SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
MARCH 10, 1999
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(Date of Report)
VERSAILLES CAPITAL CORPORATION
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(Exact Name of Registrant as specified in its charter)
COLORADO 0-22865 84-1044910
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(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
21550 OXNARD STREET, SUITE 830, WOODLAND HILLS, CA 91367
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(Address of principal executive offices including zip code)
(818) 676-0404
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(Registrant's telephone number including area code)
N/A
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(Former name or former address, if changed since last report)
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ITEM 1. CHANGES IN CONTROL OF REGISTRANT.
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On February 23, 1999 (the "Effective Date"), Versailles Capital
Corporation, a Colorado corporation ("Company") completed a merger between
its wholly-owned subsidiary, Amerimmune, Inc. ("Amerimmune"), and British
Lion Medical, Inc. (British Lion), pursuant to an Agreement and Plan of
Merger dated February 17, 1999 ("Merger"), as discussed in Item 2 below.
In connection with the Merger, each share of common stock of British Lion
issued and outstanding on the Effective Date was exchanged for 7.13397
shares of the Issuer's common stock, $.05 par value per share ("Common
Stock"), resulting in the shareholders of British Lion acquiring
approximately 97 percent of the outstanding voting shares of the Issuer.
Subsequent to the Effective Date of the Merger Agreement, all
directors and officers of the Company resigned and new directors and
officers were elected. The following table sets forth the names and
positions of the current directors and executive officers of the Company:
Name Age Position
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Michael A. Davis 57 President, CEO and Director
Wellington A. Ewen 59 Chief Financial Officer
Pamela M. Kapustay 43 Vice President, Clinical and
Regulatory Affairs
Kimberlie L. Cerrone 46 Director
O. B. Parrish 65 Director
Lois Rezler 46 Director
Daniel L. Azarnoff 72 Director
Roy S. Azarnoff 67 Director
The following sets forth biographical information concerning the
Company's directors and executive officers.
MICHAEL A. DAVIS, M.D., Sc.D., M.B.A. currently serves as President,
CEO and a Director for the Company, and is Professor of Radiology and
Director, Division of Radiologic Research in the Department of Radiology at
the University of Massachusetts Medical Center ("UMMC"), Worcester,
Massachusetts since 1980. Dr. Davis also serves as the Associate Medical
Director of the Center for Advanced Clinical Technology at UMMC, which was
formed to aid medical device and pharmaceutical manufacturers in obtaining
safety and efficacy data required by the Food and Drug Administration (FDA)
and other world-wide regulatory bodies prior to granting marketing
approval. Since 1989, Dr. Davis has served as Medical Director for the
E-Z-EM Company, and was
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subsequently appointed as Technical Director, Chief Scientific Officer and
Director. Since 1982, Dr. Davis has been an Adjunct Professor in Nuclear
Medicine at Tufts University School of Veterinary Medicine, an Affiliate
Professor of Biomedical Engineering at Worcester Polytechnic Institute
since 1986, and has held faculty positions at Harvard Medical School and
Northeastern University. Currently, Dr. Davis serves as President of
Synergy Consulting Group, Ltd., a medical device and drug consulting group
comprising contract research organizations, which helps in the design,
monitoring and implementation of clinical trials and serves as liaison with
the FDA. He is a member of various medical and honorary societies and has
participated on various advisory committees for the United States Army and
National Institutes of Health. Dr. Davis is the listed inventor on seven
issued United States patents for scientific developments in the areas of
radiology and nuclear medicine, has lectured extensively and authored over
136 peer-reviewed, scientific publications. Dr. Davis received his B.S. and
M.S. degrees in chemistry from Worcester Polytechnic Institute, his M.S.
and Sc.D. degrees in radiation biology from the Harvard School of Public
Health, an M.D. from the University of Massachusetts Medical School, and an
M.B.A. from Northeastern University.
WELLINGTON A. EWEN, C.P.A., MBA currently serves as the Company's
Chief Financial Officer, and has been the Chief Financial Officer of
Entropin since March, 1998. For the past ten years, Mr. Ewen has been the
owner and manager of Wellington A. Ewen & Associates, a business consulting
firm in Malibu, California. He has acted as a financial and accounting
officer for various businesses during that time. Prior to that, Mr. Ewen
served as senior manager at the public accounting firms of Coopers &
Lybrand, Los Angeles, California and Arthur Andersen & Co., New York, New
York. Mr. Ewen is a C.P.A. in the States of New York, Oregon and California
and has M.B.A. and B.S. degrees from Cornell University.
PAMELA M. KAPUSTAY, R.N., M.N. currently serves as the Company's Vice
President, Clinical and Regulatory Affairs. Ms. Kapustay is Senior
Research Associate in Clinical Management and Research Development for
Entropin, Inc., and serves in the same capacity for Western Center for
Clinical Studies. In addition, she serves as an independent consultant to
Amgen, Inc. assisting in the coordination of a large multi-center
pharmacoeconomic research project. Ms. Kapustay has held administrative,
clinical research and practice positions in both corporate and university
settings within and outside the United States, including the University of
Texas, M.D. Anderson Hospital and Tumor Institute with a concentrated
clinical focus in oncology and HIV/AIDS care. She has lectured and
published peer-reviewed articles and books on various aspects of peripheral
blood stem cell transplantation. Ms. Kapustay received a B.S. degree in
nursing from the University of Texas Health Science Center in Houston,
Texas and an M.S. degree in nursing from the University of California, Los
Angeles.
KIMBERLIE L. CERRONE, M.S., M.B.A., J.D. currently serves as a
Director of the Company and a business development consultant to early
stage high technology and life sciences companies. Ms. Cerrone is a
licensed California patent attorney who has practiced technology law at
Gunderson Dettner and Venture Law Group and was in house counsel at a
software company. Ms. Cerrone is admitted to practice patent law before
the United States Patent and Trademark Office. In 1987, she
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co-founded Neurobiological Technologies, Inc., and led this biotechnology
company's business development, regulatory affairs and financing efforts
for its first three years. Ms. Cerrone served on the Board of Directors of
Neurobiological Technologies, Inc., prior to its initial public offering
in 1994. She has authored several articles and book chapters on business
strategies that maximize the strategic value of intellectual property and
is frequently invited to speak at legal and business conferences. Ms.
Cerrone received a B.S. degree from the University of Illinois, and a
Master of Science degree in Biochemical Pharmacology from New York
University. She was awarded a Master of Business Administration degree from
University of San Francisco and a J.D. from the University of California,
Hastings College of the Law.
O. B. PARRISH currently serves as a Director of the Company and is the
President and a Director of Phoenix Health Care of Illinois, Inc. Mr.
Parrish is also Chairman, CEO and a Director of the Female Health Company
of Chicago, Illinois. In addition, he is Chairman of VistaCare Ltd., of
Minneapolis, which provides financial services to the terminally ill. Mr.
Parrish was Co-Chairman and a Director of Inhalon Pharmaceuticals, Inc, of
Bethlehem, Pennsylvania. He is also a Trustee of Lawrence University. From
1977 until 1986, he served as President of the Pharmaceutical Group of G.D.
Searle in Chicago, responsible for the management of its global
pharmaceutical business. From 1974 until 1977, Parrish was President of
Searle International and was responsible for the pharmaceutical diagnostics
and hospital business outside of the United States. Mr. Parrish has also
served as Executive President of the International Division of Pfizer,
Inc., and responsible for the management of the pharmaceutical, animal
health, consumer and chemical businesses in Canada, Latin America and
Germany, as well as staff pharmaceutical marketing, licensing and
regulatory activities outside of the United States. Mr. Parrish holds a
B.S. degree from Lawrence University and an M.B.A. from the University of
Chicago
LOIS REZLER, Ph.D. currently serves as a Director of the Company, and
formerly served as a Director and President of British Lion since October
1998. Since April 1998, Dr. Rezler has served as Vice President of Science
and Regulatory Affairs of Entropin, Inc. For more than ten years, Dr.
Rezler was engaged in consulting for various pharmaceutical and
biotechnology corporations including Smith Kline, Smith & Nephew,
Cheesborough Ponds, CIBA, Merck Sharpe Dome, Baxter Travenol and others.
Since January 1996, Dr. Rezler has been a Director and President of
Western Center for Clinical Studies. On behalf of various clients, Dr.
Rezler's duties and responsibilities have included working at bench level
to assist in drug design and development, preparing and submitting grant
applications to various government agencies, consulting in all aspects of
preparing IND and NDA submissions to the FDA, including biologics, devices,
new drugs, priority drugs and orphan drugs. Dr. Rezler's duties also
include responsibility for developing time lines and budgets for the
project. Dr. Rezler received her Ph.D. in Public Health from Edinburgh
University.
DANIEL L. AZARNOFF, M.D. currently serves as a Director for the
Company and formerly served as Director and Vice President of British Lion
from October 1998. Since January 1996, Dr. Azarnoff has been a Director
and Vice President of Western Center for Clinical Studies, Inc. From 1988
to present, Dr. Azarnoff has served as President of D. L. Azarnoff
Associates, a company
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engaged in consulting for various pharmaceutical and biotechnology
companies including Sandoz, Orion Pharma, DeNovo, Inc., Cibus
Pharmaceutical and Cellegy Pharmaceuticals, Inc. From 1978 to 1985, Dr.
Azarnoff was Corporate Senior Vice President of G.D. Searle & Co., an
international pharmaceutical company, and from 1978 through 1985 served as
President of Searle Research and Development, a division of G. D. Searle &
Co. Dr. Azarnoff was on the faculty of the University of Kansas Medical
School ("KUMC") from 1962 through 1978 rising to the rank of KUMC
Distinguished Professor of Medicine and Pharmacology. Dr. Azarnoff has
also held faculty positions at Northwestern University Medical School, the
University of Chicago Medical School, St. Louis University School of
Medicine and was a Fulbright Scholar at the Karolinska Institute in
Stockholm, Sweden. Dr. Azarnoff is a member of various medical and
honorary societies including the Institute of Medicine of the National
Academy of Sciences. He has lectured extensively within and outside the
United States, and published numerous scientific articles and books on
various aspects of clinical pharmacology. Dr. Azarnoff has served on
various advisory committees, including the Endocrine and Metabolism and
other Ad Hoc advisory committees of the Food and Drug Administration, World
Heath Organization, American Medical Association, National Institutes of
Health and National Research Council of the National Academy of Sciences.
Dr. Azarnoff has served on the Science Advisory Board of various
corporations which include Neurobiological Technologies, Inc., Gilead
Science, Inc., Oread, Inc., Cibus Pharmaceutical and Sandoz Research
Institute. Dr. Azarnoff has served or is serving as a director on the
following pharmaceutical drug and development companies: Entropin, Inc.,
Oread, Inc., Cibus Pharmaceutical and DeNovo, Inc. Dr. Azarnoff serves as
Vice President, Medical/Regulatory Affairs for Cellegy Pharmaceutical, Inc,
and was appointed President of Entropin, Inc., in April 1998. None of the
above corporations are developing drugs similar to the Company's products.
Dr. Azarnoff received a B.S. degree in biology and a M.S. degree in zoology
from Rutgers University. Dr. Azarnoff received an M.D. degree from the
University of Kansas Medical School.
ROY S. AZARNOFF, Ph.D. currently serves as a Director and
Secretary/Treasurer of the Company and formerly served as a Director and
Secretary/Treasurer of British Lion from October 1998. Dr. Azarnoff
currently serves as the chief operating officer for Western Center for
Clinical Studies (since 1995), a consulting firm that provides research
support assistance to community hospitals and medical groups for clinical
trials with pharmaceutical, biotechnology, diagnostic and medical device
companies, and as Chief Executive Officer of Medical Research Consultant
Associates Inc. (since 1989), a consulting firm that provides research
support assistance to community hospitals, research institutes and drug and
medical device companies. In addition, Dr. Azarnoff became Chief Operating
Officer of Entropin, Inc. in April, 1998. From 1986 to 1989, Dr. Azarnoff
served as director of the Office of Research and Sponsored Projects at
California State University, Northridge, and from 1977-79 and 1981-83,
served as administrator for Technical Assistance Projects at California
State University, Northridge, Foundation. Dr. Azarnoff was chief executive
officer for Eldercare Management Group from 1984 to 1986. Dr. Azarnoff
developed and then directed the fourth largest area agency on aging in the
United States as the director for the Office for the Aging for the City of
Los Angeles from 1972 to 1977. In addition, Dr. Azarnoff has authored
numerous articles and served as assistant professor at Boston University
from 1957 to 1966. Dr. Azarnoff received his B.A. from New York
University, M.A. from State University of
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Iowa and his Ph.D. in Communications from the University of Missouri.
The directors of the Company are elected to hold office until the next
annual meeting of shareholders and until their respective successors have
been elected and qualified. Officers of the Company are elected annually
by the Board of Directors and hold office until their successors are
elected and qualified.
Daniel L. Azarnoff, M.D., the Company's Director, and Roy S. Azarnoff,
Ph.D., the Company's Secretary/Treasurer and Director, are brothers.
CHANGE IN CONTROL OF THE BENEFICIAL OWNERSHIP OF COMPANY
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Pursuant to the terms of the Merger Agreement, the Company is
required to issue, and is in the process of issuing, shares of its Common
Stock to the shareholders of British Lion as of February 23, 1999, on the
basis of 7.13397 shares of Common Stock for each 1 share of British Lion
common stock issued and outstanding which resulted in a change in control
of the beneficial ownership of the Company.
The following table sets forth, as of the date hereof, the ownership
of the Company's Common Stock, $.05 par value per share, by (i) each
director and executive officer of the Company, (ii) all executive officers
and directors of the Company as a group, and (iii) all persons known by
the Company to beneficially own more than 5% of the Company's Common Stock:
Amount and Nature Percent
Name and Address of Beneficial of Class
Title of Class of Shareholder Ownership(1) Owned
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Common Stock, Michael A. Davis 214,019 .5%
$.05 par value 21550 Oxnard Street #830
Woodland Hills, CA 91367
Common Stock, Wellington A. Ewen 356,699 .8%
$.05 par value 21550 Oxnard Street #830
Woodland Hills, CA 91367
Common Stock, Pamela Kapustay 107,010 .3%
$.05 par value 21550 Oxnard Street #830
Woodland Hills, CA 91367
Common Stock, Kimberlie L. Cerrone -0- -0-
$.05 par value 21550 Oxnard Street #830
Woodland Hills, CA 91367
Common Stock, O. B. Parrish -0- -0-
$.05 par value 21550 Oxnard Street #830
Woodland Hills, CA 91367
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Common Stock, Lois Rezler 28,357,561(2) 66.2%
$.05 par value 21550 Oxnard Street #830
Woodland Hills, CA 91367
Common Stock, Daniel L. Azarnoff 28,357,561(2) 66.2%
$.05 par value 21550 Oxnard Street #830
Woodland Hills, CA 91367
Common Stock, Roy S. Azarnoff 28,357,561(2) 66.2%
$.05 par value 21550 Oxnard Street #830
Woodland Hills, CA 91367
Common Stock, Three R Associates, Inc. 28,357,561(3) 66.2%
$.05 par value 21550 Oxnard Street #830
Woodland Hills, CA 91367
Common Stock, Cytodyn(R) of New Mexico, Inc. 4,280,387(4) 10.0%
$.05 par value 4236 Longridge Avenue #302
Studio City, CA 91604
Common Stock, Allen D. Allen 6,420,580(5) 15.0%
$.05 par value 4236 Longridge Avenue #302
Studio City, CA 91604
Common Stock, Maya, LLC 5,018,753 11.7%
$.05 par value 2325-A Renaissance Drive
Las Vegas, NV 89119
Common Stock, Rex Lewis 5,018,753(6) 11.7%
$.05 par value 2325-A Renaissance Drive
Las Vegas, NV 89119
Common Stock, Battersea Capital, Inc. 4,280,387(7) 9.7%
$.05 par value P. O. Box 153
Santa Monica, CA 90403
Common Stock, J. Matt Lepo 4,280,387(8) 9.7%
$.05 par value P. O. Box 153
Santa Monica, CA 90403
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Common Stock, All Directors and Executive
$.05 par value Officers as a group
(8 persons) 29,035,289 67.78%
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(1) Calculated pursuant to Rule 13d-3(d) of the Securities Exchange Act of
1934. Unless otherwise stated below, each such person has sole
voting and investment power with respect to all such shares. Under
Rule 13d-3(d), shares not outstanding which are subject to options,
warrants, rights or conversion privileges exercisable within 60 days
are deemed outstanding for the purpose of calculating the number and
percentage owned by such person, but are not deemed outstanding
for the purpose of calculating the percentage owned by each other
person listed.
(2) Includes 28,357,561 shares beneficially owned by Three R Associates,
Inc. ("Three R"). The shareholders and directors of Three R are: Lois
Rezler; Daniel L. Azarnoff; and, Roy S. Azarnoff.
(3) Includes: (i) 21,936,981 shares owned by Three R; and, (ii) 2,140,193
shares owned by Allen D. Allen and 4,280,387 shares owned by
Cytodyn(R) of New Mexico, Inc ("Cytodyn(R)") for which Three R holds
an irrevocable proxy to vote all such shares.
(4) Ctyodyn(R) granted an irrevocable proxy coupled with interest to vote
its shares to Three R.
(5) Includes: (i) 4,280,387 shares owned by Ctyodyn(R), of which Allen D.
Allen ("Allen") is a director and controlling shareholder; and, (ii)
2,140,193 shares owned by Allen. Allen granted an irrevocable proxy
coupled with interest to vote his shares to Three R.
(6) The shares are owned by Maya, LLC., a limited liability company of
which Mr. Lewis is the manager.
(7) Includes options to purchase an aggregate of 2,140,193 shares of
Common Stock which consists of: 1,426,796 shares, immediately
exercisable for a period of five (5) years, at $.42 per share, as
adjusted post-merger granted by the Issuer; and, an option granted by
Three R to purchase 713,398 shares of the Issuer's Common Stock owned
by Three R, immediately exercisable for a period of five (5) years, at
$.42 per share.
(8) The shares, which include an aggregate of 2,140,193 shares underlying
options held in the name of Battersea Capital, Inc. ("Battersea"), are
owned by Battersea, of which Mr. Lepo is the managing director.
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
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On February 23, 1999 (the "Effective Date"), Versailles Capital
Corporation, a Colorado corporation ("Company"), Amerimmune, Inc., a
Colorado corporation and wholly owned subsidiary of the Company
("Amerimmune"), and British Lion Medical, Inc. ("British Lion"), completed
an acquisition whereby the Company acquired all of the outstanding shares
of British Lion pursuant to an Agreement and Plan of Merger dated February
17, 1999 ("Merger"), among the Company, Amerimmune and British Lion (the
"Merger Agreement"). Pursuant to the terms of the Merger Agreement, the
following actions occurred:
(1) For and in consideration of the exchange of all shares of the
common stock of British Lion issued and outstanding on the Effective Date,
the Company issued 41,758,743 shares of its Common Stock,$.05 par value per
share, to shareholders of all the issued and outstanding common
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stock of British Lion in exchange therefore on a 7.13397 for one basis,
resulting in the shareholders of British Lion acquiring approximately 97
percent of the outstanding voting shares of the Company.
(2) The Company assumed the obligations of British Lion regarding all
outstanding stock options to purchase shares of common stock upon the same
terms and conditions.
(3) Each share of the Common Stock of British Lion which was issued
and outstanding on the Effective Date, by virtue of the merger and without
any action on the part of British Lion, was retired and cancelled.
In connection with the Merger, British Lion conducted a private
placement of its no par value common stock consisting of a maximum of 107
Units, each Unit consisting of 10,000 shares of Common Stock, or 1,070,000
shares (the "Units"), at an offering price of $30,000 per Unit, or
$3,210,000. These shares were exchanged for the Issuer's Common Stock in
connection with the Merger. The offering was made pursuant to the federal
registration exemption contained in Section 4(2) of the Securities Act of
1922, as amended, and Rule 506 of Regulation D promulgated thereunder only
to "accredited investors" as that term is defined in Rule 501(a) of
Regulation D.
ITEM 5. OTHER EVENTS.
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Subsequent to the acquisition of British Lion Medical, Inc, as
discussed in Item 2 above, Amerimmune, Inc., the wholly owned subsidiary of
the Company, will succeed to the business of British Lion and become
engaged in the pharmaceutical research business with the primary purpose of
developing Cytolin(R), a drug designed to protect the immune system,
especially in patients suffering from Human Immunodeficiency Virus ("HIV").
The Company believes that Cytolin(R) is important for the growing number of
patients who have become resistant to drugs currently used to treat the
HIV/AIDS virus.
Background
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Allen D. Allen, the founding scientist of Cytolin(R), developed a
family of monoclonal antibodies, one of which is called Cytolin(R), that
blocks certain adhesion molecules on one of the disease fighting cells of
the immune system, protecting the immune system's ability to keep itself
functioning effectively. Working with the current scientific evidence
gathered to 1993, Allen discerned that adhesion molecules appearing on the
killer white blood cells of individuals infected with Human
Immunodeficiency Virus (HIV) cause the killer cells of the immune system to
destroy CD4 cells, eventually resulting in the syndrome known as AIDS.
Adhesion molecules appear in large numbers on the killer-type T cells of
the immune system that proliferate in HIV-infected persons. In general,
killer cells that carry an abundance of adhesion molecules tend to turn the
human immune system against itself. Cytolin(R) keeps the immune system in
check by blocking predetermined adhesion molecules on killer-type T cells.
Acquired Immune Deficiency Syndrome ("AIDS") is a disease caused by
the Human
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Immunodeficiency Virus ("HIV"). First described as an infectious disease
in the early 1980s, HIV has infected over 20 million persons worldwide and
about 900,000 in the United States. This retrovirus attacks some of the
body's immune system cells and eventually causes the immune system to
damage itself, reducing the ability of the immune system to protect the
body against fungal, bacterial, parasitic and viral organisms, as well as
several types of cancer. The medical community generally believes that
most people becoming infected with HIV will eventually develop AIDS and
die.
Allen and his associates formed Cytodyn(R) of New Mexico, Inc.
("Cytodyn(R)") for the purposes of developing his theory and a drug which
could diminish destruction of CD4 cells. Cytodyn(R) raised and expended
$1,500,000 over the next couple of years for development and testing. In
1994, Allen granted Cytodyn(R) of New Mexico, a New Mexico corporation
("Cytodyn(R)"), of which Allen owns 100% of the Class A voting stock, an
exclusive worldwide license to use the patent rights and technology. In
addition, Cytodyn(R) obtained a trademark name for the product, Cytolin(R).
In August 1998, Allen and Cytodyn(R) entered into a Termination, Sale
and Shareholder Agreement with Three R Associates, Inc., a California
corporation ("Three R"), wherein: (i) Cytodyn(R) agreed to relinquish the
exclusive license to Cytolin(R) and grant an exclusive license to the
trademark name, Cytolin(R), to Three R, in exchange for 600,000 shares of
the Company's stock; and, (ii) Allen agreed to sell all United States
Patent and foreign patent rights and technological know-how underlying the
drug, Cytolin(R), to Three R, in exchange for a minimum of $180,000
("Purchase Agreement"). In August, 1998, Cytodyn(R) granted to Three R
Associates, Inc. ("Three R"), an exclusive license to the trademark name.
In October 1998, Three R entered into a Patent and Trademark License
Agreement ("License Agreement") with British Lion, whereby British Lion
received: (i) irrevocable exclusive worldwide rights to use all present and
future patent rights, know-how and background technology of Three R, relating
to the product, Cytolin(R); and, (ii) a sublicense to the trademark name,
Cytolin(R). British Lion granted Three R 3,075,000 Shares of its Stock upon
execution of the License Agreement, and agreed to assume Three R's obligations
under a consulting agreement between Three R and Allen D. Allen, the inventor
of the technology. The License Agreement was contingent upon: (i) British
Lion's entering into a management agreement with Western Center for Clinical
Studies, Inc., a California corporation ("WCCS") for purposes of assisting
British Lion in obtaining FDA approval to market Cytolin(R) for commercial
use; and, (ii) the completion of British Lion's merger with a publicly held
company. Lois Rezler, Daniel L. Azarnoff and Roy S. Azarnoff, British Lion's
directors and officers, collectively own 100% of the issued and outstanding
stock of WCCS and Three R. In October 1998, British Lion entered into a
management agreement with WCCS which was subsequently ratified by disinterested
directors of the Company.
In October 1998, British Lion sold 200,000 shares of its stock for a
total of $300,000, to certain accredited investors, as that term is defined
under Rule 501(a) of Regulation D of the Act, in a private offering exempt
from registration under Section 4(2) of the Act and Rule 506 of
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Regulation D promulgated thereunder, through its officers and directors.
The proceeds of the offering were used as short term working capital.
In December 1998, British Lion sold 1,070,000 shares of its stock for
a total of $3,210,000, to accredited investors, as that term is defined
under Rule 501(a) of Regulation D of the Act, in a private offering exempt
from registration under Section 4(2) of the Act and Rule 506 of Regulation
D promulgated thereunder, through its officers and directors. The offering
terminated on February 22, 1999 and funds were held in escrow until
February 23, 1999, the Effective Date of the Merger Agreement. The
proceeds of the offering will be used for research and development of the
Company's product, Cytolin(R).
Testing of Cytolin
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The safety of Cytolin(R) was tested in a series of toxicology studies
and it was found safe for administering to humans. During the period when
no especially effective treatments for HIV were on the market, a number of
physicians in the United States using the compound made by manufacturer
under the current Good Manufacturing Practices ("GMP"), administered
Cytolin(R) to their HIV-infected patients over the course of more than
three years. As results from the initial use became available, other
physicians obtained and administered it to their patients as well. Four of
those physicians allowed an independent, professional monitor into their
offices to inspect the medical records of 188 patients they had treated
with Cytolin(R) once or twice a month over 18 months. These data were
recorded and summarized and form part of the material presented to the FDA
as an indication of the safety of Cytolin(R). The FDA has authorized a
clinical trial, the preparation of which will begin shortly.
Overview of the FDA Approval Process
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GENERAL. The manufacturing and marketing of the Company's proposed
products and its research and development activities are and will continue
to be subject to regulation by federal, state and local governmental
authorities in the United States and other countries. In the United
States, pharmaceuticals are subject to rigorous regulation by the FDA's
Center for Biologic and Drug Evaluation and Research, which reviews and
approves marketing of drugs. The Federal Food, Drug and Cosmetic Act, the
regulations promulgated thereunder, and other federal and state statutes
and regulations govern, among other things, the testing, manufacture,
labeling, storage, record keeping, advertising and promotion of the
Company's potential products.
APPROVAL PROCESS. The process of obtaining FDA approval for a new
drug takes several years and generally involves the expenditure of
substantial resources. The steps required before a new drug can be
produced and marketed for human use include pre-clinical and clinical
trials and the approval of the New Drug Application ("NDA"). However, the
FDA offers an accelerated drug approval program for new drugs which treat
serious or life-threatening illnesses. SEE Accelerated Drug Approval.
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PRE-CLINICAL TESTING. The compound is subjected to extensive
laboratory and animal testing to determine if the compound is biologically
safe and has the functionality for which its therapeutic use is intended.
All animal safety studies must be performed under current good laboratory
practices.
INVESTIGATIONAL NEW DRUG ("IND"). Before human tests can begin, the
drug sponsor must file an IND application with the FDA, showing how the
drug and drug product(s) are made and the results of animal testing. If
the FDA does not reject the application within 30 days, IND status permits
the sponsor to undertake initial studies in human volunteer subjects.
HUMAN TESTING (CLINICAL). Under an IND, the human clinical testing
program involves three phases. Clinical trials are conducted in accordance
with protocols that detail the objectives of the study, the parameters to
be used to monitor safety and the efficacy criteria to be evaluated,
including the type of statistical analysis that will be done. Each
protocol is submitted to the FDA as part of the IND filing. At the present
time, two well-controlled clinical trials using a placebo for some subjects
are required to establish efficacy and safety. Each clinical study is
conducted under the auspices of an independent Institutional Review Board
("IRB") for each institution at which the study will be conducted. The IRB
considers, among other things, information on the product, ethical factors,
the risk to human subjects, and the potential benefits of therapy relative
to risk.
For drugs that are not intended for HIV treatment, Phase I clinical
trials are usually conducted on healthy volunteers to determine the maximum
tolerated dose, adverse effects and pharmacokinetics of a product.
Efficacy endpoints, even if surrogate measures, are also obtained if
possible. Phase II studies are conducted on a statistically relevant
number of patients having a specific disease to determine initial efficacy
in humans for that specific disease, and possible adverse effects and
safety risks. Phase III normally involves the pivotal trials of a drug,
consisting of wide-scale studies on patients with the disease for which the
drug is intended, in order to evaluate the overall benefits and risks of
the drug for the treated disease. In addition to a placebo, these studies
may compare the Company's drug product with other available products.
Phase I, II and III studies are planned to demonstrate safety and efficacy
as required for FDA approval. The FDA continually reviews the clinical
trial plans and results and may suggest design changes or may discontinue
the trials at any time if significant safety or other issues arise. The
data obtained from the IND studies are the basis for the official label or
package insert that tells the prescribing physician about the drug product
and how to use it appropriately.
NEW DRUG APPLICATION ("NDA"). Upon completion of Phase III, the
drug sponsor may file a NDA containing all pre-clinical, pharmacology and
toxicology information, and clinical and chemical, manufacturing and
control ("CMC") information that has been gathered, as well as all other
information that is known from any other sources. The information must
include essentially all the data collected during the IND phase (e.g.
chemical structure and characterization of the drug, formula and
manufacturing process, stability in the proposed packaging, animal and
laboratory studies, results of all human tests, etc.) and proposed
labeling. Once submitted, the FDA has 90 days to accept the application.
If the application is accepted, the Company must pay the FDA
-12-
<PAGE>
approximately $200,000 as a user fee in order to continue with the review
process.
APPROVAL. Once a NDA is approved, the manufacturer is required to
keep the FDA informed at all times regarding any adverse reactions.
Moreover, contract manufacturers that the Company may use must adhere at
all times to current GMP regulations enforced by the FDA through its
facilities inspection program. These facilities must pass a pre-approval
plant inspection before the FDA will issue a pre-market approval of the
product. The FDA may also require post-marketing testing (Phase IV) to
support the conclusion of efficacy and safety of the product, or answer
specific questions that arose during the IND studies. Phase IV can involve
significant expense. After FDA approval is obtained for initial
indications, further clinical trials are necessary to gain approval for the
use of the product for additional indications.
The testing and approval process is likely to require substantial time
and effort, and there can be no assurance that any FDA approval will be
granted on a timely basis, if at all. The approval process is affected by
a number of factors, primarily the adverse effects of the drug (safety) and
its therapeutic benefits (efficacy). Additional preclinical or clinical
trials may be required during the FDA review period and may delay marketing
approval. A task force established by the FDA has recently proposed
significant changes in the design, analysis and reporting of clinical
studies conducted under INDs, in response to the results of a Phase III
trial of a drug by another company in which severe complications and death
occurred. The task force recommended increased requirements for reporting
adverse effects and new, more stringent rules that would require clinical
trial investigators to assume that toxicities reported by patients are
drug-related. If these recommendations are implemented, the costs
associated with obtaining market approval by the FDA are likely to be
increased.
Outside the United States, the Company will be subject to foreign
regulatory requirements governing human clinical trials and marketing
approval for its products. Although the requirements governing the conduct
of clinical trials, product licensing, pricing and reimbursements vary
widely from country to country, these differences have been minimized in
Europe and Asia as a result of publication and acceptance of the
International Committee on Harmonization guidelines.
Accelerated Drug Approval
- -------------------------
The FDA allows patients with serious and life-threatening diseases,
such as HIV, to benefit from earlier access to important new drugs through
an "accelerated drug approval" program. To be eligible for this program,
the products must treat serious or life-threatening illnesses and provide
meaningful therapeutic benefits beyond existing treatments. Under this
program, a significant new therapy could be approved for marketing at the
earliest possible point at which safety and effectiveness are reasonably
established under existing law. For example, the approval of a drug could
be accelerated by demonstrating a favorable effect on a well-documented
surrogate endpoint to predict clinical benefit, instead of requiring that
the drug demonstrate actual clinical benefit, which may take many months or
years. Approval would be granted only if the sponsor agrees to conduct
additional post-marketing studies to confirm the product's effectiveness
and/or agrees to restrict distribution of the product. In addition, if the
further clinical trials do not bear out the product's effectiveness or if
restricted distribution is inadequate to assure safe use, approval of the
product
-13-
<PAGE>
would be withdrawn.
The Current Status of FDA Approval/Proposed Research and Development Plan
- -------------------------------------------------------------------------
The Company believes that the research and development effort invested
in Cytolin(R) undertaken by Allen and his affiliated company has produced
an existing base of data which, in the view of management, may reduce the
time, risk and cost associated with commercializing the product. With the
FDA's current accelerated drug approval program, the Company believes that
the approval process for Cytolin(R) may be accelerated.
The first study, a tolerability study which is designed to determine
the optimum dosage, has received FDA approval and can begin soon after
the drug is manufactured. At the conclusion of the tolerability (dose-
ranging) study, about ten to twelve months after initiation, the Company
anticipates that the FDA will grant approval to sell the drug to HIV-infected
persons while the Phase II/III study is on-going. Upon completion of the
first study, with FDA approval, the Company will initiate a Phase II/III
study to determine that the drug is effective for a wide range of patients
and what side-effects, if any, exist. Additional studies may not be
required. Should one or more be required, these studies will involve more
patients at a number of sites and will be designed to add data about
Cytolin(R)'s effectiveness, side-effects and appropriate use. A NDA will be
filed with the FDA as soon as feasible after the last required study.
Approval of the NDA will permit the Company to market Cytolin(R) through
normal channels.
Manufacturing
- -------------
The Company does not have, and does not intend to establish,
manufacturing facilities to produce products. The Company plans to control
its initial capital expenditures by using contract manufacturers to make
its products. The Company believes that there are a sufficient number of
high quality FDA-approved contract manufacturers available to fulfill its
near-term production needs for both clinical and commercial uses.
The manufacture of the Company's products by outside contractors will
be subject to rigorous regulations, including the need to comply with the
FDA's current GMP standards. As part of obtaining FDA approval for the
product, each of the manufacturing facilities must be inspected, approved
by and registered with the FDA. In addition to obtaining FDA approval of
the prospective manufacturer's quality control and manufacturing
procedures, domestic and foreign manufacturing facilities are subject to
periodic inspection by the FDA and/or foreign regulatory authorities.
Patents
- -------
Cytolin(R) is protected by the following United States Composition
Patents: Patent #5,424,066 granted June 13, 1995 to Allen; and, Patent
#5,651,970 granted July 29, 1997 to Allen, both of which patents will
expire 17 years from date of grant. Allen granted Cytodyn, an exclusive
worldwide license to use the patent rights and technology. In August 1998,
Three R entered into an
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<PAGE>
agreement with Cytodyn(R) and Allen wherein Cytodyn(R) relinquished the
exclusive license to Cytolin(R) and in turn, Allen agreed to sell all
United States Patent and foreign patent rights and technological know-how
underlying the drug, Cytolin(R), to Three R. In October 1998, Three R
granted British Lion an exclusive irrevocable worldwide license to develop,
manufacture and market Cytolin(R), subject to certain contingencies.
Risk Factors
- ------------
1. The Company's principal development efforts will be centered on the
development of a new drug, Cytolin(R), which management believes will
protect the immune system in patients suffering from Human Immunodeficiency
virus ("HIV"). In a series of toxicology studies, Cytolin(R) was found
safe for administering to humans. In addition, independent professional
studies of 188 HIV/AIDS patients treated with Cytolin(R) over a three (3)
year period were presented to the Food and Drug Administration ("FDA") as
an indication of the safety of the drug. As a result, the FDA has
authorized a clinical trial which can begin as soon as funds become
available. The FDA has developed a "fast track" process for approval, for
which the Company believes Cytolin(R) should be eligible. The Company
expects to obtain FDA approval for regular sales in three (3) years or
less.
While limited clinical experience with Cytolin(R) has to date produced
favorable results, significant additional trials are required, and no
assurance can be given that the drug will ultimately be approved by the
FDA. The Company intends to develop additional products using the same
technology; however, there can be no assurances that such plans will
materialize. The Company has never commercially introduced a product, and
no assurance can be given that commercialization of the Company's product
in any country in which it may be approved will be financially successful,
which could materially adversely effect the Company.
2. The Company has not yet generated any operating revenues. The
Company cannot predict when marketing approvals for Cytolin(R) will be
obtained, if ever. Even if such approvals are obtained, there can be no
assurance that Cytolin(R) will be successfully commercialized. Since
anti-HIV/AIDS drugs are not necessarily required to follow the FDA's usual
approval process and may be sold, but not marketed, as soon as their safety
is established, the Company anticipates sales can be made to physicians
soon after the completion of the first clinical trial. Nevertheless, the
Company expects its operating expenses to increase over the next several
years as it funds development, clinical testing and other expenses of
seeking FDA approval. The Company's ability to achieve a profitable level
of operation is dependent in large part on obtaining regulatory approvals
for its products, entering into agreements for product development and
commercialization, and expanding from development into successful
marketing, all of which will require significant amounts of capital. There
can be no assurance that the Company will ever achieve a profitable level
of operations.
3. The Company has obtained the exclusive irrevocable worldwide rights to
develop and market the product, Cytolin(R), from Three R Associates, Inc.
("Three R"). However, patents are not a guarantee of protection from
competitors, especially in an area characterized by rapid advances, and
enforcement of patents and proprietary rights in many countries can be
expected to be problematic or unpredictable. There can be no assurance
that any patents issued or licensed to the Company or Three R will not be
challenged, invalidated, infringed upon, or designed around by others or
that the
-15-
<PAGE>
claims contained in such patents will not infringe the patent claims of
others. Furthermore, there can be no assurance that others will not
independently develop similar products. Although management believes that
patents provide significant protection for the Company's product, the
Company's business may be adversely affected by competitors who develop a
substantially equivalent product. Patent litigation can be extremely
expensive, and the Company may find that it is unable to fund litigation
necessary to defend its rights.
4. The research, preclinical development, clinical trial, manufacturing,
marketing and sale of pharmaceuticals are subject to extensive regulation
by governmental authorities. Products developed by the Company cannot be
marketed commercially in any jurisdiction in which they have not been
approved. The process of obtaining regulatory approvals is lengthy and
extremely expensive. Approval by United States authorities does not
guarantee, nor at times even facilitate or expedite, approval in other
countries. Further, government regulations are subject to change and it is
possible that additional criteria may be established or imposed which could
prevent or delay regulatory approval of any products of the Company.
5. The Company may require substantial and increasing amounts of funds to
conduct necessary research and development and preclinical and clinical
testing of its product, and to market any products which may receive
regulatory approval. Although the Company may sell, but not market,
Cytolin(R) as an anti-HIV/AIDS drug to physicians following the completion
of the first clinical trial and prior to FDA approval, the Company does not
expect to generate revenue from operations within the next year. The
Company's ability to meet its cash obligations as they become due and
payable is expected to depend for at least the next several years on its
ability to obtain equity and or debt capital. There can be no assurance
that the Company will be successful in raising the necessary funds. The
Company's future capital requirements will depend upon many factors,
including progress with preclinical testing and clinical trials; the time
and costs involved in obtaining regulatory approvals; competing
technological and market developments; the ability of the Company to
establish collaborative arrangements; and, effective commercialization and
marketing activities. In any event, the Company may incur negative cash
flows and net losses for the foreseeable future.
The Company may require significant capital in order to complete the
FDA approval process and New Drug Application Phase. Additional funds will
be sought, most likely through sale of equity or debt securities. If
adequate funds are not available, the Company may delay, scale back or
eliminate certain programs, or may seek funds through collaborative
arrangements with strategic partners or others. Such arrangements could
require relinquishment of rights to certain technologies, products or
markets which it would not otherwise relinquish.
6. The Company may experience cash flow difficulties from time to time
due to its substantial capital needs. For the foreseeable future, the
Company's ability to meet its cash obligations as they become due and
payable will depend on its ability to obtain debt and/or equity funding.
In the event that the Company can not raise sufficient capital when needed
to sustain or expand its operations, the Company would suspend research and
development activities.
7. The pharmaceutical industry is characterized by intense competition
and is subject to rapid and significant technological change. Rapid
technological development may cause the products to
-16-
<PAGE>
become obsolete before the Company recoups all or any portion of the
related expenses. The Company's competitors include major pharmaceutical
companies, biotechnology firms and universities and other research
institutions, both in the United States and abroad, which are actively
engaged in research and development of products in the therapeutic areas
being pursued by the Company. Most of the Company's competitors have
substantially greater financial, technical, manufacturing, marketing and
human resource capabilities than the Company. In addition, many of the
Company's competitors have significantly greater experience in testing new
or improved therapeutic products and obtaining regulatory approval of
products. Accordingly, the Company's competitors may succeed in obtaining
regulatory approval for products more rapidly than the Company. If the
Company commences significant commercial sales of its products, it will
also be competing with respect to manufacturing efficiencies and marketing
capabilities, areas in which it has little experience.
8. The Company is significantly dependent on its officers and directors.
If the Company fails to retain the services of one or more of these
individuals, the Company's operations may be adversely affected. The
Company does not have key man insurance on any of its officers or
directors.
9. The Company entered into a management agreement with WCCS for purposes
of assisting the Company in obtaining FDA approval necessary to market the
Company's product, Cytolin(R), for commercial use. Although the Company
could contract with other companies for comparable services, the Termination,
Sale and Shareholder Agreement by and among Three R, Allen D. Allen and
Cytodyn(R) which conveys the patents to Three R, required the Company to enter
into the abovementioned management agreement, as a condition to Three R's
granting the Company an exclusive worldwide license to develop the product.
Three R and WCCS are controlled by some of the officers and directors
of the Company, Lois Rezler, Daniel L. Azarnoff and Roy S. Azarnoff, all of
whom will basically control the rights to all pharmaceutical products which
will be licensed to the Company. The Company will be obligated to provide
certain funding, including funding for the development and testing of the
product, at specified times. There can be no assurance that the Company
will be able to meet future payments or funding obligations under the WCCS
agreement, which would have a material adverse effect on the Company.
10. All of the Company's product development efforts are based upon
technologies and therapeutic approaches that have not been widely tested or
used. There is, therefore, significant risk that these approaches will not
prove to be successful. While the Company believes that the results
obtained to date in preclinical and limited clinical studies support
further research and development, those results are not necessarily
indicative of results that will be obtained in further human clinical
testing.
11. Government health administration authorities, together with private
health insurers, increasingly are attempting to contain health care costs
by limiting the price or reimbursement levels for medical products and
services. In certain foreign markets, pricing or profitability of
prescriptive
-17-
<PAGE>
pharmaceuticals is subject to government control. In the United States,
there have been a number of federal and state proposals to implement
similar government controls or otherwise significantly reform the existing
health care system. Due to uncertainties as to the ultimate features of
this or any other reform initiatives that may be enacted, the Company
cannot predict which, if any, of such reform proposals will be adopted,
when they may be adopted, or what impact they may have on the Company. It
is possible that any legislation which is enacted will include provisions
resulting in price limits, utilization controls or other consequences that
may adversely affect the Company.
12. The Company's business will expose it to potential product liability
risks which are inherent in the testing, manufacturing, marketing and sale
of pharmaceutical products, and product liability claims may be asserted
against the Company. Product liability insurance for the pharmaceutical
industry generally is expensive to the extent that it is available at all.
There can be no assurance that adequate insurance coverage will be
available at acceptable costs, if at all, or that a product liability claim
would not adversely affect the business or financial condition of the
Company.
Certain Relationships and Related Transactions
- ----------------------------------------------
Allen D. Allen is the present owner of all United States Patent and
foreign patent rights to the technology and know-how underlying the
product, Cytolin(R). In 1994, Allen granted Cytodyn(R) of New Mexico, a
New Mexico corporation ("Cytodyn(R)"), of which Allen owns 100% of the
Class A voting stock, an exclusive worldwide license to use the patent
rights and technology. In August 1998, Allen and Cytodyn(R) entered into
a Termination, Sale and Shareholder Agreement with Three R Associates,
Inc., a California corporation ("Three R"), wherein: (i) Cytodyn(R) agreed
to relinquish the exclusive license to Cytolin(R) and grant an exclusive
license to the trademark name, Cytolin(R), to Three R, in exchange for a
number of shares equivalent to 10% of the issued and outstanding shares in
the subsequent public company; and (ii) Allen agreed to sell all United
States Patent and foreign patent rights and technological know-how
underlying the drug, Cytolin(R), to Three R, in exchange for a minimum of
$180,000. Lois Rezler, Daniel L. Azarnoff and Roy Azarnoff, directors of
the Company, are the officers, directors and sole shareholders of Three R.
In October 1998, Three R entered into a Patent and Trademark License
Agreement with British Lion ("License Agreement"), pursuant to which Three R
granted British Lion an irrevocable exclusive worldwide rights to use all
present and future patent rights, know-how and background technology of Three R,
relating to the product, Cytolin(R). In addition, the License Agreement
contains a provision whereby Three R granted British Lion a sublicense to
the trademark name, Cytolin(R). In exchange for the License, British Lion
issued 3,075,000 shares of its Stock to Three R, and subsequently assumed
Three R's obligations under a consulting agreement between Three R and
Allen, the inventor of the technology. The License Agreement is subject
to: (i) British Lion's entering into a management agreement with WCCS for
purposes of assisting the British Lion in obtaining FDA approval to market
Cytolin(R) for commercial use; and, (ii) British Lion's entering into a
business combination with a publicly held company.
In October 1998, British Lion entered into a management agreement with
WCCS ("WCCS Agreement"), for purposes of assisting British Lion in
obtaining FDA approval to market Cytolin(R) for commercial use. Lois
Rezler, Daniel L. Azarnoff and Roy Azarnoff, are the officers, directors
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<PAGE>
and sole shareholders of WCCS, as well as directors of the Company. To
avoid potential conflict of interest issued, the WCCS Agreement was
ratified by disinterested directors of the Company subsequent to the
Merger.
Pursuant to the Termination, Sale and Shareholder Agreement,
Cytodyn(R) granted an irrevocable proxy coupled with interest to vote its
Shares to Three R, which is solely owned by Lois Rezler, Daniel L. Azarnoff
and Roy S. Azarnoff, all of which are directors of the Company. Pursuant
to a Subscription, Share Restriction and Proxy Agreement dated October 23,
1998, Allen D. Allen granted irrevocable proxy coupled with interest to
vote his shares to Lois Rezler, Daniel L. Azarnoff and Roy S. Azarnoff.
The following shareholders have agreed not to sell any of the shares
of the Company's Stock issued to them for a period of two (2) years from
date of grant: Three R; Allen; Cytodyn(R); Wellington Ewen; Pamela
Kapustay; Michael A. Davis; and, Joseph J. McCann. In addition, Allen and
Cytodyn(R) have granted to Lois Rezler, Daniel L. Azarnoff and Roy S.
Azarnoff, directors of the Company, a first right of refusal to purchase
their stock.
Three R entered into an agreement with Allen D. Allen, the inventor of
Cytolin(R), dated August 1, 1998, whereby Allen agreed to provide
scientific expertise regarding the patents, technology and know-how
underlying the product, Cytolin(R), to the Company for a period of 15 years
in exchange for a consulting fee of $10,000 per year; provided, however,
Three R can terminate the consulting agreement with one year's notice,
beginning February 23, 2000.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(a)(b) Financial Statements of Business Acquired; Pro forma
Financial Information:
The pro forma financial information reflecting the transaction
and financial statements of Versailles Capital Corporation will be filed by
an amendment to this Form 8-K within the time period specified by statute.
(c) Exhibits:
Exhibit 2.1 Agreement and Plan of Merger, dated February 17,
1999, by and among Versailles Capital
Corporation, Amerimmune, Inc. and British Lion
Medical, Inc.
Exhibit 3.3 Articles of Merger, as filed with the Colorado
Secretary of State on February 23, 1999.
Exhibit 10.1 Patent and Trademark License Agreement between
British Lion Medical, Inc. and Three R
Associates, Inc., dated October 24, 1998.
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<PAGE>
Exhibit 10.2 Termination, Sale and Shareholder Agreement by
and among Three R Associates, Inc., Allen D.
Allen and Cytodyn(R) of New Mexico, Inc., dated
August 1, 1998.
Exhibit 10.3 Management Agreement between British Lion
Medical, Inc. and WCCS, Inc., dated October 24,
1998.
Exhibit 10.4 Subscription, Share Restriction and Proxy
Agreement between British Lion Medical, Inc. and
Allen D. Allen, dated October 23, 1998.
SIGNATURES
- ----------
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this Report to be signed on its behalf by
the undersigned, thereunto duly authorized.
Date: March 10, 1999
VERSAILLES CAPITAL CORPORATION
By: /s/ WELLINGTON A. EWEN
-------------------------------
Wellington A. Ewen
Chief Financial Officer
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EXHIBIT 2.1
AGREEMENT AND PLAN OF MERGER
by and among
VERSAILLES CAPITAL CORP.,
AMERIMMUNE, INC.,
A WHOLLY OWNED SUBSIDIARY OF VERSAILLES CAPITAL CORP.,
AND
BRITISH LION MEDICAL, INC.
dated
February 17, 1999
<PAGE>
TABLE OF CONTENTS
Section 1. The Merger . . . . . . . . . . . . . . . . . . . . . . . . .1
- ----------------------
1.1 Actions to be Taken. . . . . . . . . . . . . . . . . . . . . .1
-------------------
1.2 Conversion of Target Securities. . . . . . . . . . . . . . . .2
-------------------------------
1.3 Exchange of Certificates . . . . . . . . . . . . . . . . . . .2
------------------------
1.4 Fractional Shares. . . . . . . . . . . . . . . . . . . . . . .3
-----------------
1.5 Unexchanged Certificates . . . . . . . . . . . . . . . . . . .3
------------------------
1.6 Legend on Parent Certificates Issued in Conversion of the
---------------------------------------------------------
Target Common Stock. . . . . . . . . . . . . . . . . . . . . .3
-------------------
1.7 Filing of Merger Documents . . . . . . . . . . . . . . . . . .3
--------------------------
Section 2. Representations and Warranties of Target . . . . . . . . . .4
- ----------------------------------------------------
2.1 Corporate Organization and Good Standing . . . . . . . . . . .4
----------------------------------------
2.2 Capitalization . . . . . . . . . . . . . . . . . . . . . . . .4
--------------
2.3 Authorization, Execution and Delivery. . . . . . . . . . . . .4
-------------------------------------
2.4 Financial Statements . . . . . . . . . . . . . . . . . . . . .4
--------------------
2.5 Absence of Undisclosed Liabilities . . . . . . . . . . . . . .5
----------------------------------
2.6 Absence of Certain Changes . . . . . . . . . . . . . . . . . .5
--------------------------
2.7 Litigation, Etc. . . . . . . . . . . . . . . . . . . . . . . .5
---------------
2.8 Contracts. . . . . . . . . . . . . . . . . . . . . . . . . . .5
---------
2.9 Title. . . . . . . . . . . . . . . . . . . . . . . . . . . . .5
-----
2.10 Tax Returns. . . . . . . . . . . . . . . . . . . . . . . . . .5
-----------
2.11 No Violation . . . . . . . . . . . . . . . . . . . . . . . . .5
------------
2.12 Books and Records. . . . . . . . . . . . . . . . . . . . . . .5
-----------------
2.13 Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . .6
----------
2.14 Broker's or Finder's Fees. . . . . . . . . . . . . . . . . . .6
-------------------------
2.15 Due Diligence. . . . . . . . . . . . . . . . . . . . . . . . .6
-------------
Section 3. Representations and Warranties of Parent and Sub . . . . . .6
- ------------------------------------------------------------
3.1 Corporate Organization . . . . . . . . . . . . . . . . . . . .6
----------------------
3.2 Capitalization . . . . . . . . . . . . . . . . . . . . . . . .6
--------------
3.3 Financial Statements . . . . . . . . . . . . . . . . . . . . .7
--------------------
3.4 Absence of Undisclosed Liabilities . . . . . . . . . . . . . .7
----------------------------------
3.5 Absence of Certain Changes . . . . . . . . . . . . . . . . . .7
--------------------------
3.6 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . .7
----------
3.7 Contracts. . . . . . . . . . . . . . . . . . . . . . . . . . .7
---------
3.8 Title. . . . . . . . . . . . . . . . . . . . . . . . . . . . .7
-----
3.9 Tax Returns. . . . . . . . . . . . . . . . . . . . . . . . . .7
-----------
3.10 No Violation . . . . . . . . . . . . . . . . . . . . . . . . .8
------------
3.11 Authorization. . . . . . . . . . . . . . . . . . . . . . . . .8
-------------
3.12 Books and Records. . . . . . . . . . . . . . . . . . . . . . .8
-----------------
3.13 Disclosure.. . . . . . . . . . . . . . . . . . . . . . . . . .8
----------
3.14 Broker's or Finder's Fees. . . . . . . . . . . . . . . . . . .8
-------------------------
3.15 Authorization, Execution and Delivery. . . . . . . . . . . . .8
-------------------------------------
3.16 Continuity of Business Enterprise. . . . . . . . . . . . . . .8
---------------------------------
3.17 SEC Filings. . . . . . . . . . . . . . . . . . . . . . . . . .9
-----------
Section 4. Conduct of Target Pending the Effective Date . . . . . . . .9
- --------------------------------------------------------
4.1 Regular Course of Business . . . . . . . . . . . . . . . . .9
----------------------------
4.2 Restricted Activities and Transactions . . . . . . . . . . . .9
--------------------------------------
i
<PAGE>
4.3 Advice of Changes. . . . . . . . . . . . . . . . . . . . . . 10
-----------------
4.4 Access to Records and Properties . . . . . . . . . . . . . . 10
--------------------------------
Section 5. Conduct of Parent and Sub Pending the Effective Date. . . . 10
- ---------------------------------------------------------------
5.1 Regular Course of Business . . . . . . . . . . . . . . . . 10
----------------------------
5.2 Restricted Activities and Transactions . . . . . . . . . . . 10
--------------------------------------
5.3 Advice of Changes. . . . . . . . . . . . . . . . . . . . . . 11
-----------------
5.4 Access to Records and Properties . . . . . . . . . . . . . . 11
--------------------------------
5.5 Guarantee of Sub Obligations . . . . . . . . . . . . . . . . 11
----------------------------
Section 6 MUTUAL COVENANTS. . . . . . . . . . . . . . . . . . . . . . 12
- ---------------------------
6.1 Confidentiality. . . . . . . . . . . . . . . . . . . . . . . 12
---------------
6.2 Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . 12
--------
6.3 Agreement with Respect to Accounting Treatment . . . . . . . 12
----------------------------------------------
6.4 Further Assurances . . . . . . . . . . . . . . . . . . . . . 12
------------------
Section 7. Conditions Precedent to Obligation of Target. . . . . . . . 12
- -------------------------------------------------------
7.1 Parent and Sub Representations and Warranties. . . . . . . . 13
---------------------------------------------
7.2 Parent and Sub Covenants . . . . . . . . . . . . . . . . . . 13
------------------------
7.3 Guarantee of Sub Obligations . . . . . . . . . . . . . . . . 13
----------------------------
7.4 Opinion of Parent's Counsel. . . . . . . . . . . . . . . . . 13
---------------------------
7.5 Accountant's Letter. . . . . . . . . . . . . . . . . . . . . 13
-------------------
Section 8. Conditions Precedent to Obligation of Parent. . . . . . . . 14
- -------------------------------------------------------
8.1 Target's Representations and Warranties. . . . . . . . . . . 14
---------------------------------------
8.2 Target's Covenants . . . . . . . . . . . . . . . . . . . . . 14
------------------
8.3 Dissenting Shareholders of Target. . . . . . . . . . . . . . 14
---------------------------------
8.4 Opinion of Target's Counsel. . . . . . . . . . . . . . . . . 14
---------------------------
8.5 Tax Opinion. . . . . . . . . . . . . . . . . . . . . . . . . 14
-----------
8.6 Accountant's Letter. . . . . . . . . . . . . . . . . . . . . 15
-------------------
8.7 Funding. . . . . . . . . . . . . . . . . . . . . . . . . . . 15
-------
Section 10. Stand-still Agreement and Break-off Fee. . . . . . . . . . 15
- ---------------------------------------------------
Section 11. Notice of Events . . . . . . . . . . . . . . . . . . . . . 16
- ----------------------------
Section 12. Termination. . . . . . . . . . . . . . . . . . . . . . . . 16
- -----------------------
12.1 Circumstances of Termination . . . . . . . . . . . . . . . . 16
----------------------------
12.2 Effect of Termination. . . . . . . . . . . . . . . . . . . . 16
---------------------
Section 13. General Provisions . . . . . . . . . . . . . . . . . . . . 17
- ------------------------------
13.1 Further Assurances . . . . . . . . . . . . . . . . . . . . . 17
------------------
13.2 Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
------
13.3 Entire Agreement . . . . . . . . . . . . . . . . . . . . . . 17
----------------
13.4 Headings . . . . . . . . . . . . . . . . . . . . . . . . . . 17
--------
13.5 Governing Law. . . . . . . . . . . . . . . . . . . . . . . . 17
-------------
13.6 Assignment . . . . . . . . . . . . . . . . . . . . . . . . . 17
----------
13.7 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . 17
------------
Section 14. Survival of Representations, Warranties and Agreements . . 17
- ------------------------------------------------------------------
Section 15. Indemnity Agreements of Parent and Target. . . . . . . . . 18
- -----------------------------------------------------
ii
<PAGE>
Section 16. Other Agreements . . . . . . . . . . . . . . . . . . . . . 18
- ----------------------------
16.1 Public Disclosure. . . . . . . . . . . . . . . . . . . . . . 18
-----------------
16.2 Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . 18
-------
16.3 Binding Effect . . . . . . . . . . . . . . . . . . . . . . . 19
--------------
16.4 Entire Agreement . . . . . . . . . . . . . . . . . . . . . . 19
----------------
16.5 Schedules and Exhibits . . . . . . . . . . . . . . . . . . . 19
----------------------
16.6 Applicable Law and Jurisdiction. . . . . . . . . . . . . . . 19
-------------------------------
16.7 No Benefit to Third Parties. . . . . . . . . . . . . . . . . 19
---------------------------
16.8 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . 19
------------
16.9 Acknowledgments. . . . . . . . . . . . . . . . . . . . . . . 20
---------------
Exhibits and Schedules
----------------------
Exhibit 1.1(b) Articles of Incorporation for Sub
Exhibit 1.1(c) By-laws for Sub
Schedule 1.1(d) Officers and Directors of Surviving Corporation
Schedule 1.2(a)(2) List of Target Options
Schedule 1.3 Target Shareholder Information
Schedule 1.6 List of Target Shareholder Restriction Agreements
Schedule 2.2 List of Target Subscription Agreements
Schedule 2.5 Liabilities of Target
Schedule 2.6 Material Changes to Target
Schedule 2.7 Litigation Matters of Target
Schedule 2.8 Contracts of Target
Schedule 2.9 Properties of Target
Schedule 3.2 List of Parent Option
Schedule 3.5 Material Changes to Parent and Sub
Schedule 3.6 Litigation Matters Pending for Parent and Sub
Schedule 3.7 Contracts of Parent and Sub
Schedule 3.8 Properties of Parent and Sub
iii
<PAGE>
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER ("Agreement") dated as of February 17,
1999, by and among Versailles Capital Corp., a Colorado corporation
("Parent"), Amerimmune, Inc., a newly formed Colorado corporation and
wholly-owned subsidiary of Parent("Sub"), and British Lion Medical, Inc.,
a California corporation ("Target") (Sub and Target being hereinafter
collectively referred to as the "Constituent Corporations").
RECITALS
--------
A. The Boards of Directors of Parent, Sub and Target deem it advisable
for the mutual benefit of Parent, Sub and Target, and their respective
stockholders, that Parent acquire Target by the merger of Target into Sub
under the terms and conditions hereinafter set forth, in a transaction
intended to qualify as a tax-free reorganization under Section 368(a) of
the Internal Revenue Code of 1986, as amended (the "Code").
B. The Boards of Directors of Parent, Sub and Target expect that this
transaction will further certain of their business objectives and have
adopted resolutions authorizing the transactions contemplated by this
Agreement.
NOW, THEREFORE, in consideration of the premises and of the mutual
agreements, representations, warranties and covenants contained herein, the
parties hereto, intending to be legally bound, hereby agree as follows:
Section 1. The Merger
----------------------
1.1 ACTIONS TO BE TAKEN. Subject to the terms and conditions of this
Agreement, including the fulfillment (or waiver) of all conditions to the
obligations of the parties contained herein, at the Effective Time (as
hereinafter defined) and pursuant to the laws of the States of Colorado and
California, the following shall occur:
(a) Target shall be merged with and into Sub (such transaction
hereafter referred to as the "Merger"), and Sub shall be the surviving
corporation (the "Surviving Corporation"). The separate existence and
corporate organization of Target shall cease upon filing of the Articles of
Merger with the Colorado Secretary of State and the California Secretary of
State, and thereupon Sub and Target shall be a single corporation and will
continue to be governed by the laws of the State of Colorado.
(b) The Articles of Incorporation of Sub attached as EXHIBIT 1.1(b)
hereto shall constitute the articles of incorporation of the Surviving
Corporation.
(c) The By-Laws of Sub in the form attached as EXHIBIT 1.1(c) shall
constitute the by-laws of the Surviving Corporation.
(d) The officers and directors of Parent and Sub shall resign as of
the Effective Time and the persons set forth on SCHEDULE 1.1(d) shall be
the officers and directors, respectively, of the Parent and the Surviving
Corporation until their successors shall have been elected and qualified.
<PAGE>
(e) As soon as practicable following fulfillment or waiver of the
conditions specified in Sections 7 and 8 hereof, and provided that this
Agreement has not been terminated or abandoned pursuant to Section 12, the
Constituent Corporations will cause the Agreement and Plan of Merger
("Merger Agreement") to be filed with the office of the Secretary of State
of the State of Colorado, and will cause a copy of the Merger Agreement
certified by the Secretary of State of Colorado, together with a Tax
Clearance Certificate to be filed with the office of the Secretary of State
of the State of California. Subject to and in accordance with the laws of
the States of Colorado and California, the Merger will become effective at
the date and time the Certificate of Merger is filed with the office of the
Secretary of State of Colorado or such later time or date as may be
specified in the Certificate of Merger (the "Effective Time"). Each of the
parties will use its best efforts to cause the Merger to be consummated as
soon as practicable following the fulfillment or waiver of the conditions
specified in Sections 7 and 8 hereof.
1.2 CONVERSION OF TARGET SECURITIES. The mode of carrying the merger
into effect and the manner and basis of converting the shares of Target
into shares of Parent are as follows:
(a) For and in consideration of the exchange of all shares of Target
Common Stock, no par value per share, issued and outstanding on the
Effective Date:
(1) Parent will issue and deliver to Sub sufficient shares of Common
Stock, $.05 par value per share, to be transferred to
shareholders of all issued and outstanding Target Common Stock so
that the holders shall own not less than 97% of the issued and
outstanding shares of Parent Common Stock subsequent to the
Merger, based on the exchange rate of 7.13397 shares of Parent
Common Stock in exchange for one (1) share of Target Common Stock
issued and outstanding at the Effective Time.
(2) Parent will assume the obligations of Target regarding all
outstanding stock options to purchase shares of common stock on
the same terms and conditions as required by Target, as listed on
SCHEDULE 1.2(a)(2).
(3) Each share of Target Common Stock which is issued and outstanding
on the Effective Date shall, by virtue of the merger and without
any action on the part of Target, be retired and cancelled.
(b) Each certificate evidencing ownership of shares of Parent Common
Stock issued and outstanding on the Effective Date shall continue to
evidence ownership of the number of shares of Parent Common Stock.
1.3 EXCHANGE OF CERTIFICATES. Each holder of an outstanding
certificate or certificates theretofore representing shares of Target
Common Stock shall surrender the same to Corporate Stock Transfer
("Exchange Agent"), Denver, Colorado, and shall receive in exchange a
certificate or certificates representing the number of full shares of
Parent Common Stock into which the
2
<PAGE>
shares of Target Common Stock represented by the certificate or
certificates so surrendered shall have been converted. The name, address
and amount of shares owned by each holder of Target Common Stock is set
forth on SCHEDULE 1.3.
1.4 FRACTIONAL SHARES. Fractional shares of Parent Common Stock
shall not be issued.
1.5 UNEXCHANGED CERTIFICATES. Until surrendered, each outstanding
certificate which, prior to the Effective Date, represented Target Common
Stock shall be deemed for all purposes, other than the payment of dividends
or other distributions, to evidence ownership of the whole number of shares
of Parent Common Stock into which it is to be converted, and no dividend or
other distribution payable to holders of Parent Common Stock as of any date
subsequent to the Effective Date shall be paid to the holders of
outstanding certificates. There shall be paid to the record holders of the
Target Common Stock certificates issued in exchange therefor the amount,
without interest thereon, of dividends and other distributions which would
have been payable with respect to the shares of Parent Common Stock
represented thereby.
1.6 LEGEND ON PARENT CERTIFICATES ISSUED IN CONVERSION OF THE TARGET
COMMON STOCK. Each of the certificates representing shares of Parent
Common Stock issued in conversion of the Target Common Stock as provided
for herein shall bear the following legend:
The securities represented by this Certificate have not
been registered under the Securities Act of 1933 (the
"Act") and are "restricted securities" as that term is
defined in Rule 144 under the Act. The securities may
not be offered for sale, sold or otherwise transferred
except pursuant to an effective registration statement
under the Act or pursuant to an exemption from
registration under the Act, the availability of which
is to be established to the satisfaction of the
Corporation.
In addition, the certificates representing shares of Parent Common Stock
issued in conversion of the Target Common Stock of certain shareholders
shall bear further restrictions as set forth in SCHEDULE 1.6.
1.7 FILING OF MERGER DOCUMENTS. As soon as practicable after the
Closing Date, Sub and Target shall, in accordance with Section 1.1(e),
cause the Merger Agreement to be filed with the Secretary of State of the
State of Colorado and will cause a copy of the Merger Agreement certified
by the Colorado Secretary of State, together with a Tax Clearance
Certificate to be filed with the office of the Secretary of State of the
State of California. Target, Sub and Parent will take such other and
further actions as may be required by the applicable laws of Colorado and
California in connection with such filing and in order to complete the
Merger.
3
<PAGE>
Section 2. Representations and Warranties of Target
----------------------------------------------------
Target represents and warrants that:
2.1 CORPORATE ORGANIZATION AND GOOD STANDING. Target is a corporation
duly organized, validly existing and in good standing under the laws of the
State of California and is duly qualified or licensed as a foreign
corporation in each other jurisdiction where it owns or leases substantial
properties. Target has no subsidiaries. Target has the requisite
corporate power and authority to own, operate and lease its properties and
to conduct its business as it is now being conducted. Target has
previously delivered to Parent a true and complete copy of its Articles of
Incorporation and Bylaws.
2.2 CAPITALIZATION. The authorized capital stock of Target consists
of 10,000,000 shares of Common Stock, no par value per share ("Target
Common Stock"). As of the date of this Agreement, there are 4,750,000
shares of Target Common Stock issued and outstanding. All of the
outstanding shares of Target Common Stock have been validly issued and are
fully paid and nonassessable. Except as set forth above, Target does not
have any shares of its capital stock issued or outstanding. Target has the
obligation pursuant to subscription agreements to issue 1,070,000 shares of
its capital stock as disclosed on SCHEDULE 2.2. Except as disclosed on
SCHEDULE 1.2(a)(2), there are no options, warrants or rights outstanding to
purchase shares of Target Common Stock.
2.3 AUTHORIZATION, EXECUTION AND DELIVERY. Target has the corporate
power to enter into this Agreement and to carry out its obligations
hereunder. The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby have been duly
authorized by its Board of Directors and shareholders, and no other
corporate proceedings on the part of Target is necessary to authorize this
Agreement and the transactions contemplated hereby. Target is not subject
to or obligated under any charter, by-law or contract provision or any
note, mortgage, lease, agreement, bond, indenture, instrument, license,
franchise or permit, or subject to any order, judgment, injunction, writ or
decree, which would be breached or violated by the execution or
consummation of this Agreement. Other than in connection with or in
compliance with the provisions and requirements of the laws of the State of
California, the 1933 Act, and the securities or blue sky laws of the
various states, no authorization, consent or approval of, or filing with,
any public body or authority is necessary for the completion by Target of
the transactions contemplated by this Agreement, except for such
authorizations, consents, approvals or filings, the failure to obtain or
make which would not have a material adverse effect on Target's business.
2.4 FINANCIAL STATEMENTS. Target's unaudited balance sheet as of
December 31, 1998, and the related statements of income and retained
earnings for the year ended December 31, 1998, copies of which are to be
delivered by Target to Parent, fairly present the financial condition of
Target as of said dates and the results of its operations for the periods
then ended, in conformity with generally accepted accounting principles
consistently applied for the periods covered and shall comply in form and
substance with applicable rules and regulations of the United States
Securities and Exchange Commission ("SEC").
4
<PAGE>
2.5 ABSENCE OF UNDISCLOSED LIABILITIES. Except to the extent
reflected or reserved against in Target's balance sheet as of December 31,
1998, Target did not have at that date any liabilities or obligations
(secured, unsecured, contingent or otherwise) of a nature customarily
reflected in a corporate balance sheet prepared in accordance with
generally accepted accounting principles ("Liabilities"). All Liabilities
incurred subsequent to December 31, 1998 are set forth in SCHEDULE 2.5
hereto.
2.6 ABSENCE OF CERTAIN CHANGES. Except as disclosed on SCHEDULE 2.6,
there has been no material adverse change in the business, properties or
financial condition of Target since December 31, 1998.
2.7 LITIGATION, ETC. Except as disclosed on SCHEDULE 2.7, there is
no litigation, proceeding or investigation pending or, to the knowledge of
Target, threatened against Target which if successful might result in a
material adverse change in the business, properties or financial condition
of Target or which questions the validity or legality of this Agreement or
of any action taken or to be taken by Target in connection with this
Agreement.
2.8 CONTRACTS. Except as disclosed on SCHEDULE 2.8, Target is not a
party to any material contract not in the ordinary course of business which
is to be performed in whole or in part at or after the date of this
Agreement.
2.9 TITLE. Target has good and marketable title to all property
included in the balance sheet of Target as of December 31, 1998, other than
property disposed of in the ordinary course of business after said date.
Except as disclosed on SCHEDULE 2.9, the properties of Target as previously
disclosed in writing to Parent, including its rights to all patents, know
how and intellectual property relating to its pharmaceutical products, are
not subject to any mortgage, encumbrance or lien of any kind except minor
encumbrances which do not materially interfere with the use of the property
in the conduct of the business of Target.
2.10 TAX RETURNS. Target has timely filed all required federal, state
and local tax returns and has no outstanding tax liabilities, including but
not limited to income, withholding, property and corporate franchise taxes.
2.11 NO VIOLATION. Consummation of the merger will not constitute or
result in a breach or default under any provision of any charter, bylaw,
indenture, mortgage, lease or agreement, or any order, judgment, decree,
law or regulation to which any property of Target is subject or by which is
bound, except for breaches or defaults which in the aggregate would not
have a materially adverse effect on Target's properties, business
operations or financial condition.
2.12 BOOKS AND RECORDS. The corporate minute books, stock certificate
books, stock registers and other corporate records of Target are correct
and complete in all material respects, and the signatures appearing on all
documents contained therein are the true signatures of the persons
purporting to have signed the same.
5
<PAGE>
2.13 DISCLOSURE. Neither this Agreement nor any Schedule, Exhibit or
certificate delivered in accordance with the terms hereof, or any document
or statement in writing which has been supplied by or on behalf of Target
or by any of Target's directors or officers, in connection with the
transactions contemplated hereby, contains any untrue statement of a
material fact, or omits any statement of a material fact necessary in order
to make the statements contained herein or therein not misleading. There
is no fact or circumstance known to Target which materially and adversely
affects or which may materially and adversely affect its business,
prospects or financial condition or its assets, which has not been set
forth in this Agreement, the Schedules, Exhibits, certificates or
statements furnished in writing to Parent in connection with the
transactions contemplated by this Agreement.
2.14 BROKER'S OR FINDER'S FEES. No broker, finder or similar
intermediary is entitled to fees in connection with the transactions
contemplated by this Agreement by virtue of any action or agreement of
Target.
2.15 DUE DILIGENCE. Target has completed its due diligence review of
Parent.
Section 3. Representations and Warranties of Parent and Sub
------------------------------------------------------------
Parent and Sub represent and warrant that:
3.1 CORPORATE ORGANIZATION. Parent and Sub, the sole subsidiary of
Parent, are corporations duly organized, validly existing and in good
standing under the laws of their respective jurisdictions of incorporation
and each has all requisite corporate power and authority to own, operate
and lease its properties and to conduct its business as it is now being
conducted. Parent is duly qualified or licensed as a foreign corporation
in each other jurisdiction where it owns or leases substantial properties,
except where the failure to be so qualified or licensed would not have a
material adverse effect on the financial condition, properties or
businesses of Parent taken as a whole. Parent and Sub have each delivered
to Target a true and complete copy of their Articles of Incorporation and
By-Laws.
3.2 CAPITALIZATION.
(a) Parent's authorized capital stock consists of 6 billion shares of
Common Stock, $.05 par value per share, of which 1,284,116 shares are
issued and outstanding, fully paid and nonassessable. There are no
options, warrants or rights outstanding to purchase shares of Parent Common
Stock from Parent.
(b) Except as set forth above, Parent does not have any shares of its
capital stock issued or outstanding. Except as set forth above and on
SCHEDULE 3.2 hereof, Parent does not have any outstanding subscriptions,
options, warrants, rights or other agreements or commitments obligating
Parent to issue shares of its capital stock.
6
<PAGE>
(c) The authorized capital stock of Sub consists of 1,000,000 shares
of Common Stock, par value $.01 per share, of which 100,000 shares are
issued and outstanding, all of which are owned of record and beneficially
by Parent.
(d) To the best knowledge of Parent management, Parent's outstanding
securities have been issued in compliance with all applicable federal and
state securities laws.
3.3 FINANCIAL STATEMENTS. Parent's balance sheet as of March 31,
1998 and the related statements of income and retained earnings for the
years ended March 31, 1997 and 1998, all certified by Schumacher &
Associates, independent certified public accountants, and the unaudited
balance sheets and related statements of income and retained earnings for
the period ended December 31, 1998, copies of which have been delivered by
Parent to Target, fairly present the financial condition of Parent as of
said dates and the results of its operations for the periods then ended, in
conformity with generally accepted accounting principles consistently
applied for the periods covered and comply in form and substance with
applicable regulations of the SEC.
3.4 ABSENCE OF UNDISCLOSED LIABILITIES. Except to the extent
reflected or reserved against in Parent's balance sheet as of December 31,
1998, Parent did not have at that date any liabilities or obligations
(secured, unsecured, contingent or otherwise) of a nature customarily
reflected in a corporate balance sheet prepared in accordance with
generally accepted accounting principles ("Liabilities"). All Liabilities
will be paid by Parent prior to closing, except the fee payable to LMU &
Company set forth in Section 3.14 will be paid at closing from funds
received in Target's private placement offering.
3.5 ABSENCE OF CERTAIN CHANGES. Except as disclosed on SCHEDULE 3.5,
There has been no material adverse change in the business, properties or
financial condition of Parent since December 31, 1998.
3.6 LITIGATION Except as disclosed on SCHEDULE 3.6, there is no
litigation, proceeding or investigation pending or, to the knowledge of
Parent, threatened against Parent which if successful might result in a
material adverse change in the business, properties or financial condition
of Parent or Sub or which questions the validity or legality of this
Agreement or of any action taken or to be taken by Parent in connection
with this Agreement.
3.7 CONTRACTS. Except as disclosed on SCHEDULE 3.7, Parent is not a
party to any material contract not in the ordinary course of business which
is to be performed in whole or in part at or after the date of this
Agreement.
3.8 TITLE. Parent has good and valid title to all property included
in the balance sheet of Parent as of December 31, 1998, other than property
disposed of in the ordinary course of business after said date. Except as
disclosed on SCHEDULE 3.8, the properties of Parent are not subject to any
mortgage, encumbrance or lien of any kind.
3.9 TAX RETURNS. Parent has timely filed all required federal, state
and local tax returns and has no outstanding tax liabilities, including but
not limited to income, withholding, property and corporate franchise taxes.
7
<PAGE>
3.10 NO VIOLATION. Consummation of the merger will not constitute or
result in a breach or default under any provision of any charter, bylaw,
indenture, mortgage, lease or agreement, or any order, judgment, decree,
law or regulation to which any property of Parent is subject or by which
Parent is bound, except for breaches or defaults which in the aggregate
would not have a materially adverse effect on Parent's properties, business
operations or financial condition.
3.11 AUTHORIZATION. Execution of this Agreement has been duly
authorized and approved by Parent's Board of Directors. Execution of this
Agreement has been duly authorized and approved by Sub's Board of Directors
and sole shareholder.
3.12 BOOKS AND RECORDS. The corporate minute books, stock certificate
books, stock registers and other corporate records of Parent are correct
and complete in all material respects, and the signatures appearing on all
documents contained therein are the true signatures of the persons
purporting to have signed the same.
3.13 DISCLOSURE. Neither this Agreement nor any Schedule, Exhibit or
certificate delivered in accordance with the terms hereof, or any document
or statement in writing which has been supplied by or on behalf of Parent
or by any of Parent's directors or officers, in connection with the
transactions contemplated hereby, contains any untrue statement of a
material fact, or omits any statement of a material fact necessary in order
to make the statements contained herein or therein not misleading. There
is no fact or circumstance known to Parent which materially and adversely
affects or which may materially and adversely affect its business,
prospects or financial condition or its assets, which has not been set
forth in this Agreement, the Schedules, Exhibits, certificates or
statements furnished in writing to Target in connection with the
transactions contemplated by this Agreement.
3.14 BROKER'S OR FINDER'S FEES. Parent has utilized the services of
LMU & Company in connection with this transaction, and Parent shall be
solely responsible for payment of fees due to LMU & Company in the amount
of $100,000. Other than LMU & Company, Parent has retained no broker or
finder to assist it in the transactions contemplated hereby, and owes no
person a commission, brokerage fee, or finders' fee as a result hereof.
Parent will indemnify and hold Target harmless from any claim for brokerage
or finder's or investment advisor's fees or commissions arising out of the
transactions contemplated hereby by any person claiming to have been
engaged by Parent.
3.15 AUTHORIZATION, EXECUTION AND DELIVERY. Parent and Sub each has
the corporate power to enter into this Agreement and to carry out its
obligations hereunder. The execution and delivery of this Agreement by
Parent and Sub and the consummation of the transactions contemplated hereby
have been duly authorized by all requisite corporate action; no other
corporate proceedings on the part of Parent or Sub are necessary to
authorize this Agreement and the transactions contemplated hereby.
3.16 CONTINUITY OF BUSINESS ENTERPRISE. Parent will continue at least
one significant historic business line of Target, or use at least a
8
<PAGE>
significant portion of Target's historic business assets in a business, in
each case within the meaning of Treasury Reg. Section 1.368-1(d).
3.17 SEC FILINGS. Parent is in compliance with all required filings as
required by the United States Securities and Exchange Commission ("SEC").
However, it is acknowledged that the Forms 10-QSB required for periods
ending September 30, 1997, and June 30, 1998, were not timely filed.
Section 4. Conduct of Target Pending the Effective Date
--------------------------------------------------------
Target covenants that between the date of this Agreement and the
Effective Date:
4.1 REGULAR COURSE OF BUSINESS. Except as otherwise consented to
in writing by Parent, prior to the Effective Time, Target will carry on its
business in the ordinary course only, and, without limiting the generality
of the foregoing, Target will use its best efforts to preserve its present
business organization intact, keep available the services of its present
officers and employees, and preserve its present relationships with persons
having business dealings with it.
4.2 RESTRICTED ACTIVITIES AND TRANSACTIONS. Except as otherwise
consented to in writing by Parent, or contemplated by this Agreement, prior
to the Closing Date, Target will not:
(a) amend its certificate or articles of incorporation or bylaws;
(b) issue, sell or deliver, or agree to issue, sell or deliver, any
shares of any class of capital stock or any securities convertible into any
such shares or convertible into securities in turn so convertible, or any
options, warrants or other rights calling for the issuance, sale or
delivery of any such shares or convertible securities, declare or pay any
dividend or make any distribution on its capital stock in cash, stock or
property, subdivide shares of capital stock into a greater number of
shares, or redeem, repurchase or otherwise acquire any shares of capital
stock;
(c) discharge or satisfy or pay any lien, encumbrance, debt or
obligation other than in the ordinary course of business;
(d) sell, transfer or otherwise dispose of any of its assets
otherwise than in the normal course of business;
(e) incur or assume or authorize or commit to any expenditure(s) in
excess of $25,000 in the aggregate other than in the ordinary course of
business;
(f) assume or guarantee, or agree to assume or guarantee, any debt,
liability or other obligation of any person, firm or corporation; or
(g) acquire control of any other corporation, association, joint
venture, partnership, business trust or other business entity, or acquire
control or ownership of all or a substantial portion of the assets of any
of the
9
<PAGE>
foregoing or merge, consolidate or otherwise combine with any other
corporation (except as provided for in this Agreement), or enter into any
agreement providing for any of the foregoing.
4.3 ADVICE OF CHANGES. Until the Closing Date, Target will promptly
advise Parent in writing after acquiring knowledge thereof, of (i) any
event occurring subsequent to the date of this Agreement which would render
any representation or warranty of Target contained in this Agreement, if
made on or as of the date of such event or the Effective Time, untrue or
inaccurate in any material respect; and, (ii) any material adverse change
in Target's business.
4.4 ACCESS TO RECORDS AND PROPERTIES. Parent may, prior to the
Closing Date, through its employees, agents and representatives, make or
cause to be made a detailed review of the business and financial condition
of Target, and make or cause to be made such investigation as it deems
necessary or advisable of the properties, assets, businesses, books and
records of Target. Target agrees to furnish such assistance as Parent
reasonably may request in conducting such review and investigation and will
provide, and will cause its independent public accountants to provide,
Parent and its employees, agents and representatives full access to all
books, records (including tax returns filed or in preparation), personnel
and premises of Target and the work papers and other records of its
independent public accountants and shall provide to Parent such other
information concerning the business of Target as Parent reasonably may
request. Any such review described in this section shall be undertaken
during normal business hours following reasonable notice to Target.
Section 5. Conduct of Parent and Sub Pending the Effective Date
----------------------------------------------------------------
Parent and Sub covenant that between the date of this Agreement and
the Effective Date:
5.1 REGULAR COURSE OF BUSINESS. Except as otherwise consented to
in writing by Target, prior to the Effective Time, Parent and Sub will
carry on its business in the ordinary course only, and, without limiting
the generality of the foregoing, Parent will use its best efforts to
preserve its present business organization intact, keep available the
services of its present officers and employees, and preserve its present
relationships persons having business dealings with it.
5.2 RESTRICTED ACTIVITIES AND TRANSACTIONS. Except as otherwise
consented to in writing by Target, or contemplated by this Agreement, prior
to the Closing Date, neither Parent nor Sub will:
(a) amend its certificate or articles of incorporation or bylaws;
(b) issue, sell or deliver, or agree to issue, sell or deliver, any
shares of any class of capital stock or any securities convertible into any
such shares or convertible into securities in turn so convertible, or any
options, warrants or other rights calling for the issuance, sale or
delivery of any such shares or convertible securities, declare or pay any
dividend or make any distribution on its capital stock in cash, stock or
property, subdivide shares
10
<PAGE>
of capital stock into a greater number of shares, or redeem, repurchase or
otherwise acquire any shares of capital stock;
(c) discharge or satisfy or pay any lien, encumbrance, debt or
obligation other than in the ordinary course of business;
(d) sell, transfer or otherwise dispose of any of its assets
otherwise than in the normal course of business;
(e) incur or assume or authorize or commit to any expenditure(s) in
excess of $25,000 in the aggregate other than in the ordinary course of
business;
(f) assume or guarantee, or agree to assume or guarantee, any debt,
liability or other obligation of any person, firm or corporation; or
(g) acquire control of any other corporation, association, joint
venture, partnership, business trust or other business entity, or acquire
control or ownership of all or a substantial portion of the assets of any
of the foregoing or merge, consolidate or otherwise combine with any other
corporation (except as provided for in this Agreement), or enter into any
agreement providing for any of the foregoing.
5.3 ADVICE OF CHANGES. Parent will promptly advise Target in writing
after acquiring knowledge thereof, of (i) any event occurring subsequent to
the date of this Agreement which would render any representation or
warranty of Parent contained in this Agreement, if made on or as of the
date of such event or at the Effective Time, untrue or inaccurate in any
material respect; and, (ii) any material adverse change in the business of
Parent and/or its Sub.
5.4 ACCESS TO RECORDS AND PROPERTIES. Target may, prior to the
Closing Date, through its employees, agents and representatives, make or
cause to be made a detailed review of the business and financial condition
of Parent, and make or cause to be made such investigation as it deems
necessary or advisable of the properties, assets, businesses, books and
records of Parent. Parent agrees to furnish such assistance as Target
reasonably may request in conducting such review and investigation and will
provide, and will cause its independent public accountants to provide,
Target and its employees, agents and representatives full access to all
books, records (including tax returns filed or in preparation), personnel
and premises of Parent and the work papers and other records of its
independent public accountants and shall provide to Target such other
information concerning the business of Parent as Target reasonably may
request. Any such review described in this section shall be undertaken
during normal business hours following reasonable notice to Parent.
5.5 GUARANTEE OF SUB OBLIGATIONS. Parent shall cause Sub to perform
in a timely manner all its obligations, and to comply with all its
agreements, in this Agreement and in the Articles of Merger.
11
<PAGE>
Section 6 MUTUAL COVENANTS
--------------------------
6.1 CONFIDENTIALITY. Parent and Target will use their best efforts
to keep confidential any and all information furnished to one of them by
the other or such other's representatives or independent public accountants
in connection with the transactions contemplated by this Agreement, and the
business and financial review and investigation referred to in Section 4.4
and Section 5.4, except to the extent any such information may be generally
available to the public, and Parent and Target have instructed their
respective officers, employees and other representatives having access to
such information to comply with the obligation of confidentiality. In the
event of termination of this Agreement, each of Parent and Target will
promptly deliver to the other all originals and copies of documents, work
papers and other material containing information concerning the other that
was obtained from the other or its agents, employees or representatives in
connection with such transactions or business and financial review and
investigation, whether so obtained before or after the execution hereof,
will not use any information so obtained, will not disclose or divulge such
information to any other person and will keep confidential any information
so obtained; PROVIDED, HOWEVER, that (after reasonable measures have been
taken to maintain confidentiality and after giving reasonable notice to the
other parties to this Agreement specifying the information involved and the
manner and extent of the proposed use of disclosure thereof) (i) any
disclosure of such information may be made by a party hereto to the extent
required by applicable law or regulation or judicial or regulatory process
and (ii) such information may be used by such party as evidence in or in
connection with any pending or threatened litigation relating to this
Agreement or any transaction contemplated hereby. The obligations arising
under this Section 6.1 shall survive any termination or abandonment of this
Agreement.
6.2 EXPENSES. Whether or not the Merger is consummated, legal,
accounting and other fees, costs and expenses to be incurred by each party
regarding this Agreement and the transactions contemplated hereby shall be
paid by the party incurring them. Notwithstanding any other provision in
this Agreement, in the event of any dispute or controversy, in addition to
any other remedies the prevailing party may obtain in such dispute, the
prevailing party in such dispute shall be entitled to recover from the
other party all of its reasonable legal fees and out-of-pocket costs
incurred by such party in enforcing or defending its rights hereunder.
6.3 AGREEMENT WITH RESPECT TO ACCOUNTING TREATMENT. Neither Parent
nor Target knowingly will take any action that could prevent the Merger
from being accounted for as a purchase or on a basis substantially similar
thereto.
6.4 FURTHER ASSURANCES. Each party hereto agrees to execute and
deliver such instruments and take such other actions as any other party may
reasonably require in order to carry out the intent of this Agreement.
Section 7. Conditions Precedent to Obligation of Target
--------------------------------------------------------
Target's obligation to consummate this Merger shall be subject to
fulfillment on or before the Effective Date of each of the following
conditions, unless waived in writing by Target:
12
<PAGE>
7.1 PARENT AND SUB REPRESENTATIONS AND WARRANTIES. The
representations and warranties of Parent and Sub set forth in Section 3
hereof shall be true and correct at the Effective Date as though made at
and as of that date, except as affected by transactions contemplated
hereby.
7.2 PARENT AND SUB COVENANTS. Parent and Sub shall have performed all
covenants required by this Agreement to be performed by it on or before the
Effective Date.
7.3 GUARANTEE OF SUB OBLIGATIONS. Parent shall cause Sub to perform
in a timely manner all of its obligations, and to comply with all its
agreements, in this Agreement.
7.4 OPINION OF PARENT'S COUNSEL. Parent shall have delivered to
Target the opinion of its counsel, Krys Boyle Freedman & Sawyer, P.C.,
dated the Effective Date, in form and substance satisfactory to counsel for
Target, to the effect that:
(a) Parent and Sub are corporations duly organized, validly existing
and in good standing, and are duly qualified to do business as a foreign
corporation in each jurisdiction (if any) in which, to the best knowledge
of counsel, its property or business requires such qualification.
(b) The authorized capital stock of Parent and Sub are as set forth
in Section 3.2 hereof.
(c) The execution and consummation of this Agreement have been duly
authorized and approved by Parent's Board of Directors, Sub's Board of
Directors and its sole shareholder, and consummation of this Agreement will
not constitute or result in any breach or default of the character
described in Section 3.10 hereof of which counsel has knowledge.
(d) Counsel has no knowledge of any liabilities or obligations of the
type described in Section 3.4 hereof, any litigation, proceeding, or
investigation of the type described in Section 3.6 hereof, or any defects
in title or mortgages, encumbrances or liens of the type described in
Section 3.8 hereof.
(e) The shares of Parent Common Stock into which Target Common Stock
is to be converted pursuant to this Agreement will, upon such conversion,
be duly and validly authorized and issued in compliance with all applicable
federal and state securities laws, and will be fully paid and
nonassessable.
7.5 ACCOUNTANT'S LETTER. Target shall have received a letter from
Schumacher & Associates, certified public accountants, dated the Effective
Date, in form and substance satisfactory to Target, stating that on the
basis of consultation with officers of Parent, a limited review (but not an
audit) of Parent's accounting records, and other specified procedures and
inquiries, which Target may request in writing, nothing has come to their
attention which indicates that there has been any material adverse change
in the financial condition of Parent during the period from December 31,
1998 to a specified date not more than five days prior to the Effective
Date.
13
<PAGE>
Section 8. Conditions Precedent to Obligation of Parent
--------------------------------------------------------
Parent's obligation to consummate this merger shall be subject to
fulfillment on or before the Effective Date of each of the following
conditions, unless waived in writing by Parent:
8.1 TARGET'S REPRESENTATIONS AND WARRANTIES. The representations and
warranties of Target set forth in Section 2 hereof shall be true and
correct at the Effective Date as though made at and as of that date, except
as affected by transactions contemplated hereby.
8.2 TARGET'S COVENANTS. Target shall have performed all covenants
required by this Agreement to be performed by it on or before the Effective
Date.
8.3 DISSENTING SHAREHOLDERS OF TARGET. Target shall have no
shareholders dissenting from the merger.
8.4 OPINION OF TARGET'S COUNSEL. Target shall have delivered to
Parent the opinion of its counsel, Joseph J. McCann, Jr., Esq. dated the
Effective Date, in form and substance satisfactory to counsel for Parent,
to the effect that:
(a) Target is a corporation duly organized, validly existing and in
good standing, and is duly qualified to do business as a foreign
corporation in each jurisdiction (if any) in which, to the best knowledge
of counsel, its property or business requires such qualification.
(b) Target's authorized capital stock is as set forth in Section 2.2
hereof.
(c) The execution and consummation of this Agreement have been duly
authorized and approved by Target's Board of Directors and shareholders and
consummation of this Agreement will not constitute or result in any breach
or default of the character described in Section 2.11 hereof of which
counsel has knowledge.
(d) Counsel has no knowledge of any liabilities or obligations of the
type described in Section 2.5 hereof, any litigation, proceeding, or
investigation of the type described in Section 2.7 hereof, or any defects
in title or mortgages, encumbrances or liens of the type described in
Section 2.9 hereof.
(e) The shares of Target Common Stock have been duly and validly
authorized and issued, and are fully paid and nonassessable.
8.5 TAX OPINION. Parent, Sub and Target shall have received an
opinion of counsel from Brenman Bromberg & Tenenbaum, P.C., dated the
Effective Date, in form and substance satisfactory to both parties, to the
effect that the Transaction shall qualify as a tax-free reorganization
pursuant to Section 368 of the Internal Revenue Code.
14
<PAGE>
8.6 ACCOUNTANT'S LETTER. Parent shall have received a letter from
Bennett Block Accountancy Corp., certified public accountants, dated the
Effective Date, in form and substance satisfactory to Parent, stating that
on the basis of consultation with officers of Target, a limited review (but
not an audit) of Target's accounting records, and other specified
procedures and inquiries, which Parent may request in writing, nothing has
come to their attention which indicates that there has been any material
adverse change in the financial condition of Target during the period from
inception to a specified date not more than five days prior to the
Effective Date.
8.7 FUNDING. Target will conduct a private placement of its common
stock which shall result in gross proceeds of up to $3,210,000 (the
"Private Placement"). The Private Placement will be made under the
provisions of Regulation D promulgated under the Securities Act of 1933, as
amended. The offering will be made only to "Accredited Investors" as that
term is defined in Regulation D. In connection with the Private
Placement, the Company may grant options as remuneration to certain broker-
dealers and persons who are not broker-dealers who introduce the company to
investors ("finders") in those jurisdictions where permissible.
8.8 DUE DILIGENCE. Parent shall have completed a due diligence review
of all books, records and business and financial affairs of Target
reasonably satisfactory to it.
Section 9. Designation of Agent for Service
--------------------------------------------
As of the Effective Date, the Surviving Corporation hereby irrevocably
appoints Roy Azarnoff as its agent to accept service of process in any
action, suit or proceeding for the enforcement of any obligations of Target
for which the Surviving Corporation is liable under this Agreement or the
laws of California.
Section 10. Stand-still Agreement and Break-off Fee
----------------------------------------------------
From and after the date of this Agreement and up to and including the
Closing Date both parties agree to conduct their respective businesses in
the ordinary course and agree that during such period each shall have the
exclusive right to negotiate with the other with respect to the Merger and
during such period each party agrees not to directly or through
intermediaries solicit, entertain or otherwise discuss with any person or
entity any other offer and neither Parent nor Target will issue or agree to
issue, except as otherwise disclosed in this Agreement, any additional
securities without the consent of the other party. Without the consent of
the other party, neither party will, except in the ordinary course of
business, transfer assets or create liabilities other than those
contemplated herein. All reasonable expenses incurred in connection with
the completion of the transactions contemplated herein shall be deemed to
be in the ordinary course of business. Should any party be in violation of
this provision, it shall pay the other party the greater of: (i) its
expenses on an accountable basis, including time of its personnel and
representatives reasonably incurred in connection with the Transactions;
or, (ii) the sum of $25,000 as a Break-Off Fee within ten (10) days of
written notice from the other party and if
15
<PAGE>
any party fails to pay such fee, it shall be liable to the other party for
interest at the rate of eighteen percent (18%) per annum together with
reasonable attorneys fees for collection.
Section 11. Notice of Events
-----------------------------
Each party shall promptly notify each other party of (a) any event,
condition or circumstance occurring from the date hereof through the
Closing Date that would constitute a violation or breach of this Agreement,
or (b) any event, occurrence, transaction or other item which would have
been required to have been disclosed on any Schedule, Exhibit or statement
delivered hereunder, had such event, occurrence, transaction or item
existed on the date hereof, other than items arising in the ordinary course
of business which would not render a change in any of the representations,
warranties or other agreements of said party.
Section 12. Termination
------------------------
12.1 CIRCUMSTANCES OF TERMINATION. This Agreement may be terminated
(notwithstanding approval by the shareholders of Target hereto):
(a) By the mutual consent in writing of the Boards of Directors of
Target and Parent.
(b) By the Board of Directors of Target if any condition provided in
Section 7 hereof has not been satisfied or waived on or before the
Effective Date.
(c) By the Board of Directors of Parent if any condition provided in
Section 8 hereof has not been satisfied or waived on or before the
Effective Date.
(d) By the Board of Directors of Parent if the Closing has not
occurred by February 28, 1999, subject to an extension of up to 10 days
which may be exercised by Parent upon written notice to Target.
12.2 EFFECT OF TERMINATION. In the event of a termination of this
Agreement pursuant to Section 12.1(a) hereof, each party shall pay the
costs and expenses incurred by it in connection with this Agreement and no
party (or any of its officers, directors and shareholders) shall be liable
to any other party for any costs, expenses, damage or loss of anticipated
profits hereunder.
In the event of a termination of this Agreement pursuant to Sections
12.1(b), (c) and (d) hereof, the party at fault shall be liable to the
other party for all reasonable costs and expenses, but shall not be liable
for damage or loss of anticipated profits hereunder except as set forth in
Section 10 hereof.
16
<PAGE>
Section 13. General Provisions
------------------------------
13.1 FURTHER ASSURANCES. At any time, and from time to time, after
the Effective Date, each party will execute such additional instruments and
take such action as may be reasonably requested by the other party to
confirm or perfect title to any property transferred hereunder or otherwise
to carry out the intent and purposes of this Agreement.
13.2 WAIVER. Any failure on the part of either party hereto to comply
with any of its obligations, agreements or conditions hereunder may be
waived in writing by the party to whom such compliance is owed.
13.3 ENTIRE AGREEMENT. This Agreement constitutes the entire
agreement between the parties and supersedes and cancels any other
agreement, representation, or communication, whether oral or written,
between the parties hereto relating to the transactions contemplated herein
or the subject matter hereof.
13.4 HEADINGS. The section and subsection headings in this Agreement
are inserted for convenience only and shall not affect in any way the
meaning or interpretation of this Agreement.
13.5 GOVERNING LAW. This Agreement shall be governed by and construed
and enforced in accordance with the laws of the State of Colorado, without
regard to conflict of laws. This Agreement shall be subject to the
jurisdiction and venue of the state and federal courts situated in Denver,
Colorado.
13.6 ASSIGNMENT. This Agreement shall inure to the benefit of, and be
binding upon, the parties hereto and their successors and assigns;
provided, however, that any assignment by either party of its rights under
this Agreement without the written consent of the other party shall be
void.
13.7 COUNTERPARTS. This Agreement may be executed simultaneously in
two or more counterparts, each of which shall be deemed an original, but
all of which together shall constitute one and the same instrument.
Section 14. Survival of Representations, Warranties and Agreements
-------------------------------------------------------------------
All of the representations and warranties of the parties contained in
this Agreement shall survive for a period of two years after the Closing
Date.
17
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Section 15. Indemnity Agreements of Parent and Target
------------------------------------------------------
Parent and Target each shall indemnify, defend, reimburse and hold
harmless the other from and against any and all Losses resulting from:
(a) Any inaccuracy in, or breach of, any representation and warranty
or nonfulfillment of any covenant on the part of Parent or Target,
respectively, contained in this Agreement.
(b) Any misrepresentation in or omission from or nonfulfillment of
any covenant on the part of Parent or Target, respectively, contained in
any other agreement, certificate or other instrument furnished or to be
furnished to the other party by that party pursuant to this Agreement.
Section 16. Other Agreements
-----------------------------
16.1 PUBLIC DISCLOSURE. None of the parties hereto shall issue any
press release or otherwise make any public statement with respect to the
transactions contemplated hereby not required by law except upon the
written consent of the other party hereto. Such approval shall not be
unreasonably withheld.
16.2 NOTICES. All consents, waivers, notices and other communications
hereunder shall be in writing and shall be deemed to have been duly given
if delivered personally or sent by facsimile transmission or by overnight
courier to the parties at the following addresses or at such other
addresses as shall be specified by the parties by like notice:
(1) If to Parent or Sub to:
Versailles Capital Corp.
c/o LMU & Company
1200 17th Street, Suite 1000
Denver, Colorado 80202
Attn: L. Michael Underwood, President
(303) 534-1119 (Telephone)
(303) 534-1016 (Fax)
With a copy to:
Jon D. Sawyer, Esq.
Krys Boyle Freedman & Sawyer, P.C.
600 17th Street, #2700
South Tower
Denver, Colorado 80202
(303) 893-2300 (Telephone)
(303) 893-2882 (Fax)
18
<PAGE>
(2) If to Target to:
British Lion Medical, Inc.
21550 Oxnard Street, Suite 835
Woodland Hills, CA 91367
Attn: Lois Rezler, President
(818) 646-0400 (Telephone)
(818) 676-0010 (Fax)
With a copy to:
A. Thomas Tenenbaum, Esq.
Brenman Bromberg & Tenenbaum, P.C.
Mellon Financial Center, Suite 1001
1775 Sherman Street
Denver, CO 80203
(303) 894-0234 (Telephone)
(303) 839-1633 (Fax)
Any party may change the address to which notices, requests, demands and
other communications hereunder are to be sent to such party by giving the
other parties hereto written notice thereof in accordance with this Section
16.2.
16.3 BINDING EFFECT. This Agreement shall be binding upon and shall
inure to the benefit of the parties and their respective successors and
assigns; provided that this Agreement may not be assigned by any party
without the consent of the other parties.
16.4 ENTIRE AGREEMENT. This Agreement (including the Exhibits and
Schedules referred to herein) constitutes the entire agreement and
supersedes all other prior agreements and undertakings, both written and
oral, among the parties, or any of them, with respect to the subject matter
hereof.
16.5 SCHEDULES AND EXHIBITS. The Schedules and Exhibits referred to
in this Agreement shall be construed as an integral part of this Agreement
as if the same had been set forth herein and shall be satisfactory in form
and substance to each party hereto.
16.6 APPLICABLE LAW AND JURISDICTION. This Agreement shall be
governed in all respects, including validity, interpretation and effect, by
the laws of the State of Colorado without regard to conflict of law. This
Agreement shall be subject to the jurisdiction and venue of the state and
federal courts situated in Denver, Colorado.
16.7 NO BENEFIT TO THIRD PARTIES. No provision of this Agreement is
intended to confer any rights or remedies upon any person not a party of
this Agreement.
16.8 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall constitute an original but all of which,
when taken together, shall constitute only one document. It shall not be
necessary
19
<PAGE>
in making proof of this Agreement to produce or account for more than one
such counterpart.
16.9 ACKNOWLEDGMENTS.
(a) The parties represent and acknowledge that each has been
represented and advised by counsel in connection with this Agreement.
(b) Parent will prepare and file a registration statement on Form S-8
with the Securities and Exchange Commission. Pursuant to an agreement
between the Parent and LMU & Company ("LMU"), the Parent will exchange the
shares owned by LMU for a like number of shares registered under the Form
S-8 Registration Statement.
(c) Parent acknowledges that in connection with the merger management
of Target intends (but is not obligated) to sell up to 200,000 shares of
Target Common Stock representing less than five percent of Parent Common
Stock to be issued and outstanding upon completion of the merger at $1.50
per share, and that such shares will be subject to a two (2) year lock-up
agreement between the purchaser and the seller, which is less than the
share price of Target Private Placement set forth in Section 8.8 hereof.
(d) The parties represent and acknowledge that following the merger,
the Board of Directors of the Parent will submit to a vote of its
shareholders the following amendments to its Articles of Incorporation: (A)
recapitalize its authorized 6 billion shares of Common Stock, $0.05 par
value per share, to 50,000,000 shares of Common Stock, $0.01 par value per
share, and its issued and outstanding shares of Common Stock, $0.05 par
value per share, from 1,284,116 shares to 256,823 shares, $0.01 par value
per share, by a reverse split of 1 share for 5 shares; (B) authorize
10,000,000 shares of Preferred Stock, $.01 par value per share, the series
and preferences of which the Board of Directors shall be authorized to
designate; and (C) change its name to Amerimmune Pharmaceuticals, Inc.
IN WITNESS WHEREOF, this Agreement has been duly executed by the
parties hereto as of the day and year first above written.
VERSAILLES CAPITAL CORP., a Colorado
corporation ("Parent")
By /s/ L. MICHAEL UNDERWOOD
------------------------------------
President
AMERIMMUNE, INC., a Colorado corporation
("Sub")
By /s/ L. MICHAEL UNDERWOOD
------------------------------------
President
20
<PAGE>
BRITISH LION MEDICAL, INC., a California
corporation ("Target")
By /s/ LOIS REZLER
------------------------------------
Lois Rezler, President
21
EXHIBIT 3.3
ARTICLES OF MERGER
BY AND AMONG
VERSAILLES CAPITAL CORP., AMERIMMUNE, INC.
AND
BRITISH LION MEDICAL, INC.
Pursuant to the provisions of the Colorado Business Corporation Act,
the undersigned corporations adopt the following Articles of Merger:
FIRST: Annexed hereto and made a part hereof is the Agreement and
Plan of Merger regarding the merger of British Lion Medical, Inc., a
California profit corporation, with and into Amerimmune, Inc., a newly
created Colorado profit corporation and wholly owned subsidiary of
Versailles Capital Corp., a Colorado corporation (collectively, the
"Constituent Corporations").
SECOND: As to each of the Constituent Corporations, whose
shareholders were required to vote for approval, the number of shares cast
for the Agreement and Plan of Merger by each voting group entitled to vote
separately on the merger was sufficient for approval by that voting group.
THIRD: The merger shall become effective upon the filing of these
Articles of Merger with the Colorado Secretary of State.
IN WITNESS WHEREOF, the undersigned Constituent Corporations, through
their respective Presidents, duly executes the above and foregoing Articles
of Merger as of this 23 day of February, 1999.
VERSAILLES CAPITAL CORP. AMERIMMUNE, INC.
(a Colorado corporation) (a Colorado corporation)
By /s/ L. MICHAEL UNDERWOOD By /s/ L. MICHAEL UNDERWOOD
------------------------------- -------------------------------
L. Michael Underwood, President L. Michael Underwood, President
BRITISH LION MEDICAL, INC.
(a California corporation)
By /s/ LOIS REZLER
-------------------------------
Lois Rezler, President
EXHIBIT 10.1
PATENT AND TRADEMARK LICENSE AGREEMENT
This Agreement is entered into as of October 24, 1998, between THREE
R ASSOCIATES, INC., a California corporation ("Licensor"), and BRITISH LION
MEDICAL, INC., a California corporation ("Licensee").
RECITALS:
WHEREAS, Licensor represents that upon the occurrence of certain
conditions set forth in this Agreement it will be the sole owner of all
right, title and interest in the inventions, processes and improvements
described and claimed in United States Patent No. 5,424,066 entitled METHOD
FOR INCREASING CD4+ CELL NUMBERS THROUGH THE USE OF MONOCLONAL ANTIBODIES
DIRECTED AGAINST SELF-REACTIVE, CD4 SPECIFIC CYTOTOXIC T-CELLS issued June
13, 1995 and United States Patent No. 5,651,970 entitled METHOD FOR
INHIBITING DISEASE ASSOCIATED WITH THE HUMAN IMMUNODEFICIENCY VIRUS THROUGH
THE USE OF MONOCLONAL ANTIBODIES DIRECTED AGAINST ANTI-SELF CYTOTOXIC
T-LYMPHOCYTES OR THEIR LYTICS, issued July 29, 1997 (the "Patents"), as well
as corresponding foreign patent applications filed thereon, together with
any continuations, divisional or continuation-in-part applications and all
other applications relating in any way to the subject matter described in
the Patents and any letters patent related thereto as well as any reissue
and/or re-examined patents issuing thereon (the "Patent Rights"), together
with (i) all know-how, intellectual
<PAGE>
property, technical expertise, inventions, information, improvements,
computer programs, algorithms, data, discoveries, ideas, and concepts,
whether or not patentable or copyrightable, including but not limited to
medical, clinical, chemical, pharmaceutical, pharmacological, topological,
toxicological or other scientific data (including without limitation
preclinical and clinical data, notes, reports, models and samples), unique
methods, processes, techniques, designs, formulae, configurations of any
kind, computer graphics, apparatus, products, devices, software,
specifications, drawings and all testing, assaying and analysis
methodologies in any manner pertaining or relating to, resulting from or
useful in connection with the Patents or Patent Rights (the "Know-How"),
(ii) all products that embody or make use of all or any part of the Patents
or Patent Rights or Know-how (the "Products"), (iii) all documents and
information in any form that have been originated by, are peculiarly within
the knowledge of or are proprietary to the inventor, Allen D. Allen, in
whole or in part, and are subject to protection under recognized legal
principles as trade secrets or otherwise pertaining or relating to,
resulting from or useful in connection with the design, manufacture,
installation, sales, marketing, administration, use, repair or operation of
products, processes or services pertaining or relating to, resulting from
or useful in connection with the Patents or Patent Rights or Know-how or
Products (the " Trade Secrets") (such Patents, Patent Rights, Know-how,
Products and Trade Secrets are hereinafter collectively referred to as the
"Technology"); that it will be the exclusive
-2-
<PAGE>
licensee of the trademark Cytolin (the "Trademark") with the right to
sublicense the use of the Trademark; and that it will have the sole
authority to enter into this Agreement and to grant the rights, licenses
and privileges herein provided for; and
WHEREAS, Licensee desires to obtain the irrevocable, exclusive and
worldwide right, license and privilege to use the Technology and all
improvements in the Technology which hereafter may be made or acquired by
Licensor or Licensee, or with respect to which Licensor may obtain the
right to grant licenses, and to obtain the exclusive right to use the
Trademark.
AGREEMENT
NOW, THEREFORE, in consideration of the mutual promises and covenants
set forth herein, the parties agree as follows:
1. LICENSE.
(a) Subject to satisfaction of the conditions set forth in the
following paragraph, Licensor grants to Licensee the irrevocable, exclusive
and worldwide right, license and privilege to use the Technology and all
improvements, applications and patents for any improvements thereto which
hereafter may be acquired or made by Licensor, or with respect to which
Licensor may obtain the right to grant licenses and to use the Trademark.
Except as otherwise provided herein, this license shall be exclusive even
against Licensor. Licensor further grants to
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Licensee the right to stamp, designate and advertise all products using the
Technology under such names, designs and/or appellations as Licensee may
determine in its sole discretion, including the Trademark. This license is
subject to the limitation that Licensee may not manufacture, use or sell
products using the Technology in any country in which Licensee has not
applied for patent protection.
(b) Notwithstanding the preceding paragraph and any other term
of this Agreement, this license will not be effective until the later to
occur of: (i) Western Center for Clinical Studies, Inc. or an affiliate
company has entered into a management contract with Licensee; and (ii)
Licensee being merged (the "Merger") into a publicly held company or
subsidiary thereof (the "Conditions").
2. REPRESENTATIONS OF LICENSOR. Licensor covenants and represents
as follows:
(a) Upon satisfaction of the Conditions, it will be the sole owner of
all right, title and interest in the Technology and the exclusive licensee
of the Trademark with the right to sublicense the use of the Trademark.
(b) It has at no time filed, or caused to be filed, applications for
patents, or obtained in its name or caused to be obtained in the name of
others, any patents in the United States
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<PAGE>
or elsewhere in respect of the Technology or any technology similar
thereto.
(c) It has no knowledge that, upon satisfaction of the Conditions,
there will be any other person, firm or corporation having any right, title
or interest in the Technology or the Trademark (except for the Trademark
owner).
(d) Licensor knows of no prior art not disclosed in the Patents.
(e) Upon satisfaction of the Conditions, there will be no outstanding
options, licenses or agreements of any kind relating to the Technology, or
to the manufacture, use or sale of products using the Technology, or to the
Trademark (except for the Trademark license between Licensor and the
Trademark owner).
(f) Upon satisfaction of the Conditions, it will have the full power
to grant the rights, licenses and privileges herein given.
3. DISCLOSURE AND FURTHER AGREEMENTS.
(a) Following the effectiveness of this Agreement, Licensor shall
furnish to Licensee at its request, or to its nominees and patent
attorneys, all information and documents regarding the Technology,
including a description of the processes which the
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Technology incorporates, in order to enable Licensee to operate hereunder.
(b) Licensee agrees to assume responsibility for prosecution of any
subsequent patent applications and shall pay all the costs thereof,
including but not limited to, attorneys', engineering and drafting fees and
all other costs that accrue after the date of this Agreement.
(c) Licensor grants to Licensee the right to file for patent
protection for the Technology and trademark protection for the Trademark,
in the name of Licensor, in all countries of the world, at Licensee's sole
cost and expense.
(d) Licensor shall deliver to Licensee, immediately upon
effectiveness of this Agreement, all research and development reports and
studies that have been completed or compiled as of the date hereof, and all
other data relating to the Technology, and shall execute all papers,
documents and instruments necessary to enable Licensee to cause to be
prepared, filed and prosecuted, at Licensee's expense, applications for
letters patent and trademark protection within such countries of the world
as Licensee shall, in its sole discretion, determine is advisable.
(e) Licensee shall mark all products using the Patents manufactured
and distributed under this Agreement with patent numbers in accordance with
statutory requirements and, pending
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<PAGE>
the issue of any patents, shall stamp such products "Patent Applied For".
(f) All improvements to the Technology, whether or not patented,
shall be the exclusive property of Licensor, subject to the license hereby
granted. For purposes of this Agreement, "improvement" shall include any
method, process, technology, device, finding, discovery, invention,
addition, modification, formulation or product within the scope of the
Technology that improves, modifies or changes the performance, reliability,
effectiveness, ease of use, marketability, and/or maintenance of the
Technology and its components.
(g) Licensor shall, upon demand, execute and deliver to Licensee such
documents as may be reasonably required by Licensee for filing in the
appropriate patent offices to evidence the granting of the exclusive
license hereby given. Licensor and Licensee shall each provide copies to
the other of all correspondence and filings with the United States Patent
Office and the patent authorities of all other countries in which Licensee
files for patent protection.
4. LICENSE FEE. As full and complete consideration for the license
granted hereunder, Licensee:
(a) shall issue to Licensor simultaneously with the satisfaction
of the Conditions 3,075,000 shares of common stock of
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Licensee, which shall be fully paid and nonassessable upon the issuance
thereof (the "Stock"); and
(b) hereby assumes and agrees to pay the obligation of Licensor
to pay Allen D. Allen ("Allen") an amount at the rate of $90,000 a year
commencing on the date Licensee is merged into a publicly held company,
with such consideration being increased 5% on August 1 of each succeeding
year until the effective date of the termination of the letter consulting
agreement entered into as of August 1, 1998 between Licensor and Allen, and
with such consideration being paid on the first day of each month and
partial years being paid on a pro rata basis.
5. RESTRICTED STOCK AND TRANSFER RESTRICTIONS.
(a) Licensor understands that the Stock will be restricted
securities within the meaning of Rule 144 of the General Rules and
Regulations under the Securities Act of 1933 as amended (the "Act"), and
applicable state statutes. Licensor further understands that (i) an
appropriate restrictive legend (or legends) will be placed on the
certificates representing the Stock and that (ii) the stock transfer
records of Licensee will be noted to reflect such restrictions. Because
the Stock is "restricted" as defined under Rule 144, Licensor understands
that the Stock must be held for a minimum of one year following its
transfer to it. Thereafter, the Stock may be sold, and Licensor agrees it
will be sold, only in the amounts and the manner specified in Rule 144
unless first registered under the Act and
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any applicable state securities laws or unless the availability of an
exemption from such registration requirement is established to the
satisfaction of Licensee.
(b) Licensor agrees not to offer, sell or contract to sell or
otherwise dispose of, directly or indirectly, or announce an offering of,
any of the Stock, including any hereafter acquired shares of Licensee
common stock (nor any securities convertible into, or exchangeable for,
shares of the Licensee's common stock) for a period of two years following
the date of this Agreement.
6. BOOKS AND RECORDS. Licensee shall keep accurate books and
records which shall contain all information necessary to enable Licensor to
audit Licensee's compliance with this Agreement. Licensee shall make these
records available for copying, inspection and auditing, at Licensee's
expense, by any representative designated by Licensor, during normal
business hours at Licensee's principal office, upon seven days' prior
written notice, no more frequently than annually.
7. ASSIGNMENT. This Agreement may not be assigned by Licensee
without the prior written consent of Licensor; provided, however, that
Licensee may assign this license and its rights under this Agreement to any
entity which shall succeed to substantially all of its business and
property and which shall
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assume all of its obligations hereunder, and that the Merger shall not be
deemed an assignment.
8. SUBLICENSES.
(a) Licensee may sublicense the Technology and the Trademark with the
prior consent of Licensor. If Licensor does not object to a sublicense
agreement presented to it by Licensee for its approval within sixty days
after delivery thereof to Licensor, Licensor shall be deemed to have
consented to the sublicense.
(b) Within ten days following the execution of any such sublicense
agreement, Licensee will furnish to Licensor a signed copy of such
agreement.
(c) Licensor acknowledges that Licensee intends to contract with one
or more manufacturers to produce products using the Technology, and agrees
that such action shall not be deemed to be a "sublicense" requiring the
prior consent of Licensor. Licensee shall require all such manufacturers
to execute an agreement pursuant to which they covenant not to disclose any
proprietary information relating to the Technology.
9. IMPROVEMENTS.
(a) Licensee shall have the right to improve the Technology through
its own research and development, provided that all
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improvements resulting therefrom shall be subject to this Agreement.
(b) If, during the continuance of this license, Licensor makes any
further improvements in the Technology or in the mode of using the
Technology, or becomes the owner of any such improvements, either through
patents or otherwise, then Licensor shall communicate any such improvements
to Licensee and give Licensee full information regarding the mode of using
them, and Licensee shall be entitled to use the same with all rights which
are hereby granted to Licensee in respect of the Technology without paying
additional consideration therefor. In its discretion, Licensee may apply
for and prosecute patents on such improvements in the name of Licensor or
require Licensor to apply for and prosecute such patents on improvements at
Licensee's cost.
10. INFRINGEMENT.
(a) If Licensor or Licensee becomes aware of any infringement of any
patent issued with respect to the Technology or of the Trademark, such
party shall immediately notify the other party, in writing, of the details
of such infringement. If any such infringement is within the United
States, Licensee shall, at its expense, prosecute any action necessary to
protect the rights of each of the parties to this Agreement. If Licensee
does not prosecute such action, this license shall terminate unless this
requirement is waived by Licensor in writing. If
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such infringement is in a foreign country, and such infringement is
"substantial," Licensee shall, at its expense, prosecute any action
necessary to protect the rights of each of the parties to this Agreement.
If Licensee does not prosecute such action, Licensee's exclusive license to
manufacture, use, sell and sublicense in such country shall terminate. For
purposes of this paragraph, an infringement within a foreign country will
be deemed to be "substantial" if Licensee, or its sublicensee, experiences
more than a 25% reduction in sales in such country after introduction in
the market in such country of the infringing product. Licensee shall be
responsible for all costs, expenses and judgments associated with such
prosecutions, and shall be solely entitled to any monetary award or
judgment resulting therefrom.
(b) Should any action be commenced against Licensor or Licensee, by
the filing of a complaint or otherwise, which alleges that the Technology,
or any of its improvements included within the scope of the license granted
hereunder, or the Trademark infringes the claims of any letters patent or
proprietary information or trademark of a third party, Licensee shall
defend such action at its cost and expense, and Licensor shall cooperate
fully with such defense.
(c) If Licensor is compelled in any suit which Licensee may institute
or defend to join Licensee as a party plaintiff or party defendant, then
Licensor shall not be chargeable for any
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costs or expenses, except its attorneys' fees should it elect separate
representation, except as otherwise specifically provided herein. In
connection with such suit, Licensor shall execute all documents necessary
or desirable, and Licensor shall testify in any suit when requested to do
so by Licensee.
11. PRODUCT LIABILITY INDEMNIFICATION.
Licensee shall indemnify and hold harmless Licensor from and
against all product liability claims by persons purchasing products using
the Technology from Licensee. Licensee shall require any sublicensee to
agree to indemnify and hold harmless Licensor from and against all product
liability claims by persons purchasing such products from such sublicensee
and/or its agents or distributors.
12 TERM AND TERMINATION.
(a) This Agreement shall terminate (i) with respect to the
Patents or any other patent covered by this Agreement, upon the expiration
of such Patents or patents; (ii) with respect to the Know-how and Trade
Secrets, and any improvements thereto, and the Trademark, upon termination
of this Agreement as provided in the following subsection, it being the
intent of the parties that, absent such termination, the license with
respect to such Know-how, Trade Secrets, improvements and Trademark, will
be in perpetuity.
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<PAGE>
(b) Licensor may terminate this Agreement for a breach of this
Agreement by delivering written notice to Licensee setting forth that
Licensee is in breach of this Agreement and specific statements of such
breach or breaches (the "Written Notice"). This Agreement will terminate
(i) 30 days after receipt of the Written Notice if breaches capable of
being corrected within such 30 days have not been corrected, or (ii) for
breaches not capable of being corrected within 30 days of receipt of the
Written Notice, if commencement of correction of such breaches is not made
within such 30 days and prosecuted reasonably diligently thereafter.
(c) Upon termination of this Agreement, Licensee shall transfer
to Licensor all rights which it may have, if any, to the Technology and all
improvements thereto and the Trademark, together with all of its trade
names and trademarks in respect thereof, and all rights to any sublicenses
which may have been granted pursuant to the terms hereof.
13. NO PARTNERSHIP JOINT VENTURE OR AGENCY. Nothing in this
Agreement shall be deemed or construed to constitute or create between the
parties hereto a partnership, joint venture or agency.
14. BINDING ARBITRATION.
(a) All disputes arising out of or relating to this Agreement or the
relationship of the parties, including the
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termination thereof and all tort and contract actions, shall be resolved by
binding arbitration in the City of Los Angeles, State of California, under
the Commercial Arbitration Rules of the American Arbitration Association
(the "Rules"), subject to the following limitations.
(b) The arbitration panel shall consist of three members, all of whom
shall be attorneys with experience in resolving contractual disputes and
who shall be neutral parties. The arbitrators shall be empowered to award
actual compensatory money damages and punitive damages, and shall be
empowered to award specific performance, injunctive relief or other
equitable relief. The award of the arbitrators shall be in writing and
shall specify the factual and legal bases for the award. Each party shall
be responsible for its own legal fees; however, the fees and expenses of
the arbitrators shall be paid by the party which does not substantially
prevail.
(c) The arbitrators will decide if any inconsistency exists between
the Rules, as applicable, and the arbitration provisions contained in this
Agreement. If any such inconsistency exists, the arbitration provisions
contained herein will control and supersede the Rules. In rendering the
award, the arbitrator shall determine the rights and obligations of the
parties strictly in accordance with the terms of this Agreement and upon no
other basis, interpreting such Agreement by applying the substantive laws
of the State of California. The failure of the
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arbitrators to abide by this requirement shall be grounds for vacating of
the arbitration award.
(d) All arbitration proceedings, including testimony or evidence at
hearings, will be kept confidential, although any award or order rendered
by the arbitrator or director of arbitration pursuant to the terms of this
Agreement may be entered as a judgment or order.
(e) Any arbitration proceeding must be instituted within two years
after the date the incident giving rise thereto occurred, whether or not
any damage was sustained or capable of ascertainment or either party knew
of such incident. Failure to institute arbitration proceedings within such
period will constitute an absolute bar and waiver to the institution of any
proceedings with respect to such dispute. No arbitration hereunder will
include, by consolidation, joinder or otherwise, any third party, unless
such third party agrees to arbitrate pursuant to the arbitration provisions
contained herein and the Rules, as applicable.
(f) The parties further agree that neither shall commence any
litigation against the other arising out of this Agreement with respect to
any arbitration proceeding or award, except in a court located in the State
of California. Each party consents to jurisdiction over it by, and
exclusive venue in, such a court by a judge without a jury. If either
party brings any action for
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judicial relief with respect to any dispute.which is required to be
arbitrated hereunder, the party bringing such action will be liable for and
shall immediately pay all of the other party's costs and expenses
(including reasonable attorneys' fees) incurred to stay or dismiss such
action and remove or refer such dispute to arbitration. If either party
brings or appeals an action to vacate or modify an arbitration award and
such party does not prevail, such party will pay all costs and expenses,
including attorneys' fees, incurred by the other party in defending such
action.
(g) Any award rendered will be final and binding upon the parties.
Any judgment on the award may be entered in and enforced by any court
having jurisdiction.
15. NOTICE. Any notice, payment or statement required by this
Agreement shall be sent in writing and addressed as follows or to such
other address as either party may designate by delivery of written notice
to the other party as provided in this paragraph.
To Licensor:
Three R Associates, Inc.
Warner Center Plaza,
21550 Oxnard Street,
Woodland Hills, California, 91367
To Licensee:
British Lion Medical, Inc.
Warner Center Plaza,
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21550 Oxnard Street,
Woodland Hills, California, 91367
Any written notice or communication shall be personally delivered,
telecopied, telexed, faxed or marked certified mail, return receipt
requested, to the other party. Delivery or service of any written notice
or communication shall be deemed completed (a) if personally delivered,
upon such delivery, (b) if telecopied, telexed or faxed, upon
acknowledgment thereof, or (c) if mailed, upon 72 hours after deposit in
the mail.
16. CONSTRUCTION.
(a) Any waiver by Licensor or Licensee of any rights arising from any
breach of any term of this Agreement shall not be construed as a continuing
waiver of other breaches of the same or other terms of this Agreement by
Licensee or Licensor, respectively.
(b) This Agreement constitutes the entire Agreement between the
parties and replaces any prior agreements between them. No alteration of,
or amendment to, this Agreement shall be effective unless given in writing
and signed by the party or parties sought to be charged or bound by the
alteration or amendment.
(c) Neither party shall be deemed to have waived any rights under
this Agreement unless such waiver is given in writing and signed by such
party. No delay or omission on the part of either party in exercising any
right shall operate as a waiver of such
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right or any other right. No prior waiver by a party, nor any course of
dealing between the parties, shall constitute a waiver of any of such
party's rights or of any of the other party's obligations as to any future
transactions. Whenever the consent of a party is required under this
Agreement, the granting of such consent by such party in any instance shall
not constitute continuing consent to subsequent instances where such
consent is required and in all cases such consent may be granted or
withheld in the sole discretion of such party.
(d) This Agreement shall be binding upon and inure to the benefit of
the legal representatives and assigns of Licensor and to the successors
and, subject to the terms of Section 6 hereof, assigns of Licensee.
(e) If any provision of this Agreement is held invalid or
unenforceable to any extent, the remainder of this Agreement, other than
those provisions as to which it shall have been held invalid or
unenforceable, shall not be affected thereby and shall continue valid and
enforceable to the fullest extent permitted by law.
(f) This Agreement shall be construed and interpreted in accordance
with the laws of the State of California without regard to the choice of
law provisions thereof.
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(g) Any provision of this Agreement which imposes an obligation after
termination or expiration of this Agreement shall survive the termination
or expiration of this Agreement and be binding on the parties hereto.
IN WITNESS WHEREOF, the parties have executed this Agreement.
Licensor:
THREE R ASSOCIATES, INC.
By: /s/ ROY AZARNOFF
------------------------------
Vice President
Licensee:
BRITISH LION MEDICAL, INC.
By: /s/ LOIS REZLER
------------------------------
President
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EXHIBIT 10.2
TERMINATION, SALE AND SHAREHOLDER AGREEMENT
THIS TERMINATION, SALE AND SHAREHOLDER AGREEMENT (this
"Agreement") is entered into as of August 1, 1998 among THREE R ASSOCIATES,
INC., a California corporation (the "Company"), having an office at Warner
Center Plaza, 21550 Oxnard Street, Woodland Hills, California, 91367, ALLEN
D. ALLEN, residing at 4236 Longridge Avenue, #302, Studio City, California
91604 ("Allen") and CYTODYN OF NEW MEXICO, INC., a New Mexico Corporation
("CytoDyn"), having an office at 4236 Longridge Avenue, Suite 302, Studio
City, California; and for purposes of Articles IV, V and VI of this
Agreement, Lois Rezler, Ph.D., residing at 10947 Canoga Avenue, Chatsworth,
California 91311, Roy S. Azarnoff, Ph.D., residing at 19011 Leadwell
Street, Reseda, California, 91335 and Daniel L. Azarnoff, M.D., residing at
210 Robin Road, Hillsboro, California 94010.
WHEREAS, Allen represents that he is the sole owner of all right,
title and interest in the inventions, processes and improvements described
and claimed in United States Patent No. 5,424,066 entitled METHOD FOR
INCREASING CD4+ CELL NUMBERS THROUGH THE USE OF MONOCLONAL ANTIBODIES
DIRECTED AGAINST SELF-REACTIVE, CD4 SPECIFIC CYTOTOXIC T-CELLS issued June
13, 1995 and United States Patent No. 5,651,970 entitled METHOD FOR
INHIBITING DISEASE ASSOCIATED WITH THE HUMAN IMMUNODEFICIENCY VIRUS THROUGH
THE USE OF MONOCLONAL ANTIBODIES DIRECTED AGAINST ANTI-SELF CYTOTOXIC
T-LYMPHOCYTES OR THEIR LYTICS, issued July 29, 1997
<PAGE>
(the "Patents"), as well as corresponding foreign patent applications filed
thereon, together with any continuations, divisional or continuation-in-part
applications and all other applications relating in any way to the
subject matter described in the Patents and any letters patent related
thereto as well as any reissue and/or re-examined patents issuing thereon
(the "Patent Rights"), together with (i) all know-how, intellectual
property, technical expertise, inventions, information, improvements,
computer programs, algorithms, data, discoveries, ideas, and concepts,
whether or not patentable or copyrightable, including but not limited to
medical, clinical, chemical, pharmaceutical, pharmacological, topological,
toxicological or other scientific data (including without limitation
preclinical and clinical data, notes, reports, models and samples), unique
methods, processes, techniques, designs, formulae, configurations of any
kind, computer graphics, apparatus, products, devices, software,
specifications, drawings and all testing, assaying and analysis
methodologies in any manner pertaining or relating to, resulting from or
useful in connection with the Patents or Patent Rights (the "Know-How"),
(ii) all products that embody or make use of all or any part of the Patents
or Patent Rights or Know-how (the "Products"), (iii) all documents and
information in any form that have been originated by, are peculiarly within
the knowledge of or are proprietary to Allen, in whole or in part, and are
subject to protection under recognized legal principles as trade secrets or
otherwise pertaining or relating to, resulting from or useful in connection
with the design,
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manufacture, installation, sales, marketing, administration, use, repair or
operation of products, processes or services pertaining or relating to,
resulting from or useful in connection with the Patents or Patent Rights or
Know-how or Products (the " Trade Secrets") (such Patents, Patent Rights,
Know-how, Products and Trade Secrets are hereinafter collectively referred
to as the "Technology");
WHEREAS, pursuant to a Patent License Agreement effective as of
July 1, 1994 between Allen and CytoDyn, Allen granted CytoDyn an exclusive
license to use certain parts of the Technology (the "CytoDyn License
Agreement");
WHEREAS, CytoDyn and Allen have agreed that it is in their best
interests that the CytoDyn License Agreement should be terminated in order
that Allen may sell all rights in the Technology to the Company, provided
the Company provides consideration to CytoDyn for such termination;
WHEREAS, in connection with such termination CytoDyn will license
the Company exclusively to use the trademark Cytolin;
WHEREAS, CytoDyn has purported to enter into a Non-Exclusive
Manufacturing License Agreement with Vista Biologicals Corporation dated as
of August 14, 1995 and a Non-Exclusive License Agreement with Discount
Medical Pharmacy dated as of
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June 8, 1995 (the "Sub License Agreements");
WHEREAS, CytoDyn represents and warrants it has given written
notice of termination of the Sub License Agreements in accordance with
their terms;
WHEREAS, subject to termination of the CytoDyn License Agreement,
Allen represents and warrants he has the sole power and right to enter into
this Agreement and to assign all rights, title and interest in the
Technology;
WHEREAS, the Company desires to obtain the sole ownership of the
Technology throughout the world; and
WHEREAS, the Company, Allen and the Majority Shareholders desire
to provide for certain future rights and obligations of each with respect
to the other in connection with the matters set forth above;
NOW, THEREFORE, in consideration of and in reliance upon the
mutual representations, promises and agreements set forth above and herein,
the parties hereto agree as follows:
I. TERMINATION OF LICENSE AGREEMENT AND LICENSE OF TRADEMARK
A. Termination and License.
-----------------------
In consideration of payment of the Termination Consideration, as
hereafter defined, to CytoDyn by the Company,
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CytoDyn and Allen agree: the CytoDyn License Agreement hereby is
terminated, (ii) CytoDyn has no ownership right, right to use or any other
right in the Technology, and (iii) the Company is granted the exclusive
right to use the Trademark Cytolin (the "Trademark").
B. Sub License Agreements.
----------------------
CytoDyn represents, warrants and agrees it has given written
notice of termination of the Sub License Agreements in accordance
with their terms. Attached hereto as Exhibit "A" are such
written notices (the "Notices").
C. Representations, Warranties and Agreements of CytoDyn
-----------------------------------------------------
1. CytoDyn represents, warrants and agrees:
a. Except for the Sub License Agreements, it has granted
no sublicenses or other rights, directly or indirectly,
by contract, operation of law or otherwise to any of
the rights covered by the CytoDyn License Agreement or
the Trademark;
b. To its knowledge and other than Allen and upon the
effective date of the Notices, there is no person, firm
or corporation having any right, title or interest in
the technology
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covered by the CytoDyn License Agreement or any part
thereof or the Trademark;
c. It has the full power to enter into this Agreement; no
consent of any other party is necessary or appropriate
for the execution and performance of this Agreement;
and, upon the effective date of the Notices, its
performance in connection with this Agreement will not
violate any agreement with any third party;
d. It has not done or omitted any act which would impair
the technology covered by the CytoDyn License Agreement
or any part thereof or the Trademark or its ability to
effect the transactions contemplated by this Agreement.
e. The Notices are binding and enforceable according to
their terms against the Sub Licensees;
f. It agrees the Company and New Co, a company to be
formed and in which, following this Agreement, Three R
and Allen will have ownership interests and with which
Three R will enter into a license agreement making
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available the Technology and the services of Allen and
with which Three R or an affiliated company will have
a management agreement ("New Co"), are third party
beneficiaries of the Exhibit A Agreements and New Co is
a third party beneficiary of this Agreement and CytoDyn
has no claim against such entities, their officers,
directors, employees, agents, representatives or
attorneys in connection with the termination of the
CytoDyn License Agreement or the Sub License Agreements
or the sale by Allen to the Company and the Company's
license to New Co of all of Allen's right, title and
interest in the technology and the Trademark covered in
whole or in part by such Agreements.
II. SALE OF THE TECHNOLOGY
A. Assignment.
----------
In consideration of the Sale Consideration, as hereafter defined,
but subject to the conditions set forth in the following paragraph, Allen
hereby transfers, sells and assigns his entire right, title and interest in
the Technology to the Company.
Notwithstanding the preceding paragraph and any other term of
this Agreement, the sale and assignment of the Technology
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is expressly contingent upon and will not be effective until the later to
occur of: (i) New Co is formed, its Board of Directors and officers are
elected and shares of its common stock are authorized and issued as
contemplated by this Agreement; (ii) Western Center For Clinical Studies,
Inc. or an affiliated company has entered into a management contract with
New Co (the "Management Contract"); (iii) Three R has entered into an
irrevocable, exclusive and worldwide License Agreement (subject to the
terms of the Management Contract and this Agreement) of the Technology with
New Co; and (iv) New Co has been merged into a publicly held company or
subsidiary thereof (the "Merger") (the "Conditions").
B. Representations, Warranties and Agreements of Allen.
---------------------------------------------------
Allen represents and warrants to, and agrees with, the Company
that:
1. He is the sole owner of all right, title and interest in the
Technology.
2. He has at no time filed, or caused to be filed, applications
for patents, or obtained in his name or caused to be
obtained in the name of others, any patents in the United
States or elsewhere in respect of the Technology or any
technology similar thereto, other than the Patents. The
Company acknowledges that Allen has filed a patent
application involving certain gaming technology
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and a patent involving photographing the past has been
allowed in his name. The Company agrees such patent
application and patent are not part of the Technology, or
any technology similar thereto contemplated by this
Agreement.
3. The Technology does not infringe upon any other letters
patent heretofore issued in the United States or upon any
other applications for letters patent of which he has
notice.
4. Effective with the foregoing termination of the CytoDyn
License Agreement there is no person, firm or corporation
other than himself having any right, title or interest in
the Technology or any part thereof.
5. All of the statements, declarations and claims made in the
Patents are true and correct in all respects and he knows of
no prior art not disclosed in the Patents.
6. Effective with the foregoing termination of the CytoDyn
License Agreement there are no outstanding options, licenses
or agreements of any kind relating to the Technology or any
part thereof or to the manufacture, use or sale of any
products using the Technology.
-9-
<PAGE>
7. Effective with the foregoing termination of the CytoDyn
License Agreement he has the full power to transfer, sell
and assign the Technology; no consent of any other party is
necessary or appropriate to the consummation of the
transactions contemplated to be performed by him under this
Agreement; and his performance under this Agreement will not
violate any agreement with any third party or any federal,
state or local law or regulation.
8. He has not done or omitted any act which would impair the
validity of the Technology or any part thereof or his
ability to effect the transactions contemplated by this
Agreement or the Consulting Agreement being entered into
between him and the Company as of the date of this Agreement
(the "Consulting Agreement").
9. The Sub License Agreements have been terminated and the Sub
Licensees thereunder have no rights with respect to the
Technology or any part thereof.
10. No information provided by him to the Company contains any
untrue statement of a material fact or omits to state a
material fact necessary to
-10-
<PAGE>
make the statements therein in light of the circumstances
under which they were made not misleading.
C. Representations, Warranties and Agreements of the Company.
---------------------------------------------------------
The Company represents and warrants to, and agrees with, Allen
that:
1. The Company is a corporation duly organized, validly
existing and in good standing under the laws of the
jurisdiction of its incorporation, and has all requisite
corporate power and authority to carry on its business as
now being conducted.
2. Upon its organization New Co will be a corporation duly
organized, validly existing and in good standing under the
laws of the jurisdiction of its incorporation, and will have
all requisite corporate power and authority to carry on its
business as contemplated by this Agreement.
3. The Company is, and upon its organization New Co will be,
duly qualified or licensed and in good standing to do
business in each jurisdiction in which the property owned,
leased or operated by it or the nature of the business
conducted by it makes such qualification necessary.
-11-
<PAGE>
4. The Company has the requisite corporate power and authority
to execute and deliver this Agreement and to consummate the
transactions contemplated hereby. The execution and
delivery of this Agreement by the Company and the
consummation of the transactions contemplated hereby have
been duly authorized by all necessary corporate action on
the part of the Company. This Agreement constitutes the
valid and binding obligation of the Company, enforceable
against the Company in accordance with its terms.
5. No consent of any other party is necessary or appropriate
for the execution and performance of this Agreement; and its
performance in connection with this Agreement will not
violate any agreement with any third party. Its performance
under this agreement will not violate any agreement with any
third party or any federal, state or local law or
regulation.
6. No information provided by it to Allen contains any untrue
statement of a material fact or omits to state a material
fact necessary to make the statements therein in light of
the circumstances under which they were made not misleading.
-12-
<PAGE>
D. Agreements of Allen.
-------------------
Allen agrees:
1. Following the execution of this Agreement, he will furnish
to the Company or to its nominees and patent attorneys, all
information and documents regarding the Technology.
2. He will assist the Company and cooperate with it in all
prosecutions of patent applications covering any part of the
Technology and he agrees to cooperate with the Company in
the defense and protection of all challenges to the
Technology and patents issued thereunder, provided the
Company pays all of the costs thereof, including but not
limited to, attorneys', engineering and drafting fees and
all other costs of a similar nature, that accrue after the
date of this Agreement.
3. He grants to the Company the right to file for patent
protection for the Technology, in his name, in all other
countries of the world, at the Company's sole cost and
expense.
4. He will deliver to the Company, immediately upon execution
of this Agreement, all research and development reports and
studies that have been completed or compiled as of the date
hereof, and
-13-
<PAGE>
all other data and information in any form relating to the
Technology, and shall execute all papers, documents and
instruments necessary to enable the Company to cause to be
prepared, filed and prosecuted, at the Company's expense,
applications for letters patent within such countries of the
world as the Company shall, in its sole discretion,
determine is advisable.
5. After the date of this Agreement, all patents granted and
all know-how and trade secrets with respect to the
Technology or any improvements thereof developed by him or
in which he has or obtains any ownership interest or right
to acquire any ownership interest or control or right to
use, develop or acquire an interest in any form (under
license or otherwise) shall be the exclusive property of the
Company in accordance with the terms of the Consulting
Agreement. For purposes of this Agreement, "improvement"
shall include, but not be limited to, any method, process,
technology, device, finding, discovery, invention, addition,
modification, formulation or product within the scope of the
Technology that improves, modifies or changes the
performance, reliability, effectiveness, ease of use,
marketability, and/or maintenance of the Technology and its
components.
-14-
<PAGE>
6. If he makes any further improvements in the Technology or in
the mode of using the Technology, or becomes the owner of
any such improvements, either through patents or otherwise
and whether or not patentable or copyrightable, he will
communicate all such improvements to the Company and give
the Company full information regarding the mode of using
them, and he agrees that all such improvements shall be the
sole and exclusive property of the Company in accordance
with the terms of the Consulting Agreement.
7. Each reproduction, modification and revision of the
Technology (including but not limited to translations
thereof) that is made by or for Allen will immediately
become the property of the Company.
8. He will execute, and have his signature notarized for, all
deeds, bills of sale and such other instruments as the
Company may request to effect the transactions contemplated
by this Agreement, including any assignment of patents and
patent applications.
-15-
<PAGE>
B. Agreements of the Company.
-------------------------
1. The Company agrees it will defend trademarks and tradenames
of CytoDyn that directly relate to the Technology, including
the Trademark, if the Company concludes in its sole
discretion that defense of such trademarks or tradenames is
in the Company's best interests and provided it has received
written notice from Allen or CytoDyn of any challenge to or
misuse of such trademark or tradename. CytoDyn agrees to
cooperate with the Company in such defense and protection.
2. The Company agrees it will not register with the United
States Patent and Trademark Office any assignment effected
by this Agreement until not earlier than September 2001.
III. CONSIDERATION
A. Stock of New Co to be Issued to CytoDyn.
---------------------------------------
In consideration (the "Termination Consideration") of the
agreements of CytoDyn set forth in this Agreement the Company agrees to, or
to cause New Co to, sell, assign and transfer to CytoDyn simultaneously
with the satisfaction of the Conditions a number of shares of common stock
of New Co having a value of $.01 per share, such that after such transfer
Cytodyn will own 10% of the outstanding common stock of New Co (the
"CytoDyn Shares").
-16-
<PAGE>
B. Consideration to be Paid to Allen.
---------------------------------
In consideration (the "Sale Consideration") of the agreements of
Allen set forth in this Agreement the Company agrees to pay Allen an amount
at the rate of $90,000 a year commencing on the date New Co is merged into
a publicly held company, with such consideration being increased 5% on
August 1 of each succeeding year until the effective date of the
termination of the Consulting Agreement entered into as of this date
between the Company and Allen, and with such consideration being paid on
the first day of each month and partial years being paid on a pro rata
basis.
C. Certificates.
------------
The Company agrees to, or to cause New Co to, execute stock
powers transferring the CytoDyn Shares to CytoDyn and to, or cause New Co
to, deliver to CytoDyn the certificates representing such Shares. CytoDyn
agrees such stock powers and any certificate that may be issued by New Co
representing such Shares will contain a legend in form satisfactory to the
issuing Company's counsel providing notice of the restrictions and the
proxies set forth in this Agreement.
D. Restricted Stock.
----------------
CytoDyn understands that its Shares will be restricted securities
within the meaning of Rule 144 of the General Rules and Regulations under
the Securities Act of 1933 as amended (the "Act"), and applicable state
statutes. CytoDyn further
-17-
<PAGE>
understands that (i) an appropriate restrictive legend (or legends) will be
placed on the certificates representing its Shares and that (ii) the stock
transfer records of New Co will be noted to reflect such restrictions.
Because the CytoDyn Shares are "restricted" as defined under Rule 144,
CytoDyn understands that such Shares must be held for a minimum of one year
following their transfer to it. Thereafter, the CytoDyn Shares may be
sold, and CytoDyn agrees they will be sold, only in the amounts and the
manner specified in Rule 144 unless first registered under the Act and any
applicable state securities laws or unless the availability and an
exemption from such registration requirement is established to the
satisfaction of the Company.
E. Dilution.
--------
It is contemplated that upon consummation of the transactions set
forth in this Agreement, CytoDyn and the Company will own 10% and 85%,
respectively, of the outstanding common stock of New Co. The Company
agrees that should New Co contemplate issuing additional common stock, in
conjunction with such issuance the Company will cause New Co to issue to
CytoDyn additional shares of New Co common stock, at no cost to CytoDyn,
such that its respective ownership interest will remain at 10% and not be
diluted until the Company's interest has been diluted to 55%. Thereafter,
CytoDyn understands and agrees it will have no protection against dilution
and its respective ownership interest will be diluted as New Co or a
successor in interest issues additional shares of common stock.
-18-
<PAGE>
IV. STOCKHOLDER AGREEMENT
A. Shares Restricted.
-----------------
CytoDyn agrees it will not transfer, assign, hypothecate or in
any way alienate or otherwise create or suffer to exist any lien, claim or
encumbrance upon any of the CytoDyn Shares, or any right or interest
therein, whether voluntarily or by operation of law, or by gift or
otherwise, except pursuant to the terms of this Agreement. Any purported
transfer in violation of any provision of this Agreement shall be void ab
initio and ineffectual and shall not operate to transfer any interest in or
title to the CytoDyn Shares to the purported transferee, and shall give the
Majority Shareholders, as hereafter defined, the right to purchase the
CytoDyn Shares in the manner and on the terms and conditions herein
provided.
B. Right of First Refusal for a Voluntary Transfer.
-----------------------------------------------
1. Should CytoDyn propose to transfer its Shares, or any
interest therein in whole or in part (the "Transfer
Shares"), to any party other than the Majority Shareholders,
then it agrees that not less than five business days (the
"Five Day First Right Period") prior to the proposed
transfer of the Transfer Shares, CytoDyn shall give written
notice of such proposed transfer (the "Transfer Notice") to
the Majority Shareholders in the manner and at the addresses
as set forth in this Agreement. The Transfer Notice shall
set forth
-19-
<PAGE>
the Transfer Shares and, (i) in the case of a proposed
private transfer, the name of the proposed transferee (the
"Proposed Transferee"), the consideration agreed by the
Proposed Transferee to be paid for the Transfer Shares, and
all other terms and conditions of the proposed transfer, or,
(ii) in the case of a proposed sale on a public market
pursuant to quoted market prices, such intent. In the case
of a proposed private transfer, CytoDyn may not give the
Transfer Notice until it has a signed offer (the "Purchase
Offer") from the Proposed Transferee setting forth all the
terms under which the Proposed Transferee is agreeing to
purchase the Transfer Shares and the Transfer Notice will
not be effective unless a copy of the Purchase Offer is
delivered with the Transfer Notice. Each Majority
Shareholder shall then have the first right to purchase that
portion of the Transfer Shares represented by the proportion
of (i) the number of shares of the Company's common stock
held by such Majority Shareholder (ii) to the aggregate
number of shares of the Company's common stock held by all
Majority Shareholders electing to purchase the Transfer
Shares. Any part of the Transfer Shares not purchased by a
Majority Shareholder pursuant to this section shall continue
to be offered to the Majority
-20-
<PAGE>
Shareholders on the formula set forth above until all of the
Transfer Shares have been purchased or until no Majority
Shareholders are interested in purchasing the remaining
part, if any, of the Transfer Shares.
2. If a Majority Shareholder elects to purchase all or a part
of the Transfer Shares, such Majority Shareholder shall,
within the Five Day First Right Period, in the manner and at
the address as set forth in this Agreement, give written
notice (the "Election Notice") to CytoDyn stating (i) his or
her name, (ii) the portion of the Transfer Shares to be
purchased by him or her, (iii) the purchase price of the
Transfer Shares to be paid by him or her, (iv) the method of
payment of such purchase price, and (v) all other terms and
conditions concerning such purchase.
3. If at the expiration of the Five Day First Right Period the
Majority Shareholders shall have elected to purchase less
than all of the Transfer Shares, CytoDyn for a period of
sixty days from the expiration of the Five Day First Right
Period may transfer the remaining part of the Transfer
Shares on the public market, or as the case may be, to the
Proposed Transferee upon the terms
-21-
<PAGE>
stated in the Purchase Offer, except that the effectiveness
of such private transfer is expressly conditioned and no
such transfer may be made unless the Proposed Transferee
executes and becomes a party to the terms of this Agreement
governing the rights and obligations of the holders of the
CytoDyn Shares. If the Transfer Shares have not been
transferred within such sixty day period, the Transfer
Shares shall again become subject to all of the provisions
of this Agreement and may not thereafter be transferred
except in the manner and on the terms herein provided.
C. Right of First Refusal for an Involuntary Transfer.
--------------------------------------------------
A purported involuntary transfer, transfer by operation of law or
any other transfer in whole or in part of the CytoDyn Shares or any right
or interest therein (other than pursuant to Section IV.B. above) shall give
the Majority Shareholders the first right to purchase such Shares in
proportions and in the manner and subject to the requirements set forth in
Section IV.B above for thirty days from the date written notice is provided
to the Majority Shareholders in the manner and at the addresses as set
forth in this Agreement. An involuntary transfer shall include, but not be
limited to, purported transfers by bankruptcy, receivership, trust,
conservatorship and any other form of transfer made by a party acting by or
on behalf of CytoDyn. The written notice required by this Section shall be
-22-
<PAGE>
given by the party having the right, subject to this Agreement, to effect
a transfer of the Transfer Shares, shall be given by such party immediately
after confirmation by act of a court or other authorized party of the right
to act on behalf of CytoDyn and shall set forth the same information
required under Section IV.B, except it is understood that, depending on the
event causing an involuntary transfer, there may be no Proposed Transferee
and there will be no Purchase Offer or terms and conditions of a proposed
transfer.
D. Purchase Price for a Transfer.
-----------------------------
1. The purchase price for transfers shall be (i) if there is a
public market for sale of New Co shares of common stock, the
aggregate of the Transfer Shares multiplied by the average
of the closing bid and ask prices for New Co's shares for
the 20 trading days immediately preceding the date of the
Transfer Notice, in the case of a voluntary transfer, or the
event (such as the bankruptcy, appointment of receiver)
causing an involuntary transfer, in the case of an
involuntary transfer, or (ii) if there is no such public
market, the price agreed to between the Proposed Transferee
and CytoDyn in the case of a voluntary transfer or the price
agreed to between the representative of CytoDyn and the
Majority Shareholders in the case of an involuntary transfer
provided that if they
-23-
<PAGE>
are unable to reach an agreement, their dispute shall be
resolved by arbitration in Los Angeles, California by the
American Arbitration Association with CytoDyn appointing an
arbitrator and the Majority Shareholders appointing an
arbitrator and those two arbitrators selecting a third
arbitrator who shall act as chairman. The decision of the
arbitration panel shall be final and may be entered in a
court of competent jurisdiction. The losing party shall
bear the fees of the arbitrators.
2. The purchase price to be paid by each Majority Shareholder
will be his or her pro rata portion determined by the
formula set forth in Section III.B. Notwithstanding the
preceding sentence and that the Proposed Transferee offered
to purchase the Transfer Shares in one payment, a Majority
Shareholder may elect to pay his share of such purchase
price in installments as provided below. If part or all of
the consideration to be paid for the Transfer Shares by the
Proposed Transferee is other than cash, the total purchase
price to the Majority Shareholders shall be deemed to be an
amount equal to the aggregate of the cash consideration, if
any, plus the "cash fair market
-24-
<PAGE>
value" of the noncash consideration. If CytoDyn and the
Majority Shareholders are unable to agree on the "cash fair
market value" of the noncash consideration, their dispute
shall be resolved by arbitration as set forth above.
E. Payment of Purchase Price.
-------------------------
1. The Majority Shareholders may elect to pay the purchase
price in the same manner and upon the same terms as set
forth in the Transfer Notice (subject to the right of the
Majority Shareholders to pay cash for the "cash fair market
value" of the noncash consideration), or in installments as
provided in the next subsection.
2. If the purchase price for any Majority Shareholder exceeds
$50,000, such Majority Shareholder may elect to pay the
purchase price in equal monthly installments over a period
of not exceeding one year, together with interest at the
rate of eight percent (8%) per annum. For a cash purchase
or an installment purchase, the price or first installment
of price, as the case may be, must be made not later than
thirty days after delivery of the Election Notice. For an
installment purchase, the obligation shall be evidenced by
a promissory note.
-25-
<PAGE>
3. Upon payment of the purchase price, CytoDyn shall execute
and deliver to the purchaser the certificates evidencing the
portion of the Transfer Shares purchased.
4. Notwithstanding the provisions of this Agreement, any delay
in tender or acceptance of payment of the purchase price due
to reasonable delay in obtaining any requisite confirmation
of such sale by a court or necessary administrative approval
shall not be deemed a default and in such event, payment
shall be made as soon as practicable after obtaining such
approval.
F. Proxy.
-----
CytoDyn hereby grants the Company an irrevocable proxy to vote or
not to vote the CytoDyn Shares as the Company shall deem in its sole
discretion. CytoDyn agrees that (i) this proxy has been granted in
connection with the transfer by the Company of a portion of its shares in
New Co or the causing of New Co to issue such shares to CytoDyn and in
consideration of the performance by Allen of services for the benefit of
the Company and New Co as contemplated by the Consulting Agreement; (ii)
this proxy is specifically intended to qualify as an irrevocable proxy as
contemplated by Sections 705(e)(2) and (4) of the California General
Corporation Code; and (iii) with respect to the latter such Section, the
parties specifically agree that they intend
-26-
<PAGE>
that for purposes only of such Section the services to be performed by
Allen shall be deemed those of an employee and shall be for the benefit of
the Company and New Co. The term of this proxy shall be for the longer
period of (i) as long as the Consulting Agreement remains in effect, or
(ii) the time the Company or the Majority Shareholders or any of them,
whichever is later, own any shares of New Co or a survivor of New Co. The
proxy granted hereby attaches to all the CytoDyn Shares whether held by
CytoDyn or a transferee of such shares as contemplated by this Agreement.
G. Majority Shareholders.
---------------------
The term "Majority Shareholders" means Lois Rezler, Ph.D., Roy S.
Azarnoff, Ph.D., and Daniel L. Azarnoff, M.D., and their successors and
assigns. Where the consent or action of the Majority Shareholders is
required or permitted in this Agreement, the action of any two of the
Majority Shareholders or their representatives shall be deemed the action
of the Majority Shareholders. The rights of the Majority Shareholders or
of any of them hereunder to acquire the Transfer Shares may be assigned by
any of them to the Company.
V. NOTICES
A. Addresses.
---------
1. Any and all notices or other communications which a party
shall be required or may elect to provide another party or
a Majority Shareholder pursuant
-27-
<PAGE>
to this Agreement shall be in writing unless otherwise so
provided. Any written notice or communication shall be
personally delivered, telecopied, telexed, faxed or mailed
certified mail, return receipt requested, to the other party
at the address set forth in the heading to this Agreement or
at such other address as a party or Majority Shareholder
shall designate in accordance with the provisions of this
paragraph.
2. Delivery or service of any written notice or communication
shall be deemed completed (a) if personally delivered, upon
such delivery, (b) if telecopied, telexed or faxed, upon
acknowledgment thereof, or (c) if mailed, upon 72 hours
after deposit in the mail.
B. Failure to Give Notice.
----------------------
The failure to give appropriate written notice as required herein
shall in no way prevent the exercise of the rights of purchase provided
herein.
VI. OTHER RESTRICTIONS
A. Transferees as Parties.
----------------------
Under no circumstances shall any sale or other transfer of any
Transfer Shares be valid until the proposed transferee thereof shall have
executed and become a party to this Agreement
-28-
<PAGE>
and thereby shall have become subject to all of the provisions hereof.
Notwithstanding any other provisions of this Agreement, no such sale or
other transfer of any kind shall in any event result in the inapplicability
of the provisions hereof at any time to any of the CytoDyn Shares.
B. CytoDyn agrees not to offer, sell or contract to sell or
otherwise dispose of, directly or indirectly, or announce an offering of,
any of the CytoDyn Shares, including any hereafter acquired shares of
Company common stock (nor any securities convertible into, or exchangeable
for, shares of the Company's common stock) for a period of two years
following the date of this Agreement.
VII. GENERAL PROVISIONS
A. Merger Not A Termination.
------------------------
This Agreement will survive the merger of the Company or New Co.
B. Further Acts.
------------
Each party hereto agrees to perform all further acts and to
execute and deliver all further documents which may be reasonably necessary
to carry out the provisions of, and the transactions contemplated by, this
Agreement.
-29-
<PAGE>
C. Binding on Successors.
---------------------
Subject to the restrictions against transfer or assignment as
herein contained, the provisions of this Agreement shall inure to the
benefit of, and shall be binding upon, the assigns, successors in interest,
personal representatives, estates, heirs and legatees of each of the
parties hereto.
D. Severability.
------------
If any provision, or portion thereof, of this Agreement is held
to be unenforceable or invalid by any court of competent jurisdiction, the
validity and enforceability of the remaining provisions, or portions
thereof, shall not be affected thereby.
E. Subject Matter Complete.
-----------------------
This Agreement contains the entire understanding among the
parties hereto and merges all prior discussions between them. There are no
representations, agreements, arrangements or understandings, oral or
written, between or among the parties hereto relating to the subject matter
of this Agreement, which are not fully expressed herein.
F. Number and Gender.
-----------------
When the context in which the words are used in this Agreement
indicates that such is the intent, the words in the singular number shall
include the plural and vice versa, and the words in the masculine gender
shall include the feminine and neuter genders and vice versa.
-30-
<PAGE>
G. Captions.
--------
The underlined captions set forth herein are for convenience only
and shall not be deemed to affect in any way the provisions hereof.
H. Governing Law.
-------------
This Agreement has been executed in, and shall be governed by,
the laws of the State of California without regard to the choice of law
provisions thereof.
I. Attorneys' Fees.
---------------
In any action at law or in equity and in any arbitration
proceeding to enforce any of the provisions or rights under this Agreement,
the unsuccessful party to such litigation, as determined by the court or
arbitrator(s) in a final judgment or decree, shall pay the successful party
or parties all costs, expenses and reasonable attorneys' fees incurred by
the successful party or parties (including, without limitation, costs,
expenses and fees on any appeals), and if the successful party recovers
judgment in any such action or proceeding, such costs, expenses and
attorneys' fees shall be included as part of the judgment.
J. Arbitration.
-----------
Any controversy or claim arising out of or relating to this
Agreement, or any breach thereof, shall be resolved in Los Angeles,
California, by the American Arbitration Association with each party to the
dispute appointing an arbitrator and those
-31-
<PAGE>
arbitrators appointing an additional arbitrator who shall act as chairman.
The decision of the arbitration panel shall be final and judgment upon the
award may be entered in any court having jurisdiction thereof. The losing
party or parties shall bear the fees of the arbitrators.
K. Indemnification by CytoDyn and Allen.
------------------------------------
CytoDyn and Allen shall indemnify the Company, New Co and the
Majority Shareholders in respect of and hold the Company, New Co and the
Majority Shareholders harmless from and against all expenses, claims,
losses, damages and liability, however caused, arising from (i) any acts or
omissions of CytoDyn or Allen in the course of performing work under, or
the transactions contemplated by, the CytoDyn License Agreement or this
Agreement or the acts or omissions of CytoDyn's or Allen's employees,
agents, subcontractors, suppliers or other third parties utilized in
connection with CytoDyn's or Allen's performance; (ii) any breach of any
CytoDyn or Allen representation, warranty or agreement in this Agreement;
and (iii) any and all claims by third parties that CytoDyn or Allen
misrepresented its or his authority or made any commitment not specifically
authorized under the CytoDyn License Agreement or this Agreement.
L. Indemnification by the Company.
------------------------------
The Company shall indemnify CytoDyn and Allen in respect of and
hold CytoDyn and Allen harmless from and against all expenses, claims,
losses, damages and liability, however caused, arising from (i) any acts or
omissions of the Company in
-32-
<PAGE>
the course of performing work under, or the transactions contemplated by,
this Agreement or the acts or omissions of the Company's employees,
agents, subcontractors, suppliers or other third parties utilized in
connection with the Company's performance; (ii) any breach of any Company
representation, warranty or agreement in this Agreement; and (iii) any and
all claims by third parties that the Company misrepresented its authority
or made any commitment not specifically authorized under this Agreement.
The Company's sole financial obligation to CytoDyn and Allen
under this Agreement shall be payment to them of the Termination
Consideration and the Sale Consideration, respectively. In no event shall
the Company or New Co be liable to CytoDyn or Allen for any loss of profits
or incidental, indirect or consequential damages, however caused, whether
by the Company's, New Co's, or Allen's sole or concurrent negligence or
otherwise.
M. Agreements and Understandings of CytoDyn and Allen.
--------------------------------------------------
Wherever in this Agreement representations, agreements or
understandings are made by CytoDyn and Allen, they shall be deemed to be
joint and several.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the day first above written.
-33-
<PAGE>
THREE R ASSOCIATES, INC.,
a California corporation
By: /s/ LOIS REZLER By: /s/ ALLEN D. ALLEN
------------------------------ ------------------------------
Allen D. Allen
President
CytoDyn OF NEW MEXICO, INC.,
a New Mexico Corporation
By: /s/ ALLEN D. ALLEN
------------------------------
President
For purposes of Articles IV, V and VI of this Agreement
/s/ LOIS REZLER /s/ ROY S. AZARNOFF /s/ DANIEL L. AZARNOFF
- ---------------------- --------------------- ----------------------
Lois Rezler, Ph.D. Roy S. Azarnoff, Ph.D. Daniel L. Azarnoff, M.D.
-34-
EXHIBIT 10.3
WESTERN CENTER FOR CLINICAL STUDIES, INC.
WARNER CENTER PLAZA, 21550 OXNARD STREET
WOODLAND HILLS, CALIFORNIA 91367
British Lion Medical, Inc. October 24, 1998
Warner Center Plaza
21550 Oxnard Street
Woodland Hills, California 91367
Dear Sirs:
This letter sets forth the agreement ("Agreement") between
British Lion Medical, Inc. ("BLM") and Western Center for Clinical Studies,
Inc. ("WCCS") regarding the efforts WCCS will undertake to assist BLM in
exploiting BLM's proprietary technology in monoclonal antibodies for use in
treating or inhibiting diseases associated with the human immunodeficiency
virus and aids.
1. BLM hereby retains WCCS to perform and WCCS agrees to
perform the following duties (the "Work"):
* Provide the expertise to oversee the
development of Cytolin(R) through the IND
and NDA stages.
* Arrange and oversee necessary pre-clinical
studies and clinical trials for Cytolin(R).
* Create a scientific advisory board.
* Oversee the manufacturing of Cytolin(R).
<PAGE>
* Work with and assist the founding scientist
and other with the development of new
compounds based on the patented platform.
* Develop and oversee vendors for Cytolin(R)
related services.
2. WCCS acknowledges that Drs. Daniel L. Azarnoff, Roy S.
Azarnoff and Lois Rezler, who indirectly have a controlling interest in
BLM, have a controlling ownership interest in WCCS and that in the
performance of their duties as officers and/or directors of BLM such
persons have a potential conflict of interest in the approval and
performance of this Agreement. WCCS understands that BLM contemplates
being merged into a publicly held company. BLM has identified to WCCS the
individuals whom BLM contemplates will constitute the Board of Directors of
the surviving entity (the "Surviving Entity") upon such merger and WCCS
represents and warrants that the following identified potential Board of
Directors members have no direct or indirect ownership interest or any
other interest in WCCS: Michael A. Davis, Kimberlie L. Cerrone and O.B.
Parrish (the "Disinterested Directors"). WCCS agrees that the
effectiveness of this Agreement is expressly subject to the approval of the
Disinterested Directors in accordance with applicable law after they become
members of the Board of Directors of the Surviving Entity, together with
such additional or different individuals on
-2-
<PAGE>
the Surviving Entity Board of Directors who have no direct or indirect
ownership interest or any other interest in WCCS.
3. Subject to the terms of the preceding paragraph, the
effective date of this Agreement will be the date upon which the merger of
BLM into a public company is effected (the "Effective Date") and the term
of this Agreement shall be for three years from the Effective Date.
4. Commencing on the Effective Date BLM agrees to pay WCCS for
its services under this Agreement at the rate of $585,000 per year (the
"Fee").
5. BLM agrees to take all action necessary or appropriate to
cause BLM, its officers, directors, agents, representatives, employees,
consultants, vendors, contractors and attorneys to cooperate with WCCS and
its officers, directors, agents, representatives, employees, consultants,
vendors, contractors and attorneys in the performance of this Agreement.
6. WCCS will prepare and submit to BLM a proposed budget (the
"Budget") of anticipated costs BLM will incur, exclusive of the Fee, for
the Work. Provided the aggregate amount of the Budget is not unreasonable,
BLM agrees to adopt the Budget as the budget for the Work for the term of
this Agreement and that it will take the necessary action to cause
necessary BLM assets, funds and other BLM resources, including employees,
to be
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<PAGE>
dedicated to the performance of the Budget and the transactions
contemplated thereby. BLM agrees it will promptly pay for all services and
work contracted for by WCCS pursuant to the approved Budget. From time to
time WCCS may, in its sole discretion, make changes in the Budget as a
whole and/or in line items and yearly Budgets, provided that the aggregate
of increases resulting from such changes may not exceed, without the
approval of BLM, 25% for the Budget in aggregate. BLM agrees that so long
as changes meet the limitation set forth in the preceding sentence, the
Budget as changed will be deemed approved by BLM.
7. This Agreement may be terminated by BLM by written notice to
WCCS solely upon the vote of the disinterested members of the BLM Board of
Directors for cause. For purposes of this Agreement "cause" means a
material breach by WCCS of its obligations under this Agreement (i) which
breach has not been corrected within 90 days from the date of receipt by
WCCS of written notice of the specific details of such breach, in the case
of a breach capable of having a correction completed within 90 days, or
(ii) for which commencement of the correction of such breach has not been
made within 90 days following receipt by WCCS of written notice of the
specific details of such breach and prosecuted diligently thereafter, in
the case of a breach which is not capable of being corrected within such 90
days. WCCS may terminate this Agreement by delivering written notice to
BLM for the breach by BLM of any of its obligations under this Agreement or
the breach of any of its representations and warranties made
-4-
<PAGE>
in this Agreement. Upon such termination, WCCS will have no further
obligation under this Agreement. In the event of such termination, WCCS
will be entitled to retain or receive, as the case may be, all compensation
to which it is then entitled under the terms of this Agreement.
8. BLM represents and warrants that:
(a) It is a corporation duly organized, validly existing and in
good standing under the laws of California;
(b) It is not in violation of any of the terms and provisions of
its Articles of Incorporation or By-Laws;
(c) This Agreement has been approved by the BLM Board of
Directors and, except as otherwise set forth in this
Agreement, no other approvals or consents are required of
any other party;
(d) Entry into and performance of this Agreement and the
transactions contemplated hereby by BLM will not violate the
terms of any agreement, order, judgment, law or regulation
to which BLM is subject;
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<PAGE>
(e) BLM has the full power and authority to execute, deliver and
perform this Agreement and the transactions contemplated
hereby;
(f) Except as otherwise provided in this Agreement, upon
execution, this Agreement will constitute the valid and
legally binding obligation of BLM;
(g) To the best of BLM's knowledge, there is no litigation or
claim and no threatened litigation or claim, nor does BLM
know of any basis for any such litigation or claim, that
would prevent or hinder the performance of the transactions
or work contemplated hereby;
(h) BLM has good, valid and marketable title to all of its
assets; and
(i) BLM is not in violation in any material respect with any
agreement, order, judgment, law or regulation applicable to
it, including particularly securities laws and regulations,
and it has obtained all governmental permits or licenses
required to conduct its business.
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<PAGE>
9. WCCS represents and warrants that:
(a) It is a corporation duly organized, validly existing and in
good standing under the laws of California;
(b) It is not in violation of any of the terms and provisions of
its Articles of Incorporation or By-Laws;
(c) This Agreement has been approved by the WCCS Board of
Directors and no other approvals or consents are required of
any other party;
(d) Entry into and performance of this Agreement and the
transactions contemplated hereby by WCCS will not violate
the terms of any agreement, order, judgment, law or
regulation to which WCCS is subject;
(e) WCCS has the full power and authority to execute, deliver
and perform this Agreement and the transactions contemplated
hereby;
(f) Except as otherwise provided in this Agreement, upon
execution, this Agreement will constitute the valid and
legally binding obligation of WCCS;
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<PAGE>
(g) To the best of WCCS's knowledge, there is no litigation or
claim and no threatened litigation or claim, nor does WCCS
know of any basis for any such litigation or claim, that
would prevent or hinder the performance of the transactions
or work contemplated hereby;
(h) WCCS has good, valid and marketable title to all of its
assets; and
(i) WCCS is not in violation in any material respect with any
agreement, order, judgment, law or regulation applicable to
it, including particularly securities laws and regulations,
and it has obtained all governmental permits or licenses
required to conduct its business.
10. Neither party shall incur liability to the other party on
account of any loss or damage resulting from any delay or failure to
perform any part of its obligations hereunder where such delay or failure
was caused in whole or in part by events, occurrences, or causes beyond the
reasonable control of such party.
11. WCCS and BLM agree that WCCS is an independent contractor
and all of WCCS' agents and employees shall be subject solely to the
control, supervision and authority of WCCS. WCCS
-8-
<PAGE>
understands and agrees that BLM will not cover WCCS or WCCS' agents or
employees with workers' compensation, unemployment insurance, state
disability insurance, public liability insurance or other benefits that may
be available to employees of BLM. WCCS further agrees that none of its
agents or employees will be entitled to any benefits under any medical or
travel accident insurance, pension, sick leave, life insurance, vacation,
or disability, or other employees' benefit plans or plans maintained by BLM
for its employees.
12. This Agreement shall not assignable by either party without
the prior written consent of the other.
13. Any and all notices or other communications which a party
shall be required or may elect to provide another party pursuant to this
Agreement shall be in writing unless otherwise so provided. Any written
notice shall be personally delivered, telecopied, telexed, faxed or marked
certified mail, return receipt requested to the other party at the address
set forth in the heading of this Agreement or at such other address as a
party shall designate in accordance with this paragraph. Delivery or
service of any written notice shall be deemed completed (a) if personally
delivered, upon such delivery, (b) if telecopied, telexed or faxed, upon
acknowledgement thereof, or (c) if mailed, upon 72 hours after deposit in
the mail.
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<PAGE>
14. If any provision, or portion thereof, of this Agreement is
held to be unenforceable or invalid by any court of competent jurisdiction,
the validity and enforceability of the remaining provisions, or portions
thereof, shall not be affected thereby.
15. This Agreement will survive the merger of BLM.
16. Subject to the restrictions against assignment contained
herein, the provisions of this Agreement shall enure to the benefit of, and
shall be binding upon, the assigns and successors in interest of the
parties to this Agreement.
17. In any action at law or in equity and in any arbitration
proceeding to enforce any of the provisions or rights under this Agreement,
the unsuccessful party to such litigation, as determined by the court or
arbitrator(s) in a final judgment or decree, shall pay the successful party
or parties all costs, expenses and reasonable attorneys' fees incurred by
the successful party or parties (including, without limitation, costs,
expenses and fees on any appeals), and if the successful party recovers
judgment in any such action or proceeding, such costs, expenses and
attorneys' fees shall be included as part of the judgment.
18. Any controversy or claim arising out of or relating to this
Agreement, or any breach thereof, shall be
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<PAGE>
resolved in Los Angeles, California, by the American Arbitration
Association with each party to the dispute appointing an arbitrator and
those arbitrators appointing an additional arbitrator who shall act as
chairman. The decision of the arbitration panel shall be final and
judgment upon the award may be entered in any court having jurisdiction
thereof. The losing party or parties shall bear the fees of the
arbitrators.
19. WCCS agrees that all information reflecting upon or
concerning BLM that is not openly communicated or made accessible by BLM to
third parties and that WCCS obtains from BLM, its employees, subsidiaries
and affiliates, or that WCCS otherwise acquires while engaged hereunder,
including information of a third party as to which BLM has a nondisclosure
obligation, and including all reports to BLM made by WCCS hereunder and the
contents thereof and any and all information developed, created,
transcribed or generated in any form in performance of this Agreement will
be treated as "BLM Confidential Information." WCCS:
(a) agrees that BLM Confidential Information is the sole
property of BLM and that such BLM Confidential Information
shall be used only in providing the services contemplated by
this Agreement;
(b) shall hold the BLM Confidential Information in confidence
and not disclose it in any manner whatsoever, in whole or in
part, to any person except to employees of BLM, or to
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<PAGE>
employees of WCCS who need to know in order to perform their
duties and who agree in writing to use the BLM Confidential
Information only to assist WCCS in performance of WCCS'
duties hereunder;
(c) shall take or cause to be taken all reasonable precautions
to prevent the disclosure of communication of BLM
Confidential Information to third parties;
(d) agrees that each reproduction, duplication, or copy of any
portion of BLM Confidential Information shall be deemed BLM
Confidential Information for all purposes hereunder; and
(e) shall, upon expiration or termination of this Agreement,
discontinue all use of BLM Confidential Information and
return all documents containing BLM Confidential Information
to BLM.
20. This Agreement contains the entire Agreement between BLM and
WCCS with regard to the subject matter of this Agreement and no
modification, change or amendment will be valid unless executed by both
parties in a signed writing. All agreements, understandings or
representations, oral or written, are superseded by and merged with this
Agreement and BLM and WCCS acknowledge that all other agreements pertaining
to or relating
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<PAGE>
to the performance of the services contemplated by this Agreement are
merged herein.
21. BLM and WCCS each acknowledge that it has reviewed this
Agreement and participated in its negotiation and drafting and this
Agreement may not be construed against either BLM or WCCS as the drafter.
22. This Agreement will be construed in accordance with the laws
of California without regard to the choice of law provisions thereof.
If you agree with the terms of this Agreement, please sign and
return the enclosed copy.
Very truly yours,
WESTERN CENTER FOR
CLINICAL STUDIES, INC.
By: /s/ ROY AZARNOFF
----------------------------------
AGREED TO THIS 24TH DAY OF OCTOBER, 1998
BRITISH LION MEDICAL, INC.
By: /s/ LOIS REZLER
-------------------------------
Enclosures
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EXHIBIT 10.4
SUBSCRIPTION, SHARE RESTRICTIONS AND PROXY AGREEMENT
THIS AGREEMENT (this "Agreement") is entered into as of October
23, 1998 between BRITISH LION MEDICAL, INC., a California corporation (the
"Company"), ALLEN D. ALLEN, residing at 4236 Longridge Avenue, #302, Studio
City, California 91604 ("Allen") and THREE R ASSOCIATES, INC., a California
corporation ("Three R"); and for purposes of Articles II, III and V of this
Agreement, Lois Rezler, Ph.D., residing at 10947 Canoga Avenue, Chatsworth,
California 91311, Roy S. Azarnoff, Ph.D., residing at 19011 Leadwell
Street, Reseda, California, 91335 and Daniel L. Azarnoff, M.D., residing at
210 Robin Road, Hillsboro, California 94010 (the "Founders").
WHEREAS, Allen desires to subscribe to the purchase of shares of
Company common stock;
WHEREAS, the Company is willing to issue shares of Company common
stock to Allen only upon Allen's agreement to certain conditions;
WHEREAS, the Company and Three are agreeable to providing Allen
certain anti-dilution protection; and
WHEREAS, Allen is agreeable to granting the Founders a right of
first refusal to purchase his shares and a proxy;
<PAGE>
NOW, THEREFORE, in consideration of and in reliance upon the
mutual representations, promises and agreements set forth above and herein,
the parties hereto agree as follows:
I. SUBSCRIPTION
A. Number of Shares of Common Stock and Consideration.
--------------------------------------------------
Allen hereby subscribes (the "Subscription") to the purchase of
300,000 shares of Company common stock for a consideration of $.001 per
share, or an aggregate consideration of $300.00 (the "Consideration").
B. Payment of Consideration.
------------------------
Allen hereby agrees to pay the Consideration by check payable to
the order of the Company promptly upon approval by the Company's Board of
Directors of the Subscription.
C. Identification.
--------------
Upon issuance pursuant to the Subscription the shares of Company
common stock shall be referred to as the Allen Shares for purposes of this
Agreement.
D. Certificate.
-----------
Allen agrees any certificate that may be issued to him
representing the Allen Shares will contain a legend in form satisfactory to
Company counsel providing notice of the restrictions and the proxy set
forth in this Agreement.
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<PAGE>
E. Restricted Stock.
----------------
Allen understands that the Allen Shares will be restricted
securities within the meaning of Rule 144 of the General Rules and
Regulations under the Securities Act of 1933 as amended (the "Act"), and
applicable state statutes. Allen further understands that (i) an
appropriate restrictive legend (or legends) will be placed on the
certificates representing the Allen Shares and that (ii) the stock transfer
records of Company will be noted to reflect such restrictions. Because the
Allen Shares are "restricted" as defined under Rule 144, Allen understands
that such Shares must be held for a minimum of one year following their
transfer to him. Thereafter, the Allen Shares may be sold, and Allen
agrees they will be sold, only in the amounts and the manner specified in
Rule 144 unless first registered under the Act and any applicable state
securities laws or unless the availability and an exemption from such
registration requirement is established to the satisfaction of the Company.
F. Dilution.
--------
The Company represents and warrants that the Company presently
contemplates issuing 300,000 shares of Company common stock prior to the
Company being merged into a publicly held company, and, accordingly, the
Allen Shares represent 5% of all such shares. In further consideration of
the Subscription, the Company and Three R agree that should the Company
contemplate issuing common stock in excess of 300,000 shares, in
conjunction
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<PAGE>
with such issuance the Company will issue to Allen additional shares of
Company common stock, at no cost to Allen, such that his ownership interest
will remain at 5% and not be diluted until the ownership interest of Three
R has been diluted to 55%. Thereafter, Allen understands and agrees he
will have no protection against dilution and his ownership interest will be
diluted as the Company or a successor in interest issues additional shares
of common stock.
II. ALLEN AGREEMENTS
A. Shares Restricted.
-----------------
Allen agrees he will not transfer, assign, hypothecate or in any
way alienate, or otherwise create or suffer to exist any lien, claim or
encumbrance upon any of the Allen Shares, or any right or interest therein,
whether voluntarily or by operation of law, or by gift or otherwise, except
pursuant to the terms of this Agreement. The Company agrees Allen may
transfer the Allen Shares to his daughter, Corinne E. Allen, or by Allen as
trustor to a trust or trusts for the benefit of his daughter, Corinne E.
Allen. The effectiveness of any such transfer is expressly conditioned and
no such transfer may be made except upon the agreement of (i) Allen's
daughter, Corinne, as transferee, or (ii) the trustee and, if appropriate,
Allen's daughter, Corinne, as beneficiary of such trust, that the trustee
and she, as the case may be, agree to all the terms of this Agreement
governing the rights and obligations of the holder of the Allen Shares.
Such agreement will be in a form subject to
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<PAGE>
the sole discretion of the Company. In the event of any such transfer, the
terms of this Agreement governing the rights and obligations of the holder
of the Allen Shares shall be deemed to mean such transferee. Any purported
transfer in violation of any provision of this Agreement shall be void ab
initio and ineffectual and shall not operate to transfer any interest in or
title to the Allen Shares to the purported transferee, and shall give the
Founders, as hereafter defined, the right to purchase the Allen Shares in
the manner and on the terms and conditions herein provided.
B. Right of First Refusal for a Voluntary Transfer.
-----------------------------------------------
1. Except as permitted in the preceding section of this
Agreement, should Allen propose to transfer the Allen
Shares, or any interest therein in whole or in part (the
"Transfer Shares"), to any party other than the Founders,
then he agrees that not less than five business days (the
"Five Day First Right Period") prior to the proposed
transfer of the Transfer Shares, Allen shall give written
notice of such proposed transfer (the "Transfer Notice") to
the Founders in the manner and at the addresses as set forth
in this Agreement. The Transfer Notice shall set forth the
Transfer Shares and, (i) in the case of a proposed private
transfer, the name of the proposed transferee (the "Proposed
Transferee"), the consideration agreed
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<PAGE>
by the Proposed Transferee to be paid for the Transfer
Shares, and all other terms and conditions of the proposed
transfer, or, (ii) in the case of a proposed sale on a
public market pursuant to quoted market prices, such intent.
In the case of a proposed private transfer, Allen may not
give the Transfer Notice until he has a signed offer (the
"Purchase Offer") from the Proposed Transferee setting forth
all the terms under which the Proposed Transferee is
agreeing to purchase the Transfer Shares and the Transfer
Notice will not be effective unless a copy of the Purchase
Offer is delivered with the Transfer Notice. Each Founder
shall then have the first right to purchase that portion of
the Transfer Shares represented by the proportion of (i) the
number of shares of the Company's common stock held by such
Founder (ii) to the aggregate number of shares of the
Company's common stock held by all Founders electing to
purchase the Transfer Shares. Any part of the Transfer
Shares not purchased by a Founder pursuant to this section
shall continue to be offered to the Founders on the formula
set forth above until all of the Transfer Shares have been
purchased or until no Founders are interested in purchasing
the remaining part, if any, of the Transfer Shares.
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<PAGE>
2. If a Founder elects to purchase all or a part of the
Transfer Shares, such Founder shall, within the Five Day
First Right Period, in the manner and at the address as set
forth in this Agreement, give written notice (the "Election
Notice") to Allen stating (i) his or her name, (ii) the
portion of the Transfer Shares to be purchased by him or
her, (iii) the purchase price of the Transfer Shares to be
paid by him or her, (iv) the method of payment of such
purchase price, and (v) all other terms and conditions
concerning such purchase.
3. If at the expiration of the Five Day First Right Period the
Founders shall have elected to purchase less than all of the
Transfer Shares, Allen for a period of sixty days from the
expiration of the Five Day First Right Period may transfer
the remaining part of the Transfer Shares on the public
market, or as the case may be, to the Proposed Transferee
upon the terms stated in the Purchase Offer, except that the
effectiveness of such private transfer is expressly
conditioned and no such transfer may be made unless the
Proposed Transferee executes and becomes a party to the
terms of this Agreement governing the rights and obligations
of the holders of the Allen Shares.
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<PAGE>
If the Transfer Shares have not been transferred within such
sixty day period, the Transfer Shares shall again become
subject to all of the provisions of this Agreement and may
not thereafter be transferred except in the manner and on
the terms herein provided.
C. Right of First Refusal for an Involuntary Transfer.
--------------------------------------------------
A purported involuntary transfer, transfer by operation of law or
any other transfer in whole or in part of the Allen Shares or any right or
interest therein (other than pursuant to Sections II.A. and B. above) shall
give the Founders the first right to purchase such Shares in proportions
and in the manner and subject to the requirements set forth in Section II.B
above for thirty days from the date written notice is provided to the
Founders in the manner and at the addresses as set forth in this Agreement.
An involuntary transfer shall include, but not be limited to, purported
transfers by will, letters of administration, bankruptcy, receivership,
trust, conservatorship and any other form of transfer made by a party
acting by or on behalf of Allen. The written notice required by this
Section shall be given by the party having the right, subject to this
Agreement, to effect a transfer of the Transfer Shares, shall be given by
such party immediately after confirmation by act of a court or other
authorized party of the right to act on behalf of Allen and shall set forth
the same information required under Section II.B, except it is understood
that, depending on the
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<PAGE>
event causing an involuntary transfer, there may be no Proposed Transferee
and there will be no Purchase Offer or terms and conditions of a proposed
transfer.
D. Purchase Price for a Transfer.
-----------------------------
1. The purchase price for transfers shall be (i) if there is a
public market for sale of shares of Company common stock,
the aggregate of the Transfer Shares multiplied by the
average of the closing bid and ask prices for the Company's
shares for the 20 trading days immediately preceding the
date of the Transfer Notice, in the case of a voluntary
transfer, or the event (such as the date of death,
bankruptcy, appointment of conservator or receiver) causing
an involuntary transfer, in the case of an involuntary
transfer, or (ii) if there is no such public market, the
price agreed to between the Proposed Transferee and Allen in
the case of a voluntary transfer or the price agreed to
between the representative of Allen and the Founders in the
case of an involuntary transfer, provided that if they are
unable to reach an agreement, their dispute shall be
resolved by arbitration in Los Angeles, California by the
American Arbitration Association with Allen appointing an
arbitrator and the Founders appointing an arbitrator and
those two
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<PAGE>
arbitrators selecting a third arbitrator who shall act as
chairman. The decision of the arbitration panel shall be
final and may be entered in a court of competent
jurisdiction. The losing party shall bear the fees of the
arbitrators.
2. The purchase price to be paid by each Founder will be his or
her pro rata portion determined by the formula set forth in
Section II.B. Notwithstanding the preceding sentence and
that the Proposed Transferee offered to purchase the
Transfer Shares in one payment, a Founder may elect to pay
his share of such purchase price in installments as provided
below. If part or all of the consideration to be paid for
the Transfer Shares by the Proposed Transferee is other than
cash, the total purchase price to the Founders shall be
deemed to be an amount equal to the aggregate of the cash
consideration, if any, plus the "cash fair market value" of
the noncash consideration. If Allen and the Founders are
unable to agree on the "cash fair market value" of the
noncash consideration, their dispute shall be resolved by
arbitration as set forth above.
E. Payment of Purchase Price.
-------------------------
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<PAGE>
1. The Founders may elect to pay the purchase price in the same
manner and upon the same terms as set forth in the Transfer
Notice (subject to the right of the Founders to pay cash for
the "cash fair market value" of the noncash consideration),
or in installments as provided in the next subsection.
2. If the purchase price for any Founder exceeds $50,000, such
Founder may elect to pay the purchase price in equal monthly
installments over a period of not exceeding one year,
together with interest at the rate of eight percent (8%) per
annum. For a cash purchase or an installment purchase, the
price or first installment of price, as the case may be,
must be made not later than thirty days after delivery of
the Election Notice. For an installment purchase, the
obligation shall be evidenced by a promissory note.
3. Upon payment of the purchase price, Allen shall execute and
deliver to the purchaser the certificates evidencing the
portion of the Transfer Shares purchased.
4. Notwithstanding the provisions of this Agreement, any delay
in tender or acceptance of payment of the purchase price due
to reasonable delay in
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<PAGE>
obtaining any requisite confirmation of such sale by a court
or necessary administrative approval shall not be deemed a
default and in such event, payment shall be made as soon as
practicable after obtaining such approval.
F. Proxy.
-----
In consideration of the Founders' work in structuring the
transaction with CytoDyn of New Mexico, Inc. and providing a means for his
obtaining necessary approvals and the opportunity to market and distribute
drugs derived from his inventions, Allen hereby grants the Founders an
irrevocable proxy to vote or not to vote the Allen Shares as they shall
deem in their sole discretion. Allen agrees that (i) this proxy has been
granted in connection with the causing of the Company by the Founders
through their indirect ownership to issue the Allen shares to Allen and in
consideration of the performance by Allen of services for the benefit of
the Company as contemplated by a letter agreement between the Company and
Three R dated as of October 24, 1998 (the "Consulting Agreement"); (ii)
this proxy is specifically intended to qualify as an irrevocable proxy as
contemplated by Sections 705(e)(2) and (4) of the California General
Corporation Code; and (iii) with respect to the latter such Section, the
parties specifically agree that they intend that for purposes only of such
Section the services to be performed by Allen for the Company shall be
deemed those of an employee and shall be for the benefit of the Company.
The term
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<PAGE>
of this proxy shall be for the longer period of (i) as long as the
Consulting Agreement remains in effect, or (ii) the time the Founders or
Three R or any of them, whichever is later, own any shares of the Company
or a survivor of the Company. The proxy granted hereby attaches to all the
Allen Shares whether held by Allen or a transferee of such shares as
contemplated by this Agreement.
G. Founders.
--------
The term "Founders" means Lois Rezler, Ph.D., Roy S. Azarnoff,
Ph.D., and Daniel L. Azarnoff, M.D., and their successors and assigns.
Where the consent or action of the Founders is required or permitted in
this Agreement, the action of any two of the Founders or their
representatives shall be deemed the action of the Founders. The rights of
the Founders or of any of them hereunder to acquire the Transfer Shares may
be assigned by any of them to the Company.
III. NOTICES
A. Addresses.
---------
1. Any and all notices or other communications which a party
shall be required or may elect to provide another party or
a Founder pursuant to this Agreement shall be in writing
unless otherwise so provided. Any written notice or
communication shall be personally delivered, telecopied,
telexed, faxed or mailed certified mail, return
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<PAGE>
receipt requested to the other party at the address set
forth in the heading to this Agreement or at such other
address as a party or Founder shall designate in accordance
with the provisions of this paragraph.
2. Delivery or service of any written notice or communication
shall be deemed completed (a) if personally delivered, upon
such delivery, (b) if telecopied, telexed or faxed, upon
acknowledgment thereof, or (c) if mailed, upon 72 hours
after deposit in the mail.
B. Failure to Give Notice.
----------------------
The failure to give appropriate written notice as required herein
shall in no way prevent the exercise of the rights of purchase provided
herein.
IV. OTHER RESTRICTIONS
A. Transferees as Parties.
----------------------
Under no circumstances shall any sale or other transfer of any
Transfer Shares be valid until the proposed transferee thereof shall have
executed and become a party to this Agreement and thereby shall have become
subject to all of the provisions hereof. Notwithstanding any other
provisions of this Agreement, no such sale or other transfer of any kind
shall in any event
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<PAGE>
result in the inapplicability of the provisions hereof at any time to any
of the Allen Shares.
B. Instructions to Allen's Fiduciary.
---------------------------------
Allen agrees to insert in his will or living trust a direction
and authorization to his fiduciary to fulfill and comply with the
provisions hereof and to transfer the Allen Shares in accordance herewith.
C. "Lock-Up".
---------
Allen agrees not to offer, sell or contract to sell or otherwise
dispose of, directly or indirectly, or announce an offering of, any of the
Allen Shares, including any hereafter acquired shares of Company common
stock (nor any securities convertible into, or exchangeable for, shares of
the Company's common stock) for a period of two years following the date of
this Agreement.
V. GENERAL PROVISIONS
A. Merger Not A Termination.
------------------------
This Agreement will survive a merger of the Company
B. Further Acts.
------------
Each party hereto agrees to perform all further acts and to
execute and deliver all further documents which may be reasonably necessary
to carry out the provisions of, and the transactions contemplated by, this
Agreement.
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C. Binding on Successors.
---------------------
Subject to the restrictions against transfer or assignment as
herein contained, the provisions of this Agreement shall inure to the
benefit of, and shall be binding upon, the assigns, successors in interest,
personal representatives, estates, heirs and legatees of each of the
parties hereto.
D. Severability.
------------
If any provision, or portion thereof, of this Agreement is held
to be unenforceable or invalid by any court of competent jurisdiction, the
validity and enforceability of the remaining provisions, or portions
thereof, shall not be affected thereby.
E. Subject Matter Complete.
-----------------------
This Agreement contains the entire understanding among the
parties hereto and merges all prior discussions between them. There are no
representations, agreements, arrangements or understandings, oral or
written, between or among the parties hereto relating to the subject matter
of this Agreement, which are not fully expressed herein.
F. Number and Gender.
-----------------
When the context in which the words are used in this Agreement
indicates that such is the intent, the words in the singular number shall
include the plural and vice versa, and the words in the masculine gender
shall include the feminine and neuter genders and vice versa.
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G. Captions.
--------
The underlined captions set forth herein are for convenience only
and shall not be deemed to affect in any way the provisions hereof.
H. Governing Law.
-------------
This Agreement has been executed in, and shall be governed by,
the laws of the State of California without regard to the choice of law
provisions thereof.
I. Attorneys' Fees.
---------------
In any action at law or in equity and in any arbitration
proceeding to enforce any of the provisions or rights under this Agreement,
the unsuccessful party to such litigation, as determined by the court or
arbitrator(s) in a final judgment or decree, shall pay the successful party
or parties all costs, expenses and reasonable attorneys' fees incurred by
the successful party or parties (including, without limitation, costs,
expenses and fees on any appeals), and if the successful party recovers
judgment in any such action or proceeding, such costs, expenses and
attorneys' fees shall be included as part of the judgment.
J. Arbitration.
-----------
Any controversy or claim arising out of or relating to this
Agreement, or any breach thereof, shall be resolved in Los Angeles,
California, by the American Arbitration Association with
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each party to the dispute appointing an arbitrator and those arbitrators
appointing an additional arbitrator who shall act as chairman. The
decision of the arbitration panel shall be final and judgment upon the
award may be entered in any court having jurisdiction thereof. The losing
party or parties shall bear the fees of the arbitrators.
K. Indemnification by Allen.
------------------------
Allen shall indemnify the Company and the Founders in respect of
and hold the Company and the Founders harmless from and against all
expenses, claims, losses, damages and liability, however caused, arising
from (i) any acts or omissions of Allen in the course of performing this
Agreement; (ii) any breach of any Allen agreement in this Agreement; and
(iii) any and all claims by third parties that Allen misrepresented his
authority or made any commitment not specifically authorized under this
Agreement.
L. Indemnification by the Company.
------------------------------
The Company shall indemnify Allen in respect of and hold Allen
harmless from and against all expenses, claims, losses, damages and
liability, however caused, arising from (i) any acts or omissions of the
Company in the course of performing this Agreement; (ii) any breach of any
Company agreement in this Agreement; and (iii) any and all claims by third
parties that the Company misrepresented its authority or made any
commitment not specifically authorized under this Agreement.
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The Company's sole obligation to Allen under this Agreement is to
issue the Allen Shares. In no event shall the Company be liable to Allen
for any loss of profits or incidental, indirect or consequential damages,
however caused, whether by the Company's or Allen's sole or concurrent
negligence or otherwise.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the day first above written.
BRITISH LION MEDICAL, INC.,
a California corporation
By:/s/ LOIS REZLER By: /s/ ALLEN D. ALLEN
------------------------- -------------------------
President Allen D. Allen
THREE R ASSOCIATES, INC.,
a California corporation
By:/s/ LOIS REZLER
-------------------------
President
For purposes of Articles II, III and V of this Agreement
/s/ LOIS REZLER /s/ ROY S. AZARNOFF /s/ DANIEL L. AZARNOFF
- -------------------- --------------------- ----------------------
Lois Rezler, Ph.D. Roy S. Azarnoff, Ph.D. Daniel L. Azarnoff, Ph.D.
