrease in the CPI from the immediately preceding
year, the Landlord shall make a percentage adjustment in the rental rate equal
to the percentage change in the CPI based on written request of this adjustment
from the Tenant prior to the beginning of year three. Any decrease shall not
exceed 1%.
4. LATE PAYMENT CHARGES. Tenant shall be assessed a late payment penalty
by Landlord according to the following schedule:
(a) Should Tenant fail to tender to Landlord its rent payment within 15
days of the date of the Landlord's invoice, a late payment penalty equal to 5%
of the monthly rent shall be assessed against Tenant by Landlord which late
payment penalties shall accompany the rental payment.
(b) Should Tenant fail to tender to Landlord its payment within 30 days of
the date of the Landlord's invoice, a late payment penalty equal to 7.5% of the
monthly rent shall be assessed against Tenant by Landlord which late payment
penalties shall accompany the rental payment.
5. SECURITY DEPOSIT. Tenant has, upon execution of this Lease Agreement,
paid to Landlord a security deposit equal to $2,255.00 which shall be held by
Landlord as security for the payment of any rents owed and any other sums of
money, repairs and renovation on account of damages for which the tenant is
responsible under the terms and conditions of this Lease. Upon termination of
this Lease, any balance of the security deposit remaining after deduction by
Landlord shall be refunded, without interest to Tenant within a reasonable
period of time following termination of the Lease. A statement of all
expenditures made by Landlord pursuant to this paragraph shall be furnished to
Tenant within a reasonable period of time following termination of this Lease.
6. USE OF PREMISES. Tenant agrees to operate and maintain the Leased
Premises throughout the term of this Lease during all hours as technical space,
which shall include the performance of such services as are usually appropriate
to such business. Tenant further agrees to conduct no incidental business on the
Leased Premises without the prior written consent of Landlord. (SEE EXHIBIT D)
<PAGE>
LEASE AGREEMENT - Page 3
Tenant further agrees to use the Leased Premises during the term of this
Lease only for lawful purposes. Tenant agrees:
(a) not to suffer or permit the Leased Premises or the improvements
thereon or any part thereof, to be used for any purpose or use in violation of
any law, ordinance, or regulation of any governmental entity, or in any manner
that would constitute a nuisance or any unreasonable annoyance to the owners or
occupants of adjoining or neighboring property, or for any extrahazardous
purpose or in any manner that might violate any policy or policies of insurance
at any time carried on the building by Landlord;
(b) not to keep or permit to be kept thereon any gasoline or other
combustible petroleum product without first obtaining the written consent of
Landlord and all insurance companies carrying fire insurance, rental insurance
or other insurance on the Property; (SEE EXHIBIT D)
(c) not to suffer or permit the Leased Premises or the improvements
thereon or the part thereof to be used in any manner that will injure or impair
the structural strength of any building or improvement construction thereon; and
(d) not to suffer or permit to be installed or used on the property or in
any of the improvements any machinery or apparatus the weight or vibration of
which would tend to injure or impair the structural strength of such
improvements.
7. POSSESSION. If Landlord is unable to give possession of the Leased
Premises to Tenant on the commencement date of the Lease as provided for in
paragraph 2 of this Lease, because of:
a) the holding over or retention of possession by any Tenant, Tenants or
occupants;
b) fire, acts of God or other events not under control of the Landlord; or
c) for any other reason, the Landlord shall not be subject to liability to
Tenant for the failure to give possession on commencement date. If Landlord is
unable to give Tenant possession of the Leased Premises, the rent payments due
Landlord by Tenant shall not commence until the Leased Premises are available
for occupancy by Tenant. No such failure to give possession at the commencement
on the date of this Lease shall affect the validity of this Lease or the
obligations of Tenant hereunder, except as to abatement of rent during any such
period of non-occupancy, nor shall the same be construed to extend the term of
this Lease.
<PAGE>
LEASE AGREEMENT - Page 4
8. SERVICES. Landlord shall provide to or on behalf of Tenant, subject to
guidelines, rules, and regulations promulgated by or on behalf of Landlord from
time to time, the following described services:
(a) A receptionist during regular business hours for directing visitors to
the Leased Premises;
(b) The use by Tenant of the conference room located on the Property for
the total period of two hours per month which period shall be non-cumulative;
(c) A photocopier machine which shall be available to Tenant on a first
come, first serve basis subject to a per copy charge;
(d) A telephone system as more particularly described in attached Exhibit
"B" incorporated herein by reference (It is understood that the Tenant is not
obligated to utilize the telephone system provided by Landlord; however, the
Landlord's system must be utilized by Tenant if Tenant desires to have its phone
answered by Landlord's receptionist which answering service shall be subject to
the charges set forth in Exhibit ("B"); and
(e) Landlord may, from time to time, provide such other services to Tenant
as Landlord, in its sole and absolute discretion shall determine.
9. UTILITIES. The cost of utilities. including gas, electric, water, sewer
and municipal garbage removal charges, is incorporated within the Tenant's rent
as set forth in paragraph 3 of this Agreement. (SEE EXHIBIT C)
10. MAINTENANCE AND REPAIRS. Tenant shall take care of the interior (other
than structural portions) of the Leased Premises and the fixtures and
appurtenances therein and at its sole cost and expense make all non-structural
repairs thereto as and when needed to preserve them in good working order and
condition. All damage or injury to the Leased Premises and to its fixtures,
glass, appurtenances and equipment caused by Tenant moving property in or out of
the Property or by tenant's installation or removal of furniture, fixtures, or
other property, or resulting by tenant-caused fire, explosion, air conditioning
unit or systems, short circuits, leakage of water, stream, or any other cause of
any other kind or nature whatsoever due to carelessness, omission, neglect,
improper conduct or other cause of Tenant, its servants, employees, agent,
visitors, or licensees shall be repaired, restored or replaced promptly by
Tenant at its sole cost and expense to the reasonable satisfaction of Landlord.
All the aforesaid repairs, restorations and replacements shall be in good
quality and class equal to the original work or installation and shall be done
in a good and workmanlike manner. If Tenant fails to make such
<PAGE>
LEASE AGREEMENT - Page 5
repairs, restorations, or replacements, the same may be made by Landlord upon
prior written notice at the expense of Tenant and all reasonable sums to be
spent and expenses incurred by Landlord shall be collectable as additional rent
and shall be paid by Tenant within thirty (30) days after rendition of the bill
or statement therefore to Tenant by Landlord. Tenant further agrees that it
shall, at its own expense, furnish all necessary janitorial and cleaning
services which are appropriate for the maintenance of the Leased Premises.
11. ALTERATIONS. Tenant shall make no major alterations, decorations,
additions or improvements in or to the Leased Premises without the Landlord's
prior written consent, but Landlord agrees that such consent shall not be
unreasonably withheld. As a condition precedent to the Landlord's consent,
Tenant shall deliver to Landlord written plans and specifications for all such
work. Tenant shall comply with all governmental rules and regulations in
connection with such work and shall prevent any lien or obligation from being
created against or imposed upon the Leased Premises and will discharge all liens
or charges for services rendered or material furnished immediately after said
liens occur or said charges become due and payable.
All alterations, additions, erections or improvements on or in the Leased
Premises at the expiration of this Lease, except trade fixtures shall, at the
option of Landlord, become a part of the Leased Premises, and shall remain upon
and be surrendered with the Leased Premises as part thereof at the termination
of the Lease. Should Tenant fail to remove any furniture or fixtures or personal
property of any kind, then the same shall be considered as abandoned and become
the property of Landlord. In the event Landlord requests Tenant to remove
additions or alterations, Tenant, at its expense, shall, upon expiration of the
term of this Lease, restore the Leased Premises to the same and as good an order
and condition as when the same were entered upon by Tenant, ordinary wear and
tear accepted; and in default thereof, Landlord may perform such removals and
repairs and Tenant shall pay Landlord the cost thereof as additional rent.
12. LANDLORD'S RIGHT OF ACCESS. Landlord or Landlord's agents shall have
the right to enter the Leased Premises at reasonable hours to examine the same,
to show the Leased Premises to prospective purchasers or lessees of the Leased
Premises and to make necessary decorations, repairs, alterations, improvements,
or additions as Landlord may deem necessarily desirable either to the Property
or to the Leased Premises without unreasonable interruption of Tenant's business
in the Leased Premises, and Landlord shall be allowed to take all material into
and upon the Leased Premises that may be required therefore without the same
constituting an eviction of Tenant in whole or in part and the rent shall be in
no way abated while the decorations, repairs, alterations, improvements, or
additions are being made, by reason of loss or interruption of business of the
Tenant because of the prosecutions of any such work, or otherwise.
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LEASE AGREEMENT - Page 6
13. ASSIGNMENT AND SUBLETTING. Tenant shall not transfer, assign, sublet,
enter into license or concession agreements, change ownership, mortgage or
hypothecate this Lease of the Tenant's interest in and to the Leased Premises
without the prior written consent of Landlord. Any attempt to transfer, assign,
sublet, license or concession agreement, change of ownership, mortgage or
hypothecation without the Landlord's consent shall be void and confer no rights
upon any third party. Without in any way limiting the Landlord's right to refuse
to give consent for any other reason or reasons, the Landlord reserves the right
to refuse to give such consent, if in Landlord's reasonable business judgment
the financial worth of the new Tenant is less than that of the Tenant executing
this Lease nothing herein contained shall relieve Tenant from its covenants and
obligations for the term of this Lease. Tenant agrees to reimburse Landlord's
reasonable attorneys' fees incurred in connection with the processing and
documentation of any such requested transfer, assignment, subletting, licensing
or concession agreement, change of ownership mortgage or hypothecation of this
Lease or Tenant's interest in or to the Leased Premises. Each transfer,
assignment, subletting, license, concession agreement, mortgage or hypothecation
to which there has been consent shall be by an instrument in writing and in form
satisfactory to Landlord. (SEE EXHIBIT E)
14. INSURANCE AND INDEMNITY
(a) Duty of Landlord. The Landlord, at its own cost and expense, shall
keep the Property insured during the term of this Lease against loss or damage
by fire or other hazard. Landlord shall further maintain, at its own cost,
liability insurance on the common areas.
(b) Duty of Tenant. Tenant shall, during the term of the Lease hereof,
keep in full force and effect a policy of public liability and property damage
insurance with respect to the Leased Premises, its contents and the business
conducted by Tenant in the Leased Premises. All property of all kind that may be
on or in the Leased Premises during the term of this Lease shall be at the sole
risk of Tenant, Landlord shall not be liable to Tenant or any other person from
any injury, loss or damage to the Property of or to any person on the Leased
Premises.
(c) Indemnification. Landlord and Tenant will each indemnify and save the
other harmless from and against any and all claims, actions, damages, liability
and expenses in connection with the loss of life, personal injury in/or damage
to the property arising from or out of any occurrence in, upon or at the Leased
Premises or the occupancy or use by Tenant of the Leased Premises, in common
areas or any part thereof, or occasioned wholly or in part by any act or
omission by the other, its agents, contractors, employees, servants or lessees.
In case either party shall, without fault on its own part, be
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LEASE AGREEMENT - Page 7
made a party to any litigation commenced by or against the other, then the party
commencing litigation or against whom litigation is commenced shall protect and
hold the other harmless and shall pay the other's costs and reasonable
attorneys' fees incurred or paid by the other in connection with such
litigation.
15. QUIET ENJOYMENT. Landlord represents that:
(a) Landlord is rightful lessor of the Property and the Leased
Premises and has the right to make this Lease.
(b) Tenant, upon paying the rent herein reserved and upon
performance of all terms and conditions of this Lease, shall at all times during
the term of this Lease, peacefully and quietly have, hold and enjoy the Leased
Premises.
16. SURRENDER. Tenant shall surrender and deliver the Leased Premises,
together with all fixtures and improvements presently in the Leased Premises, at
the expiration of this Lease or sooner termination of the term, in good repair
and condition, broom-clean and free of Tenant's property. It is agreed that if,
after the expiration of this Lease, Tenant shall, with the Landlord's written
consent remain in the possession of the Leased Premises and shall continue to
pay rent, such Tenant shall be regarded as a Tenant from month-to-month. Tenant
shall request such month-to-month status at least 60 days prior to expiration of
the existing agreed upon termination date, in which event, the month-to-month
rent shall be the amount paid for rent during the last month of tenancy under
this lease prior to the commencement of the month-to-month arrangement. If the
Tenant fails to give at least 60 days notice, then the month-to-month rent shall
be equivalent to one hundred fifty percent (150%) of the monthly rental
installments called for hereunder for the last month of the Lease or any
extensions hereof. The Tenant, while in month-to-month status, shall otherwise
be subject to all the terms and conditions of this Lease. Landlord or Tenant may
terminate this month-to-month tenancy with 30 days written notice to the other
party.
17. EVENT OF DEFAULT. If any one or more of the following happen
(hereinafter called an "Event" or "Events of Default"):
(a) If default shall be made in the punctual payment of rent payable
under this Lease when and as the same shall become due and payable, and such
default shall continue for a period of ten (10) days after written notice of
default is sent to Tenant; or
(b) If default shall be made by Tenant in the performance or
compliance with any of the covenants, agreements, terms, or conditions contained
in this Lease other than that referred to in the foregoing subparagraph (a), and
such default shall continue for
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LEASE AGREEMENT - Page 8
a period of ten (10) days after written notice is sent thereof from Landlord to
Tenant, or in the case of default for a contingency which cannot with due
diligence be cured within such period of ten (10) days, Tenant fails to proceed
promptly and with all due diligence to cure the same and hereafter to prosecute
the curing of such default with all due diligence (it being intended that in
connection with the default not susceptible to being cured with due diligence
within ten (10) days that the time of Tenant in which to cure the same shall be
extended for such period as may be necessary to complete the same with all due
diligence); or
(c) If Tenant shall file a voluntary petition in bankruptcy court or
shall be adjudicated bankrupt or insolvent, or shall file any petition or answer
seeking any reorganization, arrangement, composition, readjustment, liquidation,
dissolution, or similar relief under the present or any future federal
bankruptcy code or any other present or any future federal bankruptcy code or
any other statutory law, or shall seek to consent to or acquiesce in the
appointment of any receiver, or liquidator of Tenant or of all or any
substantial part of its properties or of the Leased Premises; or
(d) If within sixty (60) days after the commencement of any
proceeding against Tenant seeking any reorganization, arrangement, composition,
readjustment, liquidation, dissolution, or similar relief under the present or
any future applicable federal, state or other statutory law, such proceeding
shall not have been dismissed, or within sixty (60) days after the appointment
without the consent or acquiescence of Tenant, or of any Trustee, receiver or
liquidator of Tenant or of all or any substantial part of its properties or the
Leased Premises, such appointment shall not have been vacated or stayed on
appeal or otherwise, or if within sixty (60) days after the expiration of any
such stay, such appointment shall not have been vacated; THEN, AND IN ANY SUCH
event Landlord, at any time thereafter, may give notice to Tenant specifying
such Event of Default or Events of Default and stating that this Lease and the
term thereof shall expire and terminate on the date specified in such notice
which shall be ten (10) days after the giving of such notice, and upon the date
specified in such notice, this Lease and the Term thereof shall expire and
terminate and Tenant shall remain liable as hereinafter provided, unless before
any such notice of termination of this Lease is mailed to, or served Tenant, all
arrears of rent and other amounts payable under this Lease, together in each
case with interest thereon at the rate of ten (10%) per annum from the date when
the same became due and payable and all costs and expenses incurred by or on
behalf of Landlord in regard to the Leased Premises, including reasonable
attorneys' fees, shall be then fully paid for on behalf of Tenant, and all other
defaults at the time existing under this Lease shall have been fully cured and
made good or secured to the satisfaction of Landlord, in which event the
consequences of such Event of Default shall be deemed to be annulled.
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LEASE AGREEMENT - Page 9
Upon any such expiration or termination of this Lease, Tenant shall quietly and
peacefully surrender the Leased Premises to Landlord, without any payment
therefor by Landlord, then Landlord upon or at any time after such expiration or
termination, may without further notice, enter upon or re-enter the Leased
Premises and possess and repossess itself thereof by, summary proceedings,
ejectment, or other legal process, and may dispossess Tenant and remove Tenant
and all other persons and property from the Leased Premises without being liable
to prosecution therefor.
18. Notice. All and any notice required to be given hereunder by the
parties shall be either hand delivered or properly mailed, postage prepaid to
the parties as follows:
Landlord: Los Alamos Economic Development Corporation
Post Office Box 715
Los Alamos, NM 87544
Tenant: MANHATTAN SCIENTIFICS, INC.
2 PENN PLAZA
SUITE 640
NEW YORK, NY 10121
ATTN: MR. MARVIN MASLOW OR MR. SCOTT BACH
19. Parking. Tenant, its business invitees and licensees shall have the
right to use, in common with the other tenants, during normal business hours,
the parking lots located on the Property. Tenant shall respect the right of
other tenants, their business invitees and licensees to use the parking lot and
under no circumstances shall Tenant have the right to park vehicles overnight in
the parking lot. Vehicles in violation of this provision shall be towed and
their owners shall assume all risk and expense for such towing. No vehicles,
including motorcycles, shall be parked in driveways, sidewalks, or patios.
Bicycles should not be parked where they affect pedestrian movement, and shall
not be left in common areas of the property. (SEE EXHIBIT D)
20. Common Areas. Landlord shall keep the common area in good repair and
in clean condition. Landlord shall specifically provide all necessary janitorial
and cleaning services, care and maintenance of the common areas, including
wiring and plumbing for the property.
21. Signs. Landlord shall provide, at its own expense, a directory of
Property's tenants near the entrance of the Property and a sign on the door of
the Leased Premise. Any additional signs which the Tenant may wish to erect
shall only be permitted with the prior written consent of Landlord. Landlord
agrees to work with the tenant in good faith to meet the tenant's desires for
reasonable signage at the property.
<PAGE>
LEASE AGREEMENT - Page 10
22. Miscellaneous.
(a) Unenforceable Provisions. If any provisions of this Lease shall
be declared invalid or unenforceable, the remainder of this Lease shall continue
in full force and effect.
(b) Successors or Assigns. The covenants and agreements herein
contained shall, subject to the provisions of this Lease, bind and inure to the
benefit of the Landlord, its successors and assigns and of Tenant, its
successors and assigns except as otherwise provided herein.
(c) Additional Provisions. Additional materials and provisions are
set forth in attached Exhibits "A-E" to this Lease which are incorporated herein
by reference. If there is a conflict between the terms and conditions of this
Lease and the Additional Provisions, the Additional provisions shall control.
(d) Non-Waiver of Default. The failure of Landlord to take any
action with respect to any default by Tenant under this Lease, shall not
constitute a waiver by Landlord of any of its respective rights under this
Lease.
(e) Amendment. This Lease constitutes the total understanding of the
parties and no modification hereof shall be effective except when in writing and
signed by all parties hereto.
(f) Nondiscrimination. There shall be no discrimination based on
race, color, creed, national origin or gender in the use and occupancy of the
Leased Premises.
(g) Governing Law. This Lease is made in the State of New Mexico and
its validity and the rights and obligations of the parties hereunder shall be
determined in accordance with the laws of the State of New Mexico.
(h) Non-Disturbance. Landlord represents and warrants that, in the
event that any mortgagee of any mortgage upon the property, or any other third
party, shall succeed to the rights and interests of the Landlord in and to this
Lease, whether by foreclosure or otherwise, then (1) Tenant shall not be joined
as a party defendant in any action, and (2) neither this Lease nor the Tenant's
rights hereunder shall be affected in any way, and any such third party shall
recognize Tenant as a direct tenant hereunder under all the terms and conditions
hereof without modification or exception.
<PAGE>
LEASE AGREEMENT - Page 11
(i) Environmental Matters. Landlord represents and warrants that
there are no past or present violations of any environmental law, rule, or
regulation, or the like, whether state, local, or federal (the "Environmental
Laws"), with respect to the Property. Landlord hereby indemnities Tenant, holds
Tenant harmless, and agrees to defend Tenant with respect to any actual or
threatened liability based upon (1) any breach of the aforesaid representations;
and (2) any fixture violation of Environmental Laws caused by Landlord. For
purposes of this subparagraph, the word "present" means up to and including the
day on which Tenant takes exclusive physical possession of the Leased Premises.
(j) Landlord Allowance for Improvements, Landlord shall contribute
$6,198.00 in rental credits and services toward Tenant renovation of the Leased
Premises to make them suitable for intended uses. Landlord shall make the leased
premises available to the Tenant without rental charge between the time that
this Lease is signed and the security deposit is remitted and the beginning of
the term of this Lease to allow for renovation prior to tenancy. In
consideration for these allowances, Tenant shall, at a minimum, install new
flooring and ceiling panels and finish and paint interior walls. Tenant
renovations shall be considered approved alterations as described in section 11
of this lease.
Landlord has performed work/services valued at $398.00 against the allowance.
The remainder of the allowance, $5,800.00, shall be credited in four equal
installments of $1,450.00 against the first four invoices issued to the tenant
for rent and other charges.
(k) Casualty; Eminent Domain. If the leased premises are destroyed
by fire, explosion, flood, earthquake, or any other cause outside of the
Landlord's control during the Term, and Leased Premises are rendered unusable by
Tenant for their intended purpose and cannot be fully repaired and restored
within 60 days from such destruction, Tenant may, at its option, declare this
Lease null and void from the date of such destruction, and all unearned rent
shall be returned to Tenant. If the leased premises are taken by public or
quasi-public authority under any power of eminent domain or condemnation, this
Lease shall terminate.
<PAGE>
LEASE AGREEMENT - Page 12
IN WITNESS WHEREOF, Landlord and Tenant have executed this Lease on the
day and year above written.
LANDLORD:
Los Alamos Economic Development Corporation
BY: /s/ Kevin Holsapple
---------------------------------------
Kevin Holsapple
Its Executive Director
TENANT: MANHATTAN SCIENTIFICS, INC.
/s/ Scott L. Bach
---------------------------------------
Its Secretary
EXHIBITS BY ATTACHMENT:
A - Leased Premises
B - Telephone Agreement
C - Utilities Usage
D - Use Approvals
E - Sublet Approvals
<PAGE>
LEASE AGREEMENT - Page 13
ACKNOWLEDGEMENTS
STATE OF NEW MEXICO )
) ss.
COUNTY OF LOS ALAMOS)
This Lease was acknowledged before me this 24 day of April, 1998 by KEVIN
HOLSAPPLE, Executive Director of the Los Economic Development Corporation, a New
Mexico Corporation, on behalf of said Corporation.
[SEAL]
/s/ Linda K. Holley June 7, 2001
- ----------------------------------- ---------------------------------------
Notary Public My Commission Expires
ACKNOWLEDGMENT FOR NATURAL PERSONS
STATE OF NEW MEXICO )
) ss.
COUNTY OF LOS ALAMOS)
This Lease was acknowledge before me this _______ day of ________________ , 19__
by _____________________________.
- ----------------------------------- ---------------------------------------
Notary Public My Commission Expires
ACKNOWLEDGMENT FOR CORPORATION
STATE OF NEW YORK )
) ss.
COUNTY OF NEW YORK )
This Lease was acknowledged before me this 24th day of April, 1998 by MANHATTAN
SCIENTIFICS, INC. a Delaware Corporation, on behalf of said Corporation.
/s/ Dawn A. Vucina May 16, 1998
- ----------------------------------- ----------------------------------------
Notary Public My Commission Expires
DAWN A. VUCINA
NOTARY PUBLIC, STATE OF NEW YORK
#01VU5027666/COMM. EXP. 5/16/98
QUALIFIED IN KINGS COUNTY
<PAGE>
EXHIBIT B
AGREEMENT FOR TELEPHONE SERVICE IN THE
LOS ALAMOS SMALL BUSINESS CENTER
This agreement is entered into on the 24th day of April, 1998 by and between the
Los Alamos Economic Development Corporation (hereinafter called "LAEDC") and
MANHATTAN SCIENTIFICS, INC., of Los Alamos, NM (hereinafter called
"Subscriber").
Whereas, LAEDC operates a business telephone system in Los Alamos, NM and the
Subscriber desires to be included in this system:
Now, therefore, the parties agree as follows:
1. Number of Telephone Lines: The Subscriber agrees to lease, the LAEDC agrees
to provide 4 line (s) through the LAEDC's telephones systems. The Subscriber is
aware that from time-to-time, the LAEDC may not be able to provide all of the
lines desired by the Subscriber due to limitations of the LAEDC telephone system
or the equipment provided by US West that is required to operate the LAEDC
system.
2. Telephone Instrument & Accessories: The Subscriber agrees to lease, and the
LAEDC agrees to provide, the following telephone instruments and accessories:
4-INSTRUMENTS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
The Subscriber understands that this equipment is property of the LAEDC and
cannot be modified or altered in any way without the consent of the Executive
Director of the LAEDC or his Administrative Assistant. The LAEDC agrees to
provide this equipment in good working order and will take steps to replace or
repair any malfunctioning equipment.
3. Telephone Answering Service: Subject to alteration of LAEDC phone system
services, the LAEDC agrees to PROVIDE telephone answering service as part of
this agreement. If provided, the LAEDC agrees to take messages for the
Subscriber between 8:00 a.m. - 5:00 p.m. on weekdays except official LAEDC
holidays. The Subscriber
<PAGE>
understands that the LAEDC will not take messages from callers who are abusive
or obscene.
4. Consideration: In return for the aforementioned services and equipment, the
Subscriber agrees to pay the LAEDC $280.00 per month, due and payable on the
first day of the month for which the equipment and services are provided. The
Subscriber also agrees to pay for additional charges that are incurred on their
telephone line(s), such as long distance and directory assistance calls. An
itemized statement of such additional charges shall be provided with billings.
The Subscriber understands that he/she is responsible for the cost of initiating
or modifying their phone service. The LAEDC, at the request of the Subscriber
will obtain an estimate of installation or modification costs for the
Subscriber's review and approval. The Subscriber understands that the cost to
the LAEDC of operating its telephone system is affected by decisions by US West
and the New Mexico State Corporation Commission, and agrees that the LAEDC may
increase the cost of service to the Subscriber at any time when its costs are
increased by US West or the Corporation Commission. In turn, the LAEDC agrees to
provide, upon the Subscriber's request, an explanation and a justification for
the amount of increase in the LAEDC's charges to the Subscriber.
Further, the Subscriber understands that, because a State Corporation Commission
tariff requires that all telephones on the LAEDC system be charged on a
metered-basis for local calls, the LAEDC may require the Subscriber to pay an
additional charge if the Subscriber has extensive local call usage.
5. Term of this Agreement: The term of this agreement shall be co-terminus with
the term of the basic lease agreement of which this agreement is an attachment
including any extensions or modifications.
In witness whereof, the parties hereto have executed this Agreement this 24th
day of April, 1998.
Subscriber:
By: /s/ Scott L. Bach, Secretary
-------------------------------------
LAEDC:
By: /s/ Kevin Holsapple
-------------------------------------
<PAGE>
EXHIBIT C
Tenant shall inform Landlord of use of equipment or devices, if any, that
are likely to contribute to significantly higher consumption of utilities than
might be reasonably anticipated with office or light lab uses. Landlord shall
inform Tenant of unanticipated changes in facility utility costs for the purpose
of determining whether Tenant activities are causing costs in excess of might be
reasonably anticipated with office or light lab uses. In either case, both
parties shall negotiate in good faith to mutually agree upon Tenant
responsibility, if any, for higher than anticipated utility usage and rental
surcharges, if any, to be charged to Tenant for such usage.
<PAGE>
EXHIBIT D
1. The Landlord hereby approves the use by the tenant of the Leased Premises
for lawful technical purposes necessary and incidental to the Tenant's
business of research and development. Landlord acknowledges and approves
that the Tenant may use and store limited quantities of alcohol and
similar solvents and materials necessary for their business. Storage shall
be in proper cabinets and facilities as required by the insurance
companies covering the Leased Premises.
2. The Landlord recognizes that the tenant may be using the Leased Premises
at times and periods that do not conform to normal business hours and,
therefore, may have vehicles present in the parking lots at these times.
Such parking is approved providing that the vehicle operators are
physically present at the Leased Premises and are able to move the
vehicles if required to facilitate snow removal and maintenance activities
of the Landlord.
<PAGE>
EXHIBIT E
Landlord hereby consents to Tenant subletting of the Leased Premises to Energy
Related Devices, Inc., Tamarack Storage Devices, Inc., and/or to their
affiliates, related companies, subsidiaries, officers, or strategic partners
with which any of the forgoing have entered into and are actively working on a
contract with respect to scientific research and development collaborations. All
of the provisions of this Lease with respect to Tenant responsibilities and
Landlord rights shall be incumbent upon such subtenants.
<PAGE>
- --------------------------------------------------------------------------------
Los Alamos Economic Development Corporation
901 18th Street, PO Box 715, Los Alamos, NM 87544 [LOGO] LAEDC
505-662-0001 (fax) 505-662-0099 [email protected]
- --------------------------------------------------------------------------------
LEASE ADDENDUM NUMBER: 1 DATE: August 10, 1998
LEASE ADDENDUM
This LEASE ADDENDUM is made and entered into by and between LOS ALAMOS ECONOMIC
DEVELOPMENT CORPORATION, the Landlord and Manhattan Scientifics, Inc., the
Tenant, to modify the lease agreement dated May 1,1998, (currently in effect) as
follows:
SECTION 1, LEASE. Add Space 206 at 127 Eastgate Drive to the description
of the property being leased.
SECTION 3, RENT. Revise the base rental from $2,255.00 to $2,970.00 per
month.
The effective date of this change is August 10, l998. The rent for the added
space prorated for the period of August 10 through August 31, 1998 is $472.00.
All other terms, covenants, conditions and agreements of the Lease shall remain
in full force and effect.
In witness whereof, the duly authorized representatives of Landlord and Tenant
have executed this Addendum.
TENANT LANDLORD
Manhattan Scientifics, Inc. Los Alamos Economic Development Corporation
By: /s/ Scott L. Bach By: /s/ Kevin Holsapple
-------------------------------- ----------------------------------------
Its: Secretary & Director Its: Executive Director
------------------------------- ---------------------------------------
Date: Sept. 9, 1998 Date: 9-9-98
------------------------------ --------------------------------------
/s/ Dawn A. Vucina /s/ Linda K. Holley
- ----------------------------------- ----------------------------------------
Notary Public Notary Public
5-16-00 June 7, 2001
- ----------------------------------- ----------------------------------------
My Commission Expires My Commission Expires
DAWN A. VUCINA
NOTARY PUBLIC, STATE OF NEW YORK
#01VU5027666/COMM. EXP. 5/16/00
QUALIFIED IN KINGS COUNTY
<PAGE>
- --------------------------------------------------------------------------------
Los Alamos Economic Development Corporation
901 18th Street, PO Box 715, Los Alamos, NM 87544 [LOGO] LAEDC
505-662-0001 (fax) 505-662-0099 [email protected]
- --------------------------------------------------------------------------------
LEASE ADDENDUM NUMBER: 1 DATE: August 10, 1998
LEASE ADDENDUM
This LEASE ADDENDUM is made and entered into by and between LOS ALAMOS ECONOMIC
DEVELOPMENT CORPORATION, the Landlord and Manhattan Scientifics, Inc., the
Tenant, to modify the lease agreement dated May 1,1998, (currently in effect) as
follows:
SECTION 1, LEASE. Add Space 206 at 127 Eastgate Drive to the description
of the property being leased.
SECTION 3, RENT. Revise the base rental from $2,255.00 to $2,970.00 per
month.
The effective date of this change is August 10, 1998. The rent for the added
space prorated for the period of August 10 through August 31, 1998 is $472.00.
All other terms, covenants, conditions and agreements of the Lease shall remain
in full force and effect.
In witness whereof, the duly authorized representatives of Landlord and Tenant
have executed this Addendum.
TENANT LANDLORD
Manhattan Scientifics, Inc. Los Alamos Economic Development Corporation
By: /s/ Scott L. Bach By: /s/ Kevin Holsapple
-------------------------------- ----------------------------------------
Its: Secretary & Director Its: Executive Director
------------------------------- ---------------------------------------
Date: Sept. 9, 1998 Date: 9-9-98
------------------------------ --------------------------------------
/s/ Dawn A. Vucina /s/ Linda K. Holley
- ----------------------------------- ----------------------------------------
Notary Public Notary Public
5-16-00 June 7, 2001
- ----------------------------------- ----------------------------------------
My Commission Expires My Commission Expires
DAWN A. VUCINA
NOTARY PUBLIC, STATE OF NEW YORK
#01VU5027666/COMM. EXP. 5/16/00
QUALIFIED IN KINGS COUNTY
<PAGE>
MANHATTAN SCIENTIFICS, INC.
1998 STOCK OPTION PLAN
1. PURPOSES. The purposes of this Stock Option Plan (the "Plan") are to
attract and retain the best qualified personnel for positions of substantial
responsibility, to provide additional incentive to the Employees of the Company
or its Subsidiaries, if any (as such terms are defined in Section 2 below), as
well as other individuals who perform services for the Company or its
Subsidiaries, and to promote the success of the Company's business.
Options granted hereunder may be either "incentive stock options," as
defined in Section 422 of the Internal Revenue Code of 1986, as amended, or
"non-qualified stock options," at the discretion of the Board and as reflected
in the terms of the written instrument evidencing an Option.
2. DEFINITIONS. As used herein, the following definitions shall apply:
(a) "Board" shall mean the Committee, if one has been appointed, or
the Board of Directors of the Company, if no Committee is appointed.
(b) "Common Stock" shall mean the common stock of the Company, par
value $.OOO1 per share.
(c) "Company" shall mean Manhattan Scientifics, Inc.
(d) "Committee" shall mean the Committee appointed by the Board of
Directors in accordance with paragraph (a) of Section 4 of the Plan, if one is
appointed.
(e) "Continuous Status as an Employee" shall mean the absence of any
interruption or termination of service as an Employee. Continuous Status as an
Employee shall not be considered interrupted in the case of sick leave or any
other leave of absence approved by the Board.
(f) "Employee" shall mean any person, including officers and
directors, employed by the Company or any Parent or Subsidiary of the Company.
The payment of a director's fee by the Company shall not be sufficient to
constitute "employment" by the Company.
(g) "Exchange Act" shall mean the Securities Exchange Act of 1934,
as amended.
(h) "Incentive Stock Option" shall mean a stock option intended to
qualify as an incentive stock option within the meaning of Section 422 of the
Internal Revenue Code of 1986, as amended.
<PAGE>
(i) "Non-Qualified Stock Option" shall mean a stock option not
intended to qualify as an Incentive Stock Option.
(j) "Option" shall mean a stock option granted pursuant to the Plan.
(k) "Optioned Stock" shall mean the Common Stock subject to an
Option.
(l) "Optionee" shall mean an Employee or other person who receives
an Option.
(m) "Parent" shall mean a "parent corporation," whether now or
hereafter existing, as defined in Section 424(e) of the Internal Revenue Code of
1986, as amended.
(n) "Securities Act" shall mean the Securities Act of 1933, as
amended.
(o) "SEC" shall mean the Securities and Exchange Commission.
(p) "Share" shall mean a share of the Common Stock, as adjusted in
accordance with Section 11 of the Plan.
(q) "Subsidiary" shall mean a "subsidiary corporation," whether now
or hereafter existing, as defined in Section 424(f) of the Internal Revenue Code
of 1986, as amended.
3. STOCK.
Subject to the provisions of Section 11 of the Plan, the maximum aggregate
number of shares which may be optioned and sold under the Plan is thirty million
(30,000,000) shares of authorized, but unissued, or reacquired Common Stock.
If an Option should expire or become unexercisable for any reason without
having been exercised in full, the unpurchased Shares which were subject thereto
shall, unless the Plan shall have been terminated, become available for further
grant under the Plan.
4. ADMINISTRATION.
(a) Procedure. The Company's Board of Directors may appoint a
Committee to administer the Plan. The Committee shall consist of not less than
two members of the Board of Directors who shall administer the Plan on behalf of
the Board of Directors, subject to such terms and conditions as the Board of
Directors
2
<PAGE>
may prescribe. Once appointed, the Committee shall continue to serve until
otherwise directed by the Board of Directors. From time to time the Board of
Directors may increase the size of the Committee and appoint additional members
thereof, remove members (with or without cause), and appoint new members in
substitution therefor, fill vacancies however caused, or remove all members of
the Committee and thereafter directly administer the Plan.
If a majority of the Board of Directors is eligible to be granted
Options or has been eligible at any time within the preceding year, a Committee
must be appointed to administer the Plan. The Committee must consist of not less
than two members of the Board of Directors, all of whom are "disinterested
persons" as defined in Rule 16b-3 of the General Rules and Regulations
promulgated under the Exchange Act.
(b) Powers of the Board. Subject to the provisions of the Plan, the
Board shall have the authority, in its discretion: (i) to grant Incentive Stock
Options, in accordance with Section 422 of the Internal Revenue Code of 1986, as
amended, or to grant Non-Qualified Stock Options; (ii) to determine, upon review
of relevant information and in accordance with Section 8(b) of the Plan, the
fair market value of the Common Stock; (iii) to determine the exercise price per
share of Options to be granted, which exercise price shall be determined in
accordance with Section 8(a) of the Plan; (iv) to determine the persons to whom,
and the time or times at which, Options shall be granted and the number of
shares to be represented by each Option; (v) to interpret the Plan; (vi) to
prescribe, amend and rescind rules and regulations relating to the Plan; (vii)
to determine the terms and provisions of each Option granted (which need not be
identical) and, with the consent of the holder thereof, accelerate, modify or
amend each Option; (viii) to accelerate or defer (with the consent of the
Optionee) the exercise date of any Option; (ix) to authorize any person to
execute on behalf of the Company any instrument required to effectuate the grant
of an Option previously granted by the Board; and (x) to make all other
determinations deemed necessary or advisable for the administration of the Plan.
(c) Effect of the Board's Decision. All decisions, determinations
and interpretations of the Board shall be final and binding on all Optionees and
any other holders of any Options granted under the Plan.
5. ELIGIBILITY. Incentive Stock Options may be granted only to Employees.
Non-Qualified Stock Options may be granted to employees as well as directors
(subject to the limitations set forth in Section 4), independent contractors and
agents, as determined by the Board. Any person who has been granted an Option
may, if he is otherwise eligible, be granted an additional Option or Options.
No Incentive Stock Option may be granted to an Employee if, as a result of
such grant, the aggregate fair market value (determined at the time each Option
was granted) of the Shares with respect to which such Incentive Stock Options
are
3
<PAGE>
exercisable for the first time by such Employee during any calendar year (under
all such plans of the Company and any Parent and Subsidiary) shall exceed One
Hundred Thousand Dollars ($100,000).
The Plan shall not confer upon any Optionee any right with respect to
continuation of employment by the Company, nor shall it interfere in any way
with his right or the Company's right to terminate his employment at any time.
6. TERM OF PLAN. The Plan shall become effective upon the earlier to occur
of (i) its adoption by the Board of Directors, or (ii) its approval by vote of
the holders of a majority of the outstanding shares of the Company entitled to
vote on the adoption of the Plan. The Plan shall continue in effect until
January _, 2008, unless sooner terminated under Section 13 of the Plan.
7. TERM OF OPTION. The term of each Option shall be ten (10) years from
the date of grant thereof or such shorter term as may be provided in the
instrument evidencing the Option. However, in the case of an Incentive Stock
Option granted to an Employee who, immediately before the Incentive Stock Option
is granted, owns stock representing more than ten percent (10%) of the voting
power of all classes of stock of the Company or any Parent or Subsidiary, the
term of the Incentive Stock Option shall be five (5) years from the date of
grant thereof or such shorter time as may be provided in the instrument
evidencing the Option.
8. EXERCISE PRICE AND CONSIDERATION.
(a) The per Share exercise price for the Shares to be issued
pursuant to the exercise of an Option shall be such price as is determined by
the Board, but shall be subject to the following:
(i) In the case of an Incentive Stock Option
(A) granted to an Employee who, immediately before the
grant of such Incentive Stock Option, owns stock
representing more than ten percent (10%) of the
voting power of all classes of stock of the
Company or any Parent or Subsidiary, the per Share
exercise price shall be no less than 110% of the
fair market value per Share on the date of grant;
or, as the case may be,
(B) granted to an Employee not subject to the
provisions of Section 8(a)(i)(A), the per Share
exercise price shall be no less than one hundred
percent (100%) of
4
<PAGE>
the fair market value per Share on the date of
grant.
(ii) In the case of a Non-Qualified Stock Option, the per
Share exercise price shall be no less than one hundred percent
(100%) of the fair market value per Share on the date of
grant.
(b) The fair market value shall be determined by the Board in its
discretion; provided, however, that where there is a public market for the
Common Stock, the fair market value per Share shall be the mean of the bid and
asked prices or, if applicable, the closing price of the Common Stock on the
date of grant, as reported by the National Association of Securities Dealers
Automated Quotation (NASDAQ) System or, in the event the Common Stock is listed
on a stock exchange, the fair market value per Share shall be the closing price
on such exchange on the date of grant of the Option, as reported in the Wall
Street Journal.
(c) The consideration to be paid for the Shares to be issued upon
exercise of an Option or in payment of any withholding taxes thereon, including
the method of payment, shall be determined by the Board and may consist entirely
of (i) cash, check or promissory note; (ii) other Shares of Common Stock owned
by the Employee that have a fair market value on the date of surrender equal to
the aggregate exercise price of the Shares as to which said Option shall be
exercised; (iii) an assignment by the Employee of the net proceeds to be
received from a registered broker upon the sale of the Shares or the proceeds of
a loan from such broker in such amount; or (iv) any combination of such methods
of payment, or such other consideration and method of payment for the issuance
of Shares to the extent permitted under Delaware Law and meeting the rules and
regulations of the SEC applicable to plans meeting the requirements of Section
16(b)(3) of the Exchange Act.
9. EXERCISE OF OPTION.
(a) Procedure for Exercise; Rights as a Stockholder. Any Option
granted hereunder shall be exercisable at such times and subject to such
conditions as may be determined by the Board, including performance criteria
with respect to the Company and/or the Optionee, and as shall be permissible
under the terms of the Plan.
An Option may not be exercised for a fraction of a Share.
An Option shall be deemed to be exercised when written notice of
such exercise has been given to the Company in accordance with the terms of the
instrument evidencing the Option by the person entitled to exercise the Option
and full payment for the Shares with respect to which the Option is exercised
has been received by the Company. Full payment may, as authorized by the Board,
consist of
5
<PAGE>
any consideration and method of payment allowable under Section 8(c) of the
Plan; it being understood that the Company shall take such action as maybe be
reasonably required to permit use of an approved payment method. Until the
issuance, which in no event will be delayed more than thirty (30) days from the
date of the exercise of the Option (as evidenced by the appropriate entry on the
books of the Company or of a duly authorized transfer agent of the Company), of
the stock certificate evidencing such Shares, no right to vote or receive
dividends or any other rights as a stockholder shall exist with respect to the
Optioned Stock, notwithstanding the exercise of the Option. No adjustment will
be made for a dividend or other right for which the record date is prior to the
date the stock certificate is issued, except as provided in the Plan.
Exercise of an Option in any manner shall result in a decrease in
the number of Shares which thereafter may be available, both for the purposes of
the Plan and for sale under the Option, by the number of Shares as to which the
Option is exercised.
(b) Termination of Status as an Employee. If any Employee ceases to
serve as an Employee, he may, but only within thirty (30) days (or such other
period of time not exceeding three (3) months as is determined by the Board)
after the date he ceases to be an Employee of the Company, exercise his Option
to the extent that he was entitled to exercise it as of the date of such
termination. To the extent that he was not entitled to exercise the Option at
the date of such termination, or if he does not exercise such Option (which he
was entitled to exercise) within the time specified herein, the Option shall
terminate.
(c) Notwithstanding the provisions of Section 9(b) above, in the
event an Employee is unable to continue his employment with the Company as a
result of his total and permanent disability, he may, but only within three (3)
months (or such other period of time not exceeding twelve (12) months as is
determined by the Board) from the date of disability, exercise his Option to the
extent he was entitled to exercise it at the date of such disability. To the
extent that he was not entitled to exercise the Option at the date of
disability, or if he does not exercise such Option (which he was entitled to
exercise) within the time specified herein, the Option shall terminate. For
purposes of Section 9, an Employee is permanently and totally disabled if he is
unable to engage in any substantial gainful activity by reason of any medically
determinable physical or mental impairment which can be expected to result in
death or which has lasted or can be expected to last for a continuous period of
not less than twelve (12) months.
(d) Death of Optionee. In the event of the death of an Optionee:
(i) during the term of the Option who is at the time of
his death an Employee of the Company and who shall have been
in
6
<PAGE>
Continuous Status as an Employee since the date of grant of
the Option, the Option may be exercised, at any time within
twelve (12) months following the date of death, by the
Optionee's estate or by a person who acquired the right to
exercise the Option by bequest or inheritance, but only to the
extent of the right to exercise that would have accrued had
the Optioned continued living one (1) month after the date of
death; or
(ii) within thirty (30) days (or such other period of
time not exceeding three (3) months as is determined by the
Board) after the termination of Continuous Status as an
Employee, the Option may be exercised, at any time within
three (3) months following the date of death, by the
Optionee's estate or by a person who acquired the right to
exercise the Option by bequest or inheritance, but only to the
extent of the right to exercise that had accrued at the date
of termination.
10. NON-TRANSFERABILITY OF OPTIONS. The Option may not be sold, pledged,
assigned, hypothecated, transferred, or disposed of in any manner other than by
will or by the laws of descent or distribution and may be exercised, during the
lifetime of the Optionee, only by the Optionee.
11. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION OR MERGER. Subject to any
required action by the stockholders of the Company, the number of shares which
have been authorized for issuance under the Plan but as to which no Options have
yet been granted or which have been returned to the Plan upon cancellation or
expiration of an Option, shall be proportionately adjusted for any increase or
decrease in the number of issued shares of Common Stock or any other increase or
decrease in the number of issued shares of Common Stock effected without receipt
of consideration by the Company; provided, however, that conversion of any
convertible securities of the Company shall not be deemed to have been "effected
without receipt of consideration." Such adjustment shall be made by the Board,
whose determination in that respect shall be final, binding and conclusive.
Except as expressly provided herein, no issuance by the Company of shares of
stock of any class, or securities convertible into shares of stock of any class,
shall affect, and no adjustment by reason thereof shall be made with respect to,
the number or price of shares of Common Stock subject to an Option.
In the event of the proposed dissolution or liquidation of the Company, or
in the event of a proposed sale of all or substantially all of the assets of the
Company, or the merger of the Company with or into another corporation, the
Board of Directors of the Company shall, as to outstanding Options, either (i)
make appropriate provision for the protection of any such outstanding Options by
the substitution on an equitable basis of appropriate stock of the Company or of
the merged, consolidated or
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otherwise reorganized corporation which will be issuable in respect to one share
of Common Stock of the Company; provided, only that the excess of the aggregate
fair market value of the shares subject to the Options immediately after such
substitution over the purchase price thereof is not more than the excess of the
aggregate fair market value of the shares subject to such Options immediately
before such substitution over the purchase price thereof or (ii) upon written
notice to an Optionee, provide that all unexercised Options must be exercised
within a specified number of days of such notice or they will be terminated. In
any such case, the Board of Directors may, in its discretion, advance the lapse
of any waiting or installment periods and exercise dates.
12. TIME FOR GRANTING OPTIONS. The date of grant of an Option shall, for
all purposes, be the date on which the Board makes the determination granting
such Option. Notice of the determination shall be given to each person to whom
an Option is so granted within a reasonable time after the date of such grant.
13. AMENDMENT AND TERMINATION OF THE PLAN.
(a) The Board may amend or terminate the Plan from time to time in
such respect as the Board may deem advisable; provided, however, that the
following revisions or amendments shall require approval of the holders of a
majority of the outstanding shares of the Company entitled to vote:
(i) any increase in the number of Shares subject to the
Plan, other than in connection with an adjustment under
Section 11 of the Plan;
(ii) any change in the designation of the class of
persons eligible to be granted options; or
(iii) any material increase in the benefits accruing to
participants under the Plan.
(b) Stockholder Approval. If any amendment requiring stockholder
approval under Section 13(a) of the Plan is made, such stockholder approval
shall be solicited as described in Section 17(a) of the Plan.
(c) Effect of Amendment or Termination. Any such amendment or
termination of the Plan shall not affect Options already granted and such
Options shall remain in full force and effect as if this Plan had not been
amended or terminated, unless mutually agreed otherwise between the Optionee and
the Board, which agreement must be in writing and signed by the Optionee and the
Company.
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14. CONDITIONS UPON ISSUANCE OF SHARES. Shares shall not be issued
pursuant to the exercise of an Option unless the exercise of such Option and the
issuance and delivery of such Shares pursuant thereto shall comply with all
relevant provisions of law, including, without limitation, the Securities Act of
1933, as amended, the Exchange Act, the rules and regulations promulgated
thereunder, and the requirements of any stock exchange upon which the Shares may
then be listed, and shall be further subject to the approval of counsel for the
Company with respect to such compliance.
As a condition to the exercise of an Option, the Company may require the
person exercising such Option to represent and warrant at the time of any such
exercise that the Shares are being purchased only for investment and without any
present intention to sell or distribute such Shares if, in the opinion of
counsel for the Company, such a representation is required by, or appropriate
under, any of the aforementioned relevant provisions of law.
15. RESERVATION OF SHARES. The Company, during the term of this Plan, will
at all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan.
Inability of the Company to obtain authority from any regulatory body
having jurisdiction, which authority is deemed by the Company's counsel to be
necessary to the lawful issuance and sale of any Shares hereunder, shall relieve
the Company of any liability in respect of the failure to issue or sell such
Shares as to which such requisite authority shall not have been obtained.
16. OPTION AGREEMENT. Options shall be evidenced by written option
agreements in such form as the Board shall approve.
17. STOCKHOLDER APPROVAL. Continuation of the Plan shall be subject to
approval by the stockholders of the Company within twelve (12) months before or
after the date the Plan is adopted. If such stockholder approval is obtained at
a duly held stockholders' meeting, it may be obtained by the affirmative vote of
the holders of a majority of the outstanding shares of the Company present or
represented and entitled to vote thereon. The approval of such stockholders of
the Company shall be (1) solicitated substantially in accordance with Section
14(a) of the Exchange Act and the rules and regulations promulgated thereunder,
or (2) solicited after the Company has furnished in writing to the holders
entitled to vote substantially the same information concerning the Plan as that
which would be required by the rules and regulations in effect under Section
14(a) of the Exchange Act at the time such information is furnished.
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of any action suit or proceeding, or in connection with any appeal therein, to
which they or any of them may be a party by reason of any action taken or
failure to act under or in connection with the Plan or any Option granted
thereunder, and against all amounts paid by them in settlement thereof (provided
such settlement is approved by independent legal counsel selected by the
Company) or paid by them in satisfaction of a judgment in any such action, suit
or proceeding that such Board member is liable for negligence or misconduct in
the performance of his duties, provided that within 60 days after institution of
any such action, suit or proceeding a Board member shall, in writing, offer the
Company the opportunity, at its own expense, to handle and defend the same.
20. OTHER COMPENSATION PLANS. The adoption of the Plan shall not affect
any other stock option or incentive or other compensation plans in effect for
the Company or any Subsidiary, nor shall the Plan preclude the Company from
establishing any other forms of incentive or other compensation for employees
and directors of the Company or any Subsidiary.
21. SINGULAR, PLURAL; GENDER. Whenever used herein, nouns in the singular
shall include the plural, and the masculine pronoun shall include the feminine
gender.
22. HEADINGS, ETC., NO PART OF PLAN. Headings of Articles and Sections
hereof are inserted for convenience and reference; they constitute no part of
the Plan.
MANHATTAN SCIENTIFICS, INC.
By: /s/ Lynn Dixon
---------------------
Lynn Dixon, President
January 8,1998
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EMPLOYMENT AND NON-COMPETITION AGREEMENT
This Employment and Non-Competition Agreement (the "Agreement") is made as
of August 30, 1999, by and between MANHATTAN SCIENTIFICS, INC., a Delaware
Corporation ("Employer"), and Robert E. Hermes, Ph.D., an adult resident of New
Mexico ("Employee").
Background
A. Employer is in the business of scientific research and development, and
bringing to market, of various technologies (the "Technologies") including,
without limitation, holographic data storage and retrieval technologies
("Holographics"), micro and mid-range fuel cell technologies ("Fuel Cells"), and
nanoporous polymer filtration technologies ("Polymerics"), and Employer holds
certain key intellectual property rights in and to the Technologies.
B. Employee has specialized knowledge in the area of the Technologies
(including without limitation in Holographics and Polymerics), and Employer
wishes to engage the services of Employee to assist in the further research,
development, intellectual property protection, and bringing to market of the
Technologies.
C. Employee will hold a position of trust and confidence and will be
entrusted by Employer and its corporate subsidiaries, contractors, affiliated
individuals and business entities, including without limitation HoloStor, Inc.,
f/k/a Tamarack Storage Devices, Inc. (collectively, the "Affiliates"), with
confidential and proprietary knowledge of their research and development
including, without limitation, the working of its products, the marketing and
sale of new and existing products, technical matters relating to Employer's
intellectual property, and the like.
D. Employer and Employee desire to set forth the terms and conditions of
Employee's employment with Employer.
Agreement
In consideration of the foregoing background, and of the mutual covenants
and promises contained in this Agreement, and for other good and valuable
consideration (receipt of which is acknowledged), including without limitation
the employment of Employee by Employer, the parties hereto, intending to be
legally bound, do hereby agree as follows:
1.1 Employment. Employer hereby employs Employee to serve Employer and the
Affiliates, and Employee hereby accepts such employment and agrees to perform
Employee's duties and responsibilities hereunder in accordance with the terms
and conditions of this Agreement. It is understood that in order to accept this
employment, Employee is taking entrepreneurial leave from his current employer,
the Los Alamos National Laboratory at Los Alamos, New Mexico, through the
University of California ("UC") and the United States Department of Energy
("DOE," and together with UC and the Los Alamos National Laboratory at Los
Alamos, "LANL").
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1.2 Employment Term. (a) Unless sooner terminated in accordance with
Section IV of this Agreement, the employment period under this Agreement shall
be for one (1) year commencing on September 1, 1999 and terminating on August
31, 2000 (the "Employment Period").
(b) The Employment Period shall automatically renew and be extended
for additional one (1) year terms commencing on September 1, 2000 and September
1, 2001, respectively, unless either party shall have first provided written
notice to the other of its intention to opt out of renewal no fewer than sixty
(60) days prior to either September 1, 2000 or September 1, 2001, as
appropriate.
1.3 Duties and Responsibilities. During the Employment Period, Employee
shall serve as Senior Staff Scientist (or such other title to which the parties
may agree), and Employee shall perform all duties and accept all
responsibilities incident to such position or which may be consistent with such
position and which are delegated to Employee by Employer or its designees. Such
responsibilities include, without limitation, (i) working diligently to achieve
Employer's goals with respect to the Technologies, and particularly with respect
to Holographics and Polymerics, in accordance with Employer's timetables for the
achievement of such goals; (ii) conducting and coordinating scientific research
and development in connection with the Technologies, and particularly with
respect to Holographics and Polymerics; (iii) working to create a stable and
reliable holographic data storage medium that will enable Employer's
Holographics devices to function as intended; (iv) working to bring to market as
rapidly as possible Employer's Holographics and Polymerics devices and other
devices employing the Technologies; (v) attending meetings as reasonably
required by Employer with the Affiliates, potential strategic partners of
Employer and the Affiliates, investors, and other parties; and (vi)
participating in press conferences, interviews, or other media events as
reasonably requested by Employer (collectively, the "Services"). The scientific
research and development aspect of the Services shall be performed at Employer's
Los Alamos, New Mexico facility or such other location(s) reasonably requested
by Employer. Other aspects of the Services shall be performed at times and
locations that are reasonable in light of the services being performed.
1.4 Extent of Service. During the Employment Period, Employee shall use
his best efforts and shall devote his whole business time, attention, and energy
to such business of Employer and to the performance of Employee's Services and
the discharge of Employee's duties and responsibilities under this Agreement.
Employee further agrees not to work on either a part-time or independent
contractual basis for any other business or enterprise during the Employment
Period without the prior written approval of Employer.
II. Compensation
2.1 Base Salary. As compensation for Employee's services hereunder and for
Employee entering into the Non-Competition and other restrictive covenants as
part of this Agreement, Employer shall pay to Employee a base salary ("Base
Salary") at the annual rate of $90,000.00, less withholding as required by law
or agreed to by Employee, payable in 26 bi-
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weekly installments per annum. Such salary may (but shall not be required to) be
increased from time to time during the Employment Period in the sole discretion
of Employer, but at no time during the Employment Period shall Employee have the
right to receive or continue to receive any such increase in compensation. Any
such increase in compensation shall not be deemed to be an amendment to this
Agreement and may be discontinued at any time for any reason whatsoever in
Employer's sole discretion.
2.2 Additional Cash Compensation
(a) For the Employment Period and any renewals/extensions thereof,
Employer shall pay Employee cash compensation together with and in addition to
the Base Salary at the annual rate of $6,000.00, less withholding as required by
law or agreed to by Employee. This additional cash compensation is being made to
reimburse Employee for payroll expenses for Social Security and Medicare that he
would not have incurred if he had not taken entrepreneurial leave from LANL.
(b) For the Employment Period and only the first renewal/extension
thereof (if any), Employer shall pay Employee cash compensation together with
and in addition to the Base Salary at the annual rate of $19,000.00, less
withholding as required by law or agreed to by Employee (the "Retirement
Reimbursement"). The Retirement Reimbursement is being made to reimburse
Employee for the cost of contributions he will make toward his retirement
account with LANL.
(c) For the Employment Period only (and no renewals or extensions
thereof), Employer shall pay Employee cash compensation together with and in
addition to the Base Salary at the annual rate of $2,500.00, less withholding as
required by law or agreed to by Employee (the "Disability Reimbursement"). The
Disability Reimbursement is being made to reimburse Employee toward the cost of
disability insurance coverage.
2.3 Benefits. Employee shall be entitled to the following benefits:
(i) six (6) week's paid vacation per contract year, to be scheduled in
consultation with Employer;
(ii) eligibility to participate in Employer's health care plan commencing on
September 1, 2000, provided that Employer has implemented a health care
plan at such time; and
(iii) paid holidays coinciding with official United States legal holidays.
2.4 Reimbursement of Expenses. Employer shall reimburse Employee for all
reasonable ordinary and necessary out-of-pocket business expenses actually
incurred by Employee in connection with the discharge of Employee's duties and
responsibilities hereunder during the Employment Period in accordance with
Employer's expense approval and reimbursement policies and procedures then in
effect and upon presentation to Employer of an
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itemized account and written proof of such expenses in the form of bona fide
original receipts. Employee shall not incur expenses without Employer's prior
knowledge and consent.
2.5 Stock Options. Employee shall receive 500,000 options to purchase
Employer's publicly traded common stock, subject to the following terms and
conditions (the "Options"):
(a) The strike price of the Options will be forty cents (.40) per share, and
may, at Employer's option, be of the "cashless" variety;
(b) The Options will have a life of 10 years from the time that they vest;
(c) The Options will be issued on or before December 1, 1999, provided that
Employee is still employed by Employer at such time.
(d) 100,000 of the Options will vest on August 31, 2000, provided that
Employee is still employed by Employer at such time;
(e) 100,000 of the Options will vest on August 31, 2001, provided that
Employee is still employed by Employer at such time; and
(f) 100,000 of the Options will vest on August 31, 2002, provided that
Employee is still employed by Employer at such time;
(g) 200,000 of the options will vest at the discretion of the Board of
Directors of Employer.
Employee acknowledges that any Options that do not vest will have no
value.
III. Confidentiality and Intellectual Property
3.1 Employee shall not at any time copy, use, disclose or authorize anyone
else to copy, use or disclose, any Confidential Information of Employer or the
Affiliates. Confidential Information includes, but is not limited to, memoranda,
notes, documents or records, whether or not marked confidential, progress
reports, milestone reports, or other material considered by Employer and/or the
Affiliates to be of a proprietary, sensitive and/or confidential nature; names,
addresses and practices of Employer's or the Affiliates' customers, business
contacts, suppliers, manufacturers, investors, and the like; customer service
requirements; management practices and personnel data; selling processes;
pricing policies and lists; sources of supply; electronic information formats;
computer software, data bases, and electronic files; business plans; financial
policies, non-public information, and the like.
3.2 Employee shall not use (or permit others to use) for personal purposes
any property of Employer or the Affiliates, including but not limited to,
materials containing Confidential Information. Further, Employee shall not make
copies of, resell or transfer any
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<PAGE>
software or other intellectual property owned or licensed by Employer. On
termination of employment, Employee will deliver to Employer all property
belonging to Employer, and will not retain any copies or reproductions of any
documents containing Confidential Information or relating in any way to the
business of Employer.
3.3 Subject to paragraph 6.8, it is understood and agreed that any and all
intellectual property, inventions, discoveries, developments, know-how,
innovations or the like created or developed by Employee pursuant to this
agreement shall be works for hire, shall be the sole and exclusive property of
Employer and/or the Affiliates, as appropriate, and that Employee shall retain
no rights thereto. Employee shall turn over to Employer all information, notes,
files, documents, data and the like pertaining to such intellectual property,
inventions, discoveries, developments, know-how, innovations and the like, and
shall not maintain copies on home computers or similar devices without
Employer's prior written consent. Employee will disclose and assign to Employer
any and all material of a proprietary nature, particularly including, but not
limited to, material subject to protection as trade secrets or as patentable or
copyrightable ideas, inventions and/or innovations which Employee may conceive,
invent, discover or create during the course of Employee's employment. Upon
Employer's request, either during or at any time after the termination of
Employee's employment with Employer, and without further compensation, Employee
will execute and deliver all papers, including applications for patents,
copyrights, trademarks, and service marks and do such other acts as may be
necessary for Employer to obtain and maintain its proprietary rights in such
proprietary material in any and all countries and to vest title thereto in
Employer. Employee hereby appoints Marvin Maslow, Jack Harrod and Scott L. Bach,
Esq. as attorneys-in-fact for the sole and limited purpose of executing legal
instruments in Employee's name that are reasonably necessary for the assignment,
transfer and protection of intellectual property in the name of Employer or the
Affiliates, as appropriate.
3.4 The provisions of this section shall survive termination of the
Employment Period and any extensions or renewals thereof.
3.5 Employee acknowledges that a violation of this section would cause
Employer irreparable harm. Consequently, in addition to all other remedies to
which Employer is entitled, Employer may enjoin Employee from disclosing or
using Confidential Information in violation of this section.
IV. Termination
4.1 Termination of Employee. Notwithstanding any other provision of this
Agreement, Employer may terminate Employee's employment hereunder without notice
for any reason whatsoever or for no reason at any time during the Employment
Period. The employment hereunder is "at-will." The effect of termination is set
forth in paragraph 4.4 of this agreement.
4.2 Employee's Resignation. Employee may terminate his employment under
this Agreement at any time during the Employment Period by providing Employer
with sixty (60)
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days prior written notice of such termination ("Employee's Resignation").
4.3 Termination by Mutual Agreement. The parties may agree in writing at
any time to mutual termination of this agreement ("Mutual Termination").
4.4 Effect of Termination.
(a) If Employee is terminated "for cause" (hereinafter defined) or
if Employee's employment is terminated as a result of Employee's resignation, or
through Mutual Termination, then Employer shall not be required to make any
further payments (or to provide any further Compensation except as required by
employment law) to Employee, and Employer shall have no further liability to
Employee hereunder whatsoever except to pay to Employee any unpaid Base Salary
and accrued vacation pay to the date of Employee's termination, and to honor any
Options that have been issued and have vested as of the date of termination.
(b) If Employee is terminated "without cause," Employer's only
responsibility and obligation to Employee shall be to (i) pay to Employee
Employee's Base Salary for the reminder of the then-current Employment Period or
until he is re-employed by LANL or any other entity, whichever shall first
occur; and (ii) honor any Options that have been issued and have vested as of
the date of termination.
(c) For purposes of this Agreement, the term "for cause" shall mean
dishonesty, disloyalty to Employer and/or to the Affiliates, conviction of a
felony or other crime involving moral turpitude, misappropriation of funds of
Employer or the Affiliates, insubordination or incitement of others to
insubordination, violation of Employer's substance abuse policy, willful
misconduct, negligence or incompetence in the performance of Employee's duties
and responsibilities hereunder, Employee's failure to timely achieve objectives
reasonably established by Employer as a result of Employee's failure to use best
efforts, the death of Employee, the inability of Employee to perform
substantially Employee's duties, by reason of illness or any other incapacity or
disability, for a period of one (1) month or more, a material breach or habitual
breach of Employer's company policies, or any other action on the part of the
Employee that is damaging or detrimental and is significant to Employer or any
member of Employer or to its Affiliates.
(d) For purposes of this Agreement, the term "without cause" shall
mean any other reason other than "for cause."
4.5 Continuing Covenant. Regardless of whether Employee's employment is
hereunder terminated "for cause," "without cause," by Employee's resignation, or
by expiration of the Employment Period or any extensions thereof, Employee shall
remain subject to and bound by the Non-Competition, Confidentiality,
Intellectual Property and other restrictive covenants set forth in this
Agreement.
V. Non-Competition and Other Restrictive Covenants
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5.1 Non-Competition; Non-Solicitation. So long as Employee is employed by
Employer and for a period of three (3) years after the termination of Employee's
employment for any reason whatsoever, Employee shall not, directly or indirectly
(either as principal, agent, employee, employer, consultant, controlling
stockholder, co-partner or in any other individual or representative capacity
whatsoever), (A) engage in or carry on research and development activities the
same or similar to the Services in competition with the business and objectives
of Employer and/or the Affiliates, (B) solicit the business of any of Employer's
or Affiliates' customers or business contacts with respect to the Services
performed by Employee, or request that any customers or business contacts of
Employer and/or the Affiliates curtail or cancel their business with Employer or
the Affiliates; (C) induce, or attempt to influence, any employee, contractor,
or advisor of Employer and/or the Affiliates to terminate his or her
relationship with Employer and/or the Affiliates, or to enter into any
employment or other business relationship with any other person (including
without limitation Employee), firm, or corporation, (D) act or conduct himself
in any manner which is inimical or contrary to the best interest of Employer
and/or the Affiliates, or (E) disclose to any person, firm, or corporation any
trade, technical or technological secrets, intellectual property, know how, any
details of organization or business affairs, names of past or present customers
or business contacts of Employer and/or the Affiliates, or any other information
relating to the business of Employer and/or the Affiliates.
Employee recognizes that immediate and irreparable damage will result to
Employer and/or the Affiliates if Employee breaches any of the items and
conditions of this Section and, accordingly, Employee hereby consents to the
entry by any court of competent jurisdiction of any injunction against Employee
to restrain any such breach, in addition to any other remedies or claims for
money damages which Employer and/or the Affiliates may be entitled to at law or
in equity.
Employee agrees that the foregoing territorial and time limitations and
prohibited activities are reasonable and properly required for the adequate
protection of Employer's interests. Employee acknowledges that Holographics,
Fuel Cells, and Polymerics are new, cutting edge technologies with the potential
to revolutionize the respective industries which they impact, that time is of
the essence with respect to development, protection and bringing to market of
those technologies, and that the foregoing non-competition covenants are
necessary in order to protect Employer's and/or the Affiliates' strategic
positioning as a front-runner in the development of such technologies, and that
in the absence of such covenants, Employer's and/or the Affiliates' strategic
positioning would be compromised. In the event the foregoing non-competition or
other restrictive covenants are held to be unenforceable by any court of
competent jurisdiction, it is agreed and understood that this Section shall be
deemed to impose, and construed as imposing, limitations upon Employee's
activities to the greatest extent permitted under then applicable law.
Employee represents and warrants to Employer that Employee's experience
and capabilities are such that he can obtain employment in business without
breaching the terms and conditions of this Section and that these restrictions
(and the enforcement thereof by injunction or otherwise) will not prevent
Employee from earning a livelihood. These non-competition and other restrictive
covenants shall be separate from and in addition to any other non-competition or
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other restrictive covenants that may be entered into by Employee and Employer as
part of this or any other agreement.
VI. Miscellaneous
6.1 Notices. Any notice or communication required or permitted to be given
by any provision of this Agreement shall be in writing and shall be deemed to
have been given when delivered personally, receipt confirmed, to the party
designated to receive such notice, or on the date following the day sent by a
nationally recognized overnight courier, charges prepaid, receipt confirmed,
directed to the following addresses or to such other or additional addresses as
any party might designate by written notice to the other party:
(1) Employer at:
Manhattan Scientifics, Inc. Bach & Associates
641 Fifth Avenue, Suite 36F One Rockefeller Plaza, Suite 210
New York, New York 10022 New York, New York 10020
Att: Marvin Maslow Att: Scott L. Bach, Esq.
(2) The Employee at:
1 Kiowa Lane
White Rock, New Mexico 87544
6.4 Successors and Assigns. The rights and obligations of Employer under
this Agreement shall inure to the benefit of and shall be binding upon its
successors and assigns.
6.5 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York, without regard to its
conflict of law principles, as if wholly performed therein. In the event of a
dispute, the parties hereby consent to the exclusive jurisdiction of the courts,
both federal and state, located within the State of New York, and agree that
venue shall be in New York County exclusively, notwithstanding any other
provision of law in any jurisdiction in the world.
6.6 Entire Agreement; Incorporation. This instrument contains the entire
agreement of the parties hereto with respect to the subject matter hereof. It
may not be changed orally but may be changed only by an agreement in writing
signed by the party against whom enforcement of any waiver, change,
modification, extension or discharge is sought. The "Whereas" clauses at the
beginning of this agreement, as well as all exhibits hereto, are hereby
incorporated by reference herein and made a part hereof.
6.7 Other Agreements; Counsel. This Agreement supersedes all prior
employee
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and compensation agreements involving Employee. The parties acknowledge that
they have read and understood this agreement in all respects, and that they have
had the opportunity to consult with counsel prior to the execution hereof.
6.8 Rights of LANL/UC/DOE. It is recognized that Employee is on
Entrepreneurial Leave from LANL, is still an employee of UC engaged in certain
work conducted by UC at the Los Alamos National Laboratory with DOE, and that
the UC may have first rights to intellectual properties, patents and inventions
arising from Employee's services under this agreement. Whenever any invention or
discovery is made, conceived or developed by Employee under this Agreement,
Employee shall promptly furnish LANL with information thereon sufficient for the
purpose of affording timely resolution of whether the invention or discovery is
within the purview of the patent agreement executed by Employee with the
University. Employee may not, by contract or otherwise, waive these rights of UC
and DOE.
IN WITNESS WHEREOF, the parties hereto have executed this Employment and
Non-Competition Agreement as of the day and year first above written.
EMPLOYER EMPLOYEE
MANHATTAN SCIENTIFICS, INC.
By: /s/ Marvin Maslow /s/ Robert E. Hermes, Ph.D.
------------------------------- --------------------------------
ROBERT E. HERMES, PH.D.
/s/ Robert E. Hermes, Ph.D.
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AGREEMENT AND PLAN OF MERGER
In consideration of the mutual promises and covenants contained herein,
the receipt and sufficiency of which are hereby acknowledged, DKY, Inc., a New
Mexico business corporation (Merging Corporation) and Tamarack Storage Devices,
Inc., a Texas business corporation (Surviving Corporation) and Manhattan
Scientifics, Inc. ("MSI") a Delaware business corporation owning one hundred
percent (100%) of the outstanding shares of the Surviving Corporation, hereby
stipulate and agree as follows ("this Agreement"):
SECTION 1. MERGER
On the Effective Date, the Merging Corporation shall be merged with and into
the Surviving Corporation. The separate existence of the Merging Corporation
shall cease, and both the Merging and Surviving Corporation shall be a single
corporation which shall be the Surviving Corporation. The title to all real
estate and other property owned by the Merging Corporation and the Surviving
Corporation shall be vested in the Surviving Corporation without reversion or
impairment, and without further act or deed. The Surviving Corporation shall
assume all liabilities and obligations of the Merging Corporation and the
Surviving Corporation as of the Effective Date. Any proceeding pending against
the Merging Corporation or the Surviving Corporation may be continued as if the
merger did not occur, or the Surviving Corporation may be substituted in the
proceeding for the Merging Corporation.
SECTION 2. SHAREHOLDER APPROVAL
Forthwith upon the full execution of this agreement, the Merging
Corporation and the Surviving Corporation shall each submit this agreement to
its shareholders for approval in accordance with Business Corporation Act of the
states of New Mexico (Merging Corporation) and Texas (Surviving Corporation).
SECTION 3. EFFECTIVE DATE AND CLOSING
3.1 Effective Date. The merger of the Merging Corporation and the
Surviving Corporation shall be effective (Effective Date) upon the filing of the
Articles of Merger in accordance with the Business Corporation Act of the states
of Texas and New Mexico.
3.2 Closing. Subject to the satisfaction of the conditions set forth in
Sections 10 and 11 of this agreement, the closing of this merger shall take
place at such place or at such time as may be agreed upon by the Surviving
Corporation and the Merging Corporation. At the time of the closing:
3.2.1 Filing of Articles of Merger. The Surviving Corporation and the
Merging Corporation shall cause the Articles of Merger to be filed.
3.2.2 Certificates. The Merging Corporation and the Surviving Corporation
shall each deliver to the other certified copies of the resolutions of the Board
of Directors and Shareholders of the delivering corporation approving the
merger.
3.3 Further Assurances. From time to time after the closing, the parties
shall execute and deliver such other documents and take such other actions as
may reasonably be required to accomplish the merger.
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SECTION 4. SHARES OF STOCK, RESTRICTIONS ON RESALE
4.1 Exchange of Shares. On the Effective Date the Surviving Corporation
shall issue to the shareholders of the Merging Corporation stock certificates
representing 72,000 shares of the fully paid and nonassessable common stock (the
"Common Stock") of MSI for each one share of the Merging Corporation held by the
shareholders.
4.2 Cancellation of Shares. On the Effective Date, each share of stock of
the Merging Corporation that is then issued and outstanding shall, by virtue of
the merger and without any action on the part of the Merging Corporation or the
Surviving Corporation, be immediately canceled.
4.3 Continuation of Shares. Each share of stock of the Surviving
Corporation that is issued and outstanding as of the Effective Date shall
continue to be an issued and outstanding share of the Surviving Corporation
notwithstanding the merger.
4.4 Right of First Refusal; Matching Right. (i) In the event that any
shareholder of the Merging Corporation (the "Offeree Shareholder") desires to
transfer, sell or otherwise dispose of, or offer to do any of same, in a private
transaction, all of the shares of Common Stock now or hereafter beneficially
owned by such Offeree Shareholder, the Offeree Shareholder, before making such
offer or effecting such transfer, sale or disposition, the Offeree Shareholder
shall first give written notice (the "Seller's Notice") to the Surviving
Corporation. The Seller's Notice shall state the Offeree Shareholder's desire to
make such offer, transfer, sale or disposition of the number of shares of Common
Stock proposed to be offered or transferred (the "Offered Shares"), and the
proposed per share consideration therefor (the "ROFR Price") and any other
material terms and conditions with respect to the proposed transfer, sale or
disposition of the Offered Shares.
Upon receipt of the Seller's Notice, the Surviving Corporation shall have
the irrevocable and exclusive option (the "ROFR Option") for thirty (30) days to
purchase all of the Offered Shares subject to the Matching Notice at the price
and upon the terms set forth therein. The ROFR Option shall be at the ROFR Price
and upon such other material terms and conditions as set forth in the Seller's
Notice; it being expressly understood and agreed that the Surviving Corporation
may, at its discretion, agree to purchase any or all of the Offered Shares in
order to effect the ROFR Option.
In the event that the Surviving Corporation does not elect to purchase all
of the Offered Shares specified in the Seller's Notice, the Offeree Shareholder
may, within thirty (30) days following the expiration of the ROFR Option,
transfer, sell or dispose to a third party those Offered Shares not purchased by
the Surviving Corporation on terms and conditions to be negotiated by the
Offeree Shareholder and a third party (the "Third Party Offer"); provided,
however, that the Offeree Shareholder, before effecting such transfer, sale or
other disposition, shall first give written notice (the "Matching Notice") to
the Surviving Corporation which Matching Notice shall state the Offeree
Shareholder's desire to make such sale, transfer, or disposition of the number
of shares of Common Stock proposed to be transferred, sold or disposed of
pursuant to the Third Party Offer and any other material terms and conditions
with respect to the Third Party Offer.
Upon receipt of the Matching Notice, the Surviving Corporation shall have
the irrevocable and exclusive right for thirty (30) days (the "Matching Right")
to purchase all of Offered Shares subject to the Matching Notice; it being
expressly understood and agreed that the Surviving Corporation may, at its sole
discretion, agree to purchase any or all of the Offered Shares subject to the
Matching Notice.
In the event that the Surviving Corporation does not elect to purchase all
of the Offered Shares subject to the Matching Notice, the Offeree Shareholder
may, following the
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expiration of the Surviving Corporation's Matching Right, sell within five (5)
business days therefrom the Offer Shares to a third party upon the terms of the
Third Party Offer. All shares of Common Stock sold by the Offeree Shareholder to
a third party hereunder shall be expressly subject to such third party's
agreement to be bound to all of the provisions of this Agreement.
Notwithstanding any other term or condition in this Section 4.4, nothing
in this Section 4.4 shall act to inhibit nor apply to any transfer, assignment,
sale, bequest, devise, gift or testamentary disposition of Common Stock by any
shareholder of the Merging Corporation to their respective heirs, descendants,
children (natural issue or otherwise) or to trusts or other mechanisms set up
for the benefit of such persons or such persons' heirs or beneficiaries.
4.5 The shareholders of the Merging Corporation shall have the unfettered
right to sell the shares of Common Stock received hereunder into the public
marketplace subject only to (i) any restriction imposed upon such shareholders
by any underwriter or other financing source relative to the Surviving
Corporation, and (ii) federal and state securities laws.
SECTION 5. CORPORATE INCIDENTS
5.1 Articles of Incorporation. The Articles of Incorporation of the
Surviving Corporation, as in effect immediately prior to the Effective Date,
shall be the Articles of Incorporation of the Surviving Corporation following
this merger.
5.2 Bylaws. The Bylaws of the Surviving Corporation, as in effect
immediately prior to the Effective Date, shall be the Bylaws of the Surviving
Corporation following this merger.
5.3 Board of Directors and Officers. The Board of Directors of the
Surviving Corporation following this merger shall consist of the persons who are
members of the Board of Directors of the Surviving Corporation immediately prior
to the Effective Date, and they shall hold office until their successors have
been elected and qualified. The officers of the Surviving Corporation following
this merger shall be the persons who are the officers of the Surviving
Corporation immediately prior to the Effective Date, and they shall hold office
at the pleasure of the Board of Directors of the Surviving Corporation.
SECTION 6. REPRESENTATIONS AND WARRANTIES OF MERGING CORPORATION
6.1 Organization. The Merging Corporation is a corporation duly organized
and existing in good standing under the laws of the state of New Mexico and has
the corporate power to own its properties and to carry on its business as now
conducted, and is qualified to do business in no other jurisdiction. No
proceeding is pending or threatened involving the Merging Corporation in which
it is alleged that the nature of its business makes qualification necessary in
any additional jurisdiction.
6.2 Capitalization. The issued and outstanding stock of the Merging
Corporation consists solely of one hundred (100) shares of common stock without
par value. All of the issued and outstanding shares of the Merging Corporation
are validly issued and outstanding, fully paid and nonassessable. There are no
existing options, warrants, calls, preemptive rights (except certain statutory
rights not affecting the transactions hereunder), or commitments of any kind
relating to the Merging Corporation's authorized and unissued capital stock.
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6.3 Subsidiaries. The Merging Corporation has no subsidiaries.
6.4 Valid and Binding Agreement. The execution and delivery of this
agreement has been approved by the Board of Directors of the Merging
Corporation, and this agreement constitutes a valid and binding obligation of
the Merging Corporation in accordance with its terms. The execution and delivery
of this agreement and the consummation thereof do not and will not violate any
provision of any judicial or governmental decree, order, or judgment or conflict
with, or result in a breach of, or constitute a default under, the Articles of
Incorporation or bylaws of the Merging Corporation, or any material agreement or
instrument to which the Merging Corporation is a party or by which it is bound.
6.5 Newly Formed Company. The Merging Company has been formed solely for
the purpose of entering into each of that certain Exclusive Patent Licensing
Agreement between the Merging Corporation and Robert G. Hockaday dated January
11, 1998 (the "License Agreement") and this Agreement. Other than the License
Agreement and this Agreement, the Merging Corporation (i) has not engaged in any
operations whatsoever, (ii) has not entered into any agreements or transactions
of any kind with any third parties, and (iii) does not have any assets or
liabilities in excess of the transaction costs and filing fees associated with
New Mexico State Corporation Commission and filings concerning its formation
this Merger and registrations and filings associated with its formation.
6.6 Undisclosed Liabilities. Except as disclosed in Section 6.5 of this
Agreement, the Merging Corporation has no liabilities or obligations, absolute
or contingent, including without limitation, liabilities for federal, state,
local or foreign taxes.
6.7 Title to Properties. The Merging Corporation has good and marketable
title to all of its properties and assets, real and personal, free and clear of
all liens and encumbrances. The Merging Corporation has received no notice of
violation of any law, regulation, ordinance, or other requirement relating to
its business or operations or its owned or leased real or personal properties.
6.8 Obligations; Litigation. The Merging Corporation has performed all
material obligations required to be performed by it to date, and is not in
default under any agreement, lease or other document to which it is a party, or
under any law or order of any court or other governmental agency. There are no
claims, actions, suits, or proceedings pending or threatened at law or in equity
or before or by any federal, state, or other governmental agency with respect to
the Merging Corporation. No party with whom the Merging Corporation has an
agreement, lease or other arrangement is in default thereunder.
6.9 Compliance With Laws. The business of the Merging Corporation has been
conducted consistent with the material provisions of all applicable laws and
regulations of federal, state, and local governments (including, without
limitation, any applicable building, zoning, health, safety, or environmental
ordinance or regulation). No improper gifts or illegal payments have been made
or received on behalf of the Merging Corporation by any of its officers,
directors, employees, or agents.
6.10 Debt. The Merging Corporation has no obligations for the repayment of
borrowed money whatsoever.
6.11 Tax Matters. The Merging Corporation has filed all federal, state,
local, and foreign tax returns required to be filed by it and has paid all
federal, state, local, and foreign tax required to be paid. All taxes and
governmental charges levied or assessed against the property or the business of
the Merging Corporation have been paid.
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6.12 Labor Matters. The Merging Corporation is not a party to any
collective bargaining agreement, and there is no pension or profit-sharing plan
for the Merging Corporation's employees. The Merging Corporation has complied
with all laws and regulations which relate to employee civil rights and equal
employment opportunities and there are no presently pending or threatened labor
problems which do or may in the future adversely affect the business,
operations, or financial condition of the Merging Corporation.
6.13 Completeness of Disclosure. Neither this agreement nor any
certificate, exhibit, schedule, or other instrument furnished or to be furnished
by the Merging Corporation to the Surviving Corporation pursuant to this
Agreement, or in connection with the merger, contains or will contain any untrue
statement of a material fact or omits or will omit to state a material fact
necessary in order to make the statements contained herein not misleading. There
is no fact which materially adversely affects or may, in the future, materially
adversely affect the business, operations, or condition (financial or otherwise)
of the Merging Corporation which has not been set forth in this agreement or in
any Exhibit, certificate, or schedule furnished under this agreement.
SECTION 7. REPRESENTATIONS AND WARRANTIES OF SURVIVING CORPORATION
7.1 Organization. The Surviving Corporation is a corporation duly
organized and existing in good standing under the laws of the state of Texas and
has the corporate power to own its properties and to carry on its business as
now conducted.
7.2 Capitalization. All of the issued and outstanding shares of the
Surviving Corporation are validly issued and outstanding, fully paid and
nonassessable.
7.3 Shares Issued in Merger. The shares of stock of the Surviving
Corporation to be issued to the shareholders of the Merging Corporation in the
merger shall be fully paid and nonassessable. However, the issuance of shares by
the Surviving Corporation will not be registered under the Securities Act of
1933, as amended (Act), nor the securities law of any state, and the Certificate
for the Shares shall bear a legend stating that the shares shall not be offered,
sold, pledged, hypothecated, or otherwise transferred or disposed of without
registration under the Act and any applicable state securities law or an opinion
of counsel or other evidence satisfactory to counsel for the Corporation that an
exemption from such registrations is available. The Surviving Corporation is
under no obligation to register the shares or to assist shareholders of the
Merging Corporation in complying with an exemption from registration.
7.4 Valid and Binding Agreement. The execution and delivery of this
agreement has been approved by the Board of Directors of the Surviving
Corporation, and this agreement constitutes a valid and binding obligation of
the Surviving Corporation in accordance with its terms. The execution and
delivery of this agreement and the consummation thereof do not and will not
violate any provision of any judicial or governmental decree, order, or
judgement or conflict with, or result in a breach of, or constitute a default
under, the Articles of Incorporation or bylaws of the Surviving Corporation, or
any material agreement or instrument to which the Surviving Corporation is a
party or by which it is bound.
7.5 Litigation. Except as disclosed in that certain limited offering
memorandum of Grand Enterprises, Inc, (the Surviving Corporation's predecessor)
dated November 12, 1997, there are no claims, actions, suits, or proceedings
pending or threatened at law or in
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equity or before or by any federal, state, or other governmental agency, which
if adversely determined would have an adverse effect on the business,
operations, or financial condition of the Surviving Corporation or would prevent
or hinder the consummation of the merger.
7.6 Completeness of Disclosure. Neither this agreement nor any
certificate, exhibit, schedule, or other instrument furnished or to be furnished
by the Surviving Corporation to the Merging Corporation pursuant to this
agreement, or in connection with the merger contains or will contain any untrue
statement of a material fact or omits or will omit to state a material fact
necessary in order to make the statements contained herein not misleading. There
is no fact which materially adversely affects the business, operations, or
condition (financial or otherwise) of the Surviving Corporation which has not
been set forth in this agreement or in any exhibit, certificate, or schedule
furnished under this agreement.
SECTION 8. SURVIVAL OF REPRESENTATIONS AND WARRANTIES
All representations and warranties of the Merging Corporation and the
Surviving Corporation shall be true and complete as of the closing and shall
survive the closing.
SECTION 9. CONDUCT OF BUSINESS PENDING CLOSING
Pending the closing of the merger, the Merging Corporation shall not, without
the prior written consent of the Surviving Corporation engage in any
transactions or agreements, make any changes in its articles of incorporation or
bylaws; issue, reclassify, or alter any shares of its outstanding or unissued
capital stock; grant options, warrants, or other rights of any kind to purchase,
or issuing any shares of their capital stock; purchasing, redeeming, or
otherwise acquiring for a consideration any shares of their capital stock;
declaring, paying, setting aside, or making any dividends or other distributions
or payment in respect to their capital stock.
SECTION 10. CONDITIONS PRECEDENT TO OBLIGATIONS OF MERGING CORPORATION
The obligation of the Merging Corporation to consummate the merger is, at
the option of the Merging Corporation, subject to the fulfillment, prior to or
at the closing, of each of the following conditions:
10.1 Representations and Performance. The representations and warranties
made under this agreement by the Surviving Corporation shall be true and correct
in all material respects at the time of the closing, and the Surviving
Corporation shall have performed and complied with all agreements, covenants,
and conditions required of the Surviving Corporation by the closing under the
terms of this agreement.
10.2 Adverse Changes. There shall not have been any material adverse
changes in the conditions, financial or otherwise, or business of the Surviving
Corporation since the date hereof.
10.3 Shareholder Approval. This agreement shall have been approved by the
holders of a majority of the issued and outstanding shares of the stock of the
Merging Corporation as required under the Business Corporation Act of the state
of New Mexico.
10.4 Dissenters' Rights. Prior to the approval of this agreement by the
shareholders of the Merging Corporation, the Merging Corporation shall not have
received written notice of intent to assert dissenters' rights and demand
payment of fair value for shares by reason of
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this merger from the holders of more than five percent of the issued and
outstanding shares of stock of the Merging Corporation.
10.5 Opinion of Counsel for Surviving Corporation. The Merging Corporation
shall receive an opinion, addressed to the Merging Corporation and the
shareholders of the Merging Corporation, dated as of the date of the closing, of
Surviving Corporation's Counsel, in form satisfactory to the Merging Corporation
to the effect that:
10.5.1 The Surviving Corporation and MSI are corporations duly organized,
validly existing, and in good standing under the laws of the states of Texas and
Delaware, respectively.
10.5.2 The execution, delivery and performance of this agreement by the
Surviving Corporation and MSI have been duly authorized by all requisite
corporate action, and this agreement has been duly executed and delivered and
constitutes a valid and binding obligation of the Surviving Corporation and MSI
in accordance with its terms.
10.5.3 The shares of stock of MSI to be received by the shareholders of
the Merging Corporation pursuant to this agreement have been validly authorized
and issued and upon delivery will be fully paid and nonassessable.
10.5.4 Except as may be specified in writing by such counsel, counsel does
not know of any material default or any meritorious basis for any claim of such
default of any litigation, proceeding, or governmental investigation which is
pending or threatened against or relates to the Surviving Corporation or MSI, as
the case may be, its property or business, or which seeks to restrain or obtain
damages or other relief in connection with this agreement or the consummation of
the merger.
SECTION 11. CONDITIONS TO OBLIGATIONS OF SURVIVING CORPORATION
The obligation of the Surviving Corporation to consummate the merger is,
at the option of the Surviving Corporation, subject to the fulfillment, prior to
or at the closing, of each of the following conditions:
11.1 Representations and Performance. The representations and warranties
made under this agreement by the Merging Corporation shall be true and correct
in all material respects at the time of the closing, and the Merging Corporation
shall have performed and complied with this agreement, covenants, and conditions
required of the Merging Corporation by the closing under the terms of this
agreement.
11.2 Adverse Changes. There shall not have been any material adverse
change in the conditions, financial or otherwise, or business of the Merging
Corporation since the date hereof.
11.3 Shareholder Approval. This agreement shall have been approved by the
holders of a majority of the issued and outstanding shares of the stock of the
Surviving Corporation as required under the Business Corporation Act of the
state of Delaware.
11.4 Dissenters' Rights. Prior to the approval of this agreement by the
shareholders of the Surviving Corporation, the Surviving Corporation shall not
have received written notice of intent to assert dissenters' rights and demand
payment of fair value for shares by reason of this merger from the holders of
more than five percent of the issued and outstanding shares of stock of the
Surviving Corporation.
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11.5 Investment Representations. The shareholders of the Merging
Corporation receiving stock of the Surviving Corporation in the merger shall
execute and deliver to Surviving Corporation an investment representation
certificate warranting and representing that the shareholder:
11.5.1 Has sufficient knowledge and experience to evaluate the merits and
risks of his or her investment in the shares of the Surviving Corporation.
11.5.2 Has been provided with, or given reasonable access to, full and
fair disclosure of all information material to his or her investment in the
shares of the Surviving Corporation.
11.5.3 Understands that no market is likely to exist for the shares of the
Surviving Corporation and does not anticipate the need to sell the shares in the
foreseeable future.
11.5.4 Is acquiring the shares of the Surviving Corporation for the
shareholder's own account for investment purposes only and not with a view to
their distribution.
11.5.5 Understands that the shares will not be registered under the
Securities Act of 1933, as amended (Act), nor the securities law of any state,
and accordingly these securities may not be offered, sold, pledged,
hypothecated, or otherwise transferred or disposed of in the absence of
registration or the availability of an exemption from registration under the Act
and any applicable state securities law. The shareholder further understands
that the Surviving Corporation is under no obligation to register the shares on
behalf of the shareholder or to assist the shareholder in complying with an
exemption from registration.
11.5.6 Understands that the certificate for the shares of the Surviving
Corporation will bear a legend that the shares shall not be offered, sold,
pledged, hypothecated, or otherwise transferred or disposed of without
registration under the Act and any applicable state securities law or an opinion
of counsel or other evidence satisfactory to counsel for the Corporation that an
exemption from such registrations is available.
11.5.7 Is a resident of the state of New Mexico.
11.6 Opinion of Counsel for Merging Corporation. The Surviving Corporation
shall receive an opinion, addressed to the Surviving Corporation and dated as of
the date of the closing, of Timothy L. Butler, Esq., in form satisfactory to the
Surviving Corporation to the effect that:
11.6.1 The Merging Corporation is a corporation duly organized, validly
existing, and in good standing under the laws of the state of Texas and has the
corporate power to own its property and to conduct its business as then being
conducted.
11.6.2 The execution, delivery, and performance of this agreement by
Merging Corporation have been duly authorized by all requisite corporate action,
and this agreement has been duly executed and delivered and constitutes a valid
and binding obligation of the Merging Corporation in accordance with its terms.
11.6.3 The authorized, issued, and outstanding capital stock of the
Merging Corporation is correctly set forth and described in Section 6.2 of this
agreement. All of the issued and outstanding shares of the Merging Corporation
are duly authorized, validly issued and outstanding, fully paid, and
nonassessable.
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11.6.4 The execution and delivery of this agreement and the consummation
of the merger do not conflict with, or result in a breach of, or constitute a
default under, the Articles of Incorporation or bylaws of the Merging
Corporation, or any agreement or instrument, of which such counsel has knowledge
and to which the Merging Corporation is a party or by which it is bound.
11.6.5 Except as may be specified in writing by such counsel, counsel does
not know of any material default or any meritorious basis for any claim of such
default of any litigation, proceeding, or governmental investigation which is
pending or threatened against or relates to the Merging Corporation, its
property or business, or which seeks to restrain or obtain damages or other
relief in connection with this agreement or the consummation of the merger.
11.6.6 Condition to Obligations of Both Corporations. The obligations of
the Merging Corporation and the Surviving Corporation to consummate the merger
are, at the option of either party, subject to the condition that, at the time
of the closing, no suit, action, or other proceeding is pending or threatened
before any court or other governmental agency in which it is sought to restrain
or prohibit or to obtain damages or other relief in connection with this
agreement or the consummation of the merger.
11.6.7 Hockaday License Status. Except as may be specified in writing by
such counsel, counsel does not know of any material default or any meritorious
basis for any claim of such default or any litigation, proceeding, or
governmental investigation which is pending or threatened against Merging
Corporation or relates to the enforceability, validity or in any way adversely
affects the status of that certain Exclusive Patent License between Merging
Corporation and Robert G. Hockaday, dated January 11, 1998.
SECTION 12. EXPENSES
The Surviving Corporation and the Merging Corporation shall each bear
their own expenses, including legal and accounting fees, incurred in connection
with this transaction.
SECTION 13. INTENT
It is the intent of the parties that the transaction contemplated by this
agreement shall constitute a merger under the Business Corporation Acts of the
states of Texas and New Mexico and qualify as a tax-free corporate
reorganization within the meaning of IRC Section 368(a)(1)(A).
SECTION 14. MISCELLANEOUS PROVISIONS
14.1 Time of Essence. Time is of the essence of this agreement.
14.2 Commissions. Each of the parties represents to the other that, to the
best of the party's knowledge, no person has right to a fee, commission, or
other payment for services in connection with the merger. Each of the parties
shall indemnify the other and hold the other harmless from any claim for any
such fee, commission, or other payment arising out of the actual or purported
act or agreement of the party.
14.3 Binding Effect. The provisions of this agreement shall be binding
upon and inure to the benefit of the successors and assigns of the parties.
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14.4 Notice. Any notice or other communication required or permitted to be
given under this agreement shall be in writing and shall be mailed by certified
mail, return receipt requested, postage prepaid, addressed to the parties as
follows:
Merging Corporation:
Robert G. Hockaday, President
DKY, Inc.
3025 Arizona Ave.
Los Alamos, NM 87544
Surviving Corporation:
Marvin Maslow, Chairman
c/o Projectavision, Inc.
2 Penn Plaza Suite 640
New York, NY 10121
Bach & Associates
1 Rockefeller Plaza
New York, NY 10022
Attn: Scott Bach
Clifford Brandeis, Esq.
Zukerman, Gore & Brandeis
900 3rd Ave.
New York, NY 10009
All notices and other communications shall be deemed to be given at the
expiration of three days after the date of mailing. The address of a party to
which notices or other communications shall be mailed may be changed from time
to time by giving written notice to the other party.
14.5 Litigation Expense. In the event of a default under this Agreement,
the defaulting party shall reimburse the nondefaulting party or parties for all
costs and expenses reasonably incurred by the nondefaulting party or parties in
connection with the default, including without limitation attorney's fees.
Additionally, in the event a suit or action is filed to enforce this agreement
or with respect to this agreement, the prevailing party or parties shall be
reimbursed by the other party for all costs and expenses incurred in connection
with the suit or action, including without limitation reasonable attorney's fees
at the trial level and on appeal.
14.6 Waiver. No waiver of any provision of this agreement shall be deemed,
or shall constitute, a waiver of any other provision, whether or not similar,
nor shall any waiver constitute a continuing waiver. No waiver shall be binding
unless executed in writing by the party making the waiver.
14.7 Applicable Law. This agreement shall be governed by and shall be
construed in accordance with the laws of the state of New York without reference
to conflict of laws and may be enforced in any court of competent jurisdiction,
the parties expressly consenting to venue and personal jurisdiction of the
federal and state courts within the States of New Mexico and New York.
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14.8 Condition Precedent to Performance. Notwithstanding any other term or
condition of this Agreement: (1) the parties hereto acknowledge that their
respective performance under this Agreement is expressly contingent upon the
written notification from Tamarack Storage Devices, Inc. regarding the
consummation of each of (i) the Limited Offering of Grand Enterprises, Inc. as
set forth in the Limited Offering Memorandum related thereto dated November 12,
1997, and (ii) the Agreement and Plan of Reorganization among Grand Enterprises,
Inc., Grand Subsidiary, Inc. and Tamarack Storage Devices, Inc..
14.9 Entire Agreement. This agreement constitutes the entire agreement
between the parties pertaining to its subject matter, and it supersedes all
prior contemporaneous agreements, representations, and understandings of the
parties. No supplement, modification, or amendment of this agreement shall be
binding unless executed in writing by all parties.
14.10 Counterparts. This Agreement may be executed simultaneously in one
or more original or facsimile counterparts, each of which shall be deemed an
original, but all of which when taken together shall constitute one and the same
instrument.
DATED: 1/11/98
/s/ Marvin Maslow
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Tamarack Storage Devices, Inc.
By Marvin Maslow, Chairman/CEO
/s/ Marvin Maslow
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Manhattan Scientifics, Inc.
By Marvin Maslow, Chairman/CEO
/s/ Robert G. Hockaday
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DKY, Inc.
By Robert Hockaday, President
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[LOGO] Stanton o Crenshaw
COMMUNICATIONS
January 4, 1999
Mr. Marvin Maslow
Chief Executive Officer
Manhattan Scientifics, Inc.
641 Fifth Avenue, Suite 36F
New York, New York 10022
Dear Marvin:
In confirmation of our understanding, we are submitting the following as a
letter of agreement covering our relationship with Manhattan Scientifics, Inc.
and any affiliated or related entities.
1. Effective January 1, 1999, Manhattan Scientifics, Inc. has retained
Stanton Crenshaw Communications as its counsel for a public relations
program to promote the company and the technologies it develops.
2. Stanton Crenshaw Communications shall provide services in the nature of
creation, planning and execution of programs designed to achieve
agreed-upon objectives; counseling; preparation of written and other
marketing and public relations materials; representation of Manhattan
Scientifics, Inc. as its agent in media and public relations; and
reporting on progress and achievements in a reasonable manner.
3. Stanton Crenshaw Communications will be paid $1,000 per month for
professional services rendered by the staff of Stanton Crenshaw
Communications for the period January through June 1999. Billing will be
in the beginning of each month, beginning January 1999, and payment will
be due in ten business days. Invoices will also include reasonable
out-of-pocket and production expenses for phone, fax, postage, messenger,
duplication, word processing, travel, media entertainment, and other costs
billed as incurred each month. Client will have prior approval on all
expenses over $1,000. A standard agency mark-up of 17.65 percent is
included on outside vendor purchases.
In consideration of its potential contributions to the success of the
company. and in recognition of the fact that the cash fee Manhattan
Scientifics, Inc. can afford to pay at this juncture does not cover the
agency's costs, Stanton Crenshaw Communications will be issued 350,000
MHTX stock options (currently traded on the NASDAQ OTC Bulletin Board) as
additional compensation for its work. The options will be priced at twenty
(20) cents per share. The parties agree that the first 175,000 options
vested effective September 1, 1998 and the next 175,000 options will vest
on September 1, 1999.
250 PARK AVENUE SOUTH, NEW YORK, NY 10003 o (212) 780-1900 FAX: (212) 780-4003 o
www.stanton-crenshaw.com
<PAGE>
Letter of Agreement....Page 2....
In addition, beginning April 1, 1999, Manhattan Scientifics. Inc. hereby
agrees to grant MHTX shares each month to Stanton Crenshaw Communications
valued at a total of $2,500 calculated at the share price at market close
on the last day of each month, but in no case less than ten cents per
share, or more than $2 per share. Said shares will be issued to
Stanton-Crenshaw Communications at the end of each quarterly period
beginning July 1, 1999. It is understood between the parties that
Manhattan Scientifics. Inc. is not currently a reporting company under
Section 12 and 15 of the Securities Exchange Act of 1934 (The "Act").
Manhattan Scientifics, Inc. hereby acknowledges its intention to register
under either Section 12 or Section 15 of The Act as soon as reasonably
practicable as a reporting company. Manhattan Scientifics, Inc. will file
a registration statement on Form S-8 covering the shares underlying said
options as soon as reasonably practicable after registration, but in any
event no later than sixty days after said registration. Manhattan
Scientifics, Inc hereby agrees that none of the company's shares will be
registered unless the shares granted to Stanton Crenshaw Communications
are registered simultaneously. Additionally, Manhattan Scientifics agrees
to reimburse Stanton Crenshaw for all expenses (including reasonable
attorneys' fees) incurred in connection with the collection of any overdue
or unpaid invoices for Manhattan Scientifics, Inc.
The established fee is determined by the nature of the program outlined in
our discussions, and in our activities plan presented January 19, 1999
which is annexed hereto and to which you have agreed, and the personnel
necessary to implement it. If additional service is required beyond the
agreed plan, we will present a budget and request written approval in
advance.
Hourly time charges are the basis for the establishment of our monthly
retainer and equity compensation, which reflects an average of 35 hours of
professional staff time to be spent on behalf of Manhattan Scientifics,
Inc. each month. Using regular time sheets and activity reports, the
budget is continually monitored. Excessive deviations from the anticipated
level of professional staff time commitment on your account will be
reviewed with you to determine the appropriate corrective action.
We encourage you to review each of our billing statements as soon as
possible after you receive it. We also request that you contact your
Account Manager with any questions or concerns regarding our statements as
soon as possible after receipt. You agree that any objection to the
propriety of any charges is waived unless Stanton Crenshaw Communications
receives clear written objections within 45 days from the date of the
statement containing such charges.
<PAGE>
Letter of Agreement....Page 3
4. It is understood that Stanton Crenshaw Communications cannot undertake to
verify facts supplied to it by you, or factual matters included in
material prepared by us and approved by you. It is agreed that Manhattan
Scientifics, Inc. shall and does hereby indemnify Stanton Crenshaw
Communications against any losses, claims, damages, liabilities, costs and
other expenses, including reasonable attorney's fees, incurred in
defending against any action arising out of the implementation of events
or release of materials previously cleared and approved by Manhattan
Scientifics, Inc., and Manhattan Scientifics, Inc. does hereby expressly
agree to hold Stanton Crenshaw Communications harmless from any such
losses, claims, damages, liabilities, costs and expenses.
5. Manhattan Scientifics, Inc. agrees that during the term of this Agreement
and for an 18 month period thereafter, it will not solicit or induce any
employee of Stanton Crenshaw Communications to leave his or her employment
with the agency, or hire any such employee, or request or advise any other
client of Stanton Crenshaw Communications to withdraw, curtail or cancel
its business with the agency.
6. This Agreement may not be terminated by either party during the first
year. Thereafter, it may be terminated by either party on sixty days
advance written notice. Termination of this Agreement by either party
after September 1, 1999 will not effect the issuance, vesting, or exercise
of stock options for Stanton Crenshaw Communications as agreed hereunder.
Termination of the agreement by Stanton Crenshaw Communications prior to
that date will result in a pro-rata reduction in the stock options granted
in the second year hereunder.
7. Failure by any party to exercise rights contained in this Agreement upon
the occurrence of any event or contingency set forth herein will not
constitute a waiver of such rights upon the recurrence of such event or
contingency.
8. This constitutes the entire agreement between the parties on this matter
and supersedes any and all prior understandings, agreements,
representations or undertakings. This Agreement may not be modified except
in writing and signed by both parties.
9. This Agreement is construed under and shall be governed by the laws of the
State of New York, and the parties to this agreement consent to
jurisdiction in New York for any disputes arising under this agreement.
<PAGE>
Letter of Agreement....Page 4
If this statement of our working relationship is agreeable to you, will you
please sign and return one copy to us (keeping one for your files). Thank you.
Sincerely,
STANTON CRENSHAW COMMUNICATIONS
BY: /s/ Alex Stanton 7/8/99
----------------------------- ---------------
Alex Stanton, CEO Date
AGREED TO AND ACCEPTED:
MANHATTAN SCIENTIFICS, INC.
BY: /s/ Marvin Maslow 7/9/99
----------------------------- ---------------
Date
<PAGE>
EQUILINK [LOGO] 360 LEXINGTON AVENUE o 18TH FLOOR
- ------------------------------------- NEW YORK o NEW YORK o 10017
EQUITY INVESTING o COMMERCIAL FUNDING TELEPHONE o (212) 687-8887
FINANCIAL CONSULTING o REAL ESTATE TELECOPIER o (212) 338-9582
February 10, 1998
Manhattan Scientifics, Inc.
Attn.: Marvin Maslow
c/o Projectavision, Inc.
2 Penn Plaza, Suite 640
New York, NY 10121
Re: Financial Consulting
Dear Marvin:
This will confirm the understanding and agreement between Equilink,
LLC ("Equilink") and Manhattan Scientific, Inc. ("Company" or "MSI") as follows:
1. Effective January 5, 1998, and for a period of two (2) years
therefrom, the Company has engaged Equilink(1) to provide financial consulting
services to the Company, including, without limitation, general advice with
respect to the Company's financing, investor relations, acquisitions by the
Company, joint ventures or other corporate transactions or activities which the
Company is currently contemplating entering into or which it may consider at a
future date.
2. The Company understands that Equilink is not in any securities
related business as defined by federal and state securities laws, and does not,
and will not, provide any services hereunder constituting securities brokerage,
market-making, placement agency or underwriting. Equilink will, if requested by
the Company, advise the Company, and take action for the benefit of the Company,
generally with respect to financing, market conditions and investor and stock
matters as well as the transactions and activities described above.
3. The Company shall make available to Equilink all information
concerning the business, assets, operations, investors, financial condition and
prospects of the Company which Equilink reasonably requests in connection with
the performance of its obligations hereunder. All such information provided by
or on behalf of the Company shall be complete and accurate and not misleading,
and Equilink shall be entitled to rely upon the accuracy and completeness of all
such information without independent verification, The Company shall continue to
advise Equilink regarding any material developments or matters relating to the
Company which occur during the term of Equilink's engagement hereunder.
4. As compensation for the services rendered by Equilink hereunder,
the Company shall:
- ----------
(1) This agreement expressly requires the services of Kenneth A. Orr, currently
an employee at Equilink. The services and performance obligations of Equilink
hereunder must be primarily performed and managed by Kenneth A. Orr as an
employee of Equilink. The failure of Kenneth A. Orr to perform in such a
capacity shall be a material breach of this agreement.
/s/ EB /s/ MM
-------- -------
Equilink MSI
<PAGE>
Manhattan Scientifics, Inc.
February 10, 1998
Page 2
(a) within ten (10) business days from the effective date of this
Agreement, issue to Equilink: (i) one million (1,000,000) fully-paid,
non-assessable shares of the Company's common stock (the "Shares")(2); (ii) a
warrant to purchase one million (1,000,000) shares of the Company's common stock
for $0.75 (75/100) per share (a "Warrant") exercisable by Equilink no sooner
than six (6) months from the effective date of this Agreement which shall be
irrevocable subject only to Kenneth A. Orr working for Equilink under this
Agreement through the time of exercise; and, (iii) a Warrant to purchase one
million (1,000,000) shares of the Company's common stock for $0.75 (75/100) per
share exercisable by Equilink no sooner than twelve (12) months from the
effective date of this Agreement and which may be revoked by the Company no
later than ten (10) months from the effective date of this Agreement only upon
just cause and reasonable dissatisfaction with Equilink services performed
hereunder. Notwithstanding the foregoing provisions of this Paragraph 4(a), the
Warrants hereunder shall vest and be exercisable by Equilink only if Kenneth A.
Orr is working for Equilink under this Agreement through the time of vesting and
exercise. The Company shall register free trading securities underlying each
Warrant, beginning the registration process as soon as practicable after the
Company is eligible to register such Shares.
(b) In addition to the foregoing, the Company shall reimburse
Equilink promptly upon request from time to time for Equilink's reasonable
out-of-pocket expenses incurred in connection with Equilink's engagement
hereunder. Out-of-pocket expenses may include, without limitation,
Company-related transportation, lodging, meals, document services, data base
services, mailings and expenses(3).
5. The Company shall:
(a) indemnify Equilink and hold it harmless against any and all
losses, claims, damages or liabilities to which Equilink may become subject
arising in any manner out of or in connection with the rendering of services by
Equilink hereunder, unless it is finally judicially determined that such losses,
claims, damages or liabilities resulted directly from the gross negligence or
willful misconduct of, or breach of paragraph 7 hereof by Equilink;
(b) reimburse Equilink immediately for any reasonable, documented
legal or other expenses reasonably incurred in connection with investigating,
preparing to defend or defending, or providing evidence in or investigations,
claims or other proceedings arising in any manner out of or in connection with
the rendering of services by Equilink hereunder (including, without limitation,
in connection with the enforcement of this Agreement and the indemnification
obligations set forth herein) with respect to which Equilink is entitled to
indemnification under Paragraph 5(c) provided, however, that in the event a
final judicial determination is made to the effect specified in subparagraph
5(a) above, Equilink will remit to the Company any amounts reimbursed under this
subparagraph 5(b). This subparagraph 5(b) shall not apply to any claims,
liability or proceedings which originate primarily from acts or omissions by
Equilink; and
(c) indemnity and hold harmless Equilink for any final, adjudicated
and non-appealable losses, claims, damages, expenses or liabilities to which
Equilink may become
- ----------
(2) The Company shall use its best and good faith efforts to have such Shares
registered as soon as practicable subject to their being no breach of this
Agreement by Equilink.
(3) Any such disbursements and expenses in excess of $1,000.00 must be
pre-approved by the Company in order to require it to reimburse Equilink.
/s/ EB /s/ MM
-------- -------
Equilink MSI
<PAGE>
Manhattan Scientifics, Inc.
February 10, 1998
Page 3
subject in connection with any untrue or misleading statements or
representations made by or information provided by the Company to Equilink.
The Company agrees that the indemnification and reimbursement
commitments set forth in this paragraph 5 and the contribution obligations set
forth in paragraph 6 shall apply whether or not Equilink is a formal party to
any such lawsuits, claims or other proceedings, that Equilink is entitled to
retain separate counsel of its choice(4) in connection with any of the matters
to which such commitments relate and that such commitments shall extend upon the
terms set forth in this paragraph to any controlling person, affiliate,
director, officer, employee or agent of Equilink (each, with Equilink, an
"Indemnified Person"). The Company further agrees that, unless a final judicial
determination is made to the effect specified in subparagraph 5(a) above or the
final sentence of paragraph 5(b) hereof is applicable or Equilink breaches
paragraph 7 hereof, any settlement of a lawsuit, claim or other proceeding
against the Company arising out of the transactions contemplated by this
Agreement which is entered into by the Company shall include an explicit and
unconditional release from the party bringing such lawsuit, claim or other
proceeding of all Indemnified Persons, which release shall be reasonably
satisfactory to Equilink.
6. The Company and Equilink agree that if any indemnification or
reimbursement sought pursuant to the preceding paragraph 5 is judicially
determined to be unavailable for a reason other than the cross negligence or
willful misconduct of Equilink, then the Company and Equilink shall contribute
to the losses, claims, damages, liabilities and expenses for which such
indemnification or reimbursement is held unavailable in such proportion as is
appropriate to reflect the relative benefits to the Company on the one hand, and
Equilink on the other hand. In connection with the transactions to which such
indemnification or reimbursement relates, and the relative faults of the Company
on the one hand, and Equilink on the other hand, as well as any other equitable
considerations; provided, however, that in no event shall the amount to be
contributed by Equilink pursuant to this paragraph 6 exceed the amount of the
fees and the fair market value of any securities at the time of their receipt
actually received by Equilink or the actual proceeds therefrom received by
Equilink, whichever is greater.
7. Except as contemplated by the terms hereof or as required by
applicable law or pursuant to an order entered or subpoena issued by a court of
competent jurisdiction, Equilink shall keep confidential material non-public
information provided to it by the Company, and shall not disclose such
information to any third party, other than such of its employees and advisors as
Equilink determines to have a need to know. Upon Equilink's failure to comply
with this paragraph after proper request by the Company, the Company shall have
the right of injunctive relief to enforce this paragraph.
8. Except as required by applicable law, any advice to be provided
by Equilink under this Agreement shall not be disclosed publicly or made
available to third parties without prior approval of Equilink, and accordingly
such advice shall not be relied upon by any person or entity other than the
Company.
9. The provisions of paragraphs 4 through 8 and paragraphs 10
through 13 of this Agreement shall survive any termination or expiration of this
Agreement.
- ----------
(4) Only if, and to the extent that, there is a conflict of interest with MSI;
in all other instances, Equilink shall be represented by MSI's counsel who shall
have an equal duty of representation to Equilink.
/s/ EB /s/ MM
-------- -------
Equilink MSI
<PAGE>
Manhattan Scientifics. Inc.
February 10, 1998
Page 4
10. The Company and Equilink each represent to the other that there
is no other person or entity that is entitled to a fee or any type of
compensation in connection with execution and delivery of this Agreement.
11. Nothing in this Agreement, expressed or implied, is intended to
confer or does confer on any person or entity other than the parties hereto or
their respective successors and assigns, and to the extent expressly set forth
herein, the Indemnified Persons, any rights or remedies under or by reason of
this Agreement or as a result of the services to be rendered by Equilink
hereunder. The Company further agrees that neither Equilink nor any of its
controlling persons, affiliates, directors, officers, employees or agents shall
have any liability to the Company for any losses, claims, damages, liabilities
or expenses arising out of or relating to this Agreement or the services to be
rendered by Equilink hereunder, unless it is finally judicially determined that
such losses, claims, damages, liabilities or expenses resulted directly from the
gross negligence or willful misconduct of Equilink.
12. The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other
provisions of this Agreement, which shall remain in full force and effect.
13. This Agreement may not be amended or modified except in writing
signed by each of the parties and shall be governed by and construed and
enforced in accordance with the laws of the State of New York. The Company and
Equilink hereby irrevocably and unconditionally consent to submit to the
exclusive jurisdiction of the courts of the State of New York and of the United
States District Courts located in the City of New York for any lawsuits, claims
or other proceedings arising out of or relating to this Agreement and agree not
to commence any such lawsuit, claim or other proceeding except in such courts.
The Company and Equilink hereby irrevocably and unconditionally waive any
objection to the laying of venue of any lawsuit, claim, or other proceeding
arising out of or relating to this Agreement in the courts of the State of New
York or the United State District Courts located in the City of New York, and
hereby further irrevocably and unconditionally waive and agree not to plead or
claim in any such court that any such lawsuit, claim or other proceeding brought
in any such Court has been brought in an inconvenient forum. Any right to trial
by jury with respect to any lawsuit, claim or other proceeding arising out of or
relating to this Agreement or the services to be rendered by Equilink hereunder
is expressly and irrevocably waived.
14. This Agreement constitutes the entire agreement and
understanding between the parties hereto and supersedes any and all prior
agreements and understandings, written or oral, relating to the subject matter
hereof.
If the foregoing correctly sets forth the understanding and
agreement between
/s/ EB /s/ MM
-------- -------
Equilink MSI
<PAGE>
Manhattan Scientifics, Inc.
February 10, 1998
Page 5
Equilink and the Company, please so indicate in the space provided for that
purpose below, whereupon this letter shall constitute a binding agreement as of
the date first above written.
EQUILINK, LLC
By: /s/ Evan Berger
-----------------------------
Evan Berger, President
Acknowledged and agreed to:
MANHATTAN SCIENTIFIC, INC.
By: /s/ Marvin Maslow
--------------------------------
Marvin Maslow
Authorized Signatory
/s/ MM
-------- -------
Equilink MSI
<PAGE>
LIST OF SUBSIDIARIES
--------------------
Tamarock Storage Devices, Inc.
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<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> Year 9-Mos
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1999
<PERIOD-START> JAN-01-1998 JAN-01-1999
<PERIOD-END> DEC-31-1998 SEP-30-1999
<CASH> 665,000 419,000
<SECURITIES> 0 89,000
<RECEIVABLES> 260,000 6,000
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 930,000 425,000
<PP&E> 153,000 202,000
<DEPRECIATION> (131,000) (135,000)
<TOTAL-ASSETS> 2,291,000 2,839,000
<CURRENT-LIABILITIES> 99,000 951,000
<BONDS> 0 0
0 0
0 0
<COMMON> 12,788,000 20,140,000
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<TOTAL-LIABILITY-AND-EQUITY> 2,291,000 2,839,000
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<TOTAL-REVENUES> 0 21,700
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<TOTAL-COSTS> 3,920,000 7,673,000
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<INTEREST-EXPENSE> 0 8,000
<INCOME-PRETAX> 0 0
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<INCOME-CONTINUING> 0 (7,656,000)
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<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (3,920,000) (7,656,000)
<EPS-BASIC> ($.05) ($.08)
<EPS-DILUTED> ($0.05) ($0.08)
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