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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-SB
GENERAL FORM OF REGISTRATION OF SECURITIES OF SMALL BUSINESS ISSUERS
UNDER SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934
PROTALEX, INC.
(Name of Small Business Issuer in its charter)
NEW MEXICO
(State or other jurisdiction of incorporation or organization)
91-2003490
(I.R.S. Employer Identification No.)
P.O. BOX 30952
ALBUQUERQUE, NEW MEXICO 87190
(Address of principal executive offices) (Zip Code)
(505) 260-1726
(Issuer's telephone number)
Securities to be registered under Section 12(b) of the Act:
Title of each class to be Name of each exchange on which
so registered each class is to be registered
NONE NONE
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Securities to be registered under Section 12(g) of the Act:
COMMON STOCK
(Title of Class)
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DESCRIPTION OF BUSINESS
OVERVIEW
Protalex, Inc. (the "Company") is a development stage company engaged in
the development and marketing of a new class of organic chemical molecules,
called "bioregulators," for the treatment of rheumatoid arthritis ("RA") and
other forms of arthritis. The Company's business is the continuation of
over three decades of research by Dr. Paul Mann, an officer, director and
shareholder of the Company.
The use of bioregulatory compounds for the treatment of human disease
represents a completely new approach to therapy. Unlike many existing
pharmaceutical agents, which act upon the end products of complex metabolic
pathways, bioregulators influence cellular activities at a more basic level.
This results in restoration of tissue integrity and function, in many
instances not only alleviating, but potentially reversing the pathologic
process. The Company intends to bring this unique biotechnology to
commercial realization, thereby establishing an entirely new category of
pharmaceutical treatment of disease.
The Company will initially focus on the treatment of RA. Research and
development efforts for RA are near completion, with pre-clinical trials
scheduled to begin in January 2000. The pre-clinical trials will be
conducted by Dr. Arthur Bankhurst, a renowned rheumatologist at the
University of New Mexico and a director and shareholder of the Company, and
should be completed in approximately six months. Upon successful completion
of the pre-clinical trials, the Company will file an Investigational New Drug
Application with the Food and Drug Administration ("FDA"), and will begin
planning clinical trials. The Company believes that an existing, FDA-approved
treatment for RA utilizes principles of bioregulation, which should enable
the Company to expedite the FDA process by limiting the size and scope of the
clinical trials.
ABOUT BIOREGULATION
Biologic evolution presumably began with primitive cells capable of
performing two basic functions: proliferation and differentiation.
Proliferation consists simply of an increase in cell number, while
differentiation implies the ability to accomplish some function - especially
to respond to or initiate some change in the cell's environment. Over time,
evolution favored the development of increasingly complex and specific cell
functions, such as the ability to transmit nerve impulses or to produce
antibodies. As living forms became more complex, the variety of cell types
and the complexity of their functions have increased radically, yet primitive
control mechanisms have been retained and operate in even the most
"sophisticated" cells.
Both proliferation and differentiation can be influenced by external
stimuli, most of which are in the form of chemical "messages." Under normal
circumstances, equilibrium is maintained within and among cells by the
continual exchange of such messages. Cells may begin to function or
proliferate abnormally under three circumstances: when they receive an
erroneous signal from their environment, when their reception or processing
of external messages is impaired, or when they are driven down the wrong
pathway by genetic signals from within. Widespread abnormalities of cellular
differentiation cause diseases of many kinds, while uncontrolled cellular
proliferation causes cancer.
The term "biomodulator" originally referred to biochemical agents that
could modify the primitive cellular functions of proliferation and
differentiation. More recently that designation has been applied to agents
that interfere with the production of a specific end product of cellular
metabolism, such as an enzyme or an antibody. Some of these agents are also
referred to as "biologic response modifiers." The Company has therefore
chosen to use the term "bioregulator" to describe those natural and synthetic
compounds with the ability to act at primitive levels of cell function,
thereby "resetting" the cell's internal mechanisms to allow resumption of
normal behavior.
In order to meet the criteria for designation as a bioregulator, a
substance must:
- Modulate functions in cells regardless of their tissue of origin;
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- Induce changes in differentiation appropriate to the specific cell
type;
- Affect cells in an aberrant state but not normally-functioning cells;
- Produce different end results in different concentrations;
- Demonstrate its effects in extremely low dosage ranges; and
- Delay the changes of cell senescence, or maturity, up to the point of
irreversibility.
Some naturally occurring bioregulators have the property of stimulating
cellular proliferation at certain concentrations, while promoting cellular
differentiation at others. In the latter role, they can bring about increased
production of antibodies in one cell line, or slow the growth of a tumor in
another, apparently by helping restore intracellular control mechanisms and
promoting cell-to-cell signaling. Bioregulators seem to act upon a wide
variety of tissue types. This approach restores homeostasis at a quite
fundamental level of cellular organization, rather than attempting to
intervene farther down the pathway of pathogenesis, as is the case with most
pharmacological treatments currently available.
EXPERIMENTS AND STUDIES
The best demonstrations of the ability of bioregulators to
re-equilibrate cell differentiation lie in the field of immunology. Here,
both humoral and cellular immune responses can be modified by the appropriate
concentration of a bioregulating agent. Cell proliferation also can be
normalized by bioregulators in experiments dealing with natural senescence
and tumor growth. Examples of each of these processes, largely based upon
experiments in Dr. Mann's own laboratory, are outlined below.
IN VITRO EXPERIMENTS
IGG PRODUCTION IN HPBL. Bioregulators induce immune responsiveness
in human peripheral blood lymphocytes in response to a number of antigenic
stimuli. The number of antibody-producing cells can be amplified as much as
100 to 1000 times above untreated values. This technique can be used to
produce highly effective human monoclonal antibodies.
CELL SENESCENCE STUDIES. The life span of cells in culture can be
extended by nearly 100% through the action of bioregulators. When senescence
finally does take place, it affects all of the cells simultaneously, thus
"rectangularizing" the usually gradual fall of the survival curve.
IN VIVO EXPERIMENTS
NUDE MICE. A mouse strain lacking in cellular immunity, nude mice
characteristically show almost no production of T cells, which makes them
highly susceptible to infection and early death. This situation mimics a
genetic disease in humans called DiGeorge syndrome. Administration of
bioregulators can partially reverse this deficit, restoring about 70% of the
mice's T cell complement and almost doubling their life expectancy. The same
effect can be obtained in mice whose thymus has been surgically removed in
early life.
NUDE RATS WITH HETEROLOGOUS TUMORS. Another rodent strain with
immune deficiency, the nude rat, often is used in experiments involving
transplantation of tumors from another animal species. Such transplants are
rejected by immunologically normal animals, but persist in the nude rat
because of their inability to mount a rejection response. Administration of
bioregulators in tumor-bearing rats results in regression of the neoplasm in
about two-thirds of the animals.
DOGS WITH IMPLANTED HOMOLOGOUS TUMORS. As part of a study of
bioregulators as potential "contrast agents" for nuclear magnetic resonance
imaging, glial tumors were transplanted into the brains of dogs. This type of
tumor normally progresses rapidly with irreversible neurological signs
appearing between 2 and 3 weeks after transplantation. A bioregulator
compound was injected 3 times a week for 3 weeks following transplantation.
Complete tumor regression was seen in 100% of the treated animals.
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NATURALLY OCCURRING DISEASE
DOGS AND CATS WITH SPONTANEOUS TUMORS. Data is now being collated
on several dozen domestic dogs and cats that have been given the bioregulator
treatment outlined above for spontaneously occurring tumors of various types.
Anecdotal reports have been received from veterinarians all over the country,
indicating success with bioregulator treatment, but a controlled study with a
consistent protocol is needed to validate this mode of therapy. Such a study
is now being planned.
MARKETS
Human autoimmune diseases provide the first and most obvious target for
bioregulator therapy. In these disorders, the immune system misidentifies the
body's own tissues as "foreign," prompting an inappropriate and prolonged
immune response that can damage tissues and organs throughout the body.
Bioregulator treatment can be expected to restore normal immune homeostasis,
with the result that the disease is not merely ameliorated, but permanently
cured.
RA will be the first autoimmune disease targeted and will be the primary
and immediate focus of the Company. RA is a serious autoimmune disorder that
causes the body's immune system to mistakenly produce antibodies that attack
the lining of the joints, resulting in inflammation and pain. RA can lead to
joint deformity or destruction, organ damage, disability and premature death.
According to a leading scientific journal, the prevalence of RA in the United
States is approximately 1% (or about 2.5 million people), with approximately
200,000 new cases diagnosed yearly.
Currently, no uniformly effective treatment for RA exists. Current
treatments are costly, and in most cases must be continued for decades. In
contrast, the Company believes that bioregulator therapy will be much more
cost effective and can be administered by weekly injections over the course
of a few months.
The Company's decision to concentrate its efforts on RA, as opposed to
other autoimmune diseases or cancers, is based upon three main considerations:
- Evidence from Dr. Mann's laboratory indicates that bioregulators
strongly influence the immune system in ways that should produce
beneficial effects in patients with RA;
- The Company believes that an existing, FDA-approved treatment for RA
actually utilizes principles of bioregulation; and
- At this stage in the Company's development, the Company believes it is
most appropriate to concentrate its efforts and resources on
developing a treatment for a single, well-defined, and serious disease
for which adequate therapy currently is not available.
The Company anticipates that its products will initially be used to
treat patients with severe cases of RA, and particularly those individuals
for whom other treatments have failed. Additionally, the Company believes
that its experience with this class of patients will prove the efficacy and
safety of its products, and will encourage the use of its products in less
severely affected individuals in earlier stages of the disease.
COMPETITION
In strictest terms, the Company has no direct competition in its field,
since no other firms have brought to market any therapeutic agents based upon
biomodulator or bioregulator technology. However, the Company's products
will compete with other pharmaceutical agents intended to treat RA. A number
of pharmaceutical agents are currently being used, with varying degrees of
success, to control the symptoms of RA and slow its progress. Available
treatment options include:
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- Analgesic/anti-inflammatory preparations, ranging from simple aspirin
to the recently introduced COX-2 inhibitors;
- Immunosuppressive/antineoplastic drugs, including azathioprine and
methotrexate;
- TNF (Tumor Necrosis Factor) inhibitors, currently represented by
Immunex Corporation's Enbrel-Registered Trademark-;
- "Immunoadsorption therapy," now in limited use in Europe and the
United States, entailing weekly sessions during which a patient's
blood is separated and passed through a molecular filter; and
- Colloidal gold given by injection, a time-honored treatment but one
with extreme variability of effect and an unknown mechanism of action.
In all, at least a dozen large and small pharmaceutical companies are
active in this market, with Immunex Corporation and Monsanto Company
dominating the market as a result of their respective products,
Enbrel-Registered Trademark- and Celebrex-Registered Trademark-. Despite
intense media attention and enormous sales, the long-term efficacy of these
compounds remains to be evaluated.
OPERATIONS
The Company is currently engaged in developing the corporate base for
commercialization of its bioregulator products, as well as planning
production and marketing strategies. The Company's business operations are
housed in an office in Albuquerque. The Company currently has no
manufacturing facilities and may have to rely on others to manufacture
compounds for the Company's use in research and development, pre-clinical
trials, and clinical trials.
Alex, L.L.C., a New Mexico limited liability company and the Company's
majority shareholder ("Alex"), continues to support ongoing research aimed at
clarifying the biologic functions of bioregulators, and along with the
Company, establishing their safety and efficacy in treating induced arthritis
in animals, and determining appropriate dosage and treatment protocols.
Alex's research activities are being carried out in leased laboratory space
at the University of New Mexico. The bioregulator technology which the
Company intends to develop and bring to market is currently licensed from
Alex. See "Patents, Trademarks and Proprietary Technology."
BUSINESS AND MARKETING STRATEGY
Following the filing of this registration statement, the Company
intends to initiate a private placement of stock to raise funds for
completion of animal research, initiation of Phase I and Phase II human
studies, and production and marketing of the Company's products on a
commercial scale.
The Company expects that upon FDA approval, its bioregulator products
will be competitive throughout the global market. Therefore, the Company
intends to enter into collaborative arrangements with larger strategic
partners to market and sell the Company's products in the United States and
in foreign markets. The Company expects that these partners will be
responsible for funding or reimbursing all or a portion of the costs of
pre-clinical and clinical trials required to obtain regulatory approval. In
return for such payments, the Company will grant these partners exclusive or
semi-exclusive rights to market certain of its products in particular
geographical regions.
GOVERNMENT REGULATION
The Company's ongoing research and development activities, and its
future manufacturing and marketing activities, are subject to extensive
regulation by numerous governmental authorities, both in the United States
and in other countries. In the United States, the FDA regulates the approval
of the Company's products under the authority of the Federal Food, Drug and
Cosmetics Act.
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In order to obtain FDA approval of the Company's new drugs, extensive
pre-clinical and clinical tests must be conducted and a rigorous clearance
process must be completed. Satisfaction of the FDA's safety and efficacy
requirements may take several years and require the expenditure of
substantial resources.
The FDA approval process entails several steps. Initially, the Company
must conduct pre-clinical trials. During pre-clinical trials, the Company
must evaluate the safety and efficacy of its products through in vitro and in
vivo laboratory animal testing. At this stage the FDA will require, at a
minimum, that the Company (i) prepare a pharmacological profile of the drug;
(ii) determine the toxicity of the drug in at least two species of animals;
and (iii) conduct short-term toxicity studies ranging from two weeks to three
months, depending on the proposed clinical trials.
Upon successful completion of pre-clinical trials, the Company must
submit an Investigational New Drug Application ("IND") to the FDA before it
can begin human clinical trials. The purpose of the IND is to detail
pre-clinical research data, and provide documentation sufficient to allow the
FDA to conclude that it is reasonable to proceed with human trials of a drug.
Clinical studies are typically conducted in three sequential phases,
although these phases may overlap. In Phase I trials, a drug is tested for
safety in one or more doses in a small number of patients or volunteers. In
Phase II trials, efficacy and safety are tested in up to several hundred
patients. Phase III trials involve additional safety, dosage and efficacy
testing in an expanded patient population at multiple test sites.
The results of the pre-clinical and clinical trials are submitted to the
FDA in the form of a New Drug Application ("NDA"). The approval of an NDA
may take substantial time and effort. In addition, upon approval of an NDA
the FDA may require post marketing testing and surveillance of the approved
product, or place other conditions on their approvals.
In 1997, the FDA's Modernization Act (the "Act") was passed. The Act
expanded earlier laws passed to shorten the drug approval process and
developed guidelines regarding the testing and approval process for products
intended to treat serious or life-threatening illnesses. More specifically,
the Act created a fast-track process which facilitates and expedites the
review and testing of new drugs that are intended to treat serious or life
threatening diseases, while preserving appropriate guarantees for safety and
effectiveness. The passage of the Act reflects the recognition that both
patients and physicians are willing to accept greater risks and side effects
from products that treat serious diseases. The fast-track procedures apply
to products intended to treat AIDS, some cancers and other life threatening
illnesses. In most cases, a drug is usually given a fast-track designation
at a relatively early stage in its development.
Sales of new drugs outside the United States are subject to foreign
regulatory requirements that differ from country to country. Foreign
regulatory approval of a product must generally be obtained before that
product may be marketed in those countries. However, the FDA approval
process is among the most restrictive in the world and typically takes a
longer time to complete than foreign regulatory approval.
Research and development efforts for the Company's first product for the
treatment of RA are near completion, with pre-clinical trials scheduled to
begin in January 2000. Upon completion of these studies, the Company will
apply to the FDA to secure its approval for limited safety testing of the
Company's product in humans. Following the successful completion of safety
trials, the Company will conduct a full-scale study of efficacy in patients
with advanced and intractable RA. This full-scale study will be conducted by
Dr. Arthur Bankhurst, a renowned rheumatologist at the University of New
Mexico, and should be completed in approximately two years. Dr. Bankhurst is
a director and shareholder of the Company. Once the trials are finished, an
application for FDA authorization to produce and market the product will be
filed, with final approval estimated to take an additional six months.
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PATENTS, TRADEMARKS, AND PROPRIETARY TECHNOLOGY
The bioregulator technology which the Company intends to develop and
bring to market is currently licensed by the Company from Alex, LLC, a New
Mexico limited liability company and the Company's majority shareholder
("Alex"). Alex's Managing Members, each of whom holds a 50% membership
interest in Alex, are John Doherty, the Company's President, and Dr. Paul
Mann, the Company's Treasurer and Secretary. Mr. Doherty and Dr. Mann are
also members of the Company's Board of Directors. The license agreement
between the Company and Alex is described in "Certain Relationships and
Related Transactions."
The Company's success will depend on its ability to maintain its trade
secrets and proprietary technology in the United States and in other
countries, and on Alex's ability to obtain patents for the bioregulator
technology which it licenses to the Company. Alex is currently seeking
patents for proteins for use as medications for human autoimmune disease.
Patent protection will also be sought for the derivatives of proteins which
can also be found in other bioregulators. Alex expects to submit its initial
patent for proteins before the end of 1999, and the additional patents
shortly thereafter. In addition to patent protection, Alex intends to seek
trademark protection for the term "bioregulator." Alex believes that this
will assist in differentiating this new field of science from current
biomodulator theory.
RISKS RELATED TO THE COMPANY'S BUSINESS
FORWARD-LOOKING STATEMENTS. This registration statement contains
forward-looking statements that involve substantial risks and uncertainties.
These statements are identified by forward-looking words such as "may,"
"will," "expect," "anticipate," "believe," "estimate," and "continue" or
similar words. Statements that contain these words should be read carefully
because they discuss the Company's future expectations, contain projections
of the Company's future results of operations or of the Company's financial
condition, and state other "forward-looking" information. The Company
believes it is important to communicate its expectations. However, there may
be events in the future that the Company is not able to accurately predict or
over which the Company has no control. The risk factors listed in this
section, as well as any other cautionary language appearing in this
registration statement, provide examples of risks, uncertainties and events
that may cause the Company's actual results to differ materially from the
expectations described in the Company's forward-looking statements. The
occurrence of the events described in these risk factors and elsewhere in
this registration statement could have an adverse effect on the Company's
business, results of operations and financial condition.
HISTORY OF LOSSES; UNCERTAINTY OF FUTURE PROFITABILITY. Since Enerdyne
Corporation's acquisition of Protalex, Inc. (which is more fully described in
"Corporate History"), the Company has incurred significant losses. The
Company expects to continue to incur net losses until sales generate
sufficient revenues to fund its continuing operations. The Company may fail
to achieve significant revenues from sales or achieve or sustain
profitability. The Company's ability to achieve profitability in the future
will depend in part or its ability to develop, market and sell its
bioregulator products on a wide scale. The Company does not know if
bioregulator products can be successfully developed, or if such products can
be successfully commercialized on a broad basis such as to achieve market
acceptance in the U.S. and foreign medical communities. The failure of
bioregulator products to achieve broad market acceptance could have a
significant negative impact on the Company's business, financial condition,
results of operations and profitability.
UNCERTAINTY OF PRECLINICAL AND CLINICAL TESTING RESULTS. Before
obtaining regulatory approvals for the sale of its new products, the Company
must subject these products to extensive preclinical and clinical testing to
demonstrate their safety and effectiveness for humans. Results of initial
preclinical and clinical testing are not necessarily indicative of results to
be obtained from later preclinical and clinical testing. Furthermore, the
Company may not complete clinical trials of its products, or the results of
the trials may fail to demonstrate the safety and effectiveness of its
products to the extent necessary to obtain regulatory approvals, which could
delay or prevent regulatory approval of such products. Other companies in the
biotechnology industry have suffered significant setbacks in advanced
clinical trials, even after achieving promising results in earlier trials.
The rate of completion of clinical trials depends on, among other factors,
the enrollment of patients. Enrollment of patients depends on such factors as
the size of the patient population, the proximity of patients to clinical
sites, the eligibility criteria for the study and the existence of
competitive clinical trials.
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Any delay in planned patient enrollment in the Company's current or future
clinical trials may result in increased costs, program delays or both. See
"Government Regulation."
DEPENDENCE ON DEVELOPMENT OF NEW PRODUCTS. The Company's long-term
profitability depends on its development and commercialization of its
bioregulator products. The Company may not develop these products
successfully or receive regulatory approval. Furthermore, even if these
products are developed and approved, the Company or its contract
manufacturers may fail to manufacture these products in quantities necessary
for commercialization, or these products may not receive market acceptance.
See "Operations."
DEPENDENCE ON APPROVAL OF GOVERNMENTAL REGULATORY AGENCIES. Because the
Company's products are pharmaceutical products, the FDA and similar
governmental agencies in foreign countries impose substantial requirements on
these products before they permit them to be manufactured, marketed and sold
to the public. To meet these requirements, the Company must spend
substantial resources on costly and time-consuming procedures, such as
lengthy and detailed laboratory tests and clinical trials. It typically takes
years to meet these requirements, and the length of time involved depends on
the type, complexity and novelty of the product. The Company cannot predict
when it might submit product applications or submissions for FDA or other
regulatory review for its products. Moreover, the FDA or other governmental
agencies may approve only certain uses of the Company's products or may
subject such products to additional testing and surveillance programs. In
addition, the FDA or other governmental agencies may withdraw or limit their
approval for noncompliance with regulatory standards or the occurrence of
unforeseen problems following initial marketing.
Governmental regulation may cause the Company to delay marketing its
products for a considerable period of time or spend more resources to meet
additional requirements. Such governmental regulation ultimately may provide
a competitive advantage to the Company's competitors, some of whom have
already received FDA approval for their products. The FDA or other
governmental agencies may not approve on a timely basis, if at all, some or
all of the Company's future products or may not approve some or all of the
Company's applications for additional indications for its previously approved
products. In addition, if another company that is developing a product
similar to one of the Company's products suffers adverse clinical results,
this could have a negative impact on the regulatory process and timing for
the Company's product. If the Company fails to obtain regulatory approval for
one of its products, or even if such approval is delayed, the Company's
marketing of this and its other products, as well as its liquidity and
capital resources, could be adversely affected. In addition, the Company may
be adversely affected by future legislation or administrative action that
results in new governmental regulations. The Company is also subject to
various federal, state and local laws, regulations and recommendations
relating to safe working conditions, laboratory and manufacturing practices,
the experimental use of animals and the use and disposal of hazardous or
potentially hazardous substances, including radioactive compounds and
infectious disease agents, used in connection with its research. See
"Government Regulation."
DEPENDENCE ON REIMBURSEMENT FROM THIRD PARTIES. The Company's ability
to sell its products depends substantially on third party payors, such as
government authorities (i.e., the Medicare program), private health insurers
and other organizations, such as health maintenance organizations ("HMOs"),
reimbursing most of the costs of its products and related treatments. The
Company may not be able to obtain sufficient government or third-party
reimbursement for its products. Government programs or commercial third
party payors (or both) may decrease the amount of reimbursement the Company
is eligible to receive for its products. Finally, low reimbursement amounts
may reduce the demand for, or the price of, the Company's products, adversely
affecting its business. As a part of their efforts to control health care
costs, government and other third-party payors are limiting their coverage
of, and the extent of reimbursement for, new therapeutic products. If
adequate coverage and reimbursement levels are not provided by government and
third-party payors for uses of the Company's products, the Company will have
great difficulty marketing these products.
Several recent trends may lower the price for the Company's products,
including: (i) third-party payors are challenging the prices charged for
medical products and services, (ii) managed healthcare is increasing in the
U.S., (iii) organizations, such as HMOs, that control or significantly
influence the purchase of healthcare services and products,
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are growing, (iv) legislative proposals are being introduced to reform
healthcare or reduce government insurance programs, and (v) healthcare
providers are instituting cost-containment measures, including practice
protocols and guidelines and clinical pathways, which may restrict the use of
the Company's products in the marketplace. All of these trends could affect
the Company's ability to sell its existing and future products. The Company
cannot predict whether additional legislation or regulation relating to the
healthcare industry or third-party coverage and reimbursement will be enacted
in the future or the effect such legislation or regulation could have on its
business.
LIMITED MANUFACTURING CAPABILITY. Currently, the Company does not
possess sufficient manufacturing capacity to manufacture its products. The
Company intends to contract with a third party or parties to manufacture its
products for use in clinical trials and commercial distribution. However,
the Company does not know whether such third party or parties will be able to
successfully manufacture sufficient quantities of the Company's products for
these purposes. Therefore, the Company may have to invest substantial sums to
construct facilities sufficient to meet its long-term manufacturing
requirements. See "Operations."
UNCERTAINTY OF PATENTS AND PROPRIETARY RIGHTS. Because of the length of
time and expense associated with bringing new products to the marketplace
through development and the governmental approval process, the biotechnology
and pharmaceutical industries rely on patent and trade secret protection for
significant new technologies, products and processes. Alex intends to apply
for, prosecute and maintain patents for the bioregulator technology which it
licenses to the Company. The enforceability of patents issued to
biotechnology and pharmaceutical firms, however, often is highly uncertain.
The legal considerations surrounding the validity of patents in Alex and the
Company's field are in a state of transition. In the future, the historical
legal standards surrounding questions of the validity of patents may not be
applied and the current defenses as to issued patents may not protect Alex's
patents. In addition, the degree and range of protection a patent affords is
uncertain. Finally, Alex may be unsuccessful in obtaining patents and in
avoiding infringements of patents granted to others.
The Company relies on trade secrets, know-how and continuing
technological advancement to develop and maintain its competitive position.
The Company intends for each of its employees to enter into a confidentiality
agreement that contains provisions prohibiting the disclosure of confidential
information to anyone outside the Company. However, these confidentiality
agreements may not be honored and the Company may be unable to protect its
rights to its unpatented trade secrets. Moreover, other people or entities
may independently develop substantially equivalent proprietary information
and techniques or otherwise gain access to the Company's trade secrets.
The Company currently licenses its technology from Alex, and may be
required to obtain additional licenses to patents or other proprietary rights
from third parties. These additional licenses may not be made available on
terms acceptable to the Company, if at all. If the Company fails to retain
the Alex license, or does not obtain such additional licenses as may be
needed, it could encounter delays in product development while it attempts to
redesign its products or methods. The Company also could discover that the
development, manufacture or sale of products requiring such licenses is
simply not possible. In addition, the Company could incur substantial costs
in defending any patent litigation brought against it or in asserting its
patent rights, including those licensed to it by others, in a suit against
another party. See "Patents, Trademarks and Proprietary Technology."
TECHNOLOGICAL CHANGE AND COMPETITION. The Company is engaged in a field
characterized by extensive research efforts and rapid technological
development. New drug discoveries and developments in the fields of genomics,
rational drug design and other drug discovery technologies are accelerating.
Many companies and institutions, both public and private, exist that are
engaged in developing synthetic pharmaceuticals and biotechnological products
for human application, including the disease the Company has targeted.
A number of the Company's competitors have substantially more capital,
research and development, regulatory, manufacturing, marketing, human and
other resources and experience than the Company. Furthermore, large
pharmaceutical companies have been consolidating with each other, which has
increased the resources available to them and concentrated the intellectual
property assets in a few such competitors. Such competitors may develop
products that are more effective or less costly than any of the Company's
current or future products. Such competitors also may
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produce and market their products more successfully than the Company. These
competitors may develop technologies and products that are more effective
than any the Company develops or that render the Company's technology and
products obsolete or noncompetitive. See "Competition."
PRODUCT LIABILITY RISKS. Product liability is a major risk in the
testing and marketing of biotechnology and pharmaceutical products. This
risk exists in human clinical trials and for products that receive regulatory
approval for commercial sale. The Company may incur significant product
liability exposure. When the Company develops a product suitable for human
administration, it intends to secure adequate product liability coverage.
However, insurers may not offer the Company product liability insurance, may
raise the price of such insurance or may limit the coverage of such
insurance. In addition, the Company may not be able to maintain such
insurance in the future on acceptable terms and such insurance may not
provide the Company with adequate coverage against potential liabilities
either for clinical trials or commercial sales. Successful product liability
claims in excess of the Company's insurance may adversely affect its business.
ENVIRONMENTAL LIABILITY RISKS. The Company's research and development
activities involve the controlled use of hazardous materials, chemicals,
viruses and radioactive compounds. The Company is subject to federal, state
and local laws and regulations governing the use, manufacture, storage,
handling and disposal of such materials and certain waste products. Although
the Company believes that its planned safety procedures for the handling and
disposal of such materials comply with the standards prescribed by such laws
and regulations, it cannot eliminate the risk of accidental contamination or
injury from these materials. In the event of such an accident, the Company
could be held liable for any damages that result and any such liability could
exceed the Company's resources. The Company may be required to incur
significant costs to comply with environmental laws and regulations in the
future. Current or future environmental laws or regulations may materially
adversely affect the Company's operations, business or assets.
DEPENDENCE UPON KEY PERSONNEL; MANAGEMENT OF GROWTH. The success of the
Company's operations during the foreseeable future will depend largely upon
the continued services of the following individuals: John Doherty, the
Company's President, Dr. Paul Mann, the Company's Treasurer and Secretary,
and Dr. Jon Aase, the Company's Vice President. The loss of the services of
Mr. Doherty, Dr. Mann or Dr. Aase could have a material adverse impact on the
Company. Mr. Doherty, Dr. Mann and Dr. Aase have not entered into employment
agreements with the Company. See "Management."
The Company's success will also depend in part on its ability to manage,
attract and retain qualified technical, management and sales personnel.
Competition for such personnel is intense. There can be no assurance that
the Company will be successful in attracting and retaining the personnel it
requires to conduct its operations successfully. The Company's results of
operations could be adversely affected if the Company were unable to attract,
manage and retain these personnel or if its revenues fail to increase at a
rate sufficient to absorb the resulting increase in expenses. See
"Employees."
CONTROL BY PRINCIPAL SHAREHOLDERS. As of December 1, 1999, each of Mr.
Doherty and Dr. Mann beneficially owned approximately 36.88% of the
outstanding shares of the Company's common stock through Alex, LLC, a New
Mexico limited liability company which is the Company's majority shareholder
("Alex"). Alex's Managing Members, each of whom holds a 50% membership
interest in Alex, are Mr. Doherty and Dr. Mann. Accordingly, Mr. Doherty and
Dr. Mann collectively have the ability to control the election of all of the
members of the Company's Board of Directors and the outcome of corporate
actions requiring majority shareholder approval. Even as to corporate
actions in which super-majority approval may be required, such as certain
fundamental corporate transactions, Mr. Doherty and Dr. Mann will
collectively control the outcome of such actions.
ABSENCE OF PRIOR TRADING MARKET; POTENTIAL VOLATILITY OF STOCK PRICE.
There has been no significant public market for the Company's common stock,
and there can be no assurance that an actual trading market will ever develop
or be maintained for the Company's common stock. The market price of the
shares of the Company's common stock may be highly volatile. Factors such as
fluctuation in the Company's operating results, the introduction of new
products
9
<PAGE>
or services by the Company or its competitors, and general market conditions
may have a significant effect on the market price of the Company's common
stock. See "Market for Common Equity and Other Shareholder Matters."
NEED FOR ADDITIONAL FUNDING. The Company believes that its available
short-term assets and investment income will be sufficient to meet its
operating expenses and capital expenditures through the current fiscal year.
The Company does not know if additional financing will be available when
needed, or if it is available, if it will be available on acceptable terms.
Insufficient funds may prevent the Company from implementing its business
strategy or may require the Company to delay, scale back or eliminate certain
components of its business plan.
EMPLOYEES
The Company currently has one full-time employee and two part-time
employees, each of whom joined the Company on November 1, 1999. The
Company's employees are non-union and none are represented by an organized
labor union. The Company believes its relationship with its employees is very
good and it has never experienced an employee related work stoppage. The
Company will need to hire and retain highly-qualified experienced technical,
management and sales personnel in order to execute its business plan, carry
out product development and secure advantages over its competitors. No
assurances can be given that the Company will be able to locate and hire such
personnel, or that, if hired, the Company will continue to be able to pay the
higher salaries necessary to retain such skilled employees.
CORPORATE HISTORY
The Company was originally formed as a New Mexico corporation in April
1958 under the name Ideal Homes, Inc. ("Ideal"). Ideal was organized for the
purpose of acquiring and developing real estate in the New Mexico area. In
March 1968, Ideal changed its name to Enerdyne Corporation ("Enerdyne").
Enerdyne engaged in the business of acquiring real estate properties,
exploring such properties for oil, gas and uranium ore deposits, and
entering into mining leases for the development of such properties.
Enerdyne's shares of common stock were publicly traded under the trading
symbol "ENDY."
In September 1999, Protalex, Inc., a New Mexico corporation
("Protalex"), acquired a majority of the issued and outstanding shares of
common stock of Enerdyne from Don Hanosh, pursuant to a Stock Purchase
Agreement between Protalex, Enerdyne and Mr. Hanosh. Under the Stock
Purchase Agreement, in consideration for Mr. Hanosh's shares of common stock,
Protalex executed a Promissory Note in the amount of $368,546.00 in favor of
Mr. Hanosh.
In November 1999, Protalex merged with and into Enerdyne pursuant to a
Merger Agreement and Plan of Reorganization (the "Merger Agreement"), and
Enerdyne changed its name to Protalex, Inc., thereby creating the Company.
Under the Merger Agreement, each share of Protalex common stock outstanding
immediately prior to the effective date of the merger was converted into 822
shares of the Company's common stock. After the merger, Protalex's former
shareholders held approximately 92.28% of the shares of common stock of the
Company, and Enerdyne's former shareholders held approximately 7.72% of the
shares of common stock of the Company.
ADDITIONAL INFORMATION
The Company intends to provide an annual report to its security holders,
and to make quarterly reports available for inspection by its security
holders. The annual report will include audited financial statements.
Upon the filing of this registration statement, the Company will be
subject to the informational requirements of the Securities Exchange Act of
1934 (the "Exchange Act") which will require the Company to file reports,
proxy statements and other information with the Securities and Exchange
Commission (the "SEC"). Such reports, proxy statements and other information
may be inspected at public reference facilities of the SEC at Judiciary
Plaza, 450 Fifth Street N.W., Washington D.C. 20549; Northwest Atrium Center,
500 West Madison Street, Suite 1400, Chicago, Illinois 60661; 7 World Trade
Center, New York, New York, 10048; and 5670 Wilshire Boulevard, Los Angeles,
California
10
<PAGE>
90036. Copies of such material can be obtained from the Public Reference
Section of the SEC at Judiciary Plaza, 450 Fifth Street N.W., Washington,
D.C. 20549 at prescribed rates, or by visiting the SEC's Internet website at
www.sec.gov.
MANAGEMENT'S DISCUSSION AND ANALYSIS
WITH THE EXCEPTION OF HISTORICAL MATTERS, THE MATTERS DISCUSSED HEREIN
ARE FORWARD LOOKING STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES. FORWARD
LOOKING STATEMENTS INCLUDE, BUT ARE NOT LIMITED TO, STATEMENTS CONCERNING
ANTICIPATED TRENDS IN REVENUES AND NET INCOME, THE DATE OF INTRODUCTION OR
COMPLETION OF THE COMPANY'S PRODUCTS, PROJECTIONS CONCERNING OPERATIONS AND
AVAILABLE CASH FLOW. THE COMPANY'S ACTUAL RESULTS COULD DIFFER MATERIALLY
FROM THE RESULTS DISCUSSED IN SUCH FORWARD LOOKING STATEMENTS. THE FOLLOWING
DISCUSSION OF THE COMPANY'S FINANCIAL CONDITION AND RESULTS OF OPERATIONS
SHOULD BE READ IN CONJUNCTION WITH THE COMPANY'S FINANCIAL STATEMENTS AND THE
RELATED NOTES THERETO APPEARING ELSEWHERE HEREIN.
OVERVIEW
The Company is a development stage enterprise engaged in the development and
marketing of organic chemical molecules for the treatment of arthritis. The
Company's business is a continuation of the business of Protalex, Inc., a New
Mexico corporation incorporated on September 17, 1999 ("Protalex"). During the
period from Protalex's inception until October 31, 1999, Protalex acquired a
majority interest in Enerdyne Corporation, a New Mexico corporation
("Enerdyne"), a publicly traded company. On November 15, 1999, Protalex merged
with and into Enerdyne, thereby creating the Company. These transactions
position the Company as a publicly held entity with full ability to raise
capital from all sources public and private. Consistent with its development
stage status, Protalex had no operating revenue from its inception through the
date of its merger with Enerdyne, nor does the Company expect to have operating
revenues in the foreseeable future.
PLAN OF OPERATION
The principal goal in the Company's plan of operation is to seek private and
public investment capital to fund operations and development activities
necessary to bring its bioregulator products to market. Efforts are currently
ongoing with private fundraising. A private placement of Company stock in the
amount of $5,000,000 is planned for early next year. Concurrently with seeking
investment capital, the Company is developing its corporate commercialization
base and planning marketing and production strategies.
The Company's primary asset is its perpetual, exclusive license agreement with
Alex, LLC, a New Mexico limited liability company ("Alex"), for commercial
rights to bioregulator technology that the Company intends to utilize to produce
and market its bioregulator products in the future. The Company expects to work
closely with Alex over the next few years. Alex will perform pure research
activities and the Company will perform all development and marketing activities
for potential bioregulator products. The Company's current activities include
conducting pre-clinical trials and studies in connection with an identified
potential bioregulator product and associated research activities. There had
been no reimbursement costs to Alex for research as of October 31, 1999.
A full discussion of the scientific theory behind bioregulator technology and
its potential product applications, the research, development and FDA approval
process that the Company faces, and the current status of Alex's research
activities may be found elsewhere in this registration statement. Please review
this material as an important source to evaluate the Company's prospects in
light of the risks, expenses and difficulties frequently encountered by
companies in the earliest stage of development. The Company's ability to realize
future operating revenue is dependent on the Company successfully producing a
product that provides significant benefits in humans with appropriately low side
effects and completing all trials, procedures and protocols necessary to gain
ultimate FDA approval for sale of a product to the public. Even if the Company
gains FDA approval, the product may not be successful in the marketplace. The
Company estimates that it will take 2 to 3 years to bring a product to market
and business conditions may change during that time. Alex expects to gain patent
protection on its intellectual technology but has no patents currently.
LIQUIDITY AND OPERATIONS
Short and longer-term financial operations will consist solely of development
stage cost outlays. In addition to monies owed to Alex for granting the
technology license to the Company, the Company now has three employees who are
full or part-time laboratory technicians. Pre-clinical animal trials will
commence around the first of the year requiring significant capital. The Company
also expects to incur travel and promotion expenses and professional fees as
part of raising investment capital. The Company has an educational website under
construction and will have modest outlays for computer equipment and
infrastructure during the coming year. The cost of trials and studies necessary
to bring the Company's potential products to market are significant and will
require the majority of raised capital during the development period. Prior to
its merger with Enerdyne, Protalex successfully raised private capital in
amounts sufficient to fund the Company's projected operations for approximately
six to nine months. Sufficient capital and liquidity to finance the continued
operations of the Company are dependent on the
<PAGE>
raising of adequate investment capital over both the short and long-term. If
funding is insufficient at any time in the future, the Company may be unable to
continue its operations, its development efforts or its ability to continue
scientific research through Alex.
Protalex incurred a loss from its inception to its merger with Enerdyne.
Thereafter, the Company has incurred losses and expects to incur significant
cumulative losses over the next two to three years. There is no comparison of
results of operations to prior periods as Protalex commenced its operations as
of September 17, 1999.
IMPACT OF THE YEAR 2000
The Company does not expect that the Year 2000 computer problem (commonly
referred to as "Y2K") will have any significant effect on its business or
operations. The Company's use of computers is limited to personal computers that
it bought recently. The Company uses basic operating and applications software,
all of which was factory installed or purchased recently from retail vendors.
However, the Company has not investigated and nor does it have the resources to
investigate whether its suppliers or customers are Y2K compliant. No assurance
can be given that they are Y2K compliant, and if they are not, the Company's
business may be adversely affected.
DESCRIPTION OF PROPERTY
The Company's office is located at 1518 Cornell Drive N.E., Albuquerque,
New Mexico 87106. The Company is permitted to use this office free of charge
pursuant to an oral agreement with its President, Mr. John Doherty, who
leases the property on which the Company's office is located. The Company
intends to move to a larger facility once it secures additional financing.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding beneficial
ownership of the Company's common stock as of December 1, 1999, (i) by each
person who is known by the Company to own beneficially more than 5% of its
common stock, (ii) by each of the Company's directors, and (iii) by all of
the Company's officers and directors as a group. Except as provided below,
each person's address is c/o Protalex, Inc., P.O. Box 30952, Albuquerque, New
Mexico 87190.
<TABLE>
<CAPTION>
Amount and Nature of
Name and Address of Beneficial Owner Beneficial Owner Percentage of Class(1)
------------------------------------ -------------------- ----------------------
<S> <C> <C>
John E. Doherty(2) 3,312,660 36.88%
Paul L. Mann, Ph.D.(2) 3,312,660 36.88%
Jon M. Aase, M.D. 276,192 3.07%
Arthur D. Bankhurst, M.D. 276,192 3.07%
James K. Strattman 451,278 5.02%
All Executive Officers and Directors
(5 persons) 7,628,982 84.92%
</TABLE>
________________
(1) Based on a total of 8,982,547 outstanding shares of the Company's common
stock.
(2) Figures shown for Mr. Doherty and Dr. Mann reflect their respective 50%
ownership of Alex, LLC, a New Mexico limited liability company, which holds
6,625,320 shares of the Company's common stock.
11
<PAGE>
MANAGEMENT
DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
The following table sets forth certain information with respect to the
Company's directors and executive officers.
<TABLE>
<CAPTION>
Name Age Position
-------------------------- --- ---------------------------------
<S> <C> <C>
John E. Doherty 45 President and Director
Paul L. Mann, Ph.D. 54 Treasurer, Secretary and Director
Jon M. Aase, M.D. 63 Vice President and Director
Arthur D. Bankhurst, M.D. 62 Director
James K. Strattman 40 Director
</TABLE>
JOHN E. DOHERTY. Mr. Doherty has served as President and a director of the
Company since November 1999, and previously served as a director of Enerdyne
since August 1999. From October to November 1999, Mr. Doherty was President
and a director of Protalex. From 1976 to 1994, Mr. Doherty was a vice
president and principal of Doherty & Co., an investment banking firm. During
this time he was involved in the early and later stage financing of companies
such as Thoratec Laboratories, SeraCare, Inc., Excalibur Technologies, and
Cypress Biosciences, Inc. Mr. Doherty attended Tufts University in Boston,
Massachusetts. From 1994 to the present, Mr. Doherty has been a private
investor, and over the last year and a half was involved with the early stage
development of Protalex.
PAUL L. MANN, PH.D. Dr. Mann has served as Treasurer, Secretary and a
director of the Company since November 1999, and previously served as a
director of Enerdyne since August 1999. From October to November 1999, Dr.
Mann was Treasurer, Secretary and a director of Protalex. Dr. Mann is the
inventor of bioregulator therapy. After earning his bachelors and masters
degrees at the University of Victory in New Zealand, he pursued his Ph.D. at
Queens University in Canada and as an Inserm Fellow at the Centre
Haeyem/Pasteur Institute in Paris. He engaged in further research at the
National Institute of Health in Bethesda, Maryland and at John Hopkins
University School of Medicine. In 1981, he joined the faculty at the
University of New Mexico School of Medicine in Albuquerque, where he now
holds the rank of Associate Professor in the College of Pharmacy and in the
Department of Family Practice. His research into the biology and function of
bioregulator compounds spans 20 years, resulting in more than 2 dozen
publications.
JON M. AASE, M.D. Dr. Aase has served as Vice President and a director of
the Company since November 1999, and previously served as a director of
Enerdyne since August 1999. Dr. Aase graduated from Pomona College in
Claremont, California and received his medical degree from Yale University in
New Haven, Connecticut. After a pediatric internship at the University of
Minnesota and residency at the University of Washington, he spent two years
studying the native population of Alaska as a fellow of the National
Institute of Child Health and Human Development. He then returned to Seattle
for a two-year fellowship in dysmorphology (the study of birth defects) with
Dr. David W. Smith. In 1974, Dr. Aase joined the faculty of the University
of New Mexico School of Medicine, where he served as chief of the
dysmorphology division for 16 years. His bibliography contains more than 40
published articles and a textbook, DIAGNOSTIC DYSMORPHOLOGY (Plenum, New
York, 1990). Dr. Aase is now a Clinical Professor of Pediatrics at the
University of New Mexico. Dr. Aase is the brother-in-law of Mr. Doherty.
ARTHUR D. BANKHURST, M.D. Dr. Bankhurst has served as a director of the
Company since November 1999, and previously served as a director of Enerdyne
since August 1999. Dr. Bankhurst earned his bachelors degree in biochemistry
from the Massachusetts Institute of Technology, and his M.D. from Case
Western Reserve University. He served as a research fellow at the Hall
Institute of Medical Research in Melbourne, Australia and as a senior
research fellow at the WHO Research Unit in Geneva, Switzerland. He joined
the faculty of the University of New Mexico in 1971, and now holds a joint
professorship in internal medicine and microbiology. Dr. Bankhurst's
professional
12
<PAGE>
accomplishments in the fields of arthritis and immunology are reflected in
his being named Senior Investigator for the Arthritis Foundation from
1974-1979, as well as serving as associate editor of several prestigious
medical journals. These journals include THE JOURNAL OF IMMUNOLOGY
(1984-1987), DIAGNOSTIC IMMUNOLOGY (1984-1988), and CLINICAL IMMUNOLOGY AND
IMMUNOPATHOLOGY (1988-present). With more than 140 publications to his
credit, Dr. Bankhurst has a national reputation as an investigator, and has
participated in a number of multi-center trials of anti-arthritis drugs.
JAMES K. STRATTMAN. Mr. Strattman has served as a director of the Company
since November 1999, and previously served as a director of Enerdyne since
August 1999. Mr. Strattman is currently employed at Excalibur Technologies
Corporation, a publicly traded software company. He has held several senior
executive positions, including Director of Engineering and Director of
Business Development. During the last ten years, Mr. Strattman has provided
venture capital investments to several public companies through private
placements.
EXECUTIVE COMPENSATION
EXECUTIVE OFFICER COMPENSATION
The Company did not pay any of its executive officers, including its
Chief Executive Officer, any compensation during the fiscal year ended
December 31, 1998.
EMPLOYMENT AGREEMENTS
The Company does not have employment agreements with any of its
executive officers.
DIRECTOR COMPENSATION
The Company does not compensate its directors.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Alex, LLC, a New Mexico limited liability company ("Alex"), holds
approximately 73.76% of the Company's outstanding common stock. Alex's
Managing Members, each of whom holds a 50% membership interest in Alex are
John Doherty, the Company's President, and Dr. Paul Mann, the Company's
Treasurer and Secretary. Mr. Doherty and Dr. Mann are also members of the
Company's Board of Directors.
The bioregulator technology which the Company intends to develop and
bring to market is currently licensed by the Company from Alex pursuant to a
Technology License Agreement. Under the Technology License Agreement, the
Company has the right to use the bioregulator technology to research, design,
develop, market and sell products which incorporate the bioregulator
technology and which are used for the therapeutic treatment of rheumatoid
arthritis and other forms of arthritis. In exchange for this right, the
Company is required to pay Alex a $20,000 non-refundable license fee. In
addition, at the Company's formation it issued to Alex 10,000 shares of its
common stock, at an aggregate value of $300, as partial payment for the
license. The Company is not obligated to pay Alex any royalties or other
compensation based on the sale or distribution of the Company's bioregulator
products. The Technology License Agreement also provides that if Alex is
issued a patent for the bioregulator technology it licenses to the Company,
the Company will be allowed to continue using the patented bioregulator
technology, either by way of an amendment to the Technology License Agreement
or an agreement by Alex not to enforce its patent rights against the Company.
In September 1999, Alex advanced $20,000 to the Company's counsel
in connection with the acquisition of Protalex by Enerdyne and the preparation
of this registration statement. The Company intends to repay this sum, along
with the $20,000 fee owed under the Technology License Agreement, within 30
to 60 days after this registration statement is filed.
The Company leases an office facility under an oral agreement with Mr.
Doherty, pursuant to which Mr. Doherty does not charge the Company rent. See
"Description of Property."
13
<PAGE>
The Company is a party to a Promissory Note in the amount of $368,546.00,
originally executed by Protalex pursuant to a Stock Purchase Agreement between
Protalex, Enerdyne and Don Hanosh. See "Corporate History." The payments due
under the Promissory Note are personally guaranteed by Mr. Doherty and by James
Strattman, a director of the Company.
LEGAL PROCEEDINGS
The Company is not a party to any pending legal proceedings.
MARKET FOR COMMON EQUITY AND OTHER SHAREHOLDER MATTERS
The Company's common stock is currently traded on the National Quotation
Bureau, LLC "Pink Sheets" under the symbol "ENDY." The
common stock of Enerdyne was traded on the OTC Bulletin Board, also under the
symbol "ENDY." The following table sets forth, for the fiscal periods
indicated, the high and low closing bid prices for the common stock of Enerdyne,
as reported on the OTC Bulletin Board. The quotations for the common stock
traded on the OTC Bulletin Board may reflect inter-dealer prices, without retail
mark-up, mark-down or commission and may not necessarily represent actual
transactions.
<TABLE>
<CAPTION>
HIGH LOW
-------- -------
<S> <C> <C>
FISCAL YEAR 1997
FIRST QUARTER 0.125 0.125
SECOND QUARTER 0.125 0.125
THIRD QUARTER(1) N/A N/A
FOURTH QUARTER 0.125 0.125
FISCAL YEAR 1998
FIRST QUARTER(1) N/A N/A
SECOND QUARTER 0.125 0.125
THIRD QUARTER(1) N/A N/A
FOURTH QUARTER 0.125 0.125
FISCAL YEAR 1999
FIRST QUARTER 0.125 0.125
SECOND QUARTER(1) N/A N/A
THIRD QUARTER(1) N/A N/A
</TABLE>
___________________
(1) No trading activity occurred for the common stock of Enerdyne during the
third quarter of fiscal year 1997, the first and third quarters of fiscal
year 1998, and the second and third quarters of fiscal year 1999.
As of December 1, 1999, the Company had 8,982,547 shares of common stock
outstanding, which were held by 348 shareholders of record. The transfer agent
for the Company's common stock is Standard Registrar & Transfer Agency, P.O. Box
1411, Albuquerque, NM 87191. The Company's market maker is Carr Securities, 1
Penn Plaza, Suite 4720, New York, NY 10019.
Pursuant to NASD Rule 6530 (the "Eligibility Rule"), the Company's common
stock was delisted from the OTC Bulletin Board on November 18, 1999. The
Eligibility Rule requires companies listed on the OTC Bulletin Board to
14
<PAGE>
make current filings pursuant to Sections 13 or 15(d) of the Securities
Exchange Act of 1934, as amended. The Company is submitting this
registration statement to the SEC in order to comply with the Eligibility
Rule, among other reasons. The Company intends to apply for its common stock
to be re-listed on the OTC Bulletin Board once this registration statement is
declared effective and the Eligibility Rule has been satisfied.
DIVIDEND POLICY
The Company has never declared or paid cash dividends on its common stock.
The Company currently anticipates that it will retain all future earnings for
use in the operation and expansion of its business and does not anticipate
paying any cash dividends in the foreseeable future.
RECENT SALES OF UNREGISTERED SECURITIES
In November 1999, the Company issued a total of 8,289,048 shares of its
common stock to Protalex, Inc., a New Mexico corporation ("Protalex"), in
connection with its acquisition of Protalex pursuant to a Merger Agreement and
Plan of Reorganization. The Company issued these shares in reliance upon the
exemption from registration in Section 4(2) of the Securities Act of 1933, as
amended.
DESCRIPTION OF SECURITIES
The Company is authorized to issue 40,000,000 shares of common stock, of
which 8,982,547 shares were outstanding as of December 1, 1999. Holders of
common stock are entitled to dividends, pro rata, when, as and if declared by
the Board of Directors out of funds available therefor. Holders of common stock
are entitled to cast one vote for each share held at all shareholder meetings
for all purposes, including the election of directors. The holders of more than
one-half of the common stock issued and outstanding and entitled to vote,
present in person or by proxy, constitute a quorum at all meetings of
shareholders, but in no event shall a quorum consist of less than one-third of
the shares entitled to vote at such meetings. The vote of the holders of a
majority of common stock present at such a meeting will decide any question
brought before such meeting, except for certain actions which pursuant to the
New Mexico Business Corporations Act require the vote of a greater percentage of
the outstanding common stock. Upon liquidation or dissolution, the holder of
each outstanding share of common stock will be entitled to share equally in the
assets of the Company legally available for distribution to such shareholder
after payment of all liabilities. Under the Company's Articles of
Incorporation, holders of the Company's common stock are denied any preemptive,
subscription, redemption rights or registration rights.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
The New Mexico Business Corporations Act provides for indemnification of a
corporation's officers and directors for liabilities that they may incur in such
capacities. In general, a corporation has the power to indemnify any person
made a party to any proceeding by reason of the fact that the person is or was
an officer or directors if (i) the person acted in good faith, (ii) the person
reasonably believed, in the case of conduct in his official capacity with the
corporation, that his conduct was in the corporation's best interests, and in
all other cases, that his conduct was at least not opposed to the corporation's
best interests, and (iii) in the case of any criminal proceeding, the person had
no reasonable cause to believe his conduct was unlawful. However, the Company's
Articles of Incorporation and Bylaws do not provide for indemnification of the
Company's officers and directors.
Insofar as indemnification for liabilities arising under the Securities Act
may be available to directors, officers or persons controlling the Company
pursuant to the foregoing provision, the Company has been informed that in the
opinion of the Securities and Exchange Commission, such indemnification is
against public policy as expressed in the Act and is therefore unenforceable.
15
<PAGE>
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
The Company has not had any changes in or disagreements with its
accountants since inception.
16
<PAGE>
PART F/S
CONSOLIDATED FINANCIAL STATEMENTS
AND REPORT OF INDEPENDENT
CERTIFIED PUBLIC ACCOUNTANTS
PROTALEX, INC. AND SUBSIDIARY
OCTOBER 31, 1999
<PAGE>
C O N T E N T S
<TABLE>
<CAPTION>
Page
<S> <C>
REPORT OF INDEPENDENT CERTIFIED
PUBLIC ACCOUNTANTS........................................................................F-1
CONSOLIDATED FINANCIAL STATEMENTS
BALANCE SHEET.............................................................................F-2
STATEMENT OF OPERATIONS...................................................................F-3
STATEMENT OF STOCKHOLDERS' DEFICIT........................................................F-4
STATEMENT OF CASH FLOWS ................................................................F-5-6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS....................................................F-7-12
</TABLE>
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
Protalex, Inc. and Subsidiary
We have audited the accompanying consolidated balance sheet of Protalex, Inc.
and Subsidiary (a New Mexico corporation in the development stage) as of October
31, 1999, and the consolidated related statements of operations, stockholders'
deficit and cash flows for the period from September 17, 1999 (inception)
through October 31, 1999. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Protalex, Inc. and Subsidiary
as of October 31, 1999, and the results of its operations and its cash flows for
the period from September 17, 1999 through October 31, 1999 in conformity with
generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. The Company is in the development
stage and its ability to continue as a going concern is initially dependent on
its ability to raise adequate capital to fund necessary product development
activities and subsequently on the inflow of operating revenue derived from
developed products which must be regulatory approved and market accepted. The
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
ATKINSON & CO., LTD.
Albuquerque, New Mexico
November 30, 1999
F-1
<PAGE>
PROTALEX, INC. AND SUBSIDIARY
(A COMPANY IN THE DEVELOPMENT STAGE)
CONSOLIDATED BALANCE SHEET
OCTOBER 31, 1999
<TABLE>
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash $ 23,531
Prepaid expense 6,604
----------------
Total current assets $ 30,135
OTHER ASSETS
Note receivable, individual 118,547
Interest receivable 1,608
Intellectual technology license 20,300 140,455
---------------- ----------------
$ 170,590
----------------
----------------
LIABILITIES
CURRENT LIABILITIES
Accounts payable $ 2,619
Salaries payable 1,713
Payroll taxes payable 837
Professional fees payable 7,389
Related party advance and license fee payable 40,000
Interest payable 4,998
----------------
Total current liabilities $ 57,556
LONG-TERM LIABILITIES
Note payable to individual 368,546
----------------
Total liabilities 426,102
MINORITY INTEREST 52,000
STOCKHOLDERS' DEFICIT
Common stock, no par value, authorized 100,000
shares, 10,084 shares, issued and outstanding 25,300
Common stock, contra (302,000)
Deficit accumulated during the development stage (30,812) (307,512)
----------------- -----------------
$ 170,590
----------------
----------------
</TABLE>
The accompanying notes are an integral part of this statement.
F-2
<PAGE>
PROTALEX, INC. AND SUBSIDIARY
(A COMPANY IN THE DEVELOPMENT STAGE)
CONSOLIDATED STATEMENT OF OPERATIONS
FROM INCEPTION (SEPTEMBER 17, 1999) THROUGH OCTOBER 31, 1999
<TABLE>
<CAPTION>
From Inception
Period Ended Through
October 31, 1999 October 31, 1999
---------------- ----------------
<S> <C> <C>
Revenue
Interest $ 1,608 $ 1,608
Expenses
Salaries 3,733 3,733
Professional fees 20,785 20,785
Interest 4,998 4,998
Administrative 1,323 1,323
Development 1,295 1,295
Payroll tax expense 286 286
----------------- -----------------
NET LOSS $ (30,812) $ (30,812)
================ =================
Loss per common share $ (3.08) $ (3.08)
================ ================
</TABLE>
The accompanying notes are an integral part of this statement.
F-3
<PAGE>
PROTALEX, INC. AND SUBSIDIARY
(A COMPANY IN THE DEVELOPMENT STAGE)
CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIT
FROM INCEPTION (SEPTEMBER 17, 1999) THROUGH OCTOBER 31, 1999
<TABLE>
<CAPTION>
Deficit
Accumulated
Common Stock Common In The
----------------------------- Stock- Development
Shares Amount Contra Stage Total
------------ ------------- ------------- ------------ -----------
<S> <C> <C> <C> <C> <C>
SEPTEMBER 17, 1999 --initial issuance
of 10,000 shares for intellectual
technology license at $.03 per
share 10,000 $ 300 $ - $ - $ 300
SEPTEMBER 30, 1999 -- cost of public
shell acquisition over net assets
acquired to be accounted for as a
recapitalization - - (250,000) - (250,000)
OCTOBER 27, 1999 issuance of 84
shares to individual for $25,000 84 25,000 - - 25,000
Net loss for the period - - - (30,812) (30,812)
44% minority interest in net assets
of subsidiary to be accounted for as
recapitalization - - (52,000) - (52,000)
------------ ------------- ------------- ---------------- ------------
10,084 $25,300 $ (302,000) $ (30,812) $(307,512)
============ ============= ============= ================ ============
</TABLE>
The accompanying notes are an integral part of this statement.
F-4
<PAGE>
PROTALEX, INC. AND SUBSIDIARY
(A COMPANY IN THE DEVELOPMENT STAGE)
CONSOLIDATED STATEMENT OF CASH FLOWS
PERIOD FROM INCEPTION (SEPTEMBER 17, 1999) THROUGH OCTOBER 31, 1999
<TABLE>
<CAPTION>
From Inception
Period Ended Through
October 31, 1999 October 31, 1999
---------------- ----------------
<S> <C> <C>
Cash flows from operating activities
Net loss $ (30,812) $ (30,812)
Adjustments to reconcile net loss to net
cash provided by operating activities
(Increase) in interest receivable (1,608) (1,608)
(Increase) in prepaid expense (6,604) (6,604)
Increase in salaries payable 1,713 1,713
Increase in accounts payable 2,619 2,619
Increase in payroll taxes payable 837 837
Increase in interest payable 4,998 4,998
Increase in professional fees payable 7,389 7,389
Increase in related party advance
and licenses fee payable 40,000 40,000
----------------- -----------------
Net cash provided by operating activities 18,532 18,532
----------------- -----------------
Cash flows from investing activities
Acquisition of intellectual technology license
- fee portion (20,000) (20,000)
Excess of amounts paid for Public Shell
over assets acquired to be accounted for
as a recapitalization (250,000) (250,000)
Note receivable from individual (118,547) (118,547)
Issuance of note payable to individual 368,546 368,546
----------------- -----------------
Net cash used in investing activities (20,001) (20,001)
----------------- -----------------
Cash flows from financing activities
Proceeds from stock issuance 25,000 25,000
----------------- -----------------
Net cash provided by financing activities 25,000 25,000
----------------- -----------------
NET INCREASE (DECREASE) IN CASH 23,531 23,531
Cash, beginning of period - -
----------------- ------------------
Cash, end of period $ 23,531 $ 23,531
================= =================
</TABLE>
The accompanying notes are an integral part of this statement.
F-5
<PAGE>
PROTALEX, INC. AND SUBSIDIARY
(A COMPANY IN THE DEVELOPMENT STAGE)
CONSOLIDATED STATEMENT OF CASH FLOWS -CONTINUED
PERIOD FROM INCEPTION (SEPTEMBER 17, 1999) THROUGH OCTOBER 31, 1999
<TABLE>
<CAPTION>
From Inception
Period Ended Through
October 31, 1999 October 31, 1999
---------------- ----------------
<S> <C> <C>
Interest paid $ - $ -
================= ==================
Taxes paid $ - $ -
================= ==================
</TABLE>
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING ACTIVITIES
<TABLE>
<S> <C> <C> <C>
10,000 shares of company stock were issued as part of the cost of acquisition of
the intellectual technology
license at inception - value at $.03 per share $ 300 $ 300
================= =================
</TABLE>
The accompanying notes are an integral part of this statement.
F-6
<PAGE>
PROTALEX, INC. AND SUBSIDIARY
(A COMPANY IN THE DEVELOPMENT STAGE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FROM INCEPTION (SEPTEMBER 17, 1999) THROUGH OCTOBER 31, 1999
NOTE A - DESCRIPTION OF OPERATIONS AND DEVELOPMENT STAGE STATUS
Protalex, Inc. (the Company or Protalex) is a development stage enterprise
incorporated on September 17, 1999 and based in Albuquerque, New Mexico. The
Company was formed to take all necessary steps to fully develop and bring to
commercial realization certain intellectual property and research of Dr.
Paul Mann in connection with the use of bioregulatory compounds for the
treatment of human diseases. The Company has no operating revenue.
The Company owns 56% of Enerdyne Corporation (Enerdyne or Public Shell), a
Public Shell company with minimal net assets as of October 31, 1999. On
November 15, 1999, the Company completed a reverse merger of the Company
with Enerdyne to position the Company as a publicly held entity with full
ability to raise capital from both public and private sources.
NOTE B-SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION AND MINORITY INTEREST--The financial statements
include the accounts of the Company and its majority owned subsidiary
Enerdyne. The minority interest represents the 44% separate public ownership
of Enerdyne's net assets at October 31, 1999. As there were no transactions
for Enerdyne for the period, there is no minority interest in the net income
or loss of the subsidiary. There were no intercompany accounts or balances
to eliminate in the consolidation.
CONCENTRATION OF CREDIT RISK--Financial instruments potentially subjecting
the Company to concentrations of credit risk consist primarily of deposits
in excess of FDIC limits. The Company's demand deposits are placed with
major financial institutions and the Company does not believe that it is
exposed to undue credit risk for any demand deposits that may from time to
time exceed the federally insured limits.
ESTIMATES--The preparation of financial statements in conformity with
generally accepted accounting principles requires the Company to make
estimates and assumptions affecting the reported amounts of assets,
liabilities, revenues and expense, and the disclosure of contingent assets
and liabilities. The amounts estimated could differ from actual results.
INCOME (LOSS) PER COMMON SHARE--The Financial Accounting Standards Board
(FASB) has issued Statements of Financial Accounting Standards No. 128
"Earnings Per Share" (SFAS No. 128) which is effective for periods ending
after December 15, 1997. SFAS No. 128 provides for the calculation of
"Basic" and "Diluted" earnings per share. Basic earnings
F-7
<PAGE>
PROTALEX, INC. AND SUBSIDIARY
(A COMPANY IN THE DEVELOPMENT STAGE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
FROM INCEPTION (SEPTEMBER 17, 1999) THROUGH OCTOBER 31, 1999
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
per share includes no dilution and is computed by dividing income (loss)
available to common shareholders by the weighted average number of common
shares outstanding for the period. There were no securities outstanding at
October 31, 1999 that could affect the calculation of basic earnings per
share through dilution. Therefore diluted earnings (loss) per share is not
presented.
INCOME TAXES--Income taxes are recognized using enacted tax rates, and are
composed of taxes on financial accounting income that is adjusted for the
requirement of current tax law and deferred taxes. Deferred taxes are the
expected future tax consequences of temporary differences between the
financial statement carrying amounts and tax bases of existing assets and
liabilities. The Corporation does not expect to have current income taxes
payable or deferred tax balances for the foreseeable future.
OTHER COMPREHENSIVE INCOME--From September 17, 1999 (inception) through
October 31, 1999, the Company had no changes in equity which constitute
components of other comprehensive income.
NOTE C - SUBSEQUENT REVERSE MERGER AND PRO FORMA INFORMATION
On November 15, 1999, Enerdyne Corporation ( Enerdyne or Public Shell)
acquired all of the outstanding common stock of Protalex, Inc. (Protalex or
the Company) in exchange for the issuance of additional shares of Enerdyne
stock. The ratio of exchange was 822 shares of Enerdyne stock issued for
each share of Protalex stock received. For accounting purposes, the
acquisition has been treated as an acquisition of Enerdyne by Protalex and
as a recapitalization of Protalex. The historical financial statements
presented herein are for the balance sheet only. This is consistent with the
requirements of reverse merger accounting that specifies that the results of
operations include only those of the accounting acquirer and that the
retained earnings (deficit) of only the accounting acquirer carries over.
Concurrently with the share exchange, Enerdyne changed its name to Protalex,
Inc.
F-8
<PAGE>
PROTALEX, INC. AND SUBSIDIARY
(A COMPANY IN THE DEVELOPMENT STAGE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
FROM INCEPTION (SEPTEMBER 17, 1999) THROUGH OCTOBER 31, 1999
NOTE C - SUBSEQUENT REVERSE MERGER AND
PRO FORMA INFORMATION - CONTINUED
Pro forma information giving effect to the acquisition as if the acquisition
took place on October 31, 1999 is presented as follows:
<TABLE>
<CAPTION>
Protalex, Enerdyne Pro forma Pro forma
Account Description Inc. Corporation Adjustments Balance Sheet
------------------------------------- -------------- --------------- ---------------- ------------------
<S> <C> <C> <C> <C>
Cash $ 23,531 $ - $ - $ 23,531
Note receivable shareholder - 118,547 - 118,547
License 20,300 - - 20,300
Investment in Enerdyne 368,546 - (368,546) -
Other current assets 8,212 - - 8,212
Other current liabilities (17,555) - - (17,555)
Accounts payable Alex (40,000) - - (40,000)
Note payable (368,546) - - (368,546)
Common stock (25,300) (833,459) 714,912 (143,847)
Additional paid in capital - (1,105,014) 1,105,014 -
Treasury stock - 430,424 (430,424) -
Accumulated deficit 30,812 1,389,502 (1,389,502) 30,812
Common stock - contra - - 368,546 368,546
-------------- --------------- ---------------- ------------------
$ - $ - $ - $ -
============== =============== ================ ==================
</TABLE>
Additional pro forma information in connection with stock amounts and number
of shares issues is as follows:
<TABLE>
<CAPTION>
Protalex, Inc. Enerdyne Corporation
--------------------------------- --------------------------------------
Account Description Shares Amount Shares Amount
------------------------------------- -------------- --------------- ---------------- ------------------
<S> <C> <C> <C> <C>
Common stock 10,084 $ 25,300 1,578,907 $ 833,459
822 to 1 stock recapitalization (10,084) - 8,289,048 -
Cancellation of shares - -
Formerly held by Protalex in
Enerdyne - (885,408)
Increase to record net assets 118,547 - -
of Enerdyne -
Cancellation of common stock - - (833,459)
Amounts for Enerdyne -
Name change to Protalex, Inc. - - - -
-------------- --------------- ---------------- ------------------
- $ 143,847 8,982,547 $ -
============== =============== ================ ==================
</TABLE>
F-9
<PAGE>
PROTALEX, INC. AND SUBSIDIARY
(A COMPANY IN THE DEVELOPMENT STAGE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
FROM INCEPTION (SEPTEMBER 17, 1999) THROUGH OCTOBER 31, 1999
NOTE C - SUBSEQUENT REVERSE MERGER AND
PRO FORMA INFORMATION - CONTINUED
<TABLE>
<CAPTION>
PROTALEX, INC.
------------------------------------
Amounts Shares
--------------- ----------------
<S> <C> <C>
Final pro forma stock shares
and amounts as a result of
recapitalization $ 143,847 8,982,547
=============== ================
</TABLE>
The pro forma presentation and adjustments reflect the following items of
note:
- Elimination of the all equity accounts for Enerdyne. Protalex
is the accounting acquirer.
- The issuance of Enerdyne stock in the ratio of 822 shares for
each share of Protalex, Inc. received.
- The recording of a common stock "contra" account to reflect
the consideration paid by Protalex to a former shareholder of
Enerdyne to acquire a majority ownership position in the
Public Shell. Goodwill is not recorded.
- The common stock dollar amounts are increased for the net
assets acquired from the Public Shell in the merger
($118,547).
- Shares authorized are 40,000,000.
NOTE D - INTELLECTUAL TECHNOLOGY LICENSE
The Company has a technology license agreement with Alex LLC (Alex), a New
Mexico Limited Liability Company, for commercial rights to develop
bioregulator type product(s) based on the intellectual property and ongoing
research of Dr Paul Mann. Dr. Mann is an owner of Alex and an officer, a
shareholder and director of the Company. The Company issued 10,000 shares of
Company stock as partial payment for the license at the formation of the
Company. The Company has recorded this nonmonetary transaction at a nominal
amount (3 cents per share) based on the business risk of the development
stage venture. In addition, the Company agreed to pay a $20,000 license fee
to Alex. As the license is exclusive and perpetual, the Company will
amortize the license amount over a 20- year life on a straight line basis.
Due to the development stage status of the Company, it will review the value
of the license for impairment on a quarterly basis.
F-10
<PAGE>
PROTALEX, INC. AND SUBSIDIARY
(A COMPANY IN THE DEVELOPMENT STAGE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
FROM INCEPTION (SEPTEMBER 17, 1999) THROUGH OCTOBER 31, 1999
NOTE E- INCOME TAXES
The Company has no taxable income and no income tax liability during the
reported period of operation.
The net loss reported on the statement of operations ($30,812) as well as
additional net operating losses (NOLs) to be incurred during the remainder
of the year will be available to offset future taxable income. The net
operating losses expire in 15 years if not utilized during that time. No
deferred tax asset has been recorded for the interim NOL as an equivalent
valuation allowance applies against it in recognition of the Company's
uncertainty as a going concern.
The merger transaction of Enerdyne and Protalex will be tax-free under
applicable provisions of the Internal Revenue Code. Under applicable federal
tax statutes and regulations the NOLs available to Enerdyne and carried
forward to the current year are lost as more than 50% beneficial ownership
of Enerdyne changed hands on September 30, 1999.
NOTE F- RELATED PARTIES
ADVANCE AND LICENSE FEES OWING TO ALEX LLC
Alex, LLC (Alex) is a New Mexico limited liability company and the majority
owner of the Company's stock. Alex advanced $20,000 to the Company's
securities lawyers principally in connection with the Company's reverse
merger transaction. This amount will be repaid by the Company to Alex and is
recorded as a payable. Also included in the payable is the $20,000 license
fee payment owed to Alex discussed in note D.
SIGNIFICANT BUSINESS RELATIONSHIP WITH ALEX LLC
The Company anticipates working closely with Alex who is the Company's
majority owner. It is the intent of Mr. Doherty and Mr. Mann to conduct all
pure research in Alex and all subsequent development activities in the
Company. There is no formal research and development contract between the
entities at October 31, 1999. However, the Company anticipates reimbursing
Alex for certain research and laboratory expenses in the coming year.
F-11
<PAGE>
PROTALEX, INC. AND SUBSIDIARY
(A COMPANY IN THE DEVELOPMENT STAGE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
FROM INCEPTION (SEPTEMBER 17, 1999) THROUGH OCTOBER 31, 1999
NOTE G - NOTES RECEIVABLE
The Company has the following note receivable at October 31, 1999:
Note receivable from Don Hanosh in the amount of $118,547 plus interest due
on or before September 7, 2001. The unpaid balance shall bear interest at a
rate of nine percent per annum.
NOTE H - LONG-TERM DEBT
The Company has the following long-term debt at October 31, 1999:
<TABLE>
<S> <C>
9% note payable to an individual, due on or before September 7, 2001.
Interest payments are due in quarterly installments with the first
payment due on March 7, 2000. Note is guaranteed by certain directors
of
Protalex, Inc. $ 368,546
=================
</TABLE>
NOTE I - GOING CONCERN UNCERTAINTY
The accompanying financial statements have been prepared in conformity with
generally accepted accounting principles, which contemplate continuation of
the Company as a going concern. The Company is a development stage
enterprise and does not have operating revenue nor anticipate generating
operating revenue for the foreseeable future. The ability of the Company to
continue as a going concern is dependent initially on its ability to raise
sufficient investment capital to fund all necessary operations and product
development activities. Secondly, the Company must develop products that are
regulatory approved and market accepted to generate operating revenue. There
is no assurance that these plans will be realized in whole or in part. The
financial statements do not include any adjustments that might result from
the outcome of these uncertainties.
F-12
<PAGE>
FINANCIAL STATEMENTS AND REPORT OF
INDEPENDENT CERTIFIED
PUBLIC ACCOUNTANTS
ENERDYNE CORPORATION
MAY 31, 1999 AND 1998
<PAGE>
C O N T E N T S
<TABLE>
<CAPTION>
Page
<S> <C>
REPORT OF INDEPENDENT CERTIFIED
PUBLIC ACCOUNTANTS.................................................................................. F-1
FINANCIAL STATEMENTS
BALANCE SHEET....................................................................................... F-2
STATEMENTS OF EARNINGS.............................................................................. F-3
STATEMENTS OF STOCKHOLDERS' EQUITY.................................................................. F-4
STATEMENTS OF CASH FLOWS.......................................................................... F-5-6
NOTES TO FINANCIAL STATEMENTS.................................................................... F-7-12
</TABLE>
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
Enerdyne Corporation
We have audited the accompanying balance sheet of Enerdyne Corporation as of May
31, 1999 and the related statements of earnings, stockholders' equity, and cash
flows for the years ended May 31, 1999 and 1998. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our 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 our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above, present fairly, in
all material respects, the financial position of Enerdyne Corporation as of May
31, 1999 and the results of its operations and its cash flows for the years
ended May 31, 1999 and 1998 in conformity with generally accepted accounting
principles.
The accompanying financial statements have been prepared assuming the Company
will continue as a going concern. As explained in Notes E and I to the financial
statements, the Company has entered into a reverse merger with another company
and has subsequently positioned itself as a development stage enterprise. Its
future ability to continue as a going concern is initially dependent on its
ability to raise adequate capital to fund necessary product development
activities and subsequently on the inflow of operating revenue derived from
developed products which must be regulatory approved and market accepted. The
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
ATKINSON & CO., LTD.
Albuquerque, New Mexico
November 29, 1999
F-1
<PAGE>
ENERDYNE CORPORATION
BALANCE SHEET
<TABLE>
<CAPTION>
ASSETS
UNAUDITED
(Note C)
May 31, 1999 August 31, 1999
----------------- --------------------
<S> <C> <C>
Related party receivable - due from officer $ 118,547 $ 118,547
----------------- --------------------
TOTAL ASSETS $ 118,547 $ 118,547
================= ====================
LIABILITIES
CONTINGENCIES AND COMMITMENTS
STOCKHOLDERS' EQUITY
Common stock, no par value, authorized
4,000,000 shares; issued 1,817,407 shares;
outstanding 1,578,907 shares $ 833,459 $ 833,459
Additional paid-in capital 1,105,014 1,105,014
Retained deficit (1,389,502) (1,389,502)
----------------- --------------------
548,971 548,971
Less common stock in treasury at cost;
238,500 shares 430,424 430,424
------------------ --------------------
118,547 118,547
------------------ --------------------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $ 118,547 $ 118,547
================== ====================
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-2
<PAGE>
ENERDYNE CORPORATION
STATEMENTS OF EARNINGS
YEARS ENDED MAY 31,
<TABLE>
<CAPTION>
UNAUDITED
(Note C)
Three Months Ended
August 31,
------------------------------------
1999 1998 1999 1998
--------------- ---------------- ---------------- -----------------
<S> <C> <C> <C> <C>
Income from operations $ - $ - $ - $ -
Operating expenses:
Administrative 6,115 6,155 - 1,906
Interest expense 12,434 15,902 - 5,304
--------------- ---------------- ---------------- -----------------
Total operating expenses 18,549 22,057 - 7,210
--------------- ---------------- ---------------- -----------------
Loss from operations (18,549) (22,057) - (7,210)
Other income (losses)
Loss on sale of assets, including related
party transactions - (21,764) - -
Loss on sale of stock, including related
party transaction - (66,062) - -
Interest income 5,841 8,713 - 1,403
--------------- ---------------- ---------------- -----------------
Loss from continuing operations (12,708) (101,170) - (5,807)
--------------- ---------------- ---------------- -----------------
Discontinued operations - related party
Loss from operation of Enerdyne
Corporation (108,684) (148,058) - (45,647)
Loss on disposal of assets of Enerdyne
Corporation (68,912) - - -
--------------- ---------------- ---------------- -----------------
Loss from discontinued operations (177,596) (148,058) - (45,647)
--------------- ---------------- ---------------- -----------------
NET LOSS $ (190,304) $ (249,228) $ - $ (51,454)
=============== ================ ================ =================
Loss per common share $ (.12) $ (.16) $ - $ (.03)
=============== ================ ================ =================
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
ENERDYNE CORPORATION
STATEMENTS OF STOCKHOLDERS' EQUITY
THREE MONTHS ENDED AUGUST 31, 1999 AND YEARS ENDED MAY 31, 1999 AND 1998
<TABLE>
<CAPTION>
Additional Common
Common Paid-in Retained Stock in
Stock Capital Deficit Treasury Total
----- ------- ------- -------- -----
<S> <C> <C> <C> <C> <C>
Balances at June 1, 1997 $ 833,459 $ 1,105,014 $ (949,970) $ (430,424) $ 558,079
Net loss for the year - - (249,228) - (249,228)
------------- ------------- ---------------- ---------------- ---------------
Balances at May 31, 1998 833,459 1,105,014 (1,199,198) (430,424) 308,851
Net loss for the year - - (190,304) - (190,304)
------------- ------------- ---------------- ---------------- ---------------
Balances at May 31, 1999 833,459 1,105,014 (1,389,502) (430,424) 118,547
Net income (loss) for the
period (UNAUDITED) - - - - -
------------- ------------- --------------- ---------------- --------------
Balances at August 31, 1999
(UNAUDITED) $ 833,459 $ 1,105,014 $ (1,389,502) $ (430,424) $ 118,547
============= ============= ================ ================ ==============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
ENERDYNE CORPORATION
STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED AUGUST 31, 1999 AND 1998 AND YEARS ENDED
MAY 31, 1999 AND 1998
<TABLE>
<CAPTION>
UNAUDITED (Note C)
Three Months Ended
August 31,
-----------------------------------
1999 1998 1999 1998
--------------- ---------------- ---------------- -----------------
<S> <C> <C> <C> <C>
Cash flows from operating activities
Net loss $ (190,304) $ (249,228) $ - $ (51,454)
Adjustments to reconcile net loss to
net cash used by operating activities
Depreciation 1,196 1,988 - -
Well abandonment 31,243 17,055 - -
Loss on sale of assets 68,912 21,764 - 24,577
Realized loss on sale of investments - 66,062 - -
Changes in assets and liabilities
Accounts receivable - trade 3,635 3,640 - 1,880
Accounts payable - (8,640) - -
Other payables (5,142) (33,938) - (1,231)
--------------- ---------------- ---------------- -----------------
Net cash used by operating activities (90,460) (181,297) - (26,228)
--------------- ---------------- ---------------- -----------------
Cash flows from investing activities
Proceeds from stock sales - 301,085 - -
Capital expenditures - (10,286) - -
Purchase of stock - (89,271) - -
--------------- ---------------- ---------------- -----------------
Net cash provided by
investing activities - 201,528 - -
--------------- ---------------- ---------------- -----------------
Cash flows from financing activities
Proceeds from borrowings from related
parties 189,912 24,408 - 26,000
Repayment of borrowings from related
parties (83,359) (73,616) - (300)
Repayment of long-term borrowings (100,000) (99,983) - -
--------------- ---------------- ---------------- -----------------
Net cash provided (used) by
financing activities 6,553 (149,191) - 25,700
--------------- ---------------- ---------------- -----------------
NET (DECREASE) IN CASH (83,907) (128,960) - (528)
Cash and cash equivalents -
beginning of year/period 83,907 212,867 - 83,907
--------------- ---------------- ---------------- -----------------
Cash and cash equivalents -
end of year/period $ - $ 83,907 $ - $ 83,379
=============== ================ ================ =================
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
ENERDYNE CORPORATION
STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED AUGUST 31, 1999 AND 1998 AND YEARS ENDED
MAY 31, 1999 AND 1998
<TABLE>
<CAPTION>
UNAUDITED (Note C)
Three Months Ended
August 31,
-----------------------------------
1999 1998 1999 1998
--------------- ---------------- ---------------- -----------------
<S> <C> <C> <C> <C>
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid for interest $ 7,934 $ 13,605 $ - $ 5,304
=============== ================ ================ =================
Cash paid for income taxes $ - $ - $ - $ -
=============== ================ ================ =================
</TABLE>
NON CASH TRANSACTIONS
<TABLE>
<CAPTION>
1999 1998
--------------- ----------------
<S> <C> <C>
Transfer of assets to Don Hanosh in
exchange for a related party note
receivable $(131,308) $(110,985)
=============== ================
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
ENERDYNE CORPORATION
NOTES TO FINANCIAL STATEMENTS
MAY 31, 1999 AND 1998
NOTE A - SUMMARY OF ACCOUNTING POLICIES AND ORGANIZATION
NATURE OF THE BUSINESS--Enerdyne Corporation owned interests in certain oil,
gas and uranium producing properties (located in New Mexico). The Company
also searched for future prospects to develop. On May 31, 1999, substantially
all assets and any corresponding liabilities of Enerdyne Corporation were
sold, assigned, or otherwise transferred to Don Hanosh, President, in
exchange for a note receivable (see note B). Subsequent to year-end the
Company entered into a reverse merger with Protalex, Inc. (see note E).
PROPERTY, EQUIPMENT, AND DEPRECIATION--Property and equipment are carried at
cost. Costs of equipment, other than oil and gas producing properties, are
charged against income over their estimated useful lives, using the double
declining method of depreciation. Repairs and maintenance which are not
considered betterments and do not extend the useful life of property, are
charged to expense as incurred. When property, plant and equipment are
retired or otherwise disposed of, the asset and accumulated depreciation are
removed from the accounts and the resulting profit or loss is reflected in
income.
SUCCESSFUL EFFORTS METHOD OF ACCOUNTING--Costs of oil and gas producing
properties are accounted for under the successful efforts method. Lease
acquisition costs are capitalized and amortized by the unit of production
method based on proved reserves, and equipment and intangible drilling costs
are capitalized and amortized by the unit of production method based on
proved developed reserves. An additional provision for depreciation and
depletion is provided if the net capitalized costs of production properties
exceed fair market or economic value, as appropriate. Economic values are
generally based on management's expectations of discounted future after-tax
cash flows from the project at the time of assessment.
Costs of individual oil and gas wells determined to be uneconomical are
charged to the allowance for accumulated depreciation and depletion when
abandoned, with no gain or loss being recognized until the property group is
abandoned. Exploratory costs, associated with dry holes, geological and
geophysical costs and annual delay rentals are charged to expense.
CASH AND CASH EQUIVALENTS--All highly liquid debt instruments purchased with
an original maturity of three months or less are considered cash equivalents.
ACCOUNTING FOR INCOME TAXES--Income taxes are recognized using enacted tax
rates, and are composed of taxes on financial accounting income that is
adjusted for the requirements of current tax law and deferred taxes. Deferred
taxes are the expected future tax consequences of temporary differences
between the financial statement carrying amounts and tax bases of existing
assets and liabilities.
F-7
<PAGE>
ENERDYNE CORPORATION
NOTES TO FINANCIAL STATEMENTS - CONTINUED
MAY 31, 1999 AND 1998
NOTE A - SUMMARY OF ACCOUNTING POLICIES AND ORGANIZATION - CONTINUED
CONCENTRATIONS OF CREDIT RISK--The Company maintains the majority of its cash
balances in one financial institution located in Albuquerque, New Mexico.
These balances are insured up to $100,000 by the Federal Deposit Insurance
Corporation. The Company does not feel it is exposed to unusual credit risk
for amounts that from time to time may exceed the federally insured limits.
ESTIMATES--The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenues and expenses
and the disclosure of contingent assets and liabilities during the reporting
period. Actual results could differ from those estimates. Significant
estimates includes depreciable lives of assets and valuation allowances for
unproved prospects. Management believes all reported estimates including the
estimated fair market values at which properties were sold, assigned or
otherwise transferred to Don Hanosh, President are reasonable.
COMPREHENSIVE INCOME--For the years ended May 31, 1999 and 1998, the Company
had no changes in equity which constitute components of comprehensive income.
INVESTMENTS--Gains and losses on the sale of investments consist principally
of transactions involving corporate securities and are determined on the
specific identification method.
INCOME (LOSS) PER COMMON SHARE--The Financial Accounting Standards Board
(FASB) has issued Statements of Financial Accounting Standards No. 128
"Earnings Per Share" (SFAS No. 128) which is effective for periods ending
after December 15, 1997. SFAS No. 128 provides for the calculation of
"Basic" and "Diluted" earnings per share. Basic earnings per share includes
no dilution and is computed by dividing income (loss) available to common
shareholders by the weighted average number of common shares outstanding for
the period. There were no securities outstanding at October 31, 1999 that
could affect the calculation of basic earnings per share through dilution.
Therefore diluted earnings (loss) per share is not presented.
NOTE B - RELATED PARTY TRANSACTIONS
For all periods presented, Mr. Don Hanosh, the Company's President and a
director, owned approximately 56% of the outstanding shares of Company
stock. Accordingly, Mr. Hanosh had the ability to control the election of
all members of the Board of Directors and commit the corporation to enter
into transactions requiring majority shareholder approval.
F-8
<PAGE>
ENERDYNE CORPORATION
NOTES TO FINANCIAL STATEMENTS - CONTINUED
MAY 31, 1999 AND 1998
NOTE B - RELATED PARTY TRANSACTIONS - CONTINUED
During the year ended May 31, 1999, substantially all of the Company's oil
and gas assets and liabilities and the corresponding rights and obligations
of those assets and liabilities of Enerdyne Corporation were sold,
transferred or otherwise assigned to Don Hanosh, President. The assets and
liabilities were sold, assigned or otherwise transferred at estimated fair
market value as determined by Mr. Hanosh or by appraisal where available.
Following is a summary of transactions:
- Land, Track A-3, was sold for $50,000 resulting in a $5,000 loss.
- Oil and gas lease, V-1475, was sold for $1,000 resulting in a $15,074
loss.
- Oil and gas leases, Milk Lake and V-4814, were sold for $2,500 resulting
in a $14,135 loss.
- Red Mountain Deep Rights was sold for $50,000 resulting in a $7,278
gain.
- Oil and gas leases, Chaco property, were sold for $30,000 resulting in a
$4,844 loss.
- Oil and gas lease, Ingram Property, producing property, was sold for
$1,000 resulting in a $14,468 loss.
- Working assignment, Buffalo Wallow, had no book value at 5/31/99 and was
transferred to Don Hanosh at no cost.
- Uranium mine had no book value at 5/31/99. Rights and obligations were
transferred to Don Hanosh at no cost.
- Assignment, Alamo Canyon, had no book value at 5/31/99 and was
transferred to Don Hanosh at no cost.
- Note receivable, Sena Contract, was sold for $21,184 resulting in a loss
of $4,067.
- Property and equipment with a book value of $425 was sold for $4,500
resulting in a gain of $4,075.
- A $25,000 and a $50,000 CD plugging bonds were transferred to Don Hanosh
for $75,000.
- Don Hanosh assumed the liability of a payable to Ed Doherty, a family
relation, in the amount of $5,192.
- Don Hanosh assumed the liability of a payable to Tijeras Self Storage, a
related party, in the amount of $28,876. Tijeras Self Storage is owned
and operated by Don Hanosh.
- Checking account with an overdraft balance of $ (2,334) was assumed by
Don Hanosh.
- Savings account with a balance of $2,493 was transferred for $2,493
During the year ended May 31, 1999, Don Hanosh, President, loaned Enerdyne
Corporation a total of $139,000, repayments in the amount of $7,200 were
made back to Don Hanosh. Certain expenses in the amount of $42,724 were
incurred by Enerdyne Corporation which were paid from Don Hanosh's personal
finances; amounts were credited against Don Hanosh's accounts receivable
balance.
During the year ended May 31, 1998, various assets of Enerdyne Corporation
were sold, assigned or otherwise transferred to Don Hanosh, President.
Following is a summary of transactions:
F-9
<PAGE>
ENERDYNE CORPORATION
NOTES TO FINANCIAL STATEMENTS - CONTINUED
MAY 31, 1999 AND 1998
NOTE B - RELATED PARTY TRANSACTIONS - CONTINUED
- Minor interest in various Chace Well partnerships were transferred to
Don Hanosh at no cost, resulting in a $11,234 loss.
- 6.25% interest in University Partnership was sold for $15,000 resulting
in a $1,347 loss.
- Computer equipment with a book value of $2,103 was sold for $1,000
resulting in a loss of $1,103.
- Vehicles with a book value of $15,537 and corresponding lease liability
of $3,696 was sold for $8,500 resulting in a $3,341 loss.
- Don Hanosh assumed the receivable from Ashlynn Venture, a related party,
in the amount of $8,900. Ashlynn Venture is owned and operated by Don
Hanosh.
During the year ended May 31, 1998, Don Hanosh, President, loaned Enerdyne
Corporation a total of $8,500. Payments in the amount of $66,616 were made
to Don Hanosh to offset amounts due him. Certain expenses in the amount of
$3,704 were incurred by Enerdyne Corporation which were paid from Don
Hanosh's personal finances; amounts were credited against Don Hanosh's
accounts receivable balance.
NOTE C - UNAUDITED INTERIM STATEMENTS
The unaudited interim financial statements have been prepared in accordance
with generally accepted accounting principles for interim financial
information. In the opinion of management, the interim financial statements
reflect all adjustments of a normal recurring nature necessary for a fair
statement of the results for the interim period. Operating results for the
periods presented are not necessarily indicative of the results that may be
expected for the year.
NOTE D - NOTE PAYABLE TO BANK
The Company had a $100,000 revolving line-of-credit bank note at prime plus
two percent (10.50% at November 30, 1998), which was due November 1998. As
of May 31, 1999 and 1998, respectively, $-0- and $100,000 were outstanding
on this note. The note was unsecured.
NOTE E - SUBSEQUENT EVENTS
On September 30, 1999, Protalex, Inc. a privately-held development stage
company acquired a majority interest (56%) in Enerdyne stock. On November
15, 1999, Enerdyne Corporation acquired all of the outstanding common stock
of Protalex, Inc. (Protalex) in exchange for the issuance of additional
shares of Enerdyne stock. The ratio of exchange was 822 shares of Enerdyne
stock issued for each share of Protalex stock received. For accounting
purposes, the acquisition has been treated as an acquisition of Enerdyne by
Protalex and as a recapitalization of Protalex.
F-10
<PAGE>
ENERDYNE CORPORATION
NOTES TO FINANCIAL STATEMENTS - CONTINUED
MAY 31, 1999 AND 1998
NOTE E - SUBSEQUENT EVENTS - CONTINUED
The former owners of Protalex, Inc., who owned a majority interest in the
corporation prior to the reverse merger, owned approximately 92% of Enerdyne
after the merger. The Company changed its name to Protalex, Inc. and
amended its Articles of Incorporation to increase the amount of shares
authorized for issuance to 40,000,000.
NOTE F - CONTINGENCIES AND COMMITMENTS
Substantially all the Company's assets (principally oil + gas property
leases, property and equipment, real estate, and investment instruments)
were irrevocably sold, transferred or assigned to the Company's President by
May 31, 1999. With that sale, transfer or assignment, all benefits and
rights of ownership of the assets transferred to the president.
Concurrently, all responsibilities and obligations of ownership, including
but not limited to regulatory requirements for oil + gas operators with the
State of New Mexico, any environmental issues that might arise in connection
with respective properties in the future, and all other covenants or
conditions associated with respective assets were assumed in full by the
President. Accordingly, there are no commitments or contingency matters to
be reported at May 31, 1999.
NOTE G - DISCONTINUED OPERATIONS
On April 15, 1999, the Company resolved to sell substantially all assets of
the corporation pertaining to the oil and gas operations which comprised the
Company's sole segment. The economic development of wells did not meet
management's expectations, therefore, the Company as a Public Shell decided
to seek out new business partners to develop new lines of business to
increase shareholder value. On or before May 31, 1999, the assets were sold,
assigned or otherwise transferred to Don Hanosh, President. There were no
corporate assets or liabilities as of May 31, 1999. Summary operating
results of the discontinued operations are as follows:
<TABLE>
<CAPTION>
Year ended May 31
-----------------------------------------------
1999 1998
--------------------- ---------------------
<S> <C> <C>
Production revenue $ 10,854 $ 35,572
Costs and expenses
Exploration costs 36,039 105,435
Production costs 52,256 61,140
Wells abandoned 31,243 17,055
--------------------- ---------------------
Total cost of wells 119,538 183,630
--------------------- ---------------------
Net loss $ (108,684) $ (148,058)
===================== =====================
</TABLE>
F-11
<PAGE>
ENERDYNE CORPORATION
NOTES TO FINANCIAL STATEMENTS - CONTINUED
MAY 31, 1999 AND 1998
NOTE H - INCOME TAXES
The Company had no current income tax liability and no income tax expense at
May 31, 1999 and 1998 due to the absence of taxable income. At May 31, 1999,
the Company had net operating losses (NOLs) of approximately $734,000
available to offset future taxable income. No deferred tax benefit was
recorded in recognition of the available NOLs as the Company has provided a
100% valuation allowance reducing the deferred tax asset to -0-. On
September 30, 1999, Mr. Hanosh sold his 56% share of the Company's common
stock to Protalex, Inc. Under applicable federal tax statutes and
regulations, the NOLs were lost as ownership of more than 50% of the
Company's shares changed hands. There were no other temporary differences
between financial statement carrying amounts and tax bases for existing
assets and liabilities. There were no tax effects of the discontinued
operations.
NOTE I - GOING CONCERN
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. Before May 31, 1999, the Company
resolved to dispose of its oil + gas business segment (its only business
segment), create a Public Shell corporation and to seek out new business
partners to develop new lines of business to increase shareholder value. On
September 30, 1999 a majority interest in the company was acquired by
Protalex, Inc., a privately-held development stage company and subsequently,
on November 15, 1999 Enerdyne entered into a reverse merger transaction with
Protalex. The Company is now positioned as a publicly held development stage
enterprise. The merged company changed its name to Protalex, Inc. Protalex,
Inc. is now engaged in the development of certain bioregulator technology
products in connection with the treatment of rheumatoid arthritis and other
human diseases. The ability of the Company to continue as a going concern is
initially dependent on its ability to raise adequate capital to fund
necessary product development activities and subsequently on the inflow of
operating revenue derived from developed products which much be regulatory
approved and market accepted. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
F-12
<PAGE>
SIGNATURES
In accordance with Section 12 of the Securities Exchange Act of 1934,
the registrant caused this registration statement to be signed on its behalf by
the undersigned, thereunto duly authorized.
PROTALEX, INC.
Date: December 3, 1999 By: /s/ John E. Doherty
-----------------------------
John E. Doherty, President
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
<S> <C> <C>
/s/ John E. Doherty
------------------------------
John E. Doherty President and Director December 3, 1999
/s/ Paul L. Mann
------------------------------
Paul L. Mann, Ph.D Treasurer, Secretary and Director December 3, 1999
/s/ Jon M. Aase
------------------------------
Jon M. Aase, M.D. Vice President and Director December 3, 1999
/s/ Arthur D. Bankhurst
------------------------------
Arthur D. Bankhurst, M.D. Director December 3, 1999
/s/ James K. Strattman
------------------------------
James K. Strattman Director December 3, 1999
</TABLE>
<PAGE>
PART III
INDEX TO EXHIBITS
<TABLE>
<S> <C>
2.1 Stock Purchase Agreement among Protalex, Inc., Don Hanosh and Enerdyne
Corporation
2.2 Merger Agreement and Plan of Reorganization between Protalex, Inc. and
Enerdyne Corporation
3.1 Articles of Incorporation, as amended
3.2 Bylaws, as amended
10.1 Promissory Note in favor of Don Hanosh
10.2 Continuing and Unconditional Guaranty executed by John E. Doherty
10.3 Continuing and Unconditional Guaranty executed by James K. Strattman
10.4 Technology License Agreement
10.5 Form of Confidential Disclosure Agreement
27 Financial Data Schedule
</TABLE>
<PAGE>
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT ("Agreement") is entered into effect the 7th.
day of September, 1999, by and among PROTALEX, INC., a New Mexico corporation
and its assigns (hereinafter referred to as "Buyer"); and DON HANOSH,
(hereinafter referred to as "Seller"), being a shareholder of ENERDYNE CORP., a
New Mexico corporation (hereafter referred to as "Company").
WHEREAS, Seller is the owner of record and beneficially owns Eight Hundred
Eight-five Thousand Four Hundred Eight (885,408) shares of the issued and
outstanding shares of Common Stock of the Company ("Shares"); and
WHEREAS, Seller desires to sell the Shares to Buyer, and Buyer desires to
purchase the Shares, upon the terms and conditions set forth herein;
NOW, THEREFORE, in consideration of the mutual promises and covenants
contained herein, and for other good and valuable consideration, the receipt,
adequacy and sufficiency of which are hereby acknowledged, and subject to the
accuracy of the representations and warranties of the parties, the parties
hereto agree as follows:
I.
SALE AND PURCHASE OF THE SHARES
1.1 SALE AND PURCHASE. Subject to the terms and conditions hereof, at the
Closing (as defined in paragraph 1.2 below), Seller agrees to sell, assign,
transfer, convey and deliver to Buyer, and Buyer agrees to purchase from Seller,
the Shares listed in Exhibit "A", attached hereto.
1.2 CLOSING. The purchase shall be consummated at a closing ("Closing")
to take place at 9:00 o'clock a.m., at the offices of Buyer's counsel on
September 30, 1999 ("Closing Date").
1.3 PURCHASE PRICE. The purchase price ("Purchase Price") for the Shares
shall be a cash payment of Three Hundred Sixty-eight Thousand Five Hundred
Forty-six Dollars ($368,546.00) payable to the Seller in certified funds on or
before September 7, 2001 as defined in the Promissory Note ("Promissory Note")
attached herein as Exhibit B .
1.4 OTHER AGREEMENTS. At the Closing, the indicated parties shall
execute and deliver the following additional agreements in substantially the
form attached hereto:
(a) The Directors of the Company shall deliver to Buyer
Minutes appointing John E. Doherty, Jon M. Aase MD, Paul L. Mann Ph.D.,
James K. Strattman and Arthur D. Bankhurst MD as the new directors and
Seller shall submit to Buyer his resignation as an officer and director of
the Company at closing;
(b) Seller shall deliver to Buyer s counsel stock
certificates representing all of the Shares, duly endorsed to Buyer in
blank or assignments separate from the certificates with medallion
guarantees, transferring the Shares from Seller to Buyer upon receipt of
the Promissory Note.
(c) Buyer shall deliver to Seller the Promissory Note along
with a Continuing and Unconditional Guaranty from each of the following
individuals: John E. Doherty, James J. Hanosh, James K.
1.
<PAGE>
Strattman and James J. Hanosh Jr..
1.5 TRANSACTIONS DEFINED. This Agreement and other agreements listed in
paragraph 1.4, are sometimes referred to as the "Basic Agreements". The
transactions contemplated by the Basic Agreement are sometimes referred to as
the "Transactions".
II.
REPRESENTATIONS AND WARRANTIES
2.1 REPRESENTATIONS AND WARRANTIES OF SELLER. Seller represent and
warrant to Buyer as follows:
(a) TITLE TO THE SHARES. At Closing, Seller shall own of
record and beneficially the number of the Shares listed in Exhibit "A", of
the Company, free and clear of all liens, encumbrances, pledges, claims,
options, charges and assessments of any nature whatsoever, with full right
and lawful authority to transfer the Shares to Buyer. No person has any
preemptive rights or rights of first refusal with respect to any of the
Shares. There exists no voting agreement, voting trust, or outstanding
proxy with respect to any of the Shares. There are no outstanding rights,
options, warrants, calls, commitments, or any other agreements of any
character, whether oral or written, with respect to the Shares.
(b) ORGANIZATION. The Company is a corporation duly
incorporated, validly existing and in good standing under the laws of the
state of New Mexico. The Company has all requisite corporate power and
authority to own, lease and operate its properties and to carry on its
business. The Company is duly qualified and in good standing as a foreign
corporation in each jurisdiction where its ownership of property or
operation of its business requires qualification.
(c) AUTHORIZED CAPITALIZATION. The authorized
capitalization of the Company consists of Four Million (4,000,000) shares
of Common Stock, of which One Million Eight Hundred Eighteen Thousand Nine
Hundred Seventeen (1,818,917) shares have been issued and are outstanding.
The Shares have been duly authorized, validly issued, are fully paid and
nonassessable with no personal liability attaching to the ownership thereof
and were offered, issued, sold and delivered by the Company in compliance
with all applicable state and federal laws. The Company does not have any
outstanding rights, options, warrants, calls, commitments, conversion or
any other agreements of any character, whether oral or written, obligating
it to issue any shares of its capital stock, whether authorized or not. The
Company is not a party to and is not bound by any agreement, contract,
arrangement or understanding, whether oral or written, giving any person or
entity any interest in, or any right to share, participate in or receive
any portion of, the Company's income, profits or assets, or obligating the
Company to distribute any portion of its income, profits or assets.
(d) AUTHORITY. Seller has full power and lawful authority
to execute and deliver the Basic Agreements to which he is a party and to
consummate and perform the Transactions contemplated thereby. The Basic
Agreements to which he is a party constitute (or shall, upon execution,
constitute) valid and legally binding obligations upon Seller, enforceable
in accordance with their terms. Neither the execution and delivery of the
Basic Agreements to which he is a party by Seller, nor the consummation
and performance of the Transactions contemplated thereby, conflicts with,
requires the consent, waiver or approval of, results in a breach of or
default under, or gives to others any interest or right of termination,
cancellation or acceleration in or with respect to, any agreement by which
Seller or the Company is a party or by which Seller or the Company or any
of their respective properties or assets are bound or affected.
(e) NO ASSETS. Prior to the Closing Date, and the request
of the Buyer, the Company shall divest itself of all its assets. Buyer
waives any right or claim it or the Company may have
2.
<PAGE>
Resulting from the divestiture of the assets. At Closing, the Company will
not own or have rights to any assets.
(f) NO UNDISCLOSED LIABILITIES. Seller is not aware of any
liabilities for which the Company is liable or will become liable in the
future other than liabilities to be satisfied at or prior to the Closing.
(g) TAXES. The Company has filed all federal, state, local
tax and other returns and reports which were required to be filed with
respect to all taxes, levies, imposts, duties, licenses and registration
fees, charges or withholdings of every nature whatsoever ("Taxes"), and
their exists a substantial basis in law and fact for all positions taken in
such reports. No waivers of periods of limitation are in effect with
respect to any taxes arising from and attributable to the ownership of
properties or operations of the business of the Company.
(h) BOOKS AND RECORDS. To the Seller's knowledge, the
books and records of the Company are complete and correct in all material
respects, have been maintained in accordance with good business practices
and accurately reflect in all material respects the business, financial
condition and results of operations of the Company as set forth in the
Company Financial Statements.
(i) NO LITIGATION. To the Seller's knowledge, there are no
actions, suits, claims, complaints or proceedings pending or threatened
against the Company, at law or in equity, or before or by any governmental
department, commission, court, board, bureau, agency or instrumentality;
and there are no facts which would provide a valid basis for any such
action, suit or proceeding. There are no orders, judgments or decrees of
any governmental authority outstanding which specifically apply to the
Company or any of its assets.
(j) FULL DISCLOSURE. All statements of Seller contained in
this Agreement and in any other written documents delivered by or on behalf
of Seller to Buyer are true and correct in all material respects and do not
omit any material fact necessary to make the statements contained therein
not misleading in light of the circumstances under which they were made.
There are no facts known to Seller which could have a materially adversely
affect upon the business, financial condition, results of operations,
assets, liabilities, or prospects of the Company, which have not been
disclosed to Buyer in the Basic Agreements to which Seller is a party.
2.2 REPRESENTATIONS AND WARRANTIES OF BUYER. Buyer represents and
warrants to Seller as follows:
(a) ORGANIZATION. Buyer is a corporation, validly existing
and in good standing under the laws of the State of New Mexico. Buyer has
all rtequisites corporate power and authority to own, lease and operate its
properties and to carry on its business. Buyer is duly qualified and in
good standing as a foreign corporation in each jurisdiction where its
ownership of property or operation of its business requires qualification.
(b) AUTHORITY. Buyer has full power and lawful
authority to execute and deliver the Basic Agreements to which Buyer is
a party and to consummate and perform the Transactions contemplated
thereby. The Basic Agreements to which Buyer is a party constitute (or
shall, upon execution, constitute) valid and legally binding obligations
upon Buyer, enforceable in accordance with their terms. Neither the
execution and delivery of the Basic Agreements to which Buyer is a party
by Buyer, nor the consummation and performance of the Transactions
contemplated thereby, conflicts with, requires the consent, waiver or
approval of, results in a breach of or default under, or gives to others
any interest or right of termination, cancellation or acceleration in or
with respect to, any agreement by which Buyer is a party or by which
Buyer or any of its properties or assets are bound or affected.
3.
<PAGE>
(c) DUE DILIGENCE. Buyer has conducted its own due
diligence investigation on the Company. During its investigation, Buyer has
had an opportunity to review the books and records of the Company and had
an opportunity to ask questions of the officers of the Company, which
questions were answered to Buyer's satisfaction.
(d) INVESTMENT INTENT. Buyer is acquiring the Shares for
its own account, for investment purposes only, and not with a view to the
sale or distribution of any part thereof, and Buyer no has present
intention of selling, granting participation in, or otherwise distributing
the same. Buyer understands the specific risks related to an investment in
the Shares, especially as it relates to the financial performance of the
Company.
III.
COVENANTS
3.1 COVENANTS OF SELLER. Seller covenants and agrees that from the date
hereof to the Closing without the prior written consent of Buyer:
(a) MAINTAIN BOOKS. Seller will cause the Company to
maintain its books, accounts and records in the usual, regular ordinary and
sound business manner and in accordance with generally accepted accounting
principles applied on a basis consistent with past practices.
(b) NO SECURITIES ISSUANCES. Seller will not permit the
Company to issue any shares of any class of capital stock, or enter into
any contract, option, warrant or right calling for the issuance of any such
shares of capital stock, or create or issue any securities convertible into
any securities of the Company except for the transactions contemplated
herein.
(c) CONTRACTS. Seller will not permit the Company to enter
into or assume any contract, agreement, obligation, lease, license, or
commitment except in the ordinary course of business consistent with past
practice or as contemplated by this Agreement.
(d) NOTICE OF CHANGE. Seller will promptly advise Buyer in
writing of any material adverse change, or the occurrence of any event
which involves any substantial possibility of a material adverse change, in
the business, financial condition, results of operations, assets,
liabilities or prospects of the Company.
IV.
CONDITIONS PRECEDENT TO THE
OBLIGATIONS OF BUYER TO CLOSE
The obligation of Buyer to close the Transactions contemplated hereby is
subject to the fulfillment by Seller prior to Closing of each of the following
conditions, which may be waived in whole or in part by Buyer:
4.1 COMPLIANCE WITH REPRESENTATIONS, WARRANTIES AND COVENANTS. The
representations and warranties of Seller contained in this Agreement shall have
been true and correct when made and shall be true and correct as of the Closing
with the same force and effect as if made at the Closing. Seller shall have
performed all agreements, covenants and conditions required to be performed by
Seller prior to the Closing.
4.
<PAGE>
4.2 NO ADVERSE CHANGE. There shall have been no event which has had or
may have a material adverse effect upon the business, financial condition,
results of operation, assets, liabilities or prospects of the Company.
4.3 NO LEGAL PROCEEDINGS. No suit, action or other legal or
administrative proceeding before any court or other governmental agency shall be
pending or threatened seeking to enjoin the consummation of the Transactions
contemplated hereby.
4.4 DOCUMENTS TO BE DELIVERED BY SELLER. Seller shall have delivered the
following documents to Buyer's counsel at closing:
(a) Stock certificates representing all of the Shares,
duly endorsed to Buyer in blank or accompanied by duly executed stock
powers with a medallion guarantee, copies of which are attached as
Exhibit "A".
(b) A copy of (i) the Certificate of Incorporation of the
Company, certified as correct by the Company; and (ii) the Bylaws of the
Company certified as correct by the Company;
(c) All agreements referred to in paragraph 1.4 above to
which Seller or the Company is a party, executed by all parties thereto
other than Buyer.
(d) All corporate and other records of or applicable to the
Company included but not limited to, current and up-to-date minute books,
stock transfer books and registers, books of accounts, leases and material
contracts.
V.
CONDITIONS PRECEDENT TO THE
OBLIGATIONS OF SELLER TO CLOSE
The obligation of Seller to close the Transactions is subject to the
fulfillment prior to Closing of each of the following conditions, any of which
may be waived in whole or in part by Seller:
5.1 COMPLIANCE WITH REPRESENTATIONS, WARRANTIES AND COVENANTS. The
representations and warranties made by Buyer in this Agreement shall have been
true and correct when made and shall be true and correct in all material
respects at the Closing with the same force and effect as if made at the
Closing, and Buyer shall have performed all agreements, covenants and conditions
required to be performed by Buyer prior to the Closing.
5.2 NO LEGAL PROCEEDINGS. No suit, action or other legal or
administrative proceedings before any court or other governmental agency shall
be pending or threatened seeking to enjoin the consummation of the Transactions
contemplated hereby.
5.3 OTHER AGREEMENTS. All parties other than Seller and the Company shall
have executed and delivered the Basic Agreements.
5.4 PAYMENTS. Seller shall have received from Buyer the executed
Promissory Note and Personal Guarantees.
5.
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VI.
MODIFICATION, WAIVERS, TERMINATION
AND EXPENSES
6.1 MODIFICATION. Buyer and Seller may amend, modify or supplement this
Agreement in any manner as they may mutually agree in writing.
6.2 WAIVERS. Buyer and Seller may in writing extend the time for or waive
compliance by the other with any of the covenants or conditions of the other
contained herein.
6.3 TERMINATION AND ABANDONMENT. This Agreement may be terminated and the
purchase of the Shares may be abandoned before the Closing:
(a) By the mutual consent of Seller and Buyer;
(b) By Buyer, if the representations and warranties of
Seller set forth herein shall not be accurate, or the conditions precedent
set forth in Article IV shall have not have been satisfied, in all material
respects; or
(c) By Seller, if the representations and warranties of
Buyer set forth herein shall not be accurate, or the conditions precedent
set forth in Article V shall not have been satisfied in all material
respects.
Termination shall be effective on the date of receipt of written notice
specifying the reasons therefor.
VII.
MISCELLANEOUS
7.1 REPRESENTATIONS AND WARRANTIES TO SURVIVE. Unless otherwise provided,
all of the representations and warranties contained in this Agreement and in any
certificate, exhibit or other document delivered pursuant to this Agreement
shall survive the Closing for a period of two (2) years. No investigation made
by any party hereto or their representatives shall constitute a waiver of any
representation or warranty, and no such representation or warranty shall be
merged into the Closing.
7.2 BINDING EFFECT OF THE BASIC AGREEMENTS. The Basic Agreements and the
certificates and other instruments delivered by or on behalf of the parties
pursuant thereto, constitute the entire agreement between the parties. The
terms and conditions of the Basic Agreements shall inure to the benefit of and
be binding upon the respective heirs, legal representatives, successor and
assigns of the parties hereto. Nothing in the Basic Agreements, expressed or
implied, confers any rights or remedies upon any party other than the parties
hereto and their respective heirs, legal representatives and assigns.
7.3 APPLICABLE LAW. The Basic Agreements are made pursuant to, and will
be construed under, the laws of the State of New Mexico.
7.4 NOTICES. All notices, requests, demands and other communications
hereunder shall be in writing and will be deemed to have been duly given when
delivered or mailed, first class postage prepaid:
6.
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(a) If to Seller, to:
Don Hanosh
12814 Central Southeast
Albuquerque, NM 87123
Telephone: (505) 332-7807
Fax: (505) 332-7807
(b) If to Buyer, to:
Protalex, Inc.
John E. Doherty, President
1518 Cornell Dr. N.E.
Albuquerque, New Mexico 87106
Telephone: (505) 255-2194
These addresses may be changed from time to time by written notice to the
other parties.
7.5 HEADINGS. The headings contained in this Agreement are for reference
only and will not affect in any way the meaning or interpretation of this
Agreement.
7.6 COUNTERPARTS. This Agreement may be executed in counterparts, each of
which will be deemed an original and all of which together will constitute one
instrument.
7.7 SEVERABILITY. If any one or more of the provisions of this Agreement
shall, for any reason, be held to be invalid, illegal or unenforceable under
applicable law this Agreement shall be construed as if such invalid, illegal or
unenforceable provision had never been contained herein. The remaining
provisions of this Agreement shall be given effect to the maximum extent then
permitted by law.
7.8 FORBEARANCE; WAIVER. Failure to pursue any legal or equitable remedy
or right available to a party shall not constitute a waiver of such right, nor
shall any such forbearance, failure or actual waiver imply or constitute waiver
of subsequent default or breach.
7.9 ATTORNEYS' FEES AND EXPENSES. The prevailing party in any legal
proceeding based upon this Agreement shall be entitled to reasonable attorneys'
fees and expenses and court costs.
7.10 EXPENSES. Each party shall pay all fees and expenses incurred by it
incident to this Agreement and in connection with the consummation of all
transactions contemplated by this Agreement.
7.11 EXHIBITS. All of the following Exhibits to this Agreement are
incorporated herein in the places referenced in this Agreement as if fully set
forth herein:
7.12 INTEGRATION. This Agreement and all documents and instruments
executed pursuant hereto merge and integrate all prior agreements and
representations respecting the Transactions, whether written or oral, and
constitute the sole agreement of the parties in connection therewith. This
Agreement has been negotiated by and
7.
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submitted to the scrutiny of both Seller and Buyer and their counsel and shall
be given a fair and reasonable interpretation in accordance with the words
hereof, without consideration or weight being given to its having been drafted
by either party hereto or its counsel.
IN WITNESS WHEREOF, the undersigned parties hereto have duly executed this
Agreement on the date first written above.
"BUYER"
PROTALEX, INC.
A NEW MEXICO CORPORATION
BY: /s/ John E. Doherty
-----------------------
JOHN E. DOHERTY, PRESIDENT
"COMPANY"
ENERDYNE CORP.
A NEW MEXICO CORPORATION
BY: /s/ Don Hanosh
-----------------------
DON HANOSH, PRESIDENT
"SELLER"
/s/ Don Hanosh
--------------------------
DON HANOSH
8.
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MERGER AGREEMENT AND PLAN OF REORGANIZATION
This MERGER AGREEMENT AND PLAN OF REORGANIZATION ("Agreement") is made as
of November 3, 1999, by and between Protalex, Inc., a New Mexico corporation
(the "Company") and Enerdyne Corporation, a New Mexico corporation ("Buyer").
RECITALS
A. WHEREAS, the Company engages in the research and development of
pharmaceutical agents for use in the treatment of rheumatoid arthritis and other
autoimmune diseases; and
B. WHEREAS, the Company desires to merge with and into a public company
by exchanging the shares of the Company for shares of an existing publicly
traded entity in a transaction intended to qualify as a tax-free reorganization
pursuant to section 368(a)(1)(A) of the Internal Revenue Code of 1996, as
amended; and
C. WHEREAS, Buyer is a publicly traded company listed on the NASDAQ OTC
Bulletin Board that will have 1,578,907 shares of common stock issued and
outstanding immediately prior to the Effective Time (as defined herein) and
Buyer desires to acquire the shares of the Company for an aggregate of 8,289,048
shares of Buyer's common stock, no par value.
D. As of the date hereof, the Company owns approximately 56% of the
outstanding common stock of Buyer.
In consideration of the foregoing and the agreements and conditions
contained herein, the parties hereto hereby agree as follows:
AGREEMENT
ARTICLE 1
THE MERGER AND RELATED MATTERS
1.1 THE MERGER. Subject to the terms and conditions of this Agreement,
at the Effective Time the Company shall be merged with and into Buyer (the
"Merger") in accordance with the New Mexico Business Corporation Act (the "New
Mexico Law"), whereupon the separate existence of the Company shall cease and
Buyer shall continue as the surviving corporation (the "Surviving Corporation").
1.2 EFFECTIVE TIME OF THE MERGER. Concurrent with the satisfaction or
waiver of all of the conditions set forth in Article 7, the Company and Buyer
will file, or cause to be filed, articles of merger and make or cause to be made
all other filings or recordings required by the New Mexico Law in connection
with the Merger with the Public Regulation Commission of New Mexico or other
<PAGE>
appropriate entity, which articles of merger and other filings and recordings
shall be in the form required by, and executed in accordance with the applicable
provisions of, the New Mexico Law. The Merger shall become effective at the
time such articles of merger are duly filed with the Public Regulation
Commission of New Mexico or at such later time as is specified in such articles
of merger (the "Effective Time").
1.3 CONVERSION OF COMPANY COMMON SHARES. At the Effective Time:
(a) Each share of common stock of the Company (the "Company Common
Shares"), issued and outstanding immediately prior to the Effective Time (except
for Dissenting Shares, as defined in Section 1.7) shall, by virtue of the Merger
and without any action on the part of the holder thereof, be converted into the
right to receive 822 shares (the "Buyer's Common Shares") of common stock of
Buyer, no par value per share ("Buyer Common Stock").
(b) The holders of certificates representing Company Common Shares
shall cease to have any rights as stockholders of the Company, except such
rights, if any, as they may have pursuant to New Mexico law. Except as provided
above, until certificates representing Company Common Shares are surrendered for
exchange, each such certificate shall, after the Effective Time, represent for
all purposes only the right to receive the number of whole Buyer's Common Shares
into which the Company Common Shares represented by such certificate shall have
been converted by the Merger as provided above.
1.4 RESERVATION OF SHARES. Prior to the Effective Time, the Board of
Directors of Buyer shall reserve for issuance a sufficient number of shares of
Buyer Common Stock for the purpose of issuing the Buyer's Common Shares to the
Company's stockholders in accordance herewith.
1.5 EXCHANGE OF COMPANY COMMON SHARES.
(a) At the Effective Time, upon surrender of certificates properly
endorsed for transfer representing the Company Common Shares, Buyer shall make
available for exchange the number of Buyer's Common Shares issuable in
connection with the Merger. At the Effective Time, each Company Common Share
shall be exchanged for such number of Buyer's Common Shares as shall be issuable
in connection with the Merger pursuant to Section 1.3(a).
(b) In the event any certificates evidencing Company Common Shares
shall have been lost, stolen or destroyed, Buyer shall issue in exchange for
such lost, stolen or destroyed certificate, upon the making of an affidavit of
that fact by the holder thereof, such Buyer's Common Shares as may be required
pursuant hereto; provided, however that Buyer may, in its discretion and as a
condition precedent to the issuance thereof, require the owner of such lost,
stolen or destroyed certificate to agree to indemnify (without posting any bond
therefor) Buyer, the Company or any other party against any claim that may be
made against Buyer, the Company or such other party with respect to the
certificate alleged to have been lost, stolen or destroyed.
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1.6 BUYER COMMON STOCK. The outstanding shares of Buyer Common Stock
shall remain outstanding and are not affected by the Merger, except that the
shares of Buyer Common Stock held by the Company shall be cancelled at the
Effective Time.
1.7 DISSENTING SHARES. Any Company Common Shares or Buyer Common Stock
held by a shareholder who dissents from the Merger and becomes entitled to
obtain payment for the value of such securities pursuant to the applicable
provisions of New Mexico law shall be herein called "Dissenting Shares". Except
as provided under New Mexico law, any Dissenting Shares shall not, after the
Effective Time, be entitled to vote for any purpose or receive any dividends or
other distributions, and any Company Common Shares that are Dissenting Shares
shall not be converted into Buyer's Common Shares; provided, however, that
Company Common Shares held by a dissenting shareholder who subsequently
withdraws a demand for payment (which demand is consented to by the issuer of
such securities) or fails to establish the right of such shareholder to be
treated as a dissenting shareholder under New Mexico law shall be deemed to be
converted into Buyer's Common Shares pursuant to the terms and conditions
referred to above.
1.8 CLOSING. Subject to the provisions of Article 7 hereof, the closing
of the transactions contemplated by this Agreement (the "Closing") shall take
place on the day during which the Effective Time occurs (the "Closing Date"), at
the offices of Luce, Forward, Hamilton & Scripps LLP, 600 W. Broadway, Suite
2600 San Diego, California 92101, or such other place and time as the parties
may mutually agree.
ARTICLE 2
THE SURVIVING CORPORATION
2.1 ARTICLES OF INCORPORATION. The articles of incorporation of Buyer in
effect at the Effective Time shall be the articles of incorporation of the
Surviving Corporation until thereafter amended in accordance with applicable
law, except that such articles of incorporation shall be amended as follows:
(a) Article I shall be amended to read in its entirety as follows:
"The name of the corporation shall be Protalex, Inc."
(b) Article III shall be amended to read in its entirety as follows:
"The purposes for which the corporation is organized are to conduct the
research, development, marketing and sale of pharmaceutical agents for use in
the treatment of rheumatoid arthritis and other autoimmune diseases and any
other lawful business for which corporations may be organized under the New
Mexico Business Corporation Act.
(c) Article IV shall be amended to read in its entirety as follows:
"The aggregate number of shares which the corporation shall have authority to
issue shall be Forty Million (40,000,000) shares of common stock, no par value."
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2.2 BYLAWS. The bylaws of Buyer in effect at the Effective Time shall be
the bylaws of the Surviving Corporation until amended in accordance with
applicable law.
2.3 DIRECTORS. The directors of Buyer immediately prior to the Effective
Time shall be the directors of the Surviving Corporation, each of such persons
to serve until his successor is duly elected and qualified.
2.4 OFFICERS. The officers of Buyer immediately prior to the Effective
Time shall be the officers of the Surviving Corporation, each of such officers
to serve until his successor is duly appointed.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to Buyer as of the date hereof that:
3.1 EXISTENCE AND GOOD STANDING. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the State of
New Mexico. The Company is qualified to do business and is in good standing in
all other jurisdictions in which the character or location of the properties
owned or leased by it or the nature of the business conducted by it makes such
qualification necessary and where the failure to so qualify would have a
material adverse effect upon the Company. The Company has the power to own its
property and to carry on its business as now being conducted. The Company has
the full corporate power and corporate authority to enter into and perform its
obligations under this Agreement and under each other instrument and document
executed and delivered by the Company in connection with this Agreement, and to
take all actions required of it to consummate the Merger.
3.2 CORPORATE AUTHORITY AND AUTHORIZATION. The Company has taken all
corporate or other actions necessary to be taken in connection with the
execution and delivery of this Agreement. The Company has duly and validly
authorized, executed and delivered this Agreement, which constitutes the legal,
valid and binding obligation of the Company and is enforceable against the
Company in accordance with its terms.
3.3 NO CONFLICT. The execution, delivery or performance of this
Agreement by the Company will not: violate or conflict with the provisions of
the Articles of Incorporation or Bylaws of the Company; result in any breach of
or any default under, or cause any acceleration of any obligation under, any
Material Contract (as defined in Section 3.9 below); result in the creation of
any lien or encumbrance upon any of the Company's assets; or violate any
judgment, decree, order, statute, rule or regulation applicable to the Company.
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3.4 CAPITALIZATION. The authorized equity securities of the Company
consist of 100,000 shares of common stock, no par value per share, of which
10,084 shares are issued and outstanding and constitute the Company Common
Shares. There are no other shares of capital stock of the Company of any other
class or series authorized, issued or outstanding. There are no outstanding
subscriptions, options, warrants, rights (including, without limitation,
preemptive rights, stock appreciation rights or other awards), calls,
convertible securities or other agreements or commitments of any character
relating to the issued or unissued capital stock or other securities of the
Company. There are no agreements or other obligations (contingent or otherwise)
which require the Company to repurchase or otherwise acquire any shares of its
capital stock or other securities. The Company Common Shares have been duly
authorized and validly issued and are fully paid and nonassessable. Other than
this Agreement, the Company is not a party to any agreement relating to the
issuance, sale, or transfer of any equity securities or other securities of the
Company. The Company does not own, and has no obligation to acquire, any equity
securities or other securities of, or any direct or indirect equity or ownership
interest in, any other entity.
3.5 ABSENCE OF UNDISCLOSED LIABILITIES. Except with respect to the
Material Contracts set forth on EXHIBIT 3.6, the Company has no liability or
obligation (absolute, accrued, contingent or otherwise) which is material to the
operation of the Company's business.
3.6 MATERIAL CONTRACTS. Set forth on EXHIBIT 3.6 is a list of all
contracts which are material to the operation of the Company's business
("Material Contracts"). The Company is not in default under or in breach of any
Material Contract. To the knowledge of the Company, no other party to any
Material Contract is in default thereunder or breach thereof. The Company has
not received any claim or threat that the Company has breached any of the terms
and conditions of any Material Contract. No person presently a customer, agent,
employee, or independent contractor of the Company has given notice of any
intention to cancel or otherwise terminate its business relationship with the
Company.
3.7 LITIGATION. There is no litigation or other proceeding pending or,
to the knowledge of the Company, threatened, in law or in equity, against the
Company with respect to or affecting the Company's business, operations or
financial condition, or related to the consummation of the transactions
contemplated by this Agreement.
3.8 COMPLIANCE WITH LAWS. To the knowledge of the Company, the Company
is in compliance with all applicable laws, regulations, orders, judgments and
decrees of each and every jurisdiction in which it is doing business, including
applicable federal laws and regulations.
ARTICLE 4
COVENANTS OF THE COMPANY PRIOR TO CLOSING DATE
4.1 REQUIRED APPROVALS. As promptly as practicable after the date of
this Agreement, the Company will make all filings required by applicable law to
be made in order to consummate the
5
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transactions contemplated hereby (including, if applicable, all filings
under the Securities Act of 1933, the Securities and Exchange Act of 1934 and
applicable state securities laws). Between the date of this Agreement and
the Closing Date, the Company will cooperate with Buyer with respect to all
filings that Buyer elects to make or is required by applicable law to make in
connection with the transactions contemplated hereby (including, if
applicable, all filings under the Securities Act of 1933, the Securities and
Exchange Act of 1934 and applicable state securities laws).
4.2 COMMERCIALLY REASONABLE EFFORTS. Between the date of this Agreement
and the Closing Date, the Company shall use its commercially reasonable efforts
to cause the conditions in Article 7 to be satisfied. The Company shall not
intentionally perform any act which, if performed, or intentionally omit to
perform any act which, if omitted to be performed, would prevent or excuse the
performance of this Agreement by any party hereto.
4.3 CORPORATE APPROVALS BY THE COMPANY. As promptly as practicable after
the date of this Agreement, the Company shall take or shall have taken any and
all actions necessary for the approval by the Company, its directors and
shareholders of the Merger, this Agreement and the transactions contemplated
hereby and thereby in accordance with New Mexico law.
ARTICLE 5
COVENANTS OF BUYER PRIOR TO CLOSING DATE
5.1 REQUIRED APPROVALS. As promptly as practicable after the date of
this Agreement, Buyer will make all filings required by applicable law to be
made in order to consummate the transactions contemplated hereby (including, if
applicable, all filings under the Securities Act of 1933, the Securities and
Exchange Act of 1934 and applicable state securities laws). Between the date of
this Agreement and the Closing Date, Buyer will cooperate with the Company with
respect to all filings that the Company elects to make or is required by
applicable law to make in connection with the transactions contemplated hereby
(including, if applicable, all filings under the Securities Act of 1933, the
Securities and Exchange Act of 1934 and applicable state securities laws).
5.2 COMMERCIALLY REASONABLE EFFORTS. Between the date of this Agreement
and the Closing Date, Buyer shall use its commercially reasonable efforts to
cause the conditions in Article 7 to be satisfied. Buyer shall not
intentionally perform any act which, if performed, or intentionally omit to
perform any act which, if omitted to be performed, would prevent or excuse the
performance of this Agreement by any party hereto.
5.3 CORPORATE APPROVALS BY THE COMPANY. As promptly as practicable after
the date of this Agreement, Buyer shall take or shall have taken any and all
actions necessary for the approval by Buyer, its directors and shareholders of
the Merger, this Agreement and the transactions contemplated hereby and thereby
in accordance with New Mexico law.
6
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ARTICLE 6
COVENANTS OF BUYER AND THE COMPANY
6.1 BEST EFFORTS. Subject to the terms and conditions of this Agreement,
each party shall use its best efforts to take, or cause to be taken, all actions
and to do, or cause to be done, all things necessary, proper or advisable under
applicable laws and regulations to consummate the transactions contemplated by
this Agreement including, without limitation, obtaining all material consents,
waivers and approvals required in connection with the authorization, execution
and delivery of this Agreement by the parties and the consummation by the
parties of the Merger and the other transactions contemplated by this Agreement.
6.2 FURTHER ASSURANCES. At and after the Effective Time, the officers
and directors of the Surviving Corporation will be authorized to execute and
deliver, in the name and on behalf of the Company, any deeds, bills of sale,
assignments or assurances and to take and do, in the name and on behalf of the
Company, any other actions and things to vest, perfect or confirm of record or
otherwise in the Surviving Corporation any and all right, title and interest in,
to and under any of the rights, properties or assets of the Company acquired or
to be acquired by the Surviving Corporation as a result of, or in connection
with, the Merger.
ARTICLE 7
CONDITIONS TO THE MERGER
7.1 CONDITIONS TO THE OBLIGATIONS OF EACH PARTY. The obligations of the
Company and Buyer to consummate the Merger are subject to the satisfaction of
the following conditions:
(a) All authorizations, consents, orders or approvals of, or
declarations or filings with, or expiration of waiting periods imposed by, any
governmental entity or any third party necessary for the consummation of the
transactions contemplated hereby or required as a result of the transactions
contemplated hereby and any documentation pertaining thereto or required in
connection therewith shall have been filed, occurred or been obtained.
(b) No provision of any applicable law shall prohibit the
consummation of the Merger.
(c) This Agreement shall have been approved and adopted by the
affirmative vote of the holders of a majority of the outstanding shares of the
Company Common Shares entitled to vote thereon and a majority of the outstanding
shares of Buyer's Common Stock entitled to vote thereon and the Boards of
Directors of Buyer and the Company.
(d) No arbitrator, governmental entity or official shall have issued
any order, and there shall not be any applicable law, restraining or prohibiting
the consummation of the Merger or
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the effective operation of the business of the Company or Buyer after the
Effective Time, and no proceeding challenging this Agreement or the
transactions contemplated hereby or seeking to prohibit, alter, prevent or
materially delay the Merger shall have been instituted by any person before
any arbitrator, governmental entity or official and be pending.
7.2 CONDITIONS TO THE OBLIGATIONS OF BUYER. The obligations of Buyer to
consummate the Merger are subject to the satisfaction of the following further
conditions:
(a) The Company shall have performed in all material respects all of
its obligations hereunder required to be performed by it at or prior to the
Effective Time, and the representations and warranties of the Company contained
in this Agreement and in any certificate delivered by the Company pursuant
hereto shall be true in all material respects at and as of the Effective Time as
if made at and as of such time.
7.3 CONDITIONS TO OBLIGATIONS OF THE COMPANY. The obligations of the
Company to consummate the Merger are subject to the satisfaction of the
following further conditions:
(a) Buyer shall have performed in all material respects all of its
obligations hereunder required to be performed by it at or prior to the
Effective Time.
(b) The Company shall have completed its due diligence review of
Buyer to their satisfaction in its sole and absolute discretion.
ARTICLE 8
TERMINATION
8.1 TERMINATION EVENTS. This Agreement may, by notice given and received
prior to the Effective Time, be terminated:
(a) by either the Company or Buyer if the terminating party is not
then in material breach of any provision of this Agreement and the
nonterminating party has committed a material breach of any provision of this
Agreement and such breach has not been (i) cured within five (5) days after the
nonterminating party receives notice of such material breach or (ii) waived by
the terminating party; or
(b) by Buyer if any of the conditions in Section 7.1 or Section 7.2
have not been satisfied as of December 1, 1999 or if satisfaction of such a
condition is or becomes impossible (other than through the failure of Buyer to
comply with its obligations under this Agreement) and Buyer has not waived such
condition on or before December 1, 1999; or
(c) by the Company, if any of the conditions in Section 7.1 and
Section 7.3 have not been satisfied as of December 1, 1999 or if satisfaction of
such a condition is or becomes
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impossible (other than through the failure of the Company to comply with its
obligations under this Agreement) and the Company has not waived such
condition on or before December 1, 1999;
(d) by mutual consent of Buyer and the Company; or
(e) by either party if such party is not reasonably satisfied with
the results of its legal, business and accounting due diligence review of the
other party.
8.2 EFFECT OF TERMINATION. Each party's right of termination under
Section 8.1 is in addition to any other rights it may have under this Agreement
or otherwise, and the exercise of a right of termination will not be an election
of remedies. If this Agreement is terminated pursuant to Section 8.1, all
further obligations of the parties under this Agreement will terminate;
provided, however, that if this Agreement is terminated by a party because of
the breach of the Agreement by the other party or because one or more of the
conditions to the terminating party's obligations under this Agreement is not
satisfied as a result of the other party's failure to comply with its
obligations under this Agreement, the terminating party's right to pursue all
legal remedies will survive such termination unimpaired.
ARTICLE 9
INDEMNIFICATION; REMEDIES
9.1 SURVIVAL OF REPRESENTATIONS AND WARRANTIES AND INDEMNITIES. All
covenants, agreements, representations and warranties of the parties under this
Agreement, including any schedule or certificate delivered pursuant hereto,
shall survive the Closing for a period of one year after the Closing.
9.2 INDEMNITY.
(a) Buyer shall indemnify, defend and hold harmless the Company and
its directors and officers (collectively, the "Company Parties") from and
against any and all damages, losses, claims, liabilities, charges, suits,
penalties, costs and expenses, including court costs, attorneys' fees and
expenses and other costs of collection (collectively "Losses"), which the
Company Parties may sustain, or to which the Company Parties may be subjected,
arising out of or attributable to any misrepresentation or breach of warranty by
Buyer in, or any breach or default by Buyer of or under any of the covenants,
agreements or other provisions of, this Agreement, including any documents,
instruments, exhibits or certificates delivered by or on behalf of Buyer
pursuant to the Agreement.
(b) The Company shall indemnify, defend and hold harmless Buyer and
its directors and officers (collectively, the "Buyer Parties") from and against
any and all Losses which the Buyer Parties may sustain, or to which the Buyer
Parties may be subjected, arising out of or attributable to any
misrepresentation or breach of warranty by the Company in, or any breach or
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default by the Company of or under any of the covenants, agreements or other
provisions of, this Agreement, including any documents, instruments, exhibits or
certificates delivered by or on behalf of the Company pursuant to the Agreement.
9.3 SUBROGATION. A party subject to indemnification obligations set
forth in Section 9.2 above (the "Indemnifying Party") shall not be entitled to
require that any action be brought against any other person or entity before
action is brought against it hereunder by the party to whom such obligations are
owed (the "Indemnified Party") and shall not be subrogated to any right of
action until it has paid in full or successfully settled or defended against the
Loss for which indemnification is sought; provided, however, the Indemnifying
Party shall have the right to enjoin in any action any other party from which it
has a right of subrogation. After the resolution of the matter for which
indemnification was sought, the Indemnified Party shall cooperate with and
provide reasonable assistance to the Indemnifying Party in connection with
actions brought against person or entity who has obligations in connection with
the indemnified matter.
ARTICLE 10
GENERAL PROVISIONS
10.1 LEGENDS. The certificates representing Buyer Shares shall bear a
legend substantially in the following form:
"The shares represented by this certificate have not been registered
under the Securities Act of 1933, as amended (the "Act") or any other
applicable federal or state securities acts; and are "restricted
securities" as defined under Rule 144 of the Act. The shares may not
be transferred, sold or otherwise disposed of unless: (i) a
registration statement with respect to the shares shall be effective
under the Act or any other federal or state securities acts and (ii)
the issuer thereof shall have received an opinion of counsel that no
violations of any federal or state securities laws will result from
any transfer."
10.2 EXPENSES. Except as otherwise expressly provided in this Agreement,
Buyer shall pay all of the expenses incurred in connection with the preparation,
execution, and performance of this Agreement and the transactions contemplated
hereby, including all fees and expenses of agents, representatives, counsel, and
accountants.
10.3 NOTICES. All notices, consents, waivers, and other communications
under this Agreement must be in writing and will be deemed to have been duly
given when (a) delivered by hand (with written confirmation of receipt), (b)
sent by telecopier (with written confirmation of receipt), or (c) when received
by the addressee, in each case to the appropriate addresses and telecopier
numbers set forth below (or to such other addresses and telecopier numbers as a
party may designate by notice to the other parties):
10
<PAGE>
the Company:
Protalex, Inc.
P.O. Box 30952
Albuquerque, New Mexico 87190
Attention: John Doherty
Facsimile No.: (505) 254-1184
Phone No.: (505) 255-6636
Buyer:
Enerdyne Corporation
P.O. Box 30952
Albuquerque, New Mexico 87190
Attention: John Doherty
Facsimile No.: (505) 254-1184
Phone No.: (505) 255-6636
10.4 FURTHER ASSURANCES. The parties agree (a) to furnish upon request to
each other such further information, (b) to execute and deliver to each other
such other documents, and (c) to do such other acts and things, all as the other
party may reasonably request for the purpose of carrying out the intent of this
Agreement and the documents referred to in this Agreement.
10.5 WAIVER. The rights and remedies of the parties are cumulative and
not alternative. Neither the failure nor any delay by any party in exercising
any right, power, or privilege under this Agreement or the documents referred to
in this Agreement will operate as a waiver of such right, power, or privilege,
and no single or partial exercise of any such right, power, or privilege will
preclude any other or further exercise of such right, power, or privilege or the
exercise of any other right, power, or privilege. To the maximum extent
permitted by applicable law, (a) no claim or right arising out of this Agreement
or the documents referred to in this Agreement can be discharged by one party,
in whole or in part, by a waiver or renunciation of the claim or right unless
in writing signed by the other party; (b) no waiver that may be given by a party
will be applicable except in the specific instance for which it is given; and
(c) no notice to or demand on one party will be deemed to be a waiver of any
obligation of such party or of the right of the party giving such notice or
demand to take further action without notice or demand as provided in this
Agreement or the documents referred to in this Agreement.
10.6 ENTIRE AGREEMENT AND MODIFICATION. This Agreement supersedes all
prior agreements between the parties with respect to its subject matter and
constitutes (along with the documents referred to in this Agreement) a complete
and exclusive statement of the terms of the agreement
11
<PAGE>
between the parties with respect to its subject matter. This Agreement may
not be amended except by a written agreement executed by the party to be
charged with the amendment.
10.7 ASSIGNMENTS, SUCCESSORS, AND NO THIRD-PARTY RIGHTS. Neither party
may assign any of its rights under this Agreement without the prior consent of
the other parties, which will not be unreasonably withheld or delayed. Subject
to the foregoing, this Agreement will apply to, be binding in all respects upon,
and inure to the benefit of the successors and permitted assigns of the parties.
Nothing expressed or referred to in this Agreement will be construed to give any
person other than the parties to this Agreement any legal or equitable right,
remedy, or claim under or with respect to this Agreement or any provision of
this Agreement. This Agreement and all of its provisions and conditions are for
the sole and exclusive benefit of the parties to this Agreement and their
successors and assigns.
10.8 SEVERABILITY. If any provision of this Agreement is held invalid or
unenforceable by any court of competent jurisdiction, the other provisions of
this Agreement will remain in full force and effect. Any provision of this
Agreement held invalid or unenforceable only in part or degree will remain in
full force and effect to the extent not held invalid or unenforceable.
10.9 GOVERNING LAW. This Agreement will be governed by the laws of the
State of New Mexico without regard to conflicts of laws principles.
10.10 FORUM SELECTION. Any proceeding brought by any of the parties hereto
against another party hereto relating to this Agreement or the transactions
contemplated hereby or the subject matter hereof shall be brought in the
appropriate state or federal court sitting in Bernalillo County, New Mexico and
each of the parties hereto hereby generally and unconditionally submits to and
accepts the jurisdiction of such courts.
10.11 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which will be deemed to be an original copy of this
Agreement and all of which, when taken together, will be deemed to constitute
one and the same agreement.
[Remainder of page intentionally left blank.]
12
<PAGE>
IN WITNESS WHEREOF, the parties have executed and delivered this Agreement
as of the date first written above.
COMPANY:
PROTALEX, INC.
By: /s/ John E. Doherty
-------------------------------------
John E. Doherty, President
By: /s/ Paul L. Mann
-------------------------------------
Paul L. Mann, Secretary
BUYER:
ENERDYNE CORPORATION
By: /s/ John E. Doherty
-------------------------------------
John E. Doherty, President
By: /s/ Paul L. Mann
-------------------------------------
Paul L. Mann, Secretary
13
<PAGE>
ARTICLES OF INCORPORATION
OF
IDEAL HOMES, INC.
We, the undersigned, being citizens of the United States and residents
of the State of New Mexico, hereby associate ourselves together for the
purpose of forming a corporation under the laws of the State of New Mexico,
and hereby certify:
ARTICLE I
The name of the corporation shall be Ideal Homes, Inc.
ARTICLE II
The location of the principal office of the corporation in the State of
New Mexico is 615 First National Bank Building, Albuquerque, County of
Bernalillo, State of New Mexico. John P. Dwyer is designated as the statutory
agent in charge thereof, and upon whom process against the corporation may be
served.
ARTICLE III
The objects for which the corporation is formed are as follows:
To acquire by purchase, lease or otherwise and to improve and develop
real property. To survey, plat, lay-out, grade, pave and dedicate roads,
streets, avenues, highways, alleys and parks.
To buy, sell, mortgage, exchange, lease, hold for investment or
otherwise use and operate real estate of all kinds, improved or unimproved,
and any right or interest therein.
To erect, or cause to be erected, on any lands owned, held or occupied
by the corporation, buildings or other structures, and to manage, operate,
lease, rebuild, enlarge, alter or improve any such buildings or other
structures, and to encumber or dispose of any lands or any buildings or other
structures and any streets, shops, suites, rooms or part of any buildings or
other structures at any time owned or held by the corporation.
<PAGE>
To acquire by purchase, lease or otherwise, any personal property
deemed necessary or useful in the equipment, furnishing, improvement,
development or managment of any property, real or personal, at any time
owned, held or occupied by the corporation, and to invest, trade and deal in
any personal property deemed beneficial to the corporation, and to encumber
or dispose of any personal property at any time owned or held by the
corporation.
To acquire by subscription, purchase or otherwise, to hold for
investment or for resale, to sell, purchase and in all ways deal with stocks,
bonds, mortgages, notes, certificates of indebtedness and other obligations
and securities of corporations, private or public, foreign or domestic. To do
all things suitable and proper for the protection, conservation or
enhancement of the value of stocks, securities or other properties held by
it, including the exercise of the right to vote thereon.
To enter into, make, perform and carry-out contracts of every kind for
any lawful purposes pertaining to its business with any individual, entity,
firm, association or corporation or with any governmental, municipal or
public authority.
To do everything necessary, proper, convenient or incidental to the
accomplishment of the purposes and objects of the corporation or which is
calculated directly or indirectly to promote the welfare or interest of the
corporation or enhance the value or render profitable any of its property or
rights.
To have and exercise all the rights, powers or privileges now or
hereafter conferred by the laws of the State of New Mexico upon corporations
organized under the laws under which this corporation is organized, and any
and all acts amendatory thereof and supplemental thereto.
To do any and all of the things in this article set forth to the same
extent as natural persons might or could do within or without the State of
New Mexico as principals, agents, trustees or otherwise and either alone or
in company with others.
<PAGE>
ARTICLE IV
The authorized capital stock of the corporation shall be Two hundred
fifty thousand and No/100 ($250,000.00) Dollars, divided into Two thousand
five hundred (2,500) shares, at a par value of One hundred and no/100
($100.00) Dollars each, and the amount of stock with which the corporation
shall commence business shall be the sum of Ten thousand and No/100
($10,000.00) Dollars.
ARTICLE V
The term of existence of this corporation shall be One hundred (100)
years.
ARTICLE VI
At all elections of directors of this corporation, each stockholder
shall be entitled to as many votes as shall equal the number of votes which
(except for these provisions as to cumulative voting) he would be
entitled to cast for the election of directors with respect to his shares of
stock multiplied by the number of directors to be elected, and he may cast
all such votes for a single director, or may distribute them among the number
to be voted for, or any two or more of them, as he may see fit.
ARTICLE VII
The names and postoffice addresses of the incorporators and the number
of shares of stock of this corporation subscribed by each are as follows:
E. Lee Hanosh 60 shares
609 Calle del Contento NE
Albuquerque, New Mexico
G.M. Raines 20 shares
Grants, New Mexico
John P. Dwyer 20 shares
615 First National Bank Building
Albuquerque, New Mexico
IN WITNESS WHEREOF, we have hereunto set our hands and seals this 22
day of April, 1958.
/s/ E. Lee Hanosh /s/ G.M. Raines
- ---------------------------- ------------------------------
E. Lee Hanosh G.M. Raines
/s/ John P. Dwyer
----------------------------
John P. Dwyer
<PAGE>
STATE OF NEW MEXICO )
)ss.
COUNTY OF BERNALILLO )
On this 22 day of April, 1958, before me personally appeared E. LEE
HANOSH, G.M. RAINES, and JOHN P. DWYER, to me known to be the persons
described in and who executed the foregoing instrument and acknowledged that
they executed the same as their free act and deed.
WITNESS my hand and seal the day and year last above written.
/s/ Virgil L. Brown
----------------------------
My commission expires: Notary Public
June 8, 1959
- ---------------------
<PAGE>
CERTIFICATE OF AMENDMENT TO
ARTICLES OF INCORPORATION OF
IDEAL HOMES, INC.
KNOW ALL MEN BY THESE PRESENTS THAT:
WHEREAS, under date of April 23, 1958, the Articles of Incorporation of
Ideal Homes, Inc. were filed in the office of the State Corporation
Commission of New Mexico, and
WHEREAS, at a special combined meeting of the stockholders and
directors of said corporation held on September 26, 1967, resolutions were
unanimously adopted authorizing certain amendments to the Articles of
Incorporation,
NOW THEREFORE, pursuant to the provisions of Section 51-2-20, New
Mexico Statutes 1953 Annotated, Articles I, II, III, IV, and VI of the
Articles of Incorporation of Ideal Homes, Inc. are hereby amended to read and
provide as follows:
I.
"The name of the corporation shall be Enerdyne
Corporation."
II.
"The place in the State of New Mexico where the
principal office is to be located is Albuquerque,
Bernalillo County, New Mexico. The name and address
of the statutory agent upon whom process against the
corporation may be served is John P. Dwyer, 606 Bank
of New Mexico Building, Albuquerque, New Mexico."
III.
"The purposes for which the corporation is formed
are:
A. To acquire, by purchase, lease or otherwise,
and to improve and develop real property: and
to survey, plat, lay-out, grades, pave, and dedicate
roads, streets, avenues, highways, alleys and parks.
B. To buy, sell, mortgage, exchange, lease, hold for
investment, or otherwise use and
<PAGE>
operate real estate of all kinds, improved or
unimproved, and any right or interest therein.
C. To erect, or cause to be erected, on any lands owned,
held or occupied by the corporation, buildings or
other structures, and to manage, operate, lease,
rebuild, enlarge, alter or improve any such buildings
or other structures, and to encumber or dispose of
any lands or any buildings or other structures and any
streets, shops, suites, rooms or part of any buildings
or other structures at any time owned or held by the
corporation.
D. To buy, sell, exchange, lease acquire and otherwise
deal in lands, mines, mineral rights and claims,
timber and timber rights, oil and gas wells, royalties
or other interests in oil and gas, mineral or other
natural resource rights, plants, pipe lines and all
other means of property transmission and transportation.
E. To carry on any and all business relating to the
exploration for and development, production and
marketing of natural resources, and to do all acts and
things incidental to such businesses; to explore for,
mine, mill, concentrate, convert, smelt, treat, refine,
prepare for market, manufacture, buy, sell, exchange,
and otherwise produce, process and deal in all kinds
of ores, metals, minerals, oil, natural gas, timber and
timber rights, water power and any and all other natural
resources, and the products and by-products thereof, of
any kind and description, and by whatever means the same
can be and may hereafter be produced, processed, handled
or dealt in.
F. In connection with any or all of the foregoing
activities, to acquire, either by purchase or lease,
use, employ, sell and deal in all suitable apparatus,
machinery, equipment and facilities for prosecuting
and carrying on the said activities.
G. To borrow money, to draw, make, accept, endorse,
transfer, assign, execute and issue bonds, debentures,
promissory notes and other evidences of indebtedness;
and for the purpose of securing any of its obligations
or contracts, to convey, transfer, assign, deliver,
mortgage or pledge, all or any part of the property or
assets at any time owned or held by this corporation,
under such terms and conditions as the Board of
Directors shall authorize as may be permitted by law.
H. To carry on any lawful business whatsoever in
connection with the foregoing which is calculated,
directly or indirectly, to promote the interests of
the corporation or
-2-
<PAGE>
on this the 26th day of September, 1967.
IDEAL HOMES, INC.
By /s/ E. Lee Hanosh
---------------------------
President
ATTEST:
/s/ John P. Dwyer
- ----------------------
Secretary
STATE OF NEW MEXICO )
) ss.
COUNTY OF BERNALILLO )
The foregoing instrument was acknowledged before me this 28th day
of September, 1967, by E. Lee Hanosh, President of Ideal Homes, Inc., a New
Mexico corporation, on behalf of said corporation.
/s/ Virgil L. Brown
------------------------------
Notary Public
My Commission Expires:
June 8, 1971
- ----------------------
CONSENT OF STOCKHOLDERS
We, the undersigned, being the owners of all of the issued and
outstanding stock of Ideal Homes, Inc., by these presents consent to the
above and foregoing amendments.
/s/ E. Lee Hanosh
-------------------------------
E. LEE HANOSH
/s/ James J. Hanosh
-------------------------------
JAMES J. HANOSH
/s/ John P. Dwyer
---------------------------------
JOHN P. DWYER
-4-
<PAGE>
ARTICLES OF AMENDMENT TO
THE ARTICLES OF INCORPORATION
OF
ENERDYNE CORPORATION
Pursuant to the provisions of Section 51-26-4 of the New Mexico
Business Corporation Act, the undersigned corporation adopts the following
Articles of Amendment to its Articles of Incorporation:
1. The name of the corporation is Enerdyne Corporation.
2. The following amendments to the Articles of Incorporation as
originally filed or heretofore amended were adopted by the directors and
shareholders of the corporation at a combined special meeting on February 14,
1968 in the manner prescribed by the New Mexico Business Corporation Act:
ARTICLE II
The address of the registered office of the corporation is 724 Bank
of New Mexico Building, Albuquerque, Bernalillo County, New Mexico, and the
name of its registered agent at such address is John P. Dwyer.
ARTICLE V
The corporation shall have perpetual existence.
ARTICLE VIII
No stockholder of the corporation shall, because of his ownership
of stock, have any preemptive or preferential right to purchase, subscribe
for, or take any part of any stock or any part of the notes, debentures,
bonds, or other securities convertible into or carrying options or warrants
to purchase stock of the corporation issued, optioned, or sold by it after
its incorporation. Any part of the capital stock and any part of the notes,
debentures, bonds, or other securities convertible into or carrying options
or warranties to purchase stock of the corporation authorized by these
Articles of Incorporation or any amendment thereto may at any time be issued,
optioned for sale, and sold or disposed of by the corporation pursuant to
resolution of its Board of Directors to such persons and upon such terms as
may to such Board seem proper without first offering such stock or securities,
<PAGE>
or any part thereof, to existing stockholders.
3. The number of shares of the corporation outstanding at the time
of such adoption was one hundred shares of the One Hundred Dollar ($100.00)
par value capital stock; and the number of shares entitled to vote thereon
was one hundred shares of said stock.
4. There was no other class of stock outstanding entitled to vote
on said amendments as a class.
5. The number of shares voted for such amendment was one hundred;
and there were no shares voted against such amendment.
6. Said amendments did not provide for any exchange,
reclassification, or cancellation of issued shares.
7. Said amendments did not effect any change in the amount of
stated capital.
DATED February 15, 1968.
ENERDYNE CORPORATION
By /s/ E. Lee Hanosh
------------------------------
President
/s/ John P. Dwyer
------------------------------
Secretary
VERIFICATION
STATE OF NEW MEXICO )
) ss.
COUNTY OF BERNALILLO )
I, Virgil L. Brown, a Notary Public do hereby certify that on this
15th day of February 1968, personally appeared before me E. LEE HANOSH, who,
being by me first duly sworn, declared that he is the President of Enerdyne
Corporation, that he signed the foregoing document as President of the
corporation, and that the statements therein contained are true.
/s/ Virgil L. Brown
--------------------------------
Notary Public
My Commission Expires:
June 8, 1971
- ----------------------
-2-
<PAGE>
RESTATED ARTICLES OF INCORPORATION
OF
ENERDYNE CORPORATION
Pursuant to the provisions of Section 51-26-7 of the New Mexico Business
Corporation Act, the undersigned cororation adopts the following Restated
Articles of Incorporation:
ARTICLE I
The name of the corporation shall be Enerdyne Corporation.
ARTICLE II
The address of the registered office of the corporation is 724 Bank of
New Mexico Building, Albuquerque, Bernalillo County, New Mexico, and the name
of its registered agent at such address is John P. Dwyer.
ARTICLE III
The purposes for which the corporation is formed are:
A. To acquire by purchase, lease or otherwise, and to improve and
develop real property; and to survey, plat, lay-out, grade, pave, and
dedicate roads, streets, avenues, highways, alleys and parks.
B. To buy, sell, mortgage, exchange, lease, hold for investment, or
otherwise use and operate real estate of all kinds, improved or unimproved,
and any right or interest therein.
C. To erect, or cause to be erected, on any lands owned, held or
occupied by the corporation, buildings or other structures, and to manage,
operate, lease, rebuild, enlarge, alter or improve any such buildings or
other structures, and to encumber or dispose of any lands or any buildings or
other structures and any streets, shops, suites, rooms or part of any
buildings or other structures at any time owned or held by the corporation.
D. To buy, sell, exchange, lease acquire and otherwise deal in lands,
mines, mineral rights and claims, timber and timber rights, oil and gas
wells, royalties or other interests in oil and gas, mineral or other natural
resource rights, plants, pipe lines and all other means of property
transmission and transportation.
<PAGE>
E. To carry on any and all business relating to the exploration for and
development, production and marketing of natural resources, and to do all
acts and things incidental to such businesses; to explore for, mine, mill,
concentrate, convert, smelt, treat, refine, prepare for market, manufacture,
buy, sell, exchange, and otherwise produce, process and deal in all kinds of
ores, metals, minerals, oil, natural gas, timber and timber rights, water
power and any and all other natural resources, and the products and
by-products thereof, of any kind and description, and by whatever means the
same can be and may hereafter be produced, processed, handled or dealt in.
F. In connection with any or all of the foregoing activities, to
acquire, either by purchase or lease, use, employ, sell and deal in all
suitable apparatus, machinery, equipment and facilities for prosecuting and
carrying on the said activities.
G. To borrow money, to draw, make, accept, endorse, transfer, assign,
execute and issue bonds, debentures, promissory notes and other evidences of
indebtedness; and for the purpose of securing any of its obligations or
contracts, to convey, transfer, assign, deliver, mortgage or pledge, all or
any part of the property or assets at any time owned or held by this
corporation, under such terms and conditions as the Board of Directors shall
authorize as may be permitted by law.
H. To carry on any lawful business whatsoever in connection with the
foregoing which is calculated, directly or indirectly, to promote the
interests of the corporation or to enhance the value of its property; and to
have and exercise all the rights, powers and privileges now or hereafter
conferred by the laws of the State of New Mexico upon corporations formed
under the laws referred to herein, or under any laws amendatory thereof,
supplemental thereto, or substituted therefor, and to do any and all of the
things hereinbefore set forth to the same extent as a natural person might
or could do.
-2-
<PAGE>
I. This corporation shall have the power to conduct business in other
states or in foreign countries and may have one or more offices out of the
State of New Mexico.
J. Each purpose specified in any clause or paragraph contained in this
Article III shall be deemed to be independent of all other purposes herein
specified and shall not be limited or restricted by reference to or inference
from the terms of any other clause or paragraph of these Articles of
Incorporation.
ARTICLE IV
The amount of the authorized capital stock of the corporation shall be
Two Million and No/100 Dollars ($2,000,000.00), said stock to be divided into
two million (2,000,000) shares of common stock, each share of which shall
have a par value of One Dollar ($1.00). The amount of capital with which the
corporation shall begin business is One Thousand and No/100 Dollars
($1,000.00).
ARTICLE V
The corporation shall have perpetual existence.
ARTICLE VI
The management of the corporation shall be vested in a Board of
Directors consisting of such number of directors as may be provided by the
By-Laws from time to time, who may, but need not, be stockholders and until
otherwise so provided, said Board of Directors shall consist of three (3)
members. The Board of Directors, except as limited by law, shall have the
right to make, adopt, alter, amend and repeal By-Laws for the corporation,
fixing and altering the number of its directors, and providing for the
management of its property, the regulation and government of its affairs, and
the transfer of its stock.
ARTICLE VII
The names and post office addresses of the incorporators and the number
of shares of stock of this corporation subscribed by each are as
-3-
<PAGE>
follows:
E. Lee Hanosh
609 Callo del Contento, N. E. 60 shares
Albuquerque, New Mexico
G. M. Raines
Grants, New Mexico 20 shares
John P. Dwyer
615 First National Bank Building 20 shares
Albuquerque, New Mexico
ARTICLE VIII
No stockholder of the corporation shall, because of his ownership of
stock, have any preemptive or preferential right to purchase, subscribe for,
or take any part of any stock or any part of the notes, debentures, bonds, or
other securities convertible into or carrying options or warrants to purchase
stock of the corporation issued, optioned, or sold by it after its
incorporation. Any part of the capital stock and any part of the notes,
debentures, bonds, or other securities convertible into or carrying options
or warranties to purchase stock of the corporation authorized by these
Articles of Incorporation or any amendment thereto may at any time be
issued, optioned for sale, and sold or disposed of by the corporation
pursuant to resolution of its Board of Directors to such persons and upon
such terms as may to such Board seem proper without first offering such stock
or securities, or any part thereof, to existing stockholders.
The foregoing Restated Articles of Incorporation correctly set forth
without change the corresponding provisions of the Articles of Incorporation
as heretofore amended, and supersede the original Articles of Incorporation
and all amendments thereto.
DATED February 15, 1968.
ENERDYNE CORPORATION
By /s/ E. Lee Hanosh
-------------------------------
President
/s/ John P. Dwyer
-------------------------------
Secretary
-4-
<PAGE>
VERIFICATION
STATE OF NEW MEXICO )
) ss.
COUNTY OF BERNALILLO )
I, Virgil L. Brown, a Notary Public do hereby certify that on this 15th
day of February 1968, personally appeared before me E. LEE HANOSH, who, being
by me first duly sworn, declared that he is the President of Enerdyne
Corporation, that he signed the foregoing document as President of the
corporation, and that the statements therein contained are true.
/s/ Virgil L. Brown
------------------------------
Notary Public
My Commission Expires:
June 8, 1971
- ----------------------
-5-
<PAGE>
ARTICLES OF AMENDMENT
TO THE RESTATED ARTICLES OF INCORPORATION OF
ENERDYNE CORPORATION
Pursuant to the provisions of Section 51-26-4 of the New Mexico Business
Corporation Act, the undersigned corporation adopts the following Articles of
Amendment to its Restated Articles of Incorporation.
1. The name of the corporation is Enerdyne Corporation.
2. The following amendment to the Restated Articles of Incorporation,
as heretofore filed, was adopted by the directors and shareholders of the
corporation at a combined special meeting on February 7, 1969, in the manner
prescribed by the New Mexico Business Corporation Act:
ARTICLE IV
The amount of the authorized capital stock of the corporation shall be
Two Million and No/100 Dollars ($2,000,000.00), said stock to be divided into
4,000,000 shares of common stock, each share of which shall have a par value
of Fifty Cents (50 CENTS). The amount of capital with which the corporation
shall begin business is One Thousand and No/100 Dollars ($1,000.00).
3. The number of shares of the corporation outstanding at the time of
such adoption was 31,500 shares of the one dollar par value common stock, and
the number of shares entitled to vote thereon was 31,500 shares of said stock.
4. There was no other class of stock outstanding entitled to vote on
said amendment as a class.
5. The number of shares voted for such amendment was 31,500, and there
were no shares voted against such amendment.
6. Said amendment, by providing for a reduction in the par value of the
stock of the corporation, will require the issued and outstanding stock to be
called in and exchanged on the basis of one share of fifty cent par value
<PAGE>
common stock for each outstanding share of one dollar par value common stock.
7. Said amendment will result in a reduction in the amount of stated
capital from Thirty One Thousand Five Hundred and No/100 Dollars ($31,500.00)
to Fifteen Thousand Seven Hundred Fifty and No/100 Dollars ($15,750.00) and
allocation of the remaining Fifteen Thousand Seven Hundred Fifty and No/100
Dollars ($15,750.00) to paid in surplus.
DATED February 13th, 1969.
ENERDYNE CORPORATION
BY: /s/ E. Lee Hanosh
---------------------------------
President
BY: /s/ John P. Dwyer
---------------------------------
Secretary
VERIFICATION
STATE OF NEW MEXICO )
) ss
COUNTY OF BERNALILLO )
1. Virgil L. Brown, a Notary Public, do hereby certify that on this
13th day of February, 1969, personally appeared before me E. LEE HANOSH, who
being by me first duly sworn, declared that he is the President of Enerdyne
Corporation, that he signed the foregoing document as President of the
corporation, and that the statements therein contained are true.
/s/ Virgil L. Brown
------------------------------------
Notary Public
My Commission Expires:
June 8, 1971
- ----------------------
-2-
<PAGE>
ARTICLES OF MERGER
OF
PROTALEX, INC.
INTO
ENERDYNE CORPORATION
1. Protalex, Inc., a New Mexico corporation, shall be merged into Enerdyne
Corporation, a New Mexico corporation. Each outstanding share of common stock
of Protalex, Inc. shall be converted into 822 shares of Enerdyne
Corporation. The outstanding shares of common stock of Enerdyne Corporation
shall remain outstanding and are not affected by this merger, except that the
shares of common stock of Enerdyne Corporation held by Protalex, Inc. shall
be cancelled upon the effectiveness of the merger.
2. The effect of the merger and the effective date of the merger are as
prescribed by law.
3. Article I of the Articles of Incorporation of Enerdyne Corporation is
hereby amended to read as follows: "The name of the corporation shall be
Protalex, Inc."
4. Article III of the Articles of Incorporation of Enerdyne Corporation is
hereby amended to read as follows: "The purposes for which the corporation is
organized are to conduct the research, development, marketing and sale of
pharmaceutical agents for use in the treatment of rheumatoid arthritis and
other autoimmune diseases and any other lawful business for which
corporations may be organized under the New Mexico Business Corporation Act.
5. Article IV of the Articles of Incorporation of Enerdyne Corporation is
hereby amended to read as follows: "The aggregate number of shares which the
corporation shall have authority to issue shall be Forty Million (40,000,000)
shares of common stock, no par value."
6. Protalex, Inc. has only one class of shares and the number of shares
outstanding is 10,084. The number of shares voted for the merger was 10,084
and the number of shares voted against the merger was zero.
7. Enerdyne Corporation has only one class of shares and the number of
shares outstanding is 1,578,907. The number of shares voted for the merger
was 888,808 and the number of shares voted against the merger was
0.
Dated: November 15, 1999.
ENERDYNE CORPORATION PROTALEX, INC.
By: /s/ John E. Doherty By: /s/ John E. Doherty
--------------------------- --------------------------
John E. Doherty, President John E. Doherty, President
By: /s/ Paul L. Mann By: /s/ Paul L. Mann
--------------------------- --------------------------
Paul L. Mann, Secretary Paul L. Mann, Secretary
1
<PAGE>
Paul L. Mann, Secretary of Enerdyne Corporation and Secretary of
Protalex, Inc., declares under penalty of perjury under the laws of the State
of New Mexico that the matters set forth in these articles are true and
correct of his own knowledge.
___________________________________
Paul L. Mann
2
<PAGE>
BY-LAWS
OF
ENERDYNE CORPORATION
-------------------------------------------------
(Adopted at Combined Meeting of Stockholders
and Directors on December 10, 1968)
ARTICLE I
Shareholders
Section 1. PLACE OF MEETINGS. All meetings of Shareholders shall be
held either at the registered office of the corporation, or its principal
place of business in Albuquerque, New Mexico, or at such other place as may
be designated from time to time, whether within or without the State
of_____________.
Section 2. ANNUAL MEETINGS. The annual meeting of the Shareholders of
the corporation shall be held at 10:00 o'clock in the forenoon on the 3rd
Tuesday in October of each year, if not a legal holiday, and if a legal
holiday then at the same time on the next succeeding Tuesday not a legal
holiday. In the event that such annual meeting is omitted by oversight or
otherwise on the date herein provided for, the Directors shall cause a
meeting in lieu thereof to be held as soon thereafter as may be convenient,
and any business transacted or elections held at such meeting shall be as
valid as if transacted or held at the annual meeting. Such subsequent
meeting shall be called in the same manner as provided for the annual
Shareholders' meeting.
Section 3. SPECIAL MEETINGS. Except as otherwise provided by law,
special meetings of the Shareholders of this corporation shall be held
whenever called by the President, or, in his absence, a Vice-President, or by
a majority of the Board of Directors, or whenever the Shareholders of at
least 10% of all the outstanding shares of the corporation entitled to
<PAGE>
vote at the meeting shall make written application therefor to the Secretary,
stating the time, place and purpose of the meeting called for.
Section 4. NOTICE OF MEETINGS. Notice of all Shareholders' meetings,
stating the time and the place and the objects for which such meetings are
called, shall be given by or at the direction of the President or the
Secretary, or the officer or persons calling the meeting, by mail not less
than ten nor more than 50 days prior to the date of the meeting to each
Shareholder of record entitled to vote thereat sent to his address as it
appears on the stock books of the corporation.
Any meeting for which all Shareholders shall at any time waive or have
waived notice in writing shall be a legal meeting for the transaction of
business, notwithstanding that notice has not been given as hereinabove
provided.
Section 5. QUORUM OF SHAREHOLDERS. Except as hereinafter provided, and
as otherwise provided by law, at any meeting of the Shareholders a majority
in interest of the shares of capital stock issued and outstanding and entitled
to vote, represented by Shareholders of record in person or by proxy, shall
constitute a quorum; but a less interest may adjourn any meeting and the
meeting may be held as adjourned without further notice; provided, however,
that Directors shall not be elected at meetings so adjourned. When a quorum
is present at any meeting, a majority in interest of the voting stock
represented thereat, shall decide any question brought before such meeting,
unless the question is one upon which, by express provision of law or of the
Articles of Incorporation or of these By-Laws, a larger or different vote is
required, in which case such express provision shall govern and control the
decision of such question. The Shareholders present at a duly organized
meeting may continue to transact business until adjournment, notwithstanding
the
-2-
<PAGE>
withdrawal of enough Shareholders to leave less than a quorum.
Section 6. PROXY AND VOTING. Shareholders of record may vote at any
meeting, either in person, or by proxy in writing which shall be filed with
the Secretary of the meeting before being voted. Such proxies shall entitle
the holders thereof to vote at any adjournment of such meeting, but shall not
be valid after the final adjournment thereof. No proxy shall be valid after
the expiration of eleven months from the date of its execution unless
otherwise provided in the proxy.
Each outstanding share of stock entitled to vote shall be entitled to
one vote upon each matter submitted to vote. Cumulative voting of shares for
election of Directors shall not be permitted unless specifically authorized
in the Articles of Incorporation.
ARTICLE II
Board of Directors
Section 1. ELECTION, TENURE, AND QUALIFICATIONS. A Board of Directors
shall be chosen by ballot at the annual meeting of the Shareholders or at any
meeting held in place thereof, as provided by law. The number of Directors of
this corporation shall be five. Each Director shall serve until the next
annual meeting of the Shareholders and until his successor is duly elected
and qualified. Directors need not be residents of the State of New Mexico or
Shareholders of the corporation unless the Articles of Incorporation so
require. Directors shall be of full age, and at least one of them shall be a
citizen of the United States.
Section 2. POWERS OF DIRECTORS. The business and affairs of the
corporation shall be managed by its Board of Directors. In the management and
control of the property, business and affairs of the
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<PAGE>
corporation, the Board of Directors is hereby vested with all the powers
possessed by the corporation itself so far as this delegation of authority is
not inconsistent with the laws of the State of New Mexico, with the Articles
of Incorporation of the corporation, or with these By-Laws. The Board of
Directors shall have power to determine what constitutes net earnings,
profits and surplus respectively, what amount shall be reserved for working
capital and for any other purpose, and what amount shall be declared as
dividends, and such determination by the Board of Directors shall be final
and conclusive.
The Board of Directors shall elect and fix the compensation of the
officers of the corporation. If, however, any part or all of such
compensation shall be disallowed as a deduction from corporate income for tax
purposes, then such disallowed portion shall be repaid to the corporation by
the officers who received it.
Section 3. MEETINGS OF DIRECTORS. Regular meetings of the Board of
Directors shall be held without other notice than this by-law immediately
after, and at the same place as, the annual meeting of Shareholders, and at
such other times as the Board may by vote determine; and if so determined, no
notice thereof need be given. Special meetings of the Board of Directors may
be held at any time or place within or without the State of New Mexico
whenever called by or at the request of the President, or in his absence, the
Vice President, or any two Directors. Notice of special meetings, stating the
time and place thereof, shall be given by mailing the same to each Director
at his residence or business address at least two days before the meeting.
Any Director may waive notice of any meeting. The attendance of a Director at
a meeting shall constitute a waiver of notice of such meeting, except where a
Director attends a meeting for the express purpose of objecting to the
transaction of any business because the meeting is not lawfully called or
convened.
-4-
<PAGE>
Neither the business to be transacted at, nor the purpose of, any regular or
special meeting of the Board of Directors need be specified in the notice or
waiver of notice of such meeting.
Any action which must or may be taken at a meeting of the Directors of
the corporation may be taken without a meeting if a consent in writing,
setting out the action taken, is signed by all of the Directors; and such
consent shall have the same effect as a unanimous vote.
Section 4. QUORUM OF DIRECTORS. A majority of the number of Directors as
fixed for the time being by these By-Laws shall constitute a quorum for the
transaction of business at any meeting of the Board of Directors, but if less
than such majority is present, a majority of the Directors present may
adjourn the meeting from time to time without further notice. When a quorum
is present at any meeting, a majority of the Directors present thereat shall
decide any question brought before such meeting, except as otherwise provided
by law or by these By-Laws.
ARTICLE III
Officers
Section 1. NUMBER, ELECTION, AND TERM OF OFFICE. The officers of this
corporation shall be a President, one or more Vice-Presidents as determined
by the Board of Directors, a Secretary, and a Treasurer. The Board of
Directors in its discretion may elect a Chairman of the Board of Directors,
who, when present, shall preside at all meetings of the Board of Directors,
and who shall have such powers as the Board may prescribe. Such other
officers and assistant officers as may be deemed necessary may be elected or
appointed by the Board of Directors. Any two or more offices may be held by
the same person, except the offices of President and Secretary. Officers
shall be elected annually by the Board of Directors at its first meeting held
after each annual meeting of the
-5-
<PAGE>
Shareholders. Each officer shall hold office until his successor has been
duly elected and qualified, or until his earlier death or resignation, or
until he has been removed in the manner hereinafter provided.
Section 2. PRESIDENT. The President shall be the chief executive officer
of the corporation and, subject to control of the Board of Directors, shall
in general supervise and control all of the business and affairs of the
corporation. When present he shall preside at all meetings of the
Stockholders, and unless a chairman of the Board of Directors has been
elected and is present, he shall preside at meetings of the Board of
Directors. The President, unless some other person is specifically authorized
by vote of the Board of Directors, shall sign all certificates of stock,
bonds, deeds, mortgages, extension agreements, modification of all mortgage
agreements, leases, and contracts of the corporation. He shall perform all
the duties commonly incident to his office, and shall perform such other
duties as the Board of Directors may from time to time prescribe.
Section 3. VICE-PRESIDENT. Except as may be specially limited by vote of
the Board of Directors, the Vice-President shall perform the duties and have
the powers of the President during his absence or in the event of his death,
disability, or refusal to act, and shall have the power to sign all
certificates of stock, bonds, deeds, contracts and other corporate documents.
He shall perform such other duties and have such other powers as the Board of
Directors shall designate. If there shall be more than one Vice-President,
they shall act for the President in the order designated at the time of their
election, or if not so designated, then in the order of their election.
Section 4. SECRETARY. The Secretary shall keep accurate minutes of all
meetings of the Shareholders and the Board of Directors, and shall perform
such other duties and have such other powers as the Board
-6-
<PAGE>
of Directors shall designate. The Secretary shall, together with the
President or Vice-President, sign certificates of stock of the corporation
which have been authorized for signature, and shall attest to the signature
of the President or Vice-President on any corporate document where such
attestation is required. In his absence at any meeting a Secretary pro
tempore shall perform his duties thereat.
Section 5. TREASURER. The Treasurer, subject to the order of the
Board of Directors, shall have the care and custody of the money, funds,
valuable papers and documents of the corporation (other than his own bond,
if any, which shall be in the custody of the President), and shall have and
exercise, under the supervision of the Board of Directors, all the powers and
duties commonly incident to his office, and shall give bond in such form and
with such surety as shall be required by the Board of Directors. He shall
deposit all funds of the corporation in such banks, trust companies or other
depositories as the Directors shall designate. He may endorse for deposit or
collect on all checks and notes payable to the corporation or to its order,
and may accept drafts on behalf of the corporation. He shall keep accurate
books of account of the corporation's transactions, which shall be the
property of the corporation and, together with all corporate property in his
possession, shall be subject at all times to the inspection and control of
the Board of Directors. All checks, drafts, notes or other obligations for
the payment of money out of funds of the corporation shall be signed by such
officer or officers as the Board of Directors shall, by general or special
resolution, direct.
Section 6. ASSISTANT SECRETARIES AND ASSISTANT TREASURERS. Assistant
Secretaries may sign with the President or a Vice-President certificates for
shares of the corporation authorized for issuance by
-7-
<PAGE>
a resolution of the Board of Directors. Assistant Treasurers shall,
respectively, give bonds for the faithful discharge of their duties if and as
required by the Board of Directors. Assistant Secretaries and Assistant
Treasurers shall, in general, perform such duties as may be assigned to them
by the Secretary or the Treasurer, respectively, or by the President or the
Board of Directors.
ARTICLE IV
Resignations and Removals
Any Director or Officer of the corporation may resign at any time
by giving written notice to the corporation, to the Board of Directors, to
the Chairman of the Board, to the President or to the Secretary of the
corporation. Any such resignation shall take effect at the time specified
therein, or if the time be not specified therein, upon its acceptance by the
Board of Directors.
The Shareholders, at any meeting called expressly for the purpose,
by vote of the majority of the stock entitled to vote at an election of
Directors, may remove from office any or all Directors elected or appointed
by the Shareholders or Board of Directors, except as may be otherwise
provided by law. The Board of Directors, whenever in its judgment the best
interests of the corporation would be served thereby, may remove from office
any officer or agent elected or appointed by it, but such removal shall not
prejudice the contract rights, if any, of the person so removed.
ARTICLE V
Vacancies
Any vacancy occurring on the Board of Directors may be filled by the
affirmative vote of a majority of the remaining Directors though
-8-
<PAGE>
less than a quorum of the Board of Directors. A Director elected to fill a
vacancy shall be elected for the unexpired term of his predecessor in office.
Any directorship to be filled by reason of an increase in the number of
Directors shall be filled by election at an annual meeting or at a special
meeting of Shareholders called for that purpose.
A vacancy in any office because of the death, resignation,
removal or disqualification of any officer, or for any other reason, may be
filled by the Board of Directors for the unexpired portion of the term.
ARTICLE VI
Certificates and Transfer of Stock
Section 1. CERTIFICATES FOR SHARES. Certificates representing
shares of the corporation shall be in such form as shall be determined by the
Board of Directors. Such certificates shall be signed by the President or a
Vice-President and by the Secretary or an Assistant Secretary. All
certificates for shares shall be consecutively numbered or otherwise
identified. The name and address of the person to whom the shares
represented thereby are issued, with the number of shares and date of issue,
shall be entered on the stock transfer books of the corporation. All
certificates surrendered to the corporation for transfer shall be cancelled
and no new certificate shall be issued until the former certificate for a
like number of shares shall have been surrendered and cancelled, except that
in case of a lost, destroyed or mutilated certificate a new one may be issued
therefor upon such terms and indemnity to the corporation as the Board of
Directors may prescribe.
Section 2. TRANSFER OF SHARES. Transfer of shares of the
corporation shall be made only on the stock transfer books of the corporation
by the holder of record thereof or by his legal representative, who shall
furnish proper evidence of authority to transfer, or by his attorney
thereunto authorized by power of attorney duly executed and filed with the
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<PAGE>
Secretary of the corporation, and on surrender for cancellation of the
certificate for such shares. The person in whose name shares stand on the
books of the corporation shall be deemed by the corporation to be the owner
thereof for all purposes.
ARTICLE VII
Closing of Transfer Books or Fixing of Record Date
For the purpose of determining shareholders entitled to notice of
or to vote at any meeting of shareholders or any adjournment thereof, or
shareholders entitled to receive payment of any dividend, or in order to make
a determination of shareholders for any other proper purpose, the Board of
Directors of the corporation may provide that the stock transfer books shall
be closed for a stated period but not to exceed, in any case, fifty days. If
the stock transfer books shall be closed for the purpose of determining
shareholders entitled to notice of or to vote at a meeting of shareholders,
such books shall be closed for at least ten days immediately preceding such
meeting. In lieu of closing the stock transfer books, the Board of Directors
may fix in advance a date as the record date for any such determination of
shareholders, such date in any case to be not more than fifty days and, in
case of a meeting of shareholders, not less than ten days prior to the date
on which the particular action, requiring such determination of shareholders,
is to be taken. If the stock transfer books are not closed and no record
date is fixed for the determination of shareholders entitled to notice of or
to vote at a meeting of shareholders, or shareholders entitled to receive
payment of a dividend, the date on which notice of the meeting is mailed or
the date on which the resolution of the Board of Directors declaring such
dividend is adopted, as the case may be, shall be the record date for such
determination of shareholders. When a determination of shareholders entitled
to vote at any meeting of shareholders has been made as provided in this
section, such determination shall apply to any adjournment thereof except
where
-10-
<PAGE>
the determination has been made through the closing of the stock transfer
books and the stated period of closing has expired.
ARTICLE VIII.
Corporate Seal
The seal of this corporation shall consist of a circular die with
two concentric circles around the edge, within which will appear the name
ENERDYNE CORPORATION 1958, inscribed in the center of the seal will be
the words, Corporate Seal New Mexico.
ARTICLE IX
Fiscal Year
The fiscal year of the corporation shall begin on the first day of
June and end on the last day of the next succeeding May.
ARTICLE X
Waiver of Notice
Whenever any notice whatever is required to be given by these
By-Laws or the Articles of Incorporation of this corporation, or any of
the corporation laws of the State of New Mexico, a waiver thereof signed
by the person or persons entitled to such notice, either before or after
the time stated therein, shall be deemed equivalent to giving the
required notice.
ARTICLE XI
Amendments
The By-Laws of the corporation may be amended, altered, or
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<PAGE>
repealed, and new By-Laws may be adopted, by vote of a majority of the
Board of Directors at any regular or special meeting of the Directors,
unless such power is reserved to the shareholders by the Articles of
Incorporation.
-12-
<PAGE>
CERTIFICATE OF AMENDMENT
TO
BY-LAWS
The undersigned, being the duly elected, qualified and acting
Secretary of Enerdyne Corporation, hereby certifies that a combined
special meeting of the stockholders and directors of said corporation was
held on February 14, 1968, and at said meeting the following resolutions
were adopted amending the By-Laws of the corporation:
RESOLVED, that the first sentence of Article II of the
By-Laws of the corporation entitled "Annual Meetings" be,
and it hereby is, amended to read and provide as follows:
"The annual meeting of the stockholders of the corporation
shall be held at 10:00 o'clock in the forenoon on the
fourth Monday in August of each year if not a legal
holiday, and if a legal holiday, then at the same time on
the next succeeding Monday not a legal holiday."
RESOLVED FURTHER, that Article XXV of the By-Laws of said
corporation be, and it hereby is, revoked in its entirety,
and the following be, and it hereby is, substituted as
Article XXV of the By-Laws:
"The affairs of the corporation shall be conducted and its
books and records shall be maintained on a fiscal year
basis, which fiscal year shall commence on June 1st and
shall end on the following May 31st."
/s/ John P. Dwyer
---------------------
Secretary
VERIFICATION
STATE OF NEW MEXICO )
) ss.
COUNTY OF BERNALILLO )
I, Virgil L. Brown, a Notary Public do hereby certify that on this
15th day of February 1968, personally appeared before me JOHN P. DWYER,
who, being by me first duly sworn, declared that he is the Secretary of
Enerdyne Corporation, that he signed the foregoing document as Secretary
of the corporation, and that the statements therein contained are true.
/s/ Virgil L. Brown
-----------------------
My Commission Expires: Notary Public
June 8, 1971
<PAGE>
PROMISSORY NOTE
---------------
EFFECTIVE-DATE
SEPTEMBER 7,1999
After date, herein set forth, for 885,408 shares of Enerdyne Corporation
common stock received, Protalex, Inc., a New Mexico Corporation and its assigns,
promise to pay DON L. HANOSH at P.O. Box 502, Albuquerque, New Mexico 87103 the
sum of Three Hundred Sixty-eight Thousand Five Hundred Forty-six Dollars
($368,546.00) in the following manner: Three Hundred Sixty-eight Thousand Five
Hundred Forty-six Dollars ($368,546.00) on or before September 7,2001.
Further, the unpaid principal balance shall bear interest at a rate of nine
percent (9%) per annum with the first interest payment due on March 7, 2000 and
subsequent interest payable on the ninetieth day of each and every ninety day
period thereafter until the entire balance hereof with interest thereon, shall
he paid, and whenever an installment is paid on the unpaid principal balance, it
shall be apportioned between interest and principal, and applied firstly to the
payment of all interest due at that date of payment, and the balance applied on
the principal amount.
And, it shall be stipulated, that, in the event that Enerdyne Corporation
or Protalex, Inc. or their assigns raise funds through a private placement and
or public offering, in excess of Two Hundred Fifty Thousand Dollars
($250,000.00), during the term of this Promissory Note, 10% of the gross amount
raised must be applied as payment of the Promissory Note.
Protalex, Inc.
A New Mexico Corporation
By: /s/ John E. Doherty
-----------------------
John E. Doherty, President
1.
<PAGE>
CONTINUING AND UNCONDITIONAL GUARANTY
"CREDITOR": DON L. HANOSH
P.O. Box 502
Albuquerque, New Mexico 87103
"GUARANTOR": JOHN E. DOHERTY
1518 Cornell Dr. N.E.
Albuquerque, New Mexico 87106
"DEBTOR": PROTALEX, INC., A NEW MEXICO CORPORATION
GUARANTY. FOR VALUE RECEIVED, to induce Don L. Hanosh to make certain
financial accommodations or benefits described in the STOCK PURCHASE AGREEMENT,
entered into September 30, 1999, between Don L. Hanosh, Seller, and Protalex,
Inc., Buyer, without security, to or for the account of the Debtor, the
undersigned hereby irrevocably and unconditionally guarantees to Don L. Hanosh
the full and prompt payment when due, whether by acceleration or otherwise, of
any and all outstanding amount of the Promissory Note date effective September
7, 1999 between Don L. Hanosh, Creditor, and Protalex, Inc., Debtor. This
Guaranty is continuing and unlimited as to the amount, and is cumulative to and
does not supersede any other guaranty.
Guarantor further unconditionally guarantees that faithful, prompt and
complete compliance by the Debtor with all obligations. The undertakings of
Guarantor hereunder are independent of the liabilities and obligations of the
Debtor, whether or not an action is brought against the Debtor or to realize
upon security for the liabilities and or obligations, whether or not Debtor is
joined in any such action or actions, and whether or not notice is given or
demand is made upon Debtor.
Creditor shall not be required to proceed first against Debtor, or any
other person, or entity, whether primary or secondary liable before resorting to
Guarantor for payment, and Guarantor shall not be entitled to assert as a
defense to the enforceability of the Guaranty any defense of the Debtor with
respect to any liability or obligation.
IN WITNESS WHEREOF, the undersigned has caused this Guaranty be executed on this
7th day of October, 1999.
GUARANTOR:
/s/ John E. Doherty
---------------------------
John E. Doherty
<PAGE>
INDIVIDUAL ACKNOWLEDGMENT
State of New Mexico )
)
County of Benalillo )
This instrument was acknowledged before me on October 7, 1999, John E.
Doherty.
/s/ Nancy Lovato
---------------------
Notary Public
[Seal]
In and for the State of New Mexico
4/26/03 /s/ Nancy Lovato
- ---------------------- ---------------------
My Commission Expires Print Name of Notary
<PAGE>
CONTINUING AND UNCONDITIONAL GUARANTY
"CREDITOR": DON L. HANOSH
P.O. BOX 502
ALBUQUERQUE, NEW MEXICO 87103
"GUARANTOR": JAMES K. STRATTMAN
2925 VIA PEPITA
CARLSBAD, CALIFORNIA 92009
"DEBTOR": PROTALEX, INC., A NEW MEXICO CORPORATION
GUARANTY. FOR VALUE RECEIVED, to induce Don L. Hanosh to make
certain financial accommodations or benefits described in the STOCK PURCHASE
AGREEMENT, entered into September 30, 1999, between Don L. Hanosh, Seller,
and Protalex, Inc., Buyer, without security, to or for the account of the
Debtor, the undersigned hereby irrevocably and unconditionally guarantees to
Don L. Hanosh the full and prompt payment when due, whether by acceleration
or otherwise, of any and all outstanding amount of the Promissory Note date
effective September 7, 1999 between Don L. Hanosh, Creditor, and Protalex,
Inc., Debtor. This Guaranty is continuing and unlimited as to the amount, and
is cumulative to and does not supersede any other guaranty.
Guarantor further unconditionally guarantees that faithful, prompt
and complete compliance by the Debtor with all obligations. The undertakings
of Guarantor hereunder are independent of the liabilities and obligations of
the Debtor, whether or not an action is brought against the Debtor or to
realize upon security for the liabilities and or obligations, whether or not
Debtor is joined in any such action or actions, and whether or not notice is
given or demand is made upon Debtor.
Creditor shall not be required to proceed first against Debtor, or
any other person, or entity, whether primary or secondary liable before
resorting to Guarantor for payment, and Guarantor shall not be entitled to
assert as a defense to the enforceability of the Guaranty any defense of the
Debtor with respect to any liability or obligation.
IN WITNESS WHEREOF, the undersigned has caused this Guaranty to be executed
on this 29th day of September, 1999.
GUARANTOR:
/s/ James K. Strattman
-----------------------
James K. Strattman.
<PAGE>
INDIVIDUAL ACKNOWLEDGMENT
State of CA )
)
County of SAN DIEGO )
This instrument was acknowledged before me on 9-29, 1999, James K. Strattman
(Seal) /s/ Julie Ann Shannon
---------------------------
Notary Public
in and for the State of CA
3-31-2002 Julie Ann Shannon
- --------------------- ---------------------------
My Commission Expires Print Name of Notary
UNCONDITIONAL AND CONTINUING GUARANTY
1 PG.
[NOTARY STAMP]
<PAGE>
TECHNOLOGY LICENSE AGREEMENT
This Technology License Agreement is effective as of November 17, 1999,
by and between Alex, LLC, a New Mexico Limited Liability company, located at
1518 Cornell N.E., Albuquerque, NM 87106 ("Licensor") and Protalex, Inc. a New
Mexico corporation, located at P.O. Box 30952, Albuquerque, NM 87190
("Licensee").
RECITALS
A. Licensor is the owner of the Technology defined below.
B. Licensee desires to license the Technology pursuant to the provisions
of this Agreement.
NOW, THEREFORE, in consideration of the mutual provisions contained herein,
the receipt and sufficiency of which are hereby acknowledged, the parties agree
as follows:
ARTICLE 1
DEFINITIONS
1.1 INTELLECTUAL PROPERTY RIGHTS. The term "Intellectual Property Rights"
means all United States and worldwide trademarks, service marks, trade names,
trade dress, logos, copyrights, rights of authorship, inventions, moral rights,
patents, rights of inventorship, all applications, registrations and renewals in
connection with any of the above, database rights, trade secrets, rights of
publicity, privacy and/or defamation, rights under unfair competition and unfair
trade practices laws, and all other intellectual and industrial property rights
related there.
1.2 PERMITTED PRODUCTS. The term "Permitted Products" means a directly
injectable liquid or solution, pill, caplet, capsule, patch, or other physical
product form determined by Licensee that is derived from or incorporates the
Technology and that is solely used for the therapeutic treatment of rheumatoid
arthritis and other forms of arthritis, and no other diseases or medical or
health related problems.
1.3 PROTOCOLS. The term "Protocols" means a factual description of the
clinical drug study and of the research subjects, site and duration of the
study, exclusion and inclusion criteria for research subjects, source of
research material, purpose and background of the study which supports the
scientific value of the study, the clinical regimen (i.e., drug protocol that
includes drug and placebo administration and dosages, clinical evaluations,
statistical methods and considerations), risks and benefits, alternative
treatments, compensation to subjects, costs to subjects, consent forms,
disclosure of financial interests and other conflicts of interest, and other
related records and materials.
1.4 TECHNOLOGY. The term "Technology" means (a) the use of a specific
protein or its derivatives identified by Licensor and provided to Licensee to
treat rheumatoid arthritis and perhaps other forms of arthritis; and (b) the
submolecule or submolecules of proteins or their derivatives developed and
selected by Licensor to be used for therapeutic purposes.
ARTICLE 2
GRANT OF LICENSE
2.1 LICENSE. Subject to Licensee's performance of all of the
provisions of this Agreement, Licensor hereby grants to Licensee an exclusive,
perpetual, non-transferable, indivisible, worldwide license ("License"),
without the right to sublicense, to use or incorporate the Technology only to
develop Protocols for the Permitted Products, and to use or incorporate the
Technology to design, develop, test, market, sell and distribute the Permitted
Products, and for no other purpose. The parties agree that the exclusive nature
of the License only relates to the Permitted Products; in other words, Licensor
will not license the Technology to another party to develop Permitted
<PAGE>
Products; but Licensor has the unilateral right to license the Technology to
other parties in order to treat other diseases and/or to develop any other
products except for the Permitted Products.
2.2 RESTRICTIONS. Notwithstanding the License granted in Section
2.1, Licensee shall not directly or indirectly:
(a) Integrate or incorporate the Technology into any other
products or materials other than Permitted Products and Protocols and/or adapt,
implement or otherwise exploit the Technology to develop, create, produce, sell
or distribute any products or things other than the Permitted Products and
Protocols;
(b) Prepare, develop, make or have made, sell or otherwise
distribute any derivative works based upon the Technology;
(c) Modify, reconstruct, extract, merge, re-analyze or reverse
engineer any potions of the Technology;
(d) Grant any sublicenses or any other subsidiary uses of the
Technology; and/or
(e) Disclose, transfer or otherwise make available the
Technology to any of Licensee's employees who do not have a specific need to
know in order to perform Licensee's obligations under this Agreement, and/or to
any other third party or entity at any time.
2.3 RIGHTS RESERVED. Notwithstanding anything to the contrary
contained herein, all rights not specifically granted in this Agreement to
Licensee shall be reserved and remain always with Licensor.
2.4 DELIVERY OF TECHNOLOGY. Upon executing this Agreement, Licensor
will deliver to Licensee all necessary materials constituting the Technology.
2.5 NO WARRANTY. Licensee agrees that it licenses the Technology
"AS-IS" without any warranty of any kind from Licensor. In light of ongoing
research and development, Licensor specifically does not warrant that the
Technology will successfully or effectively treat, arrest or cure rheumatoid
arthritis or other autoimmune diseases, that the Technology will be useful in
developing Permitted Products, or that the Technology will have any desired
therapeutic efficacy. LICENSOR EXPRESSLY DISCLAIMS ALL WARRANTIES REGARDING
THE TECHNOLOGY AND/OR ANY SERVICES PROVIDED BY LICENSOR TO LICENSEE, WHETHER
EXPRESS, IMPLIED OR STATUTORY, INCLUDING WITHOUT LIMITATION ANY IMPLIED
WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE,
NON-INFRINGEMENT OF THIRD PARTY RIGHTS, OR BASED ON COURSE OF CONDUCT OR
TRADE CUSTOM OR USAGE.
ARTICLE 3
FINANCIAL ARRANGEMENTS
3.1 LICENSE FEE. In exchange for the License granted herein, Licensee
shall pay to Licensor a non-refundable license fee in the amount of Twenty
Thousand Dollars ($20,000) ("License Fee").
3.2 PAYMENT OF LICENSE FEE. Licensee shall pay the License Fee to
Licensor immediately upon executing this Agreement.
3.3 NO ROYALTIES. Except for the payment of the License Fee to Licensor,
Licensee should not be obligated to pay any royalties or any monies to Licensor
from the sale or other distribution of the Permitted Products.
<PAGE>
ARTICLE 4
PROPERTY RIGHTS
4.1 LICENSOR'S RIGHTS. Title to the Technology shall always remain with
Licensor, and Licensee shall not acquire any interest therein except the limited
right to use the same pursuant to this Agreement. The parties agree that
Licensor shall solely own and have exclusive worldwide right, title and interest
in and to the Technology, and to all modifications, enhancements and derivative
works thereof, and in all Intellectual Property Rights related thereto.
Licensee shall not challenge, contest or otherwise impair Licensor's ownership
of the Technology or the validity or enforceability of Licensor's Intellectual
Property Rights related thereto.
4.2 LICENSEE'S RIGHTS. Licensor shall not acquire any interest in the
Permitted Products or the Protocols, except that Licensor shall retain all
rights in the Technology that may be incorporated into the Permitted Products.
As between Licensor and Licensee, Licensee shall solely own and have exclusive
worldwide right, title and interest in and to the Permitted Products and the
Protocols (except the Technology incorporated therein), and to all
modifications, enhancements and derivative works of the Permitted Products and
the Protocols (except as they may relate to the Technology which shall be
retained by Licensor), and in all Intellectual Property Rights related thereto
(except for the Intellectual Property Rights related to the Technology that may
be incorporated into the Permitted Products).
4.3 USE OF LICENSOR'S NAME. Licensee shall not use any trade name,
corporate name, business name, trademark, or service mark of Licensor, or any
confusingly similar mark or name in connection with the advertising, marketing,
sale, or distribution of the Permitted Products. Licensee agrees that the
granting of the License herein shall not constitute Licensor's approval,
acquiescence, or agreement of Licensee's use of the Technology and/or its
development of the Protocols and the Permitted Products. In addition, Licensee
shall not use Licensor's name in any way with respect to any applications or
other submissions to the Federal Drug Administration ("FDA"), the Center for
Drug Evaluation and Research ("CDER"), the Office of Protection from Research
Risks ("OPRR"), any agency under the purview of the Department of Health and
Human Services ("DHHS"), or any other private or governmental entities without
Licensor's prior written consent.
4.4 CONFIDENTIALITY. Licensee agrees that during the performance of this
Agreement, Licensor may disclose to Licensee confidential information regarding
its business, including without limitation the Technology, other documentation,
know-how, inventions, formulae, designs, research and development activities and
other proprietary information which constitutes trade secrets of Licensor
(collectively "Confidential Information"). Licensee shall not in any way
disclose, copy, modify, distribute or otherwise transfer Licensor's Confidential
Information, or any part thereof, to any other person or entity at any time.
Licensee has the right to disclose the Confidential Information only to its
employees who have a specific need to know in order to perform Licensee's
obligations hereunder, but Licensee shall be responsible for all of its
employees' actions. Licensee shall use Licensor's Confidential Information only
to properly fulfill its obligations hereunder, and not for any other purpose.
Licensor does not represent that the Confidential Information it may disclose
hereunder will meet the requirements of Licensee or that the Confidential
Information when combined with other information or when used in a particular
way by Licensee will be sufficient or suitable for Licensee's purpose. Upon
Licensor's request, Licensee shall immediately return to Licensor the originals
and all copies of any Confidential Information, whether on magnetic media,
written materials or otherwise.
4.5 ENFORCEMENT. Both parties agree that Licensor will be irreparably
harmed and money damages would be inadequate compensation to Licensor in the
event Licensee breaches any provision of this Agreement. Accordingly, all of
the provisions of this Agreement shall be specifically enforceable by injunctive
and other relief against Licensee, in addition to any other remedies available
to Licensor, for Licensee's breach of any provision of this Agreement.
<PAGE>
4.6 PROPRIETARY NOTICES. Licensee shall not remove, alter or render
illegible any patent or other proprietary notices of Licensor that are included
in any of the materials regarding the Technology that Licensor provides to
Licensee. Additionally, upon Licensor's request, Licensee shall affix to the
Permitted Products and to the product packaging, labels, containers, advertising
and promotional materials regarding the Permitted Products, any appropriate
patent notices or any proprietary markings specified by Licensor.
4.7 PATENTS. It is anticipated by the parties that Licensor will file one
or more patent applications covering the Technology. At this time, however, the
parties are not aware of whether Licensor will be issued a patent for the use of
the Technology solely to treat arthritis. If Licensor is ultimately issued any
patents that deal exclusively with the use of the Technology for arthritis, then
Licensor agrees to amend this Agreement to grant to Licensee an exclusive
license under such limited patent(s). On the other hand, if Licensor is issued
a patent or patents covering use of the Technology for arthritis and other
diseases or applications, Licensor agrees that it will not enforce any of its
rights under such patents against Licensee provided that Licensee complies with
all of the provisions of this Agreement, and Licensor agrees that it will not
assign such patents to any third party unless such third party similarly agrees
not to enforce any of the rights under such patents against Licensee, provided
that Licensee complies with all of the provisions hereunder.
4.8 INFRINGEMENT. Licensee agrees to notify Licensor of any conduct or
actions on the part of third parties which it deems to be an infringement or
other violation of the Technology. In such event, Licensor shall have the right
to bring an action for infringement or other appropriate action with respect
thereto. Licensor shall exclusively control the prosecution or settlement of
any such action, and shall bring such action in the name of Licensor only or in
the name of both Licensor and Licensee at Licensor's option. Licensee agrees,
at Licensor's expense, to fully cooperate with Licensor in any such action and
provide Licensor with all information and assistance reasonably requested by
Licensor.
ARTICLE 5
ADDITIONAL COVENANTS
5.1 TECHNICAL SUPPORT. Licensor may from time to time provide technical
support or other services to Licensee regarding the use of the Technology,
development of the Protocols or Permitted Products, submissions to the FDA or
other governmental entities, clinical testing and trials, or other matters.
Licensee shall, at its expense, be solely responsible for filing and obtaining
Investigational New Drug (IND) Applications and New Drug Applications ("NDA"),
for conducting clinical trials and testing, and for developing the Protocols and
Permitted Products.
5.2 INSPECTION. Licensee agrees to allow Licensor or its authorized
representatives at reasonable times with reasonable advance notice to enter the
premises of Licensee, or any premise where the Technology is being used, in
order to inspect Licensee's use of the Technology and compliance with all of the
provisions of this Agreement.
5.3 COMPLIANCE WITH LAWS. Licensee agrees that the Technology will be
used and the Protocols and Permitted Products will be developed and produced in
accordance with all applicable laws and regulations and in compliance with any
regulatory or governmental agency that has jurisdiction over such matters.
Licensee also agrees that it will not export or reexport any of the Technology
or Licensor's Confidential Information to any country or territory that is
prohibited from receiving such materials under any applicable laws of the United
States, including without limitation the United States export laws and
regulations. With respect to Licensee's employees to whom it is permitted to
disclose the Technology, Licensee will disclose the Technology only to United
States citizens or persons lawfully admitted for permanent residence so that
such disclosure will not constitute an export.
<PAGE>
ARTICLE 6
ALLOCATION OF LIABILITIES
6.1 LICENSOR'S INDEMNITY. Licensor shall indemnify, defend and hold
harmless Licensee, its officers, directors, shareholders, employees, attorneys,
accountants, parent and affiliate entities, agents and representatives against
all damages, claims, liabilities, losses and other expenses, including without
limitation reasonable attorney's fees and costs, whether or not a lawsuit or
other proceeding is filed, that in any way arise out of or relate to (a) any
dispute or claim that the Technology infringes upon or violates any third
party's Intellectual Property Rights under the laws of any country, (b) the
negligent or willful acts or omissions of Licensor, and/or (c) Licensor's breach
of any provision of this Agreement. Licensor shall have exclusive control over
the settlement or defense of such claims or actions; provided, however, if
Licensee determines that there would be a conflict of interest by Licensor's
representation or such representation would otherwise adversely affect Licensee,
Licensee has the right, at its expense, to participate and defend itself in such
actions. Licensee shall give Licensor, at Licensor's expense, all information
and assistance reasonably requested by Licensor to settle or defend such claims
or actions. Licensor shall be entitled to retain all monetary proceeds,
attorney's fees, costs and other rewards it receives as a result of defending or
settling such claims. In the event Licensor fails to promptly indemnify and
defend such claims and/or pay Licensee's expenses, as provided above, Licensee
shall have the right to defend itself, and in that case, Licensor shall
reimburse Licensee for all of its reasonable attorney's fees, costs and damages
incurred in settling or defending such claims within thirty (30) days of each of
Licensee's written requests. This Section 6.1 constitutes Licensor's exclusive
liability for infringement or violation of any third party's Intellectual
Property Rights.
6.2 LICENSEE'S INDEMNITY. Licensee shall indemnify, defend and hold
harmless Licensor, its members, managers, officers, directors, employees,
attorneys, accountants, parent and affiliate entities, agents and
representatives against all damages, claims, liabilities, losses and other
expenses, including without limitation reasonable attorney's fees and costs,
whether or not a lawsuit or other proceeding is filed, that in any way arise out
of or relate to (a) any dispute or claim that the Protocols, Permitted Products
and/or Licensee's use of the Technology infringe upon or violate any third
party's Intellectual Property Rights under the laws of any country, (b) the
development, manufacture, testing, promotion, sale, license or other
distribution of the Permitted Products, (c) Licensee's INDs, NDAs or other
submissions to or actions before the FDA or any other governmental agencies, (d)
Licensee's clinical testing and trials, (e) the negligent or willful acts or
omissions of Licensee, and/or (f) Licensee's breach of any provision of this
Agreement. Licensee shall have exclusive control over the settlement or defense
of such claims or actions; provided, however, if Licensor determines that there
would be a conflict of interest by Licensee's representation or such
representation would otherwise adversely affect Licensor, Licensor has the
right, at its expense, to participate and defend itself in such actions.
Licensor shall give Licensee, at Licensee's expense, all information and
assistance reasonably requested by Licensee to settle or defend such claims or
actions. Licensee shall be entitled to retain all monetary proceeds, attorney's
fees, costs and other rewards it receives as a result of defending or settling
such claims. In the event Licensee fails to promptly indemnify and defend such
claims and/or pay Licensor's expenses, as provided above, Licensor shall have
the right to defend itself, and in that case, Licensee shall reimburse Licensor
for all of its reasonable attorney's fees, costs and damages incurred in
settling or defending such claims within thirty (30) days of each of Licensor's
written requests. This Section 6.2 constitutes Licensee's exclusive liability
for infringement or violation of any third party's Intellectual Property Rights.
6.3 LIMITATION OF LIABILITY. EXCEPT FOR EITHER PARTY'S VIOLATION OF THE
OTHER PARTY'S INTELLECTUAL PROPERTY RIGHTS, AND EXCEPT FOR EACH PARTY'S
INDEMNITY OBLIGATIONS UNDER THIS ARTICLE 6, NEITHER PARTY SHALL BE LIABLE FOR
ANY INDIRECT, SPECIAL, INCIDENTAL, CONSEQUENTIAL OR EXEMPLARY DAMAGES, WHETHER
FORESEEABLE OR NOT, THAT ARE IN ANY WAY RELATED TO THIS AGREEMENT, THE BREACH
THEREOF, THE USE OR INABILITY TO USE THE TECHNOLOGY, THE RESULTS GENERATED FROM
THE USE OF THE TECHNOLOGY, THE PROTOCOLS OR PERMITTED PRODUCTS, LOSS OF
GOODWILL OR PROFITS, LOST BUSINESS HOWEVER CHARACTERIZED AND/OR FROM ANY OTHER
CAUSE WHATSOEVER. THE PARTIES FURTHER AGREE THAT EACH AND EVERY PROVISION OF
THIS AGREEMENT THAT PROVIDES FOR A LIMITATION OF LIABILITY, DISCLAIMER OF
WARRANTIES OR EXCLUSION OF DAMAGES IS EXPRESSLY INTENDED TO BE SEVERABLE AND
INDEPENDENT OF ANY OTHER
<PAGE>
PROVISION SINCE THOSE PROVISIONS REPRESENT SEPARATE ELEMENTS OF RISK
ALLOCATION BETWEEN THE PARTIES AND SHALL BE SEPARATELY ENFORCED.
ARTICLE 7
TERMINATION
7.1 TERMINATION. Either party shall be entitled to terminate this
Agreement on thirty (30) days' prior written notice to the other party in the
event the other party breaches any of the material obligations on its part to be
performed hereunder and fails to cure such breach within thirty (30) days of
receiving written notice of such breach. In addition, the breach of Sections
2.1, 2.2, 4.1 and 4.2 shall be deemed non-curable and the non-breaching party
then has the right to immediately terminate this Agreement. The provisions of
Sections 2.2, 2.3, 2.5, 4.1, 4.2, 4.3, 4.4, 4.5 Articles 6, 7 and 8 shall
survive the termination of this Agreement.
7.2 CESSATION OF USE. Upon termination of this Agreement: (a) the License
to use the Technology shall automatically revert to Licensor, and Licensee shall
thereafter immediately stop using the Technology in any way; (b) Licensee shall
not further incorporate the Technology in the Permitted Products and/or produce,
sell or distribute the Permitted Products; (c) Licensee shall return to Licensor
all Confidential Information previously disclosed to Licensee; and (d) Licensee
shall remain liable for all of its obligations hereunder that accrued prior to
the date of termination.
7.3 CUMULATIVE REMEDIES. All rights and remedies conferred herein shall
be cumulative and in addition to all of the rights and remedies available to
each party at law, equity or otherwise.
ARTICLE 8
GENERAL PROVISIONS
8.1 RELATIONSHIP OF PARTIES. The relationship between the parties is only
that of a licensor and licensee. Neither party is the agent or legal
representative of the other party, and neither party has the right or authority
to bind the other party in any way. This Agreement creates no relationship as
partners or a joint venture, and creates no pooling arrangement.
8.2 GOVERNING LAW AND VENUE. This Agreement shall be interpreted and
enforced according to the laws of the State of New Mexico, without application
of its conflicts or choice of law rules. This Agreement shall be deemed to be
performed in Albuquerque, New Mexico. Both parties irrevocably submit to the
jurisdiction of the state or federal courts located in Albuquerque, New Mexico
for any action or proceeding regarding this Agreement, and both parties waive
any right to object to the jurisdiction or venue of the courts in Albuquerque,
New Mexico.
8.3 ASSIGNMENT. Licensee acknowledges that the favorable terms of this
Agreement were granted to Licensee only because of Licensee's experience, and
that the substitution of any party by Licensee would destroy the intent of the
parties. Accordingly, Licensee shall have no right to assign, delegate,
transfer or otherwise encumber this Agreement or any portion thereof without
Licensor's prior written consent which can be arbitrarily withheld. In
addition, Licensor shall not transfer, sell or otherwise dispose of the
Technology to a third party unless it concurrently transfers this Agreement and
such third party or transferee agrees to be bound by this Agreement.
8.4 COUNTERPARTS. This Agreement may be executed in several counterparts
that together shall be originals and constitute one and the same instrument.
8.5 WAIVER. The failure of either party to enforce any of its rights
hereunder or at law shall not be deemed a waiver or a continuing waiver of any
of its rights or remedies against the other party, unless such failure or waiver
is in writing.
<PAGE>
8.6 SEVERABILITY. If any provision, or part thereof, of this Agreement is
judicially declared invalid, void or unenforceable, each and every other
provision, or part thereof, nevertheless shall continue in full force and
effect, and the unenforceable provision shall be changed or interpreted so as
best to accomplish the objectives and intent of such provision within the limits
of applicable law.
8.7 ATTORNEY'S FEES. In the event a dispute arises regarding this
Agreement, the prevailing party shall be entitled to its reasonable attorney's
fees and expenses incurred in addition to any other relief to which it is
entitled.
8.8 NOTICE. All notices, requests or other communications under this
Agreement shall be in writing, and shall be sent to the parties at their
addresses listed on page 1 above, and shall be deemed to have been duly given on
the date of service if sent by facsimile (provided a hard copy is sent in one of
the manners specified below), or on the day following service if sent by
overnight air courier service with next day delivery with written confirmation
of delivery, or five (5) days after mailing if sent by first class, registered
or certified mail, return receipt requested. Each party is required to notify
the other party in the above manner of any change of address or project manager.
8.9 FURTHER ASSURANCES. Both parties agree to execute such additional
documents and perform such acts as are reasonably necessary to effectuate the
intent of this Agreement.
8.10 ENTIRE AGREEMENT. This Agreement constitutes the entire agreement
between the parties regarding the subject matter hereof, and supersedes all
prior or contemporaneous understandings or agreements, whether oral or written
regarding the subject matter hereof. This Agreement shall be modified or
amended only by a writing signed by both Licensor and Licensee.
8.11 RECITALS. The parties agree that each and every recital of this
Agreement shall be a covenant and agreement as well as a recital of this
Agreement.
8.12 AUTHORITY. The parties executing this Agreement on behalf of Licensor
and Licensee represent and warrant that they have the authority from their
respective governing bodies to enter into this Agreement and to bind their
respective companies to all the terms and conditions of this Agreement.
8.13 CAPTIONS. The captions of the Articles and Sections in this Agreement
are for convenience only and shall not be used to interpret the provisions of
this Agreement.
8.14 REPRESENTATION. Licensor and Licensee acknowledge that both
parties have requested the law firm of Luce, Forward, Hamilton and Scripps to
represent both of their interests with respect to this License Agreement and
the related transactions between them. Accordingly, each party acknowledges
that as a result of such joint representation, a potential or actual conflict
of interest exists or may arise regarding Luce, Forward's representation of
both parties. Each party further acknowledges and agrees that each has been
recommended by Luce, Forward to seek the advice of independent counsel
regarding this Agreement and the related transactions between the parties,
and that each party has had more than sufficient opportunity to seek the
advice of such independent counsel. Nevertheless, each party reiterates that
each has specifically requested Luce, Forward to represent both of their
interests with respect to this Agreement and the related transactions, and to
continue to represent their respective interests in the future. As a result,
Licensor and Licensee each irrevocably waive any potential or actual conflict
of interest that may arise as a result of Luce, Forward's common
representation as discussed above for any and all purposes and for all time.
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first written above.
LICENSOR LICENSEE
ALEX, LLC, a New Mexico Limited PROTALEX, INC., a New Mexico
Liability company corporation
By: /s/ Paul L. Mann By: /s/ John E. Doherty
------------------------------- -------------------------------
Name: Paul L. Mann Name: John E. Doherty
----------------------- -----------------------
Title: Managing Member Title: President
---------------------- ----------------------
<PAGE>
CONFIDENTIAL DISCLOSURE AGREEMENT
RECIPIENT:___________________________________________________
EFFECTIVE DATE:______________________________________________
This Confidential Disclosure Agreement (the AAgreement") is entered into between
Recipient and Protalex, Inc. ("Discloser"), and is made with respect to the
following recitals and agreements:
A. Recipient desires to examine engineering and technical data and
information, knowhow, patentable and unpatentable inventions, and
trade secrets and confidential information (the "Confidential
Information") relating to the business of Discloser in order to
further a potential or existing business relationship with Discloser.
B. Discloser is willing to disclose to Recipient the Confidential
Information on the terms and conditions set forth in this Agreement.
THEREFORE, in consideration of Discloser disclosing the Confidential Information
to Recipient, Recipient agrees as follows:
I . Recipient agrees that disclosure by Discloser of the Confidential
Information is made in confidence and that:
a. Recipient will make all reasonable efforts to maintain the
Confidential Information as confidential and secret. Recipient agrees
to use the same degree of care to avoid unauthorized disclosure, use,
or publication of the Confidential Information as it employs with
respect to its own confidential information.
b. Recipient may disclose the Confidential Information to its own
employees or agents to whom disclosure is reasonably necessary to
further Recipient's business relationship with Discloser. Recipient
agrees that it will take appropriate action (by instructions,
agreement, or otherwise) with such employees and agents in order to
satisfy Recipient's obligations under this Agreement with respect to
use, copying, protection and security of the Confidential Information.
c. Recipient will not disclose the Confidential information to any entity
outside of Recipient without the prior written consent of Discloser,
and without first obtaining from each such entity a confidentiality
agreement approved by Discloser.
d. Recipient agrees to use the Confidential Information only in
furtherance of its business relationship with Discloser.
e. Recipient will not otherwise use or dispose of the Confidential
Information except with the prior written consent of Discloser.
Discloser's consent may be withheld for any reason or no reason, and
may be granted upon such terms as Discloser may establish from time to
time.
<PAGE>
f. Upon the termination of the business relationship between Recipient
and Discloser, or at Discloser's request, Recipient shall return to
Discloser all materials (including copies) comprising or including the
Confidential Information and given to or in possession or control of
Recipient.
g. The Confidential Information is provided to the Recipient on an "AS
IS" basis and Discloser makes no warranties, express or implied,
regarding the accuracy, use, or functionality of the Confidential
Information. The warranties of merchantability and fitness for
particular purpose or use are expressly disclaimed.
2. This Agreement is binding upon Recipient and on Recipient's directors,
employees, and agents for 2 years from the date of its signing by
Recipient. However, the obligations assumed by Recipient under this
Agreement shall not extend to any portion of the Confidential Information
which (a) is already known to Recipient as shown by pre-existing
documentation: (b) is or becomes publicly known through no wrongful act of
Recipient; (c) is disclosed to Recipient by a third person not in
violation of any obligation of nondisclosure owed to Discloser- (d) is
approved for release by written authorization of Discloser; or (e) is
developed independently by Recipient.
3. Recipient and Discloser agree that the validity, construction, and
performance of this Agreement is governed by the laws of New Mexico, and
that suit may be brought only in New Mexico to enforce the terms of this
Agreement.
AGREED:
(Recipient)
- ----------------------------- -------------------------------
By: Protalex, Inc., Managing Member
2
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF PROTALEX, INC. AND SUBSIDIARY FOR THE PERIOD FROM
INCEPTION (SEPTEMBER 17, 1999) THROUGH OCTOBER 31, 1999 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 2-MOS
<FISCAL-YEAR-END> MAY-31-2000
<PERIOD-END> OCT-31-1999
<CASH> 23,531
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 30,135
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 170,590
<CURRENT-LIABILITIES> 57,556
<BONDS> 0
0
0
<COMMON> 25,300
<OTHER-SE> (332,812)
<TOTAL-LIABILITY-AND-EQUITY> 170,590
<SALES> 0
<TOTAL-REVENUES> 1,608
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 32,420
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,998
<INCOME-PRETAX> (30,812)
<INCOME-TAX> (30,812)
<INCOME-CONTINUING> (30,812)
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