UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended: September 30, 1998
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission file number: 0-25726
SEPRAGEN CORPORATION
(Exact name of small business issuer as specified in its charter)
California 68-0073366
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
30689 Huntwood Avenue, Hayward, California 94544
(Address of principal executive offices)
(Issuer's telephone number (including area code): (510) 476-0650)
(Former name, former address and former fiscal year if changed since
last report:
Check whether the issuer (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Exchange Act during the past 12 months (or
for such shorter period that the issuer was required to file such
reports), and (2) has been subject to such filing requirements for the
past 90 days. Yes X No
State the number of shares outstanding of each of the registrant's
classes of Common equity, as of the latest practicable date:
November 13,1998
Class A Common Stock 2,155,254
Class B Common Stock 701,177
Class E Common Stock 1,209,894
THIS REPORT INCLUDES A TOTAL OF 60 PAGES. THE INDEX TO EXHIBITS IS ON
PAGE 14.
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PART I - FINANCIAL INFORMATION
Item 1. - Financial Statements
SEPRAGEN CORPORATION
CONDENSED BALANCE SHEET
ASSETS
September
30, 1998
Current Assets:
Cash and cash equivalents. $ 206,197
Accounts receivable, less allowance
for doubtful accounts of $12,000 as
of September 30, 1998 180,799
Inventories 231,355
Prepaid expenses and other. 39,509
Total current assets. 657,860
Furniture and equipment, net 198,157
Intangible assets 101,432
957,449
LIABILITIES AND DEFICIT IN SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable 827,895
Bridge Loans, net 522,800
Customer deposits 75,800
Notes Payable, including $280,000 from
shareholders 380,000
Accrued payroll and benefits 122,283
Accrued liabilities 66,487
Interest payable 38,327
Total current liabilities 2,033,592
Commitments
Class E common stock, no par value
- 1,600,000 shares authorized;
1,209,894 shares issued and
outstanding at September 30,
1998, redeemable at $.01 per share 0
Deficit in Shareholders' equity:
Preferred stock, no par value -
5,000,000 shares authorized; and
175,439 convertible, preferred
issued and outstanding 500,000
Class A common stock, no par value
-20,000,000 shares authorized;
2,155,254 shares issued and
outstanding 8,848,075
Class B common stock, no par value -
2,600,000 shares authorized; 701,177
shares issued and outstanding 4,065,618
Additional paid in capital 202,220
Accumulated deficit (14,692,056)
Total deficit in shareholders' equity (1,076,143)
957,449
The accompanying notes are an integral part of these condensed financial
statements.
Page 2
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SEPRAGEN CORPORATION
CONDENSED STATEMENTS OF OPERATIONS
Three Months Nine Months
Ended September 30 Ended September 30
1998 1997 1998 1997
Revenues:
Net Sales $356,395 $188,264 1,200,199 731,977
Costs and expenses:
Cost of goods sold 139,564 112,317 649,391 412,274
Selling, general and
administrative 352,014 311,791 957,530 1,115,059
Research and development 172,759 157,881 577,283 669,821
Total costs and expenses 664,337 581,989 2,184,204 2,197,154
Loss from operations (307,942) (393,725) (984,005) (1,465,177)
Other income -- 32,804 -- 72,804
Interest income,
(expense) net (68,669) 25 (177,951) 1,018
Net loss (376,611) (360,896) (1,161,956) (1,391,355)
Net loss per common
share, basic and
diluted $(.13) $(.13) $(.41) $(.49)
Weighted average shares
outstanding 2,856,431 2,856,431 2,856,431 2,856,431
The accompanying notes are an integral part of these condensed financial
statements.
Page 3
<PAGE>
SEPRAGEN CORPORATION
CONDENSED STATEMENTS OF CASH FLOWS
Nine Months Ended September 30,
1998 1997
Cash flows from operating
activities:
Net Loss $(1,161,956) $(1,391,355)
Adjustments to reconcile net
loss to net cash used in
operating activities:
Depreciation and
Amortization 177,057 102,036
Changes in assets and
liabilities:
Accounts receivable. 390,069 54,679
Inventories 87,505 23,789
Prepaid expenses and
other (22,975) 2,131
Accounts payable 191,641 453,835
Accrued liabilities. (26,233) (25,704)
Accrued payroll and (22,856) 6,180
benefits.
Interest payable (16,522) 0
Customer deposits (234,681) 285,709
Net cash used in operating
activities (638,951) (488,700)
Cash flows from financing
activities:
Proceeds from issuance of
preferred stock 500,000 0
Proceeds from notes payable
to shareholders 155,000 125,000
Proceeds from issuance of
notes payable 0 100,000
Net proceeds from bridge
notes payable 115,700 207,000
Proceeds from issuance of
convertible secured
promissory Note, net 540,000 0
Retirement of bridge debt (510,000) 0
Net cash provided by financing
activities 800,700 432,000
Net increase (decrease) in cash 161,749 (56,700)
Cash and cash equivalents at the
beginning of the period 44,448 217,057
Cash and cash equivalents at the
end of the period. $ 206,197 $ 160,357
The accompanying notes are an integral part of these condensed financial
statements.
Page 4
<PAGE>
SEPRAGEN CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS
NINE MONTH PERIOD ENDED SEPTEMBER 30, 1998
Note 1 - Basis of Presentation
These condensed financial statements have been presented on a going
concern basis. Sepragen, (the "Company") has incurred recurring losses
and cash flow deficiencies from operations that raise substantial doubt
about its ability to continue as a going concern. As of September 30,
1998, the Company had an accumulated deficit of $14,692,056.
The Company will be required to conduct significant research,
development and testing activities which, together with expenses to be
incurred for manufacturing, the establishment of a large marketing and
distribution presence and other general and administrative expenses, are
expected to result in operating losses for the foreseeable future.
Accordingly, there can be no assurance that the Company will ever
achieve profitable operations. The Company will have to obtain
additional financing to support its operating needs beyond December
31,1998. The Company is currently pursuing alternative funding sources
to meet its cash flow needs, including private debt and equity
financing. Management intends to use such funding to further its
marketing efforts and expand sales. It is uncertain, however, whether
the Company will be successful in such pursuits. No adjustments have
been made to the accompanying condensed financial statements for this
uncertainty.
Note 2 - Interim Financial Reporting
The accompanying unaudited interim financial statements have been
prepared pursuant to the rules and regulations for reporting on Form 10-
QSB. Accordingly, certain information and footnotes required by
generally accepted accounting principles have been condensed or omitted.
These interim statements should be read in conjunction with the
financial statements and the notes thereto, included in the Company's
Annual Report on Form 10-KSB for the year ended December 31, 1997.
Note 3 - Net Loss Per Share.
The Company has adopted Statement of Financial Accounting Standards
(SFAS) No. 128, Earning per Share for all periods presented. The
adoption of SFAS No. 128 had no impact on previously reported loss per
share for the three months ended September 30, 1997. In accordance with
SFAS No. 128, primary earnings (loss) per share has been replaced with
basic earnings (loss) per share, and fully diluted earnings (loss) per
share has been replaced with diluted earnings (loss) per share which
includes potentially dilutive securities such as outstanding options and
convertible securities, using the treasury stock method. The assumed
exercise of options and warrants and assumed conversion of convertible
securities have not been included in the calculation of diluted loss per
share as the effect would be anti-dilutive.
Note 4 - The "Year 2000 Problem", dates following December 31, 1999 and
beyond:
Many existing computer systems and applications, and other devices,
use only two digits to identify a year in the date field, without
considering the impact of the upcoming change in the century. Such
systems and applications could fail or create erroneous results unless
corrected. The Company relies on its internal financial systems and
external systems of business enterprises such as customers, suppliers,
creditors, and financial organizations both domestically and globally,
directly and indirectly for accurate exchange of data. The Company has
evaluated such systems and believes the cost of addressing the "Year
2000 Problem" will not have a material adverse affect on the result of
operations of financial position of the Company. However, although the
internal systems of the Company are not materially affected by the Year
2000 issue, the Company could be affected through disruption in the
operation of the enterprises with which the Company interacts.
Note 5 - Notes Payable
Between May 1997 and August 1998, the Company borrowed an aggregate
of $380,000 of which 280,000 are from shareholders of the Company,
payable with interest at 9.5% per annum due on March 1, 1999 and 100,000
from an unrelated party payable with interest at 9.5% per annum due on
December 31, 1998. The repayment of these notes is subordinate to the
claims of the note described in Note 6.
Note 6 - Bridge Notes Payable
In August 1998, the Company completed a debt-refinancing
transaction whereby the Company borrowed $550,000 from Mr. K. Charles
Janac pursuant to a Convertible Secured Promissory Note issued by the
Company (the "Note") in the principal amount of $550,000 and bearing
interest at the rate of 9.75% per annum. The Note is convertible into
shares of Class A Common Stock at the option of Mr. Janac at any time
before December 15, 1998 by converting the principal balance and any
unpaid interest due under the Note into Class A Common Stock at the rate
of $0.468 per share. In addition, as further consideration for the loan
of funds to the Company, the Company issued to Mr. Janac a warrant,
exercisable at any time on or before August 18, 2003, to purchase up to
234,667 shares of Class A Common Stock at $.468 per share (the
"Warrants"). The total number of shares of Class A Common Stock
issuable upon conversion of the Note or exercise of the Warrants are
subject to adjustment in the event of recapitalization, stock dividends,
or similar events. As security for the Note, the Company entered into a
Security Agreement granting Mr. Janac a first priority security interest
in the property, tangible and intangible, of the Company, as well as a
Patent and Trademark Mortgage granting Mr. Janac a security interest in
all the patents and trademarks of the Company.
All principal and accrued interest under the Note is due and
payable on or before December 15, 1998.
The business address of Mr. Janac is 651 River Oaks Parkway, San
Jose, CA 95134.
The Company used the funds loaned by Mr. Janac to retire
$532,242.47 of existing debt incurred by the Company in connection with
a certain bridge financing originally undertaken by the Company in
October of 1997, to pay legal fees and costs of the transaction, and
approximately $7,000 was utilized for working capital.
The fair value of the warrants (calculated using the Black Scholes
Pricing Model) is $91,520 and is being amortized over the remaining term
of the loan, 4 months. Amortization for the three and nine months ended
September 30, 1998 was $34,320. In addition, the Company secured payment
extensions on the remaining $30,000 in bridge loans through March 31,
1999.
Note 7 - Convertible Preferred Stock
On September 1, 1998, the Company sold 175,439 Shares of Series A
Preferred Stock.
All of the shares of Series A Preferred Stock were sold to Anchor
Products Limited of Hamilton, New Zealand ("Anchor"). The acquisition
of Series A Preferred Stock by Anchor was consummated in connection with
the execution of a Commercial License Agreement between the Company and
Anchor, whereby the Company licensed Anchor a technology that isolates
proteins from whey, a low value cheese by-product. The shares of Series
A Preferred Stock were sold for cash in the aggregate amount of $500,000
($2.85 per share). There were no underwriting discounts or commissions
paid in connection with the transaction.
The shares of Series A Preferred Stock were sold pursuant to
exemptions from registration under Section 4(2) and Regulation S under
the Securities Act of 1933, in a transaction that was not publicly
offered. Anchor is a New Zealand corporation.
The Company's Series A Preferred Stock provides for both a 7%
dividend and liquidation preferences. The dividend is payable from time
to time at the election of the Board of Directors of the Company subject
to the Company retaining sufficient earnings and profits. The Preferred
Stock is also convertible on or before September 30, 2000 into Class A
Common Stock, at the conversion rate of $2.86 per share. On any
voluntary or involuntary liquidation, dissolution or winding-up of the
Company, the holders of Series A Preferred Shares shall receive, out of
the assets of the Company, the sum of $2.86 per Series A Preferred
Share, plus an amount equal to any dividends accrued and unpaid on those
Series A Preferred Shares, before any payment shall be made or any
assets distributed to the holders of Common Stock. The Series A
Preferred Shares shall be redeemable at the option of the holders of the
Series A Preferred Shares commencing September 30, 2003 and expiring
December 31, 2008, at the cash price of $2.86 per share, plus any
accrued and unpaid dividends on the Series A Preferred Shares which are
redeemed. In addition, each share of Series A Preferred Stock shall be
automatically converted into one (1) share of Class A Common Stock, if
not previously redeemed, on January 1, 2009, or at any time the closing
bid price per share of the Company's Class A Common Stock shall average
at least $3.86 per share over ninety (90) consecutive trading days prior
to January 1, 2004. The conversion ratio for the Series A Preferred
Stock shall be adjusted in the event of recapitalization, stock
dividend, or any similar event effecting the Class A Common Stock.
Anchor may require the Company to immediately redeem the preferred
shares in the event of certain covenant breaches of the license
agreement by the Company. The Company is currently in compliance with
all such covenants and does not anticipate any breaches in the future.
Item 2 . Management's Discussion and Analysis.
First nine months of 1998 compared to first nine months of 1997.
Net sales increased by $468,000 or 64% from $732,000 in the first
nine months of 1997 to $ 1,200,000 for the comparable period in 1998.
The increase in sales is due to the increase of sales of its core
products, Radial Flow Chromatography (RFC) equipment and a $200,000
license fee for the Sepralac process received from Anchor products of
New Zealand.
Gross Margin increased by $231,000 or 72% from $320,000 in the
first nine months of 1997 to $551,000 in the first nine months of 1998.
The increase in gross margin is primarily due to a higher production
volume and revenue generated from license fee that does not have cost of
goods associated with it. As a percentage of sales, gross margin
increased slightly from 44% in the first three quarters of 1997 to 46%
for the comparable period in 1998, primarily due to the license fee
income which more than offset the lower margins realized from sales of
core products.
Selling, general and administrative expenses decreased by $158,000
from $1,115,000 in the first nine months of 1997 to $957,530 in the
first nine months of 1998. The decrease was primarily due to continued
belt tightening measures adopted in mid 1997 in administrative expenses
coupled with a reduction in head count in sales and marketing, scaling
back of advertising and promotion and travel expenses partially offset
by $49,000 write-off of expenses related to the Company's financing
activities.
Research and development expenses decreased by $93,000 from
$670,000 in the first nine months of 1997 to $577,000 in the first nine
months of 1998. The decrease was mainly due to the reduction in the
cost of software development for the QuantaSep product.
Interest and other expense increased by $179,000 in the first nine
months of 1998 compared to the first nine months of 1997 due to
amortization of $70,000 of issuance cost, amortization of the fair value
of warrants issued of $34,000 and $75,000 interest expense related to
the bridge loans and notes payable.
Third quarter 1998 compared to third quarter 1997.
Net sales increased by $168,000 from $188,000 in the third quarter
of 1997 to $356,000 in the third quarter of 1998. The increase in sales
is due to $200,000 license fee received for the Sepralac(R) Process
partially offset by small decrease in sales of the core products, Radial
Flow Chromatography (RFC) equipment.
Gross margin increased by $141,000 or 186% from $76,000 in the
third quarter of 1997 to $217,000 in the third quarter of 1998, and as a
percent of sales, increased by 21% from 40% to 61%. The higher margin
was attributable to the Sepralac license fee received in the third of
quarter of 1998, which more than offset the lower margins realized on
sales of core products.
Selling, general and administrative expense increased by $40,000 or
13%. The increase is due to a write-off of $49,000 legal, printing,
commission related to a private placement financing.
Research and development expenses increased by $15,000 or 9% from
$158,000 in the third quarter of 1997 to $173,000 in the third quarter
of 1998. This increase was due to a one time severance pay related to
the reorganization of the department.
Inflation.
The Company believes that the impact of inflation on its operations
since its inception has not been material.
Liquidity and Capital Resources:
The Company use of cash for operations was $639,000 and $488,000
during the nine months ended September 30, 1998 and 1997, respectively.
Cash used in operations in the first nine months of 1998 was the result
of net loss incurred for the nine six months of $1,162,000, offset by
net non-cash expense of $177,000, the net change in operating assets
and liabilities resulting in source of cash of $346,000. Cash used in
the first nine months of 1997 was the result of net loss incurred for
the nine months of $1,391,000, offset by net non-cash expenses of
$102,000, and the net change in operating assets and liabilities
resulting in source of cash of $801,000.
Financing activities provided cash of $800,700 during the first
nine months of 1998. The cash provided resulted from the subscription
proceeds for preferred stock of $500,000 and issuance of notes payable
of $300,700.
At September 30, 1998 the Company had cash and cash equivalents of
$206,200 as compared with $44,400 on December 31, 1997. At September
30, 1998, the Company had working capital deficit of $1,375,700, as
compared to working capital deficit of $902,000 at December 31, 1997.
The decrease in cash in the first nine months of 1998 is a result of the
aforementioned increase or decrease in cash from operating and financing
activities noted above. The decrease in working capital for the first
nine months is primarily a result of the net loss incurred offset by
non-cash charges.
This negative cash out flow from operations must be reversed and
working capital increased significantly in order for the Company to fund
its existing activities and to extend the use of its technology to new
applications in the food and dairy and juice industries, and to attract
the interest of strategic partners in one or more of these markets.
Based on the Company's current operating plan, the Company believes
that it will only be able to fund the Company's operations through
December 31, 1998. Accordingly, the Company will have to either turn
profitable or obtain additional funds to support its operations. The
Company is currently pursuing several avenues including increasing
revenues and reducing costs in order to turn profitable, secure funds
through additional strategic partnerships and secure either debt or
equity financing.
Following this strategy, on August 25, 1998, the Company announced
the signing of a license agreement with Anchor Products. Under this
agreement, Anchor Products will have exclusive manufacturing rights to
the Sepralac(R) process in Australia and New Zealand and non-exclusive
worldwide marketing rights to products produced by the Sepralac(R)
Process. In return, the Company has received $700,000 out of a total of
about $1 million from Anchor Products, comprised of a license fee of
$200,000 and an equity investment of $500,000 for the purchase of
175,439 redeemable, cumulative, preferred stock at $2.85 per share. The
preferred stock is convertible into common stock (on share for share
basis) at any time within the next 2 years and extendible for a further
1 year at the Company's option.
On October 15, 1998, the Company announced a licensing agreement
for the Sepralac(R) Process with Carberry Milk Products of Ballineen,
County Cork, Ireland. Under the agreement, Carberry will have
manufacturing and marketing rights to certain products produced from the
Sepralac(R) Process. In return, the Company will receive a license fee
of $350,000 payable $200,000 before January 1, 1999 and the balance over
the term of the agreement. Further, Carberry agreed to an initial
purchase of equipment worth approximately $100,000.
The evaluation agreement to commercialize the Sepralac(R) Process
between Sepragen Corporation and California Gold Dairy Products of
Petaluma, California by mutual agreement was terminated on September 8,
1998.
A technical evaluation agreement for the Debitt(R) Process, a
debittering and deacidification process using Sepragen Corporation's
RFC(R) Column, has been signed with Tropicana products.
The Company currently has no credit facility with a bank or other
financial institution. Further, the Company's stock is traded over-the-
counter and as such there is limited liquidity in the Company's stock
which makes financing difficult.
The Company is seeking to enter into strategic alliances with
corporate partners in the industries comprising its primary target
markets (biopharmaceutical, food, dairy and juice). The Company's
ability to further develop and market its Sepralaca Process for whey
separation and other potential food and juice products and processes
will be substantially dependent upon its ability to negotiate
partnerships, joint ventures or alliances with established companies in
each market. In particular, the Company will be reliant on such joint
venture partners or allied companies for both market introduction,
operational assistance and financial assistance. The Company believes
that development, manufacturing and market introduction of products in
these industries, will cost millions of dollars and require operational
capabilities in excess of those currently available to the Company. No
assurance can be given, however, that the terms of any additional
alliances will be successfully negotiated or that such alliance will be
successful in generating the revenue required to make the Company
profitable.
Cautionary Statement for Purposes of the "Safe Harbor" Provisions of the
Private Securities Litigation Reform Act of 1995.
This report contains or incorporates by reference forward-looking
statements within the meaning of the Private Securities Litigation
Reform Act of 1995. Where any such forward-looking statement includes a
statement of the assumptions or bases underlying such forward-looking
statement, the Company cautions that, while such assumptions or bases
are believed to be reasonable and are made in good faith, assumed facts
or bases almost always vary from the actual results, and the
differences between assumed facts or bases and actual results can be
material, depending upon the circumstances. Where, in any forward-
looking statement, the Company or its management expresses an
expectation or belief as to future results, such expectation or belief
is expressed in good faith and is believed to have a reasonable basis,
but there can be no assurance that the statement of expectation or
belief will result or be achieved or accomplished. The words "believe,"
"estimate," "anticipate," and similar expressions may identify forward-
looking statements.
Taking into account the foregoing, the following are identified as
some but not all of the important factors that could cause actual
results to differ materially from those expressed in any forward-looking
statement made by, or on behalf of the Company:
Inability to Secure Additional Capital. The Company has incurred
operating losses each fiscal year since its inception. The Company must
secure additional financing through either the sale of additional
securities or debt financing to continue operations past January 1,
1999. Although the Company is attempting to secure such financing,
there can be no assurance that such financing will be available to the
Company on reasonable terms. The Company has been delisted from the
Nasdaq SmallCap Market and the Pacific Stock Exchange. See Item 2
"Management's Discussion and Analysis-Liquidity and Capital Resources."
Competition. In both its biopharmaceutical industry market and in
the market for its process systems for food, beverage, dairy and
environmental industries, the Company faces intense competition from
better capitalized competitors.
Dependence on Joint Ventures and Strategic Partnerships. The
Company's entry into the food, dairy and beverage market for its process
systems will be substantially dependent upon its ability to enter into
strategic partnerships, joint ventures or similar collaborative alliance
with established companies in each market. As of the date of this
report, two licensing agreements have been signed but there can be no
assurance that the terms of any such alliance will produce profits for
the Company nor can there be assurance that additional joint ventures or
alliances will be signed.
Management Reorganization: Since September 5, 1998, Dr. Q.R.
Miranda, Vice President of Research and Development has not been
employed by Sepragen Corporation.
PART II
OTHER INFORMATION
Item 1. Legal Proceedings
Not Applicable
Item 2. Changes in Securities
See footnotes 6 and 7 of the financial statements.
Item 3. Defaults Upon Senior Securities
Not Applicable
Item 4. Submission of Matters to a vote of Security Holders
Not Applicable
Item 5. Other Information
Not Applicable
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
4.8 Warrant Agreement with Charles Janac
10.9 Convertible Secured Promissory Note issued by the
Company to Charles Janac
10.10 Security Agreement with Charles Janac
10.11 Patent and Trademark Mortgage
(b) Reports on Form 8-K
Form 8-K, dated August 14, 1998, Items 5, 7 and 9.
SIGNATURES
In accordance with the requirements of the Exchange Act, the
Registrant caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SEPRAGEN CORPORATION
DATE: November 19, 1998 By: /s/Vinit Saxena
Vinit Saxena
Chief Executive Officer, President and
Principal Financial and Chief
Accounting Officer
<PAGE>
INDEX TO EXHIBITS
Sequential Page No.
4.8 Warrant Agreement with Charles Janac 14
10.9 Convertible Secured Promissory Note issued
by the Company to Charles Janac 24
10.10 Security Agreement with Charles Janac 29
10.11 Patent and Trademark Mortgage 45
EXHIBIT 4.8
THE SECURITY EVIDENCED BY THIS WARRANT OR THE SECURITIES TO BE PURCHASED
UNDER THIS WARRANT, HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED, AND MAY NOT BE SOLD, TRANSFERRED, ASSIGNED OR
HYPOTHECATED UNLESS THERE IS AN EFFECTIVE REGISTRATION STATEMENT UNDER
SUCH ACT COVERING SUCH SECURITIES. THE SALE IS MADE IN ACCORDANCE WITH
RULE 144 UNDER THE ACT, OR THE COMPANY RECEIVES AN OPINION OF COUNSEL
FOR THE HOLDER OF THESE SECURITIES REASONABLY SATISFACTORY TO THE
COMPANY, STATING THAT SUCH SALE, TRANSFER, ASSIGNMENT OR HYPOTHECATION
IS EXEMPT FROM THE REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENT
UNDER SUCH ACT.
VOID AFTER 5 P.M., CALIFORNIA TIME ON AUGUST 18, 2003
WARRANT TO PURCHASE
CLASS A COMMON STOCK
SEPRAGEN CORPORATION, a California corporation (the "Company"),
hereby certifies that K. CHARLES JANAC or his registered assign(s)
(collectively referred to as the "Holder") is entitled, subject to the
terms set forth below, to purchase from the Company Two Hundred Thirty
Four Thousand Six Hundred and Sixty Seven (234,667) fully paid and
nonassessable shares of the Class A Common Stock of the Company (the
"Shares") at the purchase price of $0.46875 per share (the "Purchase
Price"). Both the Purchase Price and such number of Shares are subject
to adjustments as described below.
1. Exercise of Warrant; Reservation of Shares. Subject to the
restrictions herein, this warrant may be exercised in whole or in part
by the Holder at any time before 5 p.m., California local time, on
August 18, 2003 by the surrender of this Warrant, together with the
Notice of Exercise attached hereto as Attachment 1, duly completed and
executed, at the principal office of the Company, accompanied by payment
in cash or by check in full with respect to the Shares being purchased.
This Warrant shall be deemed to have been exercised immediately prior to
the close of business on the date of its surrender for exercise as
provided above. The Company shall at all times after the date of this
Warrant and until expiration of this Warrant reserve for issuance and
delivery upon issuance of this Warrant the number of Shares of Common
Stock required for exercise of this Warrant.
2. Delivery of Stock Certificates, Etc. on Exercise. As soon as
practicable after the exercise of this Warrant, and in any event within
thirty (30) days thereafter, the Company at its expense (including the
payment by it of any applicable issue taxes) will cause to be issued in
the name of, and delivered to, the Holder hereof, or as such Holder
(upon payment by such Holder of any applicable transfer taxes) may
direct, (i) a certificate or certificates for the number of Shares to
which such Holder shall be entitled upon such exercise and (ii) if this
Warrant is not exercised in full, a warrant containing terms identical
to herein, provided the number of Shares subject to this Warrant shall
be reduced by the number of Shares exercised by delivery of the Notice
of Exercise pursuant to Section 1.
3. Adjustment of Exercise Price and Number of Shares. The
Exercise Price and the total number of Warrant Shares shall be subject
to adjustment from time to time upon the occurrence of certain events
described in this Section 3. Upon each adjustment of the Exercise Price,
the Holder of this Warrant shall thereafter be entitled to purchase, at
the Exercise Price resulting from such adjustment, the number of shares
obtained by multiplying the Exercise Price in effect immediately prior
to such adjustment by the number of shares purchasable pursuant hereto
immediately prior to such adjustment, and dividing the product thereof
by the Exercise Price resulting from such adjustment.
3.1 Subdivision or Combination of Stock. In case the Company
shall at any time subdivide its outstanding shares of any class of
Common Stock into a greater number of shares, the Exercise Price in
effect immediately prior to such subdivision shall be proportionately
reduced and the number of Warrant Shares issuable hereunder
proportionately increased, and conversely, in case the outstanding
shares of any class of the Common Stock of the Company shall be combined
into a smaller number of shares, the Exercise Price in effect
immediately prior to such combination shall be proportionately increased
and the number of Warrant Shares issuable hereunder proportionately
decreased.
3.2 Reclassification. If any reclassification of the capital
stock of the Company or any reorganization, consolidation, merger, or
any sale, lease, license, exchange or other transfer (in one transaction
or a series of related transactions) of all or substantially all, of the
business and/or assets of the Company (the "Reclassification Events")
shall be effected in such a way that holders of any class of Common
Stock shall be entitled to receive stock, securities, or other assets or
property, then, as a condition of such Reclassification Event lawful and
adequate provisions shall be made whereby the Holder hereof shall
thereafter have the right to purchase and receive (in lieu of the shares
of Common Stock of the Company immediately theretofore purchasable and
receivable upon the exercise of the rights represented hereby) such
shares of stock, securities, or other assets or property as may be
issued or payable with respect to or in exchange for a number of
outstanding shares of such Common Stock equal to the number of shares of
such stock immediately theretofore purchasable and receivable upon the
exercise of the rights represented hereby. In any Reclassification
Event, appropriate provision shall be made with respect to the rights
and interests of the Holder of this Warrant to the end that the
provisions hereof (including, without limitation, provisions for
adjustments of the Exercise Price and of the number of Warrant Shares),
shall thereafter be applicable, as nearly as may be, in relation to any
shares of stock, securities, or assets thereafter deliverable upon the
exercise hereof.
3.3 Adjustments Upon Issuance of Additional Stock. If the
Company shall issue "Additional Stock" (as defined below) for a
consideration per share less than the Exercise Price then in effect on
the date and immediately prior to such issue, then and in such event,
such Exercise Price shall be reduced concurrently with such issue, to a
price equal to the price per share for such Additional Stock.
For purposes of this subsection "Additional Stock" shall mean all
common stock issued by the Corporation after the date hereof other than
common stock issued or issuable at any time (1) upon conversion of any
preferred stock; (2) upon exercise of options issued to officers,
directors, and employees of, and consultants to, the Company after the
date hereof and approved by the Board of Directors pursuant to an
employee stock option plan; or (3) upon exercise of Warrants outstanding
on the date hereof (4) after August 18 1999; (5) provided, however, that
the company shall not be deemed to have issued additional stock until
after the Company has issued securities with aggregate proceeds to the
Company of $500,000.
For the purpose of making any adjustment in the Exercise Price as
provided above, the consideration received by the Company for any issue
or sale of Additional Stock will be computed:
(a) to the extent it consists of cash, as the amount of
cash received by the Company before deduction of any offering expenses
payable by the Company and any underwriting or similar commissions,
compensation, or concessions paid or allowed by the Company in
connection with such issue or sale;
(b) to the extent it consists of property other than
cash, at the fair market value of that property as determined in good
faith by the Company s Board of Directors; and
(c) if common stock is issued or sold together with
other stock or securities or other assets of the Company for a
consideration which covers both, as the portion of the consideration so
received that may be reasonably determined in good faith by the Board of
Directors to be allocable to such common stock.
If the Company (1) grants any rights or options to subscribe for,
purchase, or otherwise acquires common stock, or (2) issues or sells any
security convertible into common stock, then, in each case, the price
per share of common stock issuable on the exercise of the rights or
options or the conversion of the securities will be determined by
dividing the total amount, if any, received or receivable by the Company
as consideration for the granting of the rights or options or the issue
or sale of the convertible securities, plus the minimum aggregate amount
of additional consideration payable to the Company on exercise or
conversion of the securities, by the maximum number of shares of common
stock issuable on the exercise of conversion. Such granting or issue or
sale will be considered to be an issue or sale for cash of the maximum
number of shares of common stock issuable on exercise or conversion at
the price per share determined under this subsection, and the Exercise
Price will be adjusted as above provided to reflect (on the basis of
that determination) the issue or sale. No further adjustment of the
Exercise Price will be made as a result of the actual issuance of common
stock on the exercise of any such rights or options or the conversion of
any such convertible securities.
Upon the redemption or repurchase of any such securities or the
expiration or termination of the right to convert into, exchange for, or
exercise with respect to, common stock, the Exercise Price will be
readjusted to such price as would have been obtained had the adjustment
made upon their issuance been made upon the basis of the issuance of
only the number of such securities as were actually converted into,
exchanged for, or exercised with respect to, common stock. If the
purchase price or conversion or exchange rate provided for in any such
security changes at any time, then, upon such change becoming effective,
the Exercise Price then in effect will be readjusted forthwith to such
price as would have been obtained had the adjustment made upon the
issuance of such securities been made upon the basis of (1) the issuance
of only the number of shares of common stock theretofore actually
delivered upon the conversion, exchange or exercise of such securities,
and the total consideration received therefor, and (2) the granting or
issuance, at the time of such change, of any such securities then still
outstanding for the consideration, if any, received by the Company
therefor and to be received on the basis of such changed price or rate.
3.4 Notice of Adjustment. Upon any adjustment of the Exercise
Price or any increase or decrease in the number of Warrant Shares, the
Company shall give written notice thereof, by first class mail postage
prepaid, addressed to the registered Holder of this Warrant at the
address of such Holder as shown on the books of the Company. The notice
shall be prepared and signed by the Company s Chief Financial Officer
and shall state the Exercise Price resulting from such adjustment and
the increase or decrease, if any, in the number of shares purchasable at
such price upon the exercise of this Warrant, setting forth in
reasonable detail the method of calculation and the facts upon which
such calculation is based.
4. Notices of Record Date, Etc. In the event of any taking by the
Company of a record of the holders of any class of securities for the
purpose of determining the holders thereof who are entitled to receive
any dividend (other than a cash dividend at the same rate as the rate of
the last cash dividend theretofore paid) or other distribution (the
"Distribution") the Company will mail or cause to be mailed to the
Holder of the Warrant a notice specifying the date of any such
Distribution and stating the amount and character of such Distribution.
Such notice shall be mailed at least ten (10) days prior to the date
therein specified.
5. Replacement of Warrant. Upon receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or
mutilation of this Warrant and, in the case of any such loss, theft or
destruction, upon delivery of an indemnity agreement reasonably
satisfactory in form and amount to the Company or, in the case of such
mutilation, upon surrender and cancellation of this Warrant, the Company
at its expense will execute and deliver, in lieu thereof, a new warrant
of like tenor.
6. Negotiability, Etc. This Warrant may be transferred in whole
or in part by the Holder to any person who, in the opinion of counsel
reasonably satisfactory to the Company, is a person to whom this
Warrant or the Shares may be legally transferred without registration
and without the delivery of a current prospectus under the Securities
Act of 1933, as amended (the "Act"), as well as applicable State
Securities laws with respect thereto, and then only against receipt of
an agreement of such person to comply with the provisions of this
section with respect to any resale or disposition of such securities
unless, in the opinion of counsel to the Company, such agreement is not
required. The terms hereof shall be binding upon the executors,
administrators, heirs and assigns of the Holder.
7. Notices, Etc. All notices and other communication shall be
mailed by first class mail, postage prepaid, at such address as may have
been furnished in writing by the receiving party.
8. Governing Law Headings. This Warrant is being delivered in the
State of California and shall be construed and enforced in accordance
with and governed by the laws of such state. The headings of this
Warrant are for purposes of reference only, and shall not limit or
otherwise affect any of the terms hereof.
9. Conversion of Warrant.
9.1 Right to Convert. In addition to, and without limiting
the other rights of the Holder hereunder, the Holder shall have the
right (the "Conversion Right") to convert this Warrant or any part
hereof into Shares at any time and from time to time during the term
hereof. Upon exercise of the Conversion Right with respect to a
particular number of Shares (the "Converted Shares"), the Company shall
deliver to the Holder, without payment by the Holder, or any Purchase
Price or any cash or other consideration, that number of Shares computed
using the following formula:
X = (B-A)/Y
Where: X = The number of Shares to be issued to the Holder.
Y = The fair Market Value of one Share as of the Conversion
Date. If. the Company's Common Stock is publicly traded
at the time of exercise of this Warrant, the Fair Market
Value shall be the average closing price of the Company's
Common Stock on the five trading days prior to the
Conversion Date. If the Company's Common Stock is not
publicly traded at the time of exercise of this Warrant,
the Fair Market Value of one Share as of the Conversion
Date shall be determined in good faith by the Board of
Directors of the Company.
B = The Aggregate Fair Market Value (i.e., Fair Market Value
x Converted Shares)
A = The Aggregate Purchase Price (i.e., Purchase Price x
Converted Shares)
9.2 Method of Exercise. The Conversion Right may be exercised
by the Holder by the surrender of this Warrant at the Company's
principal office, together with a written statement (the "Conversion
Statement") specifying that the Holder intends to exercise the
Conversion Right and indicating the number of Shares to be acquired upon
exercise of the Conversion Right. Such conversion shall be effective
upon the Company's receipt of this Warrant, together with the Conversion
Statement, or on such later date as is specified in the Conversion
Statement (the "Conversion Date"). Certificates for the Shares so
acquired shall be delivered to the Holder within a reasonable time, not
exceeding thirty (30) days after the Conversion Date. If applicable, the
Company shall, upon surrender of this Warrant for cancellation, deliver
a new Warrant evidencing the rights of the Holder to purchase the
balance of the Shares which Holder is entitled to purchase hereunder.
The issuance of Shares upon exercise of this Warrant shall be made
without charge to the Holder for any issuance tax with respect thereto
or any other cost incurred by the Company in connection with the
conversion of this Warrant and the related issuance of Shares.
Date: SEPRAGEN CORPORATION
By: /s/ Vinit Saxena
Its: President
<PAGE>
ATTACHMENT I
NOTICE OF EXERCISE
TO: SEPRAGEN CORPORATION
30689 HUNTWOOD AVENUE
HAYWARD, CA 94544
1. The undersigned hereby elects to acquire shares of
Class A Common Stock of SEPRAGEN CORPORATION pursuant to the terms of
the attached Warrant, by exercise or conversion of shares and
tenders herewith payment of the Purchase Price in full, together with
all applicable transfer taxes, if any.
2. Please issue a certificate or certificates representing said
shares of Series C Preferred Stock in the name of the undersigned or in
such other name as is specified below:
NAME
ADDRESS
DATE
(Name of Warrant Holder)
By:
Title:
(Name of purchaser, and title and
signature of authorized person)
Social Security Number or Federal
Employer ID Number:
EXHIBIT 10.9
THIS NOTE HAS BEEN ACQUIRED FOR INVESTMENT PURPOSES ONLY AND MAY
NOT BE TRANSFERRED UNTIL (i) A REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933, AS AMENDED THE "ACT" SHALL HAVE BECOME EFFECTIVE
WITH RESPECT THERETO OR (ii) RECEIPT BY THE ISSUER OF AN OPINION OF
COUNSEL REASONABLY SATISFACTORY TO THE ISSUER TO THE EFFECT THAT
REGISTRATION UNDER THE ACT IS NOT REQUIRED IN CONNECTION WITH SUCH
PROPOSED TRANSFER NOR IS IN VIOLATION OF ANY APPLICABLE STATE SECURITIES
LAWS. THIS LEGEND SHALL BE ENDORSED UPON ANY NOTE ISSUED IN EXCHANGE FOR
THIS NOTE.
SEPRAGEN CORPORATION
No. 1 $550,000
Dated: August 18, 1998
CONVERTIBLE SECURED PROMISSORY NOTE
SEPRAGEN CORPORATION, a California corporation (the "Company"), for
value received, hereby promises to pay to K. Charles Janac or registered
assigns (the "Payee") on December 15, 1998 (the "Maturity Date") at the
offices of the Company, 30689 Huntwood Avenue, Hayward, California
94544, the principal amount of Five Hundred Fifty Thousand Dollars
($550,000), including interest at the rate of nine point seventy-five
percent (9.75%) per annum accrued through the Maturity Date, in such
coin or currency of the United States of America as at the time of
payment shall be legal tender for the payment of public and private
debts, unless converted earlier into Class A Common Stock of the
Company.
This Note is issued pursuant to a Subscription Agreement dated as
of August 18, 1998 between the Company and the Payee (the "Subscription
Agreement"), a copy of which agreement is available for inspection at
the Company's principal office. Notwithstanding any provision to the
contrary contained herein, this Note is subject and entitled to certain
terms, conditions, covenants and agreements contained in the Subscrip-
tion Agreement. Any transferee or transferees of the Note, by their
acceptance hereof, assume the obligations of the Payee in the Subscrip-
tion Agreement with respect to the conditions and procedures for
transfer of the Note. Reference to the Subscription Agreement shall in
no way impair the absolute and unconditional obligation of the Company
to pay both principal and interest hereon as provided herein.
On or before the Maturity Date, the Payee may elect to receive
payment of the principal amount of this Note or any part thereof and
accrued interest (the "Conversion Amount") in the form of Class A Common
Stock (the "Equity Conversion"). In an Equity Conversion, the Payee
shall receive such number of fully paid and non-assessable shares of the
Class A Common Stock as is obtained by dividing the Conversion Amount by
$0.46875 (the "Conversion Price").
Upon the conversion of all principal and interest hereunder, Payee
shall have no further rights under this Note except to surrender the
same for a certificate or certificates representing the securities into
which this Note shall have automatically converted. As soon as
practicable thereafter, the Company shall, at its expense, cause to be
issued in the name of the Payee, a certificate or certificates for the
number of shares of the securities to which Payee shall be entitled to
receive (bearing such legends as may be required by applicable
securities laws). No fractional shares shall be issued on conversion of
this Note; if any fractional shares would result from such conversion,
the Company shall pay the cash value thereof to Payee based on the
Equity Conversion Price.
1. Prepayment. The principal amount of this Note may be prepaid
by the Company in whole or in part, without penalty, at any time, unless
the Holder elects an Equity Conversion.
2. Covenants of Company. The Company covenants and agrees that,
so long as this Note shall be outstanding, it will:
(a) Do or cause to be done all things reasonably necessary to
preserve and keep in full force and effect its corporate existence,
rights and franchises and comply with all laws applicable to the
Company, except where the failure. to comply would not have a material
adverse effect on the Company.
(b) At all times reasonably maintain, preserve, protect and
keep its property used or useful in the conduct of its business in good
repair, working order and condition, excluding normal wear and tear and
Act of God, and from time to time make all needful and proper repairs,
renewals, replacements, betterments and improvements thereto as shall be
reasonably required in the conduct of its business.
(c) To the extent necessary for the operation of its
business, keep adequately insured by all financially sound reputable
insurers, all property of a character usually insured by similar
corporations and carry such other insurance as is usually carried by
similar corporations.
(d) At all times keep true and correct books, records and
accounts.
3. Events of Default.
(a) If one or more of the events listed in this Section 3,
herein called events of default, shall happen and be continuing, the
holder of this Note may send a Notice of Default to Company. Company
shall have thirty (30) days from the date of receipt of the Notice of
Default to cure the default; provided however, if an event of default
was caused by an Act of God, Company shall have sixty (60) days from the
date of receipt of the Notice of Default to cure the default (the "Cure
Period"). If Company fails to -completely cure the default during the
Cure Period, this Note shall become and be due and payable upon written
demand made by the holder hereof.
(1) Default in the payment of the principal and accrued
interest on this Note or any of the Notes issued pursuant to 5(a) hereof
when and as the same shall become due and payable, whether by
acceleration or otherwise.
(2) Application for, or consent to, the appointment of a
receiver, trustee, or liquidator of the Company or of its property.
(3) General assignment by the Company for the benefit of
creditors.
(4) Filing by the Company of a voluntary petition in
bankruptcy or a petition or an answer seeking reorganization, or an
arrangement with creditors or the failure by the Company generally to
pay debts, as they become due.
(5) Entering against the Company of a court order
approving a petition filed against it under the Federal bankruptcy laws,
which order shall not have been vacated or set aside or otherwise
terminated within sixty (60) days.
(6) Any representation or warranty of the Company
contained in the Subscription Agreement, Security Agreement, Form UCC-1
related to the obligations hereunder, Patent Mortgage related to the
obligations hereunder or any related documents (collectively, the "Loan
Documents") is false or misleading in any material respect on the date
made.
(7) Default by the Company in any obligation under the
Loan Documents the effect of which is reasonably likely to reduce the
Company's ability to repay principal or interest under the Note when
due.
(8) The Company voluntarily or involuntarily dissolves
or is dissolved.
(9) The Company is enjoined, restrained, or in any way
prevented by the order of any court or any administrative or regulatory
agency from conducting all or any material part of its business affairs
the effect of which is reasonably likely to reduce the Company's ability
to repay principal or interest under the Note when due.
(10) The violation by the Company of any material order,
regulation, writ, injunction, or decrees of any government, governmental
instrumentality or court, domestic or foreign, the effect of which is
reasonably likely to reduce the Company's ability to repay principal or
interest under the Note when due.
(b) The Company agrees that notice of the occurrence of any
of event of default will be promptly given to the holder at his or her
registered address by certified mail.
(c) In case any one or more of the events of default
specified above shall happen and be continuing, the holder of this. Note
may proceed to protect and enforce his rights by suit in the specific
performance of any covenant or agreement contained in this Note or in
aid of the exercise of any power granted in this Note or may proceed to
enforce the payment of this Note or to enforce any other legal or
equitable rights as such holder.
4. Amendments. This Note may only be amended with the written
consent of the holder.
5. Miscellaneous.
(a) This Note has been issued by the Company pursuant to
authorization of the Board of Directors of the Company.
(b) The Company may consider and treat the person in whose
name this Note shall be registered as the absolute owner thereof for all
purposes whatsoever (whether or not this Note shall be overdue) and the
Company shall not be affected by any notice to the contrary. The
registered owner of this Note shall have the right to transfer it by
assignment (subject to the limitations on transfer contained in the
Subscription Agreement) and the transferee thereof shall upon his
registration as owner of this Note, become vested with all the powers
and rights of the transferor. Registration of any new owner shall take
place upon presentation of this Note to the Company at its offices,
30689 Huntwood Avenue, Hayward, California 94544, together with a duly
authenticated assignment. In case of transfer by operation of law, the
transferee agrees to notify the Company of such transfer and of his
address and to submit appropriate evidence regarding the transfer so
that this Note may be registered in the name of the transferee. This
Note is transferable only on the books of the Company by the holder
hereof, in person or by attorney, on the surrender hereof, duly
endorsed. Communications sent to any registered owner shall be effective
as against all holders or transferees of the Note not registered at the
time of sending the Communication.
(c) Payments of interest shall be made as specified above to
the registered owner of this Note. Payment of principal and interest
shall be made to the registered owner of this Note upon presentation of
this Note upon or after maturity.
(d) This Note shall be construed and enforced in accordance
with the laws of the State of California.
IN WITNESS WHEREOF the Company has caused this Note to be signed in its
name by its President.
SEPRAGEN CORPORATION
By: /s/ Vinit Saxena
Title: President
EXHIBIT 10.10
SECURITY AGREEMENT
This SECURITY AGREEMENT is made as of the 18th day of August, 1998
by SEPRAGEN CORPORATION., a California corporation, with its principal
place of business at 30689 Huntwood Avenue, Hayward, California 94544
("Debtor"), in favor of K. CHARLES JANAC, with an address at 651 River
Oaks Parkway, San Jose, CA 95134, c/o Smart Machines (the "Secured
Party").
1. DEFINITIONS.
As used in this Agreement,
"Agreement" means this Security Agreement, as it may be amended,
modified or supplemented from time to time.
"Business Day" means a day other than Saturday or Sunday on which
banks are open for business in California.
"Collateral" means all personal property and interests in personal
property now owned or hereafter acquired by Debtor in or upon which a
security interest, lien or mortgage has been, or is now or hereafter,
granted to Secured Party, whether under this Agreement or under any of
the other Loan Documents.
"Default" means the occurrence or existence of any of the events
listed in Section 4 of this Agreement.
"Lien" means any mortgage, pledge, lien, hypothecation, security
interest or other charge, encumbrance or preferential arrangement,
including, without limitation, the retained security title of a
conditional vendor or lessor.
"Loan Documents" means, collectively, this Agreement; the Note; the
Subscription Agreement between Debtor and Secured Party (the
"Subscription Agreement"); the Patent Mortgage; and Form UCC-1, each
executed of even date herewith, and all other agreements, instruments
and documents now or hereafter executed and/or delivered by Debtor to
the Secured Party, in order to evidence or secure the Obligations, as
each may be amended, modified or supplemented from time to time.
"Note" means the Convertible Promissory Note, dated as of August
18, 1998, executed by Debtor as may be amended, modified or supplemented
or modified from time to time.
"Obligations" means all of Debtor s liabilities, obligations and
indebtedness to the Secured Party of any and every kind and nature,
whether heretofore, now or hereafter owing, arising, due or payable and
howsoever evidenced, created, incurred, acquired, or owing, whether
primary, secondary, direct, contingent, fixed or otherwise (including,
without limitation, obligations of performance) and whether arising or
existing under written agreement, oral agreement or by operation of law,
including, without limitation, all Debtor s indebtedness and obligations
to the Secured Party under (i) the Subscription Agreement; (ii) the
Note; (iii) the other Loan Documents. The term includes, without
limitation, all interest, charges, expenses, fees, reasonable attorneys
fees and disbursements and any other sum chargeable under this
Agreement, the Note, and the other Loan Documents.
The foregoing definitions shall be equally applicable to both the
singular and plural forms of the defined terms. Terms used in this
Agreement and not defined herein or in the Note shall have the meanings
given such terms in the Code, as defined in Section 2.1 below.
<PAGE>
2. SECURITY INTEREST.
2.1 Grant of Security Interest. To secure payment and performance
of the Obligations, Debtor hereby grants to the Secured Party a right of
setoff against and a continuing security interest in and to all of
Debtor s now existing or owned and hereafter arising or acquired: (a)
all accounts (including, without limitation, all accounts receivable),
chattel paper, claims, contract rights, leases and rental income
thereunder, leasehold interests, letters of credit, instruments and
documents ("Accounts"), and all goods sold, leased or otherwise disposed
of by Debtor which have given rise to Accounts and which have been
returned to or repossessed or stopped in transit by Debtor; (b) all
patents, copyrights and trademarks, and all applications for and
registrations of the foregoing, all franchise rights, trade names,
goodwill, beneficial interests, rights to tax refunds and all other
general intangibles of any kind or nature whatsoever ("General
Intangibles"); (c) all inventory and goods of the Debtor, wherever
located, whether in transit, held by others for the Debtor s account,
covered by warehouse receipts, purchase orders or contracts, or in the
possession of any carriers, forwarding agents, truckers, warehousemen,
vendors or other persons, including, without limitation, all raw
materials, work-in-process, finished merchandise, supplies, goods,
incidentals, office supplies, packaging materials and all materials used
or consumed in Debtor s business ("Inventory"); (d) goods (other than
Inventory), including all returned, reconsigned and repossessed goods,
machinery, equipment, vehicles, appliances, furniture, furnishings and
fixtures ("Equipment"); (e) monies, reserves, deposits, certificates of
deposit and deposit accounts and interest or dividends thereon,
guaranties, securities, cash, cash equivalents and other property
whether or not in the possession or under the control of, Secured Party
or their respective bailee; (f) all books, records, computer records,
ledger cards, programs and other computer materials, customer and
supplier lists, invoices, orders and other property and general
intangibles at any time evidencing or relating to the contents thereof
("Records"); (g) all accessions to any of the foregoing and all
substitutions, renewals, improvements and replacements of and additions
thereto; (h) all other property of Debtor, real and personal; and (i)
all products and proceeds of the foregoing (whether such proceeds are in
the form of cash, cash equivalents, proceeds of insurance policies,
Accounts, General Intangibles, Inventory, Equipment, Records or
otherwise). Debtor further assigns to Secured Party the Debtor s right
of stoppage in transit and Debtor s right to reclaim goods from
customers and Account Debtors (as hereinafter defined) under Section 2-
702 of the Illinois Uniform Commercial Code, as amended (the "Code").
Debtor and the Secured Party hereby acknowledge their mutual intention
that the security interest granted herein will attach to Collateral when
Debtor executes and delivers this Agreement or, in the case of any
Collateral acquired by Debtor after the execution and delivery hereof,
upon Debtor first acquiring rights therein. Debtor hereby acknowledges
and agrees, subject hereto, that Debtor has rights in the Collateral and
that value has been given.
2.2 Preservation of Collateral and Perfection of Security
Interests Therein. Until all of the Obligations of Debtor shall have
been indefeasibly paid and satisfied in cash, the Secured Party shall be
entitled to retain its security interests in and to all existing
Collateral, and all proceeds and products thereof. Debtor agrees that it
shall execute and deliver to the Secured Party, concurrently with the
execution of this Agreement, and at any time or times hereafter at the
request of the Secured Party, all financing statements or other
documents (and pay the cost of filing or recording the same in all
public offices deemed necessary by the Secured Party) as Secured Party
may request, in a form satisfactory to Secured Party, to perfect and
<PAGE>
keep perfected the security interests in the Collateral or to otherwise
protect and preserve the Collateral and Secured Party s security
interests therein. Should Debtor fail to do so, Secured Party is
authorized to sign any such financing statements as Debtor s agent.
Debtor further agrees that a carbon, photographic, photostatic or other
reproduction of this Agreement or of a financing statement is sufficient
as a financing statement. Notwithstanding anything herein to the
contrary, Debtor may sell or license collateral in the ordinary course
of business.
2.3 Loss of Value of Collateral. Debtor agrees to notify Secured
Party promptly of any material loss or depreciation in the value of the
Collateral, other than loss or depreciation occurring in the ordinary
course of Debtor s business.
3. REPRESENTATIONS, WARRANTIES AND COVENANTS.
3.1 Recordkeeping. Debtor covenants with Secured Party that Debtor
shall at all times hereafter keep accurate and complete records of its
finances, in accordance with sound accounting practices and generally
accepted accounting principles, all of which records shall be available
for inspection during Debtor s usual business hours at the request of
Secured Party.
3.2 Asset Warranties. Debtor represents and warrants to Secured
Party that the Collateral is located at the premises of Debtor as
provided for in the first paragraph hereof is not in transit. None of
the Collateral will be removed from such locations without prior written
notice to Secured Party, except for use or sale in the ordinary course
of business. Except for the security interest held by Pitney Bowes
Credit Corporation ("Pitney Bowes"), the Collateral is not subject to
any lien, encumbrance, mortgage or security interest whatsoever except
for the security interests granted to Secured Party. Debtor shall not
permit any lien, encumbrance, mortgage or security interest whatsoever
to attach to any of the Collateral, except in favor of Secured Party.
3.3 Verification of Accounts. After the occurrence of a Default
hereunder, Secured Party shall have the right, at any time or times
hereafter, in Secured Party s or in Debtor s name, to verify the
validity, amount or any other matter relating to any Accounts, by mail,
telephone, telegraph or otherwise.
3.4 Appointment of Secured Party as Debtor s Attorney-in-Fact.
Debtor hereby irrevocably designates, makes, constitutes and appoints
Secured Party (and all persons designated by Secured Party in writing to
Debtor) as Debtor s true and lawful attorney-in-fact, and authorizes
Secured Party, in Debtor s or Secured Party s name, to do the following:
at any time after the occurrence of a Default, (i) demand payment of
Accounts of Debtor; (ii) enforce payment of accounts of Debtor by legal
proceedings or otherwise; (iii) exercise all of Debtor s rights and
remedies with respect to proceedings brought to collect any Account;
(iv) sell or assign any Account of Debtor upon such terms, for such
amount and at such time or times as Secured Party deems advisable; (v)
settle, adjust, compromise, extend or renew any Account of Debtor; (vi)
discharge and release any Account of Debtor; (vii) prepare, file and
sign Debtor s name on any proof of claim in bankruptcy or other similar
document against any Account Debtor; (viii) have access to any postal
box of Debtor and notify the post office authorities to change the
address for delivery of Debtor s mail to an address designated by
Secured Party; and (ix) do all other acts and things which are
necessary, in Secured Party s discretion, to fulfill Debtor s
Obligations under this Agreement. Secured Party shall not exercise its
rights arising as a result hereof until after the occurrence of a
<PAGE>
Default hereunder.
3.5 Notice to Account Debtors. Following the occurrence of a
Default under this Agreement, Secured Party may, in its sole discretion,
at any time or times, without prior notice to Debtor, notify any or all
Account Debtors that the Accounts of Debtor have been assigned to
Secured Party, that Secured Party has a security interest therein, and
that all payments upon such Accounts be made directly to Secured Party
or as otherwise specified by Secured Party.
3.6 Safekeeping of Assets and Asset Covenants. Secured Party shall
not be responsible for: (a) the safekeeping of the Collateral; (b) any
loss or damage to all or any part of the Collateral; (c) any diminution
in the value of all or any part of the Collateral; or (d) any act or
default of any carrier, warehouseman processor, bailee, forwarding
agency or any other person with respect to all or any part of the
Collateral. All risk of loss, damage, destruction or diminution in value
of all or any part of the Collateral of Debtor shall be borne by Debtor.
3.7 Insurance. Debtor shall insure the Collateral at all times
against all hazards specified by Secured Party, including, without
limitation, fire, theft and risks covered by extended coverage
insurance, and such policies shall be payable to Secured Party as its
interest may appear. Such policies of insurance shall be satisfactory to
Secured Party as to form, amount and insurer. Debtor shall furnish
certificates, policies or endorsements to Secured Party as proof of such
insurance, and if Debtor fails to do so, Secured Party is authorized but
not required to obtain such insurance at Debtor s expense. All policies
shall provide for at least thirty (30) days prior written notice to
Secured Party of cancellation or non-renewal. Secured Party may act as
attorney-in-fact for Debtor in making, adjusting and settling any claims
under any such insurance policies. Debtor hereby assigns to Secured
Party all of its right, title and interest to any insurance policies
insuring the Collateral, including, without limitation, all rights to
receive the proceeds of insurance, and directs all insurers to pay all
such proceeds directly to Secured Party and authorizes Secured Party to
endorse Debtor s name on any instrument for such payment.
3.8 Transfer of Collateral. Debtor shall not sell, lease,
transfer, assign or otherwise dispose of any of the Collateral or any
interest therein without the prior written consent of Secured Party in
each instance, except Inventory sold to buyers in the ordinary course of
business.
3.9 Damage to Collateral. Debtor shall immediately notify Secured
Party in writing of any destruction of, or any substantial damage to,
any of the Collateral.
3.10 Change of Place of Business. Debtor shall immediately notify
Janac in writing of any change in any of its place of business or the
opening of any new place of business.
3.11 Inspection. With reasonable prior notice, Debtor shall at all
times during normal business hours allow Secured Party or its agents to
examine and inspect the Collateral wherever located as well as Debtor s
books and records, and to make extracts and copies of them, it being
understood that Secured Party shall use reasonable efforts in the normal
course of its operations to keep confidential all such information that
(a) is not in the public domain, and (b) is not required to be disclosed
by any court, agency or authority of competent jurisdiction, provided,
however, that the requirement to keep such information confidential
shall not apply to the extent necessary in order for Secured Party to
foreclose on or otherwise deal with the Collateral in the Secured
<PAGE>
Party s best interests upon the occurrence of a Default.
3.12 Mergers, Etc. Debtor shall not become a party to any
consolidation, merger, liquidation or dissolution or organize, purchase,
assume or acquire any subsidiary or joint venture or partnership
interest or interest in any other business entity, without the prior
written consent of Secured Party.
3.13 Change of Name. Debtor shall notify Secured Party of any
intended change of Debtor s name, and will notify Secured Party when
such change becomes effective.
3.14 Organization. Debtor is a corporation duly organized, validly
existing and in good standing under the laws of the State of California.
Debtor is duly qualified and in good standing in each state in which the
failure to so qualify would have a material adverse effect on its
business.
3.15 Authority. Debtor has full corporate right and power to enter
into and perform its obligations under this Agreement and the other Loan
Documents to which Debtor is a party. The execution, delivery and
performance of this Agreement and the other Loan Documents to which
Debtor is a party have been duly authorized by all necessary corporate
action of Debtor, and this Agreement and the other Loan Documents to
which Debtor is a party constitute valid and binding obligations of
Debtor enforceable against Debtor in accordance with their respective
terms, subject to applicable bankruptcy, reorganization, insolvency or
similar laws affecting the enforcement of creditor s rights generally.
3.16 No Conflicts. The execution, delivery and performance by
Debtor of this Agreement and each of the other Loan Documents do not and
shall not:
(a) contravene or constitute a default (or an event that, with due
notice or the lapse of time, or both, would constitute a default) under
or result in any breach of, or cause or permit the acceleration of the
maturity of any debt or obligation pursuant to, Debtor s Articles of
Incorporation or any document, commitment or other agreement to which
Debtor is a party or by which any of Debtor s property is bound; or (b)
violate any statute or law or any judgment, decree, order, regulation or
rule of any court or governmental authority applicable to Debtor.
3.17 Actions or Proceedings. There are no actions or proceedings
which are pending or threatened against Debtor which might result in any
material and adverse change in its financial condition or materially
affect the Collateral pledged hereunder.
3.18 Violation of Law. Debtor is not in violation of any applicable
federal, state, municipal or county statue, regulation or ordinance
which may materially and adversely affect its business, property,
assets, operations or conditions, financial or otherwise. Except with
respect to certain employment taxes and FICA obligations, Debtor agrees
that, so long as any Obligations shall remain unpaid or outstanding,
Debtor shall comply with all applicable laws, rules, regulations, and
orders, such compliance to include, without limitation, paying before
the same become delinquent all taxes~ assessments, and governmental
charges imposed upon Debtor or upon Debtor s property.
3.19 Consents. All authorizations, consents, approvals,
registrations, exemptions and licenses required to be obtained by Debtor
or which are necessary for the borrowing contemplated by the Note and
the other Loan Documents and the execution and delivery by Debtor of the
Note and the Loan Documents to which Debtor is a party, and the
<PAGE>
performance by Debtor of each of Debtor s obligations hereunder and
thereunder, if any, have been obtained and are in full force and effect.
3.20 Use of Proceeds. Debtor will use the proceeds of the Note for
purposes specified in the Subscription Agreement.
3.21 Accuracy of Information. All factual information heretofore or
contemporaneously furnished by or on behalf of Debtor to Secured Party
for purposes of or in connection with the Note or any transaction
contemplated hereby is, and all other factual information hereafter
furnished by or on behalf of Debtor to Secured Party will be, true and
accurate in every material respect on the date as of which such
information is dated or certified, and Debtor has not omitted and will
not omit any material fact necessary to prevent such information from
being false or misleading. Debtor has disclosed to Secured Party in
writing all facts which might materially and adversely affect the
credit, financial condition, affairs or prospects of Debtor, or Debtor s
ability to perform Debtor s obligations under the Note.
3.22 Liens. Debtor shall not, without the prior written consent of
Secured Party, create, incur, assume or suffer to exist any lien,
security interest, encumbrance or other claim of any nature whatsoever
on any of its assets, including, without limitation, the Collateral,
other than the security interest granted in favor of Secured Party or
Pitney Bowes.
4. DEFAULTS: RIGHTS AND REMEDIES OF SECURED PARTY.
4.1 Defaults. Each of the following occurrences shall constitute a
"Default" under this Agreement:
(a) Debtor s failure to pay when due any of the payment
obligations under this Agreement or under the Note.
(b) The occurrence of any material default by Debtor, or Debtor s
failure or neglect to perform, keep or observe any of the covenants,
conditions, promises or agreements contained in one or more of the Loan
Documents.
(c) Any representation or warranty made or deemed made by Debtor
to Secured Party herein or in any of the other Loan Documents or in any
written statement or certificate at any time given pursuant to any of
the Loan Documents is false or misleading in any material respect on the
date made.
(d) A judgment or order is rendered against Debtor the effect of
which is reasonably likely to reduce the Company ~s ability to repay
principal or interest under the Note when due.
(e) A notice of lien, levy, or assessment is filed or recorded
with respect to all or a material part of the assets of Debtor or the
Collateral by the United States, or any department, agency or
instrumentality thereof, or by any state, county, municipality or other
governmental agency or any taxes or debts owing at any time or times
hereafter to any one or more of them become a lien upon all or a
material part of the Collateral the effect of which is reasonably likely
to reduce the Company s ability to repay principal or interest under the
Note when due.
(f) All or any part of the Collateral in an amount exceeding
$10,000.00 is attached, seized, subjected to a writ or distress warrant,
or is levied upon, or comes within the possession of any receiver,
trustee, custodian or assignee for the benefit of creditors.
<PAGE>
(g) A proceeding under any bankruptcy, reorganization, arrangement
of debt, insolvency, readjustment of debt or receivership law or statute
is filed against Debtor, which proceeding is either consented to by
Debtor or not dismissed, vacated or stayed within thirty (30) days after
the filing thereof, or a proceeding under any bankruptcy,
reorganization, arrangement of debt, insolvency, readjustment of debt or
receivership law or statute is filed by Debtor, or Debtor makes an
assignment for the benefit of creditors, or Debtor takes any corporate
action to authorize any of the foregoing.
(h) Debtor voluntarily or involuntarily dissolves or is dissolved.
(i) Debtor is enjoined, restrained, or in any way prevented by the
order of any court or any administrative or regulatory agency from
conducting all or any material part of its business affairs the effect
of which is reasonably likely to reduce the Company s ability to repay
principal or interest under the Note when due.
4.2 Rights and Remedies.
(a) Rights and Remedies Generally. Upon the occurrence of a
Default, Secured Party shall issue a Notice of Default to Debtor. Debtor
shall have thirty (30) days from receipt of such Notice of Default to
cure the Default; provided however, if an event of default was caused by
an Act of God, Company shall have sixty (60) days from the date of
receipt of the Notice of Default to cure the default (the "Cure
Period"). If Debtor fails to completely cure the Default within the Cure
Period, all of the Obligations of Debtor shall immediately and
automatically, without any additional notice of any kind, be immediately
due and payable in cash. In addition, upon the occurrence of a Default
and expiration of the Cure Period without a complete cure, Secured Party
shall have, in addition to any other rights and remedies contained in
this Agreement, the Note or in any of the other Loan Documents, all of
the rights and remedies of a secured party under the Uniform Commercial
Code, as then in effect in California, or other applicable laws, all of
which rights and remedies shall be cumulative, and non-exclusive, to the
extent permitted by law. In addition to all such rights and remedies,
the sale, lease or other disposition of the Collateral, or any part
thereof, by Secured Party after Default and expiration of the Cure
Period without a complete cure, may be for cash, credit or any
combination thereof, and Secured Party may purchase all or any part of
the Collateral at public or, if permitted by law, private sale, and in
lieu of actual payment of such purchase price, may set-off the amount of
such purchase price against the Obligations then owing. Any sales of
such Collateral may be adjourned from time to time with or without
notice. Secured Party may, in its sole discretion, cause the Collateral
to remain on the premises of Debtor, at Debtor s expense, pending sale
or other disposition of such Collateral. At such times, Secured Party
shall have the right to repair, process, preserve, protect and maintain
the Collateral and make such replacements thereof and additions thereto
as Secured Party may deem advisable. Secured Party shall have the right
to conduct such sales on the premises of Debtor, at Debtor s expense, or
elsewhere, on such occasion or occasions as Secured Party may see fit.
(b) Entry Upon Premises and Access to Information. Upon the
occurrence of a Default, Secured Party shall have the right to enter
upon (to the exclusion of Debtor) the premises of Debtor where the
Collateral is located (or is believed to be located) without any
obligation to pay rent to Debtor, or any other place or places where
such Collateral is believed to be located and kept, and remove such
Collateral therefrom to the premises of Secured Party or any agent of
Secured Party, for such time as Secured Party may desire, in order
effectively to collect or liquidate such Collateral or to retain such
<PAGE>
Collateral in satisfaction of the Obligations, and/or Secured Party may
require Debtor to assemble such Collateral and make it available to
Secured Party at a place or places to be designated by Secured Party.
Upon the occurrence of a Default, Secured Party shall have the right to
obtain access to Debtor s data processing equipment, computer hardware
and software relating to the Collateral and to use all of the foregoing
and the information contained therein in any manner Secured Party deems
appropriate; and Secured Party shall have the right to notify post
office authorities to change the address for delivery of Debtor s mail
to an address designated by Secured Party and to receive, open and
process all mail addressed to Debtor.
(c) Sale or Other Disposition of Collateral by Secured Party.
Any notice required to be given by Secured Party of a sale, lease or
other disposition or other intended action by Secured Party, with
respect to any of the Collateral, which is deposited in the United
States mails, postage prepaid and duly addressed to Debtor at the
address specified below, at least ten (10) days prior to such proposed
action shall constitute fair and reasonable notice to Debtor of any such
action. The net proceeds realized by Secured Party upon any such sale or
other disposition, after deduction for the expense of retaking, holding,
preparing for sale, selling or the like and the reasonable attorneys
and paralegals fees and legal expenses incurred by Secured Party in
connection therewith, shall be applied as provided herein toward
satisfaction of the Obligations. Secured Party shall account to Debtor
for any surplus realized upon such sale or other disposition, and Debtor
shall remain liable for any deficiency. The commencement of any action,
legal or equitable, or the rendering of any judgment or decree for any
deficiency shall not affect Secured Party s security interest in the
Collateral until the Obligations are fully paid. Secured Party shall
have the right to commence, continue or defend proceedings in any court
of competent jurisdiction in the name of Secured Party, the "Receiver"
(as hereinafter defined) or Debtor for the purpose of exercising any of
the rights, powers and remedies set out in this Section 4.2, including,
without limitation, the institution of proceedings for the appointment
of a Receiver. Debtor agrees that Secured Party has no obligation to
preserve rights to the Collateral against any other Person. Secured
Party is hereby granted a license or other right to use, without charge,
Debtor s labels, patents, copyrights, rights of use of any name, trade
secrets, trade names, tradestyles, trademarks, service marks and
advertising matter, or any property of a similar nature, as it pertains
to the Collateral, in completing production of, advertising for sale and
selling any such Collateral, and Debtor s rights under all licenses and
all franchise agreements shall inure to Secured Party s benefit until
the Obligations are paid.
(d) Appointment of Receiver. Upon the occurrence of a Default,
Secured Party shall have the right to appoint any Person to be an agent
or any Person to be a receiver, manager or receiver and manager (the
"Receiver") of the Collateral and to remove any Receiver so appointed
and to appoint another if Secured Party so desires; it being agreed that
any Receiver appointed pursuant to the provisions of this Agreement will
have all of the powers of Secured Party hereunder, and in addition, will
have the power to carry on the business of Debtor. The Receiver will be
deemed to be the agent of Debtor for the purpose of establishing
liability for the acts or omissions of the Receiver and Secured Party
will not be liable for such acts or omissions and, without restricting
the generality of the foregoing, Debtor hereby irrevocably authorizes
Secured Party to give instructions to the Receiver relating to the
performance of its duties as set forth herein.
(e) Advice of Counsel. Debtor acknowledges that it has been
advised by its counsel with respect to this transaction and this
<PAGE>
Agreement, including without limitation any waivers contained herein, or
has voluntarily chosen not to consult counsel.
5. MISCELLANEOUS.
5.1 Waiver. Secured Party s failure, at any time or times
hereafter, to require strict performance by Debtor of any provision of
this Agreement shall not waive, affect or diminish any right of Secured
Party thereafter to demand strict compliance and performance therewith.
Any suspension or waiver by Secured Party of a Default under this
Agreement or a default under any of the other Loan Documents shall not
suspend, waive or affect any other Default under this Agreement or any
other default under any of the other Loan Documents, whether the same is
prior or subsequent thereto and whether of the same or of a different
kind or character. None of the undertakings, agreements, warranties,
covenants and representations of Debtor contained in this Agreement or
any of the other Loan Documents, and no Default under this Agreement or
default under any of the other Loan Documents, shall be deemed to have
been suspended or waived by Secured Party unless such suspension or
waiver is in writing signed by an officer of Secured Party, and directed
to Debtor specifying such suspension or waiver.
5.2 Costs and Attorneys Fees. If at any time or times hereafter
Secured Party employs counsel in connection with protecting or
perfecting Secured Party s security interest in the Collateral or in
connection with any matters contemplated by or arising out of this
Agreement, whether (a) to commence, defend, or intervene in any
litigation or to file a petition, complaint, answer, motion or other
pleading, (b) to take any other action in or with respect to any suit or
proceeding (bankruptcy or otherwise), (c) to consult with officers of
Secured Party to advise Secured Party with respect to this Agreement or
the other Loan Documents or the Collateral, (d) to protect, collect,
lease, sell, take possession of, or liquidate any of the Collateral, or
(e) to attempt to enforce or to enforce any security interest in any of
the Collateral, to attempt to enforce or to enforce any rights of
Secured Party to collect any of the Obligations, then in any of such
events, all of the reasonable attorneys fees arising from such
services, and any expenses, costs and charges relating thereto,
including without limitation all reasonable fees of the paralegals and
other staff employed by such attorneys, together with interest at the
rate prescribed in the Note and shall be part of the Obligations,
payable on demand and secured by the Collateral. Such interest shall
accrue at the times, and in the manner, provided for in the Note.
5.3 Expenditures by Secured Party. If Debtor shall fail to pay
taxes, insurance, assessments, costs or expenses which Debtor is, under
any of the terms hereof or of any of the other Loan Documents, required
to pay, or fails to keep the Collateral free from other security
interests, liens or encumbrances, except as permitted herein, Secured
Party may, in its sole discretion, after notice to Debtor, make
expenditures for any or all of such purposes, and the amount so
expended, together with interest thereon at the rate prescribed in the
Note and shall be part of the Obligations, payable on demand and secured
by the Collateral.
5.4 Custody and Preservation of Collateral. Secured Party shall be
deemed to have exercised reasonable care in the custody and preservation
of any of the Collateral in its possession if it takes such action for
that purpose as Debtor shall request in writing, but failure by Secured
Party to comply with any such request shall not of itself be deemed a
failure to exercise reasonable care, and no failure by Secured Party to
preserve or protect any right with respect to such Collateral against
prior parties, or to do any act with respect to the preservation of such
<PAGE>
Collateral not so requested by Debtor, shall of itself be deemed a
failure to exercise reasonable care in the custody or preservation of
such Collateral.
5.5 Assignability; Parties. This Agreement may not be assigned by
Debtor without the prior written consent of Secured Party. Secured Party
shall not assign this Agreement without prior written consent of Debtor,
except for estate planning purposes or through law of decent and
distribution. Whenever in this Agreement there is reference made to any
of the parties hereto, such reference shall be deemed to include,
wherever applicable, a reference to the successors and permitted assigns
of Debtor and the successors and assigns of Secured Party.
5.6 Applicable Law of Severability. THIS AGREEMENT SHALL BE
CONSTRUED IN ALL RESPECTS IN ACCORDANCE WITH, AND GOVERNED BY, THE
INTERNAL LAWS (AS OPPOSED TO CONFLICT OF LAWS PRINCIPLES) AND DECISIONS
OF THE STATE OF CALIFORNIA. Whenever 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 provisions or the remaining
provisions of this Agreement.
5.7 Application of Payments. Notwithstanding any contrary
provision contained in this Agreement or in any of the other Loan
Documents, Debtor irrevocably waives the right to direct the application
of any and all payments at any time or times hereafter received by
Secured Party from Debtor or with respect to any of the Collateral, and
Debtor does hereby irrevocably agree that Secured Party shall have the
continuing exclusive right to apply and reapply any and all payments
received at any time or times hereafter, whether with respect to the
Collateral or otherwise, against the Obligations in such manner as
Secured Party may deem advisable, notwithstanding any entry by Secured
Party upon any of its books and records.
5.8 Marshaling; Payments Set Aside. Secured Party shall be under
no obligation to marshall any assets in favor of Debtor or any other
Person or against or in payment of any or all of the Obligations. To the
extent that Debtor makes a payment or payments to Secured Party or
Secured Party enforces its security interests or exercises its rights of
setoff, and such payment or payments or the proceeds of such enforcement
or setoff or any part thereof are subsequently invalidated, declared to
be fraudulent or preferential, set aside and/or required to be repaid to
a trustee, receiver or any other party under any bankruptcy law, state,
federal or foreign law, common law or equitable cause, then to the
extent of such recovery, the obligation or part thereof originally
intended to be satisfied shall be revived and continued in full force
and effect as if such payment had not been made. or such enforcement or
setoff had not occurred.
5.9 Section Titles. The section and subsection titles contained in
this Agreement shall be without substantive meaning or content of any
kind whatsoever and are not a part of the agreement between the parties.
5.10 Continuing Effect. This Agreement, Secured Party s security
interests in the Collateral of Debtor, and all of the other Loan
Documents shall continue in full force and effect so long as any
Obligations of Debtor shall be owed to Secured Party.
5.11 Notices. Except as otherwise expressly provided herein, any
notice required or desired to be served, given or delivered hereunder
shall be in writing, and shall be deemed to have been validly served,
<PAGE>
given or delivered upon the earlier of (a) personal delivery to the
address set forth below (b) delivery by facsimile or similar means of
delivery and (c) in the case of mailed notice, three (3) days after
deposit in the United States mails, with proper postage for certified
mail, return receipt requested, prepaid, or in the case of notice by
Federal Express or other reputable overnight courier service, one (1)
Business Day after delivery to such courier service, addressed to the
party to be notified as follows:
(i) If to Secured Party at:
K. Charles Janac
c/o Smart Machines
651 River Oaks Parkway
San Jose, CA 95134
Telephone No.: (408) 324-1234 ext. 104
Facsimile No.: (408) 324-1966
(ii) If to Debtor at:
Sepragen Corporation
30689 Huntwood Avenue
Hayward, CA 94544
Attention: President
Telephone No: (5l0)-476-0690
Facsimile No: (510)-476-0655
or to such other address as each party designates to the other in
the manner herein prescribed.
5.12 Equitable Relief. Debtor recognizes that, in the event Debtor
fails to perform, observe or discharge any of its obligations or
liabilities under this Agreement, any remedy at law may prove to be
inadequate relief to Secured Party; therefore, Debtor agrees that
Secured Party, if Secured Party so requests, shall be entitled to
temporary and permanent injunctive relief.
5.13 Entire Agreement. This Agreement, together with the Loan
Documents executed in connection herewith, constitutes the entire
Agreement among the parties with respect to the subject matter hereof,
and supersedes all prior written or oral understandings with respect
thereto. This Agreement may be amended only by mutual agreement of the
parties evidenced in writing and signed by the party to be charged
therewith.
5.14 Indemnity. Debtor agrees to defend, protect, indemnify and
hold harmless Secured Party and each and all of its respective officers,
directors, employees, attorneys and agents ("Indemnified Parties") from
and against any and all liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, claims, costs, expenses and
disbursements of any kind or nature whatsoever (including, without
limitation, the fees and disbursements of counsel for the Indemnified
Parties in connection with any investigative, administrative or judicial
proceeding, whether or not the Indemnified Parties shall be designated
by a party thereto), which may be imposed on, incurred by, or asserted
against any Indemnified Party (whether direct, indirect or consequential
and whether based on any federal, state, local or foreign laws or other
statutory regulations, including without limitation securities,
environmental and commercial laws and regulations, under common law or
at equitable cause, or on contract or otherwise) in any manner relating
to or arising out of this Agreement or the other Loan Documents, or any
act, event or transaction related or attendant thereto (including any
liability under federal, state, local or foreign environmental laws or
regulations); provided, that Debtor shall not have any obligation to any
<PAGE>
Indemnified Party hereunder with respect to matters caused by or
resulting from the willful misconduct or gross negligence of such
Indemnified Party. To the extent that the undertaking to indemnify, pay
and hold harmless set forth in the preceding sentence may be
unenforceable because it is violative of any law or public policy,
Debtor shall contribute the maximum portion which it is permitted to pay
and satisfy under applicable law, to the payment and satisfaction of all
matters incurred by the Indemnified Parties. Any liability, obligation,
loss, damage, penalty, cost or expense incurred by the Indemnified
Parties shall be paid to the Indemnified Parties on demand, together
with interest thereon at the rate prescribed for in the Note from the
date incurred by the Indemnified Parties until paid by Debtor, be added
to the Obligations and be secured by the Collateral. The provisions of
and undertakings and indemnifications set out in this Section 5.14 shall
survive the satisfaction and payment of the Obligations.
5.15 Representations and Warranties. Notwithstanding anything to
the contrary contained herein, each representation or warranty contained
in this Agreement or any of the other Loan Documents shall survive the
execution and delivery of this Agreement and the other Loan Documents
and the repayment of the Obligations.
5.16 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.
5.17 Conflict. To the extent that any provision or term of the
Subscription Agreement or the Note conflict with any provision or term
herein, the term or provision of this Agreement shall govern.
IN WITNESS WHEREOF, this Agreement has been duly executed as of the
day and year above written.
SEPRAGEN CORPORATION
By: /s/ Vinit Saxena
Its: President
/s/ K. Charles Janac
K. CHARLES JANAC
<PAGE>
EXHIBIT A TO UCC-1 FINANCING STATEMENT
Debtor: Secured Party:
Sepragen Corporation K. Charles Janac
30689 Huntwood Avenue c/o Smart Machines Inc.
Hayward, CA 94544 651 River Oaks Parkway
San Jose, CA 95134
This Financing Statement covers all of Debtor's right, title and
interest in and to the following types of property, whether currently
existing or owned or hereafter arising or acquired, wheresoever located
(collectively, the "Collateral"):
(a) accounts (including, without limitation, all accounts
receivable), chattel paper, claims, contract rights, leases and
rental income thereunder, leasehold interests, letters of credit,
instruments and documents ("Accounts"), and all goods sold, leased
or otherwise disposed of by Debtor which have given rise to
Accounts and which have been returned to or repossessed or stopped
in transit by Debtor;
(b) all patents, copyrights and trademarks, and all applications
for and registrations of the foregoing, all franchise rights, trade
names, goodwill, beneficial interests, rights to tax refunds and
all other general intangibles of any kind or nature whatsoever
("General Intangibles");
(c) all inventory and goods of the Debtor, wherever located,
whether in transit, held by others for the Debtor's account,
covered by warehouse receipts, purchase orders or contracts, or in
the possession of any carriers, forwarding agents, truckers,
warehousemen, vendors or other persons, including, without
limitation, all raw materials, work-in-process, finished
merchandise, supplies, goods, incidentals, office supplies,
packaging materials and all materials used or consumed in Debtor's
business ("Inventory");
(d) goods (other than Inventory), including all returned,
reconsigned and repossessed goods, machinery, equipment, vehicles,
appliances, furniture, furnishings and fixtures ("Equipment");
(e) monies, reserves, deposits, certificates of deposit and
deposit accounts and interest or dividends thereon, guaranties,
securities, cash, cash equivalents and other property whether or
not in the possession or under -the control of Agent, any Secured
Party or their respective bailee;
(f) all books, records, computer records, ledger cards, programs
and other computer materials, customer and supplier lists,
invoices, orders and other property and general intangibles at any
time evidencing or relating to the contents thereof ("Records");
(g) all accessions to any of the foregoing and all substitutions,
renewals, improvements and replacements of and additions thereto;
(h) all other property of Debtor, real and personal; and
(i) all products and proceeds of the foregoing (whether such
proceeds are in the form of cash, cash equivalents, proceeds of
insurance policies, Accounts, General Intangibles, Inventory,
Equipment, Records or otherwise).
EXHIBIT 10.11
PATENT AND TRADEMARK MORTGAGE
This PATENT, TRADEMARK AND LICENSE MORTGAGE (the "Mortgage") made
as of this 18th day of August, 1998, by SEPRAGEN CORPORATION a
California corporation having an address at 30689 Huntwood Avenue,
Hayward, CA 94544 ("Mortgagor"), in favor of K. CHARLES JANAC
("Mortgagee"):
WITNESSETH:
WHEREAS, Mortgagor and Mortgagee are parties to a certain
Subscription Agreement (the "Subscription Agreement") and other related
documents of even date herewith (collectively, with the Subscription
Agreement, the "Loan Documents"), which Loan Documents provide (i) for
Mortgagee to extend credit to or for the account of Mortgagor and (ii)
for the grant by Mortgagor to Mortgagee of a security interest in
certain of Mortgagor's assets, including, without limitation, its
patents, patent applications, trademarks, trademark applications, trade
names, service marks, service mark applications and goodwill;
NOW, THEREFORE, in consideration of the premises set forth herein
and for other good and valuable consideration, the receipt, sufficiency
and adequacy of which are hereby acknowledged, Mortgagor agrees as
follows:
1. Capitalized Terms. All terms capitalized but not otherwise
defined herein shall have the same meanings herein as in the Loan
Documents.
2. Mortgage of Patents, Trademarks and Licenses. To secure the
complete and timely satisfaction of all of Mortgagor's Obligations,
Mortgagor hereby grants, bargains, assigns, mortgages, pledges, sells,
creates a security interest in, transfers, and conveys to Mortgagee, as
and by way of a first mortgage and security interest having priority
over all other security interests, with power of sale, to the extent
permitted by law, upon the occurrence of an Event of Default, all of
Mortgagor's right, title and interest in and to all of its now existing:
(i) patents and patent applications, including, without
limitation, the inventions and improvements described
and claimed therein, and those patents listed on Exhibit
A attached hereto and hereby made a part hereof, and (a)
the reissues, divisions, continuations, renewals,
extensions and continuations in-part thereof, (b) all
income, damages and payments now and hereafter due 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, and (d)
all rights corresponding thereto throughout the world
(all of the foregoing patents and applications, together
with the items described in clauses (a)-(d) of this
subsection 2(i), are sometimes hereinafter referred to
individually as a "Patent" and, collectively, as the
"Patents");
(ii) trademarks, trademark registrations, trademark
applications, trade names and tradestyles, service
marks, service mark registrations and service mark
applications, including, without limitation, the
trademarks, trade names, service marks and applications
and registrations thereof listed on Exhibit B attached
hereto and hereby made a part hereof, and (a) renewals
or extensions thereof, (b) all income, damages and
payments now and hereafter due or payable 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, and (d) all rights corresponding
thereto throughout the world (all of the foregoing
trademarks, trade names and tradestyles, service marks
and applications and registrations thereof, together
with the items described in clauses (a)-(d) of this
subsection 2(u), are sometimes hereinafter referred
individually as a "Trademark", and, collectively, as the
"Trademarks"); and
(iii) the goodwill of Mortgagor's business connected with and
symbolized by the Trademarks.
3. Warranties and Representations. Mortgagor warrants and
represents to Mortgagee that:
(i) The Patents and Trademarks have not been adjudged
invalid or unenforceable and have not been canceled, in
whole or in part and are presently subsisting;
(ii) To the best of Mortgagor's knowledge, each of the
Patents and Trademarks is valid and enforceable;
(iii) Mortgagor is the sole and exclusive owner of the entire
and unencumbered right, title and interest in and to
each of the Patents and Trademarks, free and clear of
any liens, charges and encumbrances, including, without
limitation, licenses, shop rights and covenants by
Mortgagor not to sue third persons;
(iv) Mortgagor has adopted all of the Trademarks;
(v) Mortgagor has no notice of any suits or actions
commenced or threatened with reference to the Patents or
Trademarks; and
(vi) Mortgagor has the right to execute and deliver its
Mortgage and perform its terms and has entered into or
will enter into written agreements with each of its
present and future employees, agents and consultants
which will enable it to comply with the covenants
contained herein.
4. Restrictions on Future Agreements. Mortgagor agrees that until
Mortgagor's Obligations shall have been satisfied in full and the Loan
Documents shall have been terminated, Mortgagor shall not sell or assign
its interest in, or grant any license to substantially all of
Mortgagor's rights under, the Patents or Trademarks, or enter into any
other agreement with respect to the Patents or Trademarks which is
inconsistent with Mortgagor's Obligations under this Mortgage, without
the prior written consent of Mortgagee except in the ordinary course of
business, and Mortgagor further agrees that it shall not take any
action, or permit any action to be taken by others subject to its
control, including, without limitation, licensees, or fail to take any
action (solely with respect to the Patents and the Tradenames), which
would affect the validity or enforcement of the rights transferred to
Mortgagee under this Mortgage. Mortgagee shall cooperate with Mortgagor
to facilitate third party licenses in the Patents.
5. Post-Default Non-exclusive License. If Mortgagor Defaults on
the Convertible Secured Promissory Note, Mortgagee shall negotiate,, in
good faith, an arms length transaction pursuant to which Mortgagee may
grant Mortgagor a non-exclusive license to use the Patents and
Trademarks listed on Exhibits A and B.
6. Royalties; Terms. The term of the mortgages granted herein
shall extend until the earlier of(i) the expiration of each of the
respective Patents and Trademarks assigned hereunder, and (ii)
Mortgagor's Obligations have been paid in full and the Loan Documents
have been terminated. Upon the occurrence of an Event of Default or
Default, Mortgagor agrees that the use by Mortgagee of all Patents and
Trademarks shall be worldwide and without any liability for royalties or
other related charges from Mortgagee to the Mortgagor.
7. Mortgagee's Right to Inspect. Mortgagee shall have the right
upon prior written notice, after executing a reasonable confidentiality
agreement and at any time and from time to time during normal business
hours and prior to payment in full of Mortgagor's Obligations and
termination of the Loan Documents, to inspect Mortgagor's premises and
to examine Mortgagor's books, records and operations, including, without
limitation, Mortgagor's quality control processes.
8. Release of Mortgage. This Mortgage is made for collateral
purposes only. Upon payment in full of Mortgagor's Obligations and
termination of the Loan Documents, Mortgagee shall execute and deliver
to Mortgagor all deeds, assignments and other instruments, and shall
take such other actions, as may be necessary or proper to revest in
Mortgagor full title to the Patents and Trademarks, subject to any
disposition thereof which may have been made by Mortgagee pursuant
hereto or pursuant to the Loan Documents.
9. Expenses. All expenses incurred in connection with the
performance of any of the agreements set forth herein shall be borne by
Mortgagor. All fees, costs and expenses, of whatever kind or nature,
including, without limitation, reasonable attorneys and paralegals
fees and legal expenses, incurred by Mortgagee in connection with the
filing or recording of any documents (including, without limitation, all
taxes in connection therewith) in public offices, the payment or
discharge of any taxes, counsel fees, maintenance fees, encumbrances or
otherwise in protecting, maintaining or preserving the Patents and
Trademarks, or in defending or prosecuting any actions or proceedings
arising out of or related to the Patents and Trademarks, shall be borne
by and paid by Mortgagor on demand by Mortgagee and until so paid shall
be added to the principal amount of Mortgagor's Obligations and shall
bear interest at the highest rate provided for in the Note.
10. Duties of Mortgagor. Mortgagor shall have the duty (i) to
preserve and maintain all rights in the Patents and Trademarks, and (ii)
to ensure that the Patents and Trademarks are and remain enforceable.
Any expenses incurred in connection with Mortgagor's obligations under
this Section 10 shall be borne by Mortgagor. Mortgagor shall not abandon
any right to file a patent, trademark or service mark application, or
abandon any pending patent application, or any other Patent or Trademark
without the consent of Mortgagee.
11. Mortgagee's Right to Sue. After the occurrence of an Event of
Default or Default, Mortgagee shall have the right, but shall in no way
be obligated, to bring suit in its own name to enforce the Patents and
Trademarks, and, if Mortgagee shall commence any such suit, Mortgagor
shall, at the request of Mortgagee, do any and all lawful acts and
execute any and all proper documents required by Mortgagee in aid of
such enforcement and Mortgagor shall promptly, upon demand, reimburse
and indemnify Mortgagee for all reasonable costs and expenses incurred
by Mortgagee in the exercise of its rights under this Section 11.
12. Waivers. No course of dealing between Mortgagor and Mortgagee,
nor any failure to exercise, nor any delay in exercising, on the part of
Mortgagee, any right, power or privilege hereunder or under the Loan
Documents shall operate as a waiver thereof; nor shall any single or
partial exercise of any right, power or privilege hereunder or
thereunder preclude any other or further exercise thereof or the
exercise of any other right, power or privilege.
13. Severability. The provisions of this Mortgage are severable,
and if any clause or provision shall be held invalid and unenforceable
in whole or in part in any jurisdiction, then such invalidity or
unenforceability shall affect only such clause or provision, or part
thereof, in such jurisdiction, and shall not in any manner affect such
clause or provision in any other jurisdiction, or any other clause or
provision of this Mortgage in any jurisdiction.
14. Modification. This Mortgage cannot be altered, amended or
modified in any way, except by a writing signed by the parties hereto.
15. Cumulative Remedies; Power of Attorney; Effect on Subscription
Agreement. All of Mortgagee's rights and remedies with respect to the
Patents, Trademarks and Licenses, whether established hereby or by the
Loan Documents, or by any other agreements or by law shall be cumulative
and may be exercised singularly or concurrently. Upon the occurrence of
an Event of Default or Default, Mortgagor hereby authorizes Mortgagee to
make, constitute and appoint any officer or agent of Mortgagee as
Mortgagee may select, in its sole discretion, as Mortgagor's true and
lawful attorney-in-fact, with power to (i) endorse Mortgagor's name on
all applications, documents, papers and instruments necessary or
desirable for Mortgagee in the use of the Patents and Trademarks, or
(ii) take any other actions with respect to the Patents and Trademarks
as Mortgagee deems to be in the best interest of Mortgagee, or (iii)
grant or issue any exclusive or non-exclusive license under the Patents
or Trademarks to anyone, or (iv) assign, pledge, convey or otherwise
transfer title in or dispose of the Patents or Trademarks to anyone.
Mortgagee hereby ratifies all that such attorney shall lawfully do or
cause to be done by virtue hereof. This power of attorney shall be
irrevocable until Mortgagor's Obligations shall have been paid in full
and the Security Agreement, including any amendments thereto, has been
terminated. Mortgagor acknowledges and agrees that this Mortgage is not
intended to limit or restrict in any way the rights and remedies of
Mortgagee under the Loan Documents but rather is intended to facilitate
the exercise of such rights and remedies. Mortgagee shall have, in
addition to all other rights and remedies given it by the terms of this
Mortgage and the Loan Documents, all rights and remedies allowed by law
and the rights and remedies of a secured party under the Uniform
Commercial Code as enacted in any jurisdiction in which the Patents or
Trademarks may be located.
16. Acknowledgment of Mortgagor's Licensing Needs. Mortgagee
acknowledges that Mortgagor is in the business of licensing the
Intellectual Property covered by the Patent and Trademark Mortgage. It
is not the intent of the parties to restrict Mortgagor's ability to
license the Intellectual Property. Mortgagee will cooperate with
Mortgagor and not take any action to hinder the execution of licenses
for the Intellectual Property in Mortgagor's ordinary course of
business.
17. Binding Effect; Benefits. This Mortgage shall be binding upon
the Mortgagor and its respective successors and assigns, and shall inure
to the benefit of Mortgagee, its successors, nominees and assigns.
18. Governing Law. This Mortgage shall be governed by and construed
in accordance with the internal laws of the State of California.
19. Headings. Paragraph headings used herein are for convenience
only and shall not modify the provisions which they precede.
20. Further Assurances. Mortgagor agrees to execute and deliver
such further agreements, instruments and documents, and to perform such
further acts, as Mortgagee shall reasonably request from time to time in
order to carry out the purpose of this Mortgage and agreements set forth
herein.
21. Survival of Representations. All representations and warranties
of Mortgagor contained in this Mortgage shall survive the execution and
delivery of this Mortgage.
IN WITNESS WHEREOF, Mortgagor has duly executed this Mortgage in
favor of Mortgagee as of the date first written above.
SEPRAGEN CORPORATION
By: /s/ Vinit Saxena
Its: President
/s/ K. Charles Janac
K. CHARLES JANAC
STATE OF CALIFORNIA )
) ss
COUNTY OF SAN MATEO )
The foregoing Patent and Trademark Mortgage was executed and
acknowledged before me this 18 th day of August, 1998, by Vinit Saxena
and n/a, personally known to me to be the person and n/a, of Sepragen
Corporation, a California corporation, on behalf of such corporation.
Notary Public
San Mateo County,
My Commission expires: 7-3-2001
ACKNOWLEDGMENT
STATE OF CALIFORNIA )
)SS
COUNTY OF SANTA CLARA )
I, Frederick C. Harris, Notary Public in and for and residing in said
County and State, DO HEREBY CERTIFY that K. Charles Janac personally
known to me to be the same person whose names is subscribed to the
foregoing instrument, appeared before me this day in person and
acknowledged that he signed and delivered said instruments as his own
free and voluntary act and as the free and voluntary act of said bank
for the uses and purposes therein set forth.
GIVEN under my hand and notarial seal this 16 day of August, 1998.
/s/Frederick C. Harris
Notary Public
My Commission Expires: 1-16-02
THIS INSTRUMENT PREPARED BY AND
AFTER FILING RETURN TO:
Kyle Guse, Esq.
Heller Ehrman White & McAuliffe
2500 Sand Hill Road, Suite 100
Menlo Park, CA 94025
EXHIBIT A
PATENTS AND PATENT APPLICATIONS
U.S. PATENTS ISSUED
1. Patent Number 4,627,918, issued December 9, 1986, "Chromatography
Column Using Horizontal Flow", issued to Vinit Saxena and assigned
to Sepragen Corporation.
Sepragen Corporation - File 1723
2. Patent Number 4,676,898, issued June 30, 1987, "Electrophoresis -
Mass Spectrometry Probe", issued to Vinit Saxena and assigned to
Sepragen Corporation.
Sepragen Corporation - File 1724
3. Patent Number 4,705,616, issued November 10, 1987, "Chromatography
Column -Electrophoresis System", issued to Brian D. Andresen and
Vinit Saxena and assigned to Sepragen Corporation.
Sepragen Corporation - File 1731
4. Patent Number 4,708,782, issued November 24, 1987, "Chromatography
Column -Electrophoresis System", issued to Brian D. Andresen and
Vinit Saxena and assigned to Sepragen Corporation.
Sepragen Corporation - File 1725
5. Patent Number 4,740,298, issued April 26, 1988, "Chromatography
Column! Moving Belt Interface", issued to Brian D. Andresen and
Vinit Saxena and assigned to Sepragen Corporation.
Sepragen Corporation - File 1726
6. Patent Number 4,833,083, issued May 23, 1989, "Packed Bed
Bioreactor", issued to Vinit Saxena and assigned to Sepragen
Corporation.
Sepragen Corporation - File 1727
7. Patent Number 4,840,730, issued June 20, 1989, "Chromatography
System Using Horizontal Flow Columns", issued to Vinit Saxena and
assigned to Sepragen Corporation.
Sepragen Corporation - File 1728
8. Patent Number 4,865,729, issued September 12, 1989, "Radial Thin
Layer Chromatography", issued to Vinit Saxena and Brian D. Andresen
and assigned to Sepragen Corporation.
Sepragen Corporation - File 1729
9. Patent Number 4,865,947, issued September 19, 1989, "Interface for
Liquid Chromatography - Mass Spectrometer", issued to Brian D.
Andresen and Eric R. Fought and assigned to Sepragen Corporation.
Sepragen Corporation - File 1932
10. Patent Number 5,462,659, issued October 31, 1995, "An Improved
Chromatography Column", issued to Venit Saxena and Paul Young and
assigned to Sepragen Corporation.
Sepragen Corporation - File 1933
11. Euro Patent Number 0530258, issued September 1995, "Absorbent
Medium", issued to Alan Sanderson, R. Dove, Fang Ming and John
Howell, and assigned to Sepragen Corporation.
Sepragen Corporation - File 1981
12. Patent Number 5,492,723, issued February 20, 1996, "Absorbent
Medium", issued to Alan Sanderson, R. Dove, Fang Ming, and John
Howell, and assigned to Sepragen Corporation.
Sepragen Corporation - File 1740
13. Patent Number 5,597,489, issued January 28, 1997, "Method For
Removing Contaminants From Water", issued to H. Michael Schneider,
Edward Allen, Richard Woodling, and Roy Barnes and assigned to
Sepragen Corporation.
Sepragen Corporation - File 1739
14. Patent Number 5,690,996, issued November 25, 1997, "Cross-Linked
Cellulose Sponge", issued to Alan Sanderson, Rod Dove, Fang Ming,
and John Howell and assigned to Sepragen Corporation.
Sepragen Corporation - File 1910
15. Patent Number 5,756,680, issued May 26, 1998, "Sequential
Separation of Whey Proteins and Formulation Thereof , issued to
Salah H. Ahmed, Vinit Saxena, Zahid Mozaffar, and Quirinus R.
Miranda and assigned to Sepragen Corporation.
Sepragen Corporation - File 2338
U.S. PATENT APPLICATION EXAMINED AND ALLOWED FOR ISSUANCE
1. Patent Application, pending for "High Throughput Debittering", has
been accepted for issuance to Zahid Mozaffar, Quirinus Miranda, and
Vinit Saxena and assignment to Sepragen Corporation.
Sepragen Corporation - File 2397
2. Patent Application, pending for "Sequential Separation of Whey",
has been filed on May 4, 1998, for issuance to Salah H. Ahmed,
Vinit Saxena, Zahid Mozaffar, and Quirinus R. Miranda and
assignment to Sepragen Corporation.
Sepragen Corporation - File 2181
FOREIGN PATENTS ISSUED
1. U.S. Patent #5,756,680, "Sequential Separation of Whey Proteins and
Formulations Thereof , has been filed on September 22, 1997 for
(PCT) foreign patent, in Australia and New Zealand; and (EPC) in
Switzerland, Ireland and The Netherlands, as of September 22, 1997.
Sepragen Corporation - File 2338
U.S. TRADEMARKS REGISTERED AND PENDING
1. Trademark Principal Register, Registration Number 1,419,016,
registered on December 2, 1986, "SUPERFLO" to Sepragen Corporation.
Sepragen Corporation - File 1982
2. Trademark Principal Register, Registration Number 1,574,587,
Registered on January 2, 1990, "QUANTASEP", to Sepragen
Corporation.
Sepragen Corporation - File 1983
3. Trademark Principal Register, Registration Number 1,803,149,
registered on November 9, 1993, "S" Trademark, to Sepragen Corporation.
Sepragen Corporation - File 1984
4. Trademark applied for "S" and Design. File 01743
5. Trademark applied for "Sepragen". File 01742
6. Trademark applied for "SepraLac". File 02251
7. Trademark applied for "SepraSorb". File 02092
FOREIGN TRADEMARKS REGISTERED AND PENDING
1. "Sepralac" Trademark:
a. New Zealand -- International Class 9, Trademark Application #26803
5, Registration #268035, October 8, 1996.
b. Australia -- International Class 9, Registration #03128/1997, July
25, 1997.
c. Denmark -- International Class 9, Registration #03128/1997, July
25, 1997.
d. Switzerland -- International Class 9, Registration #441337, October
7, 1996.
e. Benelux -- International Class 9, Registration #598445, October 4,
1996.
EXHIBIT B
TRADEMARKS
The Company's name, helix logo. Superflo and QuantaSep trademarks
are registered on the Principal Register of Trademarks maintained by the
U.S. Patent and Trademark Office, and applications to register the mark
SepraSorb, Sepragen, "S" and Design and Sepralac are pending.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
LEGEND
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS FOR SEPTEMBER 30, 1998 AS FILED ON FORM 10QSB WITH
THE SECURITIES AND EXCHANGE COMMISSION AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1998
<PERIOD-END> SEP-30-1998 SEP-30-1998
<CASH> 206,197 206,197
<SECURITIES> 0 0
<RECEIVABLES> 192,799 192,799
<ALLOWANCES> 12,000 12,000
<INVENTORY> 231,355 231,355
<CURRENT-ASSETS> 657,860 657,860
<PP&E> 198,157 198,157
<DEPRECIATION> 0 0
<TOTAL-ASSETS> 957,449 957,449
<CURRENT-LIABILITIES> 2,033,592 2,033,592
<BONDS> 0 0
0 0
500,000 500,000
<COMMON> 12,913,693 12,913,693
<OTHER-SE> (14,489,836) (14,489,836)
<TOTAL-LIABILITY-AND-EQUITY> 957,449 957,449
<SALES> 356,395 1,200,199
<TOTAL-REVENUES> 356,395 1,200,199
<CGS> 139,564 649,391
<TOTAL-COSTS> 139,564 649,391
<OTHER-EXPENSES> 524,773 1,534,813
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 68,669 177,951
<INCOME-PRETAX> (376,611) (1,161,956)
<INCOME-TAX> (376,611) (1,161,956)
<INCOME-CONTINUING> (376,611) (1,161,956)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (376,611) (1,161,956)
<EPS-PRIMARY> (.13) (.41)
<EPS-DILUTED> (.13) (.41)
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