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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 (NO FEE REQUIRED)
For The Fiscal Year Ended December 31, 1998.
[x] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
FOR THE TRANSITION PERIOD FROM __________________ TO __________________.
Commission File No. 0-14691
SENETEK PLC
(Exact Name of registrant as specified in its charter)
ENGLAND 77-0039728
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
23 PALACE STREET SW1E 5HW
LONDON, UNITED KINGDOM (Zip code)
(Address of principal executive offices)
Registrant's telephone number, including area code: (011) 44-171-828-4800
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: None
AMERICAN DEPOSITARY SHARES
(each American Depositary Share represents
1 Ordinary Share, pound sterling0.05 par value)
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES [X] NO [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K ( ).
As of April 14, 1999, the Registrant had 57,332,516 Ordinary Shares outstanding,
including 56,958,168 represented by American Depositary Shares. The aggregate
market value of voting stock held by non-affiliates of the Registrant as of
April 14, 1999 was $89,219,622 based on the average bid and asked prices as
quoted on the Nasdaq Stock Market. This sum excludes shares held by directors,
officers and stockholders whose ownership exceeded 5% of the outstanding shares
at April 14, 1999, in that such persons may be deemed affiliates of the
Registrant. This calculation does not reflect a determination that certain
persons are affiliates of the Registrant for any other purposes.
DOCUMENTS INCORPORATED BY REFERENCE
Part III of this Report on Form 10-K incorporates information by reference from
the Registrant's definitive Proxy Statement for its 1999 Annual Meeting of
Shareholders, to be held on July 27, 1999.
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INDEX
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PART I
Item 1. Business 1
Item 2. Properties 9
Item 3. Legal Proceedings 10
Item 4. Submission of Matters to a Vote of Security Holders 10
PART II
Item 5. Market for Registrant's Common Equity and Related 11
Stockholder Matters
Item 6. Selected Financial Data 18
Item 7. Management's Discussion and Analysis of Financial 19
Condition and Results of Operations
Item 7A. Quantitative and Qualitative Disclosures About Market Risk 27
Item 8. Financial Statements and Supplementary Data 27
Item 9. Changes in and Disagreements with Accountants on 27
Accounting and Financial Disclosure
PART III
Item 10. Directors and Executive Officers or the Registrant 28
Item 11. Executive Compensation 28
Item 12 Security Ownership of Certain Beneficial Owners and Management 28
Item 13. Certain Relationships and Related Transactions 28
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K 29
Signatures and Power of Attorney 32
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PART I
The information set forth below includes "forward-looking statements" within the
meaning of the Private Securities Litigation Reform Act of 1995. These
forward-looking statements include, but are not limited to, statements about our
plans, objectives, expectations, intentions and assumptions and other statements
that are not historical facts. Because these forward-looking statements involve
risks and uncertainties, including but not limited to our ability to obtain
regulatory approvals for our products and market acceptance of our products.
Actual results may differ materially from those expressed or implied by these
forward-looking statements.
ITEM 1--BUSINESS
OVERVIEW
Senetek PLC is a science-driven biotechnology company that develops,
manufactures and markets proprietary products for the enhancement of quality of
life, primarily products for the diagnosis and treatment of aging-related
healthcare problems. Our business divisions include biopharmaceuticals, drug
delivery and skincare. In connection with product development activities, we
sponsor research in the life sciences and biotechnology fields.
Senetek PLC is a public limited company that was registered in England in 1983
(registration number 1759068). We have two wholly owned subsidiaries, Senetek
Drug Delivery Technologies Inc. and Carme Cosmeceutical Sciences Inc., both of
which are Delaware corporations. In January 1998, we completed the relocation of
our Novato, California research facility, our St. Louis, Missouri automatic
injector manufacturing facility and our New York corporate office to a single
U.S. headquarters facility in Napa, California.
PRODUCT RESEARCH AND DEVELOPMENT
Biopharmaceuticals
Invicorp(TM). We estimate that 100 million men worldwide suffer from some source
of male erectile dysfunction. Our Invicorp product uses our patented
self-administered automatic injector syringe, Reliaject(TM), to deliver a
combination therapy of two specific drugs, vasoactive intestinal polypeptide and
phentolamine mesylate, for the treatment of male erectile dysfunction. Phase III
clinical trials for Invicorp are now complete. In clinical trials, more than 80%
of patients responded successfully to treatment with Invicorp. Of these
patients, 60% had withdrawn from previous treatment with alternative erectile
dysfunction therapies. Invicorp was approved for marketing in Denmark in July
1998. In March 1999, the United Kingdom's Committee on Safety of Medicines
informed us that it was prepared to advise the United Kingdom's licensing
authority to grant a marketing authorization for Invicorp upon our compliance
with specified conditions. We are currently in the process of complying with
these conditions and do not foresee any obstacles to obtaining a final marketing
authorization for Invicorp in the United Kingdom. We are awaiting approval of
marketing authorization applications for Invicorp in The Republic of Ireland,
Switzerland, New Zealand and South Africa. Invicorp has received Investigational
New Drug approval from the U.S. FDA. We plan to file a New Drug Application for
Invicorp with the FDA as soon as possible.
Adrenaject(TM). Adrenaject uses our Reliaject automatic injector syringe to
deliver a self-injectable formulation of epinephrine, an emergency antidote for
anaphylactic shock. Anaphylactic shock is a life
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threatening condition triggered by a severe allergic reaction to insect stings,
insect bites and certain foods. In 1998, we filed an Abbreviated New Drug
Application with the U.S. FDA for the Adrenaject. In October 1998, we entered
into an agreement with ICN Pharmaceuticals Inc. in which we granted to ICN the
worldwide rights to market and sell Adrenaject upon receipt of necessary
regulatory approvals. Pursuant to the agreement, ICN has committed to purchase
an initial quantity of Adrenaject valued at $1.5 million and will pay licensing
fees of up to $3 million upon achievement of certain milestones. We are also
developing a pediatric formulation of epinephrine for the Reliaject, for which
we plan to file an Abbreviated New Drug Application with the U.S. FDA as soon as
possible.
Monoclonal Antibodies. We market monoclonal antibodies to the scientific
community for research on Alzheimer's disease under an exclusive agreement with
the Research Foundation for Mental Hygiene. Our customers include Glaxo, Pfizer,
Wyeth Ayerst, Amgen, Pharmacia UpJohn, Eli Lilly and Genentech.
Drug Delivery
Reliaject(TM). Reliaject is a compact, disposable, fully automatic, pre-filled
self-injection system. Reliaject is equipped with an ultra-fine gauge needle for
virtually pain-free use and uses a dental cartridge to hold the drug to be
injected. The needle is not visible to the user during use. Reliaject is
convenient to transport and can be used discreetly. In addition to Invicorp,
upon receipt of necessary regulatory approvals, Reliaject may be used in
therapies for anemia, anti-cancer, migraine and pain management. Reliaject also
may have military and civil defense applications. We are currently investigating
these and other applications for our Reliaject syringe.
Skincare and Beauty Products
Kinetin. We manufacture and distribute a range of health and beauty products,
particularly skin care products with anti-aging ingredients. Some of our
products contain Kinetin (N6-furfuryladenine), a patented plant growth factor
that retards aging of plants and delays age-related changes in cultured human
skin cells. In clinical studies conducted over the past two years at the
University of California, Irvine, Kinetin showed a good-to-excellent response in
the majority of patients in partially reversing the clinical signs of
photodamaged skin and in restoring normal skin barrier function. In contrast to
other anti-aging products such as retinoids and alpha-hydroxy acids, Kinetin did
not produce any clinical signs or subjective symptoms of irritation.
We currently market a line of skincare products that incorporates our patented
Kinetin compound. In July 1998, we granted to Osmotics Corporation an exclusive
license to supply other Kinetin-based products to the high-end prestige market,
including department stores. The Osmotics license agreement provides for
performance-based minimum guaranteed payments over a ten-year period. In October
1998, we granted to ICN Pharmaceuticals Inc. an exclusive license to supply
Kinetin-based products to the North American ethical skin care market, which
includes dermatologists and cosmetic surgeons. The ICN license agreement
includes a supply guarantee, royalty on net sales and minimum purchase
guarantee. In addition, ICN agreed to spend at least $3.5 million for
advertising and promotional activities for Kinetin-based products in the first
year of the agreement.
Zeatin. We hold patents for anti-aging on a promising new cytokinin, Zeatin. We
have formulated a plan for development of Zeatin in 1999.
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Other Products. Our other products are designed to meet specific niche segments
of the market. These include Sleepy Hollow Botanicals and Biotene H-24. We also
have two specialty mass market lines: Silver Fox, a product for gray hair, and
Allercreme, a hypoallergenic range of skincare products for sensitive skin,
developed in conjunction with dermatologists.
Research and Development
We sponsor research in the life sciences and biotechnology fields, with
particular emphasis on research relating to the diagnosis and treatment of
healthcare problems related to aging. We develop and market biopharmaceutical
and skincare products based upon the results of this research.
A significant proportion of our historic and current operating expenses have
related to our clinical research agreements with consultants, clinicians and
research scientists. Under these agreements, we fund agreed-upon programs of the
consultants', clinicians' or research scientists' work and retain exclusive
rights to manufacture and market worldwide any products arising from this
research. Currently, none of our products have reached the marketing stage
except for our Mill Creek line of products, which incorporates our patented
Kinetin compound, other products incorporating Kinetin (sold by Osmotics
Corporation and ICN Pharmaceuticals Inc. under license agreements with us) and
monoclonal antibodies. If other products arise from research that we fund,
certain researchers will become entitled to royalties under the terms of their
agreements with us.
Typically, our research agreements oblige us to fund research in amounts to be
determined between the parties. The researchers are responsible for filing
progress reports with us. We work with these researchers and with specialized
consultants on matters such as product formulation, stability, clinical trials
and regulatory matters. In addition, our corporate research laboratory in St.
Louis, Missouri investigates the therapeutic viability of potential new products
and supports analytical measurement processes in Phase II and III clinical
trials. We also operate a development center in Kettering, United Kingdom. Our
Kettering facility is responsible for monitoring Phase III clinical trials in
the United Kingdom and Europe, European product licensing applications and
European regulatory approvals.
Our research and development expenditures amounted to $7,980,000, $5,026,000 and
$2,187,000 for 1998, 1997 and 1996, respectively. For more information see Item
7 - "Management's Discussion and Analysis of Financial Condition and Results of
Operations."
MANUFACTURING AND MARKETING
General
In the case of any emerging products, we anticipate that manufacturing and
marketing activities may be arranged through co-development and marketing
agreements with companies which have already established a majority presence in
specialized fields. In this event, any revenues will arise primarily through
third party distribution or licensing arrangements or co-ventures whereby we
will seek to receive a percentage of sales, license fees and/or milestone
payments in consideration for our grant of specified marketing rights to our
products, or by profit participation through third party equity investments or
joint ventures.
Reliaject
We anticipate completing the installation of required machinery for the
manufacture of needle case assemblies and assembly of other components for
Reliaject during the second quarter of 1999.
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We have entered into two agreements with manufacturers, each of whom will supply
an important component of the Reliaject drug delivery device. We will provide
these Reliaject components to specialized contract manufacturers in Europe and
North America who will assemble Reliaject and fill the syringe with compounds
such as the Invicorp and epinephrine formulations, perform final assembly and
complete pack preparation prior to distribution.
Invicorp
The active materials, vasoactive intestinal polypeptide and phentolamine
mesylate, for the Invicorp are currently available in commercial quantities from
two suppliers. These suppliers have developed synthetic methods which are
included in the product licensing applications. We rely on these specialized
suppliers for continued supply of materials.
Skincare
We outsource the manufacture, filling and labeling of our skincare and health
and beauty products. We have granted licenses to manufacture our Mill Creek line
of skincare products in South Africa and the United Kingdom. The majority of our
skincare and health and beauty products are sold within the North American Free
Trade Area ("NAFTA") through our marketing organization covering two main
sectors, natural products and specialty mass markets. We have signed
distribution agreements for distribution within the U.S. and abroad. We do not
significantly rely on any main or specialized suppliers for our skincare and
health and beauty products, and we do not anticipate that problems will arise
over access to raw materials that are generally available and that will be
required for our contract manufacturing processes.
Monoclonal Antibodies
In accordance with an agreement entered into with the Research Foundation for
Mental Hygiene Inc., we have been granted the exclusive right to certain of the
Foundation's cell lines capable of producing certain monoclonal antibodies,
including those applicable to Alzheimer's disease. We continue to sell these
antibodies, which are sourced from outside suppliers, to the scientific
community for research purposes in consideration for a royalty entitlement in
favor of the Foundation. We rely on the sourcing of the monoclonal antibodies
from a specific biotech organization at the present time.
COMPETITION
General
The biomedical, drug delivery, biopharmaceutical and pharmaceutical industries
are highly competitive. Our business and research efforts compete with drug
discovery programs at biotechnology, drug delivery, biopharmaceutical and
pharmaceutical companies, as well as with internal drug discovery efforts of
pharmaceutical companies acting independently or in collaboration with other
companies. In addition, academic institutions, government agencies throughout
the world and public and private organizations conducting research may seek
intellectual property protection, discover competing products, or establish
collaborative arrangements in our area of research and development.
The vast majority of our existing or potential competitors have substantially
greater financial, technical and human resources and name recognition than we
do. These competitors are often better equipped to research, develop, patent,
conduct pre-clinical testing and human clinical trials, manufacture, and market
products. In addition, many of these companies have extensive experience in
pre-clinical testing and
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human clinical trials. These companies may develop, license or acquire products
that compete with our products. The timing of the market introduction of our and
our competitors' products will be important competitive factors. Accordingly,
the relative speed with which we can develop products and technologies, complete
pre-clinical testing, conduct human clinical trials, initiate the necessary
regulatory approval processes, and supply commercial quantities of the products
to the market will be critical to our success.
We cannot predict the extent to which any of the products we are currently
developing may become commercially viable. Once products have been approved for
sale, we believe that competition will be based, among other things, on product
efficacy, product safety, product reliability, price and patent position. Our
competitive position also depends upon our ability to attract and retain
qualified and experienced personnel to develop proprietary products, processes
or technologies that we can market and sell and the degree of intellectual
property protection obtainable for those products. We expect competition to
intensify in all fields in which we are involved as new products in these areas
are developed and become more widely known. Moreover, the patent situation in
this field is complex, and the protection afforded by patents in any particular
jurisdiction may be limited.
Invicorp
Our management is presently discussing the possibility of entering into
licensing arrangements with major pharmaceutical companies, assuming that a
marketing authorization approval is granted by the United Kingdom's regulatory
agency, the MCA, for Invicorp during the second quarter of 1999. Certain
products that compete with Invicorp have been or are being developed by our
competitors, including Pfizer ("Viagra"), Pharmacia & Upjohn ("Caverject") and
Vivus ("Muse"). Although our management believes that there will be a
substantial demand for Invicorp, we cannot assure that Invicorp or future
products will obtain necessary regulatory approvals or that we will be able to
successfully market these products.
Reliaject
There are already a number of syringes on the market. In particular, products
developed by two of our competitors are being used extensively, mainly in the
U.S. For regulatory approval purposes, auto-injector devices must be identified
with the medicinal compound which they are designed to deliver.
Based upon extensive clinical trials conducted in the United Kingdom in which
the Reliaject device was used for the delivery of Invicorp, we believe that
Reliaject, which can, after instruction, be used by patients without medical
supervision, is capable of competing successfully with products currently on the
market.
Skincare and Beauty Products
The vast health and beauty care market is dominated by large multi-national
organizations, who have far greater resources and market exposure than we do.
Our products are designed to meet specific niche segments of the market. Our
products include the Mill Creek line, Sleepy Hollow Botanicals and Biotene
H-24. The speciality mass market lines are Silver Fox (a proudct for grey hair)
and the Allercreme Hypoallergenic range for sensitive skins, that was developed
in conjunction with determatologists and are currently being marketed under a
distribution agreement entered into with Quinlan Inc. This agreement provides
for minimum purchase order guarantees.
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GOVERNMENT REGULATION
General
Our research, pre-clinical development, clinical trials, manufacturing and
marketing of its products are subject to extensive regulation, rigorous testing
and approval processes of the FDA and equivalent foreign regulatory agencies.
Product Approval--U.S.
In the U.S., the Federal Food, Drug and Cosmetic Act and the Public Health
Service Act governs the testing, manufacture, safety, efficacy, labeling,
storage, record keeping, approval, advertising, and promotion of our products.
Product development and approval within this regulatory framework takes a number
of years and involves the expenditure of substantial resources. Many products
ultimately do not reach the market because of toxicity or lack of effectiveness
as demonstrated by required testing. In addition, there can be no assurance that
this regulatory framework will not change or that additional regulations will
not arise at any stage of our product development that may affect approval,
delay an application, or require additional expenditures.
The steps required before a pharmaceutical product may be marketed in the U.S.
include:
o preclinical laboratory testing;
o submission to the FDA of an Investigational New Drug application
which must become effective before human clinical trials may be
commenced;
o adequate and well-controlled human clinical trials to establish
the safety and efficacy of the drug;
o submission of a New Drug Application to the FDA; and
o FDA approval of the New Drug Application prior to any commercial
sale or shipment of the drug.
Invicorp has received Investigational New Drug approval from the FDA, and we
plan to file a New Drug Application with the FDA for Invicorp at the earliest
practicable opportunity.
Clinical testing of new compounds in humans is designed to establish both safety
and efficacy in treating a particular disease or condition. These studies are
usually conducted in three phases of testing. In Phase I, a small number of
volunteers are given the new compound in order to identify toxicities and
characterize the compound's behavior in humans. In Phase II, small numbers of
patients with the targeted disease are given the compound to test its efficacy
in treating the targeted disease and to establish dose levels. Phase III
studies, which we have concluded for Invicorp, are large-scale studies designed
to confirm a compound's efficacy for the targeted disease and identify
toxicities that might not have been seen in smaller studies. Once adequate data
has been obtained in clinical testing to demonstrate that the compound is both
safe and effective for the intended use, all available data is submitted to the
FDA as part of the New Drug Application.
Our clinical trials for future products will generate safety data as well as
efficacy data and will require substantial time and significant funding. We
cannot assure that clinical trials related to future products would be completed
successfully within any specified time period, if at all. Furthermore, the FDA
may suspend clinical trials at any time if it is believed that the subjects
participating in such trials are being exposed to unacceptable health risks.
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Under current regulations, the market introduction of the majority of
non-medicated cosmetics and skin care products do not require prior formal
registration or approval by the FDA, although this could change in the future.
The Cosmetics Division of the FDA monitors matters of safety and adulteration.
The situation for non-medicated cosmetic and skin care products is the same for
Europe.
Product Approval--Other Countries
Marketing of products in other countries requires regulatory approval from the
relevant medicines evaluation in a particular country. The current approval
process varies from country to country, and the time to approval may vary from
that required for FDA approval. The review of clinical studies by regulatory
agencies in foreign jurisdictions follows a similar process to that in the U.S.
In July 1998, we received Marketing Authorization from the Danish government for
Invicorp. In March 1999, the United Kingdom's Committee on Safety of Medicines
informed us that it was prepared to advise the United Kingdom's licensing
authority to grant a marketing authorization for Invicorp upon our compliance
with specified conditions. The Company has submitted Marketing Authorization
Applications for Invicorp in several other countries. We anticipate approvals
from the United Kingdom in the second quarter of 1999 and from Ireland during
1999. However, these applications will be subject to rigorous approval
processes. We cannot assure that approval in these or other countries will be
granted or that these approvals if granted, will not contain significant
limitations in the form of warnings, precautions or contraindications with
respect to condition of use. Any delay in obtaining, or failure to obtain such
approval would adversely affect our ability to generate product revenue.
In addition, in certain European countries, the sales price of a product must be
approved. The pricing review period often begins after market approval is
granted. Thus, even if a product is approved by a regulatory authority,
satisfactory prices will be approved for such product.
Noncompliance
Failure to comply with the applicable regulatory requirements can, among other
things, result in fines, suspensions of regulatory approvals, product recalls,
operating restrictions and criminal prosecution. In addition, the marketing and
manufacturing of pharmaceutical products are subject to continuing FDA and other
regulatory review, and later discovery of previously unknown problems with a
product, manufacturer or facility may result in the FDA and other regulatory
agencies requiring further clinical research or restrictions on the product or
the manufacturer, including withdrawal of the product from the market. The
restriction, suspension or revocation of regulatory approvals or any other
failure to comply with regulatory requirements would have a material adverse
effect on our business, financial condition and results of operations.
Post-Approval
After regulatory approval is obtained, our products are subject to continual
review. Manufacturing, labeling and promotional activities are continually
regulated by the FDA and equivalent foreign regulatory agencies, and we must
also report certain adverse events involving our drugs to these agencies.
Previously unidentified adverse events or an increased frequency of adverse
events that occur post-approval could result in labeling modifications of
approved products, which could adversely effect future marketing of a drug.
Finally, approvals may be withdrawn if compliance with regulatory standards is
not maintained or if problems occur following initial marketing. The
restriction, suspension
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or revocation of regulatory approvals or any other failure to comply with
regulatory requirements would have a material adverse effect on our business,
financial condition and results of operations.
We obtain certain materials and components for the manufacture of our products
from third parties. In addition, we outsource the manufacture of certain
products (see "Business--Manufacturing and Marketing"). These parties are
required to comply with strict standards established by us. Certain
manufacturers and suppliers are required by the Federal Food, Drug, and Cosmetic
Act, as amended, and by FDA regulations, to follow Good Manufacturing Practices,
or GMP, requirements and are subject to routine periodic inspections by the FDA
and certain state and foreign regulatory agencies for compliance with GMP and
other applicable regulations. Upon routine inspection of these facilities, we
cannot assure that the FDA and other regulatory agencies will find the
manufacturing process or facilities to be in compliance with GMP and other
regulations. Failure to achieve satisfactory GMP compliance as confirmed by
routine inspections could have a material adverse effect on our ability to
continue to manufacture and distribute our products and, in the most serious
case, result in the issuance of a regulatory warning letter or seizure or recall
of products, injunction and/or civil fines or closure of our manufacturing
facility until GMP compliance is achieved.
Import Restrictions and Duties
Because Senetek may be importing certain of its products or product ingredients
into the United States, Senetek could be subject to quantity limitations, duties
and tariffs imposed by countries in which the products are to be sold. The
United States does not have quantity restrictions for goods such as Senetek's
proposed products but does impose tariffs based on the value of the products
imported. Other countries may have different restrictions and duties.
PATENTS
We believe that patents and other proprietary rights are an essential element of
our business. As part of our grant agreements with various researchers, we have
exclusive license rights to any commercially valuable products developed by the
contracted researchers within the scope of the agreements, in exchange for
royalty entitlements. Our policy is to file patent applications to protect
inventions and improvements that we consider important to the development of our
business. Typically, patents in the U.S. expire 19 years after the grant date.
We also rely upon trade secrets, know-how, continuing technological innovations
and licensing opportunities to develop and maintain our competitive position. We
have filed patent applications for our products in most major countries,
including those that are signatories to the Patent Conference Treaty. Thus far,
Reliaject is patented in most of these countries and in major areas in Asia and
South America. We have also received patent approvals covering our technology
for the treatment of:
o the effects of aging on skin in the U.S.;
o psoriasis and other related skin diseases in the U.S., Canada
and Australia; and
o male sexual dysfunction in the U.S., Australia, Czech Republic,
Hungary, Israel, Latvia, Lithuania, Mexico and Taiwan.
Patent positions generally, including those for pharmaceutical and health
service organizations such as us, are uncertain and involve complex legal and
factual questions for which important legal principles are largely unresolved.
In addition, the coverage claimed in a patent application can be significantly
reduced
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before a patent is issued. Consequently, we cannot be sure that any patents that
are or may be issued to us will provide significant proprietary protection or
will not be circumvented or invalidated. Because patent applications in the U.S.
are maintained in secrecy until patents issued, and publication of discoveries
in the scientific or patent literature often lags behind actual discoveries, we
cannot be certain that we or any licensor was the first creator or that we or
our licensor was the first to file patent applications for these inventions.
Moreover, we might have to participate in interference proceedings declared by
the U.S. Patent and Trademark Office to determine priority of inventions, which
could result in substantial cost to us, whether or not the eventual outcome was
favorable to us. We cannot assure that our patents, if issued, would be held
valid by a court or that a competitor's technology or product would be found to
infringe such patents.
A number of pharmaceutical and health services companies and research and
academic institutions have developed technologies, filed patent applications, or
received patents in areas that may be related to our business. Some of these
technologies applications, or patents may conflict with our development efforts
or patent applications.
In 1995, we acquired numerous trademarks formerly owned by Carme Inc. To the
best of our knowledge, there has been no indication to date that such trademarks
are invalid or are subject to challenge.
Typically, we require our employees, consultants and sponsored researchers to
execute confidentiality agreements as part of their employment, consulting or
research arrangements with us. We cannot assure, however, that these agreements
will produce meaningful or adequate protection for our trade secrets.
EMPLOYEES
As of December 31, 1998, we employed 52 full-time employees. Senetek employees
comprised 10 persons in the United Kingdom, of whom seven are employed at our
drug development center at Kettering, and five in the U.S., of whom four are
employed in our research center in St. Louis and one in our executive offices in
Napa. As of December 31, 1998, our wholly owned subsidiary, Senetek Drug
Delivery Technologies, Inc., employed five persons in the U.S. who concentrate
on the scientific, engineering and production aspects of Reliaject. Our other
wholly owned subsidiary, Carme Cosmeceutical Sciences Inc., has 32 employees
covering the production, marketing, advertising and distribution of our health
and beauty products, including a team covering the management and financial
aspects of this portion of our business.
ITEM 2--PROPERTIES
Our United Kingdom administrative offices are located in London, United Kingdom.
We leased this 1,124 square foot space in 1998 under a three-year lease that
expired in March 1999. We recently renewed our lease for this space until May
1999. We lease approximately 40,000 square feet in Napa, California for our U.S.
headquarters. Our headquarters facility includes approximately 13,000 square
feet of manufacturing space and 27,000 square feet of research, marketing and
administrative space. Our lease for the Napa facility expires in December 2007.
We also lease an approximately 5,000 square foot building in Kettering, United
Kingdom under a 15-year lease with a break option after five years. We have
sublet approximately 1,000 square feet of this space to an unaffiliated company
for a term of three years. In 1997, we entered into a three-year lease for a
3,600 square foot laboratory facility in St. Louis, Missouri. We believe that
our leased facilities are adequate for our current operations.
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ITEM 3--LEGAL PROCEEDINGS
On June 11, 1998, we filed a lawsuit against Mad Dogs & Englishmen Inc. and Mad
Dog Enterprises d/b/a Mad Dogs & Englishmen (together, "Mad Dogs") in the
Supreme Court of New York. On December 11, 1996, we entered into a written
agreement with Mad Dogs under which Mad Dogs agreed to promote our cosmetics
business and to hire a consultant familiar with the cosmetics industry in
connection therewith. We are seeking damages of approximately $10 million under
a breach of contract claim for Mad Dogs' failure to perform its obligations
under this contract. Mad Dogs served us with an answer to our complaint in
August 1998.
Ronald Trahan Associates, Inc. and Ronald C. Trahan have filed a lawsuit against
Senetek PLC claiming breach of an alleged contract between Senetek and Ronald
Trahan Associates, Inc. The plaintiff alleges damages approximating $170,000.
The plaintiff also claims a right to treble damages. This breach of contract
claim was filed around January 25, 1999 in Middlesex Superior Court in
Massachusetts. On March 8, 1999, we removed the lawsuit to the U.S. District
Court for the District of Massachusetts. On March 24, 1999, we moved to dismiss
one of the claims of the lawsuit. We believe that the claims in this lawsuit
have no merit and intend to defend against the lawsuit vigorously.
In January and February 1999, we received several letters from counsel to David
Pettit, a former consultant to Senetek. Mr. Pettit voluntarily resigned from his
consulting position with us in early November 1998. Mr. Pettit alleges that his
consulting agreement with Senetek was terminated following a change in Senetek's
management and has threatened a lawsuit seeking damages of $127,000. No suit has
yet been filed. We believe that Mr. Pettit's claims have no merit and, in the
event a lawsuit is filed, intend to defend against such claims vigorously.
On March 11, 1999, our legal counsel received a letter from counsel to Clifford
Brune, former Chief Operating Officer of Senetek, who left his position as COO
in late 1998. The letter threatened a lawsuit seeking damages of $777,600,
representing amounts allegedly owed to Mr. Brune under an alleged consulting
contract with Senetek. No suit has yet been filed. We believe that Mr. Brune's
claims have no merit and, in the event a lawsuit is filed, intend to defend
against such claims vigorously.
Paul Logan, former Chief Financial Officer and Secretary of Senetek and a
current member of our board of directors, filed a lawsuit against Senetek on
March 12, 1999 in the United Kingdom's Employment Tribunal. Mr. Logan alleges
that he entered into a verbal agreement with our former Chief Executive Officer
and Chairman under which Mr. Logan was to provide consulting services to Senetek
for three years beginning on October 1, 1999, in exchange for consulting fees of
109,000 pounds per year. Mr. Logan seeks three month's unpaid consulting fees
under the alleged consulting agreement. On April 1, 1999, Senetek filed a
dissent with the Employment Tribunal. We believe that the claims in this lawsuit
have no merit and intend to defend against the lawsuit vigorously.
ITEM 4--SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
10
<PAGE> 13
PART II
ITEM 5--MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
(a) GENERAL DISCUSSION
There is currently no established public trading market for our Ordinary
Shares in the United Kingdom. Our American Depositary Shares (each
representing one Ordinary Share and evidenced by one American Depositary
Receipt) were traded on the over-the-counter market in the United States
beginning in November 1984 and have been traded through The Nasdaq Stock
Market since our public offering in the U.S. in May 1986.
The following table sets out the range of high and low closing bid
prices for our American Depositary Shares during each quarter of our two
most recent fiscal years, as reported by the Nasdaq Smallcap Stock
Market.
FISCAL YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
QUARTER ENDED: HIGH LOW
---- ---
<S> <C> <C>
March 31 $ 4.97 $ 3.00
June 30 5.00 3.25
September 30 4.75 1.97
December 31 2.88 1.53
</TABLE>
FISCAL YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
QUARTER ENDED: HIGH LOW
---- ---
<S> <C> <C>
March 31 $ 3.66 $ 3.13
June 30 4.53 4.25
September 30 4.78 4.50
December 31 4.91 4.63
</TABLE>
As of April 14, 1999 there were approximately 209 holders of record of
our Ordinary Shares, including approximately 1,108 holders of record of
American Depositary Shares. The share price at April 14, 1999 was a high
of $1.6875 and a low of $1.50.
We have not paid, nor do we presently contemplate the payment of, any
cash dividends on our Ordinary Shares. The decision whether to pay, and
the amount of such dividends, will be based upon, among other things,
our earnings, capital requirements and financial conditions. Any
dividend, either cash or stock, must be recommended by our board of
directors and approved by our shareholders. The board of directors is,
however, empowered to declare interim dividends. Under the English
Companies Act of 1985, a limited company may not declare or pay cash
dividends while it has an accumulated deficit. We had an accumulated
deficit of $71,968,000 at December 31, 1998. Accordingly, we will not be
in a position to consider the question of dividends until the
accumulated deficit has been absorbed by profits or by the application
against the deficit with the approval of stockholders and the United
Kingdom Companies' Court, which forms part of the Chancery Division of
the High Court, of an equivalent figure forming part of the share
premium on our balance sheet.
11
<PAGE> 14
(b) SALES OF UNREGISTERED SECURITIES
FISCAL 1996
During the fourth quarter of 1996, we raised funds through the following
offerings under the terms and conditions of Regulation S of the
Securities Act of 1933, as amended:
1. DATE OF TRANSACTION
October 11, 1996
SECURITIES SOLD
$2,500,000 three-year unsecured debentures, convertible
into shares at the lower of (a) the average closing bid
price of our American Depositary Receipts for 5 days
preceding the closing date or (b) 70% of the average
closing bid price for the 5 days prior to conversion.
Two-year warrants with a total value of $2,700,000
entitling the holder to convert into Ordinary Shares of
Senetek PLC at a price of $1.70 per share.
CONSIDERATION RECEIVED
$2,500,000 in cash (a further $2,500,000 in cash was
received in 1997 and applied against the exercise of
two-year warrants and the issue of an equivalent number
of Ordinary Shares at a price of $1.70 per share
referred to below).
NAMES OF SUBSCRIBERS
Lionhart Global Appreciation Fund
Nelson Fernandes
Rajan Bhasin
NAMES OF WARRANT HOLDERS
Global Emerging Markets
Investment Perspectives (Tradewinds) Limited
Cavendish Limited
Settondown Capital Investments Limited
2. DATE OF TRANSACTION
December 5, 1996
SECURITIES SOLD
Two-year warrants to the value of $100,000 entitling the
warrantholder to convert into shares of Senetek PLC at a
price of $1.125 per share.
12
<PAGE> 15
Two-year warrants to the value of $1,733,333 entitling
the warrantholder to convert into Ordinary Shares of
Senetek PLC at a price of $1.4625 per share.
$1,000,000 two-year unsecured debentures convertible
into Ordinary Shares at $0.84375 per Ordinary Share.
CONSIDERATION RECEIVED
$1,000,000 in cash.
NAME OF SUBSCRIBER AND WARRANT HOLDER
Brentwood Financial Limited
NAME OF WARRANT HOLDER
HIG Securities Investments Limited
FISCAL 1997
During the second and fourth quarters of 1997, we raised funds through
the following offerings under the terms and conditions of Regulation S
of the Securities Act of 1933, as amended:
1. DATE OF TRANSACTION
April 4, 1997
SECURITIES SOLD
$1,500,000 three-year unsecured debentures, convertible
into shares at the lower of (a) the average closing bid
price of our American Depositary Receipts for five days
preceding the closing date or (b) 74% and 80% of the
average closing bid price for the five days prior to
conversion.
Two-year warrants to the total value of $1,575,000
entitling the holder to convert into Ordinary Shares of
Senetek PLC at a price of $4.4375.
CONSIDERATION RECEIVED
$1,500,000 in cash.
NAMES OF SUBSCRIBERS
Raphael Enterprises Ltd
Onn Sithawalla
NAMES OF WARRANT HOLDERS
Raphael Enterprises Ltd
Onn Sithawalla
13
<PAGE> 16
R. Nangalia
2. DATE OF TRANSACTION
December 8, 1997
SECURITIES SOLD
Two-year warrants entitling the warrant holder to
convert into Ordinary Shares of Senetek PLC at a price
of $1.4625 per share.
CONSIDERATION RECEIVED
$1,170,000 ($585,000 was received and applied against
the exercise of 400,000 warrants into the issue of an
equivalent number of Ordinary Shares in 1997. The second
transaction on a similar basis for $585,000 occurred in
the first quarter of 1998).
NAME OF SUBSCRIBER AND WARRANT HOLDER
Brentwood Financial Limited
FISCAL 1998
During 1998, we raised funds through the following offerings under the
terms and conditions of Regulation S of the Securities Act of 1933, as
amended:
1. DATE OF TRANSACTION
April 7, 1998
SECURITIES SOLD
1,100,000 5p Ordinary Shares
Three-year warrants to purchase 1,100,000 5p Ordinary Shares of
Senetek PLC at $5.00 per share.
CONSIDERATION RECEIVED
$3,300,000 less 10% commission from the sale of 1,100,000
Ordinary Shares at $3.00 per share.
NAME OF SUBSCRIBER AND WARRANT HOLDER
Windsor Capital Limited
2. DATE OF TRANSACTION
July 8, 1998
14
<PAGE> 17
SECURITIES SOLD
Three-year warrants to purchase 1,885,715 Ordinary Shares of
Senetek PLC at $3.50 per share.
Three-year warrants to purchase 220,000 Ordinary Shares of
Senetek PLC at $6.00 per share.
We subsequently amended these warrants and issued 2,105,715
Ordinary Shares upon exercise of the warrants.
CONSIDERATION
We issued the foregoing warrants to Windsor Capital Management,
Ltd. in connection with a credit agreement under which we
borrowed $6,600,000 from Windsor. We subsequently amended the
warrants and issued Ordinary Shares upon exercise of the amended
warrants in exchange for cancellation of indebtedness to Windsor
in the amount of $4,211,430.
Name of Subscriber and Warrant Holder
Windsor Capital Management, Ltd.
FISCAL 1999 (TO DATE)
In 1999 (to date), we issued the following securities in transactions
exempt from registration under Regulation D under the Securities Act of
1933, as amended:
1. DATE OF TRANSACTION
April 14, 1999
SECURITIES SOLD
a. $7,388,570 aggregate principal amount of three-year
promissory notes of Senetek PLC (the "Investment
Notes"). The Investment Notes bear interest at a rate of
8.0% per year. The principal amount of the Investment
Notes is due and payable in 2002.
b. Series A Warrants to purchase an aggregate of 3,000,000
Ordinary Shares at an initial exercise price of $1.50
per share (subject to downward adjustment).
c. Series B Warrants to purchase an aggregate of 3,333,333
Ordinary Shares at an exercise price of $1.50 per share.
d. Series C Warrants to purchase an aggregate of 1,194,285
Ordinary Shares at an exercise price of $2.00 per share.
15
<PAGE> 18
CONSIDERATION RECEIVED
We received $5,000,000 in cash (less expenses) and the
refinancing of $2,388,570 of our previously outstanding
indebtedness for issuing the Investment Notes, the Series B
Warrants, the Series C Warrants and Series A Warrants to
purchase an aggregate of 738,857 Ordinary Shares. We issued the
remaining Series A Warrants to purchase an aggregate of
2,261,143 Ordinary Shares in settlement of certain disputes with
a third party.
NAME OF SUBSCRIBER AND WARRANT HOLDER
Oakwood Holdings, Ltd.
(c) TAXATION
General
The following is a summary of the principal U.S. federal and United
Kingdom tax consequences applicable to the ownership of Ordinary Shares
and American Depositary Shares, by a beneficial holder that is a citizen
or resident of the United States, a corporation or partnership created
or organized under the laws of the U.S. or any state thereof or that
otherwise is subject to U.S. Federal income tax on a net income basis in
respect of the Ordinary Shares or American Depositary Shares (a "U.S.
Holder"). This summary is not exhaustive of all possible tax
considerations, and U.S. Holders are advised to consult their own tax
advisers as to the overall tax consequences, including specifically the
consequences under state and local laws, of the purchase, ownership and
disposition of Ordinary Shares or American Depositary shares.
This summary does not address the United Kingdom tax consequences to a
U.S. Holder who is resident or (in the case of an individual) ordinarily
resident in the United Kingdom or who carries on business there through
a branch or agency. A disposition of Ordinary Shares or American
Depositary shares, by such a person may be subject to United Kingdom
tax.
This summary also does not address the U.S. tax consequences to a U.S.
Holder (i) controlling, directly or indirectly, together with
associates, 10% or more of the voting shares of Senetek PLC, (ii) who
does not hold the Ordinary Shares or American Depositary Shares as
capital assets, (iii) who does not use the U.S. dollar as the U.S.
Holder's functional currency or (iv) who holds the Ordinary Shares or
American Depositary Shares as part of a larger integrated financial
transaction or straddle.
The statements regarding U.S. federal and United Kingdom tax laws set
out below are based on those laws as in force on the date of this Form
10-K.
For the purposes of the current U.S./United Kingdom double taxation
conventions (the "Income Tax Convention") and for the purposes of the
U.S. Internal Revenue Code of 1986, as amended (the "Code"), U.S.
Holders of American Depositary Shares will be treated as owners of the
underlying Ordinary Shares.
16
<PAGE> 19
Taxation of Dividends
No tax will be withheld from dividend payments by Senetek PLC to United
Kingdom resident shareholders. An individual shareholder resident in the
United Kingdom is treated for United Kingdom tax purposes as having
taxable income equal to the sum of the dividend plus a tax credit equal
to 10% of the sum of the dividend plus the tax credit (such aggregate
sum being hereinafter referred to as the "Gross Dividend"). The tax
credit is available as a tax credit against the individual's tax
liability on the relevant dividend.
Prior to April 6, 1999, U.S. resident shareholders were normally
entitled to a refund from the United Kingdom Inland Revenue of taxation
as a result of the dividends paid to them. After April 6, 1999, a
corporate U.S. Holder (which is not also a resident of the United
Kingdom for the purposes of the Income Tax Convention) who controls,
directly or indirectly (either alone or with one of more associated
Corporations) 10% or more of the voting power of Senetek PLC may still
apply for a refund but generally other shareholders may not.
17
<PAGE> 20
ITEM 6--SELECTED FINANCIAL DATA
The selected consolidated statement of operations data presented below for each
of the years in the three-year period ended December 31, 1998 and the selected
consolidated balance sheet data as of December 31, 1997 and 1998 has been
derived from and should be read in conjunction with our financial statements
included in Part IV of this Report on Form 10-K. The selected consolidated
statements of operations data for the years ended December 31, 1994 and 1995 and
the selected consolidated balance sheet data as of December 31, 1994, 1995 and
1996 has been derived from the audited financial statements contained in our
annual reports to shareholders.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1998 1997 1996 1995 1994
-------- ------- ------ ------ ------
($ IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF
OPERATIONS DATA:
Revenues $ 4,672 5,722 6,486 1,931 212
Loss from operations (17,089) (15,626) (4,066) (3,904) (3,476)
Net loss $(22,492) (15,539) (4,020) (3,721) (2,982)
======== ======= ====== ====== ======
Net loss per Ordinary Share $ (0.41) (0.32) (0.10) (0.09) (0.08)
outstanding
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
1998 1997 1996 1995 1994
-------- ------- ------ ------ ------
($ IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Assets:
Cash and cash equivalents $ 808 6,216 2,975 2,237 5,088
Government bonds at fair value -- -- -- -- 3,128
Inventory 731 890 1,657 1,231 42
Trade receivables and other
current assets 2,754 2,486 997 959 401
-------- ------- ------- ------- -------
Total current assets 4,293 9,592 5,629 4,427 8,659
Property & equipment, net 3,366 1,909 1,182 1,087 749
Goodwill and other intangible
assets, net 1,766 1,900 2,128 2,391 349
Deferred financing costs 1,241 -- 902 -- --
Other assets -- -- -- -- 4
-------- ------- ------- ------- -------
Total assets 10,666 13,401 9,841 7,905 9,761
Long term liabilities:
8% convertible debentures -- -- 1,700 -- --
Capital Leases 46 -- -- -- --
Accumulated deficit (71,968) (49,476) (33,937) (29,917) (26,196)
Stockholders' equity $ (821) 5,506 6,263 6,745 9,203
======== ======= ======= ======= =======
</TABLE>
18
<PAGE> 21
ITEM 7--MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL
We received our initial funding from a public issuance of Ordinary Shares in the
United Kingdom in November 1983. In May 1986, we completed a public financing in
the U.S. resulting in the issuance of 1,322,500 Units, each consisting of one
Ordinary Share and one "A" and one "B" warrant for the purchase of an equivalent
number of Ordinary Shares. The Ordinary Shares were issued as American
Depositary Shares, evidenced by American Depositary Receipts, and together with
the "A" and "B" warrants, were traded under the Nasdaq Automated Quotations
System. 143,018 unexercised "A" and 1,285,400 unexercised "B" warrants ceased
trading upon the lapsing of their respective extended exercise dates in May
1997. Since May 1986, we have relied on private placements of Ordinary Shares,
convertible debentures, and warrants to add to our capital base.
Our accounts set forth in Part IV of this Report have been prepared in
accordance with U.S. generally accepted accounting principles (U.S. GAAP). Our
financial information included in this Form 10-K is presented in U.S. dollars.
MATERIAL CHANGES IN FINANCIAL CONDITION
During the year ended December 31, 1998, our liquid position, represented by
cash and deposits at banks and liquid investments, decreased by $5,402,000 to
$808,000. This decrease is attributable to the excess of our operational losses,
capital investments and the net movements in working capital over the net
proceeds of private placements and draw downs of credit facilities as discussed
in "Liquidity and Capital Resources" below.
RESULTS OF OPERATIONS
Our operations are carried out through biopharmaceuticals, drug delivery and
research and development fields ("pharmaceuticals") and the supply of skincare
and beauty products ("cosmetics").
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------
1998 1997 1996
------- ------- -------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
Loss from Operations:
Pharmaceuticals:
Revenues 1,517 1,167 499
------- ------- -------
Gross profit 906 692 317
Operating expenses (16,284) (13,368) (4,427)
------- ------- -------
Loss from operations (15,378) (12,676) (4,110)
------- ------- -------
Cosmetics:
Revenues (3,155) (4,555) (5,987)
------- ------- -------
Gross Profit 725 1,042 2,530
Operating expenses (2,436) (3,992) (2,486)
------- ------- -------
</TABLE>
19
<PAGE> 22
<TABLE>
<CAPTION>
<S> <C> <C> <C>
(Loss)/profit from operations (1,711) (2,950) 44
------- ------- -------
Total loss from operations (17,089) (15,626) (4,066)
------- ------- -------
</TABLE>
<TABLE>
<CAPTION>
1998 1997 1996
------- ------- -------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
Overall Loss Before Taxation:
Pharmaceuticals:
Loss from operations (15,378) (12,676) (4,110)
Interest income 188 279 --
Interest (expense) -- (50) (21)
Other expense (5,744) (--) (4)
------- ------- ------
Loss before tax (20,934) (12,447) (4,135)
------- ------- ------
Cosmetics:
(Loss)/profit from operations (1,711) (2,950) 44
Other income/(expense) 194 (92) 74
Interest expense (41) (50) (3)
------- ------- ------
(Loss)/profit before tax (1,558) (3,092) 115
------- ------- ------
Total overall loss before taxation (22,492) (15,539) (4,020)
======= ======= ======
</TABLE>
Under U.S. GAAP, we apply Accounting Principle Board Opinion No. 25, "Accounting
for Stock Issues to Employees" ("APB 25"), and related interpretations in
accounting for our employee stock option plans. We have recognized $1,669,000 of
expense for stock based employee compensation in accordance with APB 25 in
fiscal 1998 and $3,048,000 in fiscal 1997.
Also, during fiscal 1998, we recognized $863,000 of expense relating to the fair
value of all stock options awarded to non-employees and consultants in
accordance with Financial Accounting Standard No. 123 ("FAS 123"). The expense
in fiscal 1997 was $840,000.
REVENUES
Our product sales revenues of $4,672,000 for the year ended December 31, 1998
comprised $401,000 from the sale of pharmaceutical products, $1,116,000 from the
sale of monoclonal antibodies, and $3,155,000 from the sale of health and
cosmetic beauty aids.
Our product sales revenues of $5,722,000 for the year ended December 31, 1997
comprised $276,000 from the sale of our pharmaceutical products, $891,000 from
the sale of monoclonal antibodies, and $4,555,000 from the sale of health and
beauty aids.
The 45.3% increase in sales of pharmaceutical products is due to a 37.3%
increase in volume and an 8% increase in prices.
The 25.3% increase in sales of monoclonal antibodies is due to an increase in
sales volume.
20
<PAGE> 23
The 30.7% decrease in sales of skincare and beauty products is due to a
streamlining of the product range. At the time we acquired Carme Cosmeceutical
Sciences Inc. in September 1995, the acquired business had approximately 1,000
stock keeping units ("SKU's"). At the end of 1998, this had been reduced to
approximately 150 SKU's.
Our sales revenues of $6,486,000 for 1996 comprised $84,000 from the sale of
pharmaceutical products, $415,000 from the sales of monoclonal antibodies and
$5,987,000 from the sale of health and cosmetic beauty aids. Comparing 1997 to
1996, the 229% increase in is due to a 237% increase in volume and an 8%
decrease in price. The 115% increase in sales of monoclonal antibodies is due to
an increase in sales volume. The 24% decrease in sales of health and cosmetic
beauty aids is due to a decrease in volume due to the downsizing of the product
portfolio.
RESEARCH AND DEVELOPMENT
Pharmaceutical Division
Research and development expenses in the year ended December 31, 1998 were
$7,955,000, compared with $4,913,000, and $2,040,000 in 1997 and 1996,
respectively.
The increase of $3,042,000 in 1998 compared with 1997 was primarily due to (i)
additional clinical spending on pivotal clinical studies, regulatory approvals
and toxicological studies, in particular for the preparation of the Abbreviated
New Drug Application submission for Adrenaject and the future New Drug
Application submission for Invicorp with the FDA in the U.S. and (ii) the
purchase of $1,200,000 of vasoactive intestinal polypeptide and phentolamine
mesylate for our Invicorp product under supply arrangements with third party
vendors.
The increase of $2,873,000 in 1997 compared with 1996 was primarily due to:
o increases in pharmacology studies, toxicology studies, Phase III
Clinical Trials, regulatory consultancy costs and the lodging of
Marketing Authorization Applications with a number of European
medicines evaluation agencies;
o increases in the payments to contract research organizations
carrying out stability tests and other tests and the purchase of
the active materials relating to the Invicorp therapy; and
o additional research costs relating to the availability to us of
monoclonal antibodies.
Cosmetics Division
Research and development expenses in the year ended December 31, 1998 were
$25,000, compared with $113,000 and $147,000 in 1997 and 1996, respectively.
The decrease of $88,000 in 1998 compared with 1997 is primarily due to the
streamlining of our cosmetic product portfolio and the elimination of production
development expense following the outsourcing of manufacturing in the second
half of 1997.
The decrease of $34,000 in 1997 compared with 1996 was primarily due to the
streamlining of our cosmetic product portfolio.
21
<PAGE> 24
GENERAL AND ADMINISTRATIVE
Pharmaceutical Division
General and administrative ("G&A") expenses totaled $7,482,000 for 1998,
compared with $6,305,000 and $1,627,000 for 1997 and 1996, respectively.
The increase of $1,177,000 in 1998 compared to 1997 was primarily due to:
o the full year effect of retaining a public relations company in
the second half of 1997 to focus on investor relations and
development status of the Invicorp and Kinetin products; and
o the full year effect of retaining a marketing consulting company
in the second half of 1997 to focus on product licensing
opportunities for Invicorp with potential pharmaceutical
partners and the setting up of raw material supply and contract
manufacturing arrangements for Invicorp supply chain.
Also, a change in the basis of the allocation of salaries and welfare and
benefits to G&A expenses to more correctly allocate staff costs to their
operational activity resulted in an increase in G&A expenses in 1998 compared to
1997. The 1998 costs also include the ongoing recognition of stock compensation
expense:
o for employee stock compensation plans in accordance with APB 25,
for 1997 grants vesting in 1998 and beyond; and
o under FAS 123 relating to the grant of stock options to
non-employees in exchange for services rendered, based on the
fair value of the awards at the grant date.
The increase of $4,678,000 in G&A expenses in 1997 compared with 1996 was
primarily due to:
o charges for the full year of the hire of additional executive
management with effect from the third quarter of 1996;
o the cost of implementing public/investor relations program;
o the costs of retaining a new financial adviser;
o an increase in legal and professional charges;
o an increase in salaries, rent, travel, utilities and general
overhead associated with the increase in members of the
management team; and
o recognition of $2,533,000 of compensation expense for employee
stock based compensation plans in accordance with APB 25 and
$840,000 compensation expense under FAS 123 relating to the
grant of stock options to non-employees in exchange for services
rendered, based on the fair value of the awards at the grant
date.
22
<PAGE> 25
Cosmetics Division
G&A costs for the year ended December 31, 1998 were $1,680,000, compared with
$1,762,000 and $962,000 for 1997 and 1996, respectively. The 1998 costs reflect
stock compensation expense relating to the grant of employee stock options in
1997 which vest in 1998 and beyond, in accordance with APB 25.
The decrease of $82,000 in 1998 compared to 1997 was primarily due to decreased
operating costs of Carme Cosmeceutical Sciences Inc. following an out-sourcing
of manufacturing in 1997.
The increase of $800,000 in G&A costs for 1997 compared with 1996 was primarily
due to:
o recognition of $515,000 of compensation expense for employee
stock based compensation plans in accordance with APB 25; and
o costs of putting in place the out-sourcing of manufacturing in
the Carme Cosmeceutical Sciences Inc. operations.
MARKETING AND PROMOTION
Pharmaceutical Division
Marketing and promotion expenses totaled $847,000 for 1998, compared with
$2,149,000 and $760,000 for 1997 and 1996, respectively.
The $1,302,000 decrease in 1998 compared to 1997 was primarily due to the
reclassification of public/investor relations from marketing expense to G&A
expense in 1998 to more correctly allocate expense to the related activity.
The increase of $1,389,000 in G&A costs in 1997 compared to 1996 was primarily
due to an ongoing high profile public/investor relations campaign highlighting
the clinical success and commercial potential of Invicorp and Reliaject.
Cosmetics Division
Marketing and promotion expenses totaled $276,000 for 1998, compared with
$1,376,000 and $459,000 for 1997 and 1996, respectively.
The decrease of $1,100,000 in 1998 compared to 1997 was primarily due to one
time advertising costs associated with the promotion of Kinetin products in
1997.
The increase of $917,000 in 1997 compared to 1996 is was primarily to one time
advertising costs associated with the promotion of Kinetin products in 1997.
SELLING EXPENSES
Cosmetics Division
Selling expenses relating to our cosmetics products totaled $456,000 for 1998,
compared with $742,000 and $918,000 for 1997 and 1996, respectively.
23
<PAGE> 26
The decrease of $286,000 in 1998 compared to 1997 was primarily due to reduced
salaries and broker commissions following the out-sourcing of manufacturing in
the cosmetics division in the second half of 1997.
The decrease of $176,000 in 1997 compared to 1996 was primarily due to reduced
salaries and broker commissions following the out-sourcing of manufacturing in
the cosmetics division in the second half of 1997.
OTHER INCOME AND EXPENSE
Included in other expense is $2,389,000 for debt modification expense under the
Windsor Capital line of credit. Also, included in other expense is $3,355,000
relating to the amortization of deferred financing costs represented by the fair
value of warrants attached to the line of credit and the 10% fee on the
placement of the line of credit.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents decreased by $5,402,000 during 1998 to $808,000. This
decrease is due to the excess of our operational losses, capital expenditure and
net movements in working capital over the proceeds of private placements of
shares, convertible debt and the exercise of employee share options for the
year. To date, we have realized only modest revenues from our operations. We
continue, as in the past, to depend upon raising equity funds from private
placements. Our independent auditors report on our consolidated financial
statements included in Item 8 states that "[Senetek] has suffered recurring
losses from its operations and... its ability to continue research activities
to a stage where it has a product able to be commercialised is dependent upon
securing additional sources of financing, which raises substantial doubt about
[Senetek's] ability to continue as a going concern."
In April 1999, we issued $7,388,570 in aggregate principal amount of secured
promissory notes. The notes bear interest at a rate of 8.0% per year, payable
semi-annually, and are due and payable in full in April 2002. The repayment of
the notes is secured by all of the assets of Senetek PLC and its subsidiaries.
In exchange for the issuance of the notes, we received $5,000,000 in cash (less
expenses) and refinancing of $2,388,570 of our previously outstanding debt. We
also issued warrants to purchase Ordinary Shares in connection with the issuance
of the notes. Although we have received no commitment for the advance of any
further funds, other lenders who advance up to an additional $7,611,430 may
share in the collateral securing the notes described above on a pari passu basis
with the existing noteholders.
Our other most significant revenue commitments are our research agreements,
consulting agreements, employment agreements and property leases. In addition,
capital expenditure amounted to $2,081,757 in 1998 in connection with the set up
of supply chain capability for the manufacture of Reliaject components in
advance of the commercialization of the Invicorp and Adrenaject products.
In the event of the use of Kinetin as a pharmaceutical, as opposed to a cosmetic
product, we would have to commit considerable additional expenditure, and the
speed at which this work can be undertaken will depend upon our financial
resources.
We anticipate spending approximately $8.5 million during 1999 on the development
of our pharmaceutical products, including Reliaject applications, and on our
administrative and marketing structure operations. Although our management
believes that we will generate revenues from the sale of our cosmetic product
lines, monoclonal antibodies and the Invicorp product to named-patients, these
will not be sufficient to address our projected short-term financial
requirements.
Additionally, certain holders of a substantial number of warrants may exercise
their right to convert their warrants into shares upon payment to us of the
exercise price as the conversion dates approach.
24
<PAGE> 27
Our management is discussing the possibility of entering into licensing
arrangements with several major pharmaceutical companies. Although these
discussions may lead to a license agreement of a substantial nature in due
course, we cannot assure that we will be successful in securing such an
agreement.
GOVERNMENT POLICY
It is the opinion of our board of directors that there are no aspects of
government policy which, as far as can be foreseen, are likely to have a
material effect on the conduct of our business, except as generally described in
Part I, Item 1, of this Form 10-K under the heading "Government Regulation."
IMPACT OF INFLATION
We believe that inflation has not had any material effect on the results of our
operations to date.
YEAR 2000
The Problem
The term "Year 2000 issue" is used to describe the various problems that may
result from the improper processing of dates and date-sensitive calculations by
computers and other machinery as the year 2000 approaches. These problems
generally arise from the fact that most of the world's computer hardware and
software have used only two digits to identify the year in a date, often meaning
that the computer will fail to distinguish dates in the "2000's" from those in
the "1900's." This could result in system failure or miscalculations causing
disruptions of operations including, among other things, a temporary inability
to process transactions, send invoices or engage in similar normal business
activities.
Our State of Readiness
We have instituted a year 2000 assessment and remediation project. As a part of
this project, we have completed an initial evaluation of our computer systems
and significant software programs, including our network hardware and operating
systems and accounting and business process software, as well as our
non-information technology systems. In anticipation of potential year 2000
system problems, we have begun to replace our management information systems
with a platform designed to be year 2000 compliant. We expect to complete this
process in the second quarter of 1999. We have retained a consulting firm to
coordinate successful system implementation, including testing of year
2000-related problems. We will commence testing for year 2000 compliance upon
full implementation of our new system and will continue this testing throughout
1999. We presently believe that upon completion of successful system
conversions, the year 2000 issue will not pose significant operational problems
for us. However, although our new systems are designed to be year 2000
compliant, we cannot assure you that the systems contain all necessary data code
changes. If we do not complete our conversions in a timely fashion, the year
2000 issue could have a material impact on our operations.
As a part of our year 2000 project, we have assessed our products in connection
with year 2000 issues. Our products do not contain any software, date-sensitive
fields or embedded microprocessors; therefore, we do not believe that our
products will present year 2000 issues.
We are also in the process of contacting our vendors and other third parties on
which we rely to obtain information about their year 2000 compliance. We plan to
complete these contacts by the end of the second quarter of 1999. Based on our
review of responses we have received to date, we do not expect this issue to
have a material adverse effect on our business.
25
<PAGE> 28
The Costs to Address Our Year 2000 Issues
In 1998, we spent approximately $130,000 to address year 2000 issues, including
the purchase of new software. We expect that our assessment, remediation and
contingency planning activities for its internal systems will be ongoing through
1999. We currently expect the total cost for these activities to be
approximately $20,000 in 1999. This cost estimate does not include replacement
of internal software and hardware in the normal course of business. We do not
believe that these costs will materially affect our liquidity or financial
condition. The costs of our year 2000 project and the date established for
completion of year 2000 modifications are based on our management's best
estimates, which were derived using numerous assumptions of future events,
including the continued availability of certain resources, third party
modification plans and other factors. We cannot guarantee that we will achieve
these estimates; actual results could differ materially from those we currently
anticipate.
The Risks Associated With Our Year 2000 Issues
Our failure to resolve year 2000 issues by December 31, 1999 could result in
system failures or miscalculation, causing disruptions in our operations and
normal business activities. In addition, the failure of our vendors or other
third parties on whom we rely to remediate their year 2000 issues could result
in disruptions in our ability to obtain parts and materials or other problems
related to our daily operations. Since third party year 2000 compliance is not
within our control, and since we have not completed the process of obtaining
compliance information from vendors and others, we cannot assure that a vendor's
or other third party's failure to achieve year 2000 compliance would not have a
material adverse effect on our business.
Contingency Plan
We are currently working on a contingency plan for all critical aspects of our
year 2000 issues and expect to have completed such a plan by the third quarter
of 1999.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In February 1998, the FASB issued SFAS No. 132, "Employers' Disclosures about
Pensions and Other Post-Retirement Benefits," which revises employer's
disclosures about pensions and other post-retirement plans. SFAS 132 is
effective for the periods beginning after December 15, 1997 and requires
comparative information for earlier years to be restated. The standard currently
does not apply to Senetek.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133 Requires companies to
recognize all derivative contracts as either assets or liabilities in the
balance sheet and to measure them at fair value. If certain conditions are met,
a derivative may be specifically designated as hedge, the object of which is to
match the timing of gain or loss recognition on the hedging derivative with the
recognition of (i) the changes in the fair value of the hedged asset or
liability that are attributable to the hedged risk, or (ii) the earnings effect
of the hedged forecasted transaction. For a derivative not designated as a
hedging instrument, the gain or loss is recognized in income in the period of
change. SFAS No. 133 is effective for all fiscal quarters of fiscal years
beginning after June 15, 1999. Historically, we have not entered in to
derivative contracts either to hedge existing risks or for speculative purposes.
26
<PAGE> 29
ITEM 7A--QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Our primary market risks include fluctuations in interest rates, variability in
interest rate spread relationships (i.e., Prime to LIBOR spreads) and exchange
rate variability. We manage these market risks using derivative financial
instruments in accordance with established polices and procedures. We do not
use derivative financial instruments for trading purposes.
We believe that fluctuations in interest rates and currency exchange rates in
the near term would not materially affect our consolidated operating results,
financial position or cash flows as we have limited risks related to interest
rate and currency exchange rate fluctuations.
ITEM 8--FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Item 14(a)(1) and 14(a)(2) of Part IV of this Report on Form 10-K.
ITEM 9--CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
The disclosure called for by Item 9 has been previously reported by Senetek PLC.
See Item 14(b) of Part IV of this Report on Form 10-K.
27
<PAGE> 30
PART III
ITEM 10--DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT
The information required in this item will be included in our Definitive Proxy
Statement for our Annual Meeting of Shareholders to be filed with the Commission
within 120 days following December 31, 1998 under the caption "Directors and
Executive Officers of Registrant" and is incorporated by reference herein.
ITEM 11--EXECUTIVE COMPENSATION
The information required in this item will be included in our Definitive Proxy
Statement for our Annual Meeting of Shareholders to be filed with the Commission
within 120 days following December 31, 1998 under the caption "Executive
Compensation" and is incorporated by reference herein.
ITEM 12--SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required in this item will be included in our Definitive Proxy
Statement for our Annual Meeting of Shareholders to be filed with the Commission
within 120 days following December 31, 1998 under the caption "Security
Ownership of Certain Beneficial Owners and Management" and is incorporated by
reference herein.
ITEM 13--CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required in this item will be included in our Definitive Proxy
Statement for our Annual Meeting of Shareholders to be filed with the Commission
within 120 days following December 31, 1998 under the caption "Certain
Relationships and Related Transactions" and is incorporated by reference herein.
28
<PAGE> 31
PART IV
ITEM 14--EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a)(1) The following consolidated financial statements are included in Item 8:
<TABLE>
<CAPTION>
Page
----
<S> <C>
Reports of Independent Auditors F-1
Consolidated Balance Sheet as of December 31, 1998 and 1997 F-3
Consolidated Statement of Operations for the Years Ended F-4
December 31, 1998, 1997 and 1996
Consolidated Statement of Stockholders' (Deficit)/Equity for
the Years Ended December 31, 1998, 1997, and 1996 F-5
Consolidated Statement of Cash Flows for the Years Ended F-6
December 31, 1998, 1997 and 1996
Notes to Consolidated Financial Statements F-8
</TABLE>
(a)(2) The following financial statement schedules are submitted herewith:
All Schedules are omitted because they are not required or the
information required is not applicable or not present in amounts
sufficient to require submission of the schedule or the required
information is shown in the financial statements or notes thereto.
(a)(3) The following Exhibits are filed or incorporated by reference as part of
this Report on Form 10-K:
3.1 Certificate of Incorporation of Senetek PLC.
Filed as an Exhibit with corresponding Exhibit Number to Registrant's
Registration Statement on Form F-1, Registration No. 33-3535, and
incorporated herein by reference.
3.2 Memorandum and Articles of Association of Senetek PLC (defining the
rights of security holders, subject to the provisions of the United
Kingdom Companies Act 1985).
Filed as an Exhibit with corresponding Exhibit Number to Registrant's
Registration Statement on Form F-1, Registration No. 33-3535, and
incorporated herein by reference.
10.3 Senetek No. 1 Share Option Scheme for Employees.
Filed as an Exhibit with corresponding Exhibit Number to Registrant's
Report on Form S-8 on October 8, 1993, Registration No. 33-70136, and
incorporated herein by reference.
10.4 Asset Purchase Agreement dated as of July 31, 1995, between Carme
International, Inc. a wholly owned subsidiary of Senetek PLC and Carme
Inc.
29
<PAGE> 32
Filed as an Exhibit on Form 8-K, dated October 10, 1995 (as amended),
and incorporated herein by reference.
10.18 Senetek No. 2 Executive Share Option Scheme for non-Executive Directors
and Consultants.
Filed as an Exhibit with corresponding Exhibit Number to Registrant's
Report on Form S-8 on October 8, 1993, Registration No. 33-70136, and
incorporated herein by reference.
10.29 Amended and restated Deposit Agreement dated November 6, 1992 between
Senetek PLC and The Bank of New York.
The form of such Agreement was filed as an Exhibit on Form F-6 with the
Securities and Exchange Commission on March 19, 1992, Registration No.
33-46638, and is incorporated herein by reference.
10.32 Consulting Agreement dated May 1, 1994 between Senetek PLC and Dr. G.D.
Frentz.
Filed as an Exhibit with corresponding Exhibit Number to Registrant's
annual Report on Form 10-K for the year ended December 31, 1994 and
incorporated herein by reference.
10.33 Service Agreement dated August 11, 1995 and supplemental agreement dated
July 3, 1996 between Senetek PLC and Dr. G. Homan.
Filed as exhibits with corresponding Exhibit Number to Registrant's
annual Report on Form 10-K for the years ended December 31, 1995 and
1996 respectively and incorporated herein by reference.
10.34 Service Agreement dated August 11, 1995 and supplemental agreement dated
July 3, 1996 between Senetek PLC and Mr. P.A. Logan.
Filed as exhibits with corresponding Exhibit Number to Registrant's
annual Report on Form 10-K for the years ended December 31, 1995 and
1996 respectively and incorporated herein by reference.
10.35 Service Agreement dated September 1, 1996 between Senetek PLC and Mr.
A.J. Cataldo.
Filed as an exhibit with corresponding Exhibit Number to Registrant's
annual Report on Form 10-K for the year ended December 31, 1996 and
incorporated herein by reference.
10.36 Service Agreement dated October 1, 1996 between Senetek PLC and Mr. C.D.
Brune.
Filed as an exhibit with corresponding Exhibit Number to Registrant's
annual Report on Form 10-K for the year ended December 31, 1996 and
incorporated herein by reference.
10.37 Service Agreement dated June 30, 1997 between Senetek PLC and Mr. A.J.
Cataldo
10.38 Service Agreement dated June 30, 1997 between Senetek PLC and Dr. G.
Homan.
10.39 Service Agreement dated June 30, 1997 between Senetek PLC and Mr. C.D.
Brune.
30
<PAGE> 33
10.40 Service Agreement dated June 30, 1997 between Senetek PLC and Dr. R.A.
Oakes.
10.41 Service Agreement dated December 30, 1998 between Senetek PLC and Mr. F.
J. Massino.
10.42 Settlement Agreement dated April 13, 1999 by and among Senetek PLC,
Windsor Capital Management, Ltd. and certain other parties thereto.
10.43 Securities Purchase Agreement dated April 13, 1999 by and among Senetek
PLC and certain other parties thereto.
21 Subsidiaries of Senetek PLC.
Filed as an exhibit with corresponding Exhibit Number to Registrant's
annual report on Form 10 -K for the year ended December 31, 1995 and
incorporated herein by reference.
24 Power of Attorney.
Included on the signature page to this Annual Report on Form 10-K.
27 Financial Data Schedule.
(b) 8 K Disclosures - Fourth quarter of 1998.
A report on Form 8-K, dated November 2, 1998, was filed with the
Commission on November 6, 1998 reporting the resignation of Price
Waterhouse as independent accountant.
A report on Form 8-K, dated November 5, 1998, was filed with the
Commission on November 6, 1998 reporting the appointment of Deloitte &
Touche as independent accountant.
A report on Form 8-K/A, dated November 13, 1998, was filed with the
Commission on November 18, 1998 reporting that Price Waterhouse,
Senetek's former independent accountant, agreed with the statements
contained in Form 8-K dated November 2, 1998.
8 K Disclosures - Subsequent to year end.
A report on Form 8-K, dated January 26, 1999, was filed with the
Commission on February 1, 1999 reporting the resignation of Deloitte &
Touche as independent accountant.
A report on Form 8-K, dated February 23, 1999, was filed with the
Commission on March 1, 1999 reporting the appointment of BDO - Stoy
Hayward as independent accountant.
(c) Exhibits.
The Company has filed as part of this Report on Form 10-K the exhibits
in Item 14(a)(3) as set forth above.
(d) Financial Statement Schedules.
See Item 14(a)(2) of this Report on Form 10-K.
31
<PAGE> 34
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized, in the city of Napa State
of California, on this 15th day of April, 1999.
SENETEK PLC
BY: /s/ F. J. Massino
-------------------------------------
FRANK J. MASSINO
CHAIRMAN OF THE BOARD AND
CHIEF EXECUTIVE OFFICER
POWER OF ATTORNEY TO SIGN AMENDMENTS
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below
does hereby constitute and appoint Frank J. Massino and Paul A. Logan, and each
of them, with full power of substitution and full power to act without the
other, his true and lawful attorney-in-fact and agent to act for him in his
name, place and stead, in any and all capacities to sign any or all amendments
to this Annual Report on Form 10-K, and to file the same, with all exhibits
hereto, and other documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorneys-in-fact and each of them, full
power and authority to do and perform each and every act and thing requisite and
necessary to all intents and purposes, as they or he might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents, or any of them, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed by the following persons in the capacities and on the dates
indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ F. J. Massino Chairman of the Board April 15, 1999
- ------------------------------- and Chief Executive Officer
Frank J. Massino (Principal Executive Officer)
/s/ S. W. Slade Chief Financial Officer April 15, 1999
- ------------------------------- (Principal Financial and
Stewart W. Slade Accounting Officer)
/s/ P. A. Logan Director April 15, 1999
- -------------------------------
P.A. Logan
/s/ A. Tobler Director April 15, 1999
- -------------------------------
A. Tobler
Director April 15, 1999
- -------------------------------
G.D. Frentz
/s/ U. Thieme Director April 15, 1999
- ------------ ------------------
U. Thieme
/s/ S. Georgiev Director April 15, 1999
- -------------------------------
S. Georgiev
</TABLE>
32
<PAGE> 35
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
----
Report of BDO Stoy Hayward, Independent Auditors F1
Report of Price Waterhouse, Independent Auditors F2
Consolidated Balance Sheets F3
December 31, 1998 and 1997
Consolidated Statements of Operations F4
for the years ended December 31, 1998, 1997 and 1996
Consolidated Statements of Stockholders Equity F5-F6
for the years ended December 31, 1998, 1997 and 1996
Consolidated Statements of Cash Flows F6-F7
for the years ended December 31, 1998, 1997 and 1996
Notes to the Consolidated Financial Statements F8-F30
<PAGE> 36
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and
Shareholders of Senetek PLC
We have audited the accompanying consolidated balance sheet of Senetek PLC and
its subsidiaries as of December 31, 1998 and the related consolidated statement
of operations and stockholder's equity and of cash flow for the period ended
December 31, 1998. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audit.
We conducted our audit in accordance with the auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the consolidated
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the consolidated financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall consolidated financial statement presentation. We
believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Senetek
PLC and its subsidiaries as of December 31, 1998, and the results of their
operations and their cash flow for the period ended December 31, 1998, in
conformity with accounting principles generally accepted in the United States.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. The Company has suffered
recurring losses from its operations and, as described in Note 17, its ability
to continue research activities to a stage where it has a product able to be
commercialised is dependent upon securing additional sources of financing, which
raises substantial doubt about the Company's ability to continue as a going
concern. Management's plans in regard to this matter are also described in Note
17. The consolidated financial statements do not include any adjustments that
might result from the outcome of this uncertainty.
/s/ BDO STOY HAYWARD
- -----------------------------------
BDO STOY HAYWARD
8 Baker Street
LONDON WIM 1DA
England
15 April 1999
F-1
<PAGE> 37
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and
Shareholders of Senetek PLC
In our opinion, the consolidated balance sheet and the related consolidated
statements of operations and stockholder's equity and of cash flows as of and
for each of the two years in the period ended December 31, 1997 (appearing on
pages F-3 through F-30 of the Senetek PCL Form 10-K Annual Report for the year
ended December 31, 1998) present fairly, in all material respects, the
financial position, results of operations and cash flows of Senetek PCL and its
subsidiaries as of and for each of the two years in the period ended December
31, 1997, in conformity with generally accepted accounting principles. 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 of these statements in accordance with
generally accepted auditing standards which require that we plan and perform
the audit to obtain reasonable reassurance about whether the financial
statements are free of material misstatements. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for the
opinion expressed above. We have not audited the consolidated financial
statements of Senetek PLC for any period subsequent to December 31, 1997.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. The Company has suffered recurring
losses from its pharmaceutical operations and, as described in Note 17, its
ability to continue research activities to a stage where it has a product able
to be commercialised is dependent upon securing additional sources of
financing, which raises substantial doubt about the Company's ability to
continue as a going concern. Management's plans in regard to this matter are
also described in Note 17. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
PRICE WATERHOUSE
32 London Bridge Street
LONDON SE1 9SY
England 7 April 1998
F-2
<PAGE> 38
SENETEK PLC
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
December 31,
-----------------------------------
1998 1997
------------- -------------
(in $ thousands, except share amounts)
<S> <C> <C>
ASSETS
Cash and Cash Equivalents $ 808 6,216
Inventory (Note 3) 731 890
Trade Receivables
(net of provisions of $455,474 in 1998 & $37,000 in 1997) 1,265 1,123
Non-trade Receivables 129 113
Receivable from Employee -- 311
Prepaids and Deposits (Note 6) 1,360 939
------------- -------------
Total Current Assets 4,293 9,592
Property & Equipment - net (Note 4) 3,366 1,909
Goodwill & Other Intangible Assets - net (Note 5) 1,766 1,900
Deferred Financing Costs (Note 9) 1,241 --
------------- -------------
Total Assets 10,666 13,401
============= =============
LIABILITIES AND STOCKHOLDER'S EQUITY
Current Liabilities
Line of Credit (Note 8) $ 2,389 900
Accounts Payable (Note 7) 1,602 1,754
Accrued Liabilities (Note 7) 1,630 1,353
Accrued Compensation on Stock Options (Note 13)
-- Employees 4,112 3,048
-- Non-employees 1,708 840
------------- -------------
11,441 7,895
============= =============
Commitments and Contingencies (Note 17) -- --
Long Term Liabilities
Capital Leases 46 --
Stockholders' (Deficit)/Equity
Ordinary shares
Authorized Shares:
$0.08 (5 pence) par value: 100,000,000
Issued and Outstanding Shares 1998: 57,215,856
(1997: 52,186,821) 4,625 4,215
Share Premium 66,472 50,711
Accumulated Deficit (71,968) (49,476)
Accumulated other comprehensive income -- currency translation 50 56
------------- -------------
Total Stockholders' (Deficit)/Equity (821) 5,506
============= =============
Total Liabilities and Stockholder's (Deficit)/Equity $ 10,666 13,401
============= =============
</TABLE>
See accompanying summary of accounting policies and notes to consolidated
financial statements.
F-3
<PAGE> 39
SENETEK PLC
CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------
1998 1997 1996
-------- -------- --------
(IN $ THOUSANDS, EXCEPT FOR PER SHARE DATA)
<S> <C> <C> <C>
Revenues $ 4,672 5,722 6,486
Cost of Revenues (3,040) (3,988) (3,640)
-------- -------- --------
Gross Profit 1,632 1,734 2,846
-------- -------- --------
Operating Expenses:
Research & Development (7,980) (5,026) (2,187)
General & Administrative (9,162) (8,067) (2,588)
Marketing & Promotion (847) (3,525) (1,219)
Selling Expenses (732) (742) (918)
-------- -------- --------
Total Operating Expenses (18,721) (17,360) (6,912)
Loss from Operations (17,089) (15,626) (4,066)
Interest Income 188 279 34
Other (Expense)/Income - net 194 (92) 69
Debt modification expense (Note 8) (2,389) -- --
Interest Expense (including amortization
of deferred financing cost) (3,396) (100) (57)
-------- -------- --------
Loss Before Taxation (22,492) (15,539) (4,020)
Taxation -- -- --
Net Loss $(22,492) (15,539) (4,020)
======== ======== ========
Net Loss per Ordinary Share Outstanding
Basic (0.41) (0.32) (0.10)
Diluted (0.41) (0.32) (0.10)
Weighted Average Ordinary Shares
Outstanding, basic and diluted 54,229 49,178 41,235
-------- -------- --------
</TABLE>
See accompanying summary of accounting policies and notes to consolidated
financial statements.
F-4
<PAGE> 40
SENETEK PLC
CONSOLIDATED STATEMENT OF STOCKHOLDERS' (DEFICIT)/EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1996, 1997, AND 1998
($ IN THOUSANDS, EXCEPT FOR SHARE DATA)
<TABLE>
<CAPTION>
Accumulated
Other
Comprehensive
Income- Net
Share Accumulated Currency Stockholders'
Shares Amount Premium Deficit Translation Equity
---------- ------- ------- ----------- ----------- --------
<S> <C> <C> <C> <C> <C> <C>
Balances, December 31, 1995: 40,606,123 $ 3,266 $33,310 $(29,917) $ 86 $ 6,745
Issuance of Ordinary Shares in Private 1,000,082 78 972 -- -- 1,050
Placements
Conversion of Debentures 2,093,000 172 604 -- -- 776
Options Exercised 200,000 17 133 -- -- 150
Warrants Issued in Connection with
Convertible Debentures -- -- 1,588 -- -- 1,588
Comprehensive Income (Loss): --------- ------- ------- -------- ---- --------
Net Loss -- -- -- (4,020) -- (4,020)
Translation Loss -- -- -- -- (26) (26)
---------- ------- ------- -------- ---- --------
Total Comprehensive Income (Loss) -- -- -- (4,020) (26) (4,046)
---------- ------- ------- -------- ---- --------
Balances, December 31, 1996: 43,899,205 $ 3,533 $36,607 $(33,937) $ 60 $ 6,263
Issuance of Ordinary Shares in Private 200 -- -- -- -- --
Placements
Warrant Conversions 5,669,166 432 11,002 -- -- 11,434
Options Exercised 402,500 66 1,179 -- -- 1,245
Conversion of Debentures 2,215,750 184 1,923 -- -- 2,107
Comprehensive Income (Loss):
Net Loss -- -- -- (15,539) -- (15,539)
Translation Loss -- -- -- -- (4) (4)
---------- ------- ------- -------- ---- --------
Total Comprehensive Income (Loss) -- -- -- (15,539) (4) (15,543)
---------- ------- ------- -------- ---- --------
Balances, December 31, 1997: 52,186,821 $ 4,215 $50,711 $(49,476) $ 56 $ 5,506
Issuance of Ordinary Shares in Private 1,100,500 90 3,485 -- -- 3,575
Placements
Warrant Conversions 458,706 38 534 -- -- 572
Deferred Financing Costs -- -- 3,936 -- -- 3,936
Conversion of Debt to Equity (Note 8) 2,105,714 173 4,038 -- -- 4,211
Debt Modification Expense (Note 8) -- -- 2,389 -- -- 2,389
Options Exercised 1,364,115 109 1,379 -- -- 1,488
Comprehensive Income (Loss):
Net Loss -- -- -- (22,492) -- (22,492)
Translation Loss -- -- -- -- (6) (6)
---------- ------- ------- -------- ---- --------
Total Comprehensive Income (Loss) -- -- -- (22,492) (6) (22,498)
---------- ------- ------- -------- ---- --------
Balances, December 31, 1998: 57,215,856 $ 4,625 $66,472 $(71,968) $ 50 $ (821)
</TABLE>
See accompanying summary of accounting policies and notes to consolidated
financial statements.
F-5
<PAGE> 41
<PAGE> 42
SENETEK PLC
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1998 1997 1996
-------- -------- -------
(IN $ THOUSANDS)
<S> <C> <C> <C>
CASH FLOWS FROM
OPERATING ACTIVITIES:
Net Loss $(22,492) $(15,539) $(4,020)
Adjustments to reconcile net loss to net cash:
Depreciation and Amortization 540 548 450
Write-off of Assets -- 136 31
Loss/(Gain) on Sale of Equipment 29 (1) --
Stock Option Compensation 2,532 3,888 --
Debt Modification Expense 2,389 -- --
Deferred Finance Amortisation 3,355 -- --
Interest on Convertible Debentures effected by
Issue of Shares -- 47 --
Changes in Assets and Liabilities:
Trade Receivables (increase)/decrease (142) (389) 25
Non-trade Receivables (increase)/decrease (16) (25) (47)
Receivable from Employee (increase)/decrease 311 (311) --
Inventory decrease/(increase) 159 767 (432)
Prepaids (increase)/decrease (421) (801) (21)
Accounts Payable and Accrued Liabilities increase 171 1,559 420
-------- -------- -------
Net Cash Used by Operating Activities $(13,585) $(10,121) $(3,594)
-------- -------- -------
CASH FLOW FROM INVESTING ACTIVITIES:
Purchase of Property & Equipment (1,892) (1,130) (318)
Proceeds from Disposals of Property & Equipment -- 108 4
-------- -------- -------
Net Cash Used by Investing Activities $ (1,892) $ (1,022) $ (314)
</TABLE>
F-6
<PAGE> 43
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1998 1997 1996
-------- ------- ------
(IN $ THOUSANDS)
<S> <C> <C> <C>
CASH FLOW FROM FINANCING ACTIVITIES:
Proceeds of Issuance of Ordinary Shares
from exercise of Warrants and Options 2,646 12,537 1,200
Proceeds from line of credit 6,600 -- --
Proceeds from issuance of 8% Convertible Debentures -- 1,500 3,500
Costs of Financing (660) (330) (250)
Short-term Loans and Overdrafts 1,489 670 230
-------- ------- ------
Net Cash Provided by Financing Activities 10,075 14,377 4,680
-------- ------- ------
NET (DECREASE)/INCREASE IN CASH
AND CASH EQUIVALENTS (5,402) 3,234 772
Cash and Cash Equivalents at the Beginning
of the period 6,216 2,975 2,237
Effects of Exchange Rate Changes on Cash (6) 7 (34)
-------- ------- ------
Cash and Cash Equivalents at the End of the Period $ 808 6,216 2,975
======== ======= ======
Supplemental disclosures of cash flow information
Interest $ 41 100 57
Income Taxes $ -- -- --
</TABLE>
In addition, the Company issued 2,105,714 shares to settle part of its line of
credit for which no cash was received.
See accompanying summary of accounting policies and notes to consolidated
financial statements
F-7
<PAGE> 44
SENETEK PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1. ACTIVITIES
Senetek PLC (the "Company") was incorporated in England on October 5,
1983 as a public company with limited liability under the Companies Act
1985 to exploit commercially the products which may arise as a result of
Company sponsored research in the fields of life science and
biotechnology with particular reference to the diagnosis and treatment
of diseases relating to senescence or aging.
Since incorporation, the Company has concentrated on its research and
development activities together with the requirement of procuring the
necessary supportive equity financing.
The main area in which the Company is involved is the development of
therapies for Male Sexual Dysfunction ("MSD"). Completion of Phase III
clinical trials for Invicorp(TM), a drug combination therapy of
vasoactive intestinal polypeptide and phentolamine mesylate, in
conjunction with a patented auto-syringe (Reliaject(TM)), took place in
1997 and Marketing Authorization Applications ("MAA's")for Invicorp(TM)
have been filed with the medicines evaluation agencies in the United
Kingdom, Ireland, Denmark, Switzerland and New Zealand. An MAA was
received from the Danish medicines agency during the third quarter of
1998. In March 1999, the United Kingdom's Committee on Safety of
Medicines informed the Company that it was prepared to advise the United
Kingdom's licensing authority to grant an MAA for Invicorp upon the
Company's compliance with specified conditions. The Company is currently
in the process of complying with these conditions.
The Company also filed in 1998 an Abbreviated New Drug Application with
the Federal Food and Drug Administration in the United States for the
marketing approval of Adrenaject, which is the Reliaject drug delivery
device filled with Epinephrine to be used for the treatment of
anaphylactic shock. A license agreement was entered into with a major
pharmaceutical company during the fourth quarter of 1998, granting them
the worldwide rights for the Adrenaject system in return for licensing
fees and royalty payments conditional on the Company achieving certain
milestones. No revenues have been recognized for Adrenaject in 1998.
The Company also sells monoclonal antibodies purchased from outside
suppliers and derived from sponsored research into diagnostic procedures
for Alzheimer's disease and other cell lines to the scientific community
for research purposes.
In September 1995, the Company extended its range of interests by
acquiring, through its newly formed and now renamed subsidiary Carme
Cosmeceutical Sciences, Inc. ("CCSI"), formerly named Carme
International, Inc. ("CII") - a Delaware Corporation the majority of the
assets of Carme Inc., an organization based in Novato, California that
had concentrated on the manufacture and distribution of health and
beauty products. This
F-8
<PAGE> 45
acquisition was designed to extend the Company's interest in the areas
of skin-care and to provide a vehicle for the development and
distribution of a product featuring the Kinetin compound (formerly
referred to as Factor X or Vivakin) in a cosmetic format. During 1997,
CCSI revised its business strategy resulting in a rationalized core
brand portfolio and the outsourcing of manufacturing requirements.
During 1998 the Company has entered into license agreements with two
companies for the use of Kinetin in the prestige and dermatological
markets.
Subsidiary Undertakings
SDDT (formerly named MEIS Corporation) was incorporated in the State of
Delaware in December 1993. Its main activity is the development,
production and distribution of the auto-injector (Reliaject(TM)) syringe
for use with the Company's MSD compound.
Carme Cosmeceutical Sciences Inc. (formerly named Carme International,
Inc.) was incorporated in the State of Delaware in June 1995. Its main
activity is the supply of health and beauty aids to various segments of
the cosmetics market.
2. PRINCIPAL ACCOUNTING POLICIES
(a) Basis of Consolidation
The consolidated financial statements incorporate the accounts
of Senetek PLC and its wholly owned subsidiaries, CCSI and SDDT
Corporation. All significant intercompany balances and
transactions have been eliminated in consolidation. The accounts
have been prepared in accordance with U.S. generally accepted
accounting principles (U.S. GAAP) requiring management to make
estimates and assumptions that effect the reported amounts of
assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting
period. Actual amounts could differ from those estimates.
Certain prior year balances have been re-classified in order to
conform to current year presentation.
The accompanying financial statements have been prepared
assuming that the Company will continue as a going concern. The
Company's ability to continue as a going concern may depend on
its ability to obtain financing sufficient to support its
operations and business development plans.
(b) Revenues
Revenues are recognized at the time of shipment (or time of
rendering in the case of services) and are stated at the net
invoiced value of goods and services supplied to customers after
deduction of sales and value added tax where applicable.
F-9
<PAGE> 46
(c) Inventories
Inventories, constituting finished goods, raw materials and
work-in-progress are stated at the lower of cost or market
value. Cost is determined using the first in first out method.
(d) Property and Equipment
Property and equipment are stated at cost less accumulated
depreciation. Depreciation is calculated on a straight line
basis using the following estimated useful lives:
Fixtures, fittings and equipment 3 to 15 years.
Motor vehicles 4 years.
(e) Intangible Assets
Intangible assets representing patents and proprietary
technology are stated at cost less accumulated Amortisation.
Amortisation is calculated on a straight line basis over an
estimated useful life of 5 years.
Goodwill is being amortized on the straight line method over 15
years. Goodwill included in the consolidated financial
statements relates to the Company's acquisition on September 26,
1995 of certain assets of Carme Inc.
(f) Impairment of Long-Lived Assets
In accordance with Statement of Financial Accounting Standards
("SFAS") No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long Lived Assets to Be Disposed Of", the Company
reviews the carrying value of its property and equipment and
intangible assets for impairment in value whenever events or
changes in circumstances indicate that the carrying amount of
assets may not be recoverable. The Company considers various
valuation factors including discounted cash flows, fair values,
and replacement costs to assess any impairment of such assets.
(g) Research and Development
Expenditures on research and development are written off as
incurred.
(h) Foreign Exchange
The Company follows currency translation principles established
by SFAS No. 52. All assets and liabilities in the balance sheets
of foreign branches and subsidiaries whose functional currency
is other than U.S. dollars are translated at period-end exchange
rates. All income and expenditure items in the profit and
F-10
<PAGE> 47
loss account of foreign branches and subsidiaries whose
functional currency is other than U.S. dollars are translated at
average monthly exchange rates. Translation gains and losses
arising from the translation of the financial statements of
foreign branches and subsidiaries whose functional currency is
other than the U.S. dollar are not included in determining net
income but are accumulated in a separate component of
stockholders' equity. Foreign currency transaction gains and
losses are included in the determination of net income in the
period in which they occur. The functional currency of the
Company's United Kingdom operation is the Pound Sterling.
(i) Calculation of the Number of Shares in Issue and Net Loss per
Share
The loss per share for all periods presented is calculated on
the basis of the weighted average of the number of shares in
issue during each period. The net loss calculations include
fully paid Ordinary share equivalents. Ordinary share
equivalents have been excluded from diluted earnings per share
because of their anti-dilutive effect.
(j) Cash and Cash Equivalents
For the purposes of the statement of cash flows and balance
sheet, the Company considers any highly liquid debt instruments
purchased with an original maturity of three months or less to
be cash equivalents.
(k) Financial Instruments
The carrying value of the Company's financial instruments, being
cash, receivables and current liabilities, approximate fair
value due to the short term value of these items. Fair value is
the amount at which the instrument could be exchanged in a
current transaction between willing parties, other than in a
forced sale or liquidation.
(l) Income Taxes
The Company's recognizes deferred tax liabilities and assets for
the expected future tax consequences of events that have been
included in the financial statements or tax returns.
Accordingly, deferred tax liabilities and assets are determined
based on the difference between financial statements and tax
basis of assets and liabilities using enacted rules in effect
for the year in which differences are expected to reverse. The
effect on deferred tax assets and liabilities of a change in tax
rates is recognized in income in the period that includes the
enactment date.
A valuation allowance is established to reduce the deferred tax
assets when management determines it is more likely than not
that the related tax benefits will not be realized.
F-11
<PAGE> 48
(m) Recent Accounting Pronouncements Not Yet Implemented
In February 1998 the FASB issued SFAS No. 132, "Employers'
Disclosures about Pensions and Other Post-retirement Benefits",
which revises employer's disclosures about pensions and other
post-retirement plans. SFAS 132 is effective for the periods
beginning after December 15, 1997 and requires comparative
information for earlier years to be restated. The standard
currently does not apply to the Company.
In June 1998, the FASB issued SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities". SFAS No. 133
requires companies to recognize all derivative contracts as
either assets or liabilities in the balance sheet and to measure
them at fair value. If certain conditions are met, a derivative
may be specifically designated as a hedge, the object of which
is to match the timing of gain or loss recognition on the
hedging derivative with the recognition of (i) the changes in
the fair value of the hedged asset or liability that are
attributable to the hedged risk, or (ii) the earnings effect of
the hedged forecasted transaction. For a derivative not
designated as a hedging instrument, the gain or loss is
recognized in income in the period of change. SFAS No. 133 is
effective for all fiscal quarters of fiscal years beginning
after June 15, 1999. Historically, the Company has not entered
into derivative contracts either to hedge existing risks or for
speculative purposes.
3. INVENTORY
Inventory at cost comprises the following:
<TABLE>
<CAPTION>
December 31, 1998 December 31, 1997
----------------- -----------------
(in $ thousands)
<S> <C> <C>
Finished Goods $465 $462
Raw Materials 265 427
Work in Progress 1 1
---- ----
$731 $890
==== ====
</TABLE>
F-12
<PAGE> 49
4. PROPERTY AND EQUIPMENT
Property and equipment is summarized as follows:
<TABLE>
<CAPTION>
December 31, 1998 December 31, 1997
----------------- -----------------
(in $ thousands)
<S> <C> <C>
Cost:
Fixtures, fittings, plant and
laboratory equipment $ 2,898 $ 2,028
Motor vehicles 31 31
Assets in the course of construction 1,357 396
------- -------
4,286 2,455
------- -------
Accumulated depreciation:
Fixtures, fittings, plant and
laboratory equipment (894) (528)
Motor vehicles (26) (18)
(920) (546)
------- -------
$ 3,366 $ 1,909
------- -------
</TABLE>
NOTES:
1. Depreciation charge during the year amounted to $406,000 (1997:
$237,000, 1996: $187,000).
2. The tangible fixed assets of the Group include plant and
laboratory equipment owned under Capital leases as follows:
<TABLE>
<CAPTION>
1998 1997
----- ----
(in $ thousands)
<S> <C> <C>
Cost $ 519 $ 26
Depreciation (55) (3)
----- ----
Net book value $ 464 $ 23
===== ====
</TABLE>
5. GOODWILL AND OTHER INTANGIBLE ASSETS
The amount in the Company's Balance Sheet represented by these
intangible assets is made up as follows:
<TABLE>
<CAPTION>
December 31, 1998 December 31, 1997
----------------- -----------------
(in $ thousands)
<S> <C> <C>
Goodwill:
Cost $ 2,202 $ 2,202
Amortisation (436) (302)
------- -------
</TABLE>
F-13
<PAGE> 50
<TABLE>
<CAPTION>
December 31, 1998 December 31, 1997
----------------- -----------------
(in $ thousands)
<S> <C> <C>
Net 1,766 1,900
------- -------
Other Intangible Assets:
Cost 635 635
Amortisation (635) (635)
------- -------
Net $ -- $ --
------- -------
Total $ 1,766 $ 1,900
------- -------
</TABLE>
In October 1992, the Company acquired from the inventor, the patent
rights and related proprietary technology for a self-administered
auto-injector syringe. It is anticipated that initially this will be
used as the delivery system for the Company's MSD compound. The total
consideration for these intangible assets was $635,000. Future royalties
will become payable by the Company to the inventor based on the number
of syringes sold.
The Goodwill relates to the acquisition of certain of the assets of
Carme by CCSI in 1995.
6. PREPAIDS AND DEPOSITS
Prepaids and deposits include $977,000 and $813,000 paid to capital
goods suppliers for the automation of the manufacture and sub assembly
of the autosyringe ( Reliaject) components in SDDT at December 31, 1998
and 1997, respectively.
7. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Accounts payable and accrued liabilities comprise the following:
<TABLE>
<CAPTION>
December 31, 1998 December 31, 1997
Accrued Accounts Accrued Accounts
Liabilities Payable Liabilities Payable
----------- -------- ----------- ---------
(in $ thousands)
<S> <C> <C> <C>
Trade Creditors 625 1,522 -- 874
Staff Salaries 9 -- 41 3
Vacation Pay Accrual 141 -- 53 --
Taxes and Social Security 33 -- 25 --
Audit and Accountancy Fees 232 28 173 8
Research Grants and Costs -- -- 64 631
Legal and Professional Fees 45 52 39 71
Consultancy Fees 35 -- 300 167
Other Liabilities and Accruals 510 -- 658 --
------ ------ ------ ------
$1,630 $1,602 $1,353 $1,754
====== ====== ====== ======
</TABLE>
8. LINE OF CREDIT
On July 8, 1998 the Company received $5,940,000 ($6,600,000 less a 10%
fee) under the terms of a $10m Credit Agreement with a third party. This
line of credit is non interest bearing and fell due in April 2000. In
connection with this line of credit 1,885,714
F-14
<PAGE> 51
warrants at an exercise price of $3.50 and 377,150 warrants at an
exercise price of $6 were granted. The fair value of these warrants,
calculated using the Black Scholes model, was calculated at $3,936,000.
The fair value of these warrants will be amortized, using the interest
rate method, over the term of the credit agreement. (See note 9).
In September 1998, the $3.50 warrants were exercised, without payment,
and 1,885,714 Ordinary shares issued by the Company to extinguish this
line of credit. Subsequent to that date the Company entered into
discussions with the third party involving a dispute over the actual
exercise price of the warrants and whether any amounts remained
outstanding under the original $6.6 million loan agreement.
Pursuant to these discussions, the Company agreed to reduce the exercise
price of the warrants from $3.5 to $2 and sell an additional 220,000
shares at $2 per share. As a result of these transactions, approximately
$4.2 million of the original $6.6 million credit agreement was exchanged
for approximately 2,105,000 shares of common stock. As a result of the
Company reducing the exercise price of the warrants, the Company
recognized an expense totaling $2,389,000.
8. THE BALANCE ON DECEMBER 31, 1997
Relates to a $1,000,000 line of credit granted by The Bank of New York
to CCSI. The outstanding balance is payable on demand and accumulates
interest at 2 percentage points above the higher of the prime rate or
the federal funds rate plus .5 percentage points. The line of credit
is guaranteed by the Company and is secured by the personal property
and fixtures of the Company. The line of credit was paid down by the
Company in the first quarter of 1998 and the account was closed.
9. DEFERRED FINANCING COSTS
<TABLE>
<CAPTION>
December 31, 1998 December 31, 1997
----------------- -----------------
(in $ thousands)
<S> <C> <C>
Deferred financing costs
arising on line of credit (Note 8) $ 3,936 $--
------- ---
Accumulated Amortisation (2,695) --
------- ---
$ 1,241 $--
------- ---
</TABLE>
10. STOCKHOLDERS' EQUITY
(a) During the year ended December 31, 1998, the outstanding
Ordinary shares of the Company increased by 5,029,035 to
57,215,856. During 1998, the Company sold 1.1 million ordinary
shares to Windsor Capital in exchange for $3.3 million in cash.
The agreement requires the Company to issue an additional
625,000 ordinary shares if the market price for the Company's
American Depository Shares (ADS) as of June 30, 1998 was less
than $5 per share. The Company's price of its ADS was less than
$5 per share as of June 30, 1998. The Company expects to issue
the additional shares in the second quarter of fiscal 1999 as
part of the settlement agreement (note 18).
(b) The following warrants, mainly issued in association with
private placements, were outstanding at December 31, 1998:
F-15
<PAGE> 52
<TABLE>
<CAPTION>
Lapsed/ Warrants Unexercised
Warrants Issued Exercise Price Expiry Date Cancelled at December 31, 1998
--------------- -------------- ------------- --------- --------------------
<S> <C> <C> <C> <C>
25,000 1.15625 December 1999 -- 25,000
1,100,00 5.00000 April 2001 -- 1,100,000
--------- ----- ---------
1,125,000 -- 1,125,000
--------- ----- ---------
</TABLE>
The warrants referred to above entitle the holder to purchase
American Depository Receipts of the Company at the purchase
prices referred to above at any time commencing 90 days from the
date of subscription and prior to the expiration date. The offer
and sale of the warrants is being made in compliance with and in
reliance upon the provision of Regulation S under the United
States Securities Act of 1933, as amended.
(c) The following warrants, mainly issued in association with
private placements, were outstanding at December 31, 1997:
<TABLE>
<CAPTION>
Lapsed/ Warrants Unexercised
Warrants Issued Exercise Price Expiry Date Cancelled at December 31, 1997
--------------- -------------- ------------- --------- --------------------
<S> <C> <C> <C> <C>
633,000 3.00 May 1996 40,000 --
1,215,920 3.00 June 1997 171,931 --
1,036,517 3.00 July 1997 -- --
25,00 1.15625 December 1999 -- 25,000
2,085,185 1.4625 December 1998 -- 400,000
--------- ------- -------
4,995,622 211,931 425,000
--------- ------- -------
</TABLE>
(1) 1,037,591 "A" warrants at an exercise price of $2.50 per
Ordinary share, initially expiring May 15, 1990. The
Board of Directors had approved the extension of the
expiry date of the "A" warrants to May 15, 1997. During
May 1997, 894,573 "A" warrants were exercised at $2.50
per warrant. The remaining "A" warrants then lapsed.
(2) 1,322,500 "B" warrants at an exercise price of $3.25 per
Ordinary share, initially expiring May 15, 1990. The
Board of Directors had approved the extension of the
expiry date of the "B" warrants to May 15, 1997. During
May 1997, 37,100 "B" warrants were exercised at $3.25
per warrant. The remaining "B" warrants then lapsed.
(d) The following Regulation S Convertible Warrants, issued in
association with the placement of Convertible Debentures, remain
unexercised as follows:
<TABLE>
<CAPTION>
Warrants Issued Exercise Price Expiry Date Warrants Unexercised
--------------- -------------- ----------- --------------------
<S> <C> <C> <C> <C>
1,558,235 $1.70 10/10/1999 58,941
354,930 $4.4375 04/01/2000 354,930
</TABLE>
The Warrants referred to above entitle the holder thereof to
purchase American Depositary Receipts ("American Depositary
Receipts") of the Company at a purchase price per American
Depositary Receipt equal to 115% of the average closing bid
price of the Company's American Depositary Receipt for the five
(5) days preceding the Closing Date, such Warrants to be
exercisable at any time on or after the 90th day from the
Closing Date until the expiry date. The offer and the sale of
the Warrants is being made in compliance with and in reliance
upon the provision of Regulation S under the United States
Securities Act of 1933, as amended.
F-16
<PAGE> 53
11. STOCK OPTIONS
(a) On October 8, 1993, 4,550,000 options, representing the total
number of options available for grant at that time were
registered with the Securities and Exchange Commission on Form
S-8.
In December 1985, the Company adopted a share option plan (the
"No. 1 Plan") for employees. Under the Plan, options to purchase
Ordinary shares are granted by the Board of Directors, subject
to the exercise price of the option being not less than the
market value of an Ordinary share twenty-one days prior to the
grant date. After the first twelve months following the date of
the grant, options are exercisable at the rate of 25 percent,
for each full year of employment. In the event the optionee's
employment is terminated, the option may not be exercised unless
the Board of Directors so permits. The options expire seven
years from the date of the grant. On May 16, 1997 shareholders
approved the extension of the Plan until December 1, 2005 and an
increase in the number of shares available for grant to
6,000,000.
The following table summarizes option transactions under the No.
1 Plan for the three years ended December 31, 1998:
<TABLE>
<CAPTION>
Shares Exercise
Available Options Options Price
For Grant Outstanding Vested Per Share
---------- ----------- ---------- ----------
<S> <C> <C> <C> <C>
Balance at December 31, 1995 891,000 1,109,000 444,500 $0.75-2.00
Exercised -- (200,000) (200,000) $ 1.75
Granted (1,436,000) 1,436,000 -- $1.25-4.00
Options Vested -- -- 201,750 $0.75-2.00
---------- ---------- ---------- ----------
Balance at December 31, 1996 (545,000) 2,345,000 446,250 $0.75-4.00
Authorised 4,000,000 -- -- --
Cancelled 65,000 (65,000) (65,000) $1.47-2.00
Exercised -- (278,625) (278,625) $1.30-2.00
Granted (690,000) 690,000 -- $1.25-4.88
Options Vested -- -- 1,009,500 $1.25-2.00
---------- ---------- ---------- ----------
Balance at December 31, 1997 2,830,000 2,691,375 1,112,125 $0.75-4.88
---------- ---------- ---------- ----------
Authorised -- -- -- --
Cancelled 404,000 (404,000) (18,250) $ 3.50
</TABLE>
F-17
<PAGE> 54
<TABLE>
<CAPTION>
Shares Exercise
Available Options Options Price
For Grant Outstanding Vested Per Share
---------- ----------- ---------- ----------
<S> <C> <C> <C> <C>
Exercised -- (664,115) (664,115) $1.25-2.00
Granted (1,751,000) 1,751,000 -- $2.00-3.75
Options Vested -- -- 633,655 $1.25-4.88
---------- ---------- ---------- ----------
Balance at December 31, 1998 1,483,000 3,374,260 1,063,415 $0.75-4.88
---------- ---------- ---------- ----------
</TABLE>
Not included in the above are options granted to directors and certain employees
outside the No. 1 Plan, 350,000 and 150,000 options were granted to Dr. G. Homan
and Mr. P.A. Logan respectively, under the general powers granted to directors
for the allotment of equity securities, approved at an Extraordinary General
Meeting held on 6 March 1991. In June 1997, in conjunction with the issuance of
new employment agreements, 1.8 million options were granted to the directors and
certain employees of the company. The following table summarises option
transactions outside the No. 1 Plan in the year ended 31 December 1998. Except
for the granting of the above options, there were no transactions prior to 1998.
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS VESTED EXERCISE PRICE
------------------- -------------- --------------
<S> <C> <C> <C>
Balance at 31 December 1997 2,300,000 1,100,000 $0.75 - $1.50
Exercised (700,000) (700,000) $0.75 - $1.50
Options Vested -- --
Cancelled (200,000) -- $1.50
--------- ---------
Balance at 31 December 1998 1,400,000 900,000 $1.50
--------- ---------
</TABLE>
(b) In May 1987 the Company adopted a share option plan ("the No. 2
Plan") for non-Executive Directors and Consultants. Under the
No. 2 Plan, options to purchase Ordinary shares are granted by
the Board of Directors, subject to the exercise price being not
less than the market value of an Ordinary share 21 days prior to
the grant date. Options granted under this plan are exercisable
in their entirety one year after the date of grant. In the event
the optionee ceases to be a non-executive Director or
consultant, the option may not be exercised unless the Board of
Directors so permits. The options expire seven years from the
date of grant. On May 16, 1997 shareholders approved an
extension of the Plan until December 1, 2005 and an increase in
the number of shares available for grant to 4,000,000.
F-18
<PAGE> 55
The following table summarizes option transactions under the No.
2 Plan for the three years ended December 31, 1998:
<TABLE>
<CAPTION>
Shares Exercise
Available Options Options Price
For Grant Outstanding Vested Per Share
---------- ----------- -------- ----------
<S> <C> <C> <C> <C>
Balance at December 31, 1995 1,780,000 220,000 201,000 $0.75-2.00
Granted (7,500) 7,500 -- $1.21
Options Vested -- -- 19,000 $1.75
---------- -------- -------- ----------
Balance at December 31, 1996 1,772,500 227,500 220,000 $0.75-2.00
---------- --------
Authorised 2,000,000 -- --
Granted (230,000) 230,000 -- $1.22-3.53
---------- --------
Cancelled 35,000 (35,000) (35,000) $2.00
Exercised -- (123,875) (123,875) $0.75-2.00
--------
Options Vested -- -- 7,500 $1.22
---------- -------- -------- ----------
Balance at December 31, 1997 3,577,500 298,625 68,625 $1.22-3.53
Granted (415,000) 415,000 -- $2.00-4.28
Vested -- -- 230,000 --
---------- -------- -------- ----------
Balance at December 31, 1998 3,162,500 713,625 298,625 $1.22-4.28
---------- -------- -------- ----------
</TABLE>
F-19
<PAGE> 56
Not included in the above are options granted to non-executive directors
and consultants outside the No. 2 Plan under the general powers granted
to the directors for the allotment of equity securities, approved at the
Annual General Meeting of the Company held on May 16,1997. The following
table summarizes option transactions outside the No. 2 Plan during 1997
and 1998. There were no transactions prior to 1997.
<TABLE>
<CAPTION>
Options Outstanding Options Vested Exercise Price
<S> <C> <C> <C>
Balance at 31 December 1996 -- --
Granted 132,500 -- $1.22 - $4.50
Options Vested -- 110,000 $1.22 - $2.90
------- -------
Balance at 31 December 1997 132,500 110,000 $1.22 - $4.50
Granted 60,000 -- $1.50
Options Vested -- 22,500 $2.90 - $4.50
------- -------
Balance at 31 December 1998 192,500 132,500 $1.22 - $4.50
</TABLE>
F-21
<PAGE> 57
12. CALCULATION OF THE NUMBER OF SHARES IN ISSUE
<TABLE>
<CAPTION>
Shares Weighted
Issued and Average Shares
Outstanding Outstanding
----------- --------------
<S> <C> <C>
Twelve Months January 1, 1996 through December 31, 1996
Shares outstanding at the beginning of the period 40,606,123 40,606,123
Private Placements and Conversion of Debentures 3,093,082 604,115
Options Exercised 200,000 25,205
---------- ----------
Shares outstanding at the end of the period 43,899,205 41,235,443
---------- ----------
Twelve Months January 1, 1997 through December 31, 1997
Shares outstanding at the beginning of the period 43,899,205 43,899,205
Exercise and Conversion of Warrants 5,669,166 3,362,332
Options Exercised 402,500 138,075
Private Placements and Conversion of Debentures 2,215,950 1,778,417
---------- ----------
Shares outstanding at the end of the period 52,186,821 49,178,029
---------- ----------
Twelve Months January 1, 1998 through December 31, 1998
Shares outstanding at the beginning of the period 52,186,821 52,186,821
Exercise and Conversion of Warrants 458,706 416,793
Options Exercised 1,364,115 665,038
Private Placements and Conversion of Debentures 3,206,214 960,752
---------- ----------
Shares outstanding at the end of the period 57,215,856 54,229,404
---------- ----------
</TABLE>
13. SHARE OPTION PLANS
Under U.S. GAAP, the Company applies Accounting Principle Board Opinion
No. 25, "Accounting for Stock Issues to Employees" and related
interpretations in accounting for its option plans. $1,664,000 (1997:
$3,048,000; 1996: nil) of expense has been recognized for stock based
employee compensation in accordance with APB 25. Had compensation
expense been determined based upon the fair value at the grant date for
awards as an alternate provided by SFAS 123, "Accounting for Stock-Based
Compensation", the Company's net loss and loss per share would be
$24,394,000 and $0.45 per share respectively in 1998, $16,489,000 and
$0.34 per share respectively in 1997, and $4,298,000 and $0.11 per
share, respectively in 1996. These amounts are for disclosure purposes
only and may not be representative of future calculations, since the
estimated fair value of stock options is amortized to expense over the
vesting period, and additional options may be granted in future years.
The fair value of the options granted are estimated using the
Black-Scholes option pricing model with the following assumptions:
Dividend yield of nil, volatility of 76% (1997 - 94% and 1996 - 93%),
risk-free investment rate of 6.1% (1997 - 6.1%, 1996 - 6.37%), and an
expected life of 6 years.
F-21
<PAGE> 58
The average fair values of the options granted for each Ordinary share
American Depositary Receipt during 1998, 1997 and 1996 are estimated at:
<TABLE>
<CAPTION>
EXERCISE PRICE ON
DATE OF GRANT 1998 1997 1996
----------------- ----- ---- ----
<S> <C> <C> <C>
equals market price $2.48 3.26 1.06
exceeds market price -- 2.54 --
below market price -- 3.84 --
All options $2.48 3.61 1.06
</TABLE>
During 1998, the Company recognized $868,000 (1997:$840,000; 1996:$nil)
of general and administrative expense relating to all stock options
awarded to non-employees and consultants in exchange for services based
upon the fair value of the awards at the grant date which were estimated
using the Black-Scholes option pricing model with the following
assumptions.
Dividend yield of nil, (1997:nil) volatility of 74%, (1997:85%) risk
free investment rate of 6.1% (1997:63%) and an expected life of 4 years
(1997: 4 years). The average fair values of the options granted during
1998 and 1999 are estimated as being $2.32 for each Ordinary share
American Depositary Receipt.
14. TAXATION
The Company is incorporated in England with two U.S. subsidiaries. The
Company is subject to United Kingdom corporation tax on a worldwide
basis with relief for foreign taxes in cases where double taxation
relief agreements have been established. The Company will be liable for
United States tax (including state taxes) through the U.S. subsidiaries.
No income tax charges/(credits) have been reflected in the Consolidated
Statement of Operations due to the net operating losses in the year
which substantially accounts for the deferred tax asset.
Provisional tax losses available to the Company in the United Kingdom
are estimated to be approximately $47,363,045 at the end of fiscal year
1998. The deferred tax asset value of these losses is approximately
$14,682,544 but no benefit has been recognized in the financial
statements as the benefit is offset by an equal valuation allowance as
it is more likely than not that the Company will not generate taxable
income in the foreseeable future to utilize the deferred tax asset.
Provisional tax losses available to the Company in the U.S. are
estimated to be approximately $9,702,874 at the end of fiscal year 1998.
The deferred tax asset value of these losses is approximately $3,201,948
but no benefit has been recognised in the financial statements as the
benefit is offset by an equal valuation allowance as it is more
F-22
<PAGE> 59
likely than not that the Company will not generate taxable income in the
foreseeable future to utilize the deferred tax asset. Net operating loss
carryforwards and expiration dates are:
<TABLE>
<CAPTION>
YEAR LOSS EXPIRATION DATE
---- ---- ---------------
<S> <C> <C>
1993 $44,917 2008
1994 $64,491 2009
1995 $850,344 2010
1996 $915,651 2011
1997 $3,400,000 2012
1998 $4,427,471 2013
</TABLE>
F-23
<PAGE> 60
15. INDUSTRY AND GEOGRAPHIC AREA SEGMENT
In June 1997, SFAS No. 131, "Disclosures about Segments of an Enterprise
and Related Information," was issued effective for fiscal years ending
after December 15, 1998. The Company's reportable segments are strategic
business units that offer different products and services. They are
managed separately because each business requires different technology
and marketing strategies. The Company has two reportable segments:
Pharmaceutical operations and Cosmetics operations. The Pharmaceutical
operations comprise Senetek PLC and SDDT and include biopharmaceuticals,
drug development, drug delivery development and the sale of monoclonal
antibodies. The Cosmetics operation comprises CCSI and includes the
distribution of skin care and beauty products to a number of markets in
North America. The accounting policies of the segments are the same as
those described in the summary of significant accounting policies. All
intersegment sales prices are market based. The Company evaluates
performance based on operating results of the respective business units.
<TABLE>
<CAPTION>
INDUSTRY SEGMENTS 1998 1997 1996
----------------- -------- -------- --------
($ IN THOUSANDS)
<S> <C> <C> <C>
Net Sales
Pharmaceuticals $ 1,517 $ 1,167 $ 499
Cosmetics 3,155 4,555 5,987
-------- -------- --------
Net Sales for reportable segments
and consolidated net sales 4,672 5,722 6,486
-------- -------- --------
Operating (Loss)/Profit
Pharmaceuticals (15,378) (12,676) (4,110)
Cosmetics (1,711) (2,950) 44
Total Operating (Loss) for reportable segments (17,089) (15,626) (4,066)
Interest Income/(expense) 147 229 (23)
Other (Expense)/Income 194 (142) 69
Debt modification expense (2,389) -- --
Amortisation of DFC (3,355) -- --
-------- -------- --------
Loss Before Taxation $(22,492) $(15,539) $ (4,020)
-------- -------- --------
Assets:
Pharmaceuticals 3,842 2,303 1,090
Cosmetics 3,258 3,920 5,318
Total assets for reportable segments 7,100 6,223 6,408
Corporate 3,566 7,178 3,433
-------- -------- --------
Total Consolidated Assets $ 10,666 $ 13,401 $ 19,841
-------- -------- --------
Capital Expenditure:
Pharmaceuticals 1,105 1,130 254
Cosmetics 68 -- 64
Total capital expenditure for
reportable segments 1,173 1,130 318
General Corporate 719 --
-------- -------- --------
Total consolidated capital expenditure $ 1,892 $ 1,130 $ 318
======== ======== ========
</TABLE>
F-24
<PAGE> 61
<TABLE>
<CAPTION>
INDUSTRY SEGMENTS 1998 1997 1996
----------------- -------- -------- --------
($ IN THOUSANDS)
<S> <C> <C> <C>
Depreciation and Amortization:
Pharmaceuticals 147 370 278
Cosmetics 134 178 172
Total Depreciation and
Amortization of Reportable
Segments 281 548 450
Corporate 259 -- --
-------- -------- --------
Total Consolidated Depreciation
and Amortization $ 540 $ 548 $ 450
======== ======== ========
</TABLE>
F-25
<PAGE> 62
<TABLE>
<CAPTION>
GEOGRAPHIC AREAS 1998 1997 1996
---------------- -------- -------- -------
(IN $ THOUSANDS)
<S> <C> <C> <C>
Net Sales
United States 3,954 5,167 6,189
United Kingdom 628 464 260
Other foreign countries 90 91 37
-------- -------- -------
Total Consolidated
4,672 5,722 6,486
-------- -------- -------
Long Lived Assets
United States 6,284 3,716 3,253
United Kingdom 891 931 107
-------- -------- -------
6,373 3,809 3,360
</TABLE>
The Company's registered office is located in the United Kingdom from
which the financial controls, administration and scientific research and
development activities are operated. The Company's Chairman is based in
the United States from where liaison is effected with the U.S. investing
public and from where the development of the activities of SDDT
Corporation and Carme Cosmeceutical Sciences, Inc. are directed.
F-26
<PAGE> 63
16. COMMITMENTS AND CONTINGENCIES
(a) Research
Under existing agreements, the Company is committed to provide
funding for research programs and clinical trials of
approximately $2.50-3.0 million during the year ending December
31, 1999.
(b) Capital expenditure
Commitments of approximately $1.0 million have been given for
the automation of the auto injector assembly line at SDDT
(c) Commitments Under Operating Leases
The Company leases certain office, laboratory and factory space
and equipment under operating leases in the United Kingdom and,
through its subsidiaries SDDT Inc and Carme Cosmeceutical
Sciences Inc., in the United States.
Minimum future lease payments under non-cancellable leases are
as follows:
<TABLE>
<CAPTION>
YEARS ENDING DECEMBER 31 FUTURE MINIMUM PAYMENT
------------------------ ----------------------
(IN $ THOUSAND)
<S> <C>
1999 $384
2000 371
2001 388
2002 339
2003 287
------
$1,769
======
</TABLE>
Rent expense was approximately $575,000, $676,000 and $552,000
in 1998, 1997 and 1996 respectively.
(d) Litigation
Various claims, suits and complaints, such as those involving
patents, commercial transactions and employee matters, arise in
the ordinary course of the Company's business. In the opinion of
management, all such pending matters are without merit or
involve such amounts, which would not have a material adverse
effect on the Company's consolidated financial position,
liquidity, cashflows or results of operations for any year.
17. GOING CONCERN
The financial statements reflect a loss for the year ended December 31,
1998 of $22,492,000, which, when taken with the previous years result,
results in an accumulated
F-27
<PAGE> 64
deficit of $71,968,000 at December 31, 1998. Cash and cash equivalents
decreased by $5,408,000 during fiscal 1998, from $6,216,000 to $808,000.
The Company has been able to fund this deficit from existing resources
and through the sale of equity securities and issuance of debt.
Management has taken steps to reduce the amount of cash used by
operations, including reducing staffing levels, however the Company's
operations may not provide sufficient internally generated cash flows to
meet its projected requirements in the short term and to meet the cost
of developing the Company's pharmaceutical products. Management is also
discussing the possibility of entering into licensing agreements with
several pharmaceutical companies.
Subsequent to the year end the Company has entered into a securities
purchase agreement and related agreements and borrowed $5m in cash
before expenses (see note 19).
Management is engaged in continuing efforts to obtain sufficient
financing to fund its operations for the foreseeable future however
there can be no assurance given that the Company will be able to obtain
the necessary financing.
18. RELATED PARTY TRANSACTIONS
During the third quarter of 1997, in connection with the re-location of
all the Company's US operations (with the exception of Corporate
Research & Development based in St Louis) to Napa, California, one
Senetek Director and two employees (one of whom was a Director of SDDT)
received relocation loans from SDDT repayable with interest at 6% per
annum in the total amount of $750,000. The employee loans amounted to
$350,000 of which $300,000 remained outstanding at December 31, 1997.
The loan to the Senetek Director in the amount of $400,000 was made on
August 6, 1997 and repaid on September 30, 1997. The interest element
amounting to $11,038 on these loans remain outstanding at December 31,
1997.
19. SUBSEQUENT EVENTS
In April 1999, the Company entered into a Securities Purchase Agreement
with an affiliate of the creditor who originally loaned the Company $6.6
million in July 1998. The terms of the agreement have the Company
receiving $5 million in cash and refinanced the remaining balance owed
of $2,389,000 under its current Credit Agreement, in exchange for new
interest at 8%. The notes require semi-annual payments of interest only
until maturity and are secured by all of the Company's assets. Series A
Warrants to purchase an aggregate of 738,857 ordinary shares at $1.50
per share (subject to downward adjustment under certain circumstances),
expiring in five years, were issued in connection with the Securities
Purchase Agreement. Series B and C Warrants to purchase approximately
3.3 million and 1.2 million ordinary shares at $1.50 and $2 per share
were also issued in connection with the Securities Purchase Agreement
but are only exercisable to the extent $7,389,000 note is not repaid in
cash. The Series B and C Warrants expire in 10 years.
In April 1999, the Company entered into a Settlement Agreement to
resolve the terms of various transactions originally entered into by
previous management of the Company. The settlement agreement results in
the clarification of the terms of certain agreements and the issuance of
approximately 2.3 million additional Series A Warrants. The estimated
fair value of these warrants is approximately $2.4 million and will be
recorded as an expense in the quarter ended June 30, 1999.
F-28
<PAGE> 65
EXHIBIT INDEX
3.1 Certificate of Incorporation of Senetek PLC.
Filed as an Exhibit with corresponding Exhibit Number to Registrant's
Registration Statement on Form F-1, Registration No. 33-3535, and
incorporated herein by reference.
3.2 Memorandum and Articles of Association of Senetek PLC (defining the
rights of security holders, subject to the provisions of the United
Kingdom Companies Act 1985).
Filed as an Exhibit with corresponding Exhibit Number to Registrant's
Registration Statement on Form F-1, Registration No. 33-3535, and
incorporated herein by reference.
10.3 Senetek No. 1 Share Option Scheme for Employees.
Filed as an Exhibit with corresponding Exhibit Number to Registrant's
Report on Form S-8 on October 8, 1993, Registration No. 33-70136, and
incorporated herein by reference.
10.4 Asset Purchase Agreement dated as of July 31, 1995, between Carme
International, Inc. a wholly owned subsidiary of Senetek PLC and Carme
Inc.
Filed as an Exhibit on Form 8-K, dated October 10, 1995 (as amended),
and incorporated herein by reference.
10.18 Senetek No. 2 Executive Share Option Scheme for non-Executive Directors
and Consultants.
Filed as an Exhibit with corresponding Exhibit Number to Registrant's
Report on Form S-8 on October 8, 1993, Registration No. 33-70136, and
incorporated herein by reference.
10.29 Amended and restated Deposit Agreement dated November 6, 1992 between
Senetek PLC and The Bank of New York.
The form of such Agreement was filed as an Exhibit on Form F-6 with the
Securities and Exchange Commission on March 19, 1992, Registration No.
33-46638, and is incorporated herein by reference.
10.32 Consulting Agreement dated May 1, 1994 between Senetek PLC and Dr. G.D.
Frentz.
Filed as an Exhibit with corresponding Exhibit Number to Registrant's
annual Report on Form 10-K for the year ended December 31, 1994 and
incorporated herein by reference.
10.33 Service Agreement dated August 11, 1995 and supplemental agreement dated
July 3, 1996 between Senetek PLC and Dr. G. Homan.
Filed as exhibits with corresponding Exhibit Number to Registrant's
annual Report on Form 10-K for the years ended December 31, 1995 and
1996 respectively and incorporated herein by reference.
10.34 Service Agreement dated August 11, 1995 and supplemental agreement dated
July 3, 1996 between Senetek PLC and Mr. P.A. Logan.
<PAGE> 66
Filed as exhibits with corresponding Exhibit Number to Registrant's
annual Report on Form 10-K for the years ended December 31, 1995 and
1996 respectively and incorporated herein by reference.
10.35 Service Agreement dated September 1, 1996 between Senetek PLC and Mr.
A.J. Cataldo.
Filed as an exhibit with corresponding Exhibit Number to Registrant's
annual Report on Form 10-K for the year ended December 31, 1996 and
incorporated herein by reference.
10.36 Service Agreement dated October 1, 1996 between Senetek PLC and Mr. C.D.
Brune.
Filed as an exhibit with corresponding Exhibit Number to Registrant's
annual Report on Form 10-K for the year ended December 31, 1996 and
incorporated herein by reference.
10.37 Service Agreement dated June 30, 1997 between Senetek PLC and Mr. A.J.
Cataldo
10.38 Service Agreement dated June 30, 1997 between Senetek PLC and Dr. G.
Homan.
10.39 Service Agreement dated June 30, 1997 between Senetek PLC and Mr. C.D.
Brune.
10.40 Service Agreement dated June 30, 1997 between Senetek PLC and Dr. R.A.
Oakes.
10.41 Service Agreement dated December 30, 1998 between Senetek PLC and Mr. F.
J. Massino.
10.42 Settlement Agreement dated April 13, 1999 by and among Senetek PLC,
Windsor Capital Management, Ltd. and certain other parties thereto.
10.43 Securities Purchase Agreement dated April 13, 1999 by and among Senetek
PLC and certain other parties thereto.
21 Subsidiaries of Senetek PLC.
Filed as an exhibit with corresponding Exhibit Number to Registrant's
annual report on Form 10 -K for the year ended December 31, 1995 and
incorporated herein by reference.
24 Power of Attorney.
Included on the signature page to this Annual Report on Form 10-K.
27 Financial Data Schedule.
<PAGE> 1
Exhibit 10.37
SERVICE AGREEMENTS WITH THE COMPANY
Service Agreement dated June 30, 1997
between with the Company and Mr. A.J. Cataldo
<PAGE> 2
EXECUTIVE OFFICER'S AGREEMENT
AN AGREEMENT made the 30th day of June 1997.
BETWEEN
SENETEK PLC ("the Company") whose registered office is situated at 23 Palace
Street, London SW1E 5HW, and
ANTHONY J. CATALDO of 63 North East Village Road, Concord, New Hampshire, 03301,
USA ("the Executive").
WHEREAS the Company employs the Executive and the Executive serves the Company
as the Company's Chairman of the Board of Directors and Chief Executive
Officer pursuant to an Employment Agreement dated September 1, 1996
("the Existing Agreement") the Company and the Executive have agreed
that the Existing Agreement shall be superseded in its entirety by this
present Agreement of June 30, 1997, save that the option entitlement
referred to in Clause 4 of the Existing Agreement shall remain in full
force and effect.
NOW IT IS HEREBY AGREED that the Company shall employ the Executive and the
Executive shall serve the Company as its Chairman of the Board of
Directors and Chief Executive Officer reporting to the Company's Board
of Directors with effect from June 1, 1997, upon and subject to the
following terms and conditions:
1. In this Agreement:
(a) the expression "the Board" means the Board of Directors for the
time being of the Company.
(b) the expression "Subsidiary" means a subsidiary (as defined by
Section 736 of the United Kingdom Companies Act 1985) for the
time being of the Company.
(c) the expression "associated Company" means in relation to a
company, its holding company (as defined by Section 736 of the
United Kingdom Companies Act 1985) or any subsidiary of such
holding company.
(d) the expression "the Group" means the Company and any
subsidiaries of the Company.
(e) any reference to a statutory provision shall be deemed to
include a reference to any statutory modification or
re-enactment of the same.
2. The employment shall be for a fixed period from June 1, 1997 to December
31, 1999, and shall be subject to termination as hereinafter provided.
3. (a) The remuneration of the Executive shall be a salary (which shall
accrue from day to day) at a rate of U.S.$250,000 per annum.
Such salary shall be payable by
<PAGE> 3
equal monthly installments on the last day of every month and
the first of such payments shall be due with effect from June
30, 1997. The over-all remuneration (which term shall also
include the cost to the Company of the total benefits enjoyed by
the Executive) of the Executive shall be subject to review by
the Company's Compensation Committee during the first quarter of
each of the Company's fiscal years and the Compensation
Committee shall decide what, if any, increase in the said
over-all remuneration shall apply to the fiscal year in
question.
(b) The Executive shall be entitled to and the Company shall effect
payment of a health insurance policy for the benefit of the
Executive, his spouse and his immediate family with Blue
Cross/BUPA or a similar organization offering equivalent
benefits. Such policy to be reviewed and sanctioned by the
Company prior to each renewal date.
(c) The Executive shall be entitled to participate in the Company's
Number 1 Executive Share Option Scheme for Employees ("the
Option Scheme") under the terms and conditions of that scheme
and shall be granted Options to subscribe for shares of the
Company in accordance with the Schedule attached hereto. The
grant of options listed on the said Schedule shall be in
addition to the Executive's existing option entitlements, the
rights to which shall remain in full force and effect. The
Company hereby confirms that the Board has undertaken to
exercise its discretion in favor of the Executive under Clause
4. (1), (2) (a) & (b), and (4)(a) & (b), of the Option Scheme in
connection with the Executive's right of conversion of his
option entitlements into shares and the subsequent sale of the
said shares subject only to (i) the termination of this
Executive Agreement for cause as provided in Clause 6(b) below,
and (ii) compliance with the relevant provisions of Rule 144 of
the U.S. Securities Act of 1933, as amended.
(d) During the period of his employment, the Company will effect
insurance cover on the life of the Executive in the sum of
U.S.$500,000, expressed in favor of the Executive's dependants
or as he may direct, on a term basis only. Such cover to be
reviewed and sanctioned by the Company prior to each renewal
date.
(e) The Company shall be entitled to require the Executive to work
at such locations or offices of the Company, its subsidiaries or
associated companies as it may direct.
(f) There are no fixed hours of work.
4. The Company will provide the Executive with a car allowance of
U.S.$1,000 per month, from which the Executive shall meet all costs
relating to his use of whatever vehicle he may decide to utilise.
5. The Company shall reimburse the Executive all reasonable hotel and other
expenses wholly and exclusively incurred by him in or about the
performance of his duties.
<PAGE> 4
6. (a) In the case of illness of the Executive or other cause
incapacitating him from attending to his duties, the Executive
shall continue to be paid during such absence provided that if
such absence shall aggregate in all thirteen weeks in any
twenty-six consecutive weeks, the Company may terminate the
employment of the Executive hereunder by notice given on the
date not more than fourteen days after the end of the last of
such thirteen weeks. In this event the Executive shall be paid 6
months salary in lieu of notice.
(b) Termination for cause. The Company shall not be obligated to pay
or provide for any compensation or other benefits to the
Executive or give effect to any rights for the exercise of
options for any period after termination for cause. For the
purposes of this Agreement, "cause" shall mean termination for
personal dishonesty, wilful misconduct, breach of fiduciary duty
involving personal profit, wilful material violation of any law,
rule or regulation or material breach of any provision of this
Agreement.
7. The Executive shall (in addition to the usual public and bank holidays)
be entitled to four weeks holiday in each year to be taken at a time or
times convenient to the Company. Any vacation not taken during the 12
month period to December 31 of each year shall lapse and shall not be
carried forward. No payment shall be made in lieu of vacation time not
taken.
8. During the continuance of his employment hereunder, the Executive shall,
unless prevented by ill health, do all in his power to promote, develop,
and extend the business of the Group and shall at all times and in all
respects conform to and comply with the directions and regulations made
by the Board and also shall not, without the previous consent of the
Board, engage in any other business of a similar nature to or
competitive with that carried on by the Group.
9. Any invention, discovery or improvement upon or in addition to any of
the Company's inventions made by the Executive during the period of
employment shall be forthwith communicated to the Company and shall be
the absolute property of the Group and at the request of the Company the
Executive shall give and supply all information, know-how and data as
may be requisite to enable the Group to exploit such invention,
discovery or improvement and shall execute and do all documents and
things as may be necessary or desirable for obtaining patent or similar
protection for the same in any parts of the world as may be specified by
the Company and for vesting the same in the Group as it may direct.
10. The Executive shall not (except in the proper course of his duties
hereunder) either during or after the period of his employment
hereunder, divulge to any person and shall use his best endeavors to
prevent the publication or disclosure of any trade secret or
manufacturing process or any information concerning the business or
finances of the Group or any of its dealings, transactions or affairs or
any trade secret or secret manufacturing process of any such
confidential information governing the Group and all
<PAGE> 5
notes and memoranda of such trade secrets or information made or
received by the Executive during the course of his employment hereunder
shall be the property of the Company and shall be surrendered by the
Executive or someone duly authorized in that behalf at the termination
of his employment or at the request of the Board at any time during the
course of his employment.
11. The Executive hereby covenants with the Company that he will not, within
2 years after ceasing to be employed hereunder, without the consent of
the Company in writing under the hand of a Director duly authorized by a
resolution of the Board, directly or indirectly seek to procure orders
from or do business with any person, firm, or company who, on the date
of the Executive ceasing to be employed hereunder or at any time in the
twelve months prior to that date, was a client or customer of the Group
and with whom in the course of his employment, the Executive shall have
had dealings, provided always, that nothing in this clause contained
shall be deemed to prohibit the seeking or procuring of orders or the
doing of business not in direct or indirect competition with the
business or businesses conducted by the Group.
12. This Agreement shall not be terminated by any:
(a) merger or consolidation where the Company is not the
consolidating or surviving entity; or
(b) transfer of all or a substantial majority of the assets of the
Company.
(c) acquisition or control of 50 per cent or more of the Company's
issued and voting equity share capital by any party, or by
parties acting in concert or under common control.
In the event of any such merger or consolidation or transfer of all or a
substantial majority of the assets of the Company or acquisition or
control of 50 per cent or more of the Company's issued and voting equity
share capital by any party, or by parties acting in concert or under
common control, the surviving or resulting entity or the transferee or
transferees of the Company's assets or its issued and voting equity
share capital shall be bound by, and shall have the benefit of, the
provisions of this Agreement, and the Company shall endeavor to take all
actions necessary to ensure that such entity or transferee or
transferees is bound by the provisions of the Agreement. Moreover, in
the event of such merger or consolidation, or transfer of all or a
substantial majority of the assets of the Company or acquisition or
control of 50 per cent or more of the Company's issued and voting equity
share capital as aforesaid, the Executive may at his option at any time
continue his employment under the terms and conditions of this
Agreement, or upon giving not less than 28 days Notice at any time, by
registered mail, to the registered office of the Company, require the
Company to effect full settlement of all of the Executive's entitlements
under the terms and conditions of this Agreement, which settlement shall
also include the payment of his remuneration for the full term of the
Agreement and the right to convert any and all Option entitlements,
(whether such Options be vested or not)
<PAGE> 6
up to and including December 31, 1999 and the Company shall effect full
and final settlement within 28 days of receiving the said Notice from
the Executive.
13. There is no pension payable, and there is no contracting out certificate
in force in respect of the Executive's employment hereunder.
14. There are no disciplinary rules or grievance procedures in place in
relation to the Executive's employment hereunder. The Executive may
raise any grievance or concern about any disciplinary matter with the
Board.
15. This Agreement shall be governed by and construed and enforced in
accordance with the laws of the State of New York applicable to
agreements made and to be performed in such State.
********************
Signed by } /s/ Paul A. Logan
for and on behalf of } ----------------------------------------
SENETEK PLC in the presence } PAUL A. LOGAN
of:
Witness
Signed by } /s/ Anthony J. Cataldo
ANTHONY J. CATALDO } ----------------------------------------
in the presence of: } ANTHONY J. CATALDO
Witness
SCHEDULE
<TABLE>
<CAPTION>
NO. OF OPTIONS GRANTED CONVERSION SECURITY CONVERSION PRICE VESTING DATE
---------------------- ------------------- ---------------- ------------
<S> <C> <C> <C>
100,000 5p Ordinary shares U.S.$1.50 December 31, 1997
of Senetek PLC
100,000 5p Ordinary shares U.S.$1.50 December 31, 1998
of Senetek PLC
100,000 5p Ordinary shares U.S.$1.50 December 31, 1999
of Senetek PLC
</TABLE>
<PAGE> 1
Exhibit 10.38
SERVICE AGREEMENTS WITH THE COMPANY
Service Agreement dated June 30, 1997 between with the Company and Dr G. Homan
<PAGE> 2
EXECUTIVE OFFICER'S AGREEMENT
AN AGREEMENT made the 30th day of June 1997.
BETWEEN
SENETEK PLC ("the Company") whose registered office is situated at 23 Palace
Street, London SW1E 5HW, and
GERLOF HOMAN of 1819 Hermitage Place, Imperial, Missouri 63052, USA ("the
Executive").
WHEREAS the Company employs the Executive and the Executive serves the Company
as the Company's Chief Scientific Advisor pursuant to Letter Agreement
dated April 8, 1997, such Letter Agreement incorporating certain
elements of a Service Agreement dated August 11, 1995, ("the Existing
Agreements") the Company and the Executive have agreed that the Existing
Agreements shall be superseded in their entirety by this present
Agreement of June 30, 1997.
NOW IT IS HEREBY AGREED that the Company shall employ the Executive and the
Executive shall serve the Company as its Chief Scientist reporting to
the Company's Chief Executive Officer with effect from June 1, 1997,
upon and subject to the following terms and conditions:
1. In this Agreement:
(a) the expression "the Board" means the Board of Directors for the
time being of the Company.
(b) the expression "Subsidiary" means a subsidiary (as defined by
Section 736 of the United Kingdom Companies Act 1985) for the
time being of the Company.
(c) the expression "associated Company" means in relation to a
company, its holding company (as defined by Section 736 of the
United Kingdom Companies Act 1985) or any subsidiary of such
holding company.
(d) the expression "the Group" means the Company and any
subsidiaries of the Company.
(e) any reference to a statutory provision shall be deemed to
include a reference to any statutory modification or
re-enactment of the same.
2. The employment shall be for a fixed period from June 1, 1997 to December
31, 1999, and shall be subject to termination as hereinafter provided.
<PAGE> 3
3. (a) The remuneration of the Executive shall be a salary (which shall
accrue from day to day) at a rate of U.S.$200,000 per annum.
Such salary shall be payable by equal monthly installments on
the last day of every month and the first of such payments shall
be due with effect from June 30, 1997. The over-all remuneration
(which term shall also include the cost to the Company of the
total benefits enjoyed by the Executive) of the Executive shall
be subject to review by the Company's Compensation Committee
during the first quarter of each of the Company's fiscal years
and the Compensation Committee shall decide what, if any,
increase in the said over-all remuneration shall apply to the
fiscal year in question.
(f) The Executive shall be entitled to and the Company shall effect
payment of a health insurance policy for the benefit of the
Executive, his spouse and his immediate family with Blue
Cross/BUPA or a similar organization offering equivalent
benefits. Such policy to be reviewed and sanctioned by the
Company prior to each renewal date.
(g) The Executive shall be entitled to participate in the Company's
Number 1 Executive Share Option Scheme for Employees ("the
Option Scheme") under the terms and conditions of that scheme
and shall be granted Options to subscribe for shares of the
Company in accordance with the Schedule attached hereto. The
grant of options listed on the said Schedule shall be in
addition to the Executive's existing option entitlements, the
rights to which shall remain in full force and effect. The
Company hereby confirms that the Board has undertaken to
exercise its discretion in favor of the Executive under Clause
4. (1), (2) (a) & (b), and (4)(a) & (b), of the Option Scheme in
connection with the Executive's right of conversion of his
option entitlements into shares and the subsequent sale of the
said shares subject only to (i) the termination of this
Executive Agreement for cause as provided in Clause 6(b) below,
and (ii) compliance with the relevant provisions of Rule 144 of
the U.S. Securities Act of 1933, as amended.
(h) During the period of his employment, the Company will effect
insurance cover on the life of the Executive in the sum of
U.S.$500,000, expressed in favour of the Executive's dependants
or as he may direct, on a term basis only. Such cover to be
reviewed and sanctioned by the Company prior to each renewal
date.
(i) The Company may request the Executive to work at such locations
or offices of the Company, its subsidiaries or associated
companies as it may identify, but the Executive shall be under
no obligation to move from his existing location.
(j) There are no fixed hours of work.
4. The Company will provide the Executive with a car allowance of U.S.$750
per month, from which the Executive shall meet all costs relating to his
use of whatever vehicle he may decide to utilise.
<PAGE> 4
5. The Company shall reimburse the Executive all reasonable hotel and other
expenses wholly and exclusively incurred by him in or about the
performance of his duties.
6. (a) In the case of illness of the Executive or other cause
incapacitating him from attending to his duties, the Executive
shall continue to be paid during such absence provided that if
such absence shall aggregate in all thirteen weeks in any
twenty-six consecutive weeks, the Company may terminate the
employment of the Executive hereunder by notice given on the
date not more than fourteen days after the end of the last of
such thirteen weeks. In this event the Executive shall be paid 6
months salary in lieu of notice.
(b) Termination for cause. The Company shall not be obligated to pay
or provide for any compensation or other benefits to the
Executive or give effect to any rights for the exercise of
options for any period after termination for cause. For the
purposes of this Agreement, "cause" shall mean termination for
personal dishonesty, wilful misconduct, breach of fiduciary duty
involving personal profit, wilful material violation of any law,
rule or regulation or material breach of any provision of this
Agreement.
7. The Executive shall (in addition to the usual public and bank holidays)
be entitled to four weeks holiday in each year to be taken at a time or
times convenient to the Company. Any vacation not taken during the 12
month period to December 31 of each year shall lapse and shall not be
carried forward. No payment shall be made in lieu of vacation time not
taken.
8. During the continuance of his employment hereunder, the Executive shall,
unless prevented by ill health, do all in his power to promote, develop,
and extend the business of the Group and shall at all times and in all
respects conform to and comply with the directions and regulations made
by the Board and also shall not, without the previous consent of the
Board, engage in any other business of a similar nature to or
competitive with that carried on by the Group.
9. Any invention, discovery or improvement upon or in addition to any of
the Company's inventions made by the Executive during the period of
employment shall be forthwith communicated to the Company and shall be
the absolute property of the Group and at the request of the Company the
Executive shall give and supply all information, know-how and data as
may be requisite to enable the Group to exploit such invention,
discovery or improvement and shall execute and do all documents and
things as may be necessary or desirable for obtaining patent or similar
protection for the same in any parts of the world as may be specified by
the Company and for vesting the same in the Group as it may direct.
10. The Executive shall not (except in the proper course of his duties
hereunder) either during or after the period of his employment
hereunder, divulge to any person and shall use his best endeavors to
prevent the publication or disclosure of any trade secret or
manufacturing process or any information concerning the business or
finances of the
<PAGE> 5
Group or any of its dealings, transactions or affairs or any trade
secret or secret manufacturing process of any such confidential
information governing the Group and all notes and memoranda of such
trade secrets or information made or received by the Executive during
the course of his employment hereunder shall be the property of the
Company and shall be surrendered by the Executive or someone duly
authorized in that behalf at the termination of his employment or at the
request of the Board at any time during the course of his employment.
11. The Executive hereby covenants with the Company that he will not, within
2 years after ceasing to be employed hereunder, without the consent of
the Company in writing under the hand of a Director duly authorized by a
resolution of the Board, directly or indirectly seek to procure orders
from or do business with any person, firm, or company who, on the date
of the Executive ceasing to be employed hereunder or at any time in the
twelve months prior to that date, was a client or customer of the Group
and with whom in the course of his employment, the Executive shall have
had dealings, provided always, that nothing in this clause contained
shall be deemed to prohibit the seeking or procuring of orders or the
doing of business not in direct or indirect competition with the
business or businesses conducted by the Group.
12. This Agreement shall not be terminated by any:
(a) merger or consolidation where the Company is not the
consolidating or surviving entity; or
(b) transfer of all or a substantial majority of the assets of the
Company.
(c) acquisition or control of 50 per cent or more of the Company's
issued and voting equity share capital by any party, or by
parties acting in concert or under common control.
In the event of any such merger or consolidation or transfer of all or a
substantial majority of the assets of the Company or acquisition or
control of 50 per cent or more of the Company's issued and voting equity
share capital by any party, or by parties acting in concert or under
common control, the surviving or resulting entity or the transferee or
transferees of the Company's assets or its issued and voting equity
share capital shall be bound by, and shall have the benefit of, the
provisions of this Agreement, and the Company shall endeavor to take all
actions necessary to ensure that such entity or transferee or
transferees is bound by the provisions of the Agreement. Moreover, in
the event of such merger or consolidation, or transfer of all or a
substantial majority of the assets of the Company or acquisition or
control of 50 per cent or more of the Company's issued and voting equity
share capital as aforesaid, the Executive may at his option at any time
continue his employment under the terms and conditions of this
Agreement, or upon giving not less than 28 days Notice at any time, by
registered mail, to the registered office of the Company, require the
Company to effect full settlement of all of the Executive's entitlements
under the terms and conditions of this Agreement, which settlement shall
also include the payment of his remuneration for the full term of the
Agreement and the
<PAGE> 6
right to convert any and all Option entitlements, (whether such Options
be vested or not) up to and including December 31, 1999 and the Company
shall effect full and final settlement within 28 days of receiving the
said Notice from the Executive.
13. There is no pension payable, and there is no contracting out certificate
in force in respect of the Executive's employment hereunder.
14. There are no disciplinary rules or grievance procedures in place in
relation to the Executive's employment hereunder. The Executive may
raise any grievance or concern about any disciplinary matter with the
Board.
15. This Agreement shall be construed and governed in accordance with and
under the laws of the State of Missouri applicable to agreements made
and to be performed in such State.
********************
Signed by } /s/ Paul A. Logan
for and on behalf of } ----------------------------------------
SENETEK PLC in the presence } PAUL A. LOGAN
of:
Witness
Signed by } /s/ Gerlof Homan
GERLOF HOMAN } ----------------------------------------
in the presence of: } GERLOF HOMAN
Witness
SCHEDULE
<TABLE>
<CAPTION>
NO. OF OPTIONS GRANTED CONVERSION SECURITY CONVERSION PRICE VESTING DATE
---------------------- ------------------- ---------------- ------------
<S> <C> <C> <C>
50,000 5p Ordinary shares U.S.$1.50 December 31, 1997
of Senetek PLC
50,000 5p Ordinary shares U.S.$1.50 December 31, 1998
of Senetek PLC
50,000 5p Ordinary shares U.S.$1.50 December 31, 1999
of Senetek PLC
</TABLE>
<PAGE> 1
Exhibit 10.39
SERVICE AGREEMENTS WITH THE COMPANY
Service Agreement dated June 30, 1997 between with the Company and Mr C.D. Brune
<PAGE> 2
EXECUTIVE OFFICER'S AGREEMENT
AN AGREEMENT made the 30th day of June 1997.
BETWEEN
SENETEK PLC ("the Company") whose registered office is situated at 23 Palace
Street, London SW1E 5HW, and
CLIFFORD D. BRUNE of 329 Glengary Drive, Aurora, Ohio 44202, USA ("the
Executive").
WHEREAS the Company employs the Executive and the Executive serves the Company
as the Company's Executive Vice President and Chief Financial Officer
pursuant to an Employment Agreement dated October 1, 1996 ("the Existing
Agreement") the Company and the Executive have agreed that the Existing
Agreement shall be superseded in its entirety by this present Agreement
of June 30, 1997, save that the option entitlement referred to in Clause
4 of the Existing Agreement shall remain in full force and effect.
NOW IT IS HEREBY AGREED that the Company shall employ the Executive and the
Executive shall serve the Company as its Chief Operating Officer
reporting to the Company's Board of Directors and/or its Chief Executive
Officer with effect from June 1, 1997, upon and subject to the following
terms and conditions:
1. In this Agreement:
(a) the expression "the Board" means the Board of Directors for the
time being of the Company.
(b) the expression "Subsidiary" means a subsidiary (as defined by
Section 736 of the United Kingdom Companies Act 1985) for the
time being of the Company.
(c) the expression "associated Company" means in relation to a
company, its holding company (as defined by Section 736 of the
United Kingdom Companies Act 1985) or any subsidiary of such
holding company.
(d) the expression "the Group" means the Company and any
subsidiaries of the Company.
(e) any reference to a statutory provision shall be deemed to
include a reference to any statutory modification or
re-enactment of the same.
2. The employment shall be for a fixed period from June 1, 1997 to December
31, 1999, and shall be subject to termination as hereinafter provided.
3. (a) The remuneration of the Executive shall be a salary (which shall
accrue from day to day) at a rate of U.S.$200,000 per annum.
Such salary shall be payable by equal monthly installments on
the last day of every month and the first of such
<PAGE> 3
payments shall be due with effect from June 30, 1997. The
over-all remuneration (which term shall also include the cost to
the Company of the total benefits enjoyed by the Executive) of
the Executive shall be subject to review by the Company's
Compensation Committee during the first quarter of each of the
Company's fiscal years and the Compensation Committee shall
decide what, if any, increase in the said over-all remuneration
shall apply to the fiscal year in question.
(b) The Executive shall be entitled to and the Company shall effect
payment of a health insurance policy for the benefit of the
Executive, his spouse and his immediate family with Blue
Cross/BUPA or a similar organization offering equivalent
benefits. Such policy to be reviewed and sanctioned by the
Company prior to each renewal date.
(c) The Executive shall be entitled to participate in the Company's
Number 1 Executive Share Option Scheme for Employees ("the
Option Scheme") under the terms and conditions of that scheme
and shall be granted Options to subscribe for shares of the
Company in accordance with the Schedule attached hereto. The
grant of options listed on the said Schedule shall be in
addition to the Executive's existing option entitlements, the
rights to which shall remain in full force and effect. The
Company hereby confirms that the Board has undertaken to
exercise its discretion in favor of the Executive under Clause
4.(1), (2)(a) & (b), and (4)(a) & (b), of the Option Scheme in
connection with the Executive's right of conversion of his
option entitlements into shares and the subsequent sale of the
said shares subject only to (i) the termination of this
Executive Agreement for cause as provided in Clause 6(b) below,
and (ii) compliance with the relevant provisions of Rule 144 of
the U.S. Securities Act of 1933, as amended.
(d) During the period of his employment, the Company will effect
insurance cover on the life of the Executive in the sum of
U.S.$500,000, expressed in favor of the Executive's dependants
or as he may direct, on a term basis only. Such cover to be
reviewed and sanctioned by the Company prior to each renewal
date.
(e) The Company shall be entitled to require the Executive to work
at such locations or offices of the Company, its subsidiaries or
associated companies as it may direct.
(f) There are no fixed hours of work.
4. The Company will provide the Executive with a car allowance of U.S.$750
per month, from which the Executive shall meet all costs relating to his
use of whatever vehicle he may decide to utilise.
5. The Company shall reimburse the Executive all reasonable hotel and other
expenses wholly and exclusively incurred by him in or about the
performance of his duties.
<PAGE> 4
6. (a) In the case of illness of the Executive or other cause
incapacitating him from attending to his duties, the Executive
shall continue to be paid during such absence provided that if
such absence shall aggregate in all thirteen weeks in any
twenty-six consecutive weeks, the Company may terminate the
employment of the Executive hereunder by notice given on the
date not more than fourteen days after the end of the last of
such thirteen weeks. In this event the Executive shall be paid 6
months salary in lieu of notice.
(b) Termination for cause. The Company shall not be obligated to pay
or provide for any compensation or other benefits to the
Executive or give effect to any rights for the exercise of
options for any period after termination for cause. For the
purposes of this Agreement, "cause" shall mean termination for
personal dishonesty, wilful misconduct, breach of fiduciary duty
involving personal profit, wilful material violation of any law,
rule or regulation or material breach of any provision of this
Agreement.
7. The Executive shall (in addition to the usual public and bank holidays)
be entitled to four weeks holiday in each year to be taken at a time or
times convenient to the Company. Any vacation not taken during the 12
month period to December 31 of each year shall lapse and shall not be
carried forward. No payment shall be made in lieu of vacation time not
taken.
8. During the continuance of his employment hereunder, the Executive shall,
unless prevented by ill health, do all in his power to promote, develop,
and extend the business of the Group and shall at all times and in all
respects conform to and comply with the directions and regulations made
by the Board and also shall not, without the previous consent of the
Board, engage in any other business of a similar nature to or
competitive with that carried on by the Group.
9. Any invention, discovery or improvement upon or in addition to any of
the Company's inventions made by the Executive during the period of
employment shall be forthwith communicated to the Company and shall be
the absolute property of the Group and at the request of the Company the
Executive shall give and supply all information, know-how and data as
may be requisite to enable the Group to exploit such invention,
discovery or improvement and shall execute and do all documents and
things as may be necessary or desirable for obtaining patent or similar
protection for the same in any parts of the world as may be specified by
the Company and for vesting the same in the Group as it may direct.
10. The Executive shall not (except in the proper course of his duties
hereunder) either during or after the period of his employment
hereunder, divulge to any person and shall use his best endeavors to
prevent the publication or disclosure of any trade secret or
manufacturing process or any information concerning the business or
finances of the Group or any of its dealings, transactions or affairs or
any trade secret or secret manufacturing process of any such
confidential information governing the Group and all
<PAGE> 5
notes and memoranda of such trade secrets or information made or
received by the Executive during the course of his employment hereunder
shall be the property of the Company and shall be surrendered by the
Executive or someone duly authorized in that behalf at the termination
of his employment or at the request of the Board at any time during the
course of his employment.
11. The Executive hereby covenants with the Company that he will not, within
2 years after ceasing to be employed hereunder, without the consent of
the Company in writing under the hand of a Director duly authorized by a
resolution of the Board, directly or indirectly seek to procure orders
from or do business with any person, firm, or company who, on the date
of the Executive ceasing to be employed hereunder or at any time in the
twelve months prior to that date, was a client or customer of the Group
and with whom in the course of his employment, the Executive shall have
had dealings, provided always, that nothing in this clause contained
shall be deemed to prohibit the seeking or procuring of orders or the
doing of business not in direct or indirect competition with the
business or businesses conducted by the Group.
12. This Agreement shall not be terminated by any:
(a) merger or consolidation where the Company is not the
consolidating or surviving entity; or
(b) transfer of all or a substantial majority of the assets of the
Company.
(c) acquisition or control of 50 per cent or more of the Company's
issued and voting equity share capital by any party, or by
parties acting in concert or under common control.
In the event of any such merger or consolidation or transfer of all or a
substantial majority of the assets of the Company or acquisition or
control of 50 per cent or more of the Company's issued and voting equity
share capital by any party, or by parties acting in concert or under
common control, the surviving or resulting entity or the transferee or
transferrees of the Company's assets or its issued and voting equity
share capital shall be bound by, and shall have the benefit of, the
provisions of this Agreement, and the Company shall endeavor to take all
actions necessary to ensure that such entity or transferee or
transferees is bound by the provisions of the Agreement. Moreover, in
the event of such merger or consolidation, or transfer of all or a
substantial majority of the assets of the Company or acquisition or
control of 50 per cent or more of the Company's issued and voting equity
share capital as aforesaid, the Executive may at his option at any time
continue his employment under the terms and conditions of this
Agreement, or upon giving not less than 28 days Notice at any time, by
registered mail, to the registered office of the Company, require the
Company to effect full settlement of all of the Executive's entitlements
under the terms and conditions of this Agreement, which settlement shall
also include the payment of his remuneration for the full term of the
Agreement and the right to convert any and all Option entitlements,
(whether such Options be vested or not)
<PAGE> 6
up to and including December 31, 1999 and the Company shall effect full
and final settlement within 28 days of receiving the said Notice from
the Executive.
13. There is no pension payable, and there is no contracting out certificate
in force in respect of the Executive's employment hereunder.
14. There are no disciplinary rules or grievance procedures in place in
relation to the Executive's employment hereunder. The Executive may
raise any grievance or concern about any disciplinary matter with the
Board.
15. This Agreement shall be governed by and construed and enforced in
accordance with the laws of the State of New York applicable to
agreements made and to be performed in such State.
********************
Signed by } /s/ Paul A. Logan
for and on behalf of } ----------------------------------------
SENETEK PLC in the presence } PAUL A. LOGAN
of:
Witness
Signed by } /s/ Clifford D. Brune
CLIFFORD D. BRUNE } ----------------------------------------
in the presence of: } CLIFFORD D. BRUNE
Witness
SCHEDULE
<TABLE>
<CAPTION>
NO. OF OPTIONS GRANTED CONVERSION SECURITY CONVERSION PRICE VESTING DATE
---------------------- ------------------- ---------------- ------------
<S> <C> <C> <C>
100,000 5p Ordinary shares U.S.$1.50 December 31, 1997
of Senetek PLC
100,000 5p Ordinary shares U.S.$1.50 December 31, 1998
of Senetek PLC
100,000 5p Ordinary shares U.S.$1.50 December 31, 1999
of Senetek PLC
</TABLE>
<PAGE> 1
Exhibit 10.40
SERVICE AGREEMENTS WITH THE COMPANY
Service Agreement dated June 30, 1997 between with the Company and Dr R.A. Oakes
<PAGE> 2
EXECUTIVE OFFICER'S AGREEMENT
AN AGREEMENT made the 30th day of June 1997.
BETWEEN
SENETEK PLC ("the Company") whose registered office is situated at 23 Palace
Street, London SW1E 5HW, and
ROGER ANTHONY OAKES of Allstoe House, Church Lane, Greetham, Oakham, Rutland,
Leicestershire LE15 7NF ("the Executive").
WHEREAS the Company employs the Executive and the Executive serves the Company
as President and Chief Executive Officer of the Company's Pharmaceutical
Division pursuant to an Executive Officer's Agreement dated 16th October
1995 ("the Existing Agreement") the Company and the Executive have
agreed that the Existing Agreement shall be superseded in its entirety
by this present Agreement of June 30, 1997.
NOW IT IS HEREBY AGREED that the Company shall employ the Executive and the
Executive shall serve the Company as President of the Company's
Pharmaceutical Division, reporting to the Company's Board of Directors
and/or its Chief Executive Officer with effect from June 1, 1997, which
reporting duties shall confer an obligation upon the Executive to
provide promptly and faithfully full, detailed information covering the
Company's research and development activities, its clinical trials data,
the stages reached in the application for regulatory approvals
world-wide, and any and all matters arising therefrom relating to the
Company's existing and potential future products, whenever requested by
the Board of Directors, the Company's Chief Executive Officer or the
Company's Chief Scientific Advisor, upon and subject to the following
terms and conditions:
1. In this Agreement:
(a) the expression "the Board" means the Board of Directors for the
time being of the Company.
(b) the expression "Subsidiary" means a subsidiary (as defined by
Section 736 of the Companies Act 1985) for the time being of the
Company.
(c) the expression "associated Company" means in relation to a
company, its holding company (as defined by Section 736 of the
Companies Act 1985) or any subsidiary of such holding company.
(d) the expression "the Group" means the Company and any
subsidiaries of the Company.
(e) any reference to a statutory provision shall be deemed to
include a reference to any statutory modification or
re-enactment of the same.
<PAGE> 3
2. The employment shall be for a fixed period from June 1, 1997 to December
31, 1999, and shall be subject to termination as hereinafter provided.
3. (a) The remuneration of the Executive shall be a salary (which shall
accrue from day to day) at a rate of pound sterling 122,480
pounds sterling per annum (representing U.S.$200,000 per annum
at the exchange rate ruling as at June 1, 1997), such
remuneration not to be varied as a result of any subsequent
change in the present rate of currency exchange. Such salary
shall be payable by equal monthly installments on the last day
of every month and the first of such payments shall be due with
effect from June 30, 1997. The over-all remuneration (which term
shall also include the cost to the Company of the total benefits
enjoyed by the Executive) of the Executive shall be subject to
review by the Company's Compensation Committee during the first
quarter of each of the Company's fiscal years and the
Compensation Committee shall decide what, if any, increase in
the said over-all remuneration shall apply to the fiscal year in
question.
(b) The Executive shall be entitled to and the Company shall effect
payment of a health insurance policy for the benefit of the
Executive, his spouse and his immediate family with BUPA or a
similar organisation offering equivalent benefits. Such policy
to be reviewed and sanctioned by the Company prior to each
renewal date.
(c) The Executive shall be entitled to participate in the Company's
Number 1 Executive Share Option Scheme for Employees ("the
Option Scheme") under the terms and conditions of that scheme
and shall be granted Options to subscribe for shares of the
Company in accordance with the Schedule attached hereto. The
grant of options listed on the said Schedule shall be in
addition to the Executive's existing option entitlements, the
rights to which shall remain in full force and effect. The
Company hereby confirms that the Board has undertaken to
exercise its discretion in favor of the Executive under Clause
4.(1), (2)(a) & (b), and (4)(a) & (b), of the Option Scheme in
connection with the Executive's right of conversion of his
option entitlements into shares and the subsequent sale of the
said shares subject only to (i) the termination of this
Executive Agreement for cause as provided in Clause 6(b) below,
and (ii) compliance with the relevant provisions of Rule 144 of
the U.S. Securities Act of 1933, as amended.
(d) During the period of his employment, the Company will effect
insurance cover on the life of the Executive in the sum of pound
sterling 306,200 (representing U.S.$500,000 at the exchange rate
ruling as at June 1, 1997), such cover not to be varied as a
result of any change in the subsequent rate of currency
exchange, expressed in favour of the Executive's dependants or
as he may direct, on a term basis only. Such cover to be
reviewed and sanctioned by the Company prior to each renewal
date.
<PAGE> 4
(e) The Company shall be entitled to require the Executive to work
at such locations or offices of the Company, its subsidiaries or
associated companies as it may direct.
(f) There are no fixed hours of work.
4. The Company will provide the Executive with a car allowance of pound
sterling 459 per month (representing U.S.$750 per month at the exchange
rate ruling as at June 1, 1997), such allowance not to be varied as a
result of any change in the present rate of currency exchange, from
which the Executive shall meet all costs relating to his use of whatever
vehicle he may decide to utilise. The existing Company owned vehicle,
L69 DOM, Saab 9000 CSE, 2.3, may either be returned to the Company's
London office forthwith or alternatively the Executive may continue to
utilise the vehicle on the present basis until 30th September 1997 at
which date the vehicle shall be returned to the Company's London office.
5. The Company shall reimburse the Executive all reasonable hotel and other
expenses wholly and exclusively incurred by him in or about the
performance of his duties.
6. (a) In the case of illness of the Executive or other cause
incapacitating him from attending to his duties, the Executive
shall continue to be paid during such absence provided that if
such absence shall aggregate in all thirteen weeks in any
twenty-six consecutive weeks, the Company may terminate the
employment of the Executive hereunder by notice given on the
date not more than fourteen days after the end of the last of
such thirteen weeks. In this event the Executive shall be paid 6
months salary in lieu of notice.
(b) Termination for cause. The Company shall not be obligated to pay
or provide for any compensation or other benefits to the
Executive or give effect to any rights for the exercise of
options for any period after termination for cause. For the
purposes of this Agreement, "cause" shall mean termination for
personal dishonesty, wilful misconduct, breach of fiduciary duty
involving personal profit, wilful material violation of any law,
rule or regulation or material breach of any provision of this
Agreement.
7. The Executive shall (in addition to the usual public and bank holidays)
be entitled to four weeks holiday in each year to be taken at a time or
times convenient to the Company. Any vacation not taken during the 12
month period to December 31 of each year shall lapse and shall not be
carried forward. No payment shall be made in lieu of vacation time not
taken.
8. During the continuance of his employment hereunder, the Executive shall,
unless prevented by ill health, do all in his power to promote, develop,
and extend the business of the Group and shall at all times and in all
respects conform to and comply with the directions and regulations made
by the Board and also shall not, without the previous
<PAGE> 5
consent of the Board, engage in any other business of a similar nature
to or competitive with that carried on by the Group.
9. Any invention, discovery or improvement upon or in addition to any of
the Company's or the Group's inventions made by the Executive during the
period of employment shall be forthwith communicated to the Company and
shall be the absolute property of the Group and at the request of the
Company the Executive shall give and supply all information, know-how
and data as may be requisite to enable the Group to exploit such
invention, discovery or improvement and shall execute and do all
documents and things as may be necessary or desirable for obtaining
patent or similar protection for the same in any parts of the world as
may be specified by the Company and for vesting the same in the Group as
it may direct.
10. The Executive shall not (except in the proper course of his duties
hereunder) either during or after the period of his employment
hereunder, divulge to any person and shall use his best endeavors to
prevent the publication or disclosure of any trade secret or
manufacturing process or any information concerning the business or
finances of the Group or any of its dealings, transactions or affairs or
any trade secret or secret manufacturing process of any such
confidential information governing the Group and all notes and memoranda
of such trade secrets or information made or received by the Executive
during the course of his employment hereunder shall be the property of
the Company and shall be surrendered by the Executive or someone duly
authorized in that behalf at the termination of his employment or at the
request of the Board at any time during the course of his employment.
11. The Executive hereby covenants with the Company that he will not, within
2 years after ceasing to be employed hereunder, without the consent of
the Company in writing under the hand of a Director duly authorized by a
resolution of the Board, directly or indirectly seek to procure orders
from or do business with any person, firm, or company who, on the date
of the Executive ceasing to be employed hereunder or at any time in the
twelve months prior to that date, was a client or customer of the Group
and with whom in the course of his employment, the Executive shall have
had dealings, provided always, that nothing in this clause contained
shall be deemed to prohibit the seeking or procuring of orders or the
doing of business not in direct or indirect competition with the
business or businesses conducted by the Group.
12. This Agreement shall not be terminated by any:
(a) merger or consolidation where the Company is not the
consolidating or surviving entity; or
<PAGE> 6
(b) transfer of all or a substantial majority of the assets of the
Company.
(c) acquisition or control of 50 per cent or more of the Company's
issued and voting equity share capital by any party, or by
parties acting in concert or under common control.
In the event of any such merger or consolidation or transfer of all or a
substantial majority of the assets of the Company or acquisition or
control of 50 per cent or more of the Company's issued and voting equity
share capital by any party, or by parties acting in concert or under
common control, the surviving or resulting entity or the transferee or
transferrees of the Company's assets or its issued and voting equity
share capital shall be bound by, and shall have the benefit of, the
provisions of this Agreement, and the Company shall endeavor to take all
actions necessary to ensure that such entity or transferee or
transferees is bound by the provisions of the Agreement. Moreover, in
the event of such merger or consolidation, or transfer of all or a
substantial majority of the assets of the Company or acquisition or
control of 50 per cent or more of the Company's issued and voting equity
share capital as aforesaid, the Executive may at his option at any time
continue his employment under the terms and conditions of this
Agreement, or upon giving not less than 28 days Notice at any time, by
registered mail, to the registered office of the Company, require the
Company to effect full settlement of all of the Executive's entitlements
under the terms and conditions of this Agreement, which settlement shall
also include the payment of his remuneration for the full term of the
Agreement and the right to convert any and all Option entitlements,
(whether such Options be vested or not) up to and including December 31,
1999 and the Company shall effect full and final settlement within 28
days of receiving the said Notice from the Executive.
13. There is no pension payable, and there is no contracting out certificate
in force in respect of the Executive's employment hereunder.
14. There are no disciplinary rules or grievance procedures in place in
relation to the Executive's employment hereunder. The Executive may
raise any grievance or concern about any disciplinary matter with the
Board.
15. This Agreement shall be construed and governed by the laws of England
and Wales and to the jurisdiction of the English Courts.
*****************
Signed by } /s/ Paul A. Logan
for and on behalf of } ----------------------------------------
SENETEK PLC in the presence } PAUL A. LOGAN
of:
Witness
<PAGE> 7
Signed by } /s/ Roger Anthony Oakes
ROGER ANTHONY OAKES } ----------------------------------------
in the presence of: } ROGER ANTHONY OAKES
Witness
<PAGE> 8
SCHEDULE
<TABLE>
<CAPTION>
NO. OF OPTIONS GRANTED CONVERSION SECURITY CONVERSION PRICE VESTING DATE
---------------------- ------------------- ---------------- ------------
<S> <C> <C> <C>
100,000 5p Ordinary shares U.S.$1.50 December 31, 1997
of Senetek PLC
100,000 5p Ordinary shares U.S.$1.50 December 31, 1998
of Senetek PLC
100,000 5p Ordinary shares U.S.$1.50 December 31, 1999
of Senetek PLC
</TABLE>
<PAGE> 1
Exhibit 10.42
SETTLEMENT AGREEMENT
Settlement Agreement dated April 13, 1998 by and among with the Company, Windsor
Capital Management, Ltd. and certain other parties thereto.
<PAGE> 2
SETTLEMENT AGREEMENT
THIS SETTLEMENT AGREEMENT is entered into as of this 13th day of
April 1999 by and among SENETEK PLC a company organized under the laws of
England ("Senetek"), SILVER CREEK INVESTMENTS, LTD., a British Virgin Islands
company ("Silver Creek"), BOMOSEEN INVESTMENTS, LTD., a British Virgin Islands
company ("Bomoseen"), ELSTREE HOLDINGS, LTD., a British Virgin Islands company
("Elstree") and DANDELION INVESTMENTS, LTD., a British Virgin Islands company
("Dandelion" and together with Silver Creek, Bomoseen and Elstree, the
"Investors"), WINDSOR CAPITAL MANAGEMENT, LTD., ("Windsor"), AL-SABAH TRADING
AND DEVELOPMENT COMPANY ("Al-Sabah"), THE ALANA GROUP, LTD. ("Alana"), PACKARD,
LTD. ("Packard") and MOHAMED HADID ("Hadid").
WHEREAS, Senetek and Windsor are parties to a Credit Agreement
dated as of April 28, 1998, as the same may have been amended (the "Credit
Agreement"), pursuant to which Windsor extended to Senetek a line of credit in
the amount of $10,000,000;
WHEREAS, prior to the date of this Agreement, Senetek borrowed
an aggregate amount of $6,600,000 under the Credit Agreement (the "Borrowings");
WHEREAS, borrowings under the Credit Agreement do not bear
interest and may be repaid at any time, without penalty, by Senetek;
WHEREAS, in connection with the Borrowings, Senetek issued to
Windsor a warrant to purchase 1,885,715 ordinary shares of Senetek ("Ordinary
Shares") at a purchase price of $3.50 per share (the "Warrant");
WHEREAS, subsequent to the issuance of the Warrant, the Warrant
may have been amended to reduce the Warrant exercise price and increase the
number of shares covered by the Warrant but the parties acknowledge that the
documentation of the amendment (if any) is in incomplete and unclear;
WHEREAS, the Warrant has been exercised by Windsor and Senetek
has issued an aggregate of 2,105,715 Ordinary Shares in respect of the exercise
of the Warrant (the "Warrant Exercise Shares");
WHEREAS, Windsor currently holds a certificate representing
1,885,715 of the Warrant Exercise Shares (the "Certificate") and the Company
currently holds the certificate representing the remaining Warrant Exercise
Shares;
WHEREAS, Windsor made no cash payment to Senetek upon the
exercise of the Warrant since Windsor and Senetek intended that the exercise
price payable by Windsor upon exercise of the Warrant would be offset against
and reduce the amount of the Borrowings;
<PAGE> 3
WHEREAS, the parties hereto desire to enter into this Agreement
for the purpose, among other, of resolving the uncertainty concerning the amount
of the exercise price payable by Windsor upon exercise of the Warrant and the
amount by which the Borrowings have been reduced as a result of the application
of the exercise price to the repayment of the Borrowings;
WHEREAS, in connection with the execution of the Credit
Agreement, Senetek issued to Windsor warrants to purchase Ordinary Shares for a
price of $6.00 per share which expire by their terms on April 28, 2001 (the
"Additional Warrants");
WHEREAS, the exercise price of the Additional Warrants may have
been reduced from $6.00 per share to $4.00 per share;
WHEREAS, the parties agree that the documentation of the
Additional Warrants is incomplete and unclear and does not clearly indicate the
number of the Additional Warrants issued or whether the exercise price of the
Additional Warrants was reduced from $6.00 per share to $4.00 per share;
WHEREAS, for purposes of resolving the foregoing uncertainty
concerning the Additional Warrants, the parties desire to enter into this
Agreement for the purpose, among others, of recording their agreement that all
of the Additional Warrants have been cancelled and that Senetek will issue to
Windsor, upon the terms and subject to the conditions set forth in this
Agreement, new warrants to purchase 440,000 Ordinary Shares at a purchase price
of $4.00 per share, which new warrants will contain the provisions set forth in
the form of certificate previously representing the Additional Warrants (the
"$4.00 Warrants");
WHEREAS, the Investors provided Windsor with the funds used by
Windsor to make the initial $6,600,000 loan to Senetek under the Credit
Agreement;
WHEREAS, Windsor desires to assign to Investors (i) all of its
right, title and interest in and to the Credit Agreement, including the right to
receive repayment of the Borrowings, and (ii) all of its right, title and
interest in and to the Warrant Exercise Shares;
WHEREAS, in connection with the settlement of the matters
referred to in this Agreement, Senetek is issuing to Investors, concurrently
with the execution of this Agreement, a warrant to purchase an aggregate of
2,261,143 Ordinary Shares at the exercise price specified therein;
WHEREAS, at or about the time of the execution of this
Agreement, Investors and Senetek are entering into a Securities Purchase
Agreement pursuant to which Investors will provide additional financing to
Senetek through the purchase of securities from Senetek upon the terms set forth
therein ( the "New Financing");
WHEREAS, a portion of the proceeds from the New Financing will
be applied to repay the Borrowings in full;
<PAGE> 4
WHEREAS, Al-Sabah and Alana have entered into a Consulting
Agreement with Senetek dated February 20, 1998 (the "Consulting Agreement");
WHEREAS, the parties desire to enter into this Agreement for the
purpose of documenting their agreement that neither Windsor, Al-Sabah, Alana nor
Hadid nor any affiliate of any of them shall have any right to receive any fee
or other payment pursuant to the Consulting Agreement or any other agreement,
arrangement or understanding on account of the New Financing or the repayment of
the Borrowings;
WHEREAS, Senetek and Packard, a company affiliated with Hadid,
entered into a letter agreement dated July 10, 1997 (the "Packard Agreement")
pursuant to which Packard agreed to perform certain market research for Senetek;
WHEREAS, Senetek paid Packard $200,000 (the "Deposit") in
consideration for the anticipated performance by Packard of its obligations
under the Packard Agreement and the preparation of a research report;
WHEREAS, Packard has not performed its obligations under the
Packard Agreement and Hadid, on behalf of Packard, desires to repay the Deposit
to Senetek by executing and delivering to Senetek the Promissory Note A in the
form attached to this Agreement (the "A Note");
WHEREAS, Senetek, Packard and Hadid desire to cancel the Packard
Agreement;
WHEREAS, Al-Sabah, a company affiliated with Hadid, has borrowed
$500,000 from Senetek and the obligation of Al Sabah to repay the $500,000 loan
is evidenced by a promissory note dated September 21, 1998 in the principal
amount of $500,000, bearing interest at the rate of 6% per annum, which is due
and payable to Senetek upon demand by Senetek (the "Promissory Note");
WHEREAS, Senetek has made a demand for the repayment in full of
the principal amount of and all accrued interest on the Promissory Note;
WHEREAS, $300,000 of the principal amount of the Promissory Note
has been repaid and Hadid desires to repay, on behalf of Al-Sabah, the balance
owing on the Promissory Note by executing and delivering to Senetek the
Promissory Note B in the form attached to this Agreement (the "B Note");
WHEREAS, Windsor has invested $3,300,000 in Senetek in
consideration for the issuance of Ordinary Shares, the number of which Senetek
and Windsor agreed to be 1,100,000, subject to adjustment in the event that the
market price for Senetek's American Depositary Shares was less than $5.00 per
American Depositary Share on June 30, 1998;
WHEREAS, the foregoing agreement to so adjust the number of
shares issued to Windsor was confirmed in a letter dated March 24, 1998 from
Anthony J. Cataldo, the then
<PAGE> 5
Chairman and Chief Executive Officer of Senetek, to Hadid as the representative
of Windsor (the "March 24 Letter");
WHEREAS, the market price for Senetek's American Depositary
Shares on June 30, 1998 was less than $5.00 per American Depositary Share and
Senetek and Windsor have agreed that the March 24 Letter would require Senetek
to issue an additional 625,000 Ordinary Shares to Windsor;
WHEREAS, Senetek desires to issue 625,000 Ordinary Shares in
full satisfaction of its obligations described in the March 24 Letter; and
WHEREAS, Windsor has assigned its right to receive 378,788 of
the 625,000 Ordinary Shares to Wallington Investments and by executing this
Agreement Windsor hereby confirms such assignment and its instructions to the
Company to issue 378,788 Ordinary Shares to Wallington Investments and to issue
the remaining 246,212 Ordinary Shares to Windsor;
NOW, THEREFORE, in consideration of the foregoing and for other
good and valuable consideration, the receipt and adequacy of which are hereby
acknowledged, the parties hereto hereby agree as follows:
SECTION 1. EXERCISE OF WARRANT; REPAYMENT OF BORROWINGS UNDER
THE CREDIT AGREEMENT. The parties hereto agree that immediately prior to the
exercise of the Warrant, the Warrant entitled Windsor, as holder of the Warrant,
to purchase an aggregate of 2,105,715 Ordinary Shares at a purchase price of
$2.00 per share for an aggregate purchase price of $4,211,430 (the "Aggregate
Exercise Price"). The Warrant has been exercised by Windsor in full and Windsor
has been issued the Warrant Exercise Shares. As consideration for the issuance
of the Warrant Exercise Shares and in satisfaction of Windsor's obligation to
pay the Aggregate Exercise Price, the amount of the Borrowings has been reduced
by the Aggregate Exercise Price, with the result that the amount of the
Borrowings outstanding following exercise of the Warrant was and continues to be
$2,388,570 (the "Remaining Loan").
SECTION 2. ASSIGNMENT; POWER OF ATTORNEY. Windsor hereby assigns
to Investors all of its rights, title and interest in and to, and hereby
relinquishes to Investors any and all rights it may have in, to and under, the
Loan Agreement and the Warrant Exercise Shares, including, without limitation
its right to receive any and all payments in respect of the repayment of the
Remaining Loan. The foregoing assignment is made to the Investors in the
respective amounts set forth on Schedule I hereto. Concurrently herewith,
Windsor is delivering to Kevin McCarthy, as representative of the Investors, the
Certificate. Windsor hereby irrevocably constitutes and appoints Kevin McCarthy
as its attorney-in-fact, with full power of substitution, as its true and lawful
agent and attorney-in-fact, with full power and authority in its name, place and
stead to execute, acknowledge, deliver, file and record stock powers,
assignments, certificates and other instruments and instructions appropriate or
necessary to convey the Warrant Exercise Shares, including the shares
represented by the Certificate, to the Investors in the manner contemplated by
this Agreement, to submit the Certificate to the Company for cancellation, and
to secure the issuance of new certificates in the names of the respective
Investors representing the Warrant
<PAGE> 6
Exercise Shares or any portion thereof. The foregoing power of attorney is
irrevocable and a special power coupled with an interest. Windsor hereby agrees
to be bound by any act of the foregoing attorney-in-fact taken or made in good
faith pursuant to such power of attorney. Windsor and Hadid hereby represent and
warrant that Windsor has not assigned any of its right, title or interest in, to
or under the Loan Agreement, the Remaining Loan or the Warrant Exercise Shares
to any other person or entity.
SECTION 3. CANCELLATION OF THE ADDITIONAL WARRANTS. The
Additional Warrants and all amendments thereto and all warrants, if any, issued
in substitution thereof (collectively the "Cancelled Warrants") are hereby
cancelled and shall be of no further force or effect. Windsor and Hadid hereby
represent and warrant that Windsor has not assigned any of its right, title or
interest in the Cancelled Warrants to any other person or entity. Windsor and
the Investors hereby agree that they have no continuing interest in or rights
arising out of any of the Cancelled Warrants. Windsor and Hadid hereby agree to
return promptly to Senetek any and all certificates representing the Cancelled
Warrants.
SECTION 4. ISSUANCE OF $4.00 WARRANTS. As soon as practicable
following the date of this Agreement, the Company will issue 440,000 $4.00
Warrants to Windsor. The $4.00 Warrants shall provide that if Hadid shall fail
to make, for any reason whatsoever, any payment under the A Note or the B Note
(in any amount) on or prior to the payment date for such payment specified in
the respective A Note or B Note, all 440,000 $4.00 Warrants shall be cancelled
automatically and shall not be reinstated in any manner, even if the payments so
failed to be made shall later be made to the Company.
SECTION 5. EXECUTION AND DELIVER OF THE A NOTE AND THE B NOTE.
Concurrently herewith, Hadid is executing and delivering the A Note and the B
Note to Senetek. Senetek hereby agrees that upon payment in full of the
principal amount of and all accrued interest, if any, on the A Note, the
$200,000 Deposit shall be deemed to have been repaid to Senetek. Except for the
obligation of Hadid to pay the principal amount of and all accrued interest, if
any, on the A Note in full, Senetek, Packard and Hadid hereby agree that the
Packard Agreement is terminated. Senetek agrees that upon payment in full of the
principal amount of and all accrued interest, if any, on the B Note, the
obligations of Al-Sabah under the Promissory Note shall be satisfied in full.
SECTION 6. DELIVERY OF CERTIFICATES REPRESENTING AN AGGREGATE OF
625,000 ORDINARY SHARES. As soon as practicable following the date of this
Agreement and in full satisfaction of its obligations under the March 24 Letter,
the Company shall deliver (i) to Wallington Investments, Ltd. ("Wallington") a
certificate issued in the name of Wallington representing 378,788 Ordinary
Shares, and (ii) to Windsor a certificate issued in the name of Windsor
representing 246,212 Ordinary Shares.
SECTION 7. INVESTMENT REPRESENTATIONS. Windsor and Wallington
(by its execution of the acknowledgement hereto) each hereby represents and
warrants severally as to itself (but not as to the other) that (i) the 246,212
Ordinary Shares or the 378,788 Ordinary Shares, as the case may be, issued to it
and, as to Windsor, the $4.00 Warrants, acquired as
<PAGE> 7
provided in this Agreement (the "Securities") are being acquired for investment
purposes only for their own respective account and not with a view to the resale
or distribution of any of the Securities in contravention of applicable law,
(ii) it has had an opportunity to ask questions and receive answers from Senetek
regarding the business of Senetek and the investment in the Securities, (iii) it
is experienced in making investments such as an investment in the Securities and
it is able to fend for itself, can bear the economic risk of its investment in
the Securities and has sufficient knowledge and experience in financial and
business matters such that it is capable of evaluating the merits and risks of
an investment in the Securities, and (iv) it is an "accredited investor" within
the meaning of Rule 501 of Regulation D of the Regulations of the SEC under the
Securities Act of 1933, as amended (the "Act"). Windsor and Wallington (by its
execution of the acknowledgement hereto) each acknowledge that it understands
that the Securities are "restricted securities" under the federal securities
laws inasmuch as they are being acquired from Senetek in a transaction not
involving a public offering and that under applicable laws and regulations the
Securities may not be resold without registration under the Act, except in
certain limited circumstances, and each represents that it is familiar with
these resale limitations. In the event the Securities have not been registered
under the Act, Windsor and Wallington (by its execution of the acknowledgement
hereto) each acknowledge that it may not dispose of any portion of the
Securities unless it shall have furnished to Senetek an opinion of counsel, in
form and substance reasonably satisfactory to Senetek, rendered by a law firm
experienced in matters involving the sale of securities under federal and state
securities laws and reasonably satisfactory to Senetek, to the effect that the
disposition will not require registration of the Securities under the Act or
registration or qualification under any state securities or "blue sky" law.
SECTION 8. LEGENDS. Windsor and Wallington (by its execution of
the acknowledgement hereto) each acknowledge that it understands that the
certificates evidencing the Securities (or the American Depositary Receipts
evidencing the American Depositary Shares representing the Securities) may bear
a legend in substantially the following form:
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE "ACT") OR ANY APPLICABLE STATE
SECURITIES LAWS. THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED
OR HYPOTHECATED IN THE ABSENCE OF A REGISTRATION STATEMENT IN
EFFECT WITH RESPECT TO THE SECURITIES UNDER THE ACT AND THE
REGISTRATION OR QUALIFICATION OF THE SECURITIES UNDER APPLICABLE
STATE SECURITIES LAWS OR AN OPINION OF COUNSEL REASONABLY
SATISFACTORY TO SENETEK, IN FORM AND CONTENT REASONABLY
SATISFACTORY TO SENETEK, THAT SUCH REGISTRATION OR QUALIFICATION
UNDER THE ACT AND STATE SECURITIES LAWS IS NOT REQUIRED.
SECTION 9. NO FEES. Windsor, Al-Sabah, Alana and Hadid hereby
acknowledge and agree that neither they nor any person controlling, controlled
by or under common control
<PAGE> 8
with any of them are or shall be entitled to receive from Senetek or any other
party any fee or other payment (whether in the form of cash, warrants or other
securities or property) pursuant to the Consulting Agreement or any other
agreement, arrangement or understanding, on account of or arising out of the New
Financing or the repayment of the Borrowings or the Remaining Loan.
SECTION 10. AUTHORITY OF HADID. Hadid hereby represents to
Senetek and the Investors that he has the full power and authority to enter into
this Agreement on behalf of Windsor, Al-Sabah, Packard and Alana and to bind
Windsor, Al-Sabah, Packard and Alana to the terms of this Agreement.
SECTION 11. FURTHER ASSURANCES. Each party of this Agreement
agrees to execute and deliver such further documents and instruments and take
such further action as any other party to this Agreement may reasonably request
for the purpose of further documenting the agreements set forth herein or
otherwise carrying out the intent of this Agreement.
SECTION 12. GOVERNING LAW. This Agreement, the A Note and the B
Note shall be governed by and construed in accordance with the laws of the State
of California without regard to conflict of laws principles.
SECTION 13. ENTIRE AGREEMENT. This Agreement constitutes the
entire agreement among the parties hereto pertaining to the subject matter of
this Agreement and supersedes all prior agreements, understandings, negotiations
and discussions, whether oral or written, of the parties.
SECTION 14. AMENDMENTS AND WAIVERS. No amendment, supplement,
modification or waiver of this Agreement shall be binding unless set forth in a
writing executed by the party to be bound thereby. No waiver of any provision of
this Agreement shall be deemed to constitute or shall constitute a waiver of any
other provision hereof (whether or not similar), nor shall any such waiver
constitute a continuing waiver unless otherwise expressly provided in the
waiver.
SECTION 15. COUNTERPARTS. This Agreement may be executed in one
or more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
SECTION 16. HEADINGS. The heading of the sections in this
Agreement are inserted for convenience of reference only and shall not be deemed
to be a part of or to affect the meaning or interpretation of any provision of
this Agreement.
<PAGE> 9
IN WITNESS WHEREOF, the parties hereto have entered into this
Agreement, or have caused this Agreement to be duly executed on their behalf by
their respective authorized representatives, as of the day and year first above
written.
SENETEK, PLC AL-SABAH TRADING AND
DEVELOPMENT COMPANY
By /s/ Frank J. Massino By /s/ Mohamed Hadid
------------------------------- --------------------------------------
Frank J. Massino Mohamed Hadid
Chief Executive Officer Authorized Signatory
WINDSOR CAPITAL MANAGEMENT, LTD. THE ALANA GROUP, LTD.
By /s/ Mohamed Hadid By /s/ Mohamed Hadid
------------------------------- --------------------------------------
Mohamed Hadid Mohamed Hadid
Authorized Signatory Authorized Signatory
PACKARD, LTD.
By /s/ Mohamed Hadid /s/ Mohamed Hadid
------------------------------- ----------------------------------------
Mohamed Hadid MOHAMED HADID
Authorized Signatory
SILVER CREEK INVESTMENTS, LTD. BOMOSEEN INVESTMENTS, LTD.
By /s/ Silver Creek Investments, Ltd. By /s/ Bomoseen Investments, Ltd.
------------------------------- --------------------------------------
Name: Name:
Title: Title:
ELSTREE HOLDING, LTD. DANDELION INVESTMENTS, LTD.
By /s/ Elstree Holding, Ltd. By /s/ Dandelion Investments, Ltd.
------------------------------- --------------------------------------
Name: Name:
Title: Title:
THE UNDERSIGNED HEREBY ACKNOWLEDGES THIS AGREEMENT FOR THE PURPOSES SPECIFIED IN
SECTIONS 7 AND 8 OF THIS AGREEMENT ONLY:
WALLINGTON INVESTMENTS
By /s/ Wallington Investments
-------------------------------
Name:
Title:
<PAGE> 10
SCHEDULE I
The assignment made by Windsor pursuant to Section 2 of the
Settlement Agreement to which this Schedule I is attached is being made to the
following Investors in the following amounts:
<TABLE>
<CAPTION>
Percentage Interest in the Number of Warrant
Investor Loan Agreement Assigned (1) Exercise Shares Assigned
-------- --------------------------- ------------------------
<S> <C> <C>
Silver Creek Investments, Ltd. 29.74% 626,269
Bomoseen Investments, Ltd. 29.74% 626,269
Elstree Holdings, Ltd. 20.26% 426,589
Dandelion Investments, Ltd. 20.26% 426,588
</TABLE>
(1) Includes interest in the right to receive repayment of the Remaining
Loan.
<PAGE> 11
PROMISSORY NOTE A
Los Angeles, California
April 13, 1999
FOR VALUE RECEIVED, the undersigned, MOHAMED HADID, does hereby promise to
pay to SENETEK PLC, a company organized under the laws of England, at
its office located at 620 Airpark Road, Napa, California, the following
amounts on or before the following dates:
<TABLE>
<CAPTION>
Payment Date Payment Amount
----------------- --------------
<S> <C>
May 3, 1999 $40,000
June 1, 1999 40,000
July 1, 1999 40,000
August 2, 1999 40,000
September 1, 1999 40,000
October 1, 1999 15,000
</TABLE>
If any of the foregoing amounts shall not be paid in full on or prior to
the respective payment date set forth above, the unpaid portion shall
bear interest commencing on the respective payment date and continuing
until the unpaid amount shall have been paid in full (together with all
accrued interest thereon) at the rate of 10% per annum.
/s/ Mohamed Hadid
----------------------------------------
MOHAMED HADID
<PAGE> 12
PROMISSORY NOTE B
Los Angeles, California
April 13, 1999
FOR VALUE RECEIVED, the undersigned, MOHAMED HADID, does hereby promise to
pay to SENETEK PLC, a company organized under the laws of England, at
its office located at 620 Airpark Road, Napa, California, the following
amounts on or before the following dates:
<TABLE>
<CAPTION>
Payment Date Payment Amount
----------------- --------------
<S> <C>
May 3, 1999 $40,000
June 1, 1999 40,000
July 1, 1999 40,000
August 2, 1999 40,000
September 1, 1999 40,000
October 1, 1999 15,000
</TABLE>
If any of the foregoing amounts shall not be paid in full on or prior to
the respective payment date set forth above, the unpaid portion shall
bear interest commencing on the respective payment date and continuing
until the unpaid amount shall have been paid in full (together with all
accrued interest thereon) at the rate of 10% per annum.
/s/ Mohamed Hadid
----------------------------------------
MOHAMED HADID
<PAGE> 13
PROMISSORY NOTE A
Los Angeles, California
April 13, 1999
FOR VALUE RECEIVED, the undersigned, MOHAMED HADID, does hereby promise to pay
to SENETEK PLC, a company organized under the laws of England, at its
office located at 620 Airpark Road, Napa, California, the following
amounts on or before the following dates:
<TABLE>
<CAPTION>
Payment Date Payment Amount
----------------- --------------
<S> <C>
May 3, 1999 $40,000
June 1, 1999 40,000
July 1, 1999 40,000
August 2, 1999 40,000
September 1, 1999 40,000
October 1, 1999 15,000
</TABLE>
If any of the foregoing amounts shall not be paid in full on or prior to the
respective payment date set forth above, the unpaid portion shall bear
interest commencing on the respective payment date and continuing until
the unpaid amount shall have been paid in full (together with all
accrued interest thereon) at the rate of 10% per annum.
/s/ Mohamed Hadid
----------------------------------------
MOHAMED HADID
<PAGE> 14
PROMISSORY NOTE B
Los Angeles, California
April 13, 1999
FOR VALUE RECEIVED, the undersigned, MOHAMED HADID, does hereby promise to pay
to SENETEK PLC, a company organized under the laws of England, at its
office located at 620 Airpark Road, Napa, California, the following
amounts on or before the following dates:
<TABLE>
<CAPTION>
Payment Date Payment Amount
----------------- --------------
<S> <C>
May 3, 1999 $40,000
June 1, 1999 40,000
July 1, 1999 40,000
August 2, 1999 40,000
September 1, 1999 40,000
October 1, 1999 15,000
</TABLE>
If any of the foregoing amounts shall not be paid in full on or prior to the
respective payment date set forth above, the unpaid portion shall bear
interest commencing on the respective payment date and continuing until
the unpaid amount shall have been paid in full (together with all
accrued interest thereon) at the rate of 10% per annum.
/s/ Mohamed Hadid
----------------------------------------
MOHAMED HADID
<PAGE> 1
Exhibit 10.43
SECURITIES PURCHASE AGREEMENT
Securities Purchase Agreement dated April 13, 1998 by and among with the Company
and certain other parties thereto.
<PAGE> 2
SENETEK PLC
SECURITIES PURCHASE AGREEMENT
APRIL 14, 1999
<PAGE> 3
SCHEDULES
Schedule 1 - Purchaser Information
Schedule 8.8 - Sale and Leaseback
Schedule 10.1 - Qualification
Schedule 10.3 - Capital Stock
Schedule 10.5 - Subsidiaries
Schedule 10.7 - Litigation
Schedule 10.10 - ERISA
Schedule 10.12 - Indebtedness
Schedule 10.14 - Conflicting Agreements
Schedule 10.15 - Environmental Matters
Schedule 10.17 - Permits
Schedule 10.19 - Compliance
Schedule 10.20 - Intellectual Property
Schedule 10.21(a) - Owned Real Property
Schedule 10.21(b) - Leased Real Property
Schedule 10.22 - Employees
Schedule 10.23 - Insurance
Schedule 10.25 - Pending Drug Applications
EXHIBITS
Exhibit A - Form of Senior Secured Note
Exhibit B - Form of Series A Warrant Certificate
Exhibit C - Form of Legal Opinion of Company Counsel
Exhibit D - Registration Rights Agreement
Exhibit E - Security Agreement
Exhibit F - Pledge Agreement
Exhibit G - Guaranty
Exhibit H - Patent and Trademark Security Agreement
Exhibit I - U.K. Security Agreement
Exhibit J - Form of Series B Warrant Certificate
Exhibit K - Form of Series C Warrant Certificate
<PAGE> 4
SECURITIES PURCHASE AGREEMENT, dated as of April 14, 1999, by and
between Senetek PLC, a corporation organized under the laws of England (the
"Company"), and the Purchasers set forth on Schedule 1 hereto (the "Purchasers")
WHEREAS, the Company and Windsor Capital Management, Ltd. ("Windsor")
are parties to a Credit Agreement dated as of April 28, 1998, as the same may
have been amended (the "Credit Agreement"), pursuant to which Windsor has
extended to Senetek a line of credit in the amount of $10,000,000;
WHEREAS, prior to the date of this Agreement, the Company borrowed an
aggregate amount of $6,600,000 under the Credit Agreement, of which $2,388,750
remained outstanding and unpaid immediately prior to the execution of this
Agreement (the "Borrowing");
WHEREAS, the Company, the Purchasers, Windsor and certain other parties
have entered into an agreement dated as of April 13, 1999 (the "Settlement
Agreement") pursuant to which, among other things, Windsor has assigned to the
Purchasers all of its rights under the Credit Agreement, including its right to
receive payment from the Company of the Borrowing (collectively, the "Credit
Agreement Rights"), as well as all right, title and interest in and to 2,105,715
of the Company's Ordinary Shares, 5 pence par value ("Ordinary Shares")
previously issued by the Company upon the exercise of certain warrants (the
"Previously Issued Shares");
WHEREAS, upon the return to the Company by or on behalf of Windsor of
certificates representing the Previously Issued Shares, the Company will cancel
the certificates and reissue certificates representing the Previously Issued
Shares in the names of the Purchasers in the respective amounts set forth
opposite each Purchaser's name on Schedule 1 hereto;
WHEREAS, the Company desires, upon the terms and conditions hereinafter
provided to issue the Notes and the Warrants, each as hereinafter defined, to
the Purchasers;
WHEREAS, the Purchasers desire, upon the terms and conditions
hereinafter provided, to acquire from the Company the Notes and Warrants;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and conditions contained herein, the parties hereto hereby agree as
follows:
1. DEFINITIONS.
For the purpose of this Agreement the following terms shall have the
meanings specified with respect thereto below:
<PAGE> 5
"Accounts Receivable" shall mean, with respect to the Company,
all present and future accounts, receivables, all rights to payment for goods
sold or leased or for services rendered or work performed that are not evidenced
by an instrument or chattel paper (whether or not earned by performance),
chattel paper, notes, drafts and other forms of obligations and other
instruments and documents, whether now or hereafter owed to or owned or acquired
by the Company or in which the Company has or may hereafter have any interest or
right, all sums of money or other proceeds due or to become due thereon, all
guaranties and security therefor, and all goods and rights represented thereby
or arising therefrom, including but not limited to, the right of stoppage in
transit, replevin and reclamation.
"Affiliate" shall mean, with respect to any Person, any other
Person (i) which directly or indirectly controls, is controlled by, or is under
direct or indirect common control with, such Person, (ii) which directly or
indirectly, of record or beneficially, owns or holds ten percent (10%) or more
of the shares of any class of capital stock of such Person, or (iii) ten percent
(10%) or more of the shares of such stock of which are owned or held, directly
or indirectly, of record or beneficially, by such Person. A Person shall be
deemed to control another Person if such Person possesses, directly or
indirectly, the power to direct or cause the direction of the management and
policies of such other Person, whether through the ownership of voting
securities, by contract or otherwise. All officers and directors of a Person
shall be deemed to be an Affiliate of that Person.
"Authorized Representative" means any of the President or any
Vice President of the Company or, with respect to financial matters, the chief
financial officer of the Company, or any other Person expressly designated by
the Board of Directors of the Company (or the appropriate committee thereof) as
an Authorized Representative of the Company.
"Bankruptcy Law" shall have the meaning specified in clause
(vii) of Section 9.1.
"Business Day" shall mean any day other than a Saturday, a
Sunday or a day on which commercial banks in New York City are required or
authorized to be closed.
"Capital Leases" means all leases which have been or should be
capitalized in accordance with GAAP as in effect from time to time including
Statement No. 13 of the Financial Accounting Standards Board and any successor
thereof.
"Capital Stock" shall mean any and all shares, interests, rights
to purchase, warrants, options, participations or other equivalents of or
interests in (however designated) corporate stock.
<PAGE> 6
"Change of Control" shall mean any transaction or series of
related transactions whereby any one Person or "group" within the meaning of
Rule 13d-5(b)(1) under the Securities Exchange Act of 1934, as amended, who as
of the date of this Agreement beneficially own, directly or indirectly, in the
aggregate, less than 30% of the Ordinary Shares on a fully diluted basis,
outstanding as of the date hereof, after giving effect to such transaction(s),
beneficially own, directly or indirectly, in the aggregate, 30% or more of the
Ordinary Shares on a fully diluted basis on any date.
"Closing Date" shall mean the date and time of the Closing.
"Code" means the Internal Revenue Code of 1986, as amended, and
any regulations promulgated thereunder.
"Commission" shall mean the United States Securities and
Exchange Commission or any governmental body or agency succeeding to the
functions thereof.
"Company" shall have the meaning specified in the Preamble.
"Contract" shall mean any mortgage, indenture, contract or
agreement to which the Company or any Subsidiary is a party.
"CSA" shall mean the United States Comprehensive Drug Abuse
Prevention and Control Act of 1970, as may be amended from time to time.
"Default" shall have the meaning specified in this paragraph 11
under the definition of "Event of Default".
"Dollars" and the symbol "$" means dollars constituting legal
tender for the payment of public and private debts in the United States of
America.
"Employee Benefit Plan" shall have the meaning specified in
Section 10.10.
"Environmental Claim" means any complaint, summons, citation,
notice, directive, order, claim, litigation, investigation, judicial or
administrative proceeding, judgment, letter or other communication from any
Governmental Authority, or any third party involving violations of Environmental
Laws or Releases.
"Environmental Laws" shall mean any and all laws, statutes,
ordinances, rules, regulations, orders, or determinations of any governmental
authority pertaining to health
<PAGE> 7
or the environment in effect in any and all jurisdictions in which the Company
is conducting or at the time has conducted business, including, without
limitation, the Clean Air Act, as amended, the Comprehensive Environmental
Response, Compensation and Liability Act of 1980, as amended, the Federal Water
Pollution Control Act, as amended, the Resource Conservation and Recovery Act of
1976, as amended the Occupational Safety and Health Act of 1970, as amended, the
Safe Drinking Water Act, as amended, the Toxic Substances Control Act, as
amended, the Superfund Amendments and Reauthorization Act of 1986, as amended,
and other environmental, conservation or protection laws.
"Environmental Liabilities" means any monetary obligations,
losses, damages, punitive damages, consequential damages, treble damages, costs
and expenses (including all reasonable out-of-pocket fees, disbursements and
expenses of counsel, out-of-pocket expert and consulting fees and out-of-pocket
costs for environmental site assessments, remedial investigation and feasibility
studies), fines, penalties, sanctions and interest incurred as a result of any
Environmental Claim filed by any Governmental Authority or any third party which
relate to any environmental condition, remedial action, Release or threatened
Release from or onto (i) any facility presently or formerly owned by the company
or a predecessor in interest, or (ii) any facility which received Hazardous
Materials generated by the Company or a predecessor in interest, or (ii) any
facility which received Hazardous Materials generated by the Company or a
predecessor in interest.
"Environmental Permit" means any permit, license, notice, order,
approval or other authorization under any applicable law, rule, regulation or
other requirement of the United States or of any state, municipality or other
subdivision thereof required by any Environmental Law.
"ERISA" shall mean the Employee Retirement Income Security Act
of 1974, as amended from time to time.
"ERISA Affiliate" shall mean each trade or business (whether or
not incorporated) which together with the Company as of any relevant measuring
date under ERISA or the Code, is treated as a "single employer" under section
414 of the Code and the regulations promulgated thereunder; provided that in no
event shall any Purchaser or any Affiliate of any Purchaser be deemed to be an
ERISA Affiliate for purposes of this Agreement.
"Event of Default" shall mean any of the events specified in
Section 9.1, provided that there has been satisfied any requirement in
connection with such event for the giving of notice, or the lapse of time, or
the happening of any further condition, event or act, and "Default" shall mean
any of such events, whether or not any such requirement has been satisfied.
<PAGE> 8
"FDCA" shall mean the United States Federal Food, Drug and
Cosmetic Act, as may be amended from time to time.
"GAAP" or "Generally Accepted Accounting Principles" means
generally accepted accounting principles, being those principles of accounting
set forth in pronouncements of the Financial Accounting Standards Board, the
American Institute of Certified Public Accountants or which have other
substantial authoritative support and are applicable in the circumstances as of
the date of a report.
"Governmental Authority" shall mean any nation or government,
any state or other political subdivision thereof and any entity exercising
executive, legislative, judicial, regulatory or administrative functions of or
pertaining to government.
"Guaranty" shall have the meaning set forth in Section 5.14
hereof.
"Hazardous Materials" means (a) any element, compound, or
chemical that is defined, listed or otherwise classified by a Governmental
Authority as a contaminant, pollutant, toxic pollutant, toxic or hazardous
substances, extremely hazardous substance or chemical, hazardous waste, medical
waste, biohazardous or infectious waste, special waste, or solid waste under
Environmental Laws; (b) petroleum and its refined products; (c) polychlorinated
biphenyls; (d) any substance exhibiting a hazardous waste characteristic as
defined in 40 C.F.R. 261.21-.24; and (e) any raw materials, building components,
including but not limited to asbestos-containing materials and manufactured
products, containing Hazardous Materials.
"Holder of a Note or Warrant" shall mean the person in whose
name the Note or Warrant is registered on the books and records of the Company.
"Indebtedness" shall mean, with respect to the Company and any
Subsidiary the principal of (and premium, if any, on) and unpaid interest on the
following:
(i) indebtedness for money borrowed from another person
whether secured or unsecured;
(ii) indebtedness guaranteed, directly or indirectly, in
any manner by the Company and any Subsidiary, or in effect guaranteed,
directly or indirectly, by the Company and any Subsidiary, through an
agreement, contingent or otherwise, to supply funds to or in any manner
invest in the debtor or to purchase indebtedness, or to purchase
property or services primarily for the purpose of enabling the debtor to
make payment of the indebtedness or of assuring
<PAGE> 9
the owner of the indebtedness against loss (whether by direct guaranty,
suretyship, discount, endorsement, take-or-pay agreement, agreement to
purchase or advance or keep in funds or other agreement having the
effect of a guarantee);
(iii) all indebtedness secured by any mortgage, lien,
pledge, charge or other encumbrance upon property or assets owned by the
Company and any Subsidiary, even if the Company and any Subsidiary, has
not in any manner become liable for the payment of such indebtedness;
(iv) all indebtedness of the Company and any Subsidiary,
created or arising under any conditional sale, capital lease or other
title retention agreement with respect to property or assets acquired by
the Company and any Subsidiary, even though the rights and remedies of
the seller, lessor or lender under any such agreement or capital lease
in the event of default are limited to repossession or sale of such
property or assets; and
(v) renewals, extensions and refundings of any or all of
such indebtedness.
"Indebtedness for Money Borrowed" means with respect to any
Person, without duplication, all indebtedness in respect of money borrowed,
including without limitation all Capital Leases and the deferred purchase price
of any property or asset, evidenced by a promissory note, bond, debenture or
similar written obligation for the payment of money (including conditional sales
or similar title retention agreements), other than trade payables incurred in
the ordinary course of business.
"Intellectual Property Rights" means, as to any Person, that
Person's Patents and Patent Applications, Trademarks, licenses and trade/brand
names, and including without limitation all logos and designs, trade secrets,
technical information, proprietary rights, engineering procedures, designs,
know-how and processes, software, copyrights and other intellectual property.
"Inventory Financing" shall mean Indebtedness arising from an
agreement for the financing of inventory entered into in the ordinary course of
business between the Company or any of its Subsidiaries and a bank or financial
institution experienced in providing financing of inventory.
"Investment" in any Person shall mean all investments by stock
purchase, capital contribution, loan, advance, guarantee of any indebtedness or
creation or assumption of any other liability in respect of any indebtedness of
such Person.
"Investment Notes" shall have the meaning set forth in Section 2
hereof.
<PAGE> 10
"IRS" shall mean the Internal Revenue Service of the United
States.
"Knowledge," "best knowledge" and similar phrases, when used
with respect to the Company or any of its Subsidiaries, shall mean the actual
knowledge after due inquiry of the Company's Chief Executive Officer, President,
Chief Financial Officer or Executive Vice President of Operations.
"Lien" shall mean any mortgage, pledge, security interest,
encumbrance, lien or charge of any kind (including any agreement to give any of
the foregoing, any conditional sale or other title retention agreement, any
lease in the nature thereof and the filing of or agreement to give any financing
statement under the Uniform Commercial Code of any jurisdiction).
"Material Adverse Effect" shall mean a material adverse effect
on the business, condition (financial or otherwise), assets, properties or
operations of the Company and its Subsidiaries, taken as a whole.
"Multiemployer Plan" shall mean a "multiemployer plan" as
defined in Section 4001(a)(3) of ERISA which is maintained for any employees or
former employees of the Company or any ERISA Affiliates.
"Notes" shall mean the Senior Secured Notes due 2002 (together
with any such notes which may be issued hereunder in substitution or exchange
thereof) of the Company to bear interest on the unpaid balance thereof from the
date of issue until the principal thereof shall become due and payable at the
rate of 8.0% per annum (accruing daily and payable quarterly in arrears) and on
overdue principal, premium and interest at the rate specified therein, and be
stated to mature on April 13, 2002, issued pursuant to Section 2 hereof.
"Obligations" shall mean the obligations, liabilities and
Indebtedness of the Company with respect to (i) the principal, interest and all
other amounts owed pursuant to the terms of the Notes and (ii) the payment and
performance of all other obligations, liabilities and Indebtedness of the
Company to the Purchaser, under any one or more of the Transaction Documents
other than the Warrants.
"Officers' Certificate" shall mean a certificate signed in the
name of the Company by its Chief Executive Officer, President or one of its Vice
Presidents and by its Chief Financial Officer, Treasurer or Controller.
"Ordinary Shares" shall mean the Company's ordinary shares, (5p)
par value per share.
<PAGE> 11
"Patent and Patent Applications" shall mean, as to any Person,
all of such Person's right, title and interest in and to all of its now owned or
existing and filed and hereinafter acquired or arising and filed patents and
patent applications, inventions and improvements thereto, and (a) the reissues,
divisions, continuations, renewals, extensions, and continuations, in-part
thereof, (b) all income, royalties, damages and payments now or hereafter due
and/or payable under or with respect thereto, including without limitation
damages and payments for past or future infringements thereof, (c) the right to
sue for past, present and future infringements thereof, (d) all rights
corresponding thereto throughout the world, and (e) all right as licensor or
licensee with respect to any of the foregoing.
"Patent and Trademark Security Agreement" shall have the meaning
set forth in Section 5.12 hereof.
"PBGC" shall mean the Pension Benefit Guaranty Corporation or
any corporation or governmental body or agency succeeding to the functions
thereof.
"Pension Plan" shall mean an employee pension benefit plan
within the meaning of section 3(2) of ERISA, maintained or contributed to by the
Company or an ERISA Affiliate, and which is subject to Section 412 of the Code.
"Permitted Acquisition" means an acquisition by the Company or
its Subsidiaries of assets or capital stock or other ownership interest in a
Person provided that (a) the Person to be (or whose assets are to be) acquired
does not oppose such acquisition and the line or lines of business of the Person
to be acquired are substantially the same as one or more line or lines of
business conducted by the Company and its Subsidiaries; (b) the Person acquired
shall be a wholly-owned Subsidiary, or be merged into the Company or a
wholly-owned Subsidiary, immediately upon consummation of the acquisition (or if
assets are being acquired, the acquiror shall be the Company or a wholly-owned
Subsidiary); (c) if the cost of Acquisition shall be financed with cash
consideration in excess of $1,000,000, the Purchaser shall consent to such
Acquisition in their discretion; provided, that the aggregate purchase price for
such acquisitions consummated during any twelve month period for less than
$1,000,000 shall not exceed $3,000,000; and (d) no Default or Event of Default
shall have occurred and be continuing either immediately prior to or immediately
after giving effect to such acquisition.
"Permitted Indebtedness" shall mean
(i) purchase money Indebtedness and Indebtedness arising
from Receivables Financing, Inventory
<PAGE> 12
Financing and Indebtedness under capital leases entered into in the
ordinary course of business;
(ii) the Indebtedness represented by the Notes;
(iii) Indebtedness used to finance the cost of Permitted
Acquisitions;
(iv) Indebtedness with terms substantially similar to
that represented by the Notes not to exceed $15,000,000 in the
aggregate, provided such Indebtedness is issued on a pari passu basis
with the Notes;
(v) Any extension, renewal, refunding or refinancing of
Indebtedness permitted in (i), (ii), (iii) or (iv) above without any
increase in the principal or commitment amount thereof and on terms, in
the aggregate, no less favorable to the Company, as the case may be,
than the terms of such debt prior to such extension, renewal, refunding
or refinancing;
(vi) Indebtedness between wholly-owned Subsidiaries and
the Company;
(vii) Unsecured Indebtedness which is expressly
subordinated to the Notes in payment of principal and interest and in
all other respects; and
(viii) Indebtedness secured by Permitted Liens.
"Permitted Liens" shall mean, as to the property, personal,
real, tangible and intangible, of any Person:
(i) Other Liens in existence on the Closing Date listed
on Schedule 8.1 hereto;
(ii) Purchase money Liens upon or in any plant,
machinery or equipment acquired after the Closing Date by the Company to
secure a portion of the purchase price of such plant, machinery or
equipment or to secure Indebtedness incurred solely for the purpose of
financing the acquisition of such plant, machinery or equipment and
Liens incurred in connection with Inventory Financing and Receivables
Financing;
(iii) Liens existing on any plant, machinery or
equipment at the time of its acquisition whether by merger,
consolidation, purchase of assets, or otherwise;
(iv) Liens incurred to refinance existing secured
obligations permitted by clauses (i) through (iii) above;
<PAGE> 13
(v) Liens incurred or pledges and deposits in connection
with workers' compensation, unemployment insurance and other social
security benefits, or securing the performance of bids, tenders, leases,
contracts (other than for the repayment of borrowed money), statutory
obligations, progress payments, surety and appeal bonds and other
obligations of like nature, incurred in the ordinary course of business;
(vi) Liens imposed by law, such as mechanics' carriers'
warehousemen's, materialmen's, supplier's and vendors' in good faith by
appropriate proceedings which have the effect of staying any action to
foreclose or to obtain a judgment to enforce such Liens;
(vii) zoning restrictions, easements, licenses,
covenants, reservations restrictions on the use of real property or
minor irregularities of title incident thereto which do not in the
aggregate materially impair the use of such property in the operation of
the businesses of such Person;
(viii) Liens for taxes or assessments not yet due or
which are being contested in good faith for which adequate reserves have
been established in accordance with GAAP.
"Person" shall mean and include an individual, a partnership, a
joint venture, a corporation, a trust, an unincorporated organization and a
government or any department or agency thereof.
"Pledge Agreement" shall have the meaning set forth in Section
5.12 hereof.
"Prohibited Transaction" shall mean any "prohibited transaction"
(within the meaning of Section 406 of ERISA or 4975 of the IRC) with respect to
any Employee Benefit Plan for which transaction no statutory or administrative
exemption is available.
"Receivables Financing" shall mean Indebtedness arising from an
agreement for the financing of account receivables entered into in the ordinary
course of business between the Company or any of its Subsidiaries and a bank or
financial institution experienced in providing financing of receivables.
"Registration Rights Agreement" shall have the meaning set forth
in Section 5.12 hereof.
"Release" means any spilling, leaking, pumping, emitting,
emptying, discharging, injecting, escaping, leaching, dumping, or disposing of
Hazardous Materials (including the
<PAGE> 14
abandonment or discarding of barrels, containers or other closed receptacles
containing Hazardous Materials) into the environment.
"Requirements of Environmental Law" means any and all
regulations imposed by and provisions of any law, rule, regulation, order,
decision or decree of any federal, state or local executive, legislative,
judicial, regulatory or administrative agency, board or authority which relate
to (i) pollution, contamination, protection, cleanup, restoration, destruction,
loss or injury to or of the air, surface water, groundwater, land (including,
without limitation, surface and subsurface strata) or other natural resources;
(ii) solid, gaseous or liquid waste generation, handling, transportation,
treatment, processing, cleanup, storage, disposal, recycling, or reclamation;
(iii) exposure to pollutants, contaminants, Hazardous Materials, hazardous
substances, toxic materials or substances, or wastes; (iv) the safety or health
of employees (other than social security laws); (v) the manufacture, generation,
processing, distribution, use, treatment, storage, disposal, transport,
recycling, reclamation or handling of chemical substances, pollutants,
contaminants, Hazardous Materials, hazardous substances, toxic materials or
substances, or wastes; or (vi) noise.
"Restricted Investment" means an Investment in any Person other
than (i) an Investment by the Company or any Wholly- Owned Subsidiary of the
Company in a Wholly-Owned Subsidiary of the Company, subject, in the case of any
such Investments that constitute debt, to the provisions of Section 8.2; (ii)
loans or advances made in the ordinary course of business to employees of the
Company and its Subsidiaries for travel and like expenses; (iii) Investments in
direct obligations of the United States of America or obligations of any
instrumentality or agency thereof, the payment of which is unconditionally
guaranteed by the United States of America; (iv) negotiable certificates of
deposit issued by any commercial bank or trust company organized under the laws
of the United States of America or any state thereof having capital and surplus
of not less than $100,000,000; (v) readily marketable commercial paper rated A-1
by Standard & Poor's Corporation or Prime-1 by NCO/Moody's Commercial Paper
Division of Moody's Investor Services, Inc. (all of which Investments shall be
payable in U.S. dollars in the United States of America and shall have
maturities not in excess of twelve months); and (vi) Permitted Acquisitions.
"Restricted Payment" shall mean (i) any dividend on, or any
distribution of property or cash in respect of, any shares of Capital Stock of
the Company or any Subsidiary or the incurrence of any liability in respect
thereof, and (ii) any payment or distribution of property or cash on account of
the redemption, purchase, retirement or other acquisition of any shares of
Capital Stock of
<PAGE> 15
the Company or any Subsidiary or any warrant, option or other right to purchase
or acquire any shares of Capital Stock of the Company or any Subsidiary, other
than the exercise of the Warrants.
"Securities" shall have the meaning specified in Section 2.
"Securities Act" shall mean the Securities Act of 1933, as
amended.
"Security Agreement" shall have the meaning set forth in Section
5.12 hereof.
"Series A Warrants" shall mean warrants to purchase an aggregate
of 3,000,000 Ordinary Shares, subject to adjustment, at an exercise price of
$1.50 per Ordinary Share, subject to adjustment.
"Series B Warrants" shall mean warrants to purchase an aggregate
of 3,333,333 Ordinary Shares, subject to adjustment, at an exercise price of
$1.50 per Ordinary Share, subject to adjustment.
"Series C Warrants" shall mean warrants to purchase an aggregate
of 1,194,285 Ordinary Shares, subject to adjustment, at an exercise price of
$2.00 per Ordinary Share, subject to adjustment.
"Settlement Notes" shall have the meaning set forth in Section 2
hereof.
"Significant Holder" shall mean as long as the Notes are
outstanding any holder holding at least 25% of the principal amount of the Notes
outstanding from time to time (it being agreed that two or more investment funds
which have the same investment manager shall be treated as one holder for this
purpose).
"Substantial Part" shall mean, as of any date, assets (i) having
a net book value equal to or in excess of 10% of the assets of the Company and
its Subsidiaries, taken as a whole (determined in accordance with United States
GAAP) or (ii) which have provided 10% or more of consolidated net revenue
(defined in accordance with GAAP) of the Company and its Subsidiaries in the
most recent fiscal year of the Company.
"Subsidiary" shall mean, with respect to the Company, any
corporation or similar entity, a majority of the Capital Stock or other equity
of which shall, at the time as of which any determination is being made, be
owned by the Company either directly or through Subsidiaries.
"Termination Event" shall mean (i) a "Reportable Event"
described in 4043 of ERISA and the regulations issued thereunder,
<PAGE> 16
but not including any such event for which the 30 day notice requirement has
been waived by applicable PBGC regulation; or (ii) the withdrawal of the Company
or any ERISA Affiliate from a Pension Plan during a plan year in which it was a
"substantial employer" as defined in Section 4001(a)(2)of ERISA; or (iii) the
filing of a notice of intent to terminate a Pension Plan or the treatment of a
Pension Plan amendment as a termination under Section 4041 of ERISA; or (iv) the
institution of proceedings to terminate a Pension Plan by the PBGC; or (v) the
complete or partial withdrawal of the Company or an ERISA Affiliate from a
Multiemployer Plan; or (vi) an event occurs which requires the Company or an
ERISA Affiliate to provide security to a Pension Plan within the meaning of
Section 401(a)(29) of the Code; or (vii) the imposition of a lien pursuant to
Section 412 of the Code or Section 302 of ERISA; or (viii) any event or
condition which results in the reorganization or insolvency of a Multiemployer
Plan under Section 4241 or Section 4245 of ERISA; or (ix) any other event or
condition which might reasonably be expected to constitute grounds under ERISA
for the termination by the PBGC of, or the appointment of a trustee to
administer any Pension Plan.
"Trademarks" means, as to any Person, all of such Person's
right, title and interest in and to all of its now owned or existing and filed,
and hereafter acquired or arising and filed, trademarks, service marks,
trademark or service mark registration, trade names, trademark rights, trade
name rights and trademark or service mark applications, and (a) the reissues,
divisions, continuations, renewals, extensions and continuations-in-part
thereof, (b) all income, royalties, damages and payments now or hereafter due
and/or payable with respect thereto, including, without limitation, damages and
payment for past or future infringements thereof, (c) the right to sue for past,
present and future infringements thereof, (d) all rights corresponding thereto
throughout the world, (e) all rights as licensor or licensee with respect to any
of the foregoing, and (f) together with each case with the goodwill of such
Person's business connected with the use of, and symbolized by any of the
foregoing.
"Transaction Documents" shall mean, collectively, this
Agreement, the Notes, the Warrants, the Registration Rights Agreement, the
Security Agreement, the U.K. Security Agreement, the Pledge Agreement, the
Guaranty and the Patent and Trademark Security Agreement , the Copyright
Security Agreement and all exhibits and schedules thereto and hereto.
"U.K. Security Agreement" shall have the meaning set forth in
Section 5.12 hereof.
"Warrants" shall have the meaning specified in Section 2.
<PAGE> 17
"Warrant Shares" shall mean the shares of Ordinary Shares
issuable upon the exercise of the Warrants.
"Wholly-Owned Subsidiary" as applied to any Subsidiary, shall
mean a Subsidiary all of the outstanding shares of every class of Capital Stock
of which are at the time owned by or for the benefit of the Company or by one or
more Wholly-Owned Subsidiaries or by the Company and one or more Wholly-Owned
Subsidiaries.
2. AUTHORIZATION OF FINANCING; SETTLEMENT. (a) In order to provide funds
for working capital for the Company and its Subsidiaries, the Company has
authorized the issue, sale and delivery of (i) Notes in the aggregate principal
amount of $5,000,000, substantially in the form of Exhibit A attached hereto
(the "Investment Notes") to the Purchasers in accordance with Schedule 1; (ii)
500,000 Series A Warrants; and (iii) 3,333,333 Series B Warrants.
(b) In addition, the Company will issue on the Closing Date to
the Purchasers in accordance with Schedule 1, (i) Notes in the aggregate
principal amount of $2,388,570, which shall be substantially in the form of
Exhibit A attached hereto (the "Settlement Notes"); (ii) 238,857 Series A
Warrants; (iii) 2,261,143 Series A Warrants and (iv) 1,194,285 Series C
Warrants.
(c) The Series A Warrants, Series B Warrants and Series C
Warrants shall be evidenced by warrant certificates substantially in the forms
of Exhibit B, Exhibit I and Exhibit J, respectively, attached hereto (the
"Warrant Certificates") and are collectively referred to herein as the
"Warrants".
(d) As used herein, the term "Securities" means the Investment
Notes, the Settlement Notes and the Warrants issued pursuant to this Section 2.
3. PURCHASE AND SALE OF SECURITIES; SETTLEMENT NOTE; CERTAIN
REPRESENTATIONS, WARRANTIES AND AGREEMENT. Subject to the terms and conditions
herein set forth, the Company hereby agrees to sell to the Purchasers and the
Purchasers agree to purchase from the Company $5,000,000 in aggregate principal
amount of the Investment Notes, together with 500,000 Series A Warrants and
3,333,333 Series B Warrants in the respective amounts set forth opposite their
names on Schedule 1 hereto, represented by one or more Notes or Warrant
Certificates in the appropriate form attached hereto as an Exhibit, registered
in the Purchaser's name or that of the Purchasers' nominee, as the Purchaser
shall request, and, in the case of the Investment Notes, in such denominations
as the Purchasers shall request. In addition, in connection with the
transactions provided for in the Settlement Agreement, the Company hereby agrees
to issue the Settlement Notes and the Series A and Series C Warrants described
in Section 2(b)
<PAGE> 18
hereof to the Purchasers in the respective amounts set forth opposite their
names on Schedule 1 hereto, represented by one or more Notes or Warrant
Certificates in the appropriate form attached hereto as an Exhibit. Each
Purchaser hereby agrees that the issuance of the Settlement Notes and the Series
A and Series C Warrants to the Purchasers pursuant hereto shall satisfy in full
all of the obligations of the Company under the Credit Agreement, including,
without limitation, the obligation of the Company to repay the Borrowing, and
(ii) upon issuance of the Settlement Notes and Series A and Series C Warrants to
the Purchasers pursuant hereto, the Credit Agreement shall be deemed to be
terminated and of no further force or effect.
4. CLOSING OF SALE OF SECURITIES. The purchase and delivery of the
Securities shall take place at the offices of Pryor Cashman Sherman & Flynn LLP,
410 Park Avenue, New York, New York 10022 (the "Closing") to be held on April
14, 1999, or at such other place or on such other date as the Purchasers and
Company may agree upon. At the Closing, the Company will deliver (i) the
Investment Notes, 500,000 Series A Warrants and 3,333,333 Series B Warrants to
the Purchasers, against payment of the purchase price therefor by transfer of
immediately available funds in the amount of $5,000,000 to such bank or other
financial institution as the Company shall direct in writing for credit to the
Company's account, and (ii) the Settlement Notes, 238,857 Series A Warrants,
2,261,143 Series A Warrants and 1,194,285 Series C Warrants to the Purchasers in
full satisfaction of all obligations of the Company under the Credit Agreement.
If at the Closing the Company shall fail to tender to the Purchaser any of the
Securities or any of the conditions specified in Section 5 shall not have been
satisfied or waived by the Purchasers, the Purchasers shall, at the Purchasers'
election, be relieved of all further obligations under this Agreement, without
thereby waiving any other rights the Purchaser may have by reason of such
failure or such non-fulfillment.
5. CONDITIONS OF CLOSING. The Purchasers' obligation to purchase and pay
for the Securities is subject to the satisfaction prior to or at the Closing of
the following conditions:
5.1 OPINIONS OF COUNSEL. The Purchasers shall have received from
Latham & Watkins, United States counsel for the Company and Trowers and Hamlins,
English counsel to the Company, opinions covering the matters contained in the
opinion form set forth in Exhibit C attached hereto, addressed to the Purchaser
dated the date of the Closing and otherwise satisfactory in substance and form
to the Purchaser.
5.2 REPRESENTATIONS AND WARRANTIES; NO DEFAULT. The
representations and warranties of the Company contained in this Agreement and
the Transaction Documents, shall be true and correct when made and at the time
of the Closing as though made at such
<PAGE> 19
time, and the Company shall have performed or complied with the covenants,
conditions and agreements contained in this Agreement and the Transaction
Documents required to be performed and complied with by the Company at or prior
to the Closing; and there shall exist at the time of the Closing and after
giving effect to such transactions no Event of Default or Default.
5.3 PURCHASE AND LOAN PERMITTED BY APPLICABLE LAWS. The purchase
of and payment for the Securities shall not violate any applicable law or
governmental regulation (including, without limitation, Section 5 of the
Securities Act) and shall not subject the Purchaser to any tax, penalty,
liability or other onerous condition under or pursuant to any applicable law or
governmental regulation or order.
5.4 NO ADVERSE ACTION OR DECISION. There shall be no action,
suit, investigation, or proceeding pending, or to the Company's knowledge,
threatened, before any court, arbitrator or administrative or governmental body
which (i) seeks to restrain, enjoin, prevent the consummation of the
transactions contemplated by this Agreement or (ii) questions the validity or
legality of any such transactions or seeks to recover damages or to obtain other
relief in connection with any such transactions.
5.5 APPROVALS AND CONSENTS. The Company shall have duly received
all authorizations, waivers, consents, approvals, licenses, franchises, permits
and certificates (collectively, "Consents") by or of all United States federal,
state and local governmental authorities and all United Kingdom and other
foreign governmental authorities and all Consents by or of all other Persons
necessary for the issuance of the Securities and all such Consents shall be in
full force and effect at the time of Closing and copies thereof shall be
delivered to the Purchaser at the Closing.
5.6 PROCEEDINGS. All proceedings taken or to be taken in
connection with the transactions contemplated hereby, and all documents incident
thereto shall be reasonably satisfactory in form and substance to the Purchaser
and its special counsel, and the Purchaser and its special counsel shall have
received all such counterpart originals or certified or other copies of such
documents as the Purchaser or its special counsel may reasonably request.
5.7 TRANSACTION FEE; LEGAL FEES. (a) Scorpion Holdings LLC shall
have received payment in full of USD $75,000 representing the transaction fee
referred to in Section 12.2 hereof.
(b) Pryor Cashman Sherman & Flynn LLP, special counsel
to the Purchaser, shall have received payment of its fees and expenses referred
to in Section 12.2 hereof.
<PAGE> 20
5.8 COMPLIANCE CERTIFICATE. The Purchaser shall have received an
Officers' Certificate, dated the Closing Date, certifying that the conditions
specified in this Article 5 required to be fulfilled on the Closing Date have
been fulfilled.
5.9 NOTE AND WARRANT CERTIFICATES. The Company shall have
delivered to the Purchasers the Investment Notes, Series A Warrants, Series B
Warrants, the Settlement Notes and the Series C Warrants, as required by Section
2 hereof.
5.10 SECRETARY'S CERTIFICATE; GOOD STANDING. The Company and
each Subsidiary shall have delivered to the Purchaser (i) a certificate of its
corporate secretary or assistant secretary as to (A) resolutions of its Board of
Directors approving and authorizing the execution, delivery and performance of
each of the Transaction Documents to which it is a party and, in the case of the
Company, authorizing the issuance and delivery of the Notes and Warrants, as
being in full force and effect without modification or amendment and (B) its
Certificate of Incorporation (or equivalent organizational document) and By-Laws
and all amendments thereto to the Closing Date as being in full force and
effect; with true, correct and complete copies of such resolutions, Certificates
of Incorporation (or equivalent organizational document)and By-laws (or
equivalent document) attached thereto, and (ii) an incumbency certificate of its
officers executing this Agreement and any other Transaction Documents to which
it is a party, (iii) a certificate of subsistence and/or good standing of the
Company and each Subsidiary, dated as of the Closing Date, issued by the
Companies House of the United Kingdom and the Secretary of State of California,
and of each other jurisdiction in which the Company and any Subsidiary is
qualified to do business.
5.11 CERTIFICATES. The Company shall have delivered a
certificate of its Chief Financial Officer certifying that the Company is in
compliance with all covenants under all existing credit facilities of the
Company.
5.12 OTHER DOCUMENTS AND OPINIONS. The Purchaser shall have
received each of the following documents, duly executed by the Company and, if
applicable, each Subsidiary: (i) the Registration Rights Agreement,
substantially in the form of Exhibit D hereto (the "Registration Rights
Agreement"), (ii) the Security Agreement, substantially in the form of Exhibit E
hereto (the "Security Agreement"), (iii) the Pledge Agreement, substantially in
the form of Exhibit F hereto (the "Pledge Agreement"), (iv) a Guaranty,
substantially in the form of Exhibit G hereto from each Subsidiary ("Guaranty"),
(v) the Patent and Trademark Security Agreement, substantially in the form of
Exhibit H hereto ("Patent and Trademark Security Agreement") and
<PAGE> 21
(vi) the Fixed and Floating Security Document, substantially in the form of
Exhibit I hereto (the "U.K. Security Agreement").
6. PREPAYMENT OF THE NOTES. The Notes shall be subject to prepayment as
provided below.
6.1 MANDATORY PREPAYMENT. Upon the occurrence of (a) any
registered underwritten public offering of any class or classes of Capital Stock
of the Company, (b) the sale of all or substantially all of the assets of the
Company (c) a merger or consolidation involving the Company in which the Company
is not the surviving entity or (d) a Change of Control, then all of the
principal amount of Notes then outstanding shall be immediately and indefeasibly
prepaid in full, together with all accrued and unpaid interest thereon and any
other amounts owing in connection therewith;
6.2 OPTIONAL PREPAYMENT. Subject to Section 6.3 and 6.4, the
Notes shall, in accordance with their terms, be subject to prepayment, without
penalty, in full or in part at any time at the option of the Company, together
with all accrued and unpaid interest thereon and any other amounts owing in
connection therewith.
6.3 NOTICE OF PREPAYMENT. The Company shall give the holder of
each Note written notice of its intent to prepay such Note pursuant to Section
6.1 or 6.2 hereof not less than 15 Business Days prior to the prepayment date as
specified in the notice ("Prepayment Notice"). Notice of prepayment having been
given as aforesaid, the principal amount of the Notes to be prepaid, together
with all accrued and unpaid interest thereon to the prepayment date, shall
become due and payable on such prepayment date. All payments received by the
holders of the Note, shall be applied in the following manner: first, in payment
of any amounts owing under the Notes other than principal and interest, second,
in respect of any accrued and unpaid interest on the Notes to the repayment
date, and third, in payment of principal under the Notes.
7. AFFIRMATIVE COVENANTS. The Company covenants that from and after the
date of this Agreement and thereafter so long as any Notes remain outstanding,
as follows:
7.1 FINANCIAL STATEMENTS AND OTHER REPORTS. The Company
covenants that it will deliver, or cause to be delivered, to each holder of the
Notes:
(i) promptly upon transmission thereof, (a) copies of all such
financial statements, proxy statements, quarterly reports, annual
reports, notices and all other reports as the Company or any Subsidiary
shall send to its security holders or directors, (b) copies of all
reports (and all registration
<PAGE> 22
statements) which the Company or any Subsidiary, files with the
Commission or the NASDAQ Stock Market or any securities exchange or
automated quotation system on which any securities of the Company may be
listed or quoted, (c) copies of all press releases and other statements
made generally available by the Company or any Subsidiary to the public
concerning material developments in the business of the Company or any
Subsidiary, and (d) to the Significant Holders, copies of all notices of
default, term sheets that have been agreed to by the Company or any
Subsidiary and commitment letters received from any lender to the
Company or any Subsidiary, and copies of all minutes of meetings of the
Company's or any Subsidiary's Board of Directors or any Committee
thereof, in each case as the Significant Holders may reasonably request;
(ii) within 45 days after the end of each fiscal quarter and
within 90 days after the end of each fiscal year, a certificate of the
Chief Financial Officer of the Company stating that the signer has
reviewed the terms of this Agreement and the Securities and has made, or
caused to be made under his supervision, a review in reasonable detail
of the transactions and condition of the Company and its Subsidiaries
during the fiscal period covered by such financial statements and that
such review has not disclosed the existence during or at the end of such
fiscal period, and that the signer does not have knowledge of the
existence, as at the date of the certificate of the Chief Financial
Officer, of any condition or event which constitutes a Default or Event
of Default or, if any such condition or event existed or exists,
specifying the nature and period of existence thereof and what action,
if any, the Company has taken or is taking or proposes to take with
respect thereto.
(iii) with reasonable promptness upon the Company or any
Subsidiary obtaining knowledge (a) of any condition or event which
constitutes a Default or Event of Default, (b) that the holder of any
Note has given any notice or taken any other action with respect to a
claimed Default or Event of Default under this Agreement, (c) of any
condition or event which, in the opinion of management of the Company,
would have a Material Adverse Effect, (d) that any Person has given any
notice to the Company or any Subsidiary or taken any other action with
respect to a claimed default or event or condition of the type referred
to in Section 9.1(ii) or (e) of the institution of any litigation
involving claims against the Company or any of its Subsidiaries equal to
or greater than $200,000 with respect to any single cause of action or
of any adverse determination in any litigation involving a potential
liability to the Company or any of its Subsidiaries equal to or greater
than $200,000 with respect to any single cause of action, an officers'
certificate specifying the
<PAGE> 23
nature and period of existence of any such condition or event, or
specifying the notice given or action taken by such holder or Person and
the nature of such claimed Default, Event of Default, event or
condition, and what action, if any, the Company has taken, is taking or
proposes to take with respect thereto; and
(iv) copies of all relevant documentation as soon as reasonably
practicable after the Company or any ERISA Affiliate first becomes aware
of the occurrence of (a) the establishment of a new Employee Benefit
Plan, the commencement of contributions to any Employee Benefit Plan to
which the Company or any ERISA Affiliate was not previously
contributing, any Employee Benefit Plan amendment providing for a
material increase in the aggregate benefits provided under any existing
Employee Benefit Plans, each funding waiver request filed with respect
to any Employee Benefit Plan and all communications received or sent by
the Company or any ERISA Affiliate with respect to such request and the
failure of the Company or any ERISA Affiliate to make a required
installment or payment under Section 302 of ERISA or Section 412 of the
Code by the due date; (b) any Termination Event, any Prohibited
Transaction, along with a notice specifying the nature thereof, what
action the Company or any ERISA Affiliate has taken, is taking or
proposes to take with respect thereto and when known, any action taken
or threatened by the IRS, the Department of Labor or the PBGC with
respect thereto; or (c) any unfavorable determination letter from the
IRS regarding the qualification of an Employee Benefit Plan under
Section 401(a) of the Code, the institution of proceedings or the taking
or expected taking of action by the PBGC or the Company or any ERISA
Affiliate to terminate any Pension Plan (including the filing or intent
to file a notice to terminate any Pension Plan under a distress
termination within the meaning of Section 4041(c) of ERISA) or have a
trustee appointed to administer any Pension Plan or withdraw or
partially withdraw from any Multiemployer Plan; each Schedule B
(actuarial report) to the annual report (Form 5500 Series) filed by the
Company or any ERISA Affiliate with the IRS with respect to each Pension
Plan; all notices received by the Company or any ERISA Affiliate from a
Multiemployer Plan sponsor concerning the imposition or amount of
withdrawal liability pursuant to Section 4002 of ERISA.
7.2 INSPECTION OF PROPERTY. The Company and each Subsidiary will
permit any Person or Persons designated by the Purchasers in writing, subject to
the execution by that Person or Persons of a confidentiality agreement
reasonably satisfactory to the Company, to visit and inspect any of the
properties of the Company or any Subsidiary, to examine the books and financial
records of the Company or any Subsidiary and all scientific
<PAGE> 24
information and data, and make copies thereof or extracts therefrom and to
discuss its affairs, finances and accounts with its officers and its independent
public accountants, all at such reasonable times and as often as the Purchaser
may reasonably request. The Company shall pay the reasonable, out-of-pocket
expenses incurred by the Purchasers for one such visit by one Person per
calendar year; provided, however, that if an Event of Default (as defined
herein) has occurred and is continuing, the Company shall reimburse the
Purchasers for all such expenses for an unlimited number of such visits.
7.3 MAINTENANCE OF PROPERTIES; INSURANCE. The Company and each
Subsidiary will maintain or cause to be maintained in good repair, working order
and condition all properties used or useful in the business of the Company or
any Subsidiary and which are material to the conduct of the business of the
Company and the Subsidiaries, taken as a whole, and from time to time will make
or cause to be made all appropriate repairs, renewals and replacements thereof
and additions and improvements thereto; and the Company and each Subsidiary at
all times will comply with each provision of all leases to which it is a party
or pursuant to which it occupies property and which are material to the conduct
of the business of the Company and the Subsidiaries, taken as a whole. The
Company and each Subsidiary will maintain or cause to be maintained, with
financially sound and reputable insurers, which shall have the same or higher
rating by A.M. Best Co. (or another nationally recognized insurance rating
agency of similar standing if A.M. Best Co. is not then in the business of
rating insurers) as the insurers insuring the Company's assets on the date
hereof, (or, as to workers' compensation or similar insurance, in an insurance
fund or by self-insurance authorized by the laws of the jurisdiction in
question), insurance with respect to their respective properties and businesses
which are material to the conduct of the business of the Company and the
Subsidiaries, taken as a whole, against loss or damage from fire, explosion or
other risks customarily insured against by corporations of established
reputation engaged in the same or similar businesses and similarly situated, of
such type and in such amounts as are customarily carried under similar
circumstances by such other corporations and as are sufficient to prevent the
Company from becoming a co-insurer within the terms of the policies in question.
The Company shall provide 30 days prior written notice to the holders of the
Notes prior to the termination of any such insurance policy by the Company or of
which the Company has received notice from the insurer. The Company, in its
discretion, will use the proceeds of all such casualty insurance policies to (i)
repay the debt evidenced by the Notes on a pro rata basis, or (ii) repair or
replace the damaged property. The Company agrees to pay in a timely manner any
and all premiums required to maintain such policies in full force and effect.
<PAGE> 25
7.4 CORPORATE EXISTENCE; LIENS. (a) Except as set forth on
Schedule 7.4 hereto, the Company will, and will cause each Subsidiary to, at all
times preserve and keep in full force and effect its corporate existence, and
rights, licenses, franchises, trademarks, tradenames, patents and other
proprietary information material to the business of the Company and the
Subsidiaries taken as a whole, and will qualify and cause each Subsidiary to
qualify to do business in any jurisdiction where the ownership of property or
the operation of its business makes such qualification necessary, except where
the failure to so qualify would not have a Material Adverse Effect.
(b) As soon as practicable but no later than ninety (90) days of
the Closing, the Company will deliver to each of the Purchasers a certificate of
good standing of the Company from the Secretary of State of the States of
California and Missouri.
(c) As soon as practicable but no later than ninety (90) days of
the Closing, the Company will provide the Significant Holders with evidence that
the Liens previously held by Bank of New York and Michigan National Bank against
a Subsidiary of the Company have been discharged.
(d) As soon as practicable but no later than thirty (30) days of
the Closing, the Company will provide the Significant Holders with the results
of lien searches performed in the following jurisdictions: Buffalo County,
Nebraska, and Macomb County, Michigan. As soon as practicable but no later than
ninety (90) days of the delivery to the Significant Holders of the
above-mentioned lien searches for each of the above jurisdictions, the Company
will provide the Significant Holders with evidence that any Liens other than
Permitted Liens found on such lien searches have been discharged.
7.5 PAYMENT OF TAXES AND CLAIMS. Except as set forth on Schedule
7.5 hereto, the Company will, and will cause each Subsidiary to, promptly pay
and discharge, when due and payable, all material taxes, assessments and other
governmental charges imposed upon them or any of their respective properties or
assets or in respect of any of their respective franchises, business income or
properties before any penalty or interest accrues thereon, and all material
claims (including, without limitation, claims for labor, services, materials and
supplies) for sums which have become due and payable and which by law have or
may become a Lien upon any of their properties or assets; provided, that no such
charge or claim need be paid if being contested in good faith by appropriate
proceedings promptly instituted and diligently conducted and if such accrual or
other appropriate provision, if any, as shall be required by GAAP shall have
been made therefor.
7.6 COMPLIANCE WITH LAWS. The Company will, and will cause its
Subsidiaries to, comply in all respects with the
<PAGE> 26
requirements of all applicable laws, rules, regulations and orders of any court
or other governmental authority except where a failure to do so would not have a
Material Adverse Effect. The Company, at its expense, will promptly upon request
make all state securities or "blue sky" filings as may be necessary or
appropriate in connection with the issuance of Ordinary Shares hereunder or upon
exercise of the Warrants.
7.7 ATTENDANCE AT BOARD MEETINGS. For so long as any of the
Notes are outstanding, the Company shall and will cause each Subsidiary to (i)
give the Purchasers written or other notice of any meeting of the Company's or
each Subsidiary's Board of Directors and any committees thereof at the time and
in the manner that such notice thereof is given to members of its Board of
Directors or such committee, and shall permit Kevin McCarthy, as representative
of the Purchasers (or any other person designated by the Purchasers as their
representative and approved by the Company, which approval shall not be
unreasonably withheld), to attend as an observer and in person (at the Company's
expense) or, in the case of meetings held by telephonic conference call, by
telephone, each meeting of the Company's or a Subsidiary's Board of Directors
and committees thereof, and (ii) deliver to the Purchaser, concurrently with the
delivery thereof to Board members, any written communication including, without
limitation, financial information, directed to members of the Company's or its
Subsidiary's Board of Directors.
7.8 USE OF PROCEEDS. The Company shall use all of the proceeds
received from the sale of the Securities pursuant to this Agreement as follows
(i) the payment of closing costs associated with the closing under this
Agreement and (ii) all remaining amounts for general corporate purposes of the
Company.
7.9 INDEPENDENT ACCOUNTANTS. The Company's financial statements
for the year ended December 31, 1998 have been or are being audited by BDO
Seidman. In the event the services of BDO Seidman or any firm of independent
public accountants hereafter employed by the Company are terminated, the Company
will promptly thereafter notify the Significant Holders and will request the
firm of independent public accountants whose services are terminated to deliver
to the Significant Holders a letter of such firm setting forth the reasons for
the termination of their services. In its notice, the Company shall state
whether the change of accountants was recommended or approved by the Board of
Directors or any committee thereof. In the event of any such termination, the
Company will promptly thereafter engage another nationally recognized firm of
independent public accountants or, if the Company is unable through commercially
reasonable efforts to retain a nationally recognized firm of independent public
accountants, another firm of independent public accountants reasonably
acceptable to the Significant Holders.
<PAGE> 27
7.10 REGULATORY COMPLIANCE. The Company and each Subsidiary will
timely make all filings required to be made by it by all relevant federal, state
or local regulatory bodies except where failure to do so would not have a
Material Adverse Effect.
7.11 RESERVATION OF SHARES. The Company shall at all times keep
reserved and available for issuance the number of Ordinary Shares necessary for
issuance upon exercise of all of the Warrants (as such number may be adjusted or
changed pursuant to the terms of the Warrants).
7.12 ACCOUNTS AND RECORDS. The Company and each Subsidiary will
keep true records and books of account in which full, true and correct entries
will be made of all dealings or transactions in relation to its business and
affairs.
7.13 KEY MAN LIFE INSURANCE. The Company shall have obtained as
of the Closing Date from a financially sound and reputable insurer, a "key man"
life insurance policy with respect to Frank J. Massino in an amount equal to at
least $1,000,000, and any proceeds (after payment of applicable taxes) received
by the Company thereunder shall be applied to repay the debt evidenced by the
Notes on a pro rata basis.
7.14 EXECUTIVE OFFICERS. The Company covenants that Frank J.
Massino will continue as an executive officer of the Company; provided, however,
that the failure of such person to continue as an executive officer of the
Company shall not be deemed a breach of this covenant if, within six (6) months
of such individual's ceasing to serve as an executive officer, such individual's
position is filled or responsibilities are assumed by an individual reasonably
acceptable to the Significant Holders.
7.15 EMPLOYEE BENEFIT PLANS. The Company will and will continue
to cause each of its ERISA Affiliates to (a) comply in all material respects
with all requirements imposed by ERISA, the Code and all other laws and the
regulations thereof, applicable from time to time to any of its Employee Benefit
Plans, (b) make full payment when due of all amounts which, under the provisions
of such Employee Benefit Plans or under applicable law, are required to be paid
as contributions thereto, including any payments or contributions to
Multiemployer Plans required to be made under any agreement relating to such
Multiemployer Plans, or under any law pertaining thereto, (c) not permit to
exist, with respect to any Pension Plan, any material accumulated funding
deficiency (as defined in Section 302 of ERISA and Section 412 of the Code),
whether or not waived, (d) not permit the actuarial present value of all benefit
liabilities under any Pension Plan to be less than the current value of the
assets of such Pension Plans allocable to such benefit liabilities, (e) not
permit the occurrence of a Termination Event which would result in a liability
on the part of the Company or any ERISA Affiliate to the
<PAGE> 28
PBGC, (f) not engage in any Prohibited Transaction, (g) not establish, or amend
or otherwise alter any Employee Benefit Plan if such establishment or amendment
could result in a material liability to the Company or any ERISA Affiliate or
increase the material obligation of the Company or any ERISA Affiliate to a
Multiemployer Plan or permit the establishment of any Employee Benefit Plan
providing post-retirement welfare benefits or (h) take no action which would
reasonably be expected to cause any of the Employee Benefit Plans to fail to
meet any applicable qualification requirement imposed by the Code.
7.16 FURTHER ASSURANCES. From time to time the Company will
execute and deliver such other instruments, certificates, agreements and
documents and will take such other action and do all other things as may be
reasonably requested by the Significant Holders in order to implement or
effectuate the terms and provisions of this Agreement.
7.17 Delivery of Certificates. As soon as practicable after the
return to the Company by or on behalf of Windsor of certificates representing
the 1,885,715 Ordinary Shares, the Company will cancel the certificates and
reissue certificates representing the Previously Issued Shares in the names of
the Purchasers in the respective amounts set forth opposite each Purchaser's
name on Schedule 1 hereto.
8. NEGATIVE COVENANTS. The Company covenants and agrees that from and
after the date of this Agreement through the Closing and thereafter so long as
any Notes remain outstanding, as follows:
8.1 LIMITATION ON LIENS. The Company will not, and will not
permit any Subsidiary to, create, assume or suffer to exist any Lien upon any of
its properties or assets, whether now owned or hereafter acquired, except
Permitted Liens.
8.2 LIMITATION ON INDEBTEDNESS. The Company will not and will
not permit any Subsidiary to, create, incur, assume, suffer to exist or
otherwise become or be liable with respect to any Indebtedness, except Permitted
Indebtedness.
8.3 LIMITATION ON RESTRICTED PAYMENTS. The Company will not, and
will not permit any Subsidiary to, directly or indirectly, pay or declare or set
apart for payment any Restricted Payment.
8.4 LIMITATION ON INVESTMENTS. The Company will not, and will
not permit any Subsidiary to, make or obligate itself to make, directly or
indirectly, any Restricted Investment.
<PAGE> 29
8.5 TRANSACTIONS WITH AFFILIATES AND DIRECTORS. The Company will
not, and will not permit any Subsidiary to, directly or indirectly, enter into
any transaction with any Affiliate of the Company (other than the granting of
stock options, or the exercise thereof, pursuant to the Company's existing share
option scheme or pursuant to any other incentive plan approved by a majority of
members of the Board of Directors of the Company) if such transaction involves
in excess of $100,000, unless such transaction is approved by a majority of the
non-employee directors of the Company. Transactions with Affiliates involving
less than $100,000 may be entered into, provided (i) such transaction is on an
arm's length basis on terms which are no less favorable to the Company or any
Subsidiary than would by the case with a similar transaction with an
unaffiliated Person or (ii) such transaction is approved by a majority of the
non-employee directors of the Company.
8.6 MERGER, CONSOLIDATION, SALE OR TRANSFER OF ASSETS. The
Company will not, and will not permit any Subsidiary to, be a party to any
merger or consolidate with any Person, acquire any other company or invest in,
or purchase, any stock, security or evidence of indebtedness of any other
enterprise or individual, or sell, lease or transfer or otherwise dispose of all
or substantially all of its assets to any Person, provided, however, that the
Company may engage in any of the following transactions provided that that
immediately after giving effect to any such transaction or transactions, no
condition or event shall exist which constitutes a Default or an Event of
Default: (i) the merger of any Wholly-Owned Subsidiary of the Company into the
Company or a Wholly-Owned Subsidiary of the Company if the Company or such
Wholly-Owned Subsidiary, as the case may be, shall be the surviving corporation,
(ii) the sale, lease, transfer or other disposition of any of the assets of any
Wholly-Owned Subsidiary of the Company to the Company or to any other
Wholly-Owned Subsidiary of the Company, whether by dissolution, liquidation or
otherwise, (iii) Permitted Acquisitions, (iv) the sale of the Allercreme(R)
product line, (v) the sale of the Silver Fox(R) product line, (vi) the sale of
the Mill Creek(R) product line, and (vii) the sale, lease, transfer or other
disposition of any assets of any Wholly-Owned Subsidiary of the Company to the
Company or to any other Wholly-Owned Subsidiary of the Company.
8.7 SALES OF ASSETS. The Company will not, and will not permit
any Subsidiary of the Company to, sell, lease, transfer or otherwise dispose of,
in a single transaction or a series of related transactions, any assets,
directly or through the sale of Capital Stock or other equity of a Subsidiary of
the Company, other than (i) sales of inventory in the ordinary course of
business, (ii) sales of obsolete capital equipment in arms-length transactions
in the ordinary course of business, where the proceeds of such capital equipment
sales are immediately reinvested in the Company, (iii) sales during any fiscal
year of
<PAGE> 30
assets of the Company having a value (as determined in good faith by the Board
of Directors) of less than $150,000.00, (iv) the sale of the Allercreme(R)
product line, (v) the sale of the Silver Fox(R) product line, (vi) the sale of
the Mill Creek(R) product line, and (vii) the sale, lease, transfer or other
disposition of any assets of any Wholly-Owned Subsidiary of the Company to the
Company or to any other Wholly-Owned Subsidiary of the Company
8.8 SALE AND LEASEBACK. Except as set forth on Schedule 8.8, the
Company will not, and will not permit any Subsidiary to, enter into any
arrangement with any lender or investor or to which such lender or investor is a
party providing for the leasing by the Company or a Subsidiary of any real or
personal property (i) which has been or is to be sold or transferred by the
Company or any Subsidiary to such lender or investor or to any Person to whom
funds have been or are to be advanced by such lender or investor on the security
of such property or rental obligations of the Company or any Subsidiary or (ii)
which has been or is to be acquired from another Person by such lender or
investor, or on which one or more buildings have been or are to be constructed
by such lender or investor, for the purpose of leasing such property to the
Company or such Subsidiary.
8.9 AMENDMENT OF BY-LAWS AND CHARTER. Neither the Company nor
any Subsidiary shall amend its By-Laws or its Certificate of Incorporation (or
equivalent organizational document) in any manner that would have an adverse
effect on the interests the holders of the Notes and/or Warrants.
8.10 LOANS BY THE COMPANY. Neither the Company nor any
Subsidiary shall make any loans or advances to, or enter into any arrangement
for the purpose of providing funds or credit to, any officer, director, employee
or other person, other than reasonable advances to directors, officers and/or
employees for reasonable travel and other normal business expenses relating to
the business of the Company or such Subsidiary.
8.11 CERTAIN CONTRACTS. The Company will not, and will not
permit any Subsidiary to, enter into or be a party to any contract or agreement
which would constitute a breach of the covenants of the Company set forth in
this Agreement or the Transaction Documents.
8.12 NO SUBSIDIARIES. Neither the Company nor any Subsidiary
will create any new Subsidiaries.
8.13 CHANGE IN BUSINESS. Neither the Company nor any Subsidiary
will enter into or engage in any business other than the business currently
engaged in by the Company and any such Subsidiary as of the date hereof.
<PAGE> 31
8.14 WITHHOLDING TAXES. (a) Unless otherwise required by law,
the Company will not withhold United States withholding taxes from payments to
be made to holders of Notes if such holders (i) are corporations organized under
the laws of a jurisdiction outside the United States or are otherwise persons
not resident in the United States for U.S. federal income tax purposes, and (ii)
provide the Company, upon the Company's reasonable request, with one or more of
Internal Revenue Service Form W-8, Form 4224 or other applicable form,
certificate or document prescribed by the Internal Revenue Service certifying as
to such holders' entitlement to an exemption from any such withholding
requirements.
(b) Unless otherwise required by law, the Company will
not withhold United States withholding taxes from payments to be made to holders
of Notes in excess of an applicable treaty rate if such holders (i) are
corporations organized under the laws of a jurisdiction outside the United
States or are otherwise persons not resident in the United States for U.S.
federal income tax purposes, and (ii) provide the Company upon the Company's
reasonable request, with one or more of certification of their residence
address, Internal Revenue Service Form 1001 or other applicable form,
certificates or documents certifying as to such holders' entitlement to a
reduced rate of withholding under any such withholding requirements.
(c) Neither Section 8.14(a) nor Section 8.14(b) hereof
shall require the Company to apply an exemption or reduced rate of withholding
during any period when it shall have received notice or has knowledge that (i)
the residence or other information previously provided on any applicable form,
certificate or document is incorrect and no corrected form, certificate or
document as applicable has been provided to the Company, or (ii) of any other
information which would render such exemption or reduced rate inapplicable.
8.15 NO PLEDGE OF SUBSIDIARIES' SHARES. The Company will not
mortgage, pledge, hypothecate or create or permit to exist any security interest
in, or lien on, any shares of the Capital Stock of any Subsidiary, except
pursuant to the Transaction Documents.
8.16 CHANGE IN ACCOUNTING POLICIES. Except as set forth in
Schedule 8.16 hereto, neither the Company nor any of its Subsidiaries shall
change its accounting policies, except in accordance with changes mandated by
GAAP.
8.17 DIVIDENDS AND REDEMPTIONS. Neither the Company nor any of
its Subsidiaries shall (a) declare, pay or make any dividend or other
distribution of assets, properties, cash, rights, obligations or Capital Stock
on account of, or redeem, retire, purchase or otherwise acquire, directly or
indirectly, any
<PAGE> 32
shares of its Capital Stock, or (b) make any payments (including, without
limitation, prepayments) of principal of, or retire, redeem, purchase or
otherwise acquire any Indebtedness, other than with respect to the Notes or any
scheduled payments of Permitted Indebtedness.
9. EVENTS OF DEFAULT.
9.1 DEFAULT; ACCELERATION. If any of the following events shall
occur and be continuing for any reason whatsoever (and whether such occurrence
shall be voluntary or involuntary or come about or be effected by operation of
law or otherwise):
(i) the Company defaults in the payment of any principal of or
interest on any Note when the same shall become due, either by the terms
thereof or otherwise as herein provided, and such default continues for
ten (10) days; or
(ii) the Company or any Subsidiary (a) breaches any of the terms
of or defaults under any mortgage, indenture or instrument under which
there may be issued or by which there may be secured or evidenced any
Indebtedness for money borrowed by the Company or any Subsidiary or (b)
fails to perform or observe any other agreement, term or condition
contained in any agreement under which any Indebtedness is created and
the effect of such failure or other event is to cause, or to permit the
holder or holders of such Indebtedness to cause such debt in a principal
amount in excess of $100,000 to become due prior to any stated maturity
date; or
(iii) any representation or warranty made in writing by or on
behalf of the Company or any Subsidiary in this Agreement or any of the
Transaction Documents, shall be false or misleading in any respect on
the date as of which made; or
(iv) the Company or any Subsidiary fails perform or observe any
agreement contained in clause (iii) of Section 7.1 or Section 8; or
(v) the Company or any material Subsidiary fails to perform or
observe any other agreement, term or condition contained in this
Agreement or any of the Transaction Documents, and such failure shall
not have been remedied within 30 days after such failure shall first
have become known to the Chief Executive Officer, President, Chief
Financial Officer or Executive Vice President of Operations of the
Company or such Subsidiary or written notice shall have been received by
the Company (regardless of the source of such notice); or
<PAGE> 33
(vi) the Company or any material Subsidiary makes an assignment
for the benefit of creditors or is generally unable to pay its debts as
such debts become due; or
(vii) any order or decree for relief in respect of the Company
or any material Subsidiary is entered under any bankruptcy,
reorganization, compromise, arrangement, insolvency, readjustment of
debt, dissolution or liquidation or similar law, whether now or
hereafter in effect (herein called the "Bankruptcy Law"), of any
jurisdiction; or
(viii) the Company or any material Subsidiary petitions or
applies to any tribunal for, or consents to, the appointment of, or
taking possession by, a trustee, receiver, custodian, liquidator or
similar official of the Company or any material Subsidiary, or of any
Substantial Part of the assets of the Company or any material
Subsidiary, or commences a voluntary case under the Bankruptcy Law of
the United States or any proceedings (other than proceedings for the
voluntary liquidation and dissolution of a Subsidiary) relating to the
Company or any material Subsidiary under the Bankruptcy Law of any other
jurisdiction; or
(ix) any such petition or application is filed, or any such
proceedings are commenced, against the Company or any Subsidiary and
such petition, application or proceeding is unstayed or undismissed
within 60 days, or any such petition or application is filed, or any
such proceedings are commenced against the Company or any material
Subsidiary and the Company or such Subsidiary by any act indicates its
approval thereof, consent thereto or acquiescence therein, or an order,
judgment or decree is entered appointing any such trustee, receiver,
custodian, liquidator or similar official, or approving the petition in
any such proceedings, and such order, judgment or decree remains
unstayed and in effect for more than 60 days; or
(x) any order, judgment or decree is entered in any proceedings
against the Company or any material Subsidiary decreeing the dissolution
of the Company or such Subsidiary and such order, judgment or decree
remains unstayed and in effect for more than 60 days; or
(xi) any order, judgment or decree is entered in any proceedings
against the Company or any Subsidiary decreeing a split-up of the
Company or such Subsidiary which requires the divestiture of a
Substantial Part, or the divestiture of the stock of a Subsidiary, the
assets of which constitute a Substantial Part, of the assets of the
Company and its Subsidiaries, taken as a whole, and such order, judgment
or decree remains unstayed and in effect for more than 60 days; or
<PAGE> 34
(xii) a final judgment, the payment of which is not covered by
existing insurance policies, in an amount in excess of $200,000 is
rendered against the Company or any Subsidiary and, within 60 days after
entry thereof, such judgment is not discharged or execution thereof
stayed pending appeal, or within 60 days after the expiration of any
such stay, such judgment is not discharged;
(xiii) the Company defaults under any of the material terms of
the Transaction Documents;
(xiv) there shall occur a cessation of a Substantial Part of the
business of the Company and/or any of its Subsidiaries for a period
which significantly affects the Company's and/or any of its
Subsidiaries' capacity to continue their businesses, or the Company or
any Subsidiary shall suffer the loss or revocation of any material
certificate, license or permit, now held or hereafter acquired by the
Company or any Subsidiary, which is necessary to the continued or lawful
operation of a Substantial Part of their businesses; or the Company or
any Subsidiary shall be enjoined, restrained or in any way prevented by
court, governmental or administrative order from conducting all or any
Substantial Part of their business affairs for a period of 30 days; or
any lease or agreement pursuant to which the Company or any Subsidiary
leases, uses or occupies any of its respective real or personal property
shall be canceled or terminated by the other party to such lease or
agreement prior to the expiration of its stated term which individually
or in the aggregate which would have a Material Adverse Effect; or
(xv) any Termination Event shall occur and as of the date hereof
or any subsequent date, the sum of the various liabilities of the
Company and its ERISA Affiliates (such liabilities to include, without
limitation, any liability to the PBGC (or any successor thereto) or to
any other party under Section 4062, 4063, or 4064 of ERISA or any other
provision of law resulting from or otherwise associated with such event)
exceeds $200,000 or the Company or any of its ERISA Affiliates as an
employer under any Multiemployer Plan shall have made a complete or
partial withdrawal from such Multiemployer Plan and the plan sponsors of
such Multiemployer Plan shall have notified such withdrawing employer
that such employer has incurred a withdrawal liability requiring a
payment in an amount exceeding $200,000.
then (a) if such event is an Event of Default specified in clause (viii), (ix)
or (x) of this Section 9.1, all of the Notes at the time outstanding shall
automatically become due and payable at
<PAGE> 35
par, together with interest accrued thereon, (b) if such event is an Event of
Default specified in Section 9.1(i), any holder may, at such holder's option, by
notice in writing to the Company, declare the Notes held by such holder to be,
and all of such holder's Notes shall thereupon be and become, immediately due
and payable at par together with interest accrued thereon, and (c) if such event
is any Event of Default other than under (i), (viii), (ix) or (x) of this
Section 9.1, the Purchaser may, at its option, by notice in writing to the
Company, declare all of the Notes to be, and all of the Notes shall thereupon be
and become, immediately due and payable at par, together with interest accrued
thereon. Each amount that becomes payable pursuant to this Section 9.1 shall
become due and payable without presentment, demand, protest or other notice of
any kind, all of which are hereby waived by the Company, except where notice is
specifically required by the terms of this Agreement; provided, however, that
if, at any time after the principal of the Notes shall so become due and payable
prior to the date of maturity stated in such Notes, all arrears of scheduled
payments of principal and interest on such Notes shall be paid by or for the
account of the Company, the Purchaser, by written notice or notices to the
Company, may waive such Event of Default and its consequences and rescind or
annul such declaration, but no such waiver shall extend to or affect any
subsequent Event of Default or impair any right resulting therefrom.
9.2 OTHER REMEDIES. No remedy conferred in this Agreement upon
the holder of any Note is intended to be exclusive of any other remedy available
to such holder, and each and every such remedy shall be cumulative and shall be
in addition to every other remedy conferred herein or now or hereafter existing
at law or in equity or by statute or otherwise.
10. REPRESENTATIONS AND WARRANTIES. Except as set forth on Schedule 10.1
hereto, the Company represents and warrants for the benefit of each holder from
time to time of Notes and/or Warrants, as of the date hereof and as of Closing
and after giving effect to the transactions contemplated by this Agreement, as
follows:
10.1 ORGANIZATION; CORPORATE AUTHORITY. Except as set forth on
Schedule 10.1, each of the Company and its Subsidiaries is a corporation duly
organized, validly existing and in good standing under the laws of its
jurisdiction of incorporation and has all requisite corporate power and
authority to own and operate its properties and to carry on its business as
presently conducted and as proposed to be conducted after the Closing Date. Each
of the Company and its Subsidiaries is duly qualified and in good standing as a
foreign corporation duly authorized to do business in each jurisdiction where it
is or will be on the Closing Date required so to qualify, except in those
jurisdictions in which the failure to so qualify will not individually or in the
aggregate have a Material Adverse Effect.
<PAGE> 36
10.2 AUTHORIZATION. All corporate action on the part of the
Company and its Subsidiaries, and their directors and stockholders, necessary
for the authorization, execution, delivery and performance of the Transaction
Documents and the consummation of the transactions contemplated thereby and for
the authorization, issuance and delivery of the Warrants and the Notes and of
the Ordinary Shares issuable hereunder or upon exercise of the Warrants, has
been taken or will be taken prior to the Closing. Each of the Transaction
Documents to which the Company or any of its Subsidiaries are a party is the
valid and binding obligation of the Company and such Subsidiary, enforceable in
accordance with their terms. The execution, delivery and performance by the
Company and its Subsidiaries of the Transaction Documents to which any is a
party and compliance therewith and, with respect to Company, the issuance and
sale of the Warrants and the Notes and the Ordinary Shares issuable hereunder or
upon exercise of the Warrants, will not result in any violation of and will not
conflict with, or result in a breach of, any of the terms of, or constitute a
default under, any provision of federal, state or local law to which the Company
or any Subsidiary is subject, their respective Certificates of Incorporation (or
equivalent organizational document) or By-Laws (or equivalent document), or any
mortgage, indenture, agreement, instrument, judgment, decree, order, rule or
regulation, or other restriction to which the Company or its Subsidiaries, is a
party or by which it is bound, or result in the creation of any Lien upon any of
the properties or assets of the Company or its Subsidiaries pursuant to any such
term, or result in the suspension, revocation, impairment, forfeiture or
nonrenewal of any permit, license, authorization or approval applicable to the
Company's or its Subsidiaries' operations or any of their assets or properties.
No stockholder has any preemptive rights or rights of first refusal by reason of
the issuance of the Warrants or the Notes or the Ordinary Shares issuable
hereunder or upon exercise of the Warrants. The Ordinary Shares issuable
hereunder and upon exercise of the Warrants have been duly and validly reserved
and are not subject to any preemptive rights or rights of first refusal and,
upon issuance, will be validly issued, fully paid and non-assessable.
10.3 CAPITAL STOCK AND RELATED MATTERS. (i) The authorized
capital stock of the Company consists of 100,000,000 Ordinary Shares, par value
(5 pence) per share, of which 54,793,472 shares are outstanding and 7,527,618
shares are reserved for issuance upon exercise of the Warrants; (ii) the
authorized and issued capital stock of each of the Company's Subsidiaries is set
forth on Schedule 10.3(ii) attached hereto (iii) all of the outstanding shares
of Capital Stock of the Company and each Subsidiary listed on Schedule 10.3(iii)
are validly issued and outstanding, fully paid and non-assessable; (iv) except
as listed on Schedule 10.3(iv) and for the Warrants, neither the Company nor its
Subsidiaries has any outstanding stock
<PAGE> 37
or securities convertible into or exchangeable for any shares of Capital Stock,
or any outstanding rights (either preemptive or other, except as provided under
English law) to subscribe for or to purchase, or any outstanding options for the
purchase of, or any agreements providing for the issuance (contingent or
otherwise) of, or any outstanding commitments of any character to issue any
Capital Stock or any stock or securities convertible into or exchangeable for
any Capital Stock of the Company or its Subsidiaries, or, except as set forth on
Schedule 10.3(iv), any outstanding demand or piggy-back registration rights to
register any Capital Stock or any stock or securities convertible into or
exchangeable for the Capital Stock of the Company or its Subsidiaries; (v)
neither the Company nor its Subsidiaries is subject to any obligation
(contingent or other) to repurchase, otherwise acquire or retire any shares of
their respective Capital Stock; and (vi) except as set forth on Schedule
10.3(vi) neither the Company nor its Subsidiaries has knowledge of any agreement
(except as set forth in this Agreement) restricting the transfer of any shares
of their respective Capital Stock except for restrictions imposed as a
consequence of U.S. federal or state securities laws or the equivalent laws of
the United Kingdom.
10.4 CHARTER; BY-LAWS. Each of the Company and its Subsidiaries
has furnished the Purchasers and their special counsel with true, correct and
complete copies of their respective Certificates of Incorporation (or equivalent
organizational documents) and By-Laws and all amendments thereto to date.
10.5 SUBSIDIARIES. Except as listed on Schedule 10.5, the
Company has no Subsidiaries and does not own of record or beneficially any
Capital Stock or equity interest or investment in any corporation, association,
partnership, joint venture or other entity.
10.6 RESERVATION OF SHARES. The Company has reserved for
issuance the number of its authorized but unissued Ordinary Shares necessary to
permit the exercise in full of all of the Warrants.
10.7 LITIGATION. Except as set forth on Schedule 10.7, there is
no action, suit, investigation or proceeding pending, or, to the Company's
knowledge threatened, whether or not purportedly on behalf of the Company or its
Subsidiaries, to which the Company or its Subsidiaries are or may be named as a
party or their property is or may be subject or which challenges this Agreement,
the Transaction Documents or any of the transactions contemplated hereby or
thereby, or to the Company's knowledge, to which any officer, employee or
stockholder of the Company or its Subsidiaries is subject.
10.8 COMPLIANCE WITH LAW. Except as set forth in the Schedules
to this Agreement, the operations of the Company and its
<PAGE> 38
Subsidiaries have been conducted in accordance with all applicable laws,
regulations, orders and other requirements of all courts and other Governmental
Authorities having jurisdiction over the Company or its Subsidiaries and their
respective assets, properties and operations, including, without limitation, all
Environmental Laws, the CSA and FDCA, except where a failure to do so would not
have a Material Adverse Effect. Except as set forth in Schedule 10.8, none of
the Company or its Subsidiaries have received notice of any material violation
of any such law, regulation, order or other legal requirement, and none of the
Company or its Subsidiaries is in violation of or default with respect to any
order, writ, judgment, award, injunction or decree of any national, state or
local court or Governmental Authority or arbitrator, domestic or foreign,
applicable to the Company its Subsidiaries or any of their respective assets,
properties or operations except for any such violation or default which would
not have a Material Adverse Effect.
10.9 OFFERING. Assuming the accuracy of the representations and
warranties of each of the Purchasers set forth in Section 11 of this Agreement,
the offer, sale and issuance of the Warrants and the Notes and the Ordinary
Shares issuable upon the exercise of the Warrants, as contemplated by this
Agreement, are exempt from the registration requirements of the Securities Act
and from the registration or qualification requirements of the laws of any
applicable U.S. state, and neither the Company nor anyone acting on its behalf
will take any action hereafter that would cause the loss of such exemption.
10.10 COMPLIANCE WITH ERISA. Schedule 10.10 attached hereto
contains a true and complete list of the Company's and each of its Subsidiaries'
or ERISA Affiliates' written, foreign or domestic, employee bonus, retirement,
pension, profit sharing, savings, stock option, stock appreciation, stock
purchase, incentive, deferred compensation, employment, hospitalization,
medical, dental, vision, life or other health or disability (whether provided by
insurance or otherwise), severance, termination or other similar plan, policy or
program, including, without limitation, any collective bargaining agreement
involving direct or indirect compensation (including any employment agreement),
any Pension Plan or any "employee welfare benefit plan" as defined in Section
3(1) of ERISA that provides or may provide benefits or compensation to or in
respect of any employee of the Company, its Subsidiaries or ERISA Affiliates,
including any employee of the Company, its Subsidiaries, or ERISA Affiliates who
has retired or has otherwise terminated his or her employment with the Company,
its Subsidiaries or ERISA Affiliates (the "Employee Benefit Plans"). With
respect to former employees or retirees, neither the Company, nor its
Subsidiaries or ERISA Affiliates provides any life insurance, medical,
severance, pension benefits, and similar benefits to such former employees and
retirees, except as set forth on Schedule 10.10. The Company
<PAGE> 39
and its ERISA Affiliates, are in compliance in all material respects with any
applicable provisions of ERISA and the regulations thereunder and of the Code
and regulations thereunder with respect to all Employee Benefit Plans. Each
Employee Benefit Plan that is intended to be qualified under Section 401(a) of
the Code has received a determination letter from the IRS so qualifying it, and
each related trust of such Employee Benefit Plan has been determined to be
exempt under Section 501(a) of the Code and nothing has occurred since the date
of such letter that would adversely affect the qualified status of such Employee
Benefit Plan. No material liability has been incurred by the Company or any
ERISA Affiliate which remains unsatisfied of for any taxes or penalties with
respect to any Employee Benefit Plan. Neither the Company nor any ERISA
Affiliate has engaged in any Prohibited Transaction. No Termination Event has
occurred or is reasonably expected to occur with respect to any Pension Plan or
Multiemployer Plan maintained or contributed to by the Company or any ERISA
Affiliate. Neither the Company nor any ERISA Affiliate has incurred or
reasonably expects to incur any withdrawal liability under ERISA to any
Multiemployer Plans. The actuarial present value of all benefit liabilities
under each Pension Plan maintained or contributed to by the Company or any ERISA
Affiliate, does not exceed the assets of such Pension Plan. Neither the Company
nor any ERISA Affiliate has (i) failed to make a required installment or other
required payment under Section 412 of the Code, Section 302 of ERISA or the
terms of such Pension Plans, (ii) incurred an accumulated funding deficiency,
whether or not waived, or any other liability to the PBGC which remains
outstanding other than the payment of premiums and there are no premium payments
which are due and unpaid or (iii) failed to make a contribution or payment to a
Multiemployer Plan. The offer, sale and issuance of the Warrants and Notes
hereunder or the conversion of the Notes or exercise of the Warrants, as
contemplated by this Agreement will not involve any Prohibited Transaction. No
material proceeding, claim, lawsuit and/or investigation exists or, to the best
of the knowledge of the Company, is threatened concerning or involving any
Employee Benefit Plan.
10.11 EXCHANGE ACT FILINGS; FINANCIAL STATEMENTS. (a) The
Company has furnished the Purchaser with the Company's most recent filings under
the Securities Exchange Act of 1934 (the "Exchange Act Filings"). The Exchange
Act Filings are accurate and complete in all material respects as of the date
thereof. The Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1998 (the "1998 10-K") will, when filed with the U.S. Securities
and Exchange Commission, be accurate and complete in all material respects as of
the date of its filing. The Exchange Act Filings do not contain any untrue
statement of a material fact or omit to state a material fact necessary in order
to make the statements therein, in light of the circumstances under which they
were made, not misleading. The 1998 10-K will not, when filed,
<PAGE> 40
contain any untrue statement of a material fact or omit to state a material fact
necessary in order to make the statements therein, in light of the circumstances
under which they were made, not misleading.
(b) The financial statements (including any related
notes thereto) contained in the Exchange Act Filings and the 1998 10-K (the
"Financial Statements") (i) were prepared in accordance with generally accepted
accounting principles ("GAAP") applied on a consistent basis throughout the
periods involved (except as may be indicated in the notes thereto or, in the
case of unaudited interim financial statements, as may be permitted by the SEC
on Form 10-Q under the Exchange Act) and (ii) fairly presented or, in the case
of the Financial Statements included in the 1998 10-K, will fairly present the
financial position of Company as at the respective dates thereof and the results
of its operations and cash flows for the periods indicated, consistent with the
books and records of Company.
10.12 OUTSTANDING INDEBTEDNESS. Other than with respect to the
Notes and except as set forth on Schedule 10.12 hereto, neither the Company nor
its Subsidiaries has any outstanding secured or unsecured Indebtedness or
commitments for any such Indebtedness.
10.13 TAXES. Except as set forth on Schedule 10.13 hereto, each
of the Company and its Subsidiaries have timely filed all United States federal,
state, United Kingdom and other tax returns required by law to be filed by them,
and timely paid all taxes, assessments and other governmental charges required
to have been paid by them, other than those presently payable without penalty or
interest, have been timely paid. There are no tax liens upon any properties or
assets of the Company or any Subsidiary, other than liens securing payment of
taxes not yet due or which are being contested in good faith by the Company or
any of its Subsidiaries and for which adequate reserves are being maintained by
the Company. All such tax reports or returns fairly reflect the taxes of the
Company and its Subsidiaries for the periods covered thereby. Neither the
Company nor its Subsidiaries is delinquent in the payment of any material tax,
assessment or governmental charge, there is no material tax deficiency or
delinquency asserted against the Company or its Subsidiaries, and, except as
provided above, there is no material unpaid assessment, proposal for additional
taxes, deficiency or delinquency in the payment of any of the taxes of the
Company or its Subsidiaries or any violation of any federal, state, local or
foreign tax law currently being asserted by any taxing authority. No Internal
Revenue Service or Inland Revenue audit of the Company or its Subsidiaries is
pending or, to the knowledge of the Company, threatened, and the results of any
completed audits are properly reflected in the financial statements. Neither the
Company nor
<PAGE> 41
its Subsidiaries have granted any extension to any taxing authority of the
limitation period during which any tax liability may be asserted. Neither the
Company nor its Subsidiaries have committed any material violation of any
federal, state, local or foreign tax laws. All monies required to be withheld by
the Company or its Subsidiaries from employees or collected from customers for
income taxes, social security and unemployment insurance taxes and sales, excise
and use taxes, and the portion of any such taxes to be paid by the Company or
its Subsidiaries to governmental agencies or set aside in accounts for such
purpose have been so paid or set aside, or such monies have been approved,
reserved against and entered upon the books and financial statements of the
Company or any Subsidiary.
10.14 YEAR 2000 COMPLIANCE. The Company is Year 2000 Compliant,
as that term is defined below, and there are no foreseeable expenses or other
liabilities associated with the process of securing full Year 2000 Compliance
except for any noncompliance that would not be reasonably expected to have a
Material Adverse Effect. "Year 2000 Compliant" means that such hardware or
software used by the Company or any of its Subsidiaries including, but not
limited to, microcode, firmware, system and application programs, files,
databases, computer services, and microcontrollers, including those embedded in
computer and non-computer equipment (the "Computer Systems") will (a) process
date data from at least the years 1900 through 2101 without error or
interruption; (b) maintain functionality with respect to the introduction,
processing, or output of records containing dates falling on or after January 1,
2000; and (c) be interoperable with other software or hardware which may deliver
records to, receive records from, or interact with such Computer Systems in the
course of conducting the business of the Company.
10.15 ENVIRONMENTAL AND OTHER REGULATIONS. (i) The operations of
the Company and its Subsidiaries are in compliance with Environmental Laws and
Requirements of Environmental Law, except where the failure to be in compliance
would not have a Material Adverse Effect; (ii) the Company and its Subsidiaries
have obtained all necessary Environmental Permits or authorizations required
under Environmental Laws except where a failure to do so would not have a
Material Adverse Effect; (iii) to the knowledge of the Company, there has been
no Release at any of the properties owned, leased or operated by the Company or
its Subsidiaries or any predecessor in interest, or at any disposal or treatment
facility which received Hazardous Materials generated by the Company or its
Subsidiaries or any predecessor in interest; (iv) no Environmental Claims
relating to (A) any assets, properties or businesses of the Company or its
Subsidiaries or any predecessor in interest; (B) properties adjoining properties
or businesses owned or operated by the Company or its Subsidiaries or any
predecessor in interest; or (C) any facilities which received
<PAGE> 42
Hazardous Materials generated by the Company or its Subsidiaries or any
predecessor in interest, have been asserted against the Company or its
Subsidiaries or, to the Company's knowledge, any predecessor in interest, nor
does the Company have knowledge or notice that any such Environmental Claim is
threatened or pending; (v) to the knowledge of the Company, no Environmental
Claim has been asserted against any facilities that may have received Hazardous
Materials, if any, generated by the Company or its Subsidiaries; and (vi) none
of the Company or its Subsidiaries are subject to any Environmental Liabilities
which would have a Material Adverse Effect. None of the Company or its
Subsidiaries have received any notice from any governmental agency or other
authority alleging noncompliance with any material health, safety or
environmental laws or regulations.
10.16 INVESTMENT COMPANY ACT. Neither the Company nor its
Subsidiaries is an "investment company," or a company "controlled" by an
"investment company," within the meaning of the Investment Company Act of 1940,
as amended.
10.17 LICENSES, PERMITS AND GOVERNMENTAL APPROVALS. Each of the
Company and its Subsidiaries has all material licenses, permits, franchises,
authorizations and approvals (the "Licenses and Permits") required of it by any
Governmental Authority to conduct its business as presently conducted. Schedule
10.17 sets forth a true and complete list of all such Licenses and Permits
issued to, or in the name of, the Company and its Subsidiaries, and all pending
applications therefor. Any and all past litigation concerning such Licenses and
Permits and all claims and causes of action raised therein, has been finally
adjudicated. No such License or Permit has been revoked, conditioned (except as
may be customary) or restricted, and no action (equitable, legal or
administrative), arbitration or other process is pending, or to the knowledge of
the Company, threatened, which in any way challenges the validity of, or seeks
to revoke, condition or restrict any such License, certificate of need, or
regulatory approval and each License and Permit has been duly obtained, is valid
and in full force and effect. The Licenses and Permits are sufficient and
adequate in all material respects to permit the continued lawful conduct of the
business of the Company and its Subsidiaries in the manner now conducted, and
none of the operations of the business of the Company or its Subsidiaries are
being conducted in a manner that violates any of the terms or conditions under
which any License or Permit was granted. No such License and Permit will in any
way be affected by, terminate or lapse by reason of, the transactions provided
for in this Agreement.
10.18 BROKER'S OR FINDER'S COMMISSIONS. No broker's or finder's
fee or commission will be payable by the Company with respect to the issuance
and sale of the Securities or the transactions contemplated hereby; provided,
however, that the
<PAGE> 43
Company makes no representation or warranty with respect to any fee or
commission that might be payable to Mohamed Hadid, Al-Sabah Trading and
Development Co., The Alma Group, Ltd. or any Affiliate of any of the foregoing.
10.19 COMPLIANCE WITH OTHER INSTRUMENTS AND CONTRACTS. Neither
the Company nor its Subsidiaries is in violation of any term of their respective
Certificate of Incorporation (or equivalent organizational document), or
By-Laws. Schedule 10.19 hereto contains a list of the material Contracts of the
Company and its Subsidiaries. Neither the Company nor its Subsidiaries is in
violation of any term of any material Contract which would permit any party to
any material Contract to terminate, amend or modify such material Contract
except for any violations which do not cause and are not likely to result in a
Material Adverse Effect. To the Company's knowledge, none of the Company or its
Subsidiaries have waived any right or default by any party under any material
Contract. All material Contracts are in full force and effect, and the Company
has no knowledge that any party to any material Contract is or is seeking or
presently intends to seek to terminate, amend or modify any material Contract,
except where the termination, amendment or modification does not have, and is
not likely to result in, a Material Adverse Effect. All Contracts involving
aggregate consideration payable by or to the Company in any twelve-month period
in excess of $100,000 are listed on Schedule 10.19 as a material Contract.
10.20 INTELLECTUAL PROPERTY. Set forth on Schedule 10.20 hereto
is a true, correct and complete list of all Patents and Patent Applications,
material Trademarks, copyrights, licenses and trade/brand names owned by, or
licensed to, the Company and its Subsidiaries. Each of the Company and its
Subsidiaries possesses all Intellectual Property Rights necessary to conduct its
business as now being conducted, without conflict with or infringement upon any
valid rights of others, except where a failure to do so would not have a
Material Adverse Effect and has not received any notice of infringement upon or
conflict with the asserted rights of others. Except as set forth on Schedule
10.20, there are no outstanding options, licenses, or agreements of any kind
relating to the foregoing to which the Company or any Subsidiary is a party, nor
is the Company or its Subsidiaries bound by or a party to any option, license or
agreement of any kind with respect to the Patents and Patent Applications,
material Trademarks, copyrights, licenses and trade/brand names of any other
person or entity. No stockholder, director, officer or employee of the Company
or its Subsidiaries has any interest in any Intellectual Property Rights.
10.21 REAL PROPERTY. (a) Set forth on Schedule 10.21(a) hereto
is a true, correct and complete list of all real property owned by the Company
and its Subsidiaries. Each of the Company and its Subsidiaries has good and
marketable title to all
<PAGE> 44
real property owned by it free and clear of all Liens other than Permitted
Liens. All required certificates of occupancy, certificates relating to
electrical work, zoning, building, housing, safety, fire and health approvals,
and other permits, franchises and licenses necessary to enable the Company and
its Subsidiaries to use or operate its facilities in the manner currently used
or operated by it or its Subsidiaries, have been issued and are in full force
and effect, except for those, the absence of which would not have a Material
Adverse Effect. No default or breach now exists and no event has occurred or is
continuing which, with notice or the passage of time or both, would constitute a
default under any of the covenants, restrictions, rights of way, easements or
other agreements affecting any of the facilities of the Company or its
Subsidiaries, except for those defaults, breaches or events that would not have
a Material Adverse Effect. Neither the Company nor its Subsidiaries have
knowledge of any condemnation or eminent domain proceedings now pending with
respect to their facilities.
(b) Set forth on Schedule 10.21(b) hereto is a true,
correct and complete list of all material leases of real property under which
the Company or its Subsidiaries is a lessee. Each of the Company and its
Subsidiaries enjoys peaceful and undisturbed possession under all such leases,
all of such leases are valid and subsisting and none of them is in default in
any material respect, nor has the Company or its Subsidiaries received any
written notice of its default under any such lease.
10.22 EMPLOYEES. (a) Set forth on Schedule 10.22 hereto is a
true, correct and complete list (including the term, expiration dated and amount
of annual compensation) of all written employment agreements to which the
Company or its Subsidiaries is a party or by which the Company or its
Subsidiaries is bound. No employee of the Company or its Subsidiaries is in
violation of any term of any written employment agreement to which it is a
party, and to the knowledge of the Company, no employee of the Company is in
violation of any contract or agreement with any former employer relating to the
right of any such employee to be employed by the Company or its Subsidiaries
because of the nature of the business conducted or to be conducted by the
Company or its Subsidiaries or to the use of trade secrets or proprietary
information of others, and the employment of the employees of the Company and
its Subsidiaries does not subject the Company or its Subsidiaries to liability
in connection with such covenants or agreements. There is neither pending nor,
to the Company's knowledge, threatened any actions, suits, proceedings or claims
with respect to any contract, agreement, covenant or obligation referred to
above. Neither the Company nor its Subsidiaries has any collective bargaining
agreement covering any of its employees.
(b) There are no labor disputes between the Company or
its Subsidiaries and any of their employees or
<PAGE> 45
representatives of such employees. There are no discrimination charges (relating
to sex, age, race, national origin, handicap or veteran status or otherwise)
pending or threatened, in writing, against, or involving the Company or its
Subsidiaries before any court, administrative agency or arbitrator. Except as
set forth on Schedule 10.8 or otherwise disclosed to the Purchasers prior to the
Closing Date, neither the Company nor its Subsidiaries is delinquent in payments
to any of its employees for any wages, salaries, commissions, bonuses, benefits
or other direct or indirect compensation for any services performed by them to
the Closing Date or amounts required to be reimbursed to such employees. Each of
the Company and its Subsidiaries is in compliance with all federal, state, local
and foreign laws and regulations respecting labor, employment and employment
practices, terms and conditions of employment, wages, hours and benefits, except
where a failure to comply would not have a Material Adverse Effect.
10.23 INSURANCE. Schedule 10.23 contains a list and brief
description of all policies or binders of fire, liability, product liability,
workers compensation, health and other forms of insurance policies or binders
currently in force insuring against risks to which the Company and its
Subsidiaries have been a party, a named insured or otherwise the beneficiary of
coverage. With respect to each insurance policy listed in Schedule 10.23: (A)
the policy is in full force and effect; (B) none of the Company and its
Subsidiaries or any other party to the policy is in breach of default (including
with respect to the payment of premiums or the giving of notices), and no event
has occurred which, with notice or the lapse of time, would constitute such a
breach or default, or permit termination or modification under the policy; (C)
no party to the policy has repudiated any provision thereof; (D) there is no
claim pending under any of such policies as to which coverage has been
questioned, denied or disputed by the underwriters of such policies or any
notice that a defense will be afforded with reservation of rights; (E) none of
the Company or its Subsidiaries have received (i) any notice that any issuer of
any such policy has filed for protection under applicable bankruptcy laws or is
otherwise in the process of liquidating or has been liquidated, or (ii) any
other indication that such policies are no longer in full force and effect or
that the issuer of any such policy is not longer willing or able to perform its
obligations thereunder; and (F) none of the Company or its Subsidiaries have
received any written notice from or on behalf of any insurance carrier issuing
such policies, that there will hereafter be a cancellation, or an increase in a
deductible or non-renewal of existing policies.
<PAGE> 46
10.24 TITLE TO ASSETS. The Company has good and valid title to
all of its assets now carried on its books, free and clear of all Liens except
for Permitted Liens.
10.25 FDA MATTERS. (a) The testing, manufacture, storage,
distribution, use, promotion and sale of the Company's and its Subsidiaries'
products by the Company and its Subsidiaries and contractors has been performed
and is performed in compliance with all applicable requirements under the FDCA
and the CSA, including, without limitation, those relating to investigational
use, premarket clearance, good manufacturing practices, labeling, advertising,
record keeping, filing of reports, and security.
(b) All pending new drug applications of the Company and its
Subsidiaries are listed on Schedule 10.26. With respect to all such new drug
applications, the Company has complied with all applicable requirements in the
submission of such application.
11. REPRESENTATIONS OF THE PURCHASER. Each Purchaser severally (as to
itself and not any other Purchaser) and not jointly, represents and warrants to
the Company as follows:
11.1 AUTHORIZATION. Such Purchaser has full power and authority
to enter into this Agreement. This Agreement has been duly authorized, executed
and delivered by such Purchaser and constitutes its valid and legally binding
obligation, enforceable in accordance with its terms. Neither the execution,
delivery or performance by this Agreement by such Purchaser nor the consummation
by such Purchaser of the transactions contemplated hereby will result in a
violation of, conflict with, or result in any breach of any of the terms of, or
constitute a default under, any provision of federal, state or local law or
foreign law to which such Purchaser is subject, the organizational documents of
the Purchaser or any mortgage, indenture, agreement, instrument, judgment,
decree, order, rule or regulation or other restriction to which such Purchaser
is a party or by which it is bound.
11.2 PURCHASE ENTIRELY FOR OWN ACCOUNT. This Agreement is made
with such Purchaser in reliance upon such Purchaser's representation to the
Company, which by such Purchaser's execution of this Agreement such Purchaser
hereby confirms, that the Warrants, the Notes and the Ordinary Shares issuable
hereunder and upon exercise of the Warrants (collectively, the "Acquired
Securities") will be acquired for investment for such Purchaser's own account,
not as a nominee or agent, and not with a view to the resale or distribution of
any part of the Acquired Securities in contravention of applicable law, and that
such Purchaser has no present intention of selling, granting any participation
in, or otherwise distributing the same. Such Purchaser does not have any
contract, undertaking, agreement or arrangement with any person to sell,
transfer or grant participations to such person or to any third person in or
with respect to any of the Acquired Securities.
<PAGE> 47
11.3 ACCREDITED INVESTOR. Such Purchaser is and upon the
acquisition of Ordinary Shares upon exercise of the Warrants will be an
"accredited investor" within the meaning of Rule 501 of Regulation D of the
Rules and Regulations of the Securities and Exchange Commission under the
Securities Act. Such Purchaser has not been organized for the purposes of
acquiring the Acquired Securities.
11.4 RESTRICTED SECURITIES. Such Purchaser understands that the
Acquired Securities it is acquiring and may acquire as contemplated by this
Agreement are "restricted securities" within the meaning of Rule 144 under the
Securities Act ("Rule 144") inasmuch as they will be acquired from the Company
in a transaction not involving a public offering and that under the federal
securities laws and applicable regulations such Acquired Securities may be
resold without registration under the Securities Act only in certain limited
circumstances. In this connection, such Purchaser represents that it is familiar
with Rule 144 and understands the resale limitations imposed thereby and by the
Securities Act. Such Purchaser acknowledges that its investment in the Acquired
Securities may be an illiquid investment requiring such Purchaser to bear the
economic risk of the investment for an indefinite period.
11.5 FURTHER LIMITATIONS ON DISPOSITION. Without in any way
limiting the representations set forth above, such Purchaser further agrees not
to make any disposition of all or any portion of the Acquired Securities unless
and until the transferee has agreed in writing for the benefit of the Company to
be bound by the terms of this Agreement (provided and to the extent that such
terms are then applicable and provided that such Purchaser is making such
disposition in a transaction other than pursuant to Rule 144 or under an
effective registration statement under the Securities Act and in accordance with
any applicable state securities laws), and
(a) Such Purchaser shall have notified the Company of
the proposed disposition, and
(b) If requested by the Company, such Purchaser shall
have furnished the Company with an opinion of counsel, in form and substance
reasonably satisfactory to the Company, rendered by a law firm experienced in
matters involving the sale of securities under federal and state securities
laws, that such disposition will not require registration of the Acquired
Securities under the Securities Act or registration or qualification under any
state securities or "blue sky" law.
11.6 LEGENDS. It is understood that the certificates evidencing
the Acquired Securities will bear an appropriate legend restricting transfers
substantially in the following form:
<PAGE> 48
"THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "ACT") OR ANY APPLICABLE STATE SECURITIES LAWS.
THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE
ABSENCE OF A REGISTRATION STATEMENT IN EFFECT WITH RESPECT TO THE
SECURITIES UNDER THE ACT AND THE REGISTRATION OR QUALIFICATION OF THE
SECURITIES UNDER APPLICABLE STATE SECURITIES LAWS OR AN OPINION OF
COUNSEL REASONABLY SATISFACTORY TO THE COMPANY, IN FORM AND CONTENT
REASONABLY SATISFACTORY TO THE COMPANY, THAT REGISTRATION OR
QUALIFICATION UNDER THE ACT AND STATE SECURITIES LAWS IS NOT REQUIRED."
11.7 CONSENTS. To such Purchaser's knowledge, no consent,
approval or authorization of or designation, declaration or filing with any
state, federal or foreign governmental authority on the part of such Purchaser
is required in connection with the valid execution and delivery of this
Agreement and the consummation of the transactions contemplated hereby.
11.8 DISCLOSURE OF INFORMATION. The Purchaser represents that it
has had an opportunity to ask questions and receive answers from the Company
regarding the Company and its business and prospects and the terms and
conditions of the sale of the Acquired Securities.
12. MISCELLANEOUS.
12.1 PAYMENTS. The Company agrees that, so long as the
Purchasers shall hold any Notes, it will make payments of principal and interest
on such Notes, in compliance with the terms of this Agreement and the Notes, by
wire transfer of immediately available funds for credit to the account or
accounts as each Purchaser may designate in writing, notwithstanding any
contrary provision herein or in any Note with respect to the place of payment.
Each Purchaser agrees that, before disposing of any Note, the Purchaser will
make a notation thereon (or on a schedule attached thereto) of all principal
payments previously made thereon and of the date to which interest thereon has
been paid and, as soon as practicable thereafter, shall deliver a copy of such
Note or schedule to the Company. The Company agrees to afford the benefits of
this Section 12.1 to any transferee which shall have made the same agreement as
the Purchasers have made in this Section 12.1.
12.2 EXPENSES. The Company agrees, whether or not the
transactions hereby contemplated shall be consummated, to pay, and save each
Purchaser harmless against liability for the payment of, (i) a transaction fee
to Scorpion Holdings, LLC in the amount of $75,000, (ii) the reasonable fees and
expenses (including document production and duplication charges) of one special
counsel engaged
<PAGE> 49
by the Purchasers in connection with this Agreement, (iii) the reasonable
out-of-pocket expenses of the Purchasers in connection with this Agreement, (iv)
the reasonable fees and expenses of one special counsel engaged by the
Purchasers in connection with any subsequent proposed amendment to, modification
of, or proposed consent under this Agreement, whether or not such proposed
modification shall be effected or proposed consent granted, and (v) the costs
and expenses, including attorney's fees, incurred by the Purchasers or any
subsequent Significant Holder in enforcing any rights under this Agreement, the
Notes, the Warrants or in responding to any subpoena or other legal process
issued in connection with this Agreement or the transactions contemplated hereby
or by reason of any Purchaser's or any subsequent Significant Holder's having
acquired any Notes or Warrants, including without limitation, costs and expenses
incurred in any bankruptcy case involving the Company or any of its Subsidiaries
provided, however, that the Company shall not be obligated to pay any costs,
fees and expenses incurred by any of the Purchasers substantially by reason of a
Purchaser's gross negligence or willful misconduct; and provided, further, that
the Company shall not be obligated to make payments described in clauses (ii) or
(iii) of this Section 12.2 in an aggregate amount in excess of $75,000. The
Company agrees to pay all depositary fees payable to the depositary in respect
of the issuance of American Depositary Shares or American Depositary Receipts in
respect of Ordinary Shares issued upon exercise of the Warrants. The obligations
of the Company under this Section 12.2 shall survive the transfer of any
Securities or portion thereof or interest therein by any Purchaser or any
subsequent Significant Holder and the payment of any Note.
12.3 CONSENT TO AMENDMENTS AND PROCEDURE FOR COVENANT WAIVER.
(a) As long as any of the Notes are outstanding, this Agreement may be amended
and the Company may take any action herein prohibited, or omit to perform any
act herein required to be performed by it, only if the Company shall have
obtained the written consent to such amendment, action or omission to act, of
holders of Notes representing at least 51% of the principal amount of the Notes
then outstanding, and each holder of any Note at the time or thereafter
outstanding shall be bound by any consent authorized by this Section 12.3;
provided, however, that without the written consent of the holder or holders of
100% in principal amount of the Notes at the time outstanding, no amendment to
this Agreement shall change the maturity of any Note or reduce the rate or time
of payment of interest payable with respect to any Note or affect the time,
amount or allocation of any prepayments, or reduce the proportion of the
principal amount of the Notes required with respect to any consent.
(b) Once all of the Notes are repaid in full, this Agreement
shall terminate and the provisions hereof shall have no further force or effect.
<PAGE> 50
12.4 FORM, REGISTRATION, TRANSFER AND EXCHANGE OF NOTES; LOST
NOTES. (a) The Notes are issuable as registered Notes, as to both principal and
any stated interest, without coupons in denominations of at least $100,000,
except as may be necessary to reflect any principal amount not evenly divisible
by $100,000. The Company shall keep at its principal office a register in which
the Company shall provide for the registration of Notes and of transfers of
Notes. Upon surrender for registration of transfer of any Note at the principal
office of the Company, the Company shall, at its expense, execute and deliver
one or more new Notes of like tenor and of a like aggregate principal amount,
registered in the name of such transferee or transferees. Prior to effectuating
a transfer, the Company may require the transferor or transferee to deliver such
documents and provide such information as the Company reasonably believes is
necessary in order for such transfer to be made in compliance with applicable
tax and securities laws and regulatory requirements. At the option of the holder
of any Note, such Note may be exchanged for other Notes of like tenor and of any
authorized denominations, of a like aggregate principal amount, upon surrender
of the Note to be exchanged at the principal office of the Company. Whenever any
Notes are so surrendered for exchange, the Company shall, at its expense,
execute and deliver the Notes which the holder making the exchange is entitled
to receive. Every Note surrendered for registration of transfer or exchange
shall be duly endorsed, or be accompanied by a written instrument of transfer
duly executed, by the holder of such Note or such holder's attorney duly
authorized in writing. Any Note or Notes issued in exchange for any Note or upon
transfer thereof shall carry the rights to unpaid interest and interest to
accrue which were carried by the Note so exchanged or transferred, so that
neither gain nor loss of interest shall result from any such transfer or
exchange. Upon receipt of written notice from the holder of any Note of the
loss, theft, destruction or mutilation of such Note and, in the case of any such
loss, theft or destruction, upon receipt of such holder's unsecured indemnity
agreement, or indemnity bond or in the case of any such mutilation upon
surrender and cancellation of such Note, the Company will make and deliver a new
Note, of like tenor, in lieu of the lost, stolen, destroyed or mutilated Note.
Notwithstanding anything to the contrary contained herein, nothing in this
Section 12.4 shall be construed so as to limit the transferability of any of the
Notes.
(b) Notwithstanding anything contained in Section 12.4(a) or in
any other provision of this Agreement, prior to the occurrence of an Event of
Default, the Purchasers shall not transfer any of the Notes to any Person other
than an Affiliate of such Purchaser (i) without the prior written consent of the
Company, which consent shall not be unreasonably withheld and (ii) without
complying with the other provisions of this Agreement,
<PAGE> 51
including the provisions of Section 11.5 hereof. Upon the occurrence of an Event
of Default, the foregoing consent of the Company shall not be required but any
transfer shall otherwise comply with the provisions of this Agreement, including
the provisions of Section 11.5 hereof.
12.5 PERSONS DEEMED OWNERS. Prior to due presentment for
registration of transfer, the Company may treat the Person in whose name any
Note is registered as the owner and holder of such Note for the purpose of
receiving payment of principal of, and interest and premium on, such Note and
for all other purposes whatsoever, whether or not such Note shall be overdue,
and the Company shall not be affected by notice to the contrary.
12.6 SURVIVAL OF REPRESENTATIONS AND WARRANTIES; ENTIRE
AGREEMENT. All representations and warranties contained herein or made in
writing by or on behalf of the Company in connection herewith or in connection
with the transactions contemplated hereby shall survive the execution and
delivery of this Agreement and the Notes and Warrants, the transfer by any of
the Purchasers of any Notes and Warrants or portion thereof or interest therein
but shall expire upon the payment of the Notes in full, and may be relied upon
by any transferee regardless of any investigation made at any time by or on
behalf of any of the Purchasers or any subsequent Significant Holder. Subject to
the preceding sentence, this Agreement and the Notes and Warrants and the side
letter, dated the date hereof, regarding United Kingdom withholding taxes embody
the entire agreement and understanding among the Purchaser and the Company and
supersede all prior agreements and understandings relating to the subject matter
hereof.
12.7 SUCCESSORS AND ASSIGNS. All covenants and other agreements
in this Agreement contained by or on behalf of any of the parties hereto shall
bind and inure to the benefit of the respective permitted successors and assigns
of the parties hereto (including, without limitation, any subsequent Significant
Holder) whether so expressed or not.
12.8 DISCLOSURE TO OTHER PERSONS. The Company acknowledges that
the holder of any Notes may deliver copies of any financial statements and other
documents delivered to such holder, and disclose any other information disclosed
to such holder, by or on behalf of the Company or any Subsidiary in connection
with or pursuant to this Agreement to (i) such holder's directors, officers,
employees, agents and professional consultants, (ii) any other holder of any
Notes, (iii) any Person to which such holder offers to sell such Notes or any
part thereof in accordance with this Agreement; or (iv) any other Person to
which such delivery or disclosure may be necessary or appropriate (a) in
compliance with any law, rule, regulation or order applicable to such holder,
(b) in response to any subpoena or other legal process, (c) in connection with
any litigation to
<PAGE> 52
which such holder is a party or (d) in order to protect such holder's investment
in such Notes; provided, however, that prior to such disclosure pursuant to this
Section 12.8, such holder shall cause the recipient of such information to
execute a reasonable and appropriate confidentiality agreement with the Company.
12.9 NOTICES. All written communications provided for hereunder
shall be sent by airmail, first class mail or nationwide overnight delivery
service (with charges prepaid) and (i) if to any Purchaser, addressed to it at
c/o Robert T. Tucker, Esq., 61 Purchase Street, Suite #2, Rye, New York 10580,
with a copy to Pryor Cashman Sherman & Flynn LLP, 410 Park Avenue, New York, New
York 10022, Attention: Selig D. Sacks, Esq., or to such other address or
addresses as any Purchaser shall have specified to the Company in writing, (ii)
if to any other holder of any Note, addressed to such holder at such address as
such other holder shall have specified to the Company in writing or, if any such
other holder shall not have so specified an address to the Company, then
addressed to such other holder in care of the last holder of such Note which
shall have so specified an address to the Company, and (iii) if to the Company
addressed to it at 620 Airport Road, Napa, California 94558, Attention: Mr.
Frank J. Massino with copies to Latham & Watkins, 505 Montgomery Street, Suite
1900, San Francisco, California 94111, Attention: Jeffrey T. Pero, Esq. or to
such other address or addresses as the Company may have designated in writing to
each holder of the Securities at the time outstanding.
12.10 GOVERNING LAW. This Agreement has been executed and
delivered at and shall be deemed to have been made in New York, New York. This
Agreement and the rights granted herein shall be governed by and construed and
enforced under the laws of the State of New York (without giving effect to any
conflicts of law rules or principles). Any judicial proceeding brought by or
against the Company with respect to this Agreement or any related Agreement
shall be brought in any court of competent jurisdiction in the United States of
America in the Southern District of New York, and, by execution and delivery of
this Agreement, the Company accepts the exclusive jurisdiction of the aforesaid
courts and irrevocably agrees to be bound by any judgment rendered thereby in
connection with this Agreement. If any action is commenced in any other
jurisdiction the parties hereto hereby consent to the removal of such action to
the United States District Court for the Southern District of New York. The
Company hereby irrevocably designates Latham & Watkins-New York as the designee,
appointee and agent of the Company to receive, for and on behalf of the Company,
service of process in the above described jurisdiction in any legal action or
proceeding with respect to this Agreement or any other Transaction Document or
the rights and obligations hereunder or thereunder and such service shall be
deemed completed upon delivery thereof to such agent. It
<PAGE> 53
is understood that a copy of such process served on such agent will be promptly
forwarded by mail to the Company at its address set forth in Section 12.9
hereof, but the failure of the Company to receive such copy shall not affect in
any way the service of such process. The Company further irrevocably consents to
the service of process out of any of the aforementioned courts in any such
action or proceeding by the mailing of copies thereof by registered or certified
mail, postage prepaid, to the Company at its address, such service to become
effective 10 days after such mailing. Nothing herein shall affect the right of
the Purchaser to serve process in any other manner permitted by law or commence
legal proceedings in or otherwise proceed against the Company in any other
jurisdiction.
12.11 SECTION 151(1) OF THE COMPANIES ACT 1985 (UNITED KINGDOM).
For the avoidance of doubt and notwithstanding any other provision of any
Transaction Document, none of the Security Agreement, the UK Security Agreement,
the Patent and Trademark Security Agreement or the Pledge Agreement secure
amounts owing or payable by the Company under the Transaction Documents
(including, without limitation, the Warrants) where to do so would constitute a
breach of Section 151(1) of the Companies Act 1985 (United Kingdom).
12.12 SEVERABILITY. Wherever possible, each provision of this
Agreement shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement shall be prohibited by or
invalid under applicable law, such provision shall be ineffective only to the
extent of such prohibition or invalidity, without invalidating the remainder of
such provision or the remaining provisions of this Agreement.
12.13 CONSTRUCTION. The Company acknowledges that it has had the
benefit of legal counsel of its own choice and has been afforded the opportunity
to review this Agreement, the Warrants, the Notes and other related documents
with its legal counsel and this Agreement, the Warrants, the Notes and related
documents shall be construed as if jointly drafted by the Company and the
Purchasers. Unless otherwise indicated, references to statutes are to statutes
of the United States of America. Accounting terms used herein shall be construed
in accordance with GAAP practiced in the United States of America. In addition,
unless the contrary intention appears, terms and expressions having a defined or
generally accepted meaning under the securities laws of the United States shall
have the same meaning in this Agreement.
12.14 COUNTERPARTS. This Agreement may be executed
simultaneously in two or more counterparts, each of which shall be deemed an
original, and it shall not be necessary in making proof of this Agreement to
produce or account for more than one such counterpart.
<PAGE> 54
12.15 REPRESENTATIVE OF THE PURCHASERS. Notwithstanding anything
to the contrary provided in this Agreement, prior to any transfer by the
Purchasers of the Notes and the Purchaser so transferring the Notes providing
the Company with written notice of the transfer and the name and address of the
transferee or an authorized agent of such transferee, whenever the Company is
required pursuant to this Agreement to (i) obtain the consent, waiver or
approval of any of the Purchasers or Significant Holders, or to (ii) provide any
notice to the Purchasers, the Company shall be deemed to have so obtained such
consent, waiver or approval if it shall have obtained, the written consent,
waiver or approval of Robert T. Tucker, Esq. acting on behalf of the Purchasers
and shall be deemed to have so provided such notice if it shall have provided
such notice to Robert T. Tucker, Esq. at his address set forth in Section 12.9.
The Purchasers should have the right, upon written notice to the Company, to
designate a representative other than Robert T. Tucker, Esq.
<PAGE> 55
IN WITNESS WHEREOF, the Company and each of the Purchasers have executed
this Agreement as a deed as of the date first above written.
SENETEK PLC
By: /s/ Senetek PLC
-------------------------------------
Name:
Title:
SILVER CREEK INVESTMENTS, LTD.
By:/s/ Silver Creek Investments
-------------------------------------
Name:
Title:
BOMOSEEN INVESTMENTS, LTD.
By: /s/ Bomoseen Investments, Ltd.
-------------------------------------
Name:
Title:
ELSTREE HOLDINGS, LTD.
By: /s/ Elstree Holdings, Ltd.
-------------------------------------
Name:
Title:
DANDELION INVESTMENTS, LTD.
By: /s/ Dandelion Investments, Ltd.
-------------------------------------
Name:
Title:
<PAGE> 56
SCHEDULE 1
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
Principal Principal
Number of Amount of Amount of Number of Number of Number of
Ordinary Investment Settlement Series A Series B Series C
Shares Notes Notes Warrants Warrants Warrants
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Silver Creek Investments, Ltd. 626,269 $1,487,069 $710,394 892,241 991,379 355,197
- -------------------------------------------------------------------------------------------------------
Bomoseen Investments, Ltd. 626,269 $1,487,069 $710,394 892,241 991,379 355,197
- -------------------------------------------------------------------------------------------------------
Elstree Holdings, Ltd. 426,589 $1,012,931 $483,891 607,759 675,287 241,946
- -------------------------------------------------------------------------------------------------------
Dandelion Investments, Ltd. 426,588 $1,012,931 $483,891 607,759 675,287 241,946
- -------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-31-1998
<PERIOD-END> DEC-31-1998
<EXCHANGE-RATE> 1.6638
<CASH> 808,000
<SECURITIES> 0
<RECEIVABLES> 1,394,000
<ALLOWANCES> 455,000
<INVENTORY> 731,000
<CURRENT-ASSETS> 4,293,000
<PP&E> 3,366,000
<DEPRECIATION> 540,000
<TOTAL-ASSETS> 10,666,000
<CURRENT-LIABILITIES> 11,441,000
<BONDS> 0
0
0
<COMMON> 4,625,000
<OTHER-SE> 5,446,000
<TOTAL-LIABILITY-AND-EQUITY> 12,262,000
<SALES> 4,672,000
<TOTAL-REVENUES> 4,672,000
<CGS> 3,040,000
<TOTAL-COSTS> 21,761,000
<OTHER-EXPENSES> 2,198,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,396,000
<INCOME-PRETAX> (22,492,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (22,492,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (22,492,000)
<EPS-PRIMARY> (0.41)
<EPS-DILUTED> (0.41)
</TABLE>
