U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
[ X ] Annual report under Section 13 or 15(d) of the Securities
Exchange Act of 1934 [Fee Required] for the fiscal year ended:
December 31, 1997
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[ ] Transition report under Section 13 or 15(d) of the Securities
Exchange Act of 1934 [No Fee Required] for the transition period
from ___________ to __________
COMMISSION FILE NUMBER: 33-23693
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ENTROPIN, INC.
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(Name of small business issuer in its charter)
Colorado 84-1090424
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
45926 Oasis Street
Indio, California 92201
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(Address of principal executive offices) (Zip Code)
Issuer's telephone number: (760) 775-8333
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Securities to be registered under Section 12(b) of the Act: None
Securities registered under Section 12(g) of the Act: None
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past
12 months (or for such shorter period that the Registrant was required to
file such reports), and (2) has been subject to such filing requirements
for at least the past 90 days. Yes X No
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Check if there is no disclosure of delinquent filers pursuant to Item 405
of Regulation S-B contained herein, and will not be contained, to the best
of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment
to this Form 10-KSB. [ X ]
Issuer's revenues for its most recent fiscal year: $-0-
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Aggregate market value of voting stock held by non-affiliates as of April
6, 1998: $5,495,868
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Shares of Common Stock, $.001 par value, outstanding as of April 6, 1998:
6,000,051
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Documents incorporated by reference: See Part III, Item 13-"Exhibits and
Reports on Form 8-K" for a listing of documents incorporated by reference
into this annual report on Form 10-KSB.
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TABLE OF CONTENTS
PART I
Item 1. Description of Business.. . . . . . . . . . . . . . . . . . . .1
Item 2. Description of Property.. . . . . . . . . . . . . . . . . . . .8
Item 3. Legal Proceedings.. . . . . . . . . . . . . . . . . . . . . . .9
Item 4. Submission of Matters to a Vote of Security Holders . . . . . .9
PART II
Item 5. Market Price of the Registrant's Common Stock and
Related Security Holder Matters. . . . . . . . . . . . . . . 10
Item 6. Management's Discussion and Analysis of Financial Condition
and Results of Operations. . . . . . . . . . . . . . . . . . 10
Item 7. Financial Statements. . . . . . . . . . . . . . . . . . . . . 12
Item 8. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure. . . . . . . . . . . . . 12
PART III
Item 9. Directors and Executive Officers, Promoters and Control
Persons; Compliance With Section 16(a) of the Exchange
Act. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Item 10. Executive Compensation . . . . . . . . . . . . . . . . . . . 17
Item 11. Security Ownership of Certain Beneficial Owners and
Management. . . . . . . . . . . . . . . . . . . . . . . . . 19
Item 12. Certain Relationships and Related Transactions.. . . . . . . 21
Item 13. Exhibits, Financial Statements and Reports on Form 8-K . . . 23
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ENTROPIN, INC.
FORM 10-KSB
PART I
ITEM 1. DESCRIPTION OF BUSINESS.
BACKGROUND
Entropin, Inc. (the "Company") was incorporated in the State of
Colorado in 1987 as Vanden Capital Group, Inc., for the primary purpose of
providing business and management advisory services. The Company also had
been considering business acquisitions. The Company commenced operations
after it completed its initial public offering of securities in December
1988. On January 15, 1998, the Company and Entropin, Inc., a California
corporation, ("Old Entropin") consummated an Agreement and Plan of Merger
(the "Merger Agreement"), whereby the Company acquired all of the issued
and outstanding shares of Old Entropin which consisted of 5,700,001 shares
of Common Stock and 3,210,487 shares of Series A non-voting preferred stock
in exchange for the issuance of 5,700,001 shares of the Company's Common
Stock and 3,210,487 shares of Series A non-voting preferred stock. In
connection with the Merger, the Company changed its name to Entropin, Inc.
and succeeded to the business activity of Old Entropin. The Company has
accounted for the transaction as a recapitalization of Old Entropin and
assets and liabilities are combined at historical cost.
BUSINESS OF THE ISSUER
The Company is currently engaged in pharmaceutical research and will
be developing a patented medicinal preparation known as Esterom(R) for sale
to the public. The Company is the beneficiary of more than 19 years of
extensive research and development with respect to the product, Esterom(R),
undertaken by Lowell M. Somers, MD, the inventor of the product, and James
E. Wynn, Ph.D., the Company's scientific advisor. The present formulation
of Esterom(R) is based on early chemical and clinical studies performed by
Drs. Somers and Wynn, in conjunction with other doctors.
The Company is currently pursuing approval of the product with the
U.S. Food and Drug Administration ("FDA"). Esterom(R) is a medicinal
preparation formulated for the treatment of impaired range of motion
associated with acute lower back sprain and acute painful shoulder. The
Company has been assigned seven patents issued by the U.S. Patent Office.
The Company has a current and open Investigational New Drug ("IND") file
with the FDA and is in Phase II of the approval process.
The two indications tested with the topical application of Esterom(R)
were acute lower back sprain and acute painful shoulder. The range of
motion of each condition was improved significantly
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when compared with patients receiving a placebo. The Company believes that
these two conditions affect about sixty million Americans each year and
represent a substantial domestic market. While palliative treatment is
available, there is no effective drug therapy recognized for acute back
strain today. There is no estimate available for the size of the
international market, which also appears to have potential. Additional
markets that will be considered in the future are the domestic and
international veterinary market.
THE PRODUCT - ESTEROM(R)
Dr. Somers originally discovered Esterom(R), a medicinal preparation,
in 1979. The product name is derived from its chemical identity and
medical purpose since it is an ESTER that improves the range of motion
(ROM) of patients suffering from a painful shoulder or back sprain/strain.
In 1979, Drs. Somers and Wynn initiated a collaborative effort to
study the chemical composition of Esterom(R) and its clinical effects which
effort continues today under the Company's aegis. As Chairman of the
Department of Pharmaceutical Sciences, College of Pharmacy, Medical
University of South Carolina, Dr. Wynn developed a manufacturing method
that produced a consistent and stable product which could satisfy FDA
requirements. The reproducible hydrolytic process that Dr. Wynn developed
led to the discovery of three new molecules in 1993. The three newly
discovered molecules are a novel class of benzoylecgonine ("BE"), ecgonine
("EC") and ecgonidine derivatives.
GOVERNMENTAL REGULATIONS
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 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 clinical trials and the
approval of the New Drug Application ("NDA").
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 ("GLP").
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INVESTIGATIONAL NEW DRUG (IND). Before human tests can begin, the
drug sponsor must file an IND application with the FDA, showing how the
drug is 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 are required to establish
efficacy. 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 will consider, among other
things, information on the product, ethical factors, the risk to human
subjects, and the potential benefits of therapy relative to risk.
In Phase I clinical trials, studies usually are conducted on healthy
volunteers to determine the maximum tolerated dose, adverse events 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 a 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 therapies. 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.
NEW DRUG APPLICATION (NDA). Upon completion of Phase III, the drug
sponsor may file an 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 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 Good Manufacturing Practices ("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
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of the product, which 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 length of time
and costs associated with obtaining market approval by the FDA are likely
to be significantly increased.
Outside the United States, the Company will be subject to foreign
regulatory requirements governing human clinical trials and marketing
approval for its products. The requirements governing the conduct of
clinical trials, product licensing, pricing and reimbursements vary widely
from country to country.
FDA STATUS/CONTINUING RESEARCH AND DEVELOPMENT
IND APPLICATION. Drs. Somers and Wynn filed the IND application on
March 9, 1987. The results of four pre-clinical animal studies with no
toxicity noted, were incorporated within the IND Application for FDA
approval.
HUMAN TESTING. The Phase I Clinical Study involving 24 healthy male
subjects, was concluded with little or no toxicity observed.
Since Esterom(R) maintained a clear toxicity profile and was shown to
be safe in both animals and in healthy male volunteers when applied
topically, the FDA approved a protocol for a Phase II Clinical Study. The
Phase II clinical study involved a double-blind, randomized, placebo-
controlled investigation designed to continue to look for adverse effects
and to determine the efficacy of Esterom(R) as compared to a placebo in
patients who have an impaired range of motion resulting from acute lower
back sprain and acute painful shoulder. The Phase II Clinical Study
involved 97 patients, each of whom received two applications of Esterom(R)
or placebo, with the second application being performed 24 hours after the
first. Overall, Esterom(R) provided relief in both the back and shoulders
which was sustained for seven days. There was no clinically observed local
anesthetic or analgesic effect. The range of motion for each condition was
improved significantly when compared with patients receiving a placebo.
Range of motion for the shoulder may be defined as the number of degrees to
which the patient may move the arm away from the side in a forward,
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backward or upward direction.
The Company has designed the Phase III Protocol and must complete the
Phase III studies prior to completion of the New Drug Application required
by the FDA for final approval of a new prescription drug. As currently
planned, the Phase III studies will include multiple trials in a number of
clinical site study centers in differing geographic areas of the U.S., with
approximately 300 patients involved in the study of which approximately 150
patients will receive the active drug and 150 patients will receive the
placebo. The final study design may change according to possible new FDA
requirements. The studies will be double-blind and placebo-controlled.
Each study will include a regimen of two applications, with the second
application being performed 24 hours after the first and a 30 day follow
up.
The Company is negotiating an agreement with the Western Center for
Clinical Studies ("WCCS"), a California corporation experienced in managing
pharmaceutical drug products which are at an early stage of development and
providing assistance to companies in the process of taking pharmaceutical
products to the FDA and through the IND and NDA stages of development in a
timely and cost-efficient manner. The proposed WCCS agreement provides
that WCCS will implement a business plan to accomplish the scope of its
work and assist the Company in implementing its overall business plan. In
addition, WCCS will provide additional experienced management with the
intent of assisting the Company in developing its product, Esterom(R), to
be able to be used commercially. WCCS would be required to oversee
necessary studies and clinical trials of Esterom(R), appoint and utilize
the services of a Scientific and Medical Advisory Board for the
Company, assist in developing a distribution plan, and identify and propose
strategic partners and/or distributors for the Company's product. All work
preformed by WCCS will be provided by employees and consultants of WCCS, as
the Company's subcontractor. The agreement is proposed to have a 33 month
term.
Through Phase II, all CMC work was performed at the Medical University
of South Carolina's Pharmaceutical Development Center, College of Pharmacy.
Mallinckrodt, Inc. ("Mallinckrodt"), a leading manufacturer of chemicals
and drugs has agreed to continue to develop Esterom(R) to meet all FDA and
GMP requirements and develop a Drug Master File, file all appropriate CMC
documentation with the FDA, supply Phase III clinical study material, and
manufacture the product to be used commercially. The proposed WCCS
agreement provides that WCCS will advise the Company concerning appropriate
monitoring procedures to manage the Company's manufacturing contract with
Mallinckrodt and seek alternative companies which have the capability of
manufacturing the Company's product, in an effort to minimize any potential
delays or setbacks. See PROPOSED MANUFACTURING PLANS.
Esterom(R) is presently a Schedule II controlled substance. However,
the results of Phase I and Phase II Clinical Trials showed no central
nervous system activity, elevated blood pressure, increase in heart rate or
euphoria. The Company believes that the components of the medicine do not
cross the blood brain barrier, and consequently, it is expected that there
is no propensity for abuse. Therefore, an application has been made to the
Drug Enforcement Administration ("DEA")
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to reclassify Esterom(R) and delist it as a controlled substance.
SUMMARY OF PHASE I/II FINDINGS
Based on its clinical studies, the Company believes that Esterom(R)
may involve a new and unique mechanism of action. The Phase I Study
demonstrated that the product did not cause detectable systemic effects
including no effect on the cardiovascular system. During the
study, Esterom(R) caused no significant adverse events and was observed to
be safe. The Company confirmed that in Phase I and Phase II trials, no
anesthetic activity or vasoconstrictive activity was observed.
Although the precise functions of Esterom(R) are not known, the
medicinal preparation is neither a local anesthetic nor analgesic. A local
anesthetic relieves pain at rest and pain with movement. An analgesic
relieves major pain at rest and provides minor pain relief with movement.
In comparison and according to patient evaluations, Esterom(R) provides
minor relief of pain at rest and major relief of pain during movement.
PROPOSED MANUFACTURING PLANS
Esterom(R) is made by the solvolysis of cocaine base in propylene
glycol and water. The Company believes that the components of the medicine
do not cross the blood brain barrier, and consequently, it is expected that
there is no propensity for abuse. Cocaine is controlled by the DEA under
strict importation regulations specified in law. To the Company's
knowledge, Stepan Company ("Stepan") is the only company that can import
coca leaves and process them for the extraction of cocaine bases. This
base is shipped to Mallinckrodt for purification and sale on the medical
and scientific market. Stepan and Mallinckrodt work with the DEA to set
annual quotas for importing the coca leaves related to projected use and
sale of the processed cocaine. Because of federal restrictions, Esterom(R)
can not be manufactured outside of the United States for sale in the United
States. As a result, Mallinckrodt is currently the sole source for cocaine
and for producing Esterom(R).
Mallinckrodt has supplied all of the Company's cocaine for the
laboratory manufacture of the product for use in research and clinical
trials, and has been aware of the development of the drug since the IND
application was filed. The Company has entered into a ten (10) year
manufacturing contract with Mallinckrodt. Mallinckrodt has agreed to
perform the CMC work necessary to meet FDA Drug Master File requirements.
Although Mallinckrodt believes it can increase the coca leaf importation
quotas to supply the bulk active material as required, there is no assurance
that sufficient importation quotas can be maintained, or that additional
governmental regulations are not imposed on the Company or its suppliers,
which may affect the Company's ability to market the product.
PROPOSED MARKETING PLANS
The Company is a startup company engaged in research and development
of pharmaceuticals
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and has no plans to market its products. The proposed WCCS agreement
provides that WCCS will implement a business plan to accomplish the scope
of its work and assist the Company in implementing its overall business
plan. In addition, WCCS will provide for additional experienced management
with the intent of assisting the Company in developing its product,
Esterom(R), to be able to be used commercially. With the assistance of
WCCS, the Company will develop a distribution plan and identify and propose
strategic partners and/or distributors for the Company's product.
ROYALTY COMMITMENTS
In 1993, the Company entered into a 30 year compensation agreement
with the limited partners of I.B.C., a California limited partnership,
which comprised 64.28% of the limited partnership. The I.B.C. Limited
Partnership participated in the early development of Esterom(R) and owned
the patent rights to three patents and all intellectual property rights.
Under the terms of the compensation agreement, the Company acquired all of
the patent and intellectual property rights in exchange for certain
compensation to the limited partners which is dependent upon the Company's
receipt of a marketing partner's technological access fee and royalty
payments. The partnership was subsequently dissolved. Compensation under
the agreement includes a bonus payment of $96,420 to be paid at the time
the Company is reimbursed by a drug company for past expenses paid for
development of the drug, as well as 64.28% of a decreasing payment rate (3%
to 1%) on cumulative annual royalties received by the Company. As of
December 31, 1997, no liabilities have been accrued with respect to this
agreement.
In a separate agreement with a former I.B.C. limited partner, the
Company has agreed to pay the partner 35.72% of a decreasing earned payment
(3% to 1% on cumulative annual sales of products by the Company) until
October 10, 2004. From October 10, 2004 until October 10, 2014, the
Company will pay the partner 17.86% of the earned payment. In accordance
with the agreement, the Company has agreed to pay the former limited
partner the amount of $40,000 and a minimum earned payment of $3,572 per
calendar quarter beginning on December 31, 1989. Such minimum earned
payment is to be evidenced by a promissory note issued each quarter and
payable when the Company is either reimbursed for expenses paid for the
development of the medicine or from the first income received from the
Company from net sales of the medicine. The quarterly payments are to be
applied against the earned payment to be received by the limited partner.
As of December 31, 1997, the total liability accrued with respect to this
agreement aggregated $155,495. See FINANCIAL STATEMENTS, NOTE 6.
PATENTS
Esterom(R) is protected by a U.S. Composition Patent granted December
27, 1994 which includes safeguarding the discovery of three new molecules.
The Company's patents are as follows: Patent #5,559,123 granted September
24, 1996 with the Company as Assignee; Patent #5,525,613 granted June 11.
1996 with the Company as Assignee; and, Patent #5,376,667 granted December
27, 1994 with the Company as Assignee. In addition, Dr. Lowell M. Somers
obtained the following
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initial patents which he subsequently assigned to the Company in September,
1992; #4,512,996 granted April 1985; Patent #4,469,700 granted September
1984; and, Patent #4,556,663 granted December, 1985. Although the Company
has obtained approval on Patent Application #5,556,663, the Patent has not
yet been issued. The Company has estimated that an aggregate of
approximately 17 years of patent protection remains.
Drs. Wynn and Somers have assigned to the Company their respective
rights to the U. S. Patents and for foreign countries. In December, 1993,
an International Patent Application was filed under the Patent Cooperation
Treaty in the U.S. Receiving Officer, whereby the Company's technology will
be protected for a significant market worldwide.
EMPLOYEES
As of December 31, 1997, the Company had no full time employees. As of
the date hereof, the Company has two full time employees at its corporate
headquarters in Indio, California. In addition, the Company has
subcontracted with an individual for corporate financial services. The
Company believes that relations with its employees are good.
The proposed WCCS agreement contemplates a period of 33 months for
purposes of completing the testing requirements necessary for FDA approval
for the Company's product, Esterom(R), in exchange for $880,400 and options
to purchase an aggregate of 450,000 shares of the Company's common stock at
$1.50 per share, exercisable over a five (5) year period. Officers of WCCS
will serve in the following positions in the Company: Dr. Daniel L.
Azarnoff, President; Dr. Lois Rezler, Vice President of Science and
Regulatory Affairs; and, Dr. Roy S. Azarnoff, Chief Operating Officer.
Drs. Azarnoff, Rezler and Azarnoff will not receive compensation in
addition to the management fees paid to WCCS by the Company, for their
services rendered to the Company as its officers. The proposed WCCS
agreement provides that Daniel Azarnoff will serve as the Company's
President until such time as the Company hires an experienced individual to
serve as its President, and Drs. Rezler and Roy Azarnoff will serve in
their respective capacities until the termination of the WCCS contract.
ITEM 2. DESCRIPTION OF PROPERTY.
The Company leases 800 square feet of office space as its corporate
headquarters in Indio, California from one of its principal stockholders,
Thomas T. Anderson, at a monthly rent of $1,040, for a two year term which
expires February 1, 2000, which the Company believes to be market or below
market rate for comparable office space.
Upon execution of the WCCS agreement, the Company will seek additional
office space in Woodland Hills, California in order to provide facilities
for the WCCS office staff. The present market rate for office space in
Woodland Hills, California ranges from $1.80 to $2.00 per square foot per
month and the Company anticipates that it will require approximately 3,000
square feet of office space.
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ITEM 3. LEGAL PROCEEDINGS.
The Company is not a party to any legal proceedings which management
believes to be material, and there are no such proceedings which are known
to be contemplated for which the Company anticipates a material risk of
loss.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of security holders during the
fiscal year ended December 31, 1997. However, on January 15, 1998, the
security holders of the Company voted on and approved: (i) an Agreement
and Plan of Merger (the Merger") pursuant to which the Company acquired
all of the issued and outstanding shares of stock of Entropin, Inc., a
California corporation; (ii) an amendment to the Company's Articles of
Incorporation to change the name from Vanden Capital Group, Inc. to
Entropin, Inc.; (iii) an amendment to the Company's Articles of
Incorporation to effect a 1-for-300 reverse stock split whereby each 300
currently authorized and outstanding shares of the Company's $.0001 par
value Common Stock (the "Old Common Stock") will be exchanged and converted
into one share of $.001 par value Common Stock (the "New Common Stock");
and, (iv) amendment to the Company's Articles of Incorporation to fix the
number of authorized shares of capital stock of the Company at a total of
60,000,000 shares, 50,000,000 of which shall be designated as New Common
Stock ($.001 par value), and 10,000,000 of which shall be classified as
$.001 par value Preferred Stock. The amendments to the Company's Articles
of Incorporation were approved by a majority of the outstanding shares of
Common Stock at a meeting of all of the Company's shareholders held on
January 15, 1998, pursuant to applicable provisions of the Colorado
Business Corporation Act.
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PART II
ITEM 5. MARKET PRICE OF THE REGISTRANT'S COMMON STOCK AND RELATED SECURITY
HOLDER MATTERS.
MARKET INFORMATION
The Company's Common Stock began trading on the Electronic Bulletin
Board on February 25, 1998, under the trading symbol "ETPN". The following
table sets forth the high and low bid prices for the Company's Common Stock
for the past two years. The quotations reflect inter-dealer prices, with
retail mark-up, mark-down or commissions, and may not represent actual
transactions. The information presented has been derived from the National
Quotation Bureau, Inc. Library.
High Low
Bid Bid
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1998 Fiscal Year
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First Quarter $3.375 $3.00
Second Quarter
(through April 6, 1998) $3.375 $3.375
On April 6, 1998, the last reported bid and asked prices for the
Common Stock were $3.375 and $5.00, respectively.
HOLDERS
As of April 6, 1998, the Company had approximately 217 holders of
record of the Company's Common Stock, and 5 holders of record of the
Company's Series A Preferred Stock.
DIVIDENDS
The payment of dividends by the Company is within the discretion of
its Board of Directors and depends in part upon the Company's earnings,
capital requirements, debt covenants and financial condition. Since its
inception, the Company has not paid any dividends on its Common Stock and
does not anticipate paying such dividends in the foreseeable future. The
Company intends to retain earnings, if any, to finance its operations.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
RESULTS OF OPERATIONS
Entropin, Inc. is a development stage pharmaceutical company and has
not generated any
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revenues for the period from August 27, 1984 (inception) through December
31, 1997. Entropin has devoted substantially all its resources to
acquisition of patents, research and development of the medicine, and
expenses related to the startup of its business. From inception until
December 31, 1997, Entropin has incurred expenses of $3,752,854 in research
and development fees, $511,255 in general and administrative expenses and
$239,698 in interest resulting in a loss of $4,561,175 for the period from
inception (August 27, 1984) to December 31, 1997. For the year ended
December 31, 1997, Entropin incurred $683,209 in research and development
fees, $269,853 in general and administrative expenses and $127,386 in
interest expense, resulting in a loss of $1,098,448. Research and
development fees incurred during 1997 were approximately $515,000 higher
than in 1996. The increase related primarily to recording research and
development expense and contributed capital for the estimated value of
common stock ($518,000) contributed by certain shareholders to an
individual in exchange for research and development services provided since
inception of the Company. General and administrative expenses incurred
during 1997 were approximately $168,000 higher than in 1996. The increase
related primarily to recording legal expense and contributed capital for
the estimated value of common stock ($156,000) contributed by certain
shareholders to an individual for business advisory and legal services.
Entropin has been unprofitable since inception and expects to incur
substantial additional operating losses for at least the next few years as
it increases expenditures on research and development and begins to
allocate significant and increasing resources to clinical testing,
marketing and other activities. As described below, the Company has
successfully completed a private placement and a recapitalization of the
Company that will provide additional liquidity for the Company for current
operations. The Company estimates, however, that it will require
additional funding of up to $8,000,000 over the next three years to
successfully complete the FDA approval process. In addition, the Company
has had no experience in marketing the medicine. As a result, Entropin's
activities to date are not as broad in depth or scope as the activities it
must undertake in the future, and Entropin's historical operations and
financial information are not indicative of Entropin's future operating
results or financial condition or its ability to operate profitably as a
commercial enterprise when and if it succeeds in bringing any product to
market.
CAPITAL RESOURCES AND LIQUIDITY
In the years since inception, Entropin has financed its operations
primarily through the sale of shares of Entropin common stock, loans and
advances from shareholders. At December 31, 1997, outstanding liabilities
to shareholders, including accrued interest, aggregated $1,710,487.
On January 15, 1998, the Company completed a private placement of 30
units (10,000 shares of its $.001 par value common stock per unit) at
$27,500 per unit, or $2.75 per share, which resulted in gross proceeds of
$825,000. Concurrent with the private placement the Company completed an
agreement and plan of merger with Vanden Capital Group, Inc. to exchange
all of the issued and outstanding common shares of the Company for
5,220,000 shares of Vanden's $.001 par value common stock. Pursuant to the
agreement Vanden provided cash of $220,000.
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On January 15, 1998, the Company issued 3,210,487 shares of Series A
redeemable non-voting, noncumulative 8% preferred stock in exchange for an
aggregate of $3,210,487 of notes payable to shareholders and accrued
interest and for various other liabilities of the Company.
The Company is currently negotiating an agreement with the Western
Center for Clinical Studies, a California company experienced in managing
pharmaceutical development, including providing assistance in taking
pharmaceutical products to the FDA and through clinical trials and New Drug
Application stages of development. The proposed agreement has a 33-month
term, at the end of which the Company's primary product may be approved for
marketing. The Company will be required to pay management fees of
approximately $880,400 over the term of the agreement, as well as provide
stock options to purchase 450,000 shares of Entropin common stock over a 33
month period at an exercise price of $1.50 per share.
EFFECT OF INFLATION AND FOREIGN CURRENCY EXCHANGE
The Company has not experienced material unfavorable effects on its
results of operations due to currency exchange fluctuations with any
foreign suppliers or material unfavorable effects upon its results of
operations as a result of domestic inflation.
YEAR 2000 ISSUE
The Company's management does not believe that the Company will be
materially adversely affected by the computer software Year 2000 issue.
The Company does not have significant exposure to the Year 2000 issue. The
Company's vendors and suppliers may have some exposure to the issue but at
this time, management does not anticipate a material adverse impact on the
Company's operations.
FORWARD LOOKING INFORMATION
Statements of the Company's or management's intentions, beliefs,
anticipations, expectations and similar expressions concerning future
events contained in this document constitute "forward looking statements"
as defined in the Private Securities Litigation Reform Act of 1995. As with
any future event, there can be no assurance that the events described in
forward looking statements made in this report will occur or that the
results of future events will not vary materially from those described in
the forward looking statements made in this document. Important factors
that could cause the Company's actual performance and operating results to
differ materially from the forward looking statements include, but are not
limited to, (i) the ability of the Company to obtain regulatory approval
for its product including but not limited to the FDA, (ii) the ability of
the Company to obtain meaningful consumer acceptance and a successful
market for the product on a national and international basis at competitive
prices, (iii) the ability of the Company to develop and maintain an
effective national and international distribution plan, (iv) success of the
Company in forecasting demand for its product, (v) the ability of the
Company to maintain pricing and thereby maintain adequate profit margins,
(vi) the ability of the Company to achieve adequate intellectual property
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protection.
ITEM 7. FINANCIAL STATEMENTS.
The Financial Statements set forth on pages F-1 to F-20 of this Report
are incorporated herein by reference.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
As reported in the Company's Form 8-K/A dated March 24, 1998, on
January 15, 1998, Entropin, Inc. and Entropin, Inc., a California
corporation, ("Old Entropin") consummated an Agreement and Plan of Merger
(the "Merger") pursuant to which the Company acquired all of the issued and
outstanding shares of stock of Old Entropin. In connection with the
Merger, the Company changed its name to Entropin, Inc. and succeeded to the
business activity of Old Entropin, which ceased to exist. Further, in
connection with the Merger, the Company elected to change its accountants
to that of Old Entropin. As a result, on January 15, 1998, the Company
dismissed the accounting firm of Schumacher & Associates, Inc., Englewood,
Colorado, who have acted as certifying accountants for the Company for the
year ending May 31, 1997.
None of the prior certifying accountants' reports on the Company's
financial statements for the past two years contained an adverse opinion or
disclaimer of opinion, or was modified as to uncertainty, audit scope or
accounting principle. The change of principal accountants was approved by
the Company's Board of Directors on February 16, 1998. The Company is
unaware of any disagreement with Schumacher & Associates, Inc. on any
matter of accounting principle or practice, financial statement disclosure,
or auditing scope or procedure which would have caused said accountants to
make reference to the subject matter in connection with any report issued
by same.
In connection with the Merger, effective January 15, 1998, the Company
has engaged the accounting firm of Causey Demgen & Moore Inc., to act as
certifying accountants for the year ending December 31, 1997. The
application of accounting principles to a specific completed or
contemplated transaction, or to the type of audit opinion that might be
rendered was not an important factor in the decision to change accounting
firms.
PART III
ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT.
IDENTIFICATION OF DIRECTORS, EXECUTIVE OFFICERS AND SIGNIFICANT EMPLOYEES
The following sets forth certain information with respect to the
officers and directors of the Company.
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Name Age Officer or Position Director Since
- ---- --- ------------------- -------------
Higgins D. Bailey 68 President, Chief Executive July, 1992
Officer, and Chairman of
the Board
Daniel L. Azarnoff, M.D. 71 Director January, 1998
Donald Hunter 64 Secretary and Director January, 1998
Dewey H. Crim 61 Principal Accounting Officer, February, 1998
Treasurer and Director
James E. Wynn, Ph.D. 56 Director February, 1998
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.
The following sets forth biographical information concerning the
Company's directors and executive officers for at least the past five
years.
HIGGINS D. BAILEY has been an officer and director of the Company
since July 1992 serving as its President and Chief Executive Officer and is
currently the Chairman of the Board of the Company. From 1995 to 1996, Mr.
Bailey was serving as Interim President and Chief Executive Officer for the
Pharmaceutical Educational and Development Foundation at the Medical
University of South Carolina, Charleston, South Carolina, which formulates
and manufactures pharmaceutical products. From 1991 to present, he was
also business manager for Thomas T. Anderson Law Firm, Indio, California.
Prior to 1991, Mr. Bailey owned and operated various travel and tour
related companies which subsequently merged into larger organizations. In
addition, Mr. Bailey was an educator for over 25 years. Mr. Bailey
received a B.A. degree in biology from Eastern Washington University, a
M.S. degree in program planning and personnel and Ed.D. in administration
and management from the University of California, Berkeley, California.
DANIEL L. AZARNOFF, M.D., has been a director of the Company since
February 1998. From 1988 to present, Dr. Azarnoff has served as President
of D. L. Azarnoff Associates, a company 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
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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 Neurobolobical Technology, 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 privately
held pharmaceutical drug and development companies: Oread, Inc., Cibus
Pharmaceutical and DeNovo, Inc. Dr. Azarnoff serves as Vice President,
Medical/Regulatory Affairs for Cellegy Pharmaceutical, Inc. 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.
DONALD HUNTER has been a director and the Secretary of the Company
since January 1998. Since 1994, Mr. Hunter has served as a consultant to
Entergy Corporation as well as other industrial concerns dealing with
mergers/acquisitions and other business matters. From 1991 to 1994, he was
senior vice president of Entergy Corporation and was responsible for the
merger activities with Gulf States Utilities. Prior to 1991, Mr. Hunter was
president and chief operating officer of Louisiana Power & Light Company and
executive vice president and chief operating officer of New Orleans Public
Service, Inc. In addition, he has served on the board of directors of a
number of companies and service companies. His prior business affiliations
include positions as vice president for Yankee Atomic Electric, president and
majority owner of Pioneer Steel Company, and various executive positions
with Helix Technology Corporation. Mr. Hunter received a B.S. degree in
chemical engineering from Purdue University and a M.S. in nuclear
engineering from Iowa State University.
DEWEY H. CRIM has been a director and the Treasurer of the Company
since January 1998. Mr. Crim currently serves as President and Chief
Executive Officer of the Links Foundation, Inc. From 1995 to 1997, he
served as Executive Vice President of The Inspirational Network, a national
cable television company. From 1980 to 1995, Mr. Crim was employed with
BellSouth Corporation, a national telecommunications company, where he
served as President of two subsidiaries: TechSouth, Inc., and BellSouth
Media Technology, Inc. Mr. Crim later served as a senior business
development strategist on the BellSouth Corporate staff. In addition, his
responsibilities included negotiating an alliance between Walt Disney
Company and three regional telephone companies which subsequently became
Americast Corporation. Mr. Crim was also founder and President of Central
Computer Services, Inc., a computer service company which provided support
services to more than 50 banks. Mr. Crim began his career at Electronic
Data Systems Corp. in Dallas, Texas. Mr. Crim
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serves as a director on the following privately held companies: Telecom
Wireless Solutions, Inc., a wireless telecommunications company, and
Eastside Bank, a federal savings bank. Mr. Crim received a B.S. degree in
business and accounting from the University of Alabama.
JAMES E. WYNN, Ph.D. has been a director of the Company since February
1998. Dr. Wynn has served as Professor and Assistant Dean for Research at
the Medical University of South Carolina. His responsibilities include
faculty development and research funding plans for the college which are
currently being implemented. From 1969 to 1982 Dr. Wynn was a faculty
member at the University of South Carolina College where he rose to the
rank of Professor of Medicinal Chemistry. In 1982 he assumed the position
of Professor and Chairman of the Department of Pharmaceutical Sciences,
College of Pharmacy, Medical University of South Carolina. In this
position Dr. Wynn implemented a new Ph.D. program and developed a viable
research program in pharmaceutical sciences. He established and operated
South Carolina's only Drug Bioequivalence Evaluation Program, serving as
the principal investigator on 25 drug bioavailability/clinical evaluation
trials. Dr. Wynn led the development of the Pharmaceutical Development
Center (PDC), a contract GMP facility for the formulation and manufacture
of clinical supplies for the pharmaceutical industry. Dr. Wynn, as the
Company's scientific advisor, co-authored the patents, supervised the final
process for laboratory manufacturing of Esterom(R), and the analytical work
to identify three newly discovered molecules. Since 1984, Dr. Wynn has
served as co-principal investigator for Entropin's Phase I and Phase II
clinical studies. Dr. Wynn has authored numerous articles which have
appeared in scholarly and professional publications. Recognized as an
outstanding educator in pharmacy, Dr. Wynn received 45 teaching awards over
the past 20 years, including recognition as the 1995 South Carolina
"Governor's Professor of the Year". Dr. Wynn received his B.S. degree in
pharmacy and his Ph.D. in medicinal chemistry with a minor in analytical
chemistry from the Medical College of Virginia, Virginia Commonwealth
University, Richmond, Virginia.
FAMILY RELATIONSHIPS
There are no family relationships between the Company's officers and
directors.
INVOLVEMENT IN CERTAIN LEGAL PROCEEDINGS
No officer, director, significant employee, promoter or control person
of the Company has been involved in any event of the type described in Item
401(d) of Regulation S-B during the past five years.
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
Not applicable.
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ITEM 10. EXECUTIVE COMPENSATION
During the year ended December 31, 1997, no executive of the Company
received in excess of $100,000 in salary and/or bonuses.
COMPENSATION OF DIRECTORS
STANDARD ARRANGEMENTS.
Members of the Company's Board of Directors are not compensated in
their capacities as Board Members. However, the Company reimburses all of
its officers, directors and employees for accountable expenses incurred on
behalf of the Company.
OTHER ARRANGEMENTS. The Company has no other arrangements pursuant to
which any director of the Company was compensated during the year ended
December 31, 1997, for services as a director.
EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL
ARRANGEMENTS
None of the Company's officers presently have employment agreements
with the Company.
REPORTING ON REPRICING OF OPTIONS/SARS
Not applicable.
STOCK OPTION PLAN
The Company has adopted a stock option plan (the "Plan") for key
employees reserving a total of 16,667 shares of the Company's Common Stock,
adjusted in accordance with subsequent recapitalization in the capital
structure of the Company, for issuance pursuant to the exercise of stock
options (the "Options") which may be granted to employees (including
officers), consultants and directors of the Company. The plan is
administered by the Board of Directors, or at its discretion by a stock
option committee (the "Committee") consisting of not less than three
directors. Members of the Committee are eligible to participate in the
Plan. The Committee may determine which Options may be options intended to
qualify for special treatment under the Internal Revenue Code of 1986, as
amended ("Incentive Stock Options") or non-qualified options ("Non-Qualified
Stock Options") which are not intended to so qualify. Options may
be granted to employees (including officers), consultants and directors
(whether or not they are employees) of the Company or its subsidiaries.
The Committee may take into account the duties of persons selected, their
present and potential contributions to the success of the Company and such
other considerations as the Committee deems relevant to the purposes of the
Plan. Incentive Stock Options may not be granted to consultants and
directors who are not also employees. The Board is empowered to make all
other determinations deemed necessary or advisable for the administration
of the Plan.
The Committee has broad discretion to determine the number of shares
with respect to which Options may be granted to participants. The maximum
aggregate fair market value (determined as
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of the date of grant) of the shares as to which the Incentive Stock Options
become exercisable for the first time during any calendar year may not
exceed $100,000.
The Plan provides that the purchase price per share for each Incentive
Stock Option on the date of grant may not be less than 100% of the fair
market value of the Common Stock on the date of grant. In addition, in the
case of Non-Qualified Stock Options, the Option price of such Options shall
be not less than 80% of the fair market value of the shares of Common Stock
of the Company on the date of grant of the Option, however, any option
granted under the Plan to a person owning more than ten percent of the
Common Stock shall be at a price of at least 110% of such fair market
value.
If an optionee ceases to be employed by or be a director of or
consultant to the Company or its divisions or subsidiaries for any reason
other than death, disability, retirement or termination for cause, the
optionee may exercise all Options within three months following such
cessation to the extent exercisable on the date of cessation. If an
optionee's employment or consulting relationship is terminated or a
director is removed for cause, all Options held by him will terminate
immediately. If an optionee dies while a director of or while employed by,
or a consultant to the Company, or during the three-month period following
termination of the optionee's employment, directorship or consulting
relationship (other than for cause) or if the optionee retires or becomes
disabled, the optionee's Options, unless previously terminated, may be
exercised, whether or not otherwise exercisable, by the optionee or his
legal representative or the person who acquires the Options by bequest or
inheritance at any time within one year following the date of death,
disability or retirement of the optionee. An Option granted under the Plan
is not transferable by the optionee other than by will or by the laws of
descent and distribution and, during the lifetime of the Optionee, may be
exercised only by the optionee, his guardian or legal representative.
Unless sooner terminated, the Plan will expire on July 2, 1998.
As of December 31, 1997, no options have been granted under the Plan.
STOCK BONUS PLAN
As an incentive to attract and keep personnel of experience and
ability with the Company, the Board of Directors, with shareholder
approval, adopted a Stock Bonus Plan, whereby all salaried employees of the
Company and its subsidiaries, other than non-salaried directors ("eligible
employees"), are eligible to periodically receive shares of the Common
Stock of the Company. Eligible employees shall not be eligible to receive
shares until they have been employed by the Company for at least one year.
The aggregate fair market value of shares which may be allocated to an
employee in any year may not exceed 20% of his salary. The value of the
shares allocated each year shall be based on the bid price of the Company's
stock on the date of allocation or, if there is no bid price quotation on
that date, on the most recent bid quotation within the prior 90 days, and,
if no bid quotation has been given in that period, the Stock Bonus Plan
Committee (the "Committee") shall determine the value of the shares on the
book value of the stock on the date of allocation. A bonus share reserve
of 16,667 shares of Common Stock of the Company, adjusted in accordance
with subsequent recapitalization in the capital structure of the Company,
has been established from which the distributions may be made at the
discretion of the Committee. The
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Committee is to be appointed by the Board of Directors and to consist of at
least three members. The Board of Directors shall act as the Committee if
no appointments are made.
Pursuant to the plan, bonus shares may be allocated to an eligible
employee at any time, but delivery of the shares to the employee does not
take place until the employee has completed two full years of employment
with the Company commencing from the date of allocation. During the two-year
period, the Company serves as custodian for the shares allocated and
the shares may not be transferred, sold, assigned or pledged (as collateral
for a loan or as security for the performance of an option or for any other
purpose). In addition, if the employee leaves the employ of the Company
for any reason (including termination of operations of the Company) during
the two-year period, the shares allocated are forfeited. Unless sooner
terminated, the Plan will expire on July 2, 1998.
As of December 31, 1997, no shares have been granted under the Plan.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth, as of the date hereof, the ownership
of the Company's Common Stock and Series A Preferred Stock 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.
Common Stock Series A Preferred Stock
------------ ------------------------
Common Stock Series A Preferred Stock
------------ ------------------------
Amount and Amount and
Nature of Nature of
Name and Address Beneficial Percent Beneficial Percent
of Shareholder Ownership(1) of Class Ownership(1) of Class
- ----------------- ------------ -------- ------------ --------
Higgins D. Bailey 1,404,093 (2) 23.4% 178,000 5.6%
45926 Oasis Street
Indio, CA 92201
Thomas T. Anderson 1,404,093 (3) 23.4% 710,041 (4) 22.1%
45926 Oasis Street
Indio, CA 92201
Milton D. McKenzie 1,650,417 (5) 27.5% -0- -0-
45926 Oasis Street
Indio, CA 92201
Caroline T. Somers 1,005,793 16.8% 822,446 (6) 25.6%
233 Paulin, No. 8512
Calexco, CA 92231
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Lowell M. Somers 1,005,793 (7) 16.8% 822,446 25.6%
233 Paulin, No. 8512
Calexco, CA 92231
James E. Wynn 518,085 8.6% 1,500,000 46.7%
306 Ayers Circle
Summerville, SC 29485
Daniel L. Azarnoff, MD -0- -0- -0- -0-
433 Airport Blvd., Suite 419
Burlingame, CA 94010-2014
Donald Hunter 150,000 (8) 2.5% -0- -0-
598 Kinzie Island Court
Sanibel, FL 33957
Dewey H. Crim 20,000 (9) 0.3% -0- -0-
242 Southern Hills Drive
Duluth, GA 30039
All Directors and 2,092,178 34.5% 1,678,000 52.3%
Executive Officers as a
group (5 persons)
____________
(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) Owned in joint tenancy with Shirley A. Bailey, the spouse of Higgins
D. Bailey.
(3) Held of record by Higgins D. Bailey as security for a loan made by Mr.
Bailey to Mr. Anderson. Milton D. McKenzie has sole voting power with
respect to these shares.
(4) Held of record by David M. Chapman and Samuel F. Trussell as security
for deferred compensation owed to Messrs. Chapman and Trussell by Mr.
Anderson.
(5) Including 1,404,093 shares held in the name of Higgins D. Bailey, as
pledgee in connection with a loan made by Higgins D. Bailey to Thomas
T. Anderson which is collateralized by the shares, and over which Mr.
McKenzie has sole voting power as a result of an irrevocable proxy
granted to Mr. McKenzie by Mr. Anderson in connection with a loan made
by Mr. McKenzie to Mr. Anderson which is collateralized by the same
shares. In addition, includes 143,490 Shares held of record by CapMac
Eighty-two, a limited partnership of which Mr. McKenzie is a general
partner.
(6) Includes 822,446 shares of Series A Preferred Stock owned by Lowell M.
Somers, the spouse of Caroline T. Somers.
(7) Includes 1,005,793 shares of Common Stock owned by Caroline T. Somers,
the spouse of Lowell M. Somers.
(8) Of these shares, 10,000 shares are held in the name of Deloras Decker
Hunter, Trustee of the Deloras Decker Hunter Generation Skipping
Trust. Deloras Decker Hunter is the spouse of Mr. Hunter and Mr.
Hunter is deemed to have voting control over these 10,000 shares. In
addition, these shares include 60,000 shares underlying an option
assigned to Mr. Hunter in January, 1998.
(9) These shares are owned in joint tenancy with Virginia Crim, the spouse
of Dewey H. Crim.
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CHANGES IN CONTROL
There are no understandings, arrangements or agreements known by
management at this time which would result in a change in control of the
Company.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
TRANSACTIONS WITH MANAGEMENT AND OTHERS
During 1997, the Company received advances from a stockholder totaling
$15,000. The advances did not bear interest and were payable upon demand.
In addition, during 1996 and 1997, the Company was advanced an aggregate of
$73,873 by a stockholder from the stockholder's personal line of credit.
In January 1998, the above referenced debts were paid in full, along with
interest charges incurred by the stockholder resulting from the advances.
The Company had accrued the following long-term debt owed to
stockholders at December 31, 1996 and 1997:
1997 1996
---- ----
8% Note payable - Stockholder, issued for
cash advances, principal plus accrued
interest due December 31, 2000,
unsecured $ 631,678 $ 631,678
8% Note payable - Stockholder, issued
for cash advances, principal plus
accrued interest due December 31,
2000, unsecured 178,000 178,000
8% Note payable - Stockholder,
issued for past services, principal
plus accrued interest due December 31,
2000, unsecured 731,678 731,678
Accrued interest payable 60,341 169,131
---------- ----------
$1,601,697 $1,710,487
========== ==========
On January 15, 1998, the Company converted all above noted long-term
debt plus accrued interest to 1,710,487 shares of the Company's redeemable
8% non-voting, non-cumulative Series A Preferred Stock at $1 per share, for
a total of $1,710,487.
During November 1997, the Company began negotiating with James E. Wynn
regarding compensation for research and development services provided since
the inception of the Company. In exchange for these past services, the
Company agreed to issue an 8% note payable to the individual in the
principal amount of $1,500,000 maturing December 31, 2000. Subsequent to
year end, the Company converted this obligation to 1,500,000 shares of its
non-voting, non-cumulative redeemable Series A preferred stock, at $1.00
per share. In December, 1997, certain shareholders
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of the Company contributed a portion of their common stock to Dr. Wynn as
partial settlement for research and development services (259,042 shares
valued at $518,000, approximately $2.00 per share). The expense and
related capital contributions were reflected at December 31, 1997. Dr.
Wynn was subsequently appointed a Director to the Company's Board in
February, 1998.
In January 1998, the Company entered into an agreement with James E.
Wynn, a director of the Company, whereby the Company granted Dr. Wynn a
non-exclusive right to develop new products that contain the same active
ingredients as Esterom(R), but are formulated differently. All rights to
the improved products will remain the exclusive property of the Company and
Dr. Wynn will receive two (2%) percent royalties on the net sales of all
new improved products. The expiration date of this agreement is January 1,
2003.
On January 29, 1998, the Company obtained Directors and Officers
indemnity liability insurance coverage, including securities coverages, in
the amount of $3,000,000 which indemnifies the Company against claims, as
well as provides coverage against any claims against the officers and
directors of the Company which (i) the Company is not legally permitted or
required to pay or (ii) when the Company is legally required or permitted
to pay such loss as indemnity to the Directors and Officers but cannot in
fact pay such loss due solely to the financial insolvency of the Company.
There is no pending litigation or proceeding involving a director,
officer, employee or other agent of the Company as to which indemnification
is being or may be sought, and the Company is not aware of any other
pending or threatened litigation that may result in claims for
indemnification by any director, officer, employee or other agent.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933, as amended (the "Act") may be permitted to
directors, officers and controlling persons of the Company pursuant to the
foregoing provisions, or otherwise, the Company has been advised that in
the opinion of the Securities and Exchange Commission such indemnification
is against public policy as expressed in the Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the small business issuer of
expenses incurred or paid by a director, officer or controlling person of
the Company in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in connection with
the securities being registered, the Company will, unless in the opinion of
its counsel the matter has been settled by controlling precedent, submit to
a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
In February 1998, the Company entered into a lease arrangement with
one of its principal shareholders, Thomas T. Anderson. The lease
encompasses 800 square feet of office space at a monthly rate of $1,040.
On February 16, 1998, the Company's Board of Directors approved a
contract between the Company and Dr. Wynn, whereby Dr. Wynn will
manufacture a duplicate sample of the Phase II
-22-
<PAGE>
clinical material necessary for quality control of the clinical supply
manufactured in the Mallinckrodt laboratories.
The Company is currently negotiating an agreement with WCCS whereby
WCCS will assist the Company in completing successfully the Phase III study
and NDA Phase for FDA approval of the Company's product, Esterom(R), in
exchange for $880,400 and options to purchase an aggregate of 450,000
shares of the Company's common stock at $1.50 per share over a five (5)
year period. The proposed agreement contemplates a term of 33 months and
will provide that certain officers of WCCS will serve in the following
positions in the Company: Daniel L. Azarnoff, President; Lois Rezler, Vice
President of Science and Regulatory Affairs; and, Roy S. Azarnoff, Chief
Operating Officer. Dr. Daniel Azarnoff is an officer of WCCS and has
served as a Director on the Company's Board since February, 1998.
TRANSACTIONS WITH PROMOTERS
Not applicable.
ITEM 13. EXHIBITS, FINANCIAL STATEMENTS AND REPORTS ON FORM 8-K.
(a) The following documents are filed as a part of this Form 10-KSB:
Financial Statements of Entropin, Inc.
Report of Independent Certified Public Accountants
Balance Sheets - December 31, 1997 and 1996
Statements of Operations - Years ended December 31, 1997 and
1996, and for the Period from August 27, 1984 (Inception) Through
December 31, 1997
Statements of Changes in Stockholders' Equity - For the Period
from August 27, 1984 (Inception) Through December 31, 1997
Statements of Cash Flows - Years ended December 31, 1997 and
1996, and for the Period from August 27, 1984 (Inception) Through
December 31, 1997
Notes to Financial Statements - December 31, 1997 and 1996
Exhibits required to be filed are listed below and, except where
incorporated by reference, immediately follow the Financial
Statements.
-23-
<PAGE>
Exhibit
Number Description
- ------- -----------
3.1 Articles of Incorporation(1)
3.2 Bylaws(1)
3.3 Articles of Merger, as filed with the Colorado Secretary of State
on January 15, 1998.(2)
3.4 Amended and Restated Articles of Incorporation, as filed with the
Colorado Secretary of State on January 15, 1998, as correct.(2)
4.3 Specimen copy of stock certificate for Common Stock,$.001 par
value; Specimen copy of stock certificate for Series A Preferred
Stock,$.001 par value(2)
10.1 Stock Option Plan(1)
10.2 Stock Bonus Plan(1)
10.3 Agreement and Plan of Merger, dated December 9, 1997 between
Vanden Capital Group, Inc. and Entropin, Inc.(2)
10.4 Agreement dated January 1, 1997, between the Registrant and
Mallinckrodt, Inc. (Development and Supply Agreement)
10.5 Lease Agreement, dated February 1, 1998, between the Registrant
and Thomas T. Anderson
10.6 License Agreement dated January 1, 1998, between the Registrant
and Dr. James E. Wynn
10.7 Assignment of Patent #4,556,663 dated September 24, 1992, by
Lowell M. Somers, M.D. to Entropin, Inc.
10.8 Assignment of Patent #4,512,996 dated September 24, 1992, by
Lowell M. Somers, M.D. to Entropin, Inc.
10.9 Assignment of Patent #4,469,700 dated September 24, 1992, by
Lowell M. Somers, M.D. to Entropin, Inc.
-24-
<PAGE>
10.10 Assignment of rights in the application for Letters Patent under
Serial Number 07/999,307 by Lowell M. Somers and James E. Wynn to
Entropin, Inc., dated February 16, 1993
10.11 Assignment of rights in the application for Letters Patent under
Serial Number 08/260,054 by Lowell M. Somers and James E. Wynn to
Entropin, Inc., dated July 29, 1994
16.0 Statement from Schumacher & Associates, the prior certifying
accountant in response to the information disclosed in the
Company's Form 8-K dated March 25, 1998, captioned "Changes in
Registrant's Certifying Accountant".(3)
27 Financial Data Schedule
___________
(1) Incorporated by reference from the like numbered exhibits filed with
the Registrant's Registration Statement on Form S-1, No. 33-23693
effective October 21, 1989.
(2) Incorporated by reference from the like numbered exhibits filed with
the Registrant's Current Report on Form 8-K, dated January 15, 1998
(3) Incorporated by reference from an exhibit numbered 4.0 as filed with
the Registrant's Current Report on Form 8-K, dated March 25, 1998
During the quarter ended December 31, 1997, the Company filed no
Current Reports on Form 8-K. However, during the quarter ended March 31,
1998, the Company filed Current Reports on Form 8-K as follows:
(i) Form 8-K, dated January 15, 1998, as amended, reporting the
consummation of the acquisition of all of the issued and
outstanding shares of Entropin, Inc. by the Company pursuant
to Item 2 thereof.
(ii) Form 8-K, dated January 22, 1998, reporting developments in the
Company's business under Item 5 thereof.
(iii)Form 8-K, dated February 25, 1998, reporting developments in
the Company's business under Item 5 thereof.
-25-
<PAGE>
(iv) Form 8-K, dated March 25, 1998, reporting Changes in Registrant's
Certifying Accountants under Item 4, and reporting change of the
Company' fiscal year under Item 8.
Required exhibits are attached hereto or are incorporated by
reference and are listed in Item 13(a)(3) of this Report.
Required financial statements are attached hereto and are listed
in Item 13 of this Report.
-26-
<PAGE>
SIGNATURES
-----------
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be
signed on its behalf by the undersigned thereunto duly authorized.
Date: April 14, 1998 ENTROPIN, INC.
By /s/ Higgins D. Bailey
----------------------------------
Higgins D. Bailey,
Chairman of the Board
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Signatures Title Date
- ---------- ----- ----
/s/ Higgins D. Bailey President, Chief Executive April 14, 1998
- -------------------------- Officer and Chairman of the
Higgins D. Bailey Board
/s/ Daniel L. Azarnoff Director April 14, 1998
- --------------------------
Daniel L. Azarnoff
/s/ Donald Hunter Secretary and Director April 14, 1998
- --------------------------
Donald Hunter
/s/ Dewey H. Crim Treasury, Director and April 14, 1998
- ------------------------- Principal Accounting
Dewey H. Crim Officer
/s/ James E. Wynn Director April 14, 1998
- -------------------------
James E. Wynn
-27-
<PAGE>
INDEX TO FINANCIAL STATEMENTS
-----------------------------
ENTROPIN, INC.
Report of Causey Demgen & Moore Inc. Independent
Certified Public Accountants. . . . . . . . . . . . . . . . . . . . .F-2
Balance Sheets As of December 31, 1997 and 1996. . . . . . . . . . . .F-3
Statements of Operations
For Years Ended December 31, 1997 and 1996, and for the
Period from August 27, 1984 (Inception) Through
December 31, 1997. . . . . . . . . . . . . . . . . . . . . . . .F-4
Statements of Changes in Stockholders' Equity
For the Years Period from August 27, 1984 (Inception) Through
December 31, 1997. . . . . . . . . . . . . . . . . . . . . . . .F-5
Statements of Cash Flows
For Years Ended December 31, 1997 and 1996, and for the
Period from August 27, 1984 (Inception) Through
December 31, 1997. . . . . . . . . . . . . . . . . . . . . . . .F-6
Notes to Financial Statements
December 31, 1997 and 1996. . . . . . . . . . . . . . . . . . . .F-8
F-1
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors and Stockholders
Entropin, Inc.
We have audited the accompanying balance sheet of Entropin, Inc. (a development
stage company) as of December 31, 1996 and 1997, and the related statements of
operations, changes in stockholders' equity (deficit) and cash flows for the
years then ended and for the period from August 27, 1984 (inception) through
December 31, 1997. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Entropin, Inc. as of December
31, 1996 and 1997 and the results of its operations and its cash flows for the
years then ended and for the period from August 27, 1984 (inception) through
December 31, 1997, in conformity with generally accepted accounting principles.
Denver, Colorado
February 22, 1998, except
for Note 9, as to which the /s/ CAUSEY DEMGEN & MOORE INC.
date is March 19, 1998 Causey Demgen & Moore Inc.
F-2
<PAGE>
<TABLE>
<CAPTION>
ENTROPIN, INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEET
December 31, 1996 and 1997
ASSETS
------
1996 1997
---- ----
<S> <C> <C>
Current assets:
Cash $ 1,677 $ 291
Accounts receivable - stockholder (Note 2) 5,000 5,000
---------- ----------
Total current assets 6,677 5,291
Deferred stock offering costs (Notes 4 and 8) - 10,746
Patent costs, less accumulated amortization of
$22,300 (1996) and $40,300 (1997) 218,326 266,456
---------- ----------
$ 225,003 $ 282,493
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
----------------------------------------------
Current liabilities:
Accounts payable $ 148,557 $ 329,813
Advances - stockholders (Note 2) 21,036 98,873
---------- ----------
Total current liabilities 169,593 428,686
Long-term debt:
Stockholders (Note 2) 1,601,697 1,710,487
Deferred royalty agreement (Note 6) 111,440 155,495
Compensation agreement (Note 6) 1,430,000 1,500,000
---------- ----------
Total long-term debt 3,143,137 3,365,982
Commitments and contingencies (Notes 6 and 8)
Series A redeemable preferred stock, $.001 par value, 3,210,487 shares
authorized, no shares issued
and outstanding (Notes 3 and 8) - -
Stockholders' equity (deficit) (Notes 4 and 8):
Preferred stock, $.001 par value; 10,000,000 shares
authorized, Series A reported above (Note 3) - -
Common stock, $.001 par value; 50,000,000 shares
authorized, 5,220,000 shares issued and outstanding 5,220 5,220
Additional paid-in capital 369,780 1,043,780
Deficit accumulated during the development stage (3,462,727) (4,561,175)
----------- -----------
Total stockholders' equity (deficit) (3,087,727) (3,512,175)
----------- -----------
$ 225,003 $ 282,493
========== ==========
</TABLE>
See accompanying notes.
F-3
<PAGE>
<TABLE>
<CAPTION>
ENTROPIN, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF OPERATIONS
For the Years Ended December 31, 1996 and 1997 and for the
Period from August 27, 1984 (inception) to December 31, 1997
Cumulative
amounts from
1996 1997 inception
---- ---- -------------
<S> <C> <C> <C>
Costs and expenses:
Research and development (Note 4) $ 167,818 $ 683,209 $ 3,752,854
General and administrative (Note 4) 101,894 269,853 511,255
Depreciation and amortization 10,550 18,000 57,368
Interest (Note 2) 94,876 127,386 239,698
--------- ----------- -----------
Net loss $(375,138) $(1,098,448) $(4,561,175)
========== ============ ===========
Basic loss per common share (Note 5) $ (.07) $ (.21) $ (.87)
========= =========== ===========
</TABLE>
See accompanying notes.
F-4
<PAGE>
<TABLE>
<CAPTION>
ENTROPIN, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT
For the Period from August 27, 1984 (inception) to December 31, 1997
Deficit
accumulated
Common Stock Additional during the
--------------------- paid-in Stock development
Shares Amount capital subscriptions stage
------ ------ ----------- ------------- -----------
<S> <C> <C> <C> <C> <C>
Balance at August 27, 1984 (inception) - $ - $ - $ - $ -
Sale of common stock for cash
in 1984 ($.005 per share) 991,800 992 4,008 - -
Issuance of common stock in exchange for
services in 1991 ($.005 per share) 3,967,198 3,967 16,033 - -
Cash contribution from shareholder in 1991 - - 50,000 - -
Net loss for the period from inception through
December 31, 1994 - - - - (2,824,221)
--------- ------- ---------- -------- -----------
Balance, December 31, 1994 4,958,998 4,959 70,041 - (2,824,221)
Cash received for common stock subscription - - - 150,000 -
Net loss for the year - - - - (263,368)
--------- ------- ---------- -------- ----------
Balance, December 31, 1995 4,958,998 4,959 70,041 150,000 (3,087,589)
Sale of common stock for cash ($1.15 per share) 261,002 261 299,739 (150,000) -
Net loss for the year - - - - (375,138)
--------- ------- ---------- -------- -----------
Balance, December 31, 1996 5,220,000 5,220 369,780 - (3,462,727)
Capital contributions (Note 4) - - 674,000 - -
Net loss for the year - - - - (1,098,448)
--------- ------- ---------- -------- -----------
Balance, December 31, 1997 5,220,000 $5,220 $1,043,780 $ - $(4,561,175)
========= ====== ========== ======== ============
</TABLE>
See accompanying notes.
F-5
<PAGE>
<TABLE>
<CAPTION>
ENTROPIN, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF CASH FLOWS
For the Years Ended December 31, 1996 and 1997 and for the Period
from August 27, 1984 (inception) to December 31, 1997
Cumulative
amounts
from
1996 1997 inception
---- ---- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $(375,138) $(1,098,448) $(4,561,175)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 10,550 18,000 57,368
IBC partner royalty agreement - 44,055 155,495
Services contributed in exchange
for stock - 674,000 694,000
Services contributed in exchange for
compensation agreements 110,000 70,000 2,231,678
Increase in accounts receivable -
shareholder - - (5,000)
Increase in accounts payable 33,418 181,256 329,813
Increase in accrued interest 60,341 108,790 169,139
Other - - 139
--------- ----------- -----------
Total adjustments 214,309 1,096,101 3,632,624
--------- ----------- -----------
Net cash used in operations (160,829) (2,347) (928,551)
Cash flows from investing activities:
Purchase of equipment - - (17,207)
Patent costs (54,564) (66,130) (306,756)
---------- ------------ ------------
Net cash used in investing activities (54,564) (66,130) (323,963)
Cash flows from financing activities:
Deferred stock offering costs - (10,746) (10,746)
Proceeds from sale of common stock 150,000 - 355,000
Proceeds from stockholder loans 19,972 - 809,678
Proceeds from stockholder advances 21,035 77,837 98,873
--------- ----------- -----------
Net cash provided by financing
activities 191,007 67,091 1,252,805
--------- ----------- -----------
Net increase (decrease) in cash (24,386) (1,386) 291
Cash at beginning of period 26,063 1,677 -
--------- ----------- -----------
Cash at end of period $ 1,677 $ 291 $ 291
========= =========== ===========
</TABLE>
(Continued on following page) See accompanying notes.
F-6
<PAGE>
<TABLE>
<CAPTION>
ENTROPIN, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF CASH FLOWS
For the years ended December 31, 1996 and 1997 and for the Period
from August 27, 1984 (inception) to December 31, 1997
(Continued from preceding page)
Supplemental disclosure of cash flow information:
Cumulative
amounts
from
1996 1997 inception
---- ---- ---------
<S> <C> <C> <C>
Cash paid during period for interest $6,372 $15,598 $59,855
</TABLE>
Supplemental disclosure of non-cash financing activities:
During 1996, the Company entered into a compensation agreement with the spouse
of a shareholder for $731,678 in exchange for services performed for the Company
in prior years (see Note 2).
Pursuant to an agreement with an IBC limited partner, the Company has accrued a
liability totaling $155,495 at December 31, 1997 for advance royalties due to
the individual (see Note 6).
In November of 1997, the Company reached an agreement with an individual to
enter into a compensation agreement in exchange for services the individual has
provided the Company since inception (see Note 6). The Company has reflected a
liability of $1,430,000 and $1,500,000 in 1996 and 1997, respectively, related
to this agreement.
See accompanying notes.
F-7
<PAGE>
ENTROPIN, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
December 31, 1996 and 1997
1. Organization and summary of significant accounting policies
-----------------------------------------------------------
Organization:
Entropin, Inc. was incorporated in California in August 1984, as a
pharmaceutical research company developing Esterom(R), a topically applied
compound for the treatment of impaired range of motion associated with
acute lower back sprain and acute painful shoulder. The Company is
considered to be a development stage enterprise as more fully defined in
Statement No. 7 of the Financial Accounting Standards Board. Activities
from inception include research and development activities, seeking the
U.S. Food and Drug Administration (FDA) approval for Esterom(R), as well as
fund raising.
Basis of presentation and managements' plans:
The Company's financial statements have been presented on a going concern
basis which contemplates the realization of assets and the satisfaction of
liabilities in the normal course of business. The Company is in the
development stage and has been primarily involved in research and
development activities. This has resulted in significant losses and a
stockholders' deficit at December 31, 1997 of $4,561,175. The Company's
continued existence is dependent on its ability to obtain the additional
funding necessary to complete the FDA approval process for Esterom(R) and
market the product.
As described in Note 8, the Company has successfully completed a private
placement and a recapitalization of the Company which will provide
additional liquidity for the Company for current operations. However, the
Company estimates it will require additional funding of up to $8,000,000
over the next three years to successfully complete the FDA approval
process. The financial statements do not include any adjustment relating to
the recoverability and classification of recorded asset amounts or the
amount and classification of liabilities or other adjustments that might be
necessary should the Company be unable to continue as a going concern in
its present form.
Use of estimates:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
Income Taxes:
The Company has elected under the Internal Revenue Code to be an 'S'
corporation. In lieu of corporation income taxes, the shareholders of an
'S' corporation include their respective shares of the Company's net income
or loss in their individual income tax returns.
F-8
<PAGE>
ENTROPIN, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
December 31, 1996 and 1997
1. Organization and summary of significant accounting policies (continued)
-----------------------------------------------------------------------
Deferred stock offering costs:
Deferred stock offering costs represent costs incurred to December 31,
1997, in connection with the private placement of common stock, more fully
discussed in Note 6. Costs incurred as of December 31, 1997 and additional
costs incurred subsequent to that date, were charged against the proceeds
of the offering.
Patents:
Patents are stated at cost less accumulated amortization which is
calculated on a straight-line basis over the useful lives of the assets,
estimated by management to average 17 years. Research and development costs
and any costs associated with internally developed patents (with the
exception of legal costs) are expensed in the year incurred. The
recoverability of carrying values of intangible assets are evaluated on a
recurring basis.
Cash equivalents:
For the purposes of the statement of cash flows, the Company considers all
highly liquid debt instruments purchased with a maturity of three months or
less to be cash equivalents.
Concentrations of credit risk:
Financial instruments which potentially subject the Company to
concentrations of credit risk consist principally of cash. The Company
places its cash with high quality financial institutions. At times during
the years, the balance at any one financial institution may exceed FDIC
limits.
2. Related party transactions
--------------------------
Office Space:
The Company presently uses part of an office facility and administrative
services provided by a director and stockholder of the Company at no cost.
Accounts receivable - stockholder:
During 1994, the Company advanced $5,000 to a stockholder. The advance does
not bear interest and is due on demand. The Company expects the advance to
be paid in full.
Advances - stockholders:
During 1996 and 1997, the Company was advanced an aggregate of $73,873 by a
stockholder from the stockholder's personal line of credit. The Company has
agreed to pay all interest charges incurred by the stockholder resulting
from the advances.
F-9
<PAGE>
ENTROPIN, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
December 31, 1996 and 1997
2. Related party transactions (continued)
--------------------------------------
During 1997, the Company received advances from a stockholder totaling
$15,000. The advances do not bear interest and are payable upon demand.
Long-term debt - stockholders:
Long-term debt - stockholders consisted of the following at December 31,
1996 and 1997:
<TABLE>
<CAPTION>
1996 1997
---- ----
<S> <C> <C>
8% Note payable - stockholder, issued for cash advances,
principal plus accrued interest due December 31,
2000, unsecured $ 631,678 $ 631,678
8% Note payable - stockholder, issued for cash advances,
principal plus accrued interest due December 31,
2000, unsecured 178,000 178,000
8% Note payable - stockholder, issued for past services,
principal plus accrued interest due December 31, 2000,
unsecured 731,678 731,678
Accrued interest payable 60,341 169,131
---------- ----------
$1,601,697 $1,710,487
========== ==========
</TABLE>
As described in Note 6, effective January 15, 1998, all above noted
long-term debt plus accrued interest was converted to 1,710,487 shares of
the Company's redeemable 8% non-voting, non-cumulative Series A Preferred
Stock at $1 per share, for a total of $1,720,487 which represents the
recorded amount of the liability at December 31, 1997.
3. Redeemable preferred stock
--------------------------
In December 1997, the Board of Directors approved an amendment to the
Articles of Incorporation to authorize 10,000,000 shares of $.001 par value
preferred stock. 3,210,487 shares of the Company's preferred stock were
designated as redeemable, non-voting, non-cumulative 8% Series A Preferred
Stock (see Note 8). The annual 8% dividend is based upon a $1.00 per share
value.
The Series A Preferred Stock will be subject to mandatory redemption. The
funds available for redemption will be equal to more than 20% but less than
50% of annual earnings, as determined annually by the Board of Directors,
but not exceeding cash flow from operations and will automatically cancel
in seven years if not fully redeemed. The Company may voluntarily redeem
outstanding shares of preferred stock at $1 per share.
F-10
<PAGE>
ENTROPIN, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
December 31, 1996 and 1997
4. Stockholders' equity
--------------------
Buy-sell agreement:
On August 11, 1993, the Company entered into a buy-sell agreement with the
existing stockholders which, among other provisions, requires stockholders
desiring to sell or transfer shares to a person or entity other than an
immediate family member to first submit a proposal of the sale or transfer
and its terms to the Company. Pursuant to the agreement, the Company is
entitled to a first right option to purchase some or all of the shares on
the terms and price offered to the buyer after which, subject to certain
provisions, all other individual shareholders may then purchase any
remaining shares not purchased by the Company. The buy-sell agreement was
cancelled January 15, 1998.
Authorized capital:
Pursuant to the recapitalization more fully described in Note 8, in
December 1997, the Board of Directors approved an amendment to the Articles
of Incorporation to increase the authorized common stock to 7,000,000
shares and to establish its par value at $.001 per share.
Stock split:
On December 10, 1997, the Board of Directors approved a 198.36-for-one
stock split. Accordingly, all references to common shares including the
number of shares (except shares authorized), stock option data, additional
paid-in capital, and per share information have been retroactively restated
to reflect the stock split, which presentation is consistent with the
recapitalization of the Company (see Note 8).
Private placement:
As of December 31, 1997, the Company had commenced a private placement of
30 units (10,000 shares of its $.001 par value common stock per unit) at
$27,500 per unit, $2.75 per share, which closed on January 15, 1998 with
gross proceeds of $825,000 (see Note 8).
Capital contributions:
In December 1997, certain shareholders of the Company contributed a portion
of their common stock to an individual providing business advisory and
legal services to the Company (78,300 shares valued at $156,000,
approximately $2.00 per share) and to the Chairman of the Pharmaceutical
Sciences Department of a university as partial settlement for research and
development services (259,042 shares valued at $518,000, approximately
$2.00 per share). The expense and related capital contributions are
reflected at December 31, 1997.
F-11
<PAGE>
ENTROPIN, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
December 31, 1996 and 1997
5. Basic net loss per share:
-------------------------
Basic net loss per share is based on the weighted average number of shares
outstanding during the periods, 5,220,000 shares. Diluted loss per share
has not been presented as exercise of the outstanding stock options would
have an antidilutive effect.
6. Commitments and contingencies
-----------------------------
Compensation agreements:
In 1993, the Company entered into a 30 year compensation agreement with
I.B.C. limited partners owning 64.28% of the limited partnership. The
I.B.C. Limited Partnership participated in the early development of
Estrom(R) (the medicine) and owned the patent rights to three patents and
all intellectual property rights. Under the terms of the Agreement, the
Company acquired all of the patent and intellectual property rights in
exchange for certain compensation to the limited partners, which is
dependent upon the Company's receipt of a marketing partners technological
access fee and royalty payments. The partnership was subsequently
dissolved. Compensation under the agreement includes a bonus payment of
$96,420 to be paid at the time the Company is reimbursed by a drug company
for past expenses paid for development of the medicine, as well as 64.28%
of a decreasing payment rate (3% to 1%) on cumulative annual royalties
received by the Company. As of December 31, 1996 and 1997, no liabilities
have been accrued with respect to this agreement.
In a separate agreement with a former I.B.C. limited partner, the Company
has agreed to pay the partner 35.72% of a decreasing earned payment (3% to
1% on cumulative annual sales of products by the Company) until October 10,
2004. From October 10, 2004 until October 10, 2014, the Company will pay
the partner 17.86% of the earned payment. In accordance with the agreement,
the Company has agreed to pay the former limited partner the amount of
$40,000 and a minimum earned payment of $3,572 per calendar quarter
beginning on December 31, 1989. Such minimum earned payment is to be
evidenced by a promissory note issued each quarter and payable when the
Company is either reimbursed for expenses paid for the development of the
medicine or from the first income received from the Company from net sales
of the medicine. The quarterly payments are to be applied against the
earned payment to be received by the limited partner. As of December 31,
1996, and 1997, the total liability accrued with respect to this agreement
totaled $111,440 and $155,495, respectively.
Consulting Agreement:
On March 12, 1996, the Company entered into a Consulting Agreement with a
firm whereby the Company has to pay the firm a $50,000 success fee
concurrent with the Company's signing of any agreement establishing a
corporate partnership, product license, or any other agreement relating to
F-12
<PAGE>
ENTROPIN, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
December 31, 1996 and 1997
6. Commitments and contingencies (continued)
-----------------------------------------
the marketing of the medicine. As of December 31, 1997, a payable of
$25,000 has been recorded with respect to this agreement.
Development of New Products Agreement:
On January 26, 1987, the Company entered into a Development of New Products
Agreement with a university whereby the university provides various
services including research and development, product formulations, and
clinical supply for the Company relating to its development of the medicine
on a project by project basis. Prior to the commencement of each project,
the Company and the university will mutually agree on the nature, type, and
timing of each special project as well as the terms of compensation to the
university. Under the agreement, the university is required to disclose to
the Company all inventions, discoveries, or improvements conceived or made
by the university and has agreed to assign all its interests to the
Company.
Compensation Agreement:
During November 1997, the Company began negotiating with an individual
regarding compensation for research and development services provided since
the inception of the Company. In exchange for these services, the Company
agreed to issue an 8% note payable to the individual in the principal
amount of $1,500,000 maturing December 31, 2000. The Company has accrued
related costs of $1,430,000 as of December 31, 1996, and increased the
liability to $1,500,000 as of December 31, 1997. Subsequent to year end,
the Company converted this obligation to 1,500,000 shares of its
non-voting, non-cumulative redeemable 8% Series "A" preferred stock, at $1
per share (see Note 8). In addition, effective December 15, 1997 three
stockholders of the Company agreed to transfer a portion of their common
stock to provide the individual with approximately 5% of the outstanding
common shares (see Note 4).
F-13
<PAGE>
ENTROPIN, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
December 31, 1996 and 1997
6. Commitments and contingencies (continued)
-----------------------------------------
Development and Supply Agreement:
On January 1, 1997, the Company entered into 10 year Development and Supply
Agreements with Mallinckrodt, Inc. to develop all of the chemistry,
manufacturing and controls to comply with the drug master file of the Food
and Drug Administration as well as supply the bulk active product for
marketing. In exchange for these services, Mallinckrodt will receive
exclusive rights as a supplier of the bulk active product to the Company in
North America. For the first year ended December 31, 1997, the contract
price of the ingredient will be fixed based on the number of liters ordered
by the Company. Subsequent to December 31, 1997, the cost per liter will be
adjusted based on changes in the price of the components in the bulk active
product.
In addition, pursuant to the agreement, the Company has granted
Mallinckrodt a right of first refusal to supply the Company's requirements
of the bulk active product in all other parts of the world outside of North
America.
Management advisory services agreement:
On October 28, 1997, the Company entered into a 3-year agreement with an
organization providing management advisory services to the Company. The
organization provides assistance in developing and implementing a strategic
plan of merger or acquisition and for business and financial community
relations. Simultaneous with the closing of any merger or acquisition
arranged by the organization and on terms acceptable to the Company, the
organization will receive two options to acquire 180,001 shares of the
Company's common stock for $100 and $504,000, respectively (see Note 8).
The options are exercisable for a five-year period. In addition, the
organization received registration rights for the shares underlying the
options.
7. Financial instruments
---------------------
The carrying values of cash, accounts receivable-shareholder, accounts
payable and advances-shareholders approximated fair value due to the
short-term maturities of these instruments.
The Company believes that it is not practical to estimate a fair market
value different from the carrying value of long-term debt. Long-term debt,
excluding the deferred royalty agreement, was converted into redeemable
preferred stock on January 15, 1998. Both the redeemable preferred stock
and the deferred royalty agreement have numerous features unique to these
securities and agreements as described in Notes 3 and 6.
F-14
<PAGE>
8. Subsequent events
-----------------
Recapitalization:
On December 9, 1997, the Company entered into an agreement and plan of
merger with Vanden Capital Group, Inc. (Vanden) to exchange all of the
issued and outstanding common shares of the Company, in exchange for
5,220,000 shares of Vanden's $.001 par value common stock.
Pursuant to the agreement, Vanden agreed to have cash of $220,000 and no
unpaid liabilities at the effective date of the transaction. The exchange
was consummated on January 15, 1998. As a condition precedent to the
exchange, the Company successfully raised gross proceeds of $825,000
through a private placement of its common stock (see Note 3).
Following the exchange, the Company's shareholders own approximately 95% of
the outstanding common stock of Vanden. The acquisition has been accounted
for as a recapitalization of the Company based upon historical cost.
Accordingly, the number authorized and issued common shares, par value of
common stock and additional paid-in capital have been restated on the
balance sheet and the statement of stockholders' equity to give retroactive
effect to the recapitalization.
Issuance of preferred stock:
On January 15, 1998, the Company issued 3,210,487 shares of its Series A
redeemable non-voting, non-cumulative 8% preferred stock in exchange for an
aggregate $1,710,487 of notes payable to shareholders and accrued interest,
and the $1,500,000 compensation agreement (see Notes 2 and 6).
Issuance of common stock:
In connection with the recapitalization effected on January 15, 1998, the
Company issued 180,001 shares of its $.001 par value common stock to an
unrelated entity for cash of $100 as required by the management advisory
services contract (see Note 6).
License agreement:
In January 1998, the Company entered into an agreement with a director of
the Company, whereby the Company granted the director a non-exclusive right
to make, import and use the Company's product, Esterom(R), under the
Company's licensed patents and to use the Company's confidential
information to develop new products that contain the same active
ingredients as Esterom(R), but are formulated differently. All rights to
the improved products will remain the exclusive property of the Company and
the director will receive a two percent royalty on the net sales of all
improved products, and a negotiated royalty on new products. The expiration
date of this agreement is January 1, 2003.
F-15
<PAGE>
ENTROPIN, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
December 31, 1996 and 1997
8. Subsequent events (continued)
----------------------------
Change in tax status:
The consummation of the stock exchange with Vanden and the issuance of
preferred stock in January 1998, resulted in a change in the Company's tax
status from an S corporation to a taxable corporation. The effect of the
change would be to provide for income tax based upon reported results of
operations, and to provide deferred tax assets and liabilities on temporary
differences between reported earnings and taxable income. Since the Company
has had losses since inception, no change in the results of operations
would have occurred, assuming the change in status occurred at the
beginning of the periods presented.
Unaudited pro forma combined balance sheet:
The following table presents the unaudited pro forma combined balance sheet
of the Company and Vanden as though the combination had occurred on
December 31, 1997, giving effect to the recapitalization, the private
placement and the other subsequent events described above.
Assets:
Current assets $1,034,247
Other assets
266,456
----------
$1,300,703
==========
Liabilities and stockholders' equity:
Current liabilities $ 428,686
Other liabilities 155,495
Redeemable preferred stock 3,210,487
Stockholders' equity (deficit) (2,493,965)
----------
$1,300,703
==========
9. Proposed management agreement
-----------------------------
During March 1998, the Company has been negotiating an agreement with a
company experienced in managing pharmaceutical development , including
providing assistance in taking pharmaceutical products to the FDA and
through the clinical trials and New Drug Application stages of development.
The agreement is proposed to have a 33 month term, at the end of which the
Company's primary product, Esterom(R), may be approved for marketing. The
Company would be required to pay management fees of approximately $900,000
over the term of the agreement, as well as grant stock options to the
company within thirty days after execution of the agreement to purchase
450,000 shares of Entropin common stock. The options will have a term of
five years from the grant date and an exercise price of $1.50. The options
will be exercisable in varying amounts on dates ranging from August 1998 to
December 2000.
F-16
<PAGE>
UNAUDITED PRO FORMA INFORMATION
-------------------------------
On December 9, 1997, Vanden Capital Group, Inc. (Vanden) entered into an
agreement and plan of merger to acquire all of the issued and outstanding shares
of Entropin Inc. (Entropin) in exchange for 5,220,000 shares of Vanden $.001 par
value common stock and $220,000 in cash.
After the exchange Entropin shareholders own approximately 95% of the
outstanding common stock of the surviving company. The Entropin shareholders
have appointed a new Board of Directors who have in turn elected new officers.
Entropin is a pharmaceutical research company developing Estrom(R), a topically
applied compound for the treatment of impaired range of motion associated with
acute lower back sprain and acute painful shoulder.
The following unaudited pro forma combined balance sheet and unaudited pro forma
combined statement of stockholders' equity (deficit) assume the exchange
occurred on December 31, 1997 and combines the financial positions of Vanden as
of November 30, 1997, and Entropin as of December 31, 1997, using the
assumptions described in the accompanying notes. Since Entropin is the
predominant entity, this combination is accounted for as a recapitalization of
Entropin.
The unaudited pro forma results of the combined operations of Vanden and
Entropin are not presented because the combination is accounted for as a
recapitalization at historical cost, not a business combination.
Vanden received shareholder approval to effect the recapitalization and to amend
its Articles of Incorporation to change Vanden's name to Entropin Inc.,
effective January 15, 1998.
F-17
<PAGE>
<TABLE>
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
December 31, 1997
"Vanden" "Entropin" Pro forma Pro forma
Historical Historical Adjustments Combined
---------- ---------- ----------- --------
ASSETS
------
<S> <C> <C> <C> <C> <C>
Current assets:
Cash $ 307,301 $ 291 (D) $ 808,856
(A) (87,201) $1,029,247
Accounts receivable - 5,000 - 5,000
---------- ---------- ---------- ----------
Total current assets 307,301 5,291 721,655 1,034,247
Deferred offering costs - 10,746 (D) (10,746) -
Patent costs, net of
amortization - 266,456 - 266,456
---------- ---------- ---------- ----------
$ 307,301 $ 282,493 $ 710,909 $1,300,703
========== ========== ========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
----------------------------------------------
Current liabilites:
Accounts payable $ 12,643 $ 329,813 (A) $ (12,643) $ 329,813
Advances-stockholders - 98,873 - 98,873
---------- ---------- ---------- ----------
Total current liabilites 12,643 428,686 (12,643) 428,686
Long-term debt:
Stockholders - 1,710,487 (E) (1,710,487) -
Deferred royalty agreement - 155,495 - 155,495
Compensation agreement - 1,500,000 (E) (1,500,000) -
---------- ---------- ----------- ---------
Total long-term debt - 3,365,982 (3,210,487) 155,495
Redeemable preferred stock - - 3,210,487 3,210,487
Stockholders' equity (deficit):
Preferred stock - - - -
Common stock 9,002 5,220 (8,222) 6,000
Additional paid-in capital 687,469 1,043,780 329,961 2,061,210
Deficit accumulated during
the development stage (401,813) (4,561,175) 401,813 (4,561,175)
---------- ----------- ---------- ----------
Total stockholders'
equity (deficit) 294,658 (3,512,175) 723,552 (2,493,965)
---------- ---------- ---------- ----------
$ 307,301 $ 282,493 $ 710,909 $1,300,703
========== ========== ========== ==========
</TABLE>
F-18
<PAGE>
<TABLE>
<CAPTION>
UNAUDITED PRO FORMA COMBINED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
December 31, 1997
"Vanden" "Entropin" Pro forma Pro forma
Historical Historical Adjustments Combined
---------- ---------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Series A redeemable preferred
stock, $.001 par value;
3,210,487, shares issued
and outstanding $ - $ - (E) $3,210,487 $ 3,210,487
======== ============ ========== ===========
Stockholders' equity (deficit):
Preferred stock, $.001 par
value; 10,000,000 shares
authorized, Series A
reported above $ - $ - $ - $ -
Common stock, $.001 par
value; 50,000,000 shares
authorized, 300,050 (Vanden),
5,220,000 (Entropin) and
6,000,051 (combined)
shares issued and outstanding 9,002 5,220 (B) (8,702)
(D) 300
(A) 180 6,000
Additional paid-in capital 687,469 1,043,780 (B) 8,702
(C) (476,471)
(D) 797,810
(A) (80) 2,061,210
Deficit accumulated
during the
development stage (401,813) (4,561,175) (A) (74,658)
(C) 476,471 (4,561,175)
-------- ----------- ---------- -----------
Total stockholders' equity
(deficit) $294,658 $(3,512,175) $ 723,552 $(2,493,965)
======== ============ ========== ============
</TABLE>
F-19
<PAGE>
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
The pro forma adjustments assume the reverse split of Vanden common stock at 1
share for 300 shares, the issuance of 5,220,000 shares of Vanden's $.001 par
value common stock in exchange for the 5,220,000 issued and outstanding shares
of Entropin's common stock, the private placement of 300,000 shares of common
stock at $2.75 per share, the issuance of 180,001 shares of common stock
pursuant to exercise of stock option issued in connection with recapitalization
and the issuance of 3,210,487 shares of the Series "A" preferred stock at $1 per
share.
The acquisition is accounted for as recapitalization of Entropin and therefore,
assets and liabilities are combined at historical cost.
The following is a summary of the adjustments required based upon the above
assumptions.
A. Record additional costs incurred to effect the exchange and payment of
existing Vanden liabilities, including issuance of 180,000 shares of common
stock.
B. Reverse split of Vanden common stock at 1 share for 300 shares and the
increase par value thereof from $.0001 per share to $.001 per share.
C. Issuance of Vanden common stock in exchange for Entropin common stock.
D. Issuance of 300,000 shares of the Company's common stock at $2.75 per share
pursuant to a private placement effective January 15 1998, gross proceeds
of $825,000 less offering and merger expenses of $26,890.
E. Issuance of 3,210,487 shares of $.001 par value preferred stock in exchange
for notes payable and accrued interest of $1,710,487 and compensation
agreement of $1,500,000.
F-20
EXHIBIT 10.4
DEVELOPMENT AGREEMENT
THIS AGREEMENT is effective on this 1st day of January 1997, by and
between Mallinckrodt Inc., acting by and through its Pharmaceutical
Chemicals division ("Mallinckrodt"), and Entropin, Inc. ("Entropin").
WHEREAS, Entropin is the owner of certain formulae, patents and other
intellectual property relative to a prescription strength dosage analgesic
currently in the early stages of development known as Esterom ("Product");
WHEREAS, Entropin is desirous of entering into an agreement with
another party to develop the bulk active ingredient of Product ("Bulk
Active");
WHEREAS, Mallinckrodt is capable of undertaking the development of the
Bulk Active and Entropin is willing to contract with Mallinckrodt for the
provision of such services;
WHEREAS, Entropin is also in need of a third party to manufacture and
supply Bulk Active to Entropin on a continuing basis once the Product has
been developed; and
WHEREAS, Mallinckrodt has the expertise and capability to supply
Entropin with its requirements for the Bulk Active and Entropin is willing
to purchase its requirements of the Bulk Active from Mallinckrodt;
NOW, THEREFORE, in consideration of the promises and mutual covenants
and undertakings set forth herein, Entropin and Mallinckrodt hereby agree
as follows:
1. Duty of Mallinckrodt to Develop Bulk Active.
-------------------------------------------
(a) Mallinckrodt will employ all reasonable efforts to develop the
Bulk Active in accordance with the timetable and milestones set forth on
Exhibit A attached hereto. In the event that, despite the efforts of
Mallinckrodt to prevent any delay, there is a delay in the development
and/or production of the Bulk Active, Mallinckrodt will have no liability
to Entropin whatsoever; provided that, in the event that Mallinckrodt
becomes aware of any reasonably possible delay in development and/or
production, Mallinckrodt shall give notice to Entropin as soon as possible
of the nature of any such delay, the anticipated length of any such delay,
the reasons therefor and the steps that Mallinckrodt intends to adopt to
shorten or eliminate any such delay. Entropin agrees to provide
Mallinckrodt with any cooperation Mallinckrodt reasonably requests to
shorten or eliminate any such delay. Furthermore, the parties agree that
if any delay in meeting the milestones set forth in Exhibit A is not
occasioned by any action of or omission to act by Mallinckrodt but is
instead the result of circumstances that are unavoidable and/or not
reasonably foreseeable, then the parties will agree to
<PAGE>
a revision to Exhibit A that, under the circumstances, is appropriate and
provides Mallinckrodt with a fair chance of success in achieving any such
revised timetable.
(b) The Bulk Active to be developed by Mallinckrodt hereunder will
have specifications meeting or exceeding those set forth on Exhibit B
attached hereto. In the event that either party, during the course of the
development of the Bulk Active, deems it necessary or advisable to change
the specifications set forth on Exhibit B, such party shall give notice to
the other party of the nature of the change desired and the reasons
therefor. In the event Entropin is the party requesting the change,
Mallinckrodt shall have the right to withhold its consent to such change;
provided, however, if Mallinckrodt does provide its consent to such change,
Mallinckrodt shall have the right to demand reasonable compensation or
other contractual relief (including, without limitation, alteration of the
timetable and milestones set forth on Exhibit A hereto) by notice to
Entropin and, should Entropin fail to agree to such demands by
Mallinckrodt, Mallinckrodt shall have the right, immediately upon notice to
Entropin, to terminate this Agreement and its responsibilities hereunder
without liability of any kind, in addition to any other right of
termination it may have hereunder. In the event Mallinckrodt is the party
requesting the change, Entropin shall have the right to withhold its
consent to such change, if it determines that doing so will adversely
affect the marketability, FDA approvability, or cost of the Product and
such change will increase materially the amount of time required to
complete development of the Bulk Active.
(c) Nothwithstanding the foregoing subsections (a) and (b), the
parties agree to cooperate fully with each other in the development of the
Bulk Active, and to that end each party will provide the other with such
access to its confidential information and personnel as is reasonably
necessary under the circumstances to allow the development of the Bulk
Active to proceed in accordance with the provisions hereof.
(d) In its performance hereunder, Mallinckrodt will take all actions
necessary to comply with all requirements of the FDA, including complying
with current Good Manufacturing Practices requirements. Entropin, for its
part, will keep Mallinckrodt fully apprised of all written or oral
communications with the FDA that may affect Mallinckrodt's performance
hereunder in any manner.
2. Progress Reports, Meetings and Rights of Review.
-----------------------------------------------
(a) The parties understand that there will be difficulties and issues
to be dealt with during the process of development of the Bulk Active and,
therefore, Entropin and Mallinckrodt shall each designate one (1) technical
representative to meet on a regular basis, but no less often than
quarterly, during the term
2
<PAGE>
hereof to discuss the development of the Bulk Active hereunder. These
meetings are for informational and coordination purposes only and such
representatives shall not have the right, by their joint agreement or
otherwise, to modify any term or provision of this Agreement, which
modification may be accomplished only by a writing executed by authorized
individuals of both of the parties hereto. Each party may change its
designated technical representative at any time immediately and upon notice
to the other party.
(b) In addition to the meetings contemplated by subsection (a) above,
Mallinckrodt shall deliver to Entropin on the tenth day of each month
during the term hereof a written report on its development activities and
progress during the immediately preceding calendar month. Such report
shall contain any information Mallinckrodt deems reasonably relevant but,
at a minimum, such report shall indicate actual performance against the
timetable and milestones set forth in Exhibit A, any problems in
development that have been encountered or could reasonably be anticipated
(along with the reasons therefor and the proposed solutions, if any, to
such problems) and any changes in specifications or any other term or
provision hereof that Mallinckrodt feels is reasonably indicated.
3
<PAGE>
(c) No less often than quarterly senior executives of both
Mallinckrodt and Entropin shall meet, at a time and place satisfactory to
all participants, to discuss any issues or problems relating to the
performance of either party hereunder and to discuss the resolution of any
such problems or issues.
(d) Upon reasonable advance notice, Entropin shall have the right to
inspect any production facilities or systems, and any production or quality
control records of Mallinckrodt used directly in or related to the
development of Bulk Active hereunder.
3. Ownership of Technology.
-----------------------
(a) It is understood by the parties that Mallinckrodt will have sole
and exclusive ownership of the Drug Master File with respect to the Bulk
Active that is generated as a consequence of the development activities
hereunder.
(b) Except as set forth in subsection (a) immediately above, Entropin
shall have sole and exclusive ownership of any patented or other technology
or intellectual property arising out of the development activities of
Mallinckrodt hereunder ("Entropin Technology"), except for (i) any
technology utilized by or developed by Mallinckrodt to the extent related
to the process of manufacture of the Bulk Active, whether or not such
technology is unique to such manufacturing process or has application
relative to the manufacture or production of one or more other chemical
substances and (ii) any technology related in any way to the discovery,
development or production of any other chemical substance, which technology
was known to or in the possession of Mallinckrodt on or prior to the date
hereof.
(c) Entropin hereby agrees to indemnify, defend and hold harmless
Mallinckrodt, its personnel, agents and representatives from and against
any and all claims, losses, costs, damages or injuries of any kind
(including, without limitation, reasonable attorneys' fees) arising out of
or resulting from any actual or alleged infringement of, misappropriation
of or interference with the rights of any third party by the Entropin
Technology or by Entropin in any manner in connection with the Entropin
Technology.
4
<PAGE>
4. Consideration for Development Services.
--------------------------------------
(a) Subject to the provisions of Section 1(b) above, Mallinckrodt
agrees to develop the Bulk Active in accordance with the terms hereof, and
in particular the performance of such duties and tasks as are necessary to
accomplish the milestones set forth on Exhibit A attached hereto, entirely
at its own cost and expense.
(b) In consideration for the performance by Mallinckrodt of its
development services hereunder, Entropin agrees to enter into an agreement
with Mallinckrodt, substantially in the form attached hereto as Exhibit C,
whereby Mallinckrodt will have the exclusive right to supply Entropin's
requirements for Bulk Active in North America.
(c) Additionally, Entropin understands that Mallinckrodt has an
interest in being involved in the marketing of any newly developed dosage
formulations related to Product and Entropin agrees to make Mallinckrodt
aware of its plans with respect thereto and explore with Mallinckrodt the
possibility of Mallinckrodt's involvement in any such marketing.
5. Term and Termination.
--------------------
(a) This Agreement shall be in effect from the date hereof until the
later of (i) the date on which Mallinckrodt certifies to Entropin in
writing that it has completed the development of the Bulk Active in
accordance with the requirements hereof or (ii) the execution by the
parties of the agreement substantailly in the form of Exhibit C, as
contemplated by the provisions of Section 4(b) above.
(b) In addition to other provisions in this Agreement that may
provide for a right of termination by either or both parties, this
Agreement may be terminated by either party effective upon written notice
for cause. For purposes of the immediately preceding sentence, "cause"
shall mean (without limitation):
(i) any material breach of this Agreement by the other party,
which breach remains uncorrected for a period of thirty (30)
days after written notice of such breach has been given to
the defaulting party,
(ii) notwithstanding clause (i) set forth immediately above, any
material breach of this Agreement by the other party that is
by its nature uncurable,
(iii)the institution by the other party of voluntary proceedings
in bankruptcy or under any insolvency law or law for the
relief of debtors,
5
<PAGE>
(iv) the making by the other party of an assignment for the
benefit of creditors or any dissolution or liquidation by
said other party,
(v) the filing of an involuntary petition under any bankruptcy
or insolvency law against the other party, if such petition
is not dismissed or set aside within sixty (60) days from
the date of its filing,
(vi) the appointment of a receivor or trustee for the assets or
business of the other party, if such appointment is not
dismissed or set aside within sixty (60) days from the date
of such appointment, or
(vii)The other party, in connection with its performance
hereunder, violates or is in material violation of any laws,
rules or regulations applicable with respect to its
performance hereunder.
(c) This Agreement may be terminated by Entropin, effective upon
written notice by Entropin to Mallinckrodt, in the event that Mallinckrodt
has failed by more than three (3) months to meet the completion dates for
any of milestone numbers 7, 9 or 14 as set forth on Exhibit A; provided
that, Entropin shall not have the right to so terminate this Agreement in
the event that Mallinckrodt's failure to meet any applicable completion
date is (i) not due to any action or inaction on the part of Mallinckrodt
but instead is a consequence of unavoidable and/or reasonably unforseeable
circumstances or (ii) is due in whole or in part to any action of or
omission to act by Entropin.
(d) The rights and obligations of the parties contained in Sections
7 and 8 shall survive termination or expiration of this Agreement for any
reason.
(e) In the event of any termination of this Agreement by Entropin
under and pursuant to subsections (b) or (c) of this Section 5,
Mallinckrodt shall have no right to any of the consideration to be provided
to Mallinckrodt by Entropin pursuant to subsections (b) and (c) of Section
4 hereof and in the event that on the date of any such termination by
Entropin, the agreement attached hereto as Exhibit C has been executed it
shall be deemed terminated on and as of such date by the mutual consent of
the parties.
6. Force Majeure.
-------------
Neither party shall be charged with any liability for delay in
performance of an obligation under this Agreement to the extent, and for so
long as, such delay is due to delays caused by
6
<PAGE>
acts of God or the public enemy, compliance in good faith with any
applicable domestic or foreign governmental or judicial regulation or
order, war, civil commotion, destruction of production facilities or
materials by fire, flood, earthquake or storm, riots, labor strikes or
disturbances, unusually severe weather, interruption of raw material supply
beyond the reasonable control of the affected party, actions by the FDA or
other governmental (state or federal agencies) which prevent or restrict
development or manufacture, or any other cause beyond the reasonable
control of the affected party ("Force Majeure"), provided that the affected
party (i) shall take whatever reasonable steps are necessary to relieve the
effect of such cause as rapidly as possible, (ii) shall give prompt notice
to the other party of the commencement of such cause and (iii) shall give
prompt notice to the other party of the termination of such cause. In the
event such cause continues for more than one hundred eighty (180) days, the
other party shall have the right to terminate this Agreement by written
notice to the affected party by specific reference to this section of the
Agreement.
7
<PAGE>
7. Indemnification.
---------------
(a) Entropin shall indemnify, defend, and hold harmless Mallinckrodt,
its officers, directors, agents, owners, and employees from and against any
and all loss, damage, claim injury, cost or expense, including reasonable
attorney's fees and expenses of litigation, in connection with any illness
or personal injury, including death, or property damage that arises out of
Entropin's negligence or willful misconduct or material breach of the terms
of this Agreement; provided that:
(i) Entropin is notified promptly of any claim or lawsuit for
which indemnification is sought,
(ii) Entropin is given complete control over the conduct and
disposition of any such claim or lawsuit, and
(iii) Entropin receives Mallinckrodt's full cooperation during the
pendency of such claim or lawsuit.
(b) Mallinckrodt shall indemnify, defend, and hold harmless Entropin,
its officers, directors, agents, owners, and employees from and against any
and all loss, damage, claim, injury, cost or expense, including reasonable
attorney's fees and expenses of litigation, in connection with any illness
or personal injury, including death, or property damage that arises out of
Mallinckrodt's negligence or willful misconduct or material breach of the
terms of this Agreement; provided that:
(i) Mallinckrodt is notified promptly of any claim or lawsuit
for which indemnification is sought,
(ii) Mallinckrodt is given complete control over the conduct and
disposition of any such claim or lawsuit, and
(iii) Mallinckrodt receives Entropin's full cooperation during the
pendency of such claim or lawsuit.
8
<PAGE>
8. Confidentiality.
---------------
(a) During the term of this Agreement it may be necessary for one
party to disclose to the other (but only to those individuals who need to
know) certain confidential information including, but not limited to
certain business information and intellectual property ("Confidential
Information"). For a period of five (5) years after the termination or
expiration of this Agreement, the party receiving any such Confidential
Information from the disclosing party hereunder shall exercise due care at
all times to prevent the disclosure of such information to any third party
without the consent of the disclosing party or the use of Confidential
Information in a manner not authorized by the disclosing party.
(b) The obligations of confidentiality set forth in subsection (a)
above shall not apply to:
(i) information which is known to the receiving party prior to
disclosure or is independently developed by the receiving
party, as evidenced by such party's written records,
(ii) information disclosed to the receiving party hereunder by a
third party who has a right to make a disclosure and does
not have an obligation of confidentiality to the disclosing
party hereunder with respect to such information,
(iii)information which is or becomes (through no breach or fault
of the receiving party) patented, published or otherwise
part of the public domain, and
(iv) information which is required to be disclosed under penalty
of law, provided that the receiving party has taken all
reasonable steps available (short of the institution of
legal action) to protect this information and, prior to any
disclosure, notifies the disclosing party hereunder of its
obligation to make the disclosure and provided further, that
the disclosing party takes all steps necessary to limit the
disclosure to that portion of the Confidential Information
which is absolutely required to be disclosed.
9. Remedies Cumulative.
-------------------
The remedies provided in this Agreement shall be cumulative and shall
not preclude assertion by any party hereto of any other
9
<PAGE>
rights (whether legal or equitable in nature) or the seeking of any other
remedies against any other party hereto.
10. Binding Effect and Assignment.
-----------------------------
This Agreement shall inure to the benefit of and be binding upon the
parties hereto, their successors and assigns; provided, however, that
neither party shall, without the prior written consent of the other party
(which will not unreasonably be withheld), assign or transfer any of its
rights, benefits, obligations, or other interest under this Agreement to
any other party.
11. Notices.
-------
All notices, consents, approvals or other notifications required to be
sent by one party to the other party hereunder shall be in writing and
shall be deemed served upon the other party if delivered by hand or sent by
United States registered or certified mail, postage prepaid, with return
receipt requested, or by facsimile, air courier or telex, addressed to such
other party at the address set out below, or the last address of such party
as shall have been communicated to the other party. If a party changes its
address, written notice shall be given promptly to the other party of the
new address. Notice shall be deemed given on the day it is sent (in the
case of delivery by method other than hand delivery) or the date of
delivery (in the case of delivery by hand) in accordance with the
provisions of this paragraph. The addresses for notices are as follows:
If to Mallinckrodt:
Mallinckrodt Inc.
c/o Pharmaceutical Chemicals Division
16305 Swingley Ridge Drive
Chesterfield, Missouri 63017
Attn: Michael K. Milosovich
with a copy to:
Mallinckrodt Inc.
16305 Swingley Ridge Drive
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<PAGE>
Chesterfield, Missouri 63017
Attn: C. Stephen Kriegh and
Jake A. Larimer
If to Entropin:
Entropin, Inc.
45926 Oasis Street
Indio, California 92201
Attn: Thomas T. Anderson, Chairman
Attn: Higgins D. Bailey, President and CEO
12. Governing Law and Jurisdiction.
------------------------------
This Agreement shall be governed by and construed in accordance with
the substantive and procedural laws (as opposed to the conflicts of law
provisions) of the State of Missouri.
13. Waiver.
------
The failure by any party to exercise any of its rights hereunder or to
enforce any of the terms or conditions of this Agreement on any occasion
shall not constitute or be deemed a waiver of that party's rights
thereafter to exercise any rights hereunder or to enforce each and every
term and condition of this Agreement.
14. Severability.
------------
A determination that any portion of this Agreement is unenforceable or
invalid shall not affect the enforceability or validity of any of the
remaining portions hereof or of this Agreement as a whole. In the event
that any part of any of the covenants, sections or provisions herein may be
determined by a court of law or equity to be overly broad or against
applicable precedent or public policy, thereby making such covenants,
sections or provisions invalid or unenforceable, the parties shall attempt
to reach agreement with respect to a valid and enforceable substitute for
the deleted provisions, which shall be as close in its intent and effect as
possible to the deleted portions.
11
<PAGE>
15. Headings.
--------
The parties agree that the section and article headings are inserted
only for ease of reference, shall not be construed as part of this
Agreement, and shall have no effect upon the construction or interpretation
of any part hereof.
16. Counterparts.
------------
This Agreement may be executed in several counterparts, and each
executed counterpart shall be considered an original of this Agreement.
12
<PAGE>
17. Entire Agreement.
----------------
This Agreement and the exhibits attached hereto represent the entire
agreement and understanding of the parties hereto with respect to their
subject matter and supercede any and all prior agreements, understanding or
discussions, whether written or oral, between the parties.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed as of the day and year first above written.
ENTROPIN, INC. MALLINCKRODT INC.
Pharmaceutical Chemicals Division
By:/s/ HIGGINS BAILEY By: /s/ MICHAEL K. MILOSOVICH
------------------------- --------------------------------
Michael K. Milosovich, President
13
<PAGE>
Exhibit C
SUPPLY AGREEMENT
THIS AGREEMENT, is effective on and as of the 1st day of January,
1997, by and between Entropin, Inc. ("Entropin") and Mallinckrodt Inc.
acting by and through its Pharmaceutical Chemicals division
("Mallinckrodt").
WHEREAS, Mallinckrodt has previously performed development services
for Entropin relative to the bulk active substance ("Bulk Active")
contained in the dosage pharmaceutical product known as Esterom ("Product")
pursuant to that certain Agreement between Entropin and Mallinckrodt dated
January 1, 1997 ("Development Agreement");
WHEREAS, in order to market Product effectively Entropin is in need of
a stable source of supply of Bulk Active and Mallinckrodt has the expertise
and capability to supply Entropin with its requirements for Bulk Active on
a long-term basis; and
WHEREAS, in consideration of the development services provided by
Mallinckrodt pursuant to the Development Agreement, as recited in Section
4(b) of said Development Agreement Entropin is willing to purchase all of
its requirements for Bulk Active from Mallinckrodt on the terms and
conditions set forth herein.
NOW, THEREFORE, in consideration of the promises, covenants and
representations of the parties set forth herein, and other good and
sufficient consideration receipt of which is hereby acknowledged, Entropin
and Mallinckrodt agree as follows:
1. Requirements for Bulk Active
----------------------------
(a) Entropin hereby agrees to purchase from Mallinckrodt, during the
term of this Agreement and any renewal hereof and on the terms
and conditions set forth herein, all of its North American
requirements for the Bulk Active, the specifications for which
substance are set forth on Exhibit A attached hereto.
(b) Entropin further grants Mallinckrodt a right of first refusal to
supply Entropin's Bulk Active requirements for all other portions
of the world outside of North America. In the event that, at any
future time during the term hereof, Entropin determines that it
requires any Bulk Active for markets outside North America,
Entropin shall give Mallinckrodt notice thereof in reasonable
detail and Mallinckrodt shall have the right, by return notice to
Entropin within sixty (60) days of Entropin's original notice, to
exercise its right of first refusal to provide Bulk Active on a
competitive basis and otherwise on terms and conditions
<PAGE>
that are substantially similar to those set forth herein.
2. Representations and Warranties of the Parties
---------------------------------------------
(a) Mallinckrodt warrants that: (i) it is a corporation, duly
organized, validly existing and in good standing under the laws
of the state of New York, (ii) this agreement has been duly
executed and delivered by Mallinckrodt and constitutes the legal,
valid and binding obligation of Mallinckrodt enforceable in
accordance with its terms, (iii) Bulk Active supplied hereunder
shall conform to the specifications set forth on Exhibit A
attached hereto (hereafter, "Specifications") and will be
manufactured in accordance with current Good Manufacturing
Practices ("cGMP") as defined by the FDA, and (iv) Product shall
not, at the time of shipment or delivery, be merchandise which
may not be introduced into interstate commerce under the Act or
be merchandise which may not be legally transported or sold under
the provisions of any other applicable federal, state, or
municipal law. MALLINCKRODT MAKES NO OTHER WARRANTIES, EXPRESS OR
IMPLIED, WITH RESPECT TO BULK ACTIVE. ALL OTHER WARRANTIES,
EXPRESS OR IMPLIED, INCLUDING WITHOUT LIMITATION, THE IMPLIED
WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR
PURPOSE, ARE HEREBY DISCLAIMED.
(b) Entropin warrants that: (i) it is a corporation, duly organized,
validly existing and in good standing under the laws of the state
of California, (ii) this agreement has been duly executed and
delivered by Entropin and constitutes the legal, valid and
binding obligation of Entropin enforceable in accordance with its
terms, and (iii) it shall comply with all applicable federal,
state, and known municipal statutes, laws, ordinances and
regulations, including but not limited to the Act and state
equivalents regarding distribution, disposal, promotion, and sale
of Product incorporating any Bulk Active supplied hereunder.
3. Supply of Product and Forecasts
-------------------------------
(a) Mallinckrodt agrees to supply on a timely basis to Entropin such
amount of Bulk Active as Entropin shall request from Mallinckrodt
in writing, by purchase order or other written acknowledgment.
Notwithstanding any other provision hereof, the terms of any
purchase order, written acknowledgment or other document
submitted by either Entropin or Mallinckrodt shall in no case be
deemed as varying or, in any manner
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inconsistent herewith, as supplementing the terms of this
Agreement. All written requests for Bulk Active by Entropin are
subject to acceptance by Mallinckrodt.
(b) At least sixty (60) days prior to the start of the calendar
quarter commencing on January 1, 1998 and at least sixty (60)
days prior to the start of every calendar quarter thereafter
during the term hereof, Entropin shall submit to Mallinckrodt a
twelve (12) month rolling forecast for orders Entropin expects to
place for Bulk Active. The portion of such forecast relating to
the next calendar quarter shall constitute a firm purchase order
by Entropin for amounts of Bulk Active listed on the forecast as
required by Entropin during said calendar quarter. Absent
agreement of the parties to the contrary and subject to the
provisions of Section 10 below, Mallinckrodt shall be obligated
to deliver any firm forecasted portion of the rolling annual
forecast provided for herein no later than sixty (60) days after
the commencement of the calendar quarter for which the forecast
is firm. Any orders for Bulk Active by Entropin, if not rejected
by Mallinckrodt within ten (10) days of receipt, shall be
considered accepted and are not subject to change without the
written consent of Entropin and Mallinckrodt.
(c) All Bulk Active shall be delivered F.O.B. destination.
(d) Mallinckrodt shall provide to Entropin a complete certificate of
analysis for any lot of Bulk Active delivered to Entropin
hereunder and shall further provide such other documentation as
Entropin shall reasonably request. Entropin shall be responsible
to pay Mallinckrodt its out-of-pocket costs in providing any
documentation (other than a certificate of analysis) relative to
the supply of Bulk Active hereunder.
(e) Mallinckrodt will use its best reasonable efforts to supply Bulk
Active to Entropin as and when Entropin requests delivery of Bulk
Active.
4. Consideration and Payment.
-------------------------
(a) For each liter (of the first 1000 liters ordered) of Bulk Active
supplied to Entropin hereunder, Entropin agrees to pay
Mallinckrodt the sum of Two Thousand Four Hundred Dollars
($2,400). For each liter above the initial 1000 liters ordered,
Entropin agrees to pay Mallinckrodt the sum of One Thousand Six
Hundred Fifty Dollars ($1,650). The prices set forth in the
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<PAGE>
preceding two sentences shall, whichever is applicable, be
referred to herein as the "Basic Price".
(b) The parties agree that the Basic Price shall remain firm through
the end of the first anniversary hereof. For purposes hereof, the
term "contract year" shall mean each consecutive twelve (12)
month period occurring during the term hereof, beginning with the
twelve (12) month period commencing on January 1, 1997 and ending
on December 31, 1997.
(c) Notwithstanding the immediately foregoing subsection (b), it is
the intent of the parties hereto that increases or decreases in
the cost of key raw materials, process chemicals, labor, steam
and electricity and any other manufacturing costs incurred by
Mallinckrodt or anyone on Mallinckrodt's behalf and related
directly to the production of Bulk Active hereunder shall be
passed through to Entropin in the form of an adjustment to the
Basic Price, (whichever one is applicable) for Bulk Active. Any
adjustments to the Basic Price (whichever one is applicable)
shall be made on an annual basis, effective at the beginning of
each contract year during the term hereof. Mallinckrodt will
notify Entropin of the nature and amounts of any increases or
decreases to the Basic Price (whichever one is applicable) within
fifteen (15) days after the commencement of any contract year for
which such adjustments are effective and shall, in connection
therewith, provide such documentation as Entropin shall
reasonably request in support of such price adjustments. The
adjustments that shall be made by Mallinckrodt to the Basic Price
(whichever one is applicable) on an annual basis for any
particular contract year during the term hereof are as follows:
(i) increases or decreases in the raw materials (A) Cocaine
Alkaloid and (B) salt of cocaine, in both cases determined
from the average annual cost of the aforementioned raw
materials during the immediately previous contract year,
with average annual cost being determined utilizing the
value of beginning inventory for the prior contract year as
adjusted for raw material used during such fiscal year on a
first in, first out basis,
(ii) increases or decreases in labor cost (A) as determined from
the fully loaded labor costs chargeable during such contract
year in accordance with the collective bargaining agreement
between Mallinckrodt and the United Auto Workers relative to
those employees who provide direct labor relative to the
supply of
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Bulk Active hereunder and (B) as determined from the fully
loaded labor costs of all free enterprise personnel who
provide direct labor relative to the supply of Bulk Active
hereunder based on the cost of their salaries and benefits
at the beginning of the contract year in question,
(iii)increases or decreases in the cost of all process chemicals
utilized by Mallinckrodt for the manufacture of Bulk Active,
such increases or decreases determined in each case from the
average annual cost during the preceding contract year of
each of the process chemicals utilized in the manufacture of
Bulk Active hereunder,
(iv) increases and decreases in the cost of steam and electricity
applicable to the manufacture by Mallinckrodt of Bulk Active
hereunder, such increases or decreases determined in each
case from the average annual cost during the preceding
contract year of such utilities, and
(v) increases and decreases in all other manufacturing costs
applicable to the manufacture by Mallinckrodt of Bulk Active
hereunder, such increases or decreases determined in each
case from the average annual cost thereof during the
preceding contract year.
(d) All Bulk Active supplied hereunder shall be invoiced in writing
by Mallinckrodt to Entropin at the time of Bulk Active delivery.
The balance of any invoice shall be due and payable within thirty
(30) days of the date of Mallinckrodt's invoice. Payment shall
be made in United States dollars. Late payment of any amount(s)
due Mallinckrodt shall result in an additional charge of one
percent (1%) per month, calculated from thirty-one (31) days
after the date of the applicable invoice.
(e) Notwithstanding any other provision hereof, Entropin shall have
the right periodically (but no more often than annually) and upon
reasonable advance notice, to employ a mutually agreed upon third
party auditor to audit the books and records of Mallinckrodt as
may be necessary to establish, as applicable, the elements of
Mallinckrodt's cost of producing Bulk Active and therefore the
correct amount of any cost increase or decrease resulting in
adjustment of the Basic Price by Mallinckrodt in accordance with
subsection (c) of this Section 4. In the event that, as a result
of any such audit, Entropin reasonably concludes that corrections
should be made in adjustments to the Basic Price with respect to
any one or more calendar quarters or contract years (as
applicable) then Entropin shall
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<PAGE>
notify Mallinckrodt of any corrections and Mallinckrodt shall
make payment for any corrections within thirty (30) days of such
notification; provided that, Mallinckrodt shall not be required
to make all or any portion of such payment if, within thirty (30)
days of receiving such notification from Entropin, Mallinckrodt
provides detailed notice to Entropin of the existence and nature
of any good faith dispute Mallinckrodt has with respect to some
or all of the corrections proposed. In the event Mallinckrodt
disputes a portion but not all of the cost corrections as
proposed by Entropin, then Mallinckrodt shall pay the undisputed
portion in accordance with the relevant terms hereof. In the
event that Mallinckrodt and Entropin are unable to resolve any
dispute within sixty (60) days after the date on which
Mallinckrodt gives notice to Entropin of any such good faith
dispute, the parties may agree on a submission of such dispute to
arbitration or they may pursue any remedies available to them at
law or in equity for the resolution of such dispute.
5. Returns and Inspections
-----------------------
(a) Entropin shall inspect all Bulk Active delivered to it within
thirty (30) working days from actual receipt by using its
standard inspection and sampling procedures. Bills of lading and
all other necessary forms must be appropriately marked by
Entropin if any shipment appears to be damaged upon arrival. All
claims for shortage or breakage must be made within thirty (30)
calendar days of receipt of any shipment of Bulk Active. Any
claim by Entropin for defects in the manufacture of Bulk Active
must be made with full particulars in writing to Mallinckrodt
within ten (10) business days after any defect is identified.
Any such claim by Entropin for defects shall be considered a
rejection by Entropin of the Bulk Active in question. If
Entropin shall fail to make any claims for defect or damage
timely and in the manner specified above, the Bulk Active in
question shall be deemed to have been accepted by Entropin.
(b) In case of a justifiable claim for defect in any portion of the
delivered Bulk Active because of its failure to conform to the
specifications appearing on Exhibit A or because it is defective
in material and workmanship, is adulterated or misbranded or is
otherwise not merchantable, Mallinckrodt shall, without charge to
Entropin, promptly replace the defective portion of Bulk Active
with material which remedies the claimed defect. The parties
understand and agree that the replacement of the defective
portion of any Bulk Active is the responsibility of Mallinckrodt
and is the
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<PAGE>
sole right and remedy of Entropin with regard to defective
products hereunder.
(c) Any Bulk Active which has been rejected by Entropin in accordance
herewith will be returned to Mallinckrodt, at Mallinckrodt's
expense, for appropriate disposition or, if Mallinckrodt so
chooses, will be disposed of or destroyed by Entropin in a
reasonable and environmentally prudent manner, the cost of such
disposal or destruction to be reimbursed by Mallinckrodt upon
presentation by Entropin of documentation indicating the cost
therefor; provided, however, that Mallinckrodt will not reimburse
Entropin for an amount greater than the cost Mallinckrodt would
have incurred had it disposed of such Bulk Active. If
Mallinckrodt does not agree with Entropin that any shipment of
Bulk Active rejected by Entropin qualified for rejection in
accordance herewith, the matter will be submitted to an
independent laboratory mutually agreed to by the parties whose
determination shall be binding upon the parties. The cost of the
analysis shall be borne by the party whose analysis was in error.
(d) The specifications for Bulk Active set forth on Exhibit B may be
amended from time to time by mutual written agreement of the
parties or as required by applicable law. Any amendments
requested by a party shall be subject to the consent of the other
party, but such consent shall not unreasonably be withheld.
Notwithstanding any other provision hereof (including Section 4
hereof) any increase in cost of Bulk Active arising from revision
of the specifications requested by Entropin (which changes would
not otherwise have been made by Mallinckrodt) shall be borne by
Entropin.
(e) Upon reasonable advance notice, Entropin shall have the right to
inspect any production facilities or systems, and any production
or quality control records of Mallinckrodt used directly in or
related to the production of Bulk Active hereunder.
6. ADE's, Complaints and Inspections
---------------------------------
(a) Entropin shall notify Mallinckrodt in writing within one (1)
working day of obtaining any information or knowledge concerning
any visit or inspection of Entropin by the FDA regarding Product
or Bulk Active and any serious or unexpected side effect, injury,
toxicity, or sensitivity reaction, or any adverse drug experience
reports and the severity thereof associated with Bulk Active
whether or not finally determined to be related to use of the
Bulk Active included in
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<PAGE>
Product. Such notice to Mallinckrodt shall be sent by fax, to
the attention of St. Louis Plant Quality Specialist and/or
Quality Assurance Manager ((314) 539-8025 fax) with an original
sent on the same day pursuant to the procedures set forth in
Section 14. "Serious," as used in this Agreement, refers to an
experience which results in death, permanent or substantial
disability, a vegetative state, inpatient hospitalization or
prolongation of hospitalization, a congenital anomaly, cancer, an
overdose, or is life threatening. "Unexpected," as used in this
Agreement, means an adverse drug experience that is not listed in
the current labeling for the drug and includes an event that may
be symptomatically and pathophysiologically related to an event
listed in the labeling, but differs from the event because of
greater severity or specificity.
(b) Mallinckrodt shall notify Entropin in writing within one (1)
working day of obtaining any information or knowledge concerning
any visit or inspection of Mallinckrodt by the FDA regarding Bulk
Active supplied to Entropin and any serious or unexpected side
effect, injury, toxicity, or sensitivity reaction, any unexpected
incidents, or any adverse drug experience reports and the
severity thereof associated with such Bulk Active whether or not
finally determined to be related to use of such Bulk Active.
Such notice to Entropin shall be sent by fax, to the attention of
an individual to be specified by Entropin with an original sent
on the same day pursuant to the procedures set forth in Section
14.
(c) Product complaint reports that might in any manner relate to the
Bulk Active received by Entropin will be sent to Mallinckrodt by
fax to the attention of St. Louis Plant Quality Specialist and/or
Quality Assurance Manager ((314) 539-8025 fax) with an original
sent on the same day pursuant to the procedures set forth in
Section 14. Product complaint reports relating in any manner to
the Bulk Active which may meet FDA Field-alert Report criteria
codified at 21 CFR 314.81 (b) (1) will be communicated to
Mallinckrodt within one (1) working day of receipt by Entropin,
and Mallinckrodt will notify the FDA of such reports within three
(3) working days following receipt. Mallinckrodt will investigate
all complaints associated with the Bulk Active and provide a
written response to
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such complaints, with a copy to Entropin pursuant to the
procedures set forth in Section 14. Entropin will investigate
all other complaints associated in any manner with Product and
provide a written response to such complaints, with a copy to
Mallinckrodt pursuant to the procedures set forth in Section 15.
(d) Each party shall notify the other party in the event a party is
debarred or receives notice of action or threat of action with
respect to debarrment under the Generic Drug Enforcement Act of
1992.
7. Recalls
-------
In the event that Entropin believes a Bulk Active recall or withdrawal
is necessary, Entropin shall immediately notify Mallinckrodt. The
parties will consult on the necessity of a recall or withdrawal, but
if either party believes such action is necessary, it will be taken.
In the event that a decision is made for a Bulk Active recall or
withdrawal, Entropin shall take all actions necessary to recall or
withdraw such Bulk Active. Mallinckrodt shall reimburse Entropin for
all reasonable out-of-pocket expenses and costs associated with any
recall to the extent and only to the extent caused by the negligence
of Mallinckrodt or by Mallinckrodt's failure to manufacture Bulk
Active according to applicable cGMP standards or to manufacture,
package, or ship Bulk Active in accordance with the requirements of
this Agreement or applicable law. To the extent that any recall or
Bulk Active withdrawal is caused by the negligent act or omission to
act by Entropin all costs and expenses attributable thereto shall be
borne by Entropin.
8. Term and Termination
--------------------
(a) This Agreement shall be in effect for a period of ten (10) years,
commencing on January 1, 1997 and ending on December 31, 2006 and
shall automatically be extended for successive two (2) year
periods unless either party shall give notice of non-renewal in
writing to the other party one (1) year in advance of the end of
the initial term of this Agreement or any renewal term.
(b) In addition to other provisions in this Agreement that may
provide for a right of termination by either or both parties,
this Agreement may be terminated by either party effective upon
written notice for cause. For purposes of the immediately
preceding sentence, "cause" shall mean (without limitation):
(i) any material breach of this Agreement by the other party,
which breach remains uncorrected for a period of thirty (30)
days after written notice of such breach has been given to
the defaulting party (and for purposes hereof any failure by
any party to pay any amounts of money to the other party as
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and when due hereunder shall be deemed a material breach),
(ii) notwithstanding clause (i) set forth immediately above, any
material breach of this Agreement by the other party that is
by its nature uncurable,
(iii)the institution by the other party of voluntary proceedings
in bankruptcy or under any insolvency law or law for the
relief of debtors,
(iv) the making by the other party of an assignment for the
benefit of creditors or any dissolution or liquidation by
said other party,
(v) the filing of an involuntary petition under any bankruptcy
or insolvency law against the other party, if such petition
is not dismissed or set aside within sixty (60) days from
the date of its filing,
(vi) the appointment of a receivor or trustee for the assets or
business of the other party, if such appointment is not
dismissed or set aside within sixty (60) days from the date
of such appointment,
(vii)in the event the other party becomes debarred or receives
notice of action or threat of action with respect to
debarrment under the Generic Drug Enforcement Act of 1992,
or
(viii)the other party, in any manner in connection with its
performance hereunder, violates or is in material violation
of any laws, rules or regulations applicable with respect to
its performance hereunder.
(c) In the event that that certain Development Agreement between the
parties hereto dated January 1, 1997 is rightfully terminated by
Entropin pursuant to the provisions of subsections (b) or (c) of
Section 5 thereof, this Agreement shall be deemed terminated by
the mutual agreement of the parties and all rights or either
party hereunder shall thereupon cease and determine except as set
forth in subsection (d) immediately below.
(d) The rights and obligations of the parties contained in Sections
1(b), 10 and 11 shall survive termination or expiration of this
Agreement for any reason. Upon any expiration or termination of
this Agreement, or failure of renewal of this Agreement, any firm
orders existing
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at the time of expiration or termination shall remain binding on
both parties.
9. Force Majeure
-------------
Neither party shall be charged with any liability for delay in
performance of an obligation under this Agreement, including in the
case of Mallinckrodt for non-delivery of Bulk Active to Entropin, to
the extent, and for so long as, such delay is due to delays caused by
acts of God or the public enemy, compliance in good faith with any
applicable domestic or foreign governmental or judicial regulation or
order, war, civil commotion, destruction of production facilities or
materials by fire, flood, earthquake or storm, riots, labor strikes or
disturbances, unusually severe weather, interruption of raw material
supply beyond the reasonable control of the affected party, actions by
the FDA or other governmental (state or federal agencies) which
prevent or restrict the sale or manufacture of Bulk Active, or any
other cause beyond the reasonable control of the affected party
("Force Majeure"), provided that the affected party (i) shall take
whatever reasonable steps are necessary to relieve the effect of such
cause as rapidly as possible, (ii) shall give prompt notice to the
other party of the commencement of such cause and (iii) shall give
prompt notice to the other party of the termination of such cause. In
the event such cause continues for more than one hundred eighty (180)
days, the other party shall have the right to terminate this Agreement
by written notice to the affected party by specific reference to this
section of the Agreement.
10. Indemnification
---------------
(a) Entropin shall indemnify, defend, and hold harmless Mallinckrodt,
its officers, directors, agents, owners, and employees from and against any
and all loss, damage, claim injury, cost or expense, including reasonable
attorney's fees and expenses of litigation, in connection with any illness
or personal injury, including death, or property damage that arises out of
Entropin's negligence or willful misconduct or material breach of the terms
of this Agreement, provided that:
(i) Entropin is notified promptly of any claim or lawsuit for
which indemnification is sought,
(ii) Entropin is given complete control over the conduct and
disposition of any such claim or lawsuit, and
(iii)Entropin receives Mallinckrodt's full cooperation during the
pendency of such claim or lawsuit.
C-11
<PAGE>
(b) Mallinckrodt shall indemnify, defend, and hold harmless Entropin,
its officers, directors, agents, owners, and employees from and against any
and all loss, damage, claim, injury, cost or expense, including reasonable
attorney's fees and expenses of litigation, in connection with any illness
or personal injury, including death, or property damage that arises out of
Mallinckrodt's negligence or willful misconduct or material breach of the
terms of this Agreement; provided that:
(i) Mallinckrodt is notified promptly of any claim or lawsuit
for which indemnification is sought,
(ii) Mallinckrodt is given complete control over the conduct and
disposition of any such claim or lawsuit, and
(iii)Mallinckrodt receives Entropin's full cooperation during the
pendency of such claim or lawsuit.
(c) In the event any loss, cost, damage, claim or expense relating to
Bulk Active supplied and/or distributed or sold hereunder arises from the
negligence, willful midconduct or material breach of this Agreement by both
parties, then Mallinckrodt and Entropin shall each be responsible in
connection therewith for that portion of the loss, cost, damage, claim or
expense to which its actions contributed.
11. Confidentiality
---------------
(a) During the term of this Agreement it may be necessary for one
party to disclose to the other (but only to those individuals who need to
know) certain confidential information including, but not limited to
certain business information and intellectual property ("Confidential
Information"). For a period of five (5) years after the termination or
expiration of this Agreement, the party receiving any such Confidential
Information from the disclosing party hereunder shall exercise due care at
all times to prevent the disclosure of such information to any third party
without the consent of the disclosing party or the use of Confidential
Information in a manner not authorized by the disclosing party.
(b) The obligations of confidentiality set forth in subsection (a)
above shall not apply to:
(i) information which is known to the receiving party prior to
disclosure or is independently developed by the receiving
party, as evidenced by such party's written records,
(ii) information disclosed to the receiving party hereunder by a
third party who has a right to make a disclosure and does
not have an obligation of
C-12
<PAGE>
confidentiality to the disclosing party hereunder with
respect to such information,
(iii)Information which is or becomes (through no breach or fault
of the receiving party) patented, published or otherwise
part of the public domain, and
(iv) information which is required to be disclosed under penalty
of law, provided that the receiving party has taken all
reasonable steps available (short of the institution of
legal action) to protect this information and, prior to any
disclosure, notifies the disclosing party hereunder of its
obligation to make the disclosure and provided further, that
the disclosing party takes all steps necessary to limit the
disclosure to that portion of the Confidential Information
which is absolutely required to be disclosed.
12. Remedies Cumulative.
-------------------
The remedies provided in this Agreement shall be cumulative and shall
not preclude assertion by any party hereto of any other rights (whether
legal or equitable in nature) or the seeking of any other remedies against
any other party hereto.
13. Binding Effect and Assignment.
-----------------------------
This Agreement shall inure to the benefit of and be binding upon the
parties hereto, their successors and assigns; provided, however, that
neither party shall, without the prior written consent of the other party
(which will not be unreasonably withheld), assign or transfer any of its
rights, benefits, obligations, or other interest under this Agreement to
any other party, except that, without seeking the consent of Entropin,
Mallinckrodt may assign this Agreement to any entity or person it controls,
it is controlled by or is under common control with.
14. Notices.
-------
All notices, consents, approvals or other notifications required to be
sent by one party to the other party hereunder shall be in writing and
shall be deemed served upon the other party if delivered by hand or sent by
United States registered or certified mail, postage prepaid, with return
receipt requested, or
C-13
<PAGE>
by facsimile with a copy by registered or certified mail, air courier or
telex, addressed to such other party at the address set out below, or the
last address of such party as shall have been communicated to the other
party. If a party changes its address, written notice shall be given
promptly to the other party of the new address. Notice shall be deemed
given on the day it is sent (in the case of delivery by method other than
hand delivery) or the date of delivery (in the case of delivery by hand) in
accordance with the provisions of this paragraph. The addresses for
notices are as follows:
C-14
<PAGE>
If to Mallinckrodt:
Mallinckrodt Inc.
c/o Pharmaceutical Chemicals Division
16305 Swingley Ridge Drive
Chesterfield, Missouri 63017
Attn: Michael K. Milosovich
with a copy to:
Mallinckrodt Inc.
16305 Swingley Ridge Drive
Chesterfield, Missouri 63017
Attn: C. Stephen Kriegh and
Jake A. Larimer
If to Entropin:
Entropin, Inc.
45926 Oasis Street
Indio, California 92201
Attn: Thomas T. Anderson, Chairman
Attn: Higgins D. Bailey, President and CEO
15. Governing Law and Jurisdiction.
------------------------------
This Agreement shall be governed by and construed in accordance with
the substantive and procedural laws (as opposed to the conflicts of law
provisions) of the State of Missouri.
C-15
<PAGE>
16. Waiver.
------
The failure by any party to exercise any of its rights hereunder or to
enforce any of the terms or conditions of this Agreement on any occasion
shall not constitute or be deemed a waiver of that party's rights
thereafter to exercise any rights hereunder or to enforce each and every
term and condition of this Agreement.
17. Modifications.
-------------
This Agreement may not be amended or modified except by a writing
specifically referring to this Agreement and executed by duly authorized
representatives of both parties.
18. Severability.
------------
A determination that any portion of this Agreement is unenforceable or
invalid shall not affect the enforceability or validity of any of the
remaining portions hereof or of this Agreement as a whole. In the event
that any part of any of the covenants, sections or provisions herein may be
determined by a court of law or equity to be overly broad or against
applicable precedent or public policy, thereby making such covenants,
sections or provisions invalid or unenforceable, the parties shall attempt
to reach agreement with respect to a valid and enforceable substitute for
the deleted provisions, which shall be as close in its intent and effect as
possible to the deleted portions.
19. Headings.
--------
The parties agree that the section and article headings are inserted
only for ease of reference, shall not be construed as part of this
Agreement, and shall have no effect upon the construction or interpretation
of any part hereof.
20. Counterparts.
------------
This Agreement may be executed in several counterparts, and each
executed counterpart shall be considered an original of this Agreement.
C-16
<PAGE>
21. Entire Agreement.
----------------
This Agreement and the exhibits attached hereto represent the entire
agreement and understanding of the parties hereto with respect to their
subject matter and supercede any and all prior agreements, understanding or
discussions, whether written or oral, between the parties.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed as of the day and year first above written.
ENTROPIN, INC. MALLINCKRODT INC.
Pharmaceutical Chemicals Division
By: /s/ HIGGINS BAILEY By: /s/ MICHAEL K. MILOSOVICH
------------------------- -----------------------------------
Michael K. Milosovich, President
C-17
LEASE AGREEMENT
1. PARTIES:
This Lease is made and entered into this 1st day of February, 1998 by
and between Thomas T Anderson, A Professional Corporation (hereinafter
referred to as "Landlord") and Entropin, Inc. (hereinafter referred to as
"Tenant").
2. PREMISES:
Landlord hereby leases to Tenant and Tenant hereby leases from
Landlord, on the terms and conditions hereinafter set forth, that certain
real property and the building and other improvements located thereon
situated in the City of Indio, State of California, commonly known as 45926
Oasis Street. This Lease is limited to Three (3) Offices, Hallway and
separate Entrance located in the South wing of said building (said real
property is hereinafter called the "Premises"). Tenant shall also have
access to all common areas, including but not limited to Copy Rooms,
Conference Room, Break Room, Bathrooms, Halls and front Entrance. In
addition a receptionist is also provided when needed.
3. TERM:
The term of this Lease shall be for Two (2) years, commencing on
February 1, 1998 and ending on January 31, 2000.
4. RENT:
Tenant shall pay to Landlord as rent for the Premises, the sum of
$1,100.00 dollars per month, in advance on the first day of each month
during the term hereof. Rent shall be payable without notice or demand and
without any deduction, off-set, or abatement in lawful money of the United
States to the Landlord at the address stated herein for notices or to such
other persons or such other places as the Landlord may designate to Tenant
in writing.
5. TAXES:
(a) REAL PROPERTY TAXES:
Landlord shall pay all real property taxes and general assessments
levied and assessed against the Premises during the term of this Lease.
(b) PERSONAL PROPERTY TAXES:
Tenant shall pay prior to the delinquency all taxes assessed against
and levied upon the trade fixtures, furnishings, equipment and other
personal property the Tenant contained in the Premises.
<PAGE>
6. UTILITIES:
Landlord shall pay for all water, electricity, cable and basic
janitorial services.
Tenant shall pay for all telephone and fax lines.
7. ALTERATIONS AND ADDITIONS:
Tenant shall not, without the Landlord's prior written consent, make
any alterations, improvements or additions in or about the Premises.
8. HOLD HARMLESS:
Tenant shall indemnify and hold Landlord harmless from and against any
and all claims arising from the Tenant's use or occupancy of the Premises
or from the conduct of its business or from any activity, work, or things
which may be permitted or suffered by Tenant in or about the Premises
including all damages, costs, attorney's fees, expenses and liabilities
incurred in the defense of any claim or action or proceeding arising
therefrom. Except for Landlord's willful or grossly negligent conduct,
Tenant hereby assumes all risk of damage to property or injury to person in
or about the Premises.
9. ASSIGNMENT AND SUBLETTING:
Tenant shall not voluntarily or by operation of law assign, transfer,
sublet, mortgage, or otherwise transfer or encumber all of or any part of
Tenant's interest in this Lease or in the Premises without Landlord's prior
written consent which consent shall not be unreasonably withheld.
10. DEFAULT:
It is agreed between the parties hereto that if any rent shall be due
hereunder and unpaid, or if Tenant shall default and breach any other
covenant or provision of the Lease, then the Landlord, after giving proper
notice required by law, may re-enter the Premises and remove any property
and any and all persons therefrom in the manner allowed by law. The
Landlord may, at its option, either maintain this Lease in full force and
effect and recover the rent and other charges as they become due or, in the
alternative, terminate this Lease. In addition, the Landlord may recover
all rentals and any other damages and pursue any other rights and remedies
which the Landlord may have against the Tenant by reason of such default as
provided by law.
<PAGE>
11. SURRENDER:
On the last day of the term of this Lease, Tenant shall surrender the
Premises to Landlord in good condition, broom clean, ordinary wear and tear
and damage by fire and the elements excepted.
12. HOLDING OVER:
If Tenant, with the Landlord's consent, remains in possession of the
Premises after expiration or termination of the term of this Lease, such
possession by Tenant shall be deemed to be a tenancy from month-to-month at
a rental in the amount of the last monthly rental plus all other charges
payable hereunder, and upon all the provisions of this Lease applicable to
such a month-to-month tenancy.
13. BINDING ON SUCCESSORS AND ASSIGNS:
Each provision of this Lease performable by Tenant shall be deemed
both a covenant and a condition. The terms, conditions and covenants of
this Lease shall be binding upon and shall inure to the benefit of each of
the parties hereto, their heirs, personal representatives, successors and
assigns.
14. NOTICES:
Whenever under this Lease a provision is made for any demand, notice
or declaration of any kind, it shall be in writing and served either
personally or sent by registered or certified United States mail, postage
prepaid, addressed at the address as set forth below:
TO LANDLORD AT: Cory Hammond
Thomas T Anderson, A Prof Corp
45926 Oasis Street
Indio, Ca 92201
TO TENANT AT: Higgins D. Bailey
Entropin, Inc.
45926 Oasis Street
Indio, Ca 92201
Such notice shall be deemed to be received within forty-eight (48)
hours from the time of mailing, if mailed as provided for in this
paragraph.
<PAGE>
15. WAIVERS:
No waiver by landlord of any provision hereof shall be deemed a waiver
of any provision hereof or of any subsequent breach by Tenant of the same
or any other provision.
16. TIME:
Time is of the essence of this Lease.
THE PARTIES HERETO HAVE EXECUTED THIS LEASE ON THE DATE FIRST ABOVE
WRITTEN.
<PAGE>
Landlord: Tenant:
By: /s/ THOMAS T. ANDERSON By: /s/ HIGGINS D. BAILEY
---------------------------- ----------------------------
Thomas T Anderson Higgins D Bailey
Thomas T Anderson, A PC Entropin, Inc.
EXHIBIT 10.6
AGREEMENT
THIS LICENSE AGREEMENT ("Agreement") is made as of January 1, 1998, between
ENTROPIN, INC. ("Entropin") and DR. JAMES E. WYNN ("Dr. Wynn").
RECITALS
A. Entropin is a California corporation with its principal place of
business at 45-926 Oasis Street, Indio, California. Entropin is
an ethical pharmaceutical company which is engaged in the trade
or business of developing, producing, and marketing drug
products. Entropin's primary drug, Esterom, is being
investigated under the IND (defined below).
B. Dr. Wynn, in his capacity as Chairman of the Department of
Pharmaceutical Sciences and as Assistant Dean for Research,
Pharmaceutical Sciences at the Medical University, College of
Pharmacy of South Carolina was actively involved in providing
Entropin with research and development services under the
Development of New Products Agreement ("New Products Development
Agreement") made as of the 26th day of January, 1987 among
Entropin, the Pharmaceutical Development Center, Department of
Pharmaceutical Sciences, The Medical University of South Carolina
("PDC") and The Medical University of South Carolina ("MUSC").
Such services contributed to the development of Esterom and gave
rise to certain of Entropin's Licensed Patents (defined below)
and Entropin's Prior Technical Knowledge (defined below).
C. Dr. Wynn will in association with others form DISTINGUISHED
MEDICAL RESEARCH, INC. ("DMR"), a Nevada corporation, to conduct
research and development activities concerning ethical
pharmaceuticals, including but not limited to those within the
class of pharmaceuticals to which Esterom belongs. Dr. Wynn will
be the President and Chief Scientific Officer of DMR.
D. Because of Dr. Wynn's skill, expertise, knowledge and experience
in pharmaceuticals, and in working with Esterom under the New
Products Development Agreement and otherwise, Dr. Wynn expects to
be able to develop innovations to Entropin's Licensed Patents.
The intent of the parties in entering into this Agreement is that
Dr. Wynn be given access to Entropin's Licensed Patents and
Entropin's Prior Technical Knowledge not solely to take
Entropin's Prior Technical Knowledge and patent that information
without doing further tests, experiments, research and
development, but to utilize his skills to further develop the
Licensed Technologies (defined below) into Improved Product(s),
New Product(s), and Unrelated Product(s) ( all defined below).
E. Dr. Wynn wants to perform testing, experimentation, research and
development work on Esterom building on the Licensed Technologies
to develop Improved Product(s) and New Product(s); Entropin is
willing to permit Dr. Wynn to do so on the terms and conditions
below.
F. This Agreement is an interrelated part of an overall agreement
reached with Dr. Wynn relating to his past assistance to Entropin
in connection with research and
<PAGE>
development work on Esterom and medical uses (human and animal)
of cocaine, its salts, derivatives, analogs, homologs,
metabolites, isomers and reaction products. Other aspects of the
overall agreement relate to common stock in Entropin and debt
obligations of Entropin to Dr. Wynn, the particulars of which are
set forth in other related documents.
In consideration of the mutual covenants and promises contained in
this Agreement and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree as follows:
1. DEFINITIONS: As used in this Agreement, the terms below will have
the meanings set forth in this Article:
1.1 "Affiliate" means (a) any corporation or business entity and any
officer, director, control shareholder or other person exercising
legal or de facto control (or any family member of any of the
foregoing) of such corporation or business entity, of which
either party, at the time in question, directly or indirectly
owns or controls fifty percent (50%) or more of the stock having
the right to vote for directors thereof or otherwise controls the
management of the corporation or entity or is controlled by or
under common control with that party by ownership or control of
its voting stock of at least fifty percent (50%), or (b) any
corporation, individual or entity which now or hereafter directly
or indirectly owns or controls fifty percent (50%) or more of the
stock of Entropin or of any corporation or entity to which this
Agreement is assigned by Dr. Wynn.
1.2 "Confidential Information" is defined in Section 8.1 below.
1.3 "Entropin's Confidential Information" means Confidential
Information, including but not limited to Technical Information,
Entropin's Prior Technical Knowledge, data and materials, and
other information provided to Dr. Wynn by Entropin from time to
time regarding Entropin's technology, products, business
information and objectives.
1.4 "Entropin's Licensed Patents" means U.S. Patent Numbers:
5,376,667; 5,559,123, 5,525,613; 4,469,700; 4,512,996; 5,556,663;
5,663,345 and any divisional, continuing, and continuation-in-part
patents therefrom that later issue as United States Patents.
1.5 "Entropin Prior Technical Knowledge" refers to knowledge derived
from services conducted at MUSC or the PDC conducted or
supervised directly or indirectly by Dr. Wynn under the New
Products Development Agreement. Those services included but are
not limited to:
(a) Research leading to the stabilization of the
manufacturing process of Esterom.
2
<PAGE>
(b) Research leading to reproducing Esterom to establish
its formulation.
(c) Manufacturing Esterom for animal studies.
(d) Supervising Phase I Clinical Studies (toxicity) in
human beings using Esterom.
(e) Supervising the Phase II Clinical Studies of Esterom
(toxicity and efficacy) at MUSC.
(f) Completing preliminary research on Esterom.
(g) Developing an assay for benzoyl ecgonine and ecgonine
for the purposes of indicating the stability of Esterom
using a GC/MS analytical method as well as an HPLC
method for benzoylecgonine.
A list of the documentation arising from such services, which
documentation constitutes the tangible manifestation of the
"Entropin's Prior Technical Knowledge" transferred to Entropin
under the New Products Development Agreement, is attached hereto
as Exhibit A. The location of such documentation is at
Entropin's corporate headquarters in Indio, California or at the
offices of the law firm, Fish and Neave.
1.6 "Esterom" means the compounds of formulas and the pharmaceutical
compositions containing those compounds, or mixtures thereof,
identified and/or claimed under Entropin's Licensed Patents.
1.7 "FDA" means the United States Food and Drug Administration.
1.8 "Improved Product(s)," means products that are developed by Dr
Wynn under this Agreement which are product(s) that contain the
same active ingredients as Esterom, but are formulated
differently (e.g., as a cream or lotion instead of the liquid
formulation of Esterom).
1.9 "IND" refers to Investigational New Drug application No. 37,301
filed for Esterom with the FDA.
1.10 "IP Rights" means all inventions and other intellectual property
rights which may or may not be the subject of patent, copyright
and other means of intellectual property right protections that
arise out of Dr. Wynn's use of the Licensed Technologies.
1.11 "Licensed Product(s)" refers to one or more products covered by
the claims contained in Entropin's Licensed Patents.
3
<PAGE>
1.12 "Licensed Technologies" refers to products, compositions,
methods, and processes claimed in and covered by Entropin's
Licensed Patents and Entropin's Confidential Information.
1.13 "New Indication" means any indication for Esterom other than the
indications tested in the clinical trials conducted pursuant to
the IND or claimed under Entropin's Licensed Patents.
1.14 "New Products Development Agreement" is defined in the Recitals
above.
1.15 "New Product(s)" means products that are developed by Dr Wynn
under this Agreement which are either (i) any product relating to
medical uses (human or animal) which is neither a Licensed
Product(s) nor an Improved Product(s) but is derived from
cocaine, its salts, derivatives, analogs, homologs, metabolites,
isomers and reaction products or (ii) any product relating to
medical uses (human or animal) (including Esterom and Improved
Product(s) ), that is to be used for a New Indication
sufficiently novel, unobvious and enabled to be separately
patentable.
1.16 "Patent Costs" mean all reasonable actual out-of-pocket costs
incurred by Entropin for the preparation, filing, prosecution,
and maintenance of patent rights arising out of the IP Rights,
exclusive of any salaries or other indirect costs.
1.17 "Publication" means a disclosure by any means of communication or
transfer to one or more third parties, other than consultants
under an obligation of confidentiality.
1.18 "Technical Information" means technical data, know-how,
specifications, methods of manufacture, and other information or
assistance pertaining to Esterom, Improved Product(s), New
Product(s), and Unrelated Product(s), and the Licensed
Technologies provided by one party to the other from time to
time, including, but not limited to, formulas, patents,
compilations, programs, devices, methods, techniques, and
processes.
1.19 "Unrelated Product(s)" means any product relating to medical uses
(human or animal) which is neither an Improved Product(s) nor a
New Product(s).
2. GRANT CLAUSE. ENTROPIN TO DR. WYNN.
2.1 For the purposes of this Agreement set forth in Section 3 below,
Entropin grants to Dr. Wynn the non-exclusive right to:
(a) Make, have made, import, and use Esterom under
Entropin's Licensed Patents.
4
<PAGE>
(b) Use Entropin's Confidential Information.
2.2 No license, either express or implied, is granted by Entropin to
Dr. Wynn to use the Licensed Technologies (Entropin's Licensed
Patents and Entropin's Confidential Information) for any purpose
except as specifically stated in Section 3 below.
3. SCOPE OF WORK.
3.1 Dr. Wynn shall have the right to use the Licensed Technologies
for the following purposes but no others, to:
(a) Develop new pharmaceutical compositions comprising
compounds derived from cocaine, its salts, derivatives,
analogs, homologs, metabolites, isomers and reaction
products and their appropriate formulations.
(b) Develop improved or new methods of formulating Esterom;
(c) Demonstrate new indications for Esterom;
(d) Develop new routes of administration for Esterom; and
(e) Identify and develop new chemical entities derived
from cocaine, its salts, derivatives, analogs,
homologs, metabolites, isomers and reaction products
and their appropriate formulations.
3.2 Dr. Wynn's right granted under this Agreement to use the
Licensed Technologies is specifically conditioned upon Dr.
Wynn keeping Entropin's representative designated under
paragraph 4.4(a) of this Agreement fully informed in writing
on a quarterly basis with regard to the substance of Dr.
Wynn's activities including, but not limited to, a summary
of research results obtained using the Licensed
Technologies. Further, Dr. Wynn shall not use the Licensed
Technologies to duplicate research which, to Dr. Wynn's
knowledge, has or will be undertaken in good faith by or
for Entropin, unless he has Entropin's prior written
consent. In that regard, Dr. Wynn is hereby authorized on a
non-exclusive basis to develop Esterom for use in
dermatological indications and to develop Improved
Product(s).
3.3 Subject to the provisions of Article 8 below, all Technical
Information disclosed to Dr. Wynn by Entropin under this
Agreement including, but not limited to, the technical data,
specifications, methods of manufacture, and other information
utilized, developed or conceived under the New Products
Development Agreement are and will remain the sole property of
Entropin. Entropin acknowledges the existence of Claudia O'Keke's
thesis "Studies on the Analysis of Ecgonine Derivatives in
Biological and Pharmaceutical Matrices".
5
<PAGE>
4. DR. WYNN'S OBLIGATIONS.
4.1 Subject to the provisions of Section 3.2 above, Dr. Wynn shall
utilize his skills, expertise, knowledge, and experience as well
as other scientists to develop and produce Improved Product(s),
New Product(s), and Unrelated Product(s).
4.2 The parties wish to further research and develop the Licensed
Technologies and to share in the benefits of the manufacture and
distribution of the Improved Product(s), New Product(s), and
Unrelated Product(s), and associated follow-on products which
result and through the further research to develop and
commercialize apparently unique chemical entities involved in the
class of pharmaceuticals to which the Licensed Product(s) belong,
and improvements and modifications to the Licensed Technologies.
4.3 Each time that Dr. Wynn reduces IP Rights, Improved Product(s) or
New Product(s) to writing, Dr. Wynn shall give notice to
Entropin of such fact and shall concurrently forward to Entropin
all the documentation and execute all documents required to
permit Entropin to prepare and file a patent application or
applications with the United States Patent Office (and in all
foreign countries deemed appropriate by Entropin) as to such
product(s)or rights.
4.4 Dr. Wynn shall provide Entropin with all documentation required
or, in the opinion of Entropin, reasonably necessary to enable
Entropin to fully exploit the IP Rights, Improved Product(s) or
New Product(s) (and Unrelated Product(s) if Entropin has
exercised its first right of refusal as provided under paragraph
6.3 of this Agreement) in accordance with the following
procedures:
(a) Entropin and Dr. Wynn shall each select a representative who
shall act as its correspondent in transmitting documentation
relating to the IP Rights, Improved Product(s), New
Product(s), and Unrelated Product(s) and/or other assistance
necessary to fully exploit the IP Rights, Improved
Product(s), New Product(s), and Unrelated Product(s). Each
party shall indicate promptly to the other in writing the
name of its correspondent.
(b) Dr. Wynn's correspondent shall be responsible for answering
all reasonable technical inquiries received from Entropin's
correspondent relating to the IP Rights, Improved
Product(s), New Product(s), and Unrelated Product(s) and for
providing copies of pertinent documentation relating to the
IP Rights, Improved Product(s), New Product(s), and
Unrelated Product(s), including applicable test reports;
other technical reports; operation and maintenance manuals;
lists of ingredients and their proportions in compositions
of matter; quality control procedures; other information on
manufacturing processes and apparatus; and cooperate with
any requirements of the FDA or other applicable regulatory
agency.
6
<PAGE>
(c) Subject to any restrictions that may be imposed by the
United States Government, Dr. Wynn, on written notice, shall
give Entropin's duly accredited representatives access to
the factories, laboratories, and other facilities used by
him in connection with his activities covered by this
Agreement, at reasonable times and under reasonable
conditions, for a total maximum period of no more than
twenty four (24) business hours per quarter, for the purpose
of acquiring information relating to the IP Rights, Improved
Product(s), New Product(s), and Unrelated Product(s).
(d) Each document transmitted by a correspondent shall contain
the following restricted rights legend:
"This document contains proprietary information of
[disclosing party]. Its receipt or possession does not
convey any rights to reproduce or disclose its contents
or to manufacture, use or sell anything it may
describe. Reproduction, disclosure or use without
specific written authorization of [disclosing party] is
strictly forbidden. This document must be kept only in
[recipient's] confidential files when not in use. The
recipient will take appropriate and necessary action to
prevent unauthorized access to, copying, or down
loading of all or part of this document stored
electronically on a networked computer system or
otherwise."
4.5 Should Entropin need for Dr. Wynn or any other person working
with him to assist it in the patenting, regulatory process or
commercial exploitation, Dr. Wynn shall provide access to those
individuals, but Entropin will be responsible for compensating
the individuals for all reasonable expenses associated with such
assistance.
5. OWNERSHIP & PATENTS.
5.1 The parties expect that Dr. Wynn's use of the Licensed
Technologies will result in IP Rights, Improved Product(s) and
New Product(s) which may or may not be the subject of patent,
copyright and other means of intellectual property right
protections. Any such patent, copyright and other intellectual
property rights shall be owned solely by Entropin.
5.2 Inventorship of inventions and other intellectual property rights
conceived and/or reduced to practice in connection with the
activities contemplated by this agreement shall be determined in
accordance with the laws of the United States of America.
5.3 Except as provided in paragraph 5.5 of this Agreement, Entropin
shall, at its expense, assume responsibility for the prosecution
and maintenance of patent rights arising from the activities set
forth in paragraph 4.3 of this agreement. Within six (6) months
after the first filing of a patent application or provisional
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patent application, Entropin shall provide Dr. Wynn with a
country list where applications for such patent rights will be
filed by Entropin. If Dr. Wynn wishes to file in additional
countries, he may do so at his own cost and expense, and for his
own benefit. Patent rights filed by Dr. Wynn in such additional
countries shall be owned by Dr. Wynn. Entropin shall not be
under any obligation to prosecute such patent rights in such
additional countries. If, at the request of Dr. Wynn, Entropin
retains prosecution of such patent rights, its internal and
external costs shall be reimbursed by Dr. Wynn within thirty (30)
days after receipt by Dr. Wynn of the billing for such costs.
5.4 Entropin shall promptly provide Dr. Wynn with serial numbers,
dates and copies of all New Product(s) and Improved Product(s)
patent applications and issued patents. Entropin shall provide
Dr. Wynn with copies of all documents relating to New Product(s)
and Improved Product(s) intended to be filed with a patent office
at least twenty five (25) days before such filings for review and
comment by Dr. Wynn.
5.5 In the event that Entropin anticipates the possibility of any
extraordinary expenditures arising from the preparation, filing,
prosecution, licensing or defense of any of such patent rights,
Entropin shall provide Dr. Wynn with related information and
shall discuss with Dr. Wynn and agree upon a mutually acceptable
course of action, including sharing of costs, prior to incurring
any such expenditures. Examples of such extraordinary
expenditures shall include but not be limited to expenses related
to interference or opposition proceedings, settlement of
inventorship disputes, litigation involving any of the patent
rights and disputes related to the rights of research sponsors.
5.6 Notwithstanding any other provision of this Agreement, Entropin
shall not abandon any New Product(s) and Improved Product(s)
patent rights or disclaim any issued claim within the patent
rights without sixty (60) days prior written notice to Dr. Wynn.
Within sixty (60) days of receipt of notice of proposed
abandonment, Dr. Wynn must, in writing, either (1) concur in the
abandonment or (2) elect to assume responsibility for the
prosecution and maintenance of some of or all of the patent
rights which Entropin proposes to abandon. Dr. Wynn's failure to
respond to such notice shall be interpreted as an approval for
abandonment. Dr. Wynn shall assume responsibility for the
prosecution and maintenance of the patent rights he elects to
assume under (2) above at his own cost and for his own benefit.
Entropin shall assign to Dr. Wynn all of its right, title and
interest in such patent rights free and clear of all liens,
encumbrances and other charges. If Entropin does not undertake in
good faith to commence the commercialization of any New
Product(s) and Improved Product(s) within one year after
receiving a patent and all required FDA and other regulatory
approval, pursued in a diligent manner, necessary to sell such
product, it shall, subject to paragraph 5.7, be deemed to have
abandoned any such product provided, however; abandonment shall
not be deemed where the
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failure to commence commercialization is due to a consequence of
unavoidable and/or reasonably unforeseeable circumstances.
5.7 Entropin shall not be deemed to have abandoned the New Product(s)
or Improved Product(s) if it decides in good faith not to market
it. When Entropin makes such decision, it will promptly notify
Dr. Wynn and provide to him the basis for its decision.
(a) Upon notice to Dr. Wynn of such decision, Dr. Wynn shall
within sixty (60) days submit in writing to Entropin his
cost in researching and developing that product. Entropin
shall reimburse Dr. Wynn for that cost and a surcharge of
twenty-five percent (25%). If Entropin disputes part of the
cost, then the parties will arbitrate the dispute.
(b) If Entropin decides in good faith not to market the New
Product(s) or Improved Product(s), Entropin agrees not to
independently obtain patent protection for a product with
substantial structural identity (excluding Esterom) or to
design around the Improved Product(s) or New Product(s),
whether in Entropin's name or from third parties.
6. ROYALTIES FOR IMPROVED PRODUCT(S), NEW PRODUCT(S), AND UNRELATED
PRODUCT(S).
6.1 Entropin shall pay to Dr. Wynn 2% of Net Sales (defined in
paragraph 6.4 of this agreement) of Improved Product(s), where
but for the license such Net Sales would infringe valid claims of
patents contained in the IP Rights, until the last to expire of
such patent rights.
The obligation to make payments to Dr. Wynn will be imposed only
once with respect to the same unit of product sold regardless of
the number of valid patent claims covering the Improved
Product(s).
6.2 Entropin and Dr. Wynn shall negotiate in good faith the royalties
on Net Sales of New Product(s) on a product by product basis.
The obligation to make royalty payments to Dr. Wynn will be
imposed only once with respect to the same unit of product sold
regardless of the number of valid patent claims covering the New
Product(s). In the event that the parties have been unable to
agree on such royalty rates by the date of the first commercial
sale of a New Product(s) each party shall submit its proposed
royalty arrangements for such New Product(s) to arbitration
before a single arbitrator with experience of the pharmaceutical
products market. If the parties cannot agree on an acceptable
arbitrator, the dispute will be heard by a panel of three
arbitrators with experience in the pharmaceutical products
market, one appointed by each of the parties and the third
appointed by the other two arbitrators. The arbitration shall be
administered by the Los Angeles, California office of the
American Arbitration Association in accordance with the then
current Commercial Arbitration Rules of the American Arbitration
Association. Such arbitration
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<PAGE>
proceedings shall be conducted in Los Angeles, California or such
other location as the parties may agree. The arbitrator(s) shall
be directed and shall have the right to determine which of the
two proposals more accurately reflects the then current market
value of the product and shall establish a fair and equitable
royalty rate. Such determination shall be conclusive and binding
upon both parties. It shall also be the responsibility of the
arbitrator to direct an equitable settlement of any disputes
between the parties concerning the language and content of a
definitive agreement for the implementation of the arbitrator's
determination. A judgment ordering the implementation of the
arbitrator's determination(s) may be entered in any court of
competent jurisdiction. The parties acknowledge and agree that
any arbitration award may be enforced against either or both of
them in a court of competent jurisdiction. The arbitrator's
award as to the payment of the costs of arbitration shall be
binding upon the parties.
6.3 In the event Dr. Wynn's use of the Licensed Technologies gives
rise to Unrelated Product(s), Dr. Wynn shall give Entropin the
first right of refusal to each such Unrelated Product(s).
Whenever Dr. Wynn receives a bona fide offer to purchase or
license the IP Rights to an Unrelated Product(s), he shall
provide Entropin with a copy of the terms and conditions of such
offer. Entropin shall then have sixty (60) days to notify Dr.
Wynn that it will exercise its first right of refusal to purchase
or license such Unrelated Product(s) on the same money and
intellectual property rights terms and conditions as the bona
fide offer. In the event Entropin exercises its right of first
refusal, the parties shall close the purchase or license within
a further thirty (30) days. If Entropin does not do so, Dr. Wynn
may accept the bona fide offer on the same terms and conditions
as offered to Entropin and close on such offer within ninety (90)
days after the expiration of Entropin's first right of refusal.
If Dr. Wynn does not do so, he must repeat the procedures of this
Section with respect to each new or revised bona fide offer for
the Unrelated Product(s).
6.4 For the purposes of this Article the term "Net Sales" shall mean
the gross invoice price of the New Product(s) or Improved
Product(s) actually billed and collected by Entropin, an Entropin
Affiliate or a licensee to unrelated third party customers less
(i) any direct or indirect credits and allowances or adjustments
granted to such customers, including without limitation credits
and allowances on account of price adjustments or on account of
rejection or return of such New Product(s) or Improved Product(s)
previously sold, (ii) any trade and cash discounts, rebates,
agents commissions and distribution fees, (iii) any sales,
excise, turnover and similar taxes, (iv) all royalties paid to
non affiliate third parties for use of its covalently coupled
compounds, and any duties and other governmental charges imposed
upon the production, importation, use or sale of such New
Product(s) or Improved Product(s) or partly processed products,
and transportation, importation, insurance and other handling
charges not separately invoiced provided that such charges can be
reasonably allocated to such billings
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7. REPORTS.
Entropin shall submit to Dr. Wynn an annual report no later than March
1 each year starting with 1999 setting forth the status of commercial
development and licensing activities of each of the Improved, New and
Unrelated Product(s) for the preceding calendar year. Each report
shall contain a detailed accounting of royalty payments due Dr. Wynn
under this Agreement and be accompanied by a check for the royalties
due. If Dr. Wynn disputes the amount of royalties owed, he shall
advise Entropin in writing of such fact within ninety (90) days after
receipt of payment. Failure to give such notice shall be deemed for
all purposed as acceptance by Dr. Wynn of the royalty payment as
accurate and complete. Dr. Wynn may, at his sole expense, audit such
books and records of Entropin as may reasonably be necessary to
determine whether Entropin complied with the royalty provisions of
this Agreement. If the audit establishes that Entropin has incorrectly
computed the royalties due, such deficiency shall be paid by Entropin
within thirty days after a final determination of the amount of such
deficiency together with interest on such deficiency at the rate of
eighteen percent (18%) per annum computed from the March 1 due date.
If the amount of the deficiency is determined to be in excess of ten
percent (10%) of the correct amount due or more than fifty Thousand
Dollars ($50,000.00), Entropin shall pay all costs of the audit. In
the event Entropin disputes the results of the audit, the parties
agree to submit the matter to arbitration before a single arbitrator.
If the parties cannot agree on an acceptable arbitrator, the dispute
will be heard by a panel of three arbitrators, one appointed by each
of the parties and the third appointed by the other two arbitrators.
The arbitration shall be administered by the Los Angeles, California
office of the American Arbitration Association in accordance with the
then current Commercial Arbitration Rules of the American Arbitration
Association. Such arbitration proceedings shall be conducted in Los
Angeles, California or such other location as the parties may agree.
8. CONFIDENTIALITY
8.1 To the extent permitted by patent rights, information, data and
materials exchanged under this Agreement may be used by the
recipient for the purposes of this Agreement. Information and
data marked as "Confidential" shall neither be published nor
otherwise made available to a third party by the recipient during
the term of this Agreement or for five (5) years thereafter in
the absence of written consent from the supplier of the
information. Such information is "Confidential Information" for
the purposes of this Agreement. The restriction on public
disclosure shall not apply to information which:
(a) is in the public domain;
(b) comes into the public domain through no fault of the
recipient;
(c) is known to the recipient at the time of disclosure;
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(d) becomes known to the recipient subsequent to the
disclosure as a result of a non-confidential disclosure
by a third party with a right to disclose the
information.
Given Dr. Wynn's special relationship with Entropin and his work under
the New Products Development Agreement, his knowledge of Entropin's
Prior Technical Knowledge, whether or not transferred to Entropin
under the New Products Development Agreement, and of Entropin's
affairs shall not constitute prior knowledge of Dr. Wynn for the
purposes of this Section. Dr. Wynn may disclose Entropin's Prior
Technical Knowledge to his employees, consultants, and associates on
a need to know basis and only after the employee, consultant, or
associate has signed a confidentiality agreement on terms equivalent
to those contained in this Article.
8.2 The parties acknowledge and confirm that maintaining the
confidentiality and secrecy of the Confidential Information is of
the utmost importance to both parties and that any disclosure of
Confidential Information may diminish the value and strength of
the Confidential Information. Entropin and Dr. Wynn shall each
take all steps (using the same degree of care, but no less than
a reasonable degree of care, as each party uses to protect
his/its own confidential information) that are reasonably
necessary to protect the secrecy of the Confidential Information
and prevent them from entering the public domain or falling into
the hands of others not bound by this Agreement or pledged to
their secrecy.
8.3 Each party may use or disclose the other party's Confidential
Information to the extent such use or disclosure is reasonably
necessary in complying with applicable law, legal process or
governmental regulations, or exercising its rights under this
Agreement, provided that if a party is required to make any such
disclosure of the other party's Confidential Information, other
than pursuant to a confidentiality agreement, it will give
reasonable advance notice to the other party of such disclosure
and, will use its best efforts to secure confidential treatment
of the Confidential Information prior to its disclosure (whether
through protective orders or otherwise).
8.4 Notwithstanding the foregoing, the parties may use and disclose
a summary of the Confidential Information received from the other
in connection with (1) applying for and securing necessary
governmental authorizations for the import, manufacture and
marketing of Improved Product(s), New Product(s), and Unrelated
Product(s) (2) discussions with prospective investors, and (3)
discussions with prospective sublicensees, partners, joint
venturers, contract manufacturers and other collaborators with
respect to the development, manufacture, distribution, promotion,
sale and marketing of the Improved Product(s), New Product(s),
and Unrelated Product(s). The party making the disclosure shall,
prior to doing so, provide the other party with a copy of the
summary and the name of the party to whom the disclosure is being
made.
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8.5 Dr. Wynn shall not publish the results of his work carried out
under this Agreement without the prior written consent of
Entropin which consent will not be unreasonably withheld. Dr.
Wynn shall provide Entropin with the opportunity to review all
proposed Publications at least sixty (60) days prior to
submission for publication or presentation to assure the absence
of Confidential Information, and to review for the effect of
publication on the patentability of inventions arising out of
such work. At Entropin's request, Dr. Wynn shall delay proposed
Publications to permit Entropin to take adequate steps to file
patent applications for any patentable subject matter referred to
in the proposed Publications. Further Dr. Wynn shall cause any
such Publications containing Confidential Information relating to
the IP Rights to be re-written to avoid disclosure of such
Confidential Information.
8.6 Due to the risky nature of investing in research and development
of an as yet unapproved pharmaceutical product with only a non-
exclusive license, Dr. Wynn may seek capital for outside sources
to continue his research and development activities. In doing
so, Dr. Wynn may form by himself or with DMR joint ventures,
limited partnerships, or other financing structures. Dr. Wynn
may do so, provided that any such financing partners execute
appropriate agreements to maintain secrecy as required in Section
8.1 above.
9. WARRANTIES.
9.1 Entropin represents and warrants that:
(a) It is a corporation duly organized, validly existing and in
good standing under the laws of the state in which it is
incorporated and has all the necessary corporate powers to
own its properties, and carry on its business as now owned
and operated.
(b) The execution and delivery of this Agreement by Entropin has
been duly authorized, and no further corporate action or
authorization is necessary in connection therewith.
(c) The consummation of the transactions contemplated herein
will not result in or constitute any of the following: a
breach of any term or condition of this Agreement; a default
or an event that, with notice or lapse of time or both,
would constitute a default, breach or violation of the
Articles of Incorporation or Bylaws of Entropin or any
license, promissory note or other agreement, instrument or
arrangement by which Entropin is bound; or an event that
would permit any party to terminate or to accelerate the
maturity of any obligation of Entropin.
(d) THE PARTIES ACCEPT THE FOREGOING WARRANTIES IN LIEU OF ALL
OTHER WARRANTIES NOT EXPRESSLY SET FORTH IN THIS
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ARTICLE, AND DISCLAIM ALL OTHER WARRANTIES, WHETHER EXPRESS
OR IMPLIED, INCLUDING, WITHOUT LIMITATION, ANY IMPLIED
WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR
PURPOSE. NEITHER PARTY WARRANTS THAT THE RESEARCH AND
DEVELOPMENT ACTIVITIES CONTEMPLATED HEREUNDER WILL MEET THE
OTHER PARTY'S REQUIREMENTS FOR COMMERCIAL VIABILITY OR THE
REQUIREMENTS OF THEIR CUSTOMER'S OR LICENSEE'S, AS
APPROPRIATE, OR THOSE OF VARIOUS REGULATORY ENTITIES
INCLUDING BUT NOT LIMITED TO THE FDA. FURTHERMORE, NEITHER
PARTY WARRANTS NOR MAKES ANY REPRESENTATIONS AS TO
PHARMACEUTICALS DEVELOPED OR WHICH ARE OTHERWISE THE SUBJECT
OF THE RESEARCH AND DEVELOPMENT EFFORTS UNDER THIS AGREEMENT
IN TERMS OF MEDICAL EFFICACY, RISK FACTORS, AND THE LIKE.
NO ORAL OR WRITTEN INFORMATION OR ADVICE GIVEN BY A PARTY OR
A PARTY'S AUTHORIZED REPRESENTATIVE SHALL CREATE A WARRANTY
OR IN ANY WAY INCREASE THE SCOPE OF THE WARRANTIES CONTAINED
IN THIS ARTICLE.
9.2 Entropin represents and warrants that it is to the best of its
knowledge the owner of all right, title and interest in and to
the Licensed Technologies, including but not limited to all
copyright, patent and other intellectual property rights in and
to the Licensed Product(s), as well as all powers and privileges
relating thereto.
9.3 Dr. Wynn represents and warrants that to the best of his
knowledge and belief all inventions, discoveries and improvements
conceived or made under the New Products Development Agreement
have been disclosed and, if requested, assigned to Entropin as
required by the terms of the New Products Development Agreement.
In addition, Dr. Wynn represent and warrants that if it is
determined that any inventions, discoveries or improvements made
or conceived under the New Products Development Agreement have
not been assigned to Entropin, he will use his best efforts and
cooperate in all respects to cause such inventions, discoveries
and improvements to be assigned to Entropin. Dr. Wynn further
warrants and represents that his work under this Agreement does
not and will not violate the policies of any institution with
which he is or may become associated during the term of this
Agreement, including, but not limited to, policies regarding the
administration of grants and funded research.
10. LIMITATION OF WARRANTIES.
Dr. Wynn shall provide Entropin with access to his Technical
Information, developed pursuant to this Agreement, but Dr. Wynn does
not assume any responsibility for processes practiced or New
Product(s), Improved Product(s), or Unrelated Product(s) manufactured
in accordance with such Technical Information. Dr. Wynn shall not be
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deemed to make, or to have made, any warranties concerning such
Technical Information, processes practiced, or New Product(s),
Improved Product(s), or Unrelated Product(s) manufactured under this
Agreement, except as expressly stated in this Agreement.
11. TERM OF AGREEMENT.
11.1 This Agreement is effective as of January 1, 1998 and unless
terminated sooner will continue in force until December 31,
2003.
11.2 Either party may terminate this Agreement in the event the other
party shall have materially breached or defaulted in the
performance of any of its obligations hereunder, and such default
shall have continued for forty-five (45) days after the written
notice thereof was provided to the breaching party by the non-
breaching party specifying the particulars of the breach. Any
termination shall become effective at the end of such forty-five
(45) day period unless the breaching party (or any other party on
its behalf) has cured any such breach or default prior to the
expiration of the forty-five (45) day period.
11.3 Entropin may terminate this Agreement on notice to Dr. Wynn in
the event that Dr. Wynn terminates his active participation in
the scientific affairs of DMR or of any other corporation to
which he assigns his rights under this Agreement, and/or ceases
to direct and supervise DMR's or such other corporation's work
under this Agreement.
11.4 If voluntary or involuntary proceedings by or against a party are
instituted in bankruptcy under any insolvency law, or a receiver
or custodian is appointed by such party, or proceedings are
instituted by or against such party for corporate reorganization
or the dissolution of such party, which proceedings, if
involuntary, shall not have been dismissed within sixty (60) days
after the date of filing, or if such party makes an assignment
for the benefit of creditors, or substantially all of the assets
of such party are seized or attached and not released within
sixty (60) days thereafter, the other party may immediately
terminate this Agreement effective upon notice of such
termination.
11.5 Termination of this Agreement for any reason shall not release
either party from any liability which, at the time of such
termination, has already accrued to the other party or which is
attributable to a period prior to such termination nor preclude
either party from pursuing any rights and remedies it may have
hereunder or at law or in equity with respect to any breach of
this Agreement.
11.6 Upon any termination of this Agreement, each party shall promptly
return to the other party all Confidential Information received
from the other party (except each party may retain one copy
solely for archival purposes and verifying compliance with the
provisions of Article 7 above).
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11.7 Articles 6, 7, 8, 9 and 12 of this Agreement shall survive the
expiration or termination of this Agreement for any reason.
12. ARBITRATION.
12.1 The parties shall submit all disputes relating to this Agreement
to binding arbitration by the American Arbitration Association.
Either party may enforce the award of the arbitrators. The
parties understand that they are waiving their rights to jury
trail.
12.2 The party demanding arbitration shall submit a written claim to
the other party, setting out the basis of the claim. The
responding party shall have ten (10) business days in which to
respond to such demand in a written answer.
12.3 Any controversy or claim arising out of or relating to this
Agreement, or breach thereof, shall be settled by arbitration
administered by the American Arbitration Association under its
Commercial Arbitration Rules, and judgment on the award rendered
by the arbitrators may be entered in any court having
jurisdiction thereof. Three arbitrators will be appointed, each
with a familiarity with pharmaceutical manufacturing and/or
pharmaceutical research and development. Arbitrations will be
held at the offices of the American Arbitration Association in
Los Angeles, California unless the parties agree otherwise.
12.4 The provisions of this Article do not apply to the arbitration
provisions of paragraphs 6.2, 7, and 13.4 of this Agreement.
13. OPTION TO PURCHASE.
Dr. James W. Wynn and his assignee, DMR, do hereby grant to Entropin
three options to acquire DMR on the following terms and conditions:
13.1 The options to acquire DMR granted to Entropin under this
Agreement can be exercised by Entropin on the second, fourth, and
sixth anniversary date of this Agreement.
13.2 Entropin shall exercise its right to each option by giving
written notice to DMR of its election not less than thirty
(30) days prior to the applicable option date. Notice shall
be sent to DMR at ____________________, with a copy to Dr.
James E. Wynn at _____________________________. Included in
the notice to exercise the option will be Entropin's
proposed acquisition price.
13.3 When the second anniversary date is reached, Entropin shall be
entitled to acquire all of DMR including the royalties rights
owed by Entropin to DMR as set forth in Section 6 (DMR having
complied with Section 4.3) of the License Agreement. If Entropin
does not acquire DMR on the second anniversary, then
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DMR will be free to assign, transfer, and convey those rights out
to individuals or entities. When the fourth anniversary date is
reached, only those royalty rights developed between the second
and fourth anniversaries are subject to acquisition by Entropin.
If it fails to acquire those royalty rights, then DMR will be
free to assign, transfer, and convey those rights out to
individuals or entities. On the sixth anniversary, Entropin
shall be entitled to acquire DMR and only those royalty rights
developed between the fourth and the sixth anniversary.
13.4 Entropin and DMR shall negotiate in good faith on the acquisition
price of DMR upon exercise of the option. In the event the
parties have been unable to agree on the acquisition price within
thirty (30) days of the exercise of the option by Entropin, each
party shall submit its proposed acquisition price to arbitration
before a single arbitrator with experience in determining the
value of a pharmaceutical company of the nature of DMR. If the
parties cannot agree on an acceptable arbitrator, the dispute
will be heard by a panel of three arbitrators with experience in
determining the value of a pharmaceutical company of the nature
of DMR, one appointed by each of the parties and the third
appointed by the other two arbitrators. The arbitration shall be
administered by the Las Vegas, Nevada office of the American
Arbitration Association in accordance with the then current
Commercial Arbitration Rules of the American Arbitration
Association. Such arbitration proceedings shall be conducted in
Las Vegas, Nevada or such other location as the parties may
agree. The arbitrator(s) shall be directed and shall have the
right to determine the then current fair market value of DMR. In
arriving at a fair market value the arbitrators shall consider,
among other things, the value of the royalty stream owned by DMR
and the costs and expenses which would be imposed on Entropin to
honor all stock options and other benefits granted to employees
of DMR by DMR prior to the exercise by Entropin of its option
granted under this Agreement. Such determination shall be
conclusive and binding upon both parties. It shall also be the
responsibility of the arbitrator(s) to direct an equitable
settlement of any disputes between the parties concerning the
language and content of a definitive agreement for the
implementation of the arbitrator's determination. A judgment
ordering the implementation of the arbitrator's determination(s)
may be entered in any court of competent jurisdiction. The
parties acknowledge and agree that any arbitration award may be
enforced against either or both of them in a court of competent
jurisdiction. The arbitrator's award as to the payment of the
costs of arbitration shall be binding on the parties.
13.5 Entropin shall assume any employee stock options granted to
employees of DMR prior to the date Entropin exercises its option
granted by this Agreement. An agreement will be reached with the
individual employee stock option holders to either cash out their
stock options or exchange their stock options in DMR for stock
options in Entropin.
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14. NOTICES.
Any notice, report or statement required or permitted under this
Agreement will be considered to be given or transmitted when sent by
certified mail, postage prepaid, addressed to the party for whom it is
intended at its address of record; by facsimile, which notice will be
effective on computer confirmation of receipt; or by courier or
messenger service, which notice will be effective on receipt by
recipient as indicated on the carrier's receipt. The record addresses
of the parties are as follows:
Entropin: Entropin, Inc.
45-926 Oasis Street
Indio, California 92201
Fax #: (760) 347 5572
Attn:_______________
Dr. Wynn: Dr. James E. Wynn
__________________
___________________
___________________
15. AMENDMENTS, ASSIGNABILITY, AND COUNTERPARTS.
15.1 This Agreement may be supplemented, amended, or modified only by
the parties' mutual agreement. No supplement, amendment, or
modification of this Agreement will be binding unless it is in
writing and signed by both parties.
15.2 Neither party shall, without the prior written consent of the
other party, sell, transfer, assign, delegate, or subcontract any
rights or obligations under this Agreement without the prior
written consent of the other party, which consent shall not be
unreasonably withheld. Any such transferee, assignee, delegate,
or subcontractor shall agree in writing to the same
confidentiality obligations no less stringent than those imposed
in this Agreement. Notwithstanding any such sale, transfer,
assignment, delegation or subcontract, the acting party shall not
be relieved of its duties and obligations set forth under this
Agreement.
15.3 Notwithstanding the provisions of Section 15.2 above, the parties
recognize that Dr. Wynn intends to organized DMR for the purpose
of acquiring and developing his rights under this Agreement. Dr.
Wynn may assign his rights under this Agreement to DMR or another
corporation provided that he continues actively supervise all of
the research and development of DMR as its Chief Scientific
Officer. The parties recognize that Dr. Wynn is a full time
employee of MUSC and that he will be required by MUSC to comply
with the work regulations of MUSC. Notwithstanding his employee
status at MUSC, Dr. Wynn shall, in his capacity as Chief
Scientific Officer of DMR, supervise the testing, experi-
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mentation, research and development work under this Agreement and
he shall remain responsible for the discharge of his obligations
under this Agreement.
15.4 Entropin recognizes that Dr. Wynn may subcontract with
universities, laboratories, and scientists in building upon the
Licensed Technologies to research and develop Improved
Product(s). Each organization and person that Dr. Wynn contracts
with for the research shall be required to execute an agreement
to maintain the confidentiality and restrictions on use set forth
in this Agreement. Dr. Wynn shall obtain Entropin's prior
written consent to the terms of any such subcontract that does
not permit Entropin to own the exclusive rights to resulting IP
Rights.
15.5 This Agreement shall became effective and binding upon the
parties when executed by both parties. This Agreement may be
executed in two counterparts, both of which for all purposes
shall constitute one agreement effective upon the latest date of
signatures of the counterparts, and shall be binding on the
parties notwithstanding that both parties have not signed the
same counterparts.
16. INDEPENDENT CONTRACTOR
It is expressly understood that the parties are contractors
independent of one another, and that neither has the authority to bind
the other to any third person or otherwise act in any way as the
representative of the other, unless the other has expressly delegated
such authority in a writing signed by both parties.
17. CONSTRUCTION.
Unless the context clearly requires otherwise, (i) the plural and
singular numbers are each deemed to include the other; (ii) the
masculine, feminine, and neuter genders are each deemed to include the
others; (iii) "shall", "will", and "agrees" are mandatory, and "may"
is permissive; (iv) "includes" and "including" are not limiting. All
time requirements shall be strictly construed as time is "of the
essence".
18. EXHIBITS
The following exhibits constitute a part of this Agreement and are
incorporated into this Agreement by this reference:
Exhibit A: List of documents comprising Entropin's Prior Technical
Knowledge
Exhibit B: Consent to representation of Dr. Wynn by Wendy Rieder
If any inconsistency exists or arises between a provision of this
Agreement and a provision of any exhibit, the provision of this
Agreement will prevail.
19
<PAGE>
19. NO WAIVER.
No waiver of a breach, failure of any condition, or any right or
remedy contained in or granted by this Agreement will be effective
unless it is in writing and signed by the party waiving the breach,
failure, right, or remedy. No waiver of any breach, failure, right,
or remedy, whether or not similar, nor will any written constitute a
continuing waiver unless the writing so specifies.
20. HEADINGS
The headings of the Articles in this Agreement are included for
convenience only and will effect neither the construction nor
interpretation of any provision in this Agreement nor any of the
rights or obligations of the parties to this Agreement. However, the
recitals to this Agreement are a part of this Agreement and reflect
the intentions of the parties.
21. GOVERNING LAW.
This Agreement, and any dispute arising from the relationship between
the parties will be governed and determined under California law,
excluding its conflicts of law rules.
22. ATTORNEY FEES.
In any arbitration, litigation or other proceeding by which one party
either seeks to enforce its rights under this Agreement (whether in
contract, tort, or both) or seeks a declaration of any rights or
obligations under this Agreement, the prevailing party shall be
awarded reasonable attorneys fees, together with costs and expenses,
to resolve the dispute and to enforce the final judgment.
23. SEVERABILITY
Any provision of this Agreement that in any way contravenes any
applicable law, to the extent the law is contravened, shall be
considered separable and inapplicable and will not affect any other
provision or provisions of this Agreement unless an essential purpose
of this Agreement would be defeated by the loss of the illegal,
unenforceable, or invalid provision.
24. BINDING EFFECT.
This Agreement will enure to the benefit of the successors and assigns
of the parties.
20
<PAGE>
IN WITNESS WHEREOF , Dr. Wynn has and Entropin has caused its duly
authorized
officer to execute this Agreement on the respective dates set forth below.
ENTROPIN, INC.
By: /s/HIGGINS D. BAILEY /s/ JAMES E. WYNN
--------------------------- ---------------------------
DR. JAMES E. WYNN
Name:
------------------------
Title: President & CEO Date: 2/1/98
----------------------- ----------------------
Date: 1-24-98
-----------------------
21
<PAGE>
AGREEMENT
Exhibit A
List of documents incorporated in the Entropin Prior Technical Knowledge:
22
<PAGE>
AGREEMENT
Exhibit B
Consent to Representation by Wendy Rieder:
The undersigned on behalf of Entropin, Inc. ("Entropin"), to the
representation of Dr. James E. Wynn ("Dr. Wynn") by Wendy Rieder, Esq..
Prior to August, 1995, Ms. Rieder represented Entropin in matters related
to intellectual property while employed by the law firm of Fish and Neave.
Ms. Rieder now intends to represent Dr. Wynn in connection with matters
relating to the business and operations of Dr. Wynn, including (but not
necessarily limited to) contractual arrangements with Entropin and other
parties, and licensing and intellectual property on behalf of Dr. Wynn.
although no conflict of interest is likely to arise and Ms. Rieder's
representation of Dr. Wynn is not in the same or a substantially related
matter which is likely to be materially adverse to the interests of
Entropin, this consent is being sought to ensure that Entropin has been
informed of and agrees to Ms. Rieder's representation of Dr. Wynn.
ENTROPIN, INC.
The undersigned Wendy Rieder represents
and warrants that the above statements
are true and correct.
By:______________________________
Name:____________________________ _____________________________________
Wendy Rieder, Esq.
Title:___________________________
23
EXHIBIT 10.7
ASSIGNMENT
WHEREAS, I, LOWELL M. SOMERS, M.D. citizens of the United States,
residing at INDIO, CALIFORNIA have invented certain new and useful
improvements in THE TREATMENT OF RHEUMATOID ARTHRITIS AND OSTEOARTHRITIS,
PATENT #4,556,663 for which we have executed an application for Letters
Patent of the United States, of even date herewith; and
WHEREAS, ENTROPIN, INC., a California corporation
45-926 Oasis Street
Indio, California 92201
is desirous of obtaining the entire right, title and interest in, to and
under the said improvements and the said application:
NOW, THEREFORE, in consideration of the sum of One Dollar ($1.00) to
us in hand paid, and other good and valuable consideration, the receipt of
which is hereby acknowledged, we, the said
LOWELL M. SOMERS, M.D.
have sold, assigned, transferred and set over, and by these presents do
hereby sell, assign, transfer and set over, unto the said
ENTROPIN, INC.
its successors, legal representatives and assigns, the entire right, title
and interest in, to and under the said improvements, and the said
application and all divisions, renewals and continuations thereof, and all
Letters Patent of the United States which may be granted thereon and all
reissues and extensions thereof, and all applications for Letters Patent
which may hereafter be filed for said improvements in any country or
countries foreign to the United States, and all Letters Patent which may be
granted for said improvements in any country or countries foreign to the
United States and all extensions, renewals and reissues thereof; and we
hereby authorize and request the Commissioner of Patents of the United
States, and any Official of any country or countries foreign to the United
States, whose duty it is to issue patents on applications as aforesaid, to
issue all Letters Patent for said improvements to the said
ENTROPIN, INC.
its successors, legal representatives and assigns, in accordance with the
terms of this instrument.
AND WE HEREBY covenant that we have full right to convey the entire
interest herein assigned, and that we have not executed, and will not
execute, any agreement in conflict herewith.
AND WE HEREBY further covenant and agree that we will communicate to
the said Company, its successors, legal representatives and assigns, any
facts known to us respecting said improvements, and testify in any legal
proceeding, sign all lawful papers, execute all divisional, continuing and
reissue applications, make all rightful oaths and generally do everything
possible to aid the said Company, its successors, legal representatives and
assigns, to obtain and enforce proper patent protection for said
improvements in all countries.
DATED: Sept 14-1992 SIGNED: /s/ LOWELL M. SOMERS, M.D.
--------------- -----------------------------------
LOWELL M. SOMERS, M.D.
STATE OF CALIFORNIA )
)ss.
COUNTY OF RIVERSIDE )
On this 24th day of September, in the year 1992, before me, the
undersigned, a Notary Public in and for said State, personally
appeared Lowell M. Somers, M.D., personally known to me (or
proved to me on the basis of satisfactory evidence) to be the
person whose name is subscribed to the within instrument, and
acknowledged to me that he executed it.
WITNESS my hand and official seal.
/s/ OLGA B. HERNANDEZ
------------------------------------
Notary Public in and for said State.
OFFICIAL SEAL
My Commission Expires July 20, 1993
EXHIBIT 10.8
ASSIGNMENT
WHEREAS, I, LOWELL M. SOMERS, M.D. citizens of the United States,
residing at INDIO, CALIFORNIA have invented certain new and useful
improvements in THE TREATMENT OF RHEUMATOID ARTHRITIS, PATENT #4,512,996
for which we have executed an application for Letters Patent of the United
States, of even date herewith; and
WHEREAS, ENTROPIN, INC., a California corporation
45-926 Oasis Street
Indio, California 92201
is desirous of obtaining the entire right, title and interest in, to and
under the said improvements and the said application:
NOW, THEREFORE, in consideration of the sum of One Dollar ($1.00) to
us in hand paid, and other good and valuable consideration, the receipt of
which is hereby acknowledged, we, the said
LOWELL M. SOMERS, M.D.
have sold, assigned, transferred and set over, and by these presents do
hereby sell, assign, transfer and set over, unto the said
ENTROPIN, INC.
its successors, legal representatives and assigns, the entire right, title
and interest in, to and under the said improvements, and the said
application and all divisions, renewals and continuations thereof, and all
Letters Patent of the United States which may be granted thereon and all
reissues and extensions thereof, and all applications for Letters Patent
which may hereafter be filed for said improvements in any country or
countries foreign to the United States, and all Letters Patent which may be
granted for said improvements in any country or countries foreign to the
United States and all extensions, renewals and reissues thereof; and we
hereby authorize and request the Commissioner of Patents of the United
States, and any Official of any country or countries foreign to the United
States, whose duty it is to issue patents on applications as aforesaid, to
issue all Letters Patent for said improvements to the said
ENTROPIN, INC.
its successors, legal representatives and assigns, in accordance with the
terms of this instrument.
AND WE HEREBY covenant that we have full right to convey the entire
interest herein assigned, and that we have not executed, and will not
execute, any agreement in conflict herewith.
AND WE HEREBY further covenant and agree that we will communicate to
the said Company, its successors, legal representatives and assigns, any
facts known to us respecting said improvements, and testify in any legal
proceeding, sign all lawful papers, execute all divisional, continuing and
reissue applications, make all rightful oaths and generally do everything
possible to aid the said Company, its successors, legal representatives and
assigns, to obtain and enforce proper patent protection for said
improvements in all countries.
DATED: Sept 14-1992 SIGNED: /s/ LOWELL M. SOMERS, M.D.
--------------- -----------------------------------
LOWELL M. SOMERS, M.D.
STATE OF CALIFORNIA )
)ss.
COUNTY OF RIVERSIDE )
On this 24th day of September, in the year 1992, before me, the
undersigned, a Notary Public in and for said State, personally
appeared Lowell M. Somers, M.D., personally known to me (or
proved to me on the basis of satisfactory evidence) to be the
person whose name is subscribed to the within instrument, and
acknowledged to me that he executed it.
WITNESS my hand and official seal.
/s/ OLGA B. HERNANDEZ
------------------------------------
Notary Public in and for said State.
OFFICIAL SEAL
My Commission Expires July 20, 1993
EXHIBIT 10.9
ASSIGNMENT
WHEREAS, I, LOWELL M. SOMERS, M.D. citizens of the United States,
residing at INDIO, CALIFORNIA have invented certain new and useful
improvements in THE TREATMENT OF RHEUMATOID ARTHRITIS, PATENT #4,469,700
for which we have executed an application for Letters Patent of the United
States, of even date herewith; and
WHEREAS, ENTROPIN, INC., a California corporation
45-926 Oasis Street
Indio, California 92201
is desirous of obtaining the entire right, title and interest in, to and
under the said improvements and the said application:
NOW, THEREFORE, in consideration of the sum of One Dollar ($1.00) to
us in hand paid, and other good and valuable consideration, the receipt of
which is hereby acknowledged, we, the said
LOWELL M. SOMERS, M.D.
have sold, assigned, transferred and set over, and by these presents do
hereby sell, assign, transfer and set over, unto the said
ENTROPIN, INC.
its successors, legal representatives and assigns, the entire right, title
and interest in, to and under the said improvements, and the said
application and all divisions, renewals and continuations thereof, and all
Letters Patent of the United States which may be granted thereon and all
reissues and extensions thereof, and all applications for Letters Patent
which may hereafter be filed for said improvements in any country or
countries foreign to the United States, and all Letters Patent which may be
granted for said improvements in any country or countries foreign to the
United States and all extensions, renewals and reissues thereof; and we
hereby authorize and request the Commissioner of Patents of the United
States, and any Official of any country or countries foreign to the United
States, whose duty it is to issue patents on applications as aforesaid, to
issue all Letters Patent for said improvements to the said
ENTROPIN, INC.
its successors, legal representatives and assigns, in accordance with the
terms of this instrument.
AND WE HEREBY covenant that we have full right to convey the entire
interest herein assigned, and that we have not executed, and will not
execute, any agreement in conflict herewith.
AND WE HEREBY further covenant and agree that we will communicate to
the said Company, its successors, legal representatives and assigns, any
facts known to us respecting said improvements, and testify in any legal
proceeding, sign all lawful papers, execute all divisional, continuing and
reissue applications, make all rightful oaths and generally do everything
possible to aid the said Company, its successors, legal representatives and
assigns, to obtain and enforce proper patent protection for said
improvements in all countries.
DATED: Sept 14-1992 SIGNED: /s/ LOWELL M. SOMERS, M.D.
--------------- -----------------------------------
LOWELL M. SOMERS, M.D.
STATE OF CALIFORNIA )
)ss.
COUNTY OF RIVERSIDE )
On this 24th day of September, in the year 1992, before me, the
undersigned, a Notary Public in and for said State, personally
appeared Lowell M. Somers, M.D., personally known to me (or
proved to me on the basis of satisfactory evidence) to be the
person whose name is subscribed to the within instrument, and
acknowledged to me that he executed it.
WITNESS my hand and official seal.
/s/ OLGA B. HERNANDEZ
------------------------------------
Notary Public in and for said State.
OFFICIAL SEAL
My Commission Expires July 20, 1993
EXHIBIT 10.10
ENT-1 US
--------
ASSIGNMENT
----------
I/We,
(1) Lowell M. Somers, and (2) James E. Wynn, residing, respectively,
at
(1) 84096 Indio Springs Drive, Apt. #112
Indio, California 92201, and
(2) 306 Ayers Circle
Summerville, South Carolina 29485,
for good and valuable consideration, receipt of which is hereby
acknowledged, have assigned, sold and transferred to and do hereby assign,
sell and transfer to ENTROPIN, INC., a corporation organized and existing
under the laws of the STATE OF CALIFORNIA and having an office and a place
of business at 45-926 OASIS STREET INDIO, CALIFORNIA 92201 its successors
and assigns: (1) the entire right, title and interest in the United States
and in all countries throughout the world in and to any and all my/our
inventions and discoveries disclosed in the application for Letters Patent
in the United States entitled: DERIVATIVES OF BENZOYLECGONINE, ECGONINE AND
ECGONIDINE AND METHODS OF PREPARING AND USING SAME, and filed in the United
States Patent and Trademark Office on DECEMBER 31, 1992, under Serial
Number 07/999,307, including any renewals, revivals, reissues,
reexaminations, extensions, continuations and divisions thereof, and any
substitute applications therefor; (2) the full and complete right to file
patent applications in the name of ENTROPIN, INC., its designee, or in
my/our names at ENTROPIN, INC.'s or its
page 1 of 5
ASSIGN.2
1/25/93
<PAGE>
designee's election, on the aforesaid inventions, discoveries and
applications in all countries of the world; (3) the entire right, title and
interest in and to any Letters Patent which may issue thereon in the United
States or in any other country of the world and any renewals, revivals,
reissues, reexaminations and extensions of the same; and (4) the entire
right, title and interest in all Convention and Treaty Rights of all kinds
thereon, including without limitation all rights of priority in any country
of the world, in and to the above inventions, discoveries and applications.
I/We hereby authorize and request the competent authorities to grant
and to issue any and all such Letters Patent in the United States and
throughout the world to ENTROPIN, INC. as the assignee of the entire right,
title and interest therein, as fully and entirely as the same would have
been held and enjoyed by me/us had this assignment, sale and transfer not
been made.
I/We agree, at any time, upon the request of ENTROPIN, INC. to execute
and to deliver to ENTROPIN, INC. any additional applications for patents
for said inventions and discoveries, or any part or parts thereof, and any
applications for patents of confirmation, registration and importation
based on any Letters Patent issuing on said inventions, discoveries or
applications, and divisions, continuations, renewals, revivals, reissues,
reexaminations and extensions thereof.
I/We further agree at any time to execute and to deliver upon request
of ENTROPIN, INC. such additional documents, if any, as are necessary or
desirable to secure patent protection on said inventions, discoveries and
applications throughout all countries of the world, and otherwise to do the
necessary to give full effect to and to perfect the rights of ENTROPIN,
INC. under this Assignment,
page 2 of 5
ASSIGN.2
1/25/93
<PAGE>
including the execution, delivery and procurement of any and all further
documents evidencing this assignment, transfer and sale as may be necessary
or desirable.
ASSIGNORS:
/s/ LOWELL M. SOMERS (1)
-----------------------------------
Lowell M. Somers
/s/ JAMES E. WYNN (2)
-----------------------------------
James E. Wynn
page 3 of 5
ASSIGN.2
1/25/93
<PAGE>
On this 16th day of February, 1993, Lowell M. Somers (1)
personally appeared before me, a Notary Public in and for County of
Riverside, and executed the foregoing Assignment and duly acknowledged to
me that such Assignment was executed for the uses and purposes therein
expressed.
OFFICIAL SEAL /s/ OLGA B. HERNANDEZ
--------------------------------------
Notary Public
My Commission Expires July 20, 1993
On this 28th day of January, 1993, James E. Wynn (2) personally
appeared before me, a Notary Public in and for State of South Carolina, and
executed the foregoing Assignment and duly acknowledged to me that such
Assignment was executed for the uses and purposes therein expressed.
/s/ PATRICIA M. SHARPE
--------------------------------------
Notary Public
page 4 of 5
ASSIGN.2
1/25/93
<PAGE>
ACKNOWLEDGEMENT OF ASSIGNEE:
ENTROPIN, INC.
--------------
By: /s/ HIGGINS D. BAILEY
-------------------------------
Higgins D. Bailey, President
On this 19th day of February, 93, Higgins D. Bailey personally
appeared before me, a Notary Public in and for the County of Riverside, and
duly acknowledged the executed Assignment on behalf of the Assignee.
OFFICIAL SEAL /s/ OLGA B. HERNANDEZ
--------------------------------------
Notary Public
My Commission Expires July 20, 1993
page 5 of 5
ASSIGN.2
1/25/93
EXHIBIT 10.11
ENT-2
-----
ASSIGNMENT
----------
I/We,
(1) JAMES E. WYNN, and (2) LOWELL M. SOMERS residing, respectively, at
(1) 306 Ayers Circle
Summerville, South Carolina 29485 USA, and
(2) 80-892 Highway 111
Indio, California 92201 USA,
for good and valuable consideration, receipt of which is hereby
acknowledged, have assigned, sold and transferred to and do hereby assign,
sell and transfer to ENTROPIN, INC. a corporation organized and existing
under the laws of the STATE OF CALIFORNIA and having an office and a place
of business at 45-926 OASIS STREET, INDIO, CALIFORNIA 92201 its successors
and assigns: (1) the entire right, title and interest in the United States
and in all countries throughout the world in and to any and all my/our
inventions and discoveries disclosed in the application for Letters Patent
in the United States entitled: COVALENTLY COUPLED BENZOYLECGONINE, ECGONINE
AND ECGONIDINE DERIVATIVES, and filed in the United States Patent and
Trademark Office on JUNE 16, 1994, under Serial Number 08/260,054,
including any renewals, revivals, reissues, reexaminations, extensions,
continuations and divisions thereof, and any substitute applications
therefor; (2) the full and complete right to file patent applications in
the name of ENTROPIN, INC. its designee, or in my/our names at ENTROPIN,
INC. or its designee's election, on the aforesaid
page 1 of 5
ASSIGN.2
7/26/94
<PAGE>
inventions, discoveries and applications in all countries of the world; (3)
the entire right, title and interest in and to any Letters Patent which may
issue thereon in the United States or in any other country of the world and
any renewals, revivals, reissues, reexaminations and extensions of the
same; and (4) the entire right, title and interest in all Convention and
Treaty Rights of all kinds thereon, including without limitation all rights
of priority in any country of the world, in and to the above inventions,
discoveries and applications.
I/We hereby authorize and request the competent authorities to grant
and to issue any and all such Letters Patent in the United States and
throughout the world to ENTROPIN, INC. as the assignee of the entire right,
title and interest therein, as fully and entirely as the same would have
been held and enjoyed by me/us had this assignment, sale and transfer not
been made.
I/We agree, at any time, upon the request of ENTROPIN, INC. to execute
and to deliver to ENTROPIN, INC. any additional applications for patents
for said inventions and discoveries, or any part or parts thereof, and any
applications for patents of confirmation, registration and importation
based on any Letters Patent issuing on said inventions, discoveries or
applications, and divisions, continuations, renewals, revivals, reissues,
reexaminations and extensions thereof.
I/We further agree at any time to execute and to deliver upon request
of ENTROPIN, INC. such additional documents, if any, as are necessary or
desirable to secure patent protection on said inventions, discoveries and
applications throughout all countries of the world, and otherwise to do the
necessary to give full effect to and to perfect the rights of ENTROPIN,
INC. under this Assignment, including the execution, delivery and
procurement of any
page 2 of 5
ASSIGN 2
7/26/94
<PAGE>
and all further documents evidencing this assignment, transfer and sale as
may be necessary or desirable.
ASSIGNORS:
/s/ JAMES E. WYNN (1)
-----------------------------------
James E. Wynn
/s/ LOWELL M. SOMERS (2)
-----------------------------------
Lowell M. Somers
page 3 of 5
ASSIGN.2
7/26/94
<PAGE>
On this 29 day of July, 1994, James E. Wynn (1) personally
appeared before me, a Notary Public in and for the State of South Carolina,
and executed the foregoing Assignment and duly acknowledged to me that such
Assignment was executed for the uses and purposes therein expressed.
/s/ PATRICIA M. SHARPE
--------------------------------------
Notary Public
On this 25 day of August, 1994, Lowell M. Somers (2) personally
appeared before me, a Notary Public in and for State of California, and
executed the foregoing Assignment and duly acknowledged to me that such
Assignment was executed for the uses and purposes therein expressed.
OFFICIAL SEAL /s/ OLGA B. HERNANDEZ
--------------------------------------
Notary Public
My Commission Expires July 20, 1993
page 4 of 5
ASSIGN.2
7/26/94
<PAGE>
ACKNOWLEDGEMENT OF ASSIGNEE:
ENTROPIN, INC.
- --------------
By: /s/ HIGGINS D. BAILEY
-------------------------------
Higgins D. Bailey,
President
On this 3rd day of October, 1994, Higgins D. Bailey personally
appeared before me, a Notary Public in and for the State of South Carolina,
and duly acknowledged the executed Assignment on behalf of the Assignee.
/s/ PATRICIA M. SHARPE
--------------------------------------
Notary Public
page 5 of 5
ASSIGN.2
7/26/94
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