As filed with the Securities and Exchange Commission on March 9, 2000
Registration No. 333 - 11308
- ---------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
________
AMENDMENT NO. 1
to
FORM SB-2
REGISTRATION STATEMENT
under the
SECURITIES ACT OF 1933
ENTROPIN, INC.
(Name of small business issuer in its charter)
Colorado 283 84-1090424
-------- --------------------------- ----------
(State or jurisdiction (Primary Standard Industrial I.R.S. Employer
of incorporation or Classification Code Number) Identification Number)
organization)
Entropin, Inc.
45926 Oasis Street
Indio, California 92201
(760)775-8333
(Address and telephone number of principal
executive offices and principal place of business)
_______________________
Higgins D. Bailey
Chairman of the Board
Entropin, Inc.
45926 Oasis Street
Indio, California 92201
(760) 775-8333
(Name, address and telephone number of agent
for service)
COPIES TO:
A. Thomas Tenenbaum, Esq. Gary A. Agron, Esq.
Brenman Bromberg & Tenenbaum, P.C. 5445 D.T.C. Parkway, Suite 520
Mellon Financial Center Englewood, Colorado 80111
1775 Sherman Street, Suite 1001 (303) 770-7254
Denver, Colorado 80203 (303) 770-7257 FAX
(303) 894-0234
(303) 839-1633 FAX
APPROXIMATE DATE OF PROPOSED SALE TO PUBLIC:
AS SOON AS PRACTICABLE AFTER THE EFFECTIVE DATE OF THE REGISTRATION STATEMENT.
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the
following box and list the Securities Act registration statement number of
the earlier effective registration statement for the same offering.[ ]
If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering.[ ]
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box.[ ]
The Registrant hereby amends this registration statement on such date
or dates as may be necessary to delay its effective date until the
Registrant shall file a further amendment which specifically states that
this registration statement shall thereafter become effective in accordance
with section 8(a) of the Securities Act of 1933 or until the registration
statement shall become effective on such date as the Commission, acting
pursuant to said section 8(a), may determine.
<PAGE>
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
===================================================================================================
Title of each
class of Amount Proposed maximum
securities to to be Proposed maximum aggregate offering Amount of
be registered registered offering price(1) price(1) registration fee
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock(2) 2,300,000 $4.25 $9,775,000 $2,717
- ---------------------------------------------------------------------------------------------------
Warrants to purchase one share 2,300,000 $ .25 $ 575,000 $ 160
of Common Stock(3)
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Common Stock issuable upon 200,000 $5.10 $1,020,000 $ 284
exercise of the Representative's
Warrants(4)
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Warrants to purchase one share 200,000 $ .30 $ 60,000 $ 17
of Common Stock issuable upon
exercise of the Representative'
Warrants(4)
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Common Stock issuable upon
exercise of Warrants, including
Warrants underlying the
Representative's Warrants(5) 2,500,000 $6.375(6) $15,937,500 $4,431
- ---------------------------------------------------------------------------------------------------
TOTAL $27,367,500 $7,609
- ---------------------------------------------------------------------------------------------------
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rules 457(a) and (g).
(2) Includes 300,000 shares of Common Stock that the underwriters have the
option to purchase to cover over-allotments, if any.
(3) Includes 300,000 Warrants to purchase one share of Common Stock that
the underwriters have the option to purchase to cover over-allotments,
if any.
(4) In connection with the sale of the Common Stock and Warrants, the
Registrant is granting the representative: a.) warrants to purchase
200,000 shares of Common Stock; and, b.) warrants to purchase warrants
which are exercisable to purchase 200,000 shares of Common Stock (the
"Representative's Warrants").
(5) Pursuant to Rule 416, there are also being registered such additional
shares of Common Stock as may be issuable pursuant to the anti-dilution
provisions of the Warrants and the Representative's Warrants.
(6) Pursuant to Rule 457(i) the registration fee for the Warrants is
calculated based on the exercise price of the Warrants.
____________________
<PAGE>
SUBJECT TO COMPLETION. DATED MARCH 2, 2000
PROSPECTUS
ENTROPIN, INC. [Logo]
2,000,000 Shares of Common Stock
and
2,000,000 Redeemable Common Stock Purchase Warrants
We are offering shares of common stock and warrants to purchase shares
of common stock in units consisting of one share and one warrant. The
common stock and warrants will trade as separate securities immediately
after this offering. For a description of the terms of the warrants, see
"Prospectus Summary - The Offering - Warrants" on page 3.
Our common stock is traded on the NASD OTC Bulletin Board under the
symbol "ETOP". On February 28, 2000, the closing bid price of the common
stock was $7.625 per share. We have applied to list our common stock and
warrants under the symbols "ETOP" and "ETOPW" on the Nasdaq SmallCap Market
after this offering.
THESE ARE SPECULATIVE SECURITIES. INVESTING IN THE SHARES AND
WARRANTS INVOLVES RISKS. SEE "RISK FACTORS" BEGINNING ON PAGE 5.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE
SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR
DETERMINED IF THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
PER PER
SHARE WARRANT TOTAL
- ----------------------------------------------------------------------------
Public offering price: . . . . . . . . . . . . . $ $ $
- ----------------------------------------------------------------------------
Underwriting discounts and commissions:. . . . . $ $ $
- ----------------------------------------------------------------------------
Proceeds to Entropin, Inc. . . . . . . . . . . . $ $ $
- ----------------------------------------------------------------------------
We have granted a 45-day option to the underwriter to purchase up to
300,000 additional shares and 300,000 additional warrants to cover over-
allotments.
NEIDIGER, TUCKER, BRUNER, INC.
WESTPORT RESOURCES INVESTMENT SERVICES, INC.
, 2000
<PAGE>
The following language appears in red on the left side of the cover page.
A registration statement relating to these securities has been filed with
the Securities and Exchange Commission but has not yet become effective.
These securities may not be sold nor may offers to buy be accepted prior to
the time the registration statement becomes effective. This prospectus
shall not constitute an offer to sell or the solicitation of an offer to
buy nor shall there be any sale of these securities in any State in which
such offer, solicitation or sale would be unlawful prior to registration
or qualification under the securities laws of any such State.
<PAGE>
3 PHOTOS INSIDE FRONT COVER:
[PHOTO 1]
Vial containing Esterom(R) solution
[PHOTO 2]
Esterom(R) solution being applied to patient's shoulder
[PHOTO 3]
Mobility measurement of patient's shoulder
<PAGE>
Please read this prospectus carefully. It describes our business, our
product and our finances. We have prepared this prospectus so that you
will have the information necessary to make an investment decision.
You should rely only on the information contained in this prospectus.
We have not authorized anyone to provide you with information different
from that contained in this prospectus. We are offering to sell, and
seeking offers to buy shares and warrants only in jurisdictions where
offers and sales are permitted. The information contained in this
prospectus is accurate only as of the date of this prospectus, regardless
of the time of delivery of this prospectus or any sale of our securities.
STATE NOTICES
ARIZONA RESIDENTS: The securities offered pursuant to this prospectus may
only be purchased by Arizona residents who satisfy us that they meet the
following financial suitability requirements: The Arizona resident
purchaser must have either (a) annual gross income of at least $100,000, or
$150,000 combined with spouse, during the year prior to this offering and
a reasonable expectation of such income in the current year, or, (b) a
minimum net worth of $250,000, or $300,000 when combined with spouse,
(exclusive of home, home furnishings and automobiles) and the investment in
the securities does not exceed 10% of the net worth of the investor,
together with spouse if applicable.
CALIFORNIA RESIDENTS: The securities offered pursuant to this prospectus
may only be purchased by California residents who satisfy us that they meet
the following financial suitability requirements: The California resident
purchaser must have either (a) annual gross income of at least $65,000 and
a minimum net worth (exclusive of home, home furnishings and automobiles)
of $250,000; or, (b) a minimum net worth (exclusive of home, home
furnishings and automobiles) of $500,000.
NORTH DAKOTA RESIDENTS: The securities offered pursuant to this prospectus
may only be purchased by North Dakota residents who satisfy us that they
meet the following financial suitability requirements: The North Dakota
resident purchaser must have either (a) annual gross income of at least
$45,000 and a minimum net worth (exclusive of home, home furnishings and
automobiles) of $45,000; or, (b) a minimum net worth (exclusive of home,
home furnishings and automobiles) of $100,000
<PAGE>
TABLE OF CONTENTS
Prospectus Summary . . . . . . . . . . . . . . . . . . . . . . . . . . .1
Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5
Use of Proceeds. . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Dividend Policy. . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Price Range of our Common Stock. . . . . . . . . . . . . . . . . . . . 11
Capitalization . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Selected Financial Data. . . . . . . . . . . . . . . . . . . . . . . . 13
Management's Discussion and Analysis of
Financial Condition and Results of Operations. . . . . . . . . . . . 14
Our Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Summary Compensation Table . . . . . . . . . . . . . . . . . . . . . . 27
Principal Stockholders . . . . . . . . . . . . . . . . . . . . . . . . 29
Related Party and Other Material Transactions. . . . . . . . . . . . . 30
Description of Securities. . . . . . . . . . . . . . . . . . . . . . . 31
Shares Eligible for Future Sale. . . . . . . . . . . . . . . . . . . . 34
Underwriting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Legal Matters. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Experts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Additional Information . . . . . . . . . . . . . . . . . . . . . . . . 38
Index to Financial Statements. . . . . . . . . . . . . . . . . . . . .F-1
We are a reporting company under the Securities Exchange Act of 1934.
We have filed periodic reports, including Annual Reports containing
financial statements of the Company audited by independent public
accountants, and quarterly reports, which contain unaudited financial
statements, with the Securities and Exchange Commission. Copies of such
reports can be obtained at prescribed rates by written request addressed to
the Commission, Public Reference Section, 450 Fifth Street, NW, Washington,
D. C. 20549. In addition, we have filed with the Securities and Exchange
Commission, a registration statement on Form SB-2 under the Securities Act
with respect to the shares and warrants offered.
<PAGE>
PROSPECTUS SUMMARY
This summary highlights selected information that we present more
fully in other sections of this prospectus. To understand this offering,
you should read the entire prospectus carefully, including the risk factors
and financial statements.
ENTROPIN
Entropin, is a development stage pharmaceutical company that has
developed Esterom(R) solution, a topical formulation for the treatment of
conditions involving impaired range of motion. Impaired range of motion
often accompanies injuries and disorders of the shoulder and lower back, as
well as other conditions of the joints. Esterom(R) solution is derived
from a process involving the chemical breakdown of cocaine into new and
different molecules, three of which have been patented by us. We have
completed four preclinical animal studies and Phase I and Phase II human
clinical trials for Esterom(R) solution. These trials indicated that
Esterom(R) solution was well tolerated at the dose used. Moreover, the
range of motion with patients suffering from shoulder and back conditions
was improved significantly when compared with patients receiving a placebo.
The trials also indicated that Esterom(R) solution did not appear to have
any potential for addiction or abuse. We began Phase III trials for
treatment of impaired range of motion due to shoulder injuries and
functionality in November 1999. We expect to complete our Phase III trials
and submit a new drug application to the FDA in early 2001.
OUR MARKET OPPORTUNITY
If we obtain FDA approval, we believe that there will be a substantial
market for Esterom(R) solution based on the following:
* 40 million Americans suffer from lower back conditions, according to
a 1999 report by the American Academy of Orthopedic Surgeons.
* Over 7 million Americans suffer from shoulder injuries or disorders,
according to a 1996 report by the Center for Disease Control, National
Center for Health Statistics.
* Nearly 17.5 million Americans seek prescriptive drug therapy annually
for the treatment of painful shoulder, acute back strain or related
conditions, according to the National Ambulatory Medical Care Survey
1998 report by the National Center for Health Statistics.
* In its most recent report on lower back pain issued in 1994, the U.S.
Agency for Health Care Policy and Research indicated that back pain
was the second most common reason, after the common cold, for seeing
a doctor and costs associated with back pain, including lost
productivity, exceeded $50 billion a year.
* Treatments for impaired range of motion for lower back and shoulder
conditions include steroidal drugs, non-steroidal anti-inflammatory
drugs such as ibuprofen and muscle relaxants, all of which reduce pain
but do not necessarily improve impaired range of motion.
1
<PAGE>
OUR STRATEGY
Our initial goal is to complete the commercialization of Esterom(R)
solution. If we succeed, we will seek to develop products for related
muscle and joint disorders. In order to achieve our goals, we plan to:
* Seek FDA approval to market Esterom(R) solution for the treatment of
impaired range of motion associated with shoulder function;
* Seek FDA approval to market Esterom(R) solution for the treatment of
impaired range of motion associated with lower back sprain;
* Identify and develop other related medical applications for Esterom(R)
solution, such as the treatment of arthritis and other joint disorders;
* Identify and develop international markets; and
* Minimize our fixed costs by outsourcing clinical studies, regulatory
activities, manufacturing and sales and marketing.
Entropin is a Colorado corporation. Our corporate offices are located
at 45926 Oasis Street, Indio, California 92201, telephone number (760)
775-8333. Esterom(R) solution is a trademark registered with the United
States Patent and Trademark Office. Our Web site is located at
www.entropin.com. Information contained in our Web site should not be
considered a part of this prospectus.
2
<PAGE>
THE OFFERING
Unless otherwise indicated, all information in this prospectus assumes
no exercise of the over-allotment option granted to the underwriters to
purchase additional shares and warrants.
Securities offered. . . . . 2,000,000 shares of common stock and
2,000,000 warrants to purchase 2,000,000
shares of common stock. The securities are
offered in units consisting of one share and
one warrant. The common stock and warrants
will trade separately immediately after the
offering.
Warrants. . . . . . . . . . The warrants will be exercisable at $_____
per share at any time until five years from
the date of this prospectus. We may not
redeem the warrants for at least one year
after the date of this prospectus. After
that date, if the closing bid price of our
common stock on each of the 10 consecutive
trading days preceding our notice of
redemption is greater than or equal to
$_____ (200% of the closing bid price of our
common stock on the effective date of the
offering), we may redeem some or all of the
outstanding warrants upon 30 days' prior
written notice to the holders. The
redemption price will be $0.25 per warrant.
If we give notice of redemption, holders of
the warrants will have 30 days during which
they may elect to exercise the warrants,
sell the warrants or allow the warrants to
be redeemed for the redemption price.
Common stock outstanding. . 7,382,280 shares of common stock were
outstanding on February 28, 2000. After the
offering, there will be 9,382,280 shares
outstanding. Shares outstanding exclude up
to 3,851,682 shares of common stock issuable
on exercise of outstanding options, warrants
and convertible securities.
Risk Factors. . . . . . . . An investment in the shares and warrants
involves a high degree of risk. You should
not consider purchase of the shares and
warrants unless you can afford to lose your
entire investment.
Use of proceeds . . . . . . To fund costs associated with Phase III
clinical trials; the FDA approval process
for Esterom(R) solution; research and
development of additional applications of
Esterom(R) solution; general and
administrative expenses; and working capital.
3
<PAGE>
SUMMARY FINANCIAL DATA
The following selected financial data should be read in conjunction
with "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and the Financial Statements and notes thereto. The
selected financial data as of December 31, 1998 and 1999, and for the years
then ended are derived from audited financial statements included in this
prospectus.
<TABLE>
<CAPTION>
Cumulative
amounts from
inception
through
STATEMENT OF OPERATIONS Years ended December 31, December 31,
DATA: ------------------------ ------------
1999 1998 1999
---- ---- ----
<S> <C> <C> <C>
Revenue $ -0- $ -0- $ -0-
Research and development 1,743,837 906,719 6,597,410
Other costs and expenses 3,195,425 1,857,908 5,920,654
------------ ------------ ------------
Net loss (4,939,262) (2,764,627) (12,518,064)
Accrued dividends applicable
to Series B preferred stock (119,300) (56,260) (175,560)
------------ ------------ ------------
Net loss applicable to
common shareholders $ (5,058,562) $ (2,820,887) $(12,693,624)
============ ============ ============
Basic and diluted net loss per
common share $ (.75) $ (.47) $ (2.36)
============ ============ ============
Weighted average number of
shares outstanding 6,749,000 5,968,000 5,374,000
============ ============ ============
</TABLE>
BALANCE SHEET DATA:
The unaudited proforma balance sheet data reflects the issuance of
securities in this offering.
Unaudited Pro
forma
December 31, December 31,
1999 1999
------------ ------------
Cash and cash equivalents $2,260,526 $
Working capital 1,937,721
Total assets 2,825,225
Total liabilities 506,876
Redeemable preferred stock 4,303,662
Stockholders' equity (deficit) (1,985,313)
4
<PAGE>
RISK FACTORS
The offering involves a high degree of risk. You should carefully
consider the risks and uncertainties of this offering described below and
other information in this prospectus before investing in our common stock.
If any of these risks occur, our business, results of operation and
financial condition could be adversely affected. This could cause the
trading price of our common stock to decline, and you might lose part or
all of your investment.
Many of the statements in this prospectus constitute forward-looking
statements. These statements involve known and unknown risks,
uncertainties, and other factors that may cause our results, levels of
activity, performance or achievements to be materially different from those
implied by these forward-looking statements. In some cases, you can
identify forward-looking statements by terminology such as "may," "will,"
"should," "expects," "plans," "anticipates," "believes," "estimates,"
"predicts," "potential," "continue" or the negative of these terms or other
comparable terminology.
Although we believe that the expectations reflected in the forward-
looking statements are reasonable, we cannot guarantee future results,
levels of activity, performance or achievements. Moreover, neither we nor
any other person assumes responsibility for the accuracy and completeness
of these statements. We are under no duty to update any of the forward-
looking statements after the date of this prospectus.
WE HAVE A LIMITED OPERATING HISTORY, A HISTORY OF LOSSES AND EXPECT FUTURE
LOSSES.
We have no operating history upon which an investor can base an
evaluation of our company and our prospects. Our auditor's report for year
end December 31, 1999 expressed doubt about our ability to continue as a
going concern. We have had losses from operations since our inception in
1984 to December 31, 1999, totaling $12,518,064, and we expect to incur
future losses from operations. At December 31, 1999 we had a total
stockholders deficit of $1,985,313. We expect our operating expenses to
significantly increase over the next several years due to clinical testing
and other expenses related to seeking FDA approval. Our ability to achieve
profitable operations is dependent on obtaining regulatory approval for
Esterom(R) solution, entering into agreements for product development and
commercialization, and expanding from development into successful
marketing, all of which require significant amounts of capital. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" beginning on page 14 and "Use of Proceeds" on page 10.
WE ARE DEPENDENT ON THE PROCEEDS OF THIS OFFERING AND MAY REQUIRE
ADDITIONAL CAPITAL.
We have financed our business through the sale of securities and
advances from stockholders and have had no revenue from operations. We are
dependent upon the proceeds of this offering to fund continuing operations
and management has broad discretion as to the application of the proceeds.
We may require additional capital to fund our operations.
5
<PAGE>
WE WILL NOT BE ABLE TO MARKET ESTEROM(R) SOLUTION UNLESS WE OBTAIN REQUIRED
REGULATORY APPROVAL.
The FDA approval process generally takes years and consumes
substantial capital resources with no assurance of ultimate success. We
cannot apply for FDA approval to market Esterom(R) solution until the
product successfully completes the required Phase III clinical trials.
Several factors may prevent our successful completion of the Phase III
clinical trials including:
* insufficient capital resources;
* inability to obtain the required number of patients to complete
the trials; and,
* insufficient proof that Esterom(R) solution is safe and
effective.
The regulatory approval processes differ among foreign jurisdictions
and approval in one jurisdiction does not ensure other approvals. As a
result, we may be required to undertake additional trials and incur
additional expense in order to obtain foreign approvals. Even if we
complete the trials, we may be unable to obtain FDA approval of Esterom(R)
solution. Failure to obtain FDA or foreign jurisdictional approval would
negatively impact our business. See "Our Business - Government Regulation"
beginning on page 19.
IF WE LOSE OUR ESTEROM(R) SOLUTION MANUFACTURER, WE WILL BE UNABLE TO BRING
ESTEROM(R) SOLUTION TO MARKET.
We are dependent upon Mallinckrodt, Inc., our sole supplier, to
provide us with cocaine as a raw material from which the active ingredients
in Esterom(R) solution are derived. If Mallinckrodt is unable or unwilling
to supply us, we may be unable to bring Esterom(R) solution to market. See
"Our Business - Outsourcing" on page 18.
OUR SUCCESS DEPENDS UPON ESTEROM(R) SOLUTION'S ACCEPTANCE BY PHYSICIANS,
INSURANCE COMPANIES AND THE PUBLIC.
Sales of Esterom(R)'s solution depend on acceptance of the product by
physicians, insurance companies who provide pharmaceutical coverage and the
public as an alternative to, or in combination with, other therapies for
the treatment of impaired range of motion associated with painful shoulder
and other conditions.
ESTEROM(R) SOLUTION'S CLASSIFICATION AS A CONTROLLED SUBSTANCE MAY LIMIT
SALES AND INCREASE COSTS.
As a controlled substance, Esterom(R) solution will be subject to
expensive and burdensome administrative requirements which will increase
our costs. Moreover, these administrative requirements may discourage
Esterom(R) solution's use and acceptance by the medical community. See
"Our Business - DEA Status" on page 21.
WE WILL BE DEPENDENT UPON THIRD PARTIES TO MARKET ESTEROM(R) SOLUTION.
We have no experience in the sale or marketing of pharmaceutical
products and will be dependent upon third parties to sell and market
Esterom(R) solution. If we are unable to enter into satisfactory marketing
arrangements, our sales will be adversely affected. See "Our Business -
Outsourcing" on page 18.
6
<PAGE>
IF WE ARE UNABLE TO DEFEND OUR ESTEROM(R) SOLUTION PATENTS OR IF OTHERS
DEVELOP SUBSTANTIALLY EQUIVALENT PRODUCTS, OUR BUSINESS COULD BE IMPACTED.
Our patents, trademarks and other intellectual property rights are
important to our success. Patent litigation can be extremely expensive and
time consuming. If we are unable to defend our existing patents or if
others develop similar products beyond the protection of our existing
patents, our business could be impaired. See "Our Business - Patents" on
page 19.
WE WILL BE EXPOSED TO PRODUCT LIABILITY CLAIMS.
We will be exposed to potential product liability claims which are
inherent in the testing, manufacturing, marketing and sale of
pharmaceutical products, and product liability claims may be asserted
against us. Product liability insurance for the pharmaceutical industry is
expensive. There can be no assurance that adequate insurance coverage will
be available to us at acceptable costs, or that a product liability claim
would not adversely affect our business or financial condition. See "Our
Business - Product Liability Insurance" on page 21.
A LARGE NUMBER OF OUR SHARES OF COMMON STOCK ARE ELIGIBLE FOR FUTURE SALE
WHICH COULD LOWER OUR MARKET PRICE.
Sales of common stock after the offering, or even the potential for
those sales, are likely to lower the market price of our common stock. In
addition, these sales may negatively affect our ability to raise needed
capital through the sale of our common stock. The table below indicates
the number of shares outstanding, the number of shares issuable upon
exercise of options, warrants and convertible securities and which of such
shares are free trading and restricted.
NUMBER OF
SHARES DESCRIPTION
7,382,280 Common stock currently outstanding
6,028,082 Free trading common stock outstanding
3,621,182 Common Stock issuable upon exercise of currently
outstanding options and warrants
2,000,000 Common stock issuable upon exercise of warrants
outstanding upon completion of offering
230,500 Common stock issuable upon conversion of Series B
convertible preferred stock
1,354,198 Common stock available for sale under Rule 144 of the
Securities Act
Other than 65,000 shares, all remaining 4,179,564 shares owned by our
directors, officers, and 5% or greater stockholders, and substantially all
of the shares underlying the outstanding options and warrants are subject
to lock-up agreements which expire one year after the date of this
prospectus unless released sooner upon the written consent of the
representatives. When the lock-up period expires, the 4,179,564 shares
subject to lock-up and the shares issuable upon exercise of options and
7
<PAGE>
warrants, and conversion of preferred stock will be eligible for sale which
will have a depressive effect on the market price of our common stock. See
"Shares Eligible for Future Sale" on page 34 and "Description of Securities
- - Other Options, Warrants and Convertible Securities" on page 33.
INVESTORS WILL EXPERIENCE DILUTION OF BOOK VALUE OF SHARES PURCHASED IN THE
OFFERING.
Net tangible book value per share at December 31, 1999 and prior to
the offering is $(.31) per share. Upon the sale of 2,000,000 shares of
common stock at $_____ per share, net tangible book value per share after
the offering will be $_____ per share, resulting in dilution of $_____ or
____% to investors in the offering. Current shareholders purchased their
shares at a price below the price of the shares being offered.
OUR CONTROL WILL NOT CHANGE AFTER THE OFFERING.
After the completion of this offering, the officers, directors and
other principal shareholders will continue to own a majority of our common
stock, and have voting control over us.
OUR STOCK HAS BEEN THINLY TRADED AND IS SUBJECT TO PRICE VOLATILITY.
Before this offering, our stock traded on the NASD OTC Bulletin Board.
Historically:
* our Company has not been covered by regular reports from
financial analysts of established standing;
* the limited amount and distribution of our stock has exacerbated
the effect of relatively small imbalances in supply and demand;
and
* the number of stock brokerage firms trading our common stock has
been limited.
Due to these factors, the trading price of our common stock could be
subject to wide fluctuations in response to quarterly variations in
operating results, changes in financial estimates by securities analysts,
announcements of technological innovations or new products by us or our
competitors or other factors. In addition, the stock market has
experienced extreme price and volume fluctuations that have particularly
affected the market prices for many biotechnology and small capitalization
companies.
OUR STOCK AND WARRANTS MAY BECOME SUBJECT TO "PENNY STOCK" RULES.
If our common stock were to trade for less than $5.00 per share, then
our common stock and warrants would each be considered a "penny stock"
under federal securities law. Additional regulatory requirements apply to
trading of penny stocks by broker-dealers. This could adversely effect the
trading market for our common stock and warrants.
8
<PAGE>
OUR WARRANTS CAN BE REDEEMED ON SHORT NOTICE.
At any time after one year following the date of this prospectus, we
can redeem the warrants for $0.25 per warrant on 30 days' written notice,
provided that the closing price of our common stock has been at least $___
for the ten consecutive trading days immediately preceding the notice of
redemption. If we give notice of redemption, a holder would be forced to
sell or exercise the warrants or accept the redemption price. See
"Description of Securities - Warrants" on page 31.
WE CAN ISSUE PREFERRED STOCK WITHOUT THE CONSENT OF OUR SHAREHOLDERS.
Our Board of Directors may issue shares of preferred stock without
stockholder approval on such terms as the Board may determine. The rights
of the holders of common stock will be subject to, and may be adversely
affected by, the rights of the holders of any preferred stock that we may
issue in the future. See "Description of Securities - Preferred Stock" on
page 33.
A CURRENT PROSPECTUS AND STATE BLUE SKY REGISTRATION IS REQUIRED BEFORE
PURCHASERS MAY EXERCISE THE WARRANTS.
Purchasers of our warrants will be able to exercise the warrants only
if a current prospectus relating to the common stock underlying the
warrants is then in effect, and only if our common stock is qualified for
sale or exempt from qualification under applicable state securities laws of
the states in which the holders of the warrants reside. Although we have
undertaken to maintain the effectiveness of a current prospectus covering
the common stock underlying the warrants, there can be no assurance that we
will be able to do so. The value of the warrants may be impaired if a
current prospectus covering the common stock issuable upon exercise of the
warrants is not kept effective, or if the common stock is not qualified or
exempt from qualification in the states in which the holders of warrants
reside. See "Description of Securities - Warrants" on page 31.
WE HAVE NO AGREEMENTS WITH OUR MANAGEMENT WHICH SECURE THEIR CONTINUING
SERVICE.
Our management members are employed at will. Therefore, a management
member may terminate employment at any time. See "Management" beginning on
page 23.
WE ENTERED TRANSACTIONS WITH RELATED PARTIES WHICH WERE NOT SUBJECT TO
INDEPENDENT DIRECTOR APPROVAL.
Past transactions with related parties were ratified by disinterested
directors and believed to be on terms at least as favorable as obtainable
from third parties. However, until recently, we did not have independent
directors. Future related party transactions will be subject to independent
director ratification. See "Related Party and Other Material Transactions"
beginning on page 30.
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<PAGE>
USE OF PROCEEDS
After payment of underwriting commissions and other expenses of the
offering, the net proceeds of the offering are estimated to be $________
million, or $______ million if the over allotment option is exercised. We
expect to use the net proceeds approximately as follows:
* Phase III clinical trials $ 55%
* New Drug Application for Esterom(R) $ 20%
solution
* Research and development of additional
applications of Esterom(R) solution $ 10%
* General office and administrative expenses
and working capital (includes salaries,
rent, travel, professional fees) $ 15%
There may be changes in our proposed use of proceeds due to changes in
our business. Proceeds not immediately needed will be invested in treasury
bills, insured bank deposits or similar investments. No proceeds will be
used to redeem preferred stock.
DIVIDEND POLICY
We have never declared or paid dividends on our common stock and do
not intend to pay dividends on our common stock in the foreseeable future.
Instead, we will retain any earnings to finance the expansion of our
business and for general corporate purposes. We are obligated to pay
dividends on our Series A and Series B preferred stock, although we may
elect to pay the dividends on the Series B preferred stock in shares of our
common stock. We have paid no dividends on our Series A preferred stock.
As of December 31, 1999 we have issued 24,550 shares of common stock as
dividends on our Series B preferred stock.
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PRICE RANGE OF OUR COMMON STOCK
Since February 25, 1998, our common stock has been traded on the NASD
OTC Bulletin Board under the trading symbol "ETOP". The following table
sets forth the high and low bid prices for the common stock for the
quarters indicated. Prices reflect bids posted by market makers and may
not necessarily reflect actual transactions.
Year ended December 31, 1998 High Bid Low Bid
- ---------------------------- -------- -------
First Quarter $3.375 $3.00
Second Quarter $7.875 $3.25
Third Quarter $7.50 $3.50
Fourth Quarter $4.75 $3.375
Year ended December 31, 1999
- ----------------------------
First Quarter $6.125 $3.00
Second Quarter $7.6875 $5.875
Third Quarter $6.3125 $5.1875
Fourth Quarter $6.875 $4.00
Year ended December 31, 2000
- ----------------------------
First Quarter (through February 28, 2000) $9.25 $6.75
On February 28, 2000, the closing bid price of the common stock on the
NASD OTC Bulletin Board was $7.625 per share. As of February 28, 2000,
there were 406 holders of record of our common stock.
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CAPITALIZATION
The following table sets forth as of December 31, 1999:
* our actual capitalization; and
* our proforma capitalization reflecting the sale of 2,000,000
shares and 2,000,000 warrants in the offering at the public
offering price of $______ per share and $______ per warrant, and
the use of the net proceeds of the offering.
<TABLE>
<CAPTION>
December 31, 1999
-----------------
Actual Pro forma
------ ---------
<S> <C> <C>
Redeemable preferred stock:
Series A: 3,210,487 shares issued and outstanding $ 3,210,487 $
Series B: 230,500 shares issued and outstanding 1,093,175
Stockholders' equity
Preferred stock, $.001 par value-- 10,000,000 shares
authorized, Series A and Series B outstanding ---
(reported above)
Common stock, $.001 par value-- 50,000,000 shares
authorized: 7,382,280 shares issued and outstanding
(actual), and 9,382,280 shares issued and outstanding 7,382
(proforma)
Additional paid-in capital 13,866,412
Deficit accumulated during the development stage (12,640,814)
Unearned stock compensation (3,218,293)
-----------
Total stockholders' equity (deficit) (1,985,313)
-----------
Total capitalization $ 2,318,349
===========
</TABLE>
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SELECTED FINANCIAL DATA
The following selected financial data should be read in conjunction
with "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and the Financial Statements and notes thereto. The
selected financial data as of December 31, 1998 and 1999, and for the years
then ended are derived from audited financial statements included in this
prospectus.
<TABLE>
<CAPTION>
Cumulative
amounts from
inception
through
STATEMENT OF OPERATIONS Years ended December 31, December 31,
DATA: ------------------------ ------------
1999 1998 1999
---- ---- ----
<S> <C> <C> <C>
Revenue $ -0- $ -0- $ -0-
Research and development 1,743,837 906,719 6,597,410
Other costs and expenses 3,195,425 1,857,908 5,920,654
------------ ------------ ------------
Net loss (4,939,262) (2,764,627) (12,518,064)
Accrued dividends applicable
to Series B preferred stock (119,300) (56,260) (175,560)
------------ ------------ ------------
Net loss applicable to
common shareholders $ (5,058,562) $ (2,820,887) $(12,693,624)
============ ============ ============
Basic and diluted net loss per
common share $ (.75) $ (.47) $ (2.36)
============ ============ ============
Weighted average number of
shares outstanding 6,749,000 5,968,000 5,374,000
============ ============ ============
</TABLE>
BALANCE SHEET DATA:
The unaudited proforma balance sheet data reflects the issuance of
securities in this offering.
Unaudited Pro
forma
December 31, December 31,
1999 1999
------------ ------------
Cash and cash equivalents $2,260,526 $
Working capital 1,937,721
Total assets 2,825,225
Total liabilities 506,876
Redeemable preferred stock 4,303,662
Stockholders' equity (deficit) (1,985,313)
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MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
We were incorporated in California in 1984 as Entropin, Inc. ("old
Entropin"), and in 1998, completed an agreement and plan of merger with
Vanden Capital Group, Inc. to exchange all of the issued and outstanding
common shares of old Entropin for 5,220,000 shares of Vanden's common
stock. We were merged into Vanden, and Vanden changed its name to Entropin,
Inc. For accounting purposes, the acquisition was treated as a
recapitalization of old Entropin based upon historical cost, with old
Entropin as the acquirer. In conjunction with the merger, Entropin, Inc.
became a Colorado corporation.
From our inception in August 1984, we have devoted our resources
primarily to funding our research and development efforts. We have been
unprofitable since inception and have had no revenue from the sale of
products or other resources, and do not expect revenue for the next two
years, or until Esterom(R) solution has received FDA approval. We expect
to continue to incur losses for the foreseeable future through the
completion of our Phase III clinical trials and the new drug application
process. As of December 31, 1999, our accumulated deficit was
approximately $12.6 million.
PLAN OF OPERATION
We have raised sufficient funds in 1999 to complete the first part of
a two part Phase III clinical trial program associated with the FDA
approval process for the treatment of acute painful shoulder. The trials
began in November 1999 and the first part is scheduled for completion in
mid-2000. We intend to use a substantial portion of the net proceeds of
our secondary offering to fund our Phase III clinical trials through our
new drug application process related to the treatment of acute painful
shoulder and to provide funds for research and development and working
capital. In the future, we plan to seek FDA approval to market Esterom(R)
solution for the treatment of impaired range of motion associated with
lower back pain, and identify and develop other medical applications for
Esterom(R) solution such as applications for arthritis and other joint
disorders. We intend to minimize our fixed costs by outsourcing clinical
studies, regulatory activities, manufacturing and sales and marketing. We
have engaged the services of a full-time chief executive officer and
president beginning November 29, 1999 which will increase our general and
administrative expenses.
RESULTS OF OPERATIONS
Year ended December 31, 1999 compared to year ended December 31, 1998.
Our research and development expenses were $1,743,837 for 1999, as compared
to $906,719 in 1998. The increase in research and development resulted
primarily from initiation of Phase III clinical trials, and approximately
$200,000 from non-cash compensation expenses associated with stock options
granted to Western Center for Clinical Studies (Western). Our general and
administrative expenses were $3,211,809 in 1999, as compared to $1,844,575
in 1998. The increase in general and administrative expenses relates
primarily to our preparation costs for the start of Phase III clinical
trials and fund raising activities. Moreover, the 1999 increase resulted
from an increase of approximately $1,200,000 in non-cash compensation
expense associated with stock options.
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<PAGE>
Our interest income was $64,888 in 1999, as compared to $24,738 in
1998. The increase was primarily a result of larger temporary cash
investment balances in 1999 from proceeds of private placements.
LIQUIDITY AND CAPITAL RESOURCES
We have financed our operations since inception primarily through the
net proceeds generated from the sale of our common and preferred stock, and
through loans and advances from stockholders that were subsequently
converted into equity securities. From inception through December 31, 1999,
we have received net cash proceeds from financing activities aggregating
approximately $6.8 million from these transactions. As of December 31,
1999, our working capital was $1,937,721.
Our liquidity and capital needs relate primarily to working capital,
research and development of Esterom(R) solution, and other general
corporate requirements. We have not received any cash from operations
since inception. Based on our current plans, we believe the proceeds from
our secondary offering will provide sufficient capital resources to fund
our operations for at least the next 20 months. Expectations about our
long-term liquidity may prove inaccurate if approval for Esterom(R)
solution is delayed or not obtained. We will not generate revenue from
sales of Esterom(R) solution unless Esterom(R) solution is approved by the
FDA for marketing.
Net cash used in operating activities was approximately $1,480,000 in
1998 and $1,617,000 in 1999. The cash used in operations was primarily
related to funding expansion of research and development activities as well
as establishing an administrative infrastructure. For the year ended
December 31, 1999, cash used in operating activities principally represents
the net loss for the period of $4,939,262 adjusted for non-cash stock
option compensation and an increase in accounts payable.
As of December 31, 1999, our principal source of liquidity was
approximately $2.3 million in cash and cash equivalents.
In April 1998, we entered into an agreement with Western to assist us
in obtaining FDA approval for Esterom(R) solution. We are required to pay
management fees of approximately $880,400 through January 5, 2001 and
$76,400 per quarter beginning January 2001 and continuing until a new drug
application is filed with the FDA. We also issued to Western stock options
to purchase 450,000 shares of our common stock at $1.50 per share.
In August 1999, we entered into an agreement with Therapeutic
Management, Inc. to provide us clinical trial management services and
monitor all aspects of Esterom's Phase III A and B clinical studies. In
November 1999, we entered into an agreement with Western to assume our
obligations under the Therapeutic Management Agreement. We will pay
Western approximately $350,000 based upon completion of certain project
goals.
In November 1999, we entered into an agreement with Western to assume
our obligations under our agreement with Therapeutic Management, Inc. to
perform tasks required to comply with FDA regulations applicable to the
conduct, coordination and management of the first Phase III trial. Among
other things, WCCS is to select investigators, train clinical site
personnel, maintain the master file of
15
<PAGE>
all pre-study and study documents, and prepare the Study Report to be
submitted to the FDA. We will pay Western approximately $350,000 based on
completion of certain project goals.
Our operating expenses will increase as we proceed with the two part
Phase III clinical trials through the new drug application and other
related FDA approval process. We also expect that our general and
administrative expenses will increase significantly with the addition of
our full time chief executive officer and president. The 20 month period
estimate for which we expect available sources of cash to be sufficient to
meet our funding needs is a forward looking statement that involves risks
and uncertainties as set forth under "Risk Factors" and elsewhere in this
prospectus. In the event our capital requirements are greater than
estimated, we may need to raise additional capital to fund our research and
development activities. Our future liquidity and capital funding
requirements will depend on numerous factors, including the timing of
regulatory actions for Esterom(R) solution, the cost and timing of sales,
marketing and manufacturing activities, the extent to which Esterom(R)
solution gains market acceptance, and the impact of competitors' products.
There can be no assurance that such additional capital will be available on
terms acceptable to us, if at all. If adequate funds are not available, we
may be forced to significantly curtail our operations or to obtain funds
through entering into collaborative agreements or other arrangements that
may be on unfavorable terms. Our failure to raise capital on favorable
terms could have a material adverse effect on our business, financial
condition or results of operations.
YEAR 2000 ISSUE
To date we have not experienced any material difficulties or incurred
significant expenditures in connection with Year 2000 issues. All of our
expenses have related to the opportunity cost of time spent by several of
our employees identifying and evaluating the Year 2000 compliance matters.
The agreements with Western and Therapeutic Management represent that their
software systems are Year 2000 compliant. We contacted all other major
vendors, suppliers, financial institutions and service providers to ensure
they are Year 2000 compliant. Key third party vendors provided a statement
in writing that their software or systems are Year 2000 compliant.
16
<PAGE>
OUR BUSINESS
Entropin is a development stage pharmaceutical company that has
developed Esterom(R) solution, a topical formulation for the treatment of
conditions involving impaired range of motion. Impaired range of motion
often accompanies injuries and disorders of the shoulder and lower back, as
well as other conditions affecting body joints. Esterom(R) solution is
derived from a process involving the chemical breakdown of cocaine into new
and different molecules, three of which have been patented by us. We have
completed four preclinical animal studies and Phase I and Phase II human
clinical trials for Esterom(R) solution. These trials indicated that
Esterom(R) solution was well tolerated and did not appear to have any
potential for addiction or abuse. Moreover, the range of motion with
patients in the Phase II trial suffering from shoulder and lower back
conditions was improved significantly when compared with patients receiving
a placebo. We began Phase III trials for treatment of impaired range of
motion due to shoulder injuries and functionality in November 1999. We
expect to complete our Phase III trials and submit a new drug application
to the FDA in early 2001.
Esterom(R) solution is derived through a manufacturing process
involving hydrolysis and solvolysis of cocaine in a propylene glycol and
water solution. Hydrolysis and solvolysis are chemical processes in which
a substance reacting with a solvent such as propylene glycol and water
solution, is changed into one or more other substances. Through this
process, we have identified three new molecules, derivatives of
benzoylecgonine, ecgonine and ecgonidine, which form the basis of our
formulation of Esterom(R) solution and are claimed under two of our eight
United States patents. A third United States patent claims a method for
preparing Esterom(R) solution.
REGULATORY HISTORY
In March 1987, we filed an investigative new drug application with the
FDA which incorporated the results of our four pre-clinical animal safety
studies in which no significant toxicity was noted. Our subsequent human
Phase I clinical safety trial for Esterom(R) solution was completed in
1991, and involved 24 healthy male subjects. The results of this trial
indicated that Esterom(R) solution was well tolerated and showed no
significant toxicity. Based on these results, the FDA allowed us to
initiate Phase II clinical efficacy and safety trials in 1992.
Our Phase II clinical trial, completed in 1994, was designed to
determine the safety and efficacy of Esterom(R) solution in patients who
had impaired range of motion due to acute lower back strain, acute painful
shoulder or the removal of a cast. The Phase II clinical trial involved 97
patients, each of whom received two topical applications of Esterom(R)
solution or placebo, with the second treatment applied 24 hours after the
first. The results of the trial showed that Esterom(R) solution provided
statistically significant improved range of motion in both back and
shoulder conditions which was sustained for at least seven days. There was
no clinically observed local anesthetic or analgesic effect. The range of
motion for each condition was measured by the number of degrees to which
the subject could move the affected part in one direction or another. The
results for patients who had impaired range of motion resulting from cast
removal were inconclusive and we did not pursue this indication further.
In 1996, we submitted our Phase III Protocol to the FDA, and a revised
Phase III Protocol in 1999. Our Phase III studies will include two trials
in multiple clinical study centers in differing
17
<PAGE>
geographic areas of the U.S. The trials will be double-blind and placebo-
controlled in which neither patient nor doctor will know whether the
patient receives Esterom(R) solution or placebo.
We began the first Phase III trial in November 1999 and we expect to
begin the second trial in several months. In each of the two studies 300
patients will be enrolled for a total of 600 patients. Of the 300 patients
in each study, 100 will receive single strength Esterom(R) solution, 100
double strength, and 100 placebo. The second trial has a longer patient
follow-up period than the first trial.
Our Phase III trials will test Esterom(R) solution for improved range
of motion and functionality associated solely with shoulder injuries.
Functionality involves a patient's ability to perform everyday functions,
such as hair combing or removing a pullover sweater. Subsequently, we
intend to seek FDA approval for treatment by Esterom(R) solution of lower
back sprain.
OUTSOURCING
In January 1997, we entered into an agreement with Mallinckrodt, Inc.,
the only company authorized by the Drug Enforcement Agency (DEA) to provide
cocaine for medical and research purposes, and to supply and manufacture
Esterom(R) solution. Due to federal restrictions, Esterom(R) solution
cannot be manufactured outside of the United States for sale in the United
States. Due to DEA licensing requirements, Mallinckrodt is our sole source
for cocaine and for producing Esterom(R) solution. In addition, our
agreement with Mallinckrodt provides that it will comply with the Good
Manufacturing Practices imposed by the FDA through its facilities
inspection program. In exchange for the services, Mallinckrodt was granted
the right to be our exclusive supplier in North America and a right of
first refusal to be our exclusive world-wide supplier.
In April 1998, we entered into an agreement with Western, to assist us
in administering the clinical trials necessary for obtaining FDA approval
of Esterom(R) solution. Daniel L. Azarnoff, M.D., a director of Entropin,
is a director of Western.
In August 1999, we entered into an agreement with Therapeutic
Management, Inc., a clinical research organization, to provide
comprehensive clinical trial management and monitor our first of two Phase
III clinical trials for Esterom(R) solution.
In November 1999, we entered into an agreement with Western to perform
and assume our obligations under our agreement with Therapeutic Management
for compliance with FDA regulations.
We do not intend to establish our own direct sales force to market
Esterom(R) solution. Instead, we are actively pursuing strategic
relationships with pharmaceutical companies to whom we can outsource the
marketing of Esterom(R) solution.
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<PAGE>
PATENTS
We hold eight U. S. patents issued between 1984 and 1998 with
expiration dates ranging from September 2001 to June 2014. These patents
include two material composition patents covering the molecules contained
in Esterom(R) solution that expire in 2012 and 2013. Our three initial
patents were based on methods of treatment of rheumatoid arthritis using
benzoylecgonine and related compounds. Our five subsequent patents include
compound, composition and method claims involving derivatives of the
compounds represented in the earlier patents. Since the formula for
Esterom(R) solution contains the derivatives protected by certain of the
subsequent patents, the expiration of the earlier patents in 2001 and 2002
will not permit a replication of Esterom(R) solution by a competitor. We
believe that some of the patents to which we have rights may be eligible
for extensions of up to five years.
In December 1993 we filed an International Patent Application under
the Patent Cooperation Treaty claiming compounds present in the Esterom(R)
formulation from which eight separate patent applications were derived --
Australia, Canada, Europe, Hungary, Japan, New Zealand, Norway and Poland.
In addition, we have filed patent applications in China, Israel, Mexico,
South Africa and Taiwan. From these foreign applications, nine patents
have been issued to date.
GOVERNMENT REGULATION
The research, development, testing, manufacturing, promotion,
marketing and distribution of drug products are extensively regulated by
government authorities in the United States and other countries. Drugs are
subject to rigorous regulation by the FDA in the United States and similar
regulatory bodies in other countries. The steps ordinarily required before
a new drug may be marketed in the United States, which are similar to steps
required in most other countries, include:
* Preclinical safety studies in animals and formulation studies and
the submission to the FDA of an Investigational New Drug (IND)
application for a new drug;
* Adequate and well-controlled clinical trials to establish the
safety and efficacy of the drug for each medical indication;
* The submission of a New Drug Application (NDA) to the FDA; and,
* FDA review and approval of the NDA.
Preclinical animal tests include laboratory evaluation of product
chemistry, stability, pharmaceutical properties and formulation, as well as
studies to prove the product is safe in animals. The results of
preclinical testing are submitted to the FDA as part of an NDA. The FDA
may halt proposed or ongoing clinical trials until it allows the trials to
continue under specified terms.
Clinical trials to support new drug applications are typically
conducted in three sequential phases. During Phase I safety studies, the
initial introduction of the drug on healthy human subjects, the drug is
tested to assess how the drug is handled in the body and the level of drugs
in the body over time, as well as side effects associated with increasing
doses.
19
<PAGE>
Phase II usually involves studies in a limited patient population to:
- assess the efficacy of the drug in specific, targeted indications;
- assess dosage tolerance and optimal dosage; and/or
- identify possible adverse effects and safety risks.
If a compound is found to be potentially effective and to have an
acceptable safety profile in Phase II evaluations, Phase III trials (also
called pivotal studies, major studies or advanced clinical trials) are
undertaken to further demonstrate clinical efficacy and to further test for
safety of the product within an expanded patient population at
geographically dispersed clinical study sites.
After successful completion of the required clinical testing, a NDA is
generally submitted. The FDA may request additional information before
accepting a NDA for filing, in which case the application must be
resubmitted with the additional information. Once the submission has been
accepted for filing, the FDA has 180 days to review the application and
respond to the applicant. The review process is often significantly
extended by FDA requests for additional information or clarification. The
FDA may refer the new drug application to an appropriate advisory committee
for review, evaluation and recommendation as to whether the application
should be approved, but the FDA is not bound by the recommendation of an
advisory committee.
If FDA evaluations of the new drug application and the manufacturing
facilities are favorable, the FDA may issue either an approval letter or an
approvable letter. An approvable letter will usually contain a number of
conditions that must be met in order to secure final approval of the new
drug application and authorization of commercial marketing of the drug for
certain indications. The FDA may refuse to approve the new drug
application or issue a not approvable letter, outlining the deficiencies in
the submission and often requiring additional testing or information.
The manufacturers of approved products and their manufacturing
facilities are subject to continual review and periodic inspections.
Because we intend to contract with third parties for manufacturing our
product, our control of compliance with FDA requirements will be more
complicated. In addition, identification of certain side effects or the
occurrence of manufacturing problems after any of our drugs are on the
market could cause subsequent withdrawal of approval, reformulation of the
drug, additional clinical trials, and changes in labeling of the product.
Outside the United States, our ability to market our products will
also be contingent upon receiving marketing authorizations from the
appropriate regulatory authorities. The foreign regulatory approval
process includes all of the risks associated with the FDA approval set
forth above. The requirements governing the conduct of clinical trials and
marketing authorization vary widely from country to country. At present,
foreign marketing authorizations are applied at a national level, although
within Europe procedures are available to companies wishing to market a
product in more than one European Union, or EU, member state.
Under a new regulatory system in the EU, marketing authorizations may
be submitted at either a centralized, a decentralized or a national level.
The centralized procedure is mandatory for the
20
<PAGE>
approval of biotechnology products and high technology products and
available at the applicant's option for other products. The centralized
procedure provides for the grant of a single marketing authorization that
is valid in all EU member states. The decentralized procedure is available
for all medicinal products that are not subject to the centralized
procedure. The decentralized procedure provides for mutual recognition of
national approval decisions, changes existing procedures for national
approval decisions and establishes procedures for coordinated EU actions on
products, suspensions and withdrawals. Under this procedure, the holder of
a national marketing authorization for which mutual recognition is sought
may submit an application to one or more EU member states, certify that the
dossier is identical to that on which the first approval was based or
explain any differences and certify that identical dossiers are being
submitted to all member states for which recognition is sought. Within 90
days of receiving the application and assessment report, each EU member
state must decide whether to recognize approval. The procedure encourages
member states to work with applicants and other regulatory authorities to
resolve disputes concerning mutual recognition. Lack of objection of a
given country within 90 days automatically results in approval of the EU
country.
We will choose the appropriate route of European regulatory filing to
accomplish the most rapid regulatory approvals. However, the regulatory
strategy may not secure regulatory approvals or approvals of the chosen
product indications. We intend to contract with an experienced third party
to assist with our European clinical development and regulatory approvals.
DEA STATUS
The DEA has designated Esterom(R) solution as a Schedule II controlled
substance. The manufacture, storage, shipment and use of a Schedule II
controlled substance is subject to costly and burdensome regulations. We
have submitted a petition to the DEA to delist Esterom(R) solution as a
Schedule II substance based on the data obtained in Phase I and II clinical
studies in human beings which indicated that Esterom(R) solution showed no
effects on the cardiovascular system and did not appear to cross the blood-
brain barrier. The petition is currently under review by the U.S. Attorney
General's office and the FDA. We do not expect a decision unless and until
Esterom(R) solution is approved for marketing by the FDA.
PRODUCT LIABILITY INSURANCE
Sales of Esterom(R) solution entails risk of product liability claims.
Medical testing has historically been litigious, and we face financial
exposure to product liability claims in the event that use of Esterom(R)
solution results in personal injury. We also face the possibility that
defects in the manufacture of Esterom(R) solution might necessitate a
product recall. There can be no assurance that we will not experience
losses due to product liability claims or recalls in the future. We
anticipate purchasing product liability insurance in reasonable and
customary amounts when we begin to sell Esterom(R) solution. Such
insurance can be expensive, difficult to obtain and may not be available in
the future at a reasonable cost or in sufficient amounts to protect us
against losses due to liability. An inability to maintain insurance at an
acceptable cost or to otherwise protect against potential product liability
could prevent or inhibit our commercialization of Esterom(R) solution.
Moreover, a product liability claim in excess of relevant insurance
coverage or product recall could have a material adverse effect on our
business, financial condition and results of operations.
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<PAGE>
ROYALTY COMMITMENTS
In connection with our acquisition of the rights to the three original
patents for Esterom(R) solution from non-affiliated parties, we agreed to
pay a royalty of approximately 1% of amounts paid to us from the sale of
Esterom(R) solution. We have agreed to pay a minimum royalty from actual
sales consisting of a front end payment of $40,000 and quarterly payments
of $3,572 which is accruing from December 1, 1989, less a credit to us for
50% of patent expenses we incur.
COMPETITION
To our knowledge, there are no products on the market which treat
impaired range of motion associated with injuries and disorders of the
shoulder and lower back. For these conditions, physicians often prescribe
steroidal drugs, non-steroidal anti-inflammatory drugs, pain relievers, and
muscle relaxants. While these products reduce discomfort, they generally
do not address impaired range of motion.
The pharmaceutical industry is characterized by intense competition
and is subject to rapid and significant technological change. Rapid
technological development may cause Esterom(R) solution and any other
products we develop to become obsolete before we can recoup all or any
portion of our development expenses. Our competitors include major
pharmaceutical companies, biotechnology firms, universities and other
research institutions, both in the United States and abroad, which are
actively engaged in research and development of products in the therapeutic
areas being pursued by us. Most of our competitors have substantially
greater financial, technical, manufacturing, marketing and human resource
capabilities than us. In addition, many of our competitors have
significantly greater experience in testing new or improved therapeutic
products and obtaining regulatory approvals of products. Accordingly, our
competitors may succeed in obtaining regulatory approval for their products
more rapidly than we are able to obtain approval for Esterom(R) solution.
If we commence significant commercial sales of our products, we will also
be competing with respect to manufacturing efficiencies and marketing
capabilities, areas in which we have no experience.
EMPLOYEES
We have one full time executive officer, Thomas G. Tachovsky, our
President and Chief Executive Officer and one full time administrative
employee. We have three part-time executive officers, Higgins D. Bailey,
Chairman of the Board and Secretary, Donald Hunter, Vice Chairman of the
Board and Treasurer and Wellington Ewen, Chief Financial Officer. We are
actively seeking a qualified individual to serve as a full-time Chief
Financial Officer.
PROPERTIES
We sublease 800 square feet of office space in Indio, California from
one of our principal stockholders, Thomas T. Anderson, for a monthly rent
of $800 on a month to month basis. We believe the lease is at or below
market price for comparable office space. Following this offering, we
intend to lease separate office space for our corporate headquarters in
Indio, California and terminate our current lease.
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<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table lists the names, ages and positions of our
executive officers and directors:
Name Age Position
---- --- --------
Thomas G. Tachovsky 52 President, Chief Executive Officer
and Director
Higgins D. Bailey 69 Chairman of the Board and Secretary
Donald Hunter 65 Vice Chairman of the Board and
Treasurer
Daniel L. Azarnoff 73 Director
James E. Wynn 57 Director
Wilson Benjamin 56 Director
Joseph R. Ianelli 61 Directr
Wellington A. Ewen 59 Chief Financial Officer
All members of the board of directors hold office until the next
annual meeting of shareholders and the election and qualification of their
successors, or until death, resignation or removal. Messrs. Benjamin and
Ianelli are independent directors. Officers serve at the discretion of the
Board of Directors. We are actively seeking an individual qualified to
serve as a full time Chief Financial Officer.
THOMAS G. TACHOVSKY, Ph.D. joined us as a director, President and
Chief Executive Officer in November 1999. Since June 1997 he has held a
series of interim senior management positions in development stage bio-
pharmaceutical companies including Redox Pharmaceuticals Corporation;
Novavax, Inc. and Paracelsian, Inc. From June 1995 to November 1997, he
was a director and executive vice-president of Protyde Pharmaceuticals,
Inc. From June 1991 to February 1998, he was general partner of MATCO &
Associates, a bio-pharmaceutical industry consulting firm for corporate
partnering, technology assessment and market valuation. He has held
business development positions with Cytogen Corporation and Creative
Biomolecules and was a research and development manager with Johnson &
Johnson. Dr. Tachovsky received a B.S. degree in biology from Gonzaga
University; a M.S. degree in management from Lesley College; and a Ph.D
degree in microbiology from the University of Rochester School of Medicine.
HIGGINS D. BAILEY, Ed.D. joined us as an officer and director in July
1992 and is currently our Chairman of the Board and Secretary. From July
1995 to December 1996, Dr. Bailey was 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. Since 1991, he has
served as the business manager for Thomas T. Anderson Law Firm, Indio,
California. Thomas T. Anderson is one of our principal stockholders. Dr.
Bailey
23
<PAGE>
received a B.A. degree in biology from Eastern Washington University, a
M.S. degree in program planning and personnel and a Ed.D. degree in
administration and management from the University of California, Berkeley,
California.
DONALD HUNTER joined us as a director and Secretary in February 1998.
In May 1999, he resigned as Secretary and was appointed as our Chief
Executive Officer and Treasurer. He served as Chief Executive Officer
until November 1999. Since 1994, Mr. Hunter has served as a consultant to
Entergy Corporation as well as other concerns dealing with mergers and
acquisitions and other business matters. From 1991 to 1994, he was senior
vice president of Entergy Corporation. Mr. Hunter received a B.S. degree
in chemical engineering from Purdue University and a M.S. degree in nuclear
engineering from Iowa State University.
DANIEL L. AZARNOFF, M.D. joined us as a director in February 1998 and
acted as our President on a part-time basis until April 1998. Since 1988,
Dr. Azarnoff has been 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. Since August 1998, Dr.
Azarnoff has held a clinical faculty position at Stanford University
Medical School. Prior to the time, he held faculty positions at the
University of Kansas Medical School, Northwestern University Medical
School, the University of Chicago Medical School and St. Louis University
School of Medicine. Dr. Azarnoff is a director of Amerimmune, Inc., a
publicly held pharmaceutical drug and development company. Since June
1999, he has served as Senior Vice President, Medical/Regulatory Affairs
for Cellegy Pharmaceutical, Inc. Dr. Azarnoff received a B.S. degree in
biology and a M.S. degree in zoology from Rutgers University and a M.D.
degree from the University of Kansas Medical School.
JAMES E. WYNN, Ph.D. joined us as a director in February 1998. Since
1977, Dr. Wynn has been a Professor and since September 1995, Assistant
Dean for Research at the Medical University of South Carolina. Prior to
that time, he held various other positions at the University, including
Chairman of the Department of Pharmaceutical Sciences, College of Pharmacy
and principal investigator for the Drug Bioequivalence Evaluation Program.
Dr. Wynn received a B.S. degree in pharmacy and a Ph.D. degree in medicinal
chemistry from the Medical College of Virginia, Virginia Commonwealth
University, Richmond, Virginia.
WILSON BENJAMIN joined us as a director in February 2000. Since 1992
he has been the President and Chief Executive Officer of Al Fawaris Co.
where he is responsible for Al Fawaris' investments and participation in
the management of certain of its portfolio companies. Since 1992 he has
also served as the Chairman of the Board of Directors and Chief Executive
Officer of ATO Ram 2 Ltd. where he is responsible for managing ATO's
operations and its investments in public and private companies in the
United States, Europe and the Persian Gulf States. Since 1999, he has been
the Chairman of the Board of Directors of Arab Commercial TV Co., a cable
television broadcasting company. Mr. Benjamin received a B.A. in business
administration from Al Hikma University in Baghdad, Iraq.
24
<PAGE>
JOSEPH R. IANELLI joined us as a director in February 2000. Since
January 1999 he has been the President and Chief Executive Officer of
PharmaConnect, Inc. responsible for design and development of an internet
website for physicians. Since January 1999 he has also been the President
and Chief Executive Officer of Renaissance Pharmaceuticals, Inc. a
development stage company involved in drug delivery technologies. From
1983 to January 1999 he served as the Senior Vice President of Business
Development for Astra U.S.A., Inc. where he was responsible for
acquisitions and licensing. At Astra, he served on the Executive Committee
and was a member of the Management Advisory Board. Mr. Ianelli received a
B.A. in Biology from Marist College, a M.A. in Biology from the State
University of New York and an M.B.A. from Iona College.
WELLINGTON A. EWEN, C.P.A., M.B.A has been the Company's Chief
Financial Officer since April 1998. From 1988 to the present, Mr. Ewen has
been the owner and manager of Wellington A. Ewen & Associates, a business
consulting firm in Malibu, California. He has acted as a financial and
accounting officer for various businesses during that time. Prior to
that, Mr. Ewen served as senior manager at the public accounting firms of
Coopers & Lybrand, Los Angeles, California and Arthur Andersen & Co., New
York, New York. Mr. Ewen is a C.P.A. in the states of New York and
California and has earned M.B.A. and B.S. degrees from Cornell University.
SCIENTIFIC AND MEDICAL ADVISORY BOARD
Our Board of Directors has established a Scientific and Medical
Advisory Board to advise and consult with us as may be requested by the
Board from time-to-time. We pay the members of our Scientific and Medical
Advisory Board $1,500 per meeting, as well as reimbursement for any
expenditures incurred on our behalf. In connection with their appointment
to the Scientific and Medical Advisory Board, in June 1998, each member was
also granted options to purchase 3,000 shares of our common stock,
exercisable at $1.50 per share, vesting at the rate of 1,000 shares per
year over a three year period. Currently, the Scientific and Medical
Advisory Board consists of the following:
ARTHUR HULL HAYES, JR., M.D., since 1991, has been Vice Chairman and
Medical Director, Nelson Communications, Inc. and the President of
MediScience Associates, Inc., the regulatory/medical consulting division of
Nelson Communications. From 1981 to 1983, Dr. Hayes was appointed the
Commissioner of the FDA during which time he was also Assistant Surgeon
General. He was named Provost and Dean at the New York Medical College
from 1983 to 1986, where he also served as Professor of Medicine and
Pharmacology from 1983 to 1999. From 1986 to 1991, Dr Hayes was the
president and chief executive officer and member of the board of directors
of EM Pharmaceuticals, Inc., a North American subsidiary of E. Merck,
Darmstadt, Germany. He is a Diplomate of the American Colleges of
Physicians, Cardiology, and Chest Physicians, the American Academy of
Pharmaceutical Physicians, the New York Academy of Medicine and the Royal
College of Medicine. He has published numerous scientific and public
policy articles.
GERHARD LEVY, Pharm.D., is University Distinguished Professor of
Pharmaceutics Emeritus (active) at the State University of New York at
Buffalo School of Pharmacy, where he has served since 1998. From 1958 to
date, Dr. Levy has authored over 550 publications. He has consulted for
the United States Food and Drug Administration and has consulted for the
World Health Organization.
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<PAGE>
He has received awards for scientific achievement and excellence, including
the first Lifetime Achievement in the Pharmaceutical Science Award of the
International Pharmaceutical Federation.
WILLIAM CHARLES MCMASTER, M.D., has been Clinical Professor in the
Department of Orthopeadic Surgery at the University of California, Irvine
since 1984. He also has a private practice in Orange, California. He is
a member of the American Orthopeadic Association and the American
Orthopedic Society for Sports Medicine. He has held numerous elected
offices in the California Orthopedic Association, the American Academy of
Orthopedic Surgery and the Western Orthopaedic Association. He is a fellow
of the American College of Surgeons and a founding member of the Society
for Biomaterials and Association for Arthritic Hip and Knee Surgery. Dr.
McMaster has published numerous publications and presentations in sports
medicine and orthopedic surgery.
LESTER A. MITSCHER, Ph.D. has been University Distinguished Professor,
Department of Medicinal Chemistry at the University of Kansas since 1975.
Dr. Mitscher has consulted with numerous pharmaceutical companies,
including Proctor and Gamble, Panax Laboratories, Abbott Laboratories, G.D.
Searle, Sandoz Laboratories, and DuPont Merck Labs over the last 31 years.
He served (1981 - 1984) as chairman of the Biological and Natural Products
Section of the National Institute of Health, chairman of the Hematology and
Chemotherapy Study Section of the American Cancer Society (1989 - 1994) and
chairman of the Cooperative Drug Screening Program of the International
Organization for Chemistry in Development, World Health Organization. Dr.
Mitscher has authored several books and over 235 original papers and book
chapters.
KENNETH LLOYD MELMON, M.D., has been Professor of Medicine and
Pharmacology since 1978 and is an Associate Dean for Postgraduate Medical
Education at the Stamford University School of Medicine. Dr. Melmon has
authored numerous original papers and book chapters. He has been a member
of the National Research Council of the Institute of Medicine (1990) the
Committee on Technological Innovation in Medicine of the National Academy
of Science (1990 - 1993) and the National Board of Medical Examiners.
(1989-1996).
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<PAGE>
SUMMARY COMPENSATION TABLE
The following table provides certain summary information concerning
compensation paid to our Chief Executive Officers for the calendar years
1998 and 1999. No officer was paid compensation for services in excess of
$100,000 per year for either year.
<TABLE>
<CAPTION>
Long Term
Compensation Awards
-------------------
Restricted
Annual Compensation Stock Options & Other
Name and Position Year Salary($) Bonus($) Awards SARs Compensation
- ----------------- ---- --------- -------- ------ ---- ------------
<S> <C> <C> <C> <C> <C> <C>
Thomas G. Tachovsky, 1999 22,051 -0- -0- 400,000 -0-
President and CEO
since 11/99(1)
Donald Hunter, 1999 -0- -0- -0- 277,500 -0-
CEO from 5/99 to 11/99(2)
Higgins D. Bailey, 1998 95,833 -0- -0- -0- -0-
Chairman and CEO from
1/98 until 9/98(3)
A. Thomas Tenenbaum, 1998 -0- -0- -0- -0- -0-
CEO until 1/15/1998
</TABLE>
__________________________________
(1) Dr. Tachovsky received options to purchase 400,000 shares of our common
stock at $5.00 per share of which 100,000 shares are exercisable upon
completion of the first Phase III trial; 150,000 shares upon submission of
the NDA and 150,000 shares upon approval of the NDA. The options expire
five years from the date they become exercisable.
(2) Mr. Hunter received options to purchase 217,500 shares of our common
stock at $4.00 per share, exercisable for five years from date of grant, as
compensation for services performed for us during the period of July 1,
1998 through November 30, 1999. In August 1999, we also granted Mr. Hunter
options to purchase 120,000 shares of our common stock, exercisable at
$4.00 per share for a period of five years, as a bonus for services rendered.
(3) Dr. Bailey's employment agreement terminated January 15, 1999. During
1999, Dr. Bailey received options to purchase 107,500 shares of our common
stock at $4.00 per share, exercisable for five years from date of grant, as
compensation for services performed for us during the period from January
15, 1999 through September 1, 1999. In August 1999, we also granted Dr.
Bailey options to purchase 120,000 shares of our common stock, exercisable
at $4.00 per share for a period of five years, as a bonus for services rendered.
OPTIONS GRANTED TO DIRECTORS AND EXECUTIVE MANAGEMENT
In 1998 our directors were granted a total of 240,000 options to
purchase common stock at $3.00 per share for a period of ten years. In 1998
and 1999 our executive management was granted a total of 610,000 options to
purchase common stock at $4.00 per share for a period of five years. In
1999 our Chief Executive Officer and President was granted 400,000 options
to purchase common stock at $5.00 per share. The options are subject to
vesting on performance standards being met and are exercisable for a period
of five years.
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<PAGE>
DIRECTOR COMPENSATION
Our directors do not receive cash compensation for services as
directors, although they are reimbursed for out-of-pocket expenses in
attending board of directors' meetings. Each non-salaried director
receives options to purchase 20,000 shares of our common stock for each
year of service as a director.
STOCK COMPENSATORY PLAN
In September 1998 our board of directors authorized an employee
stock-based compensation plan, the 1998 Stock Compensatory Plan, which
provides for the grant of options intended to qualify as "incentive stock
options" or "nonqualified stock options" within the meaning of Section 422
of the United States Internal Revenue Code of 1986 (the "Code"), as well as
stock bonus shares. Incentive stock options are issuable only to
employees. The purposes of the plan are to attract and retain the best
available personnel, to provide additional incentives to our employees, and
to promote the success of our business.
We have reserved 300,000 shares of common stock for issuance under the
plan, which is administered by the entire board of directors. Under the
plan, the board of directors determines which individuals will receive
options or bonus shares, the time period during which options may be
partially or fully exercised, the number of shares of common stock that may
be purchased under each option and the option price. Options granted under
the plan are generally exercisable for a period of ten years from the date
of grant at an exercise price not less than the fair market value of the
shares at the date of grant. Options granted under the plan generally vest
over a one to three year period from the date of the grant. To date, we
have issued 8,031 bonus shares for services and granted no options under
the plan.
NON-QUALIFIED STOCK OPTIONS GRANTED TO EXECUTIVE OFFICERS DURING 1999
The following table sets forth certain information regarding grants of
stock options to our Executive Officers who received stock options during
1999. The fair value of the option grant was estimated on the date of the
grant utilizing the Black-Scholes option pricing model with the following
assumptions: 51% to 100% volatility, five year life, risk free rate of
return of 5.5% to 6.2% and a 0% dividend yield. None of the following
options have been exercised.
<TABLE>
<CAPTION>
Number of % of Total
Securities Options Grant Date
Underlying Granted to Exercise Grant Present
Name Options Employees Price($) Date Value
---- ------- --------- -------- ---- -----
Granted
-------
<S> <C> <C> <C> <C> <C>
Higgins D. Bailey 217,500 25% $4.00 2/99 - $ 680,000
11/99
Donald Hunter 217,500 25% $4.00 2/99 - $ 680,000
11/99
Thomas G. Tachovsky 400,000 47% $5.00 11/99 $1,260,000
Wellington Ewen 20,000 2% $4.00 6/99 $ 60,000
</TABLE>
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<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding the
holdings of common stock (1) by each person who, as of February 28, 2000
holds of record or is known by us to hold beneficially or of record, more
than 5% of our common stock, (2) by each executive officer and director,
and (3) by all officers and directors as a group. The address of each
person is our address at 45926 Oasis Street, Indio, California 92201. The
beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and generally includes voting or
investment power with respect to securities. Shares of common stock
issuable on exercise of currently exercisable or convertible securities or
securities exercisable or convertible within 60 days after the date of this
prospectus are deemed beneficially owned and outstanding for computing the
percentage owned by the person holding such securities, but are not
considered outstanding for computing the percentage of any other person.
Percentage of Shares
Number of Beneficially Owned
Shares -------------------
Beneficially Before After
Name of Beneficial Owners Owned Offering Offering
- ------------------------- ----- -------- --------
Thomas G. Tachovsky -0-(1) 0.0 0.0
Higgins D. Bailey 1,711,593(2) 22.3 21.7
Thomas T. Anderson 1,404,093(3) 19.0 18.5
Caroline T. Somers 862,793 11.7 11.4
James E. Wynn 493,085(4) 6.7 6.5
Daniel L. Azarnoff 79,444(5) 1.1 1.0
Donald Hunter 548,000(6) 7.0 6.8
All directors and
executive officers as
a group (5 persons) 2,832,122 34.4 33.6
___________________
(1) Does not include up to 400,000 shares issuable upon exercise of stock
options, none of which are vested.
(2) Includes 1,404,093 shares owned in joint tenancy with Shirley A.
Bailey, the spouse of Dr. Bailey, and 307,500 shares that are issuable
upon exercise of stock options.
(3) Held of record by Dr. Bailey as security for a loan made by Mr. Bailey
to Mr. Anderson.
(4) Represents 433,085 shares which are owned in joint tenancy with Joyce
Wynn, the spouse of Dr. Wynn, 25,000 shares held solely by Joyce Wynn,
and 35,000 shares that are issuable upon exercise of stock options.
(5) Represents the following shares issuable upon exercise of stock
options: options to purchase 35,000 shares granted to Dr. Azarnoff;
and, options to purchase an aggregate of 133,332 shares granted to
Western Center for Clinical Studies, which are fully vested, of which
44,444 shares are attributable to Dr. Azarnoff who owns 1/3 of the
voting shares.
(6) Of these shares, 35,500 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 35,500 shares. In
addition, includes 432,500 shares that are issuable upon exercise of
stock options.
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<PAGE>
RELATED PARTY AND OTHER MATERIAL TRANSACTIONS
During 1996 and 1997, we were advanced an aggregate of $83,873 by
Higgins D. Bailey, our former President, current Chairman and a principal
stockholder. These advances were paid in full January 1998.
We sublease approximately 800 square feet of office space from Thomas
T. Anderson, one of our principal stockholders. The rent on the sublease
is $800 per month. We believe this is a competitive lease rate for similar
real estate in the area where the office is located.
On January 15, 1998, we converted $1,710,487 of long-term debt and
accrued interest incurred for cash advances and past services associated
with research and development into 1,710,487 shares of our redeemable 8%
non-voting, non-cumulative Series A Preferred Stock at $1.00 per share.
The debt was owed to Higgins D. Bailey, Thomas T. Anderson and Lowell Somers.
We owed Dr. James E. Wynn $1,500,000 for research and development
services provided from 1984 through 1997 as evidenced by an 8% Note due
December 31, 2000. In January 1998 we converted this obligation to
1,500,000 shares of our non-voting, non-cumulative redeemable 8% Series A
preferred stock, valued at $1.00 per share. In addition, in December 1997,
certain of our stockholders contributed shares of our common stock to Dr.
Wynn for research and development services (259,042 shares valued at
$712,000, or $2.75 per share). The expense and related capital
contributions were reflected at December 31, 1997. Dr. Wynn was
subsequently appointed one of our directors in February 1998.
In January 1998, we granted Dr. Wynn a non-exclusive right for three
years to develop both improved products and new products from our
proprietary and confidential information. Improved products are those that
contain the same active ingredients as Esterom(R) solution, but that are
formulated differently. New products are those which are developed from
cocaine or a derivative and are separately patentable. We will have all
rights to the improved and new products. Dr. Wynn will receive a two
percent royalty on the net commercial sales of any improved products he
develops. The royalty percentage on any new products he develops is to be
determined through negotiation. If agreement is not reached, the royalty
is to be determined by an arbitrator with pharmaceutical industry experience.
In April 1998 we entered into an agreement, as amended July 21, 1999,
with Western to assist us in completing the Phase III study and new drug
application phase for FDA approval of Esterom(R) solution for limited range
of motion associated with shoulder injuries and disorders. We are paying
$880,400 over the period from April 1998 through January 5, 2001, and
$76,400 per quarter commencing January 2001 and continuing until NDA
submission. We also granted Western options to purchase an aggregate of
450,000 shares of our common stock at $1.50 per share for a term of five
years. The options vest at various times based upon performance. Daniel
L. Azarnoff, M.D., a director of Entropin is also a director of Western.
30
<PAGE>
In November 1999, we entered into an agreement with Western to assume
our obligations under our agreement with Therapeutic Management, Inc. to
perform tasks required to comply with FDA regulations applicable to the
conduct, coordination and management of the first Phase III trial. Among
other things, WCCS is to select investigators, train clinical site
personnel, maintain the master file of all pre-study and study documents,
and prepare the Study Report to be submitted to the FDA. We will pay
Western approximately $350,000 based on completion of certain project goals.
These transactions are believed to be as favorable as obtainable from
third parties and were approved by directors who did not have an interest
in the transactions. However, at the time of the transactions we did not
have any independent disinterested directors to ratify the transactions.
All future material related party transactions and loans will be made or
entered into on terms that are no less favorable than those that can be
obtained from non-related third parties. In addition, all future material
related party transactions and loans, and any forgiveness of loans, must be
approved by a majority of our independent directors who do not have an
interest in the transactions and who have access, at our expense, to our
legal counsel or to independent legal counsel.
DESCRIPTION OF SECURITIES
Our authorized capital stock consists of 50,000,000 shares of common
stock, $.001 par value per share, and 10,000,000 shares of preferred stock,
$.001 par value per share.
COMMON STOCK
At February 28, 2000 there were 7,382,280 shares of common stock
outstanding held of record by 406 stockholders. Each share of common stock
is entitled to one vote on all matters submitted to a vote of the
stockholders, and cumulative voting is not permitted. Upon issuance,
shares of common stock are not subject to further assessment or call.
Subject to the prior rights of any series of preferred stock that may be
issued by us, holders of common stock are entitled to receive ratably such
dividends that may be declared by the board of directors out of funds
legally available therefor and are entitled to share ratably in all assets
remaining after payment of liabilities in the event of our liquidation,
dissolution or winding up. Holders of common stock have no preemptive
rights or rights to convert their common stock into any other securities.
All outstanding shares of common stock are, and all shares of common stock
to be outstanding upon completion of this offering will be, fully paid and
nonassessable.
WARRANTS
Each warrant will entitle the holder to purchase one share of common
stock at an exercise price of $______ per share (150% of the initial public
offering price of the shares). The warrants will generally be exercisable
at any time for five years after the date of this prospectus, unless
earlier redeemed. The warrants are redeemable by us, at a price of $0.25
per warrant:
* upon 30 days' prior written notice;
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<PAGE>
* no earlier than one year from the date of this prospectus; and then
* only if the closing bid price of the common stock equals or
exceeds $______ (200% of the initial public offering price of the
shares), per share for the 10 consecutive trading days
immediately preceding the date of notice of redemption.
If we give notice of our intention to redeem, a holder must either:
* sell or exercise the warrants before the date specified in the
redemption notice; or
* accept the redemption price.
The warrants will be issued in registered form under a warrant
agreement between us and Corporate Stock Transfer, Inc., as warrant agent.
The shares of common stock underlying the warrants, when issued upon
exercise of a warrant, will be fully paid and nonassessable. We will pay
any transfer tax incurred as a result of the issuance of common stock to
the holder upon its exercise.
The warrants contain provisions that protect the holders against
dilution by adjustment of the exercise price. These adjustments will occur
if there is a merger, stock split or reverse stock split, stock dividend or
recapitalization and they could occur in other situations. We are not
required to issue fractional shares upon the exercise of a warrant. The
holder of a warrant will not possess any rights as our shareholder until he
or she exercises the warrant.
A warrant may be exercised by surrendering the warrant certificate
* on or before the expiration or redemption date of the warrant at
the offices of the warrant agent; with
* the form of "Election to Purchase" on the reverse side of the
warrant certificate completed and executed as indicated; and
* payment of the exercise price by certified or bank check payable
to the order of Entropin, Inc. for the number of shares for to
which the warrant is being exercised.
In order for a holder to exercise the warrants, there must be
* a current registration statement in effect with the Securities
and Exchange Commission; and,
* qualification in effect under applicable state securities laws or
applicable exemptions from state qualification requirements, with
respect to the issuance of common stock or other securities
underlying the warrants.
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<PAGE>
We have agreed to use all commercially reasonable efforts to cause a
registration statement with respect to such securities under the Securities
Act to be filed and to become and remain effective in anticipation of and
before the exercise of the warrants and to take such other actions under
the laws of various states as may be required to cause the sale of common
stock or other securities upon exercise of warrants to be lawful. We will
not be required to honor the exercise of warrants if, in the opinion of our
board of directors with the advice of counsel, the sale of securities upon
exercise would be unlawful.
For the life of the warrants, the holders have the opportunity to
profit from a rise in the market price of the common stock without assuming
the risk of ownership of the shares of common stock underlying the
warrants. The warrant holders may be expected to exercise their warrants
at a time when we would, in all likelihood, be able to obtain any needed
capital by an offering of common stock on terms more favorable than those
provided for by the warrants. Furthermore, the terms on which we could
obtain additional capital during the life of the warrants may be adversely
affected.
OTHER OPTIONS, WARRANTS AND CONVERTIBLE SECURITIES
We have outstanding options and warrants to purchase an aggregate of
3,621,182 shares of our common stock, at exercise prices ranging from $1.50
to $5.00 per share and expiration dates ranging from July 2004 to February
2008. Additionally, there are 230,500 shares issuable upon conversion of
the Series B preferred stock.
PREFERRED STOCK
Our Board of Directors has the authority, without further action by
the stockholders, to issue up to 10,000,000 shares of preferred stock in
one or more series and to fix the powers, designations, preferences and
relative, participation, option or other rights thereof, including dividend
rights, conversion rights, voting rights, redemption terms, liquidation
preferences, sinking fund terms and the number of shares constituting any
series. The issuance of preferred stock in certain circumstances may have
the effect of delaying, deferring or preventing a change in control of our
company, may discourage bids for our common stock at a premium over the
market price of the common stock, and may adversely affect the market price
of, and the voting and other rights of the holders of the common stock.
Our Board of Directors has designated 3,210,487 shares of preferred
stock as Series A redeemable non-voting preferred stock, of which all were
issued to four holders of record in exchange for our promissory notes and
deferred compensation. Series A preferred stock is designated as
redeemable eight (8%) percent non-cumulative non-voting preferred stock and
redeemable only from 20% of annual "Earnings", but not to exceed "Net Cash
Flow from Operating Activities" as those terms are defined under GAAP. The
Series A preferred stock will be automatically canceled on January 16,
2005, if not fully redeemed within that time period.
Our Board of Directors has designated 400,000 shares of preferred
stock as convertible Series B redeemable non-voting preferred stock, of
which 245,500 shares were issued and 230,500 shares remain outstanding held
by 33 holders of record. Series B preferred stock is designated as redeemable
33
<PAGE>
ten (10%) percent cumulative non-voting preferred stock with $.001 par
value and convertible on a one for one basis into common stock. At our
election, annual dividends may be paid in cash and/or in shares of our
common stock, at the rate of one share of common stock for each $5.00 in
accrued dividends. We may redeem at any time, in whole or in part based
on a pro rata basis with other holders of the Series B preferred stock, the
outstanding Series B preferred stock upon 30 days' notice at $5.00 per
share plus accrued and unpaid dividends from the date of issuance up to the
expiration date. All issued and outstanding Series B preferred stock must
be redeemed in full on or before July 15, 2003.
We will not offer preferred stock to officers, directors or holders of
5% or more of our securities except on the same terms as offered to all
other existing shareholders or new shareholders, or unless the issuance of
preferred stock is approved by a majority of our independent directors who
do not have an interest in the transaction and who have access, at our
expense, to our legal counsel or to independent legal counsel.
STOCK TRANSFER AGENT
Corporate Stock Transfer, Inc., Denver, Colorado is our transfer
agent. The transfer agent's address is 3200 Cherry Creek Drive South,
Suite 430, Denver, Colorado 8020, and its telephone number is (303) 282-4800.
LIMITATIONS ON DIRECTORS' AND OFFICERS' LIABILITY
Our Amended Articles of Incorporation limit the liability of directors
to stockholders for monetary damages for breach of a fiduciary duty except
in the case of liability: (i) for any breach of their duty of loyalty to us
or our stockholders; (ii) for acts or omissions not in good faith or which
involve intentional misconduct or a knowing violation of law; (iii) for
unlawful distributions as provided in Section 7-108-403 of the Colorado
Business Corporation Act; or (iv) for any transaction from which the
director derived an improper personal benefit.
Our Articles of Incorporation and Bylaws provide for the
indemnification of our directors and officers to the maximum extent
permitted by law, including Section 7-109-102 of the Colorado Business
Corporation Act, against all liability and expense (including attorneys'
fees) incurred by reason of the fact that the officer or director served in
such capacity, or in a certain capacity for another entity at our request.
Section 7-109-102 of the Colorado Business Corporation Act provides
generally for indemnification of directors against liability incurred as a
result of actions, suits or proceedings if they acted in good faith and in
a manner they reasonably believed to be in or not opposed to our best interests.
SHARES ELIGIBLE FOR FUTURE SALE
We presently have outstanding 7,382,280 shares of common stock of
which 6,028,082 shares are free trading. However, we entered into lock-up
agreements with our officers and directors and 5% stockholders which,
except for 65,000 shares, requires that all remaining 4,184,621 shares of
common stock owned by such persons may not be sold for a period of one year
following the date of this prospectus without the prior written consent of
the representatives.
34
<PAGE>
We have agreed to register 711,200 shares of common stock under the
Securities Act of 1933, on behalf of certain stockholders. We may be
required to file a registration statement as soon as practicable from the
date of the closing of this offering, at our expense, under the Securities
Act, with respect to these shares of common stock, and to use our best
efforts to effect the registration, subject to some conditions and
limitations. At such time as these shares may be registered, they will be
free trading. If we propose to register any of our securities under the
Securities Act, either for our own account or for the account of other
security holders, the holders of registration rights will be entitled to
notice of the registration and will be entitled to include, at our expense,
their shares in the registration
We have issued 1,354,198 shares of common stock which are "restricted"
shares subject to restrictions upon resale under Rule 144 under the
Securities Act. In general, under Rule 144, as currently in effect, any
person (or persons whose shares are aggregated), including persons deemed
to be affiliates, whose restricted securities have been fully paid for and
held for at least one year from the later of the date of payment therefor
to us or acquisition thereof from an affiliate, may sell such securities in
brokers' transactions or directly to market makers, provided that the
number of shares sold in any three month period may not exceed the greater
of 1% of the then outstanding common stock or the average weekly trading
volume of the common stock during the four calendar weeks preceding such
sale. Sales under Rule 144 are also subject to certain notice requirements
and the availability of current public information about us. After two
years have elapsed from the later of the issuance of restricted securities
by us or their acquisition from an affiliate, such securities may be sold
without limitation by persons who are not affiliates under Rule 144. The
1,354,198 shares of restricted stock become eligible for sale at various
times during the period April through September 2000, with 35,500 shares
subject to the lock-up agreement described above.
Sales of substantial amounts of common stock by our stockholders under
Rule 144 or otherwise, or even the potential for such sales, are likely to
have a depressive effect on the market price of the shares of common stock
and warrants and could impair our ability to raise capital through the sale
of our equity securities.
UNDERWRITING
The underwriters named below for whom Neidiger, Tucker, Bruner, Inc.
and Westport Resources Investment Services, Inc. are acting as
representatives, have severally agreed, under the terms and conditions of
an underwriting agreement with us and the underwriters, to purchase from
us, and we have agreed to sell to them, the number of shares and warrants
set forth in the table below at the prices set forth on the cover page of
this prospectus.
Underwriters Number of Shares Number of Warrants
------------ ---------------- ------------------
Neidiger, Tucker, Bruner, Inc.
Westport Resources Investment
Services, Inc.
TOTAL
35
<PAGE>
If any shares and warrants are purchased, the underwriters are
committed to purchase all of the 2,000,000 shares and warrants offered by
this prospectus, but not the 300,000 shares and the 300,000 warrants
subject to the over-allotment option. The underwriting agreement also
provides that if an underwriter defaults, the purchase commitments of the
non-defaulting underwriters may be increased or this offering may be
terminated.
Once the underwriters have purchased the shares and warrants at the
public offering prices of $______ per share and $______ per warrant less
the 8% underwriting discount, they will offer the shares and warrants in
units consisting of one share and one warrant to the public at the public
offering prices and to other broker-dealers who are members of the selling
group at that price minus a concession of $______ per share and $______ per
warrant. The underwriters and selling group members may allow a discount
of $______ per share and $______ per warrant on sales to other broker-
dealers, including the underwriters. After the public offering of the
shares and warrants, the public offering price, the concessions to selling
group members and the discount to other broker-dealers may be changed by
the representatives.
We have granted the underwriters an option, expiring at the close of
business 45 days after the date of this prospectus, to purchase up to
300,000 additional shares and 300,000 additional warrants from us on the
same terms as apply to the sale of the shares and warrants set forth above.
The underwriters may exercise the option only to cover over-allotments
incurred in the sale of the shares and warrants.
The representatives have informed us that they do not expect the
underwriters to confirm sales of shares and warrants on a discretionary basis.
The following table summarizes the discounts and estimated expenses
that we will pay to the underwriters:
<TABLE>
<CAPTION>
TOTAL
--------------------
PER PER WITHOUT
--- --- WITH OVER- OVER-
SHARE WARRANT ALLOTMENT ALLOTMENT
----- ------- --------- ---------
<S> <C> <C> <C> <C>
Underwriting discounts and commissions
(8% of the offering price). . . . . . . . . .
Nonaccountable expense allowance
payable by us (3% of the offering price). . .
</TABLE>
We have also agreed to issue to the representatives warrants that
entitle the holder to purchase up to 200,000 shares at an exercise price of
$______ per share and to purchase up to 200,000 warrants to purchase
200,000 shares at $______ per share. The representatives' warrants may not
be exercised for at least one year and will be restricted from sale,
transfer, assignment, or hypothecation for a period of five years from the
effective date of the offering, except to officers or partners (not
directors) of the representatives and members of the selling group and/or
their officers or partners. The representatives' warrants are not
redeemable by us. We have agreed to maintain an effective registration
statement
36
<PAGE>
with respect to the issuance of the securities underlying the
representatives' warrants, if necessary, to allow their public resale
without restriction, at all times during the period in which the
representatives' warrants are exercisable, beginning one year after the
date of this prospectus. Such securities are being registered on the
registration statement of which this prospectus is a part.
The underwriting agreement provides for indemnification between us and
the underwriters against some liabilities, including liabilities under the
Securities Act of 1933 and for contribution by us and the underwriters to
payments that may be required to be made in respect of those liabilities.
Insofar as indemnification for liabilities under the Securities Act may be
permitted to our directors, officers and controlling persons under the
agreement between us and the underwriters, or otherwise, we have been
advised that in the opinion of the SEC this indemnification is against
public policy as expressed in the Securities Act and is, therefore,
unenforceable.
We have agreed that, for a period of one year following the completion
of this offering, we generally will not offer, sell, contract to sell,
grant any option for the sale or otherwise dispose of any of our common
stock without the consent of the representatives. Our officers, directors
and the holders of 5% or more of our outstanding common stock (aggregating
4,184,621 shares) have agreed that for a period of one year following the
date of this prospectus, they will not offer, sell, contract to sell, grant
any option for the sale or otherwise dispose of any of our common stock,
other than intra-family transfers or transfers to trusts for estate
planning purposes, without the consent of the representatives, which will
not be unreasonably withheld.
We have applied for listing of our common stock and warrants on the
Nasdaq SmallCap Market. If listing is approved, our common stock will
trade under the symbol "ETOP" and our warrants will trade under the symbol
"ETOPW".
Prior to this offering, our common stock has traded on the NASD OTC
Bulletin Board and there has been no public market for our warrants. Stock
that trades on the OTC Bulletin Board can experience a relatively inactive
trading market, or low trading volume, high volatility and/or trading
prices that may not bear any reasonable relationship to the financial
condition or book value of the company.
We can offer no assurances that the public offering price will
correspond to the price at which the common stock and warrants will trade
in the public market subsequent to the offering or that an active trading
market for the common stock and warrants will develop and continue after
the offering.
The representatives on behalf of the underwriters may engage in over-
allotment, stabilizing transactions, syndicate covering transactions and
penalty bids in accordance with Regulation M under the Securities Exchange
Act of 1934.
* Over-allotment involves syndicate sales in excess of the offering
size, which creates a syndicate short position.
* Stabilizing transactions permit bids to purchase the underlying
security so long as the stabilizing bids do not exceed a
specified maximum.
37
<PAGE>
* Syndicate covering transactions involve purchases of the common
stock and warrants in the open market after the distribution has
been completed in order to cover syndicate short positions.
* Penalty bids permit the representatives to reclaim a selling
concession from a syndicate member when the shares and warrants
originally sold by the syndicate member are purchased in a
syndicate covering transaction to cover syndicate short
positions.
These stabilizing transactions, syndicate covering transactions and
penalty bids may cause the price of the common stock and warrants to be
higher than it would otherwise be in the absence of such transactions.
These transactions may be effected on the Nasdaq SmallCap Market or
otherwise and, if commenced, may be discontinued at any time.
LEGAL MATTERS
Certain legal matters with respect to the validity of the common stock
and the warrants to purchase common stock offered hereby will be passed
upon for us by Brenman Bromberg & Tenenbaum, P.C., Denver, Colorado.
Members of the firm of Brenman Bromberg & Tenenbaum, P.C. own 59,855 shares
of our common stock. A. Thomas Tenenbaum, a director of Brenman Bromberg
& Tenenbaum, P.C., was our CEO prior to our merger with old Entropin. The
Law Office of Gary A. Agron, Englewood, Colorado has acted as counsel to
the representatives in connection with this offering.
EXPERTS
The financial statements for the years ended December 31, 1999 and
1998, and for the period from August 27, 1984 (inception) to December 31,
1999, included in this prospectus and Registration Statement have been
audited by Causey Demgen & Moore Inc., independent auditors, as set forth
in their report thereon appearing elsewhere herein, and are included in
reliance upon such report given upon the authority of such firm as experts
in accounting and auditing.
ADDITIONAL INFORMATION
We have filed with the SEC a registration statement on Form SB-2 under
the Securities Act with respect to the shares and warrants offered. This
prospectus omits some information contained in the registration statement
and the exhibits, as permitted by the rules and regulations of the SEC. For
further information with respect to us and our securities, you should
review the registration statement and its exhibits, which may be inspected,
without charge, at the Public Reference Section of the SEC at Room 1024,
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the
regional office of the SEC located at 7 World Trade Center, Suite 1300, New
York, NY 10048. Copies of all or any portion of the Registration
Statement may be obtained from the Public Reference Section of the SEC,
upon payment of prescribed fees. The SEC maintains a World Wide Web site
that contains reports, proxy and information statements and other
information about registrants that file electronically with the SEC,
including the registration statement. The address of the SEC's World Wide
Web site is http://www.sec.gov.
38
<PAGE>
ENTROPIN, INC.
INDEX TO FINANCIAL STATEMENTS
AUDITED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1999:
Report of Independent Certified Public Accountants F-2
Balance Sheets as of December 31, 1998 and 1999 F-3
Statements of Operations for Years Ended December 31, 1998
and 1999, and for the Period from August 27, 1984 (Inception)
Through December 31, 1999 F-5
Statements of Changes in Stockholders' Equity (Deficit)
For the Period from August 27, 1984 (Inception) Through
December 31, 1999 F-6
Statements of Cash Flows For Years Ended December 31, 1998
and 1999, and for the Period from August 27, 1984 (Inception)
Through December 31, 1999 F-9
Notes to Financial Statements December 31, 1998 and 1999 F-11
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, 1998 and 1999, 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, 1999. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our 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, 1998 and 1999 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, 1999, in conformity with generally accepted
accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company is in the development stage and has been
primarily involved in research and development activities, resulting in
significant losses and an accumulated deficit at December 31, 1999 of
$12,640,814 These conditions raise substantial doubt about its ability to
continue as a going concern. Management's plans regarding those matters also
are described in Note 1. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
Denver, Colorado CAUSEY DEMGEN & MOORE INC.
February 4, 2000
F-2
<PAGE>
ENTROPIN, INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEET
December 31, 1998 and 1999
ASSETS
1998 1999
---- ----
Current assets:
Cash and cash equivalents $ 445,333 $2,260,526
Property and equipment, at cost:
Leasehold improvements 72,187 61,437
Office furniture and equipment 15,518 23,855
---------- ----------
87,705 85,292
Less accumulated depreciation (5,006) (23,429)
----------- -----------
Net property and equipment 82,699 61,863
Other assets:
Deposits 12,261 12,261
Deferred stock offering costs (Note 5) - 169,425
Patent costs, less accumulated amortization of
$59,600 (1998) and $82,019 (1999) 295,316 321,150
---------- ----------
Total other assets 307,577 502,836
---------- ----------
$ 835,609 $ 2,825,225
========== ===========
See accompanying notes.
F-3
<PAGE>
ENTROPIN, INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEET
December 31, 1998 and 1999
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
1998 1999
---- ----
Current liabilities:
Accounts payable $ 59,141 $ 199,042
Accounts payable - related parties 11,314 123,763
---------- ----------
Total current liabilities 70,455 322,805
Deferred royalty agreement (Note 7) 169,783 184,071
Commitments and contingencies (Notes 1 and 7)
Series A redeemable preferred stock,
$.001 par value; 3,210,487 shares
authorized, issued and outstanding,
$1 per share redemption value (Note 4) 3,210,487 3,210,487
Series B redeemable convertible preferred stock,
$.001 par value; 400,000 shares authorized,
245,500 (1998) and 230,500 (1999) shares
issued and outstanding, $5.00 per share
redemption value (Note 4) 1,142,750 1,093,175
Stockholders' equity (deficit) (Note 5):
Preferred stock, $.001 par value; 10,000,000
shares authorized, Series A and B reported
above - -
Common stock, $.001 par value; 50,000,000 shares
authorized, 6,000,051 (1998) and 7,382,280
(1999) shares issued and outstanding 6,000 7,382
Additional paid-in capital 7,474,210 13,866,412
Deficit accumulated during the development stage (7,578,802) (12,640,814)
Unearned stock compensation (3,659,274) (3,218,293)
---------- ----------
Total stockholders' equity (deficit) (3,757,866) (1,985,313)
---------- ----------
$ 835,609 $2,825,225
========== ==========
See accompanying notes.
F-4
<PAGE>
ENTROPIN, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF OPERATIONS
For the Years Ended December 31, 1998 and 1999
and for the Period from August 27, 1984 (Inception) through December 31, 1999
Cumulative
amounts from
1998 1999 inception
---- ---- ------------
Costs and expenses:
Research and development (Note 5) $ 906,719 $ 1,743,837 $ 6,597,410
General and administrative (Note 5) 1,844,575 3,211,809 5,626,639
Rent-related party (Note 2) 12,314 6,000 18,314
Depreciation and amortization 24,306 40,842 122,516
----------- ----------- ------------
Operating loss (2,787,914) (5,002,488) (12,364,879)
Other income (expense):
Interest income 24,738 64,888 89,626
Interest expense (1,451) (1,662) (242,811)
----------- ----------- ------------
Total other income (expense) 23,287 63,226 (153,185)
----------- ----------- ------------
Net loss (Note 3) (2,764,627) (4,939,262) (12,518,064)
Accrued dividends applicable to Series
B preferred stock (Note 4) (56,260) (119,300) (175,560)
----------- ----------- ------------
Net loss applicable to common share-
holders $(2,820,887) $(5,058,562) $(12,693,624)
Basic net loss per common share
(Note 6) $ (.47) $ (.75) $ (2.36)
=========== ========== ============
Weighted average common shares
outstanding (Note 6) 5,968,000 6,749,000 5,374,000
=========== ========= ============
See accompanying notes.
F-5
<PAGE>
<TABLE>
ENTROPIN, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
For the Period from August 27, 1984 (Inception) through December 31, 1999
<CAPTION>
Deficit
accumulated
Additional Unearned during the
Common stock paid-in Stock stock development
Shares Amount capital subscriptions compensation stage
------ ------ ---------- ------------- ------------ ------------
<S> <C> <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)
</TABLE>
(Continued on following page)
See accompanying notes.
F-6
<PAGE>
<TABLE>
ENTROPIN, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
For the Period from August 27, 1984 (Inception) through December 31, 1999
(Continued from preceding page)
<CAPTION>
Deficit
accumulated
Additional Unearned during the
Common stock paid-in Stock stock development
Shares Amount capital subscriptions compensation stage
------ ------ ---------- ------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Capital contributions - - 927,000 - - -
Net loss for the year - - - - - (1,351,448)
--------- ------ ---------- ---------- ------------ ------------
Balance, December 31, 1997 5,220,000 5,220 1,296,780 - - (4,814,175)
Sale of common stock for cash, $2.75
per share (Note 5) 300,000 300 797,810 - - -
Issuance of common stock pursuant to
recapitalization (Note 5) 480,051 480 219,620 - - -
Unearned stock compensation pursuant
to issuance of common stock options
(Notes 5 and 7) - - 5,160,000 - (5,160,000) -
Amortization of unearned stock
compensation (Note 5) - - - - 1,500,726 -
Net loss for the year - - - - - (2,764,627)
--------- ------ ---------- ---------- ------------ ------------
Balance, December 31, 1998 6,000,051 6,000 7,474,210 - (3,659,274) (7,578,802)
</TABLE>
(Continued on following page)
See accompanying notes.
F-7
<PAGE>
<TABLE>
ENTROPIN, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
For the Period from August 27, 1984 (Inception) through December 31, 1999
(Continued from preceding page)
<CAPTION>
Deficit
accumulated
Additional Unearned during the
Common stock paid-in Stock stock development
Shares Amount capital subscriptions compensation stage
------ ------ ---------- ------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Unearned stock compensation pursuant
to issuance of common stock options
(Note 5) - - 2,504,500 - (2,504,500) -
Amortization of unearned stock
compensation (Note 5) - - - - 2,945,481 -
Issuance of common stock pursuant to
private placements (Note 5) 1,208,700 1,209 3,366,121 - - -
Conversion of promissory notes to
common stock (Note 5) 100,831 101 201,561 - - -
Shares issued from exercise of
options (Note 5) 20,000 20 79,980 - - -
Shares issued for services 13,148 12 67,755 - - -
Conversion of Series B preferred
stock to common stock (Note 4) 15,000 15 74,985 - - -
Shares issued for Series B preferred
stock dividend (Note 4) 24,550 25 122,725 - - (122,750)
Accretion to mandatory redemption
amount for Series B preferred stock - - (25,425) - - -
Net loss for the year - - - - - (4,939,262)
--------- ------ ---------- ---------- ------------ ------------
Balance, December 31, 1999 7,382,280 $7,382 $13,866,412 $ - $(3,218,293)($12,640,814)
========= ====== =========== ========== =========== ===========
</TABLE>
See accompanying notes.
F-8
<PAGE>
ENTROPIN, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF CASH FLOWS
For the Years Ended December 31, 1998 and 1999
and for the Period from August 27, 1984 (Inception) through December 31, 1999
Cumulative
amounts
from
1998 1999 inception
---- ---- ---------
Cash flows from operating activities:
Net loss $(2,764,627) $(4,939,262) $(12,518,064)
Adjustments to reconcile net loss
to net cash used in operating
activities:
Depreciation and amortization 24,306 40,842 122,516
IBC partner royalty agreement 14,288 14,288 184,071
Services contributed in exchange
for stock and stock options 1,500,726 3,013,248 5,460,974
Services contributed in exchange
for compensation agreements - - 2,231,678
Increase in accounts payable -
related party 11,314 112,449 123,763
Decrease in accounts receivable -
shareholder 5,000 - -
Increase (decrease) in accounts
payable (270,672) 139,901 199,042
Increase in accrued interest - - 169,139
Other - 1,662 1,793
----------- ----------- ------------
Total adjustments 1,284,962 3,322,390 8,492,976
----------- ----------- ------------
Net cash used in operations (1,479,665) (1,616,872) (4,025,088)
Cash flows from investing activities:
Purchase of property and equipment
(net) (87,705) 2,413 (102,499)
Patent costs (48,160) (48,253) (403,169)
Deposits (12,261) - (12,261)
----------- ----------- ------------
Net cash used in investing activities (148,126) (45,840) (517,929)
Cash flows from financing activities:
Proceeds from recapitalization 220,100 - 220,100
Deferred stock offering costs 10,746 (169,425) (169,425)
Proceeds from sale of common stock 798,110 3,447,330 4,600,440
Proceeds from sale of preferred stock 1,142,750 - 1,142,750
Proceeds from stockholder loans - - 809,678
Proceeds from stockholder advances - - 98,873
Repayments of stockholder advances (98,873) - (98,873)
Proceeds from convertible notes payable - 200,000 200,000
----------- ----------- ------------
Net cash provided by financing
activities 2,072,833 3,477,905 6,803,543
----------- ----------- ------------
Net increase in cash 445,042 1,815,193 2,260,526
Cash and cash equivalents at beginning
of period 291 445,333 -
----------- ----------- ------------
Cash and cash equivalents at end of
period $ 445,333 $ 2,260,526 $ 2,260,526
=========== =========== ============
(Continued on following page)
See accompanying notes.
F-9
<PAGE>
ENTROPIN, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF CASH FLOWS
For the years ended December 31, 1998 and 1999
and for the Period from August 27, 1984 (inception) through December 31, 1999
(Continued from preceding page)
Supplemental disclosure of cash flow information:
Cumulative
amounts
from
1998 1999 inception
---- ---- -----------
Cash paid during period for interest $1,451 $ - $61,306
Supplemental disclosure of non-cash financing activities:
Pursuant to an agreement with an IBC limited partner, the Company has accrued
a liability totaling $184,071 at December 31, 1999 for advance royalties due
to the individual (see Note 7).
On January 15, 1998, the Company issued 3,210,487 shares of Series A
preferred stock in exchange for an aggregate $1,710,487 of notes payable to
shareholders plus accrued interest and a $1,500,000 compensation agreement.
During 1998 and 1999, the Company entered into several stock option
agreements with persons and entities that have contributed services to the
Company. In accordance with Statement of Financial Accounting Standards 123,
the Company has recorded deferred compensation related to these agreements
totaling $5,160,000 and $2,504,500 and has amortized compensation expense
totaling $1,500,726 and $2,945,481, during 1998 and 1999, respectively. These
stock option agreements are described more fully in Note 5.
During 1999, the Company converted note payable agreements with outstanding
principal and interest balances totaling $201,662 into 100,831 shares of
common stock.
During 1999, the Company issued 13,148 shares of common stock for services
totaling $67,767.
In 1999, the Company issued 24,550 shares of common stock valued at $5.00 per
share as payment of accrued dividends on Series B preferred stock.
See accompanying notes.
F-10
<PAGE>
ENTROPIN, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
December 31, 1998 and 1999
1. Organization and summary of significant accounting policies
Organization:
Entropin, Inc., a Colorado corporation, was organized in August 1984, to be a
pharmaceutical research company developing Esterom(R) solution, 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, seeking the U.S. Food and Drug
Administration (FDA) approval for Esterom(R) solution, as well as fund
raising.
On January 15, 1998, the Company consummated an agreement and plan of merger
with Vanden Capital Group, Inc., a Colorado corporation, (Vanden), in which
Vanden acquired all of the issued and outstanding common shares of the
Company (see Note 5). The Company was merged into Vanden, and Vanden changed
its name to Entropin, Inc. For accounting purposes, the acquisition has been
treated as a recapitalization of the Company, based upon historical cost, and
a reverse acquisition with the Company as the acquirer.
Basis of presentation and management's 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 an accumulated
deficit at December 31, 1999 of $12,640,814. 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) solution and
market the product.
As described in Note 5, the Company successfully completed recapitalization
of the Company in January 1998. The Company also sold private offerings of
245,500 shares of Series B convertible preferred stock for gross proceeds of
$1,227,500 (Note 4), $200,000 of convertible notes payable, and 1,508,700
shares of common stock for gross proceeds of $4,664,800 (Note 5), which
offerings provide liquidity to the Company for current operations. The
Company raised sufficient funds in 1999 to complete the first part of a two
part Phase III clinical trial program associated with the FDA approval
process for the treatment of acute painful shoulder. The trials began in
November 1999 and the first part is scheduled for completion in mid 2000.
Management is confident that it will raise the added funds necessary to
complete the second part of the Phase III trials, ancillary studies and the
New Drug Application (NDA) process, as well as additional funds for research
and development and working capital via a secondary securities offering in
early 2000. The Company estimates it will require additional funding of up to
$10 million 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.
F-11
<PAGE>
ENTROPIN, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
December 31, 1998 and 1999
1. Organization and summary of significant accounting policies (continued)
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 provides for income taxes utilizing the liability approach under
which deferred income taxes are provided based upon enacted tax laws and
rates applicable to the periods in which the taxes become payable.
Property and equipment:
Office furniture and equipment is recorded at cost. Depreciation commences as
items are placed in service and is computed on a straight-line method over
their estimated useful lives of three years.
Leasehold improvements are recorded at cost and amortized over the five-year
term of the lease.
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 16 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 Company holds eight U.S. patents issued between 1984 and 1998 with
expiration dates ranging from September 2001 to June 2014. These patents
include two material composition patents covering the molecules contained in
Esterom(R) solution that expire in 2012 and 2013. The Company's three initial
patents were based on methods of treatment of rheumatoid arthritis using
benzoylecgonine and related compounds, and the five subsequent patents
include compound, composition and method claims involving derivative of the
compounds represented in the earlier patents. The Company believes that some
of the patents may be eligible for extensions of up to five years.
In December 1993, the Company filed an International Patent Application under
the Patent Cooperation Treaty claiming compounds present in the Esterom(R)
solution formulation from which eight separate patent applications were
derived - Australia, Canada, Europe, Hungary, Japan, New Zealand, Norway and
Poland. In addition, the Company filed patent applications in China, Israel,
Mexico, South Africa and Taiwan. From these foreign applications, nine
patents have been issued to date.
F-12
<PAGE>
ENTROPIN, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
December 31, 1998 and 1999
1. Organization and summary of significant accounting policies (continued)
Impairment of long-lived assets:
The Company evaluates the potential impairment of long-lived assets in
accordance with Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to be Disposed of". The Company annually reviews the amount of recorded
long-lived assets for impairment. If the sum of the expected cash flows from
these assets is less than the carrying amount, the Company will recognize an
impairment loss in such period.
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.
Deferred stock offering costs:
Deferred stock offering costs represent costs incurred to December 31, 1999,
in connection with the proposed offering of common stock (see Note 5). In the
event that such offering is successful, costs incurred as of December 31,
1999, and additional costs incurred subsequent to that date will be charged
against the proceeds of the offering; if the offering is not successful, the
costs will be charged to operations.
Concentrations of credit risk:
Financial instruments which potentially subject the Company to concentrations
of credit risk consist principally of cash and cash equivalents. The Company
places its cash with high quality financial institutions. At times during the
periods, the balances at financial institutions exceeded FDIC limits.
Stock-based compensation:
The Company has adopted Statement of Financial Accounting Standards No.
123, Accounting for Stock-Based Compensation. Compensation costs for stock
options is measured as the excess, if any, of the fair value of the options
at date of grant over the exercise price.
2. Related party transactions
Lease agreement:
The Company subleases approximately 800 square feet of office space from a
principal stockholder, at $800 per month.
F-13
<PAGE>
ENTROPIN, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
December 31, 1998 and 1999
2. Related party transactions (continued)
Conversion of long-term debt - stockholders:
On January 15, 1998, the Company converted $1,710,487 of long-term debt and
accrued interest, incurred for cash advances and past services associated
with research and development, into 1,710,487 shares of 8% non-voting,
non-cumulative Series A preferred stock at $1.00 per share (see Note 4). The
debt was owed to significant stockholders.
3. Income taxes
The consummation of the stock exchange with Vanden and the issuance of
preferred stock in January 1998 (see Note 5), resulted in a change in the
Company's tax status from an S corporation to a taxable corporation. The
effect of the change is 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.
At December 31, 1999, the Company has net operating loss carryforwards of
approximately $3,558,000 and future tax deductions of $6,946,000 which may be
used to offset future taxable income. The future tax deductions result
primarily from utilizing the cash basis for income tax reporting purposes and
unearned stock compensation. The difference between the tax loss
carryforwards and future tax deductions and the cumulative losses from
inception result from the losses previously incurred by the S corporation.
The net operating loss carryforwards expire in 2018 and 2019. Approximately
$250,000 of the net operating loss carryforward is limited as to the amount
which may be used in any one year. At December 31, 1998 and 1999, total
deferred tax assets and the valuation allowance are as follows:
1998 1999
---- ----
Deferred tax assets resulting from:
Net operating loss carryforwards $ 480,000 $1,245,000
Accrual to cash adjustments 872,000 875,000
Unearned stock compensation 525,000 1,556,000
---------- ----------
Total 1,877,000 3,676,000
(1,877,000) (3,676,000)
---------- ----------
$ - $ -
========== ==========
A 100% valuation allowance has been established against the deferred tax
assets, as utilization of the loss carryforwards and realization of other
deferred tax assets cannot be reasonably assured.
F-14
<PAGE>
ENTROPIN, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
December 31, 1998 and 1999
4. 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. 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,
accrued interest, and a $1,500,000 compensation agreement. The annual 8%
dividend is based upon a $1.00 per share value, and is only payable out of
earnings.
The Series A preferred stock is subject to mandatory redemption. The shares
are redeemable only from 20% of annual earnings, but not exceeding net cash
flow from, operating activities, and will automatically cancel on January 16,
2005, if not fully redeemed. The Company may voluntarily redeem outstanding
shares of preferred stock at $1 per share.
In July 1998, the Company completed a private placement of 245,500 shares of
Series B preferred stock at $5.00 per share, for total net proceeds of
$1,142,750. The Series B preferred stock is designated as redeemable 10%
cumulative non-voting convertible preferred stock with $.001 par value. The
shares are convertible on a one for one basis into common stock. The
dividends accrue at the rate of $.50 per share per annum and are paid
annually commencing July 15, 1999. At the Company's election, annual
dividends were paid in shares of the Company's common stock valued at $5.00
per share at July 15, 1999. Dividends are added to net loss in determining
net loss per common share. 15,000 Series B preferred shares have been
converted as of December 31, 1999. All unconverted shares will be redeemed at
$5.00 per share on or before July 15, 2003.
5. Stockholders' equity
Recapitalization:
On December 9, 1997, the Company entered into an agreement and plan of merger
with 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, in a reverse acquisition.
F-15
<PAGE>
ENTROPIN, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
December 31, 1998 and 1999
5. Stockholders' equity (continued)
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 and is presented on the statement of changes
in stockholders' equity as an issuance of 480,051 shares of common stock for
cash proceeds of $220,100 pursuant to recapitalization. In connection with
the recapitalization, the Company issued options to purchase 180,001 shares
of its $.001 par value common stock for cash of $100 and options to purchase
an additional 180,001 shares of common stock for $2.80 per share, as required
by a management advisory services contract as compensation for arranging the
merger. The difference between the fair value of the stock, estimated by the
Company to be $2.75 per share, and the purchase price for the initial 180,001
shares was treated as additional cost of the merger and charged to capital,
consistent with accounting for the reverse acquisition as a recapitalization.
The net effect of this transaction was to record an increase and related
decrease to additional paid-in capital of $495,000. The remaining options to
acquire 180,001 shares are exercisable for a five-year period.
Following the exchange, the Company's shareholders owned approximately 95% of
the outstanding common stock of Vanden. The reverse acquisition has been
accounted for as a recapitalization of the Company based upon historical
cost. Accordingly, the number of 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.
Private placements:
In January 1998, the Company completed a private placement of 300,000 shares
of its $.001 par value common stock for gross proceeds of $825,000, $2.75 per
share.
In April 1999, the Company completed a private placement of 497,500 shares of
its $.001 par value common stock at $2.00 per share for gross proceeds of
$995,000.
In June 1999, the Company sold 304,750 shares of common stock at $4.00 per
share for gross proceeds of $1,219,000 in a private placement.
In September 1999, the Company sold 406,450 shares of common stock at $4.00
per share for gross proceeds of $1,625,800 in a private placement.
Proposed public offering:
In June 1999, the Company entered into a letter of intent with an underwriter
to conduct a public offering of 2,000,000 units (consisting of one share of
common stock and one warrant to purchase one share of common stock) with
gross proceeds of approximately $12 to $14 million. The per share price will
be determined by mutual agreement between the Company and underwriter.
F-16
<PAGE>
ENTROPIN, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
December 31, 1998 and 1999
5. Stockholders' equity (continued)
Other issuances of common stock:
In March 1999, the Company received cash proceeds aggregating $200,000
pursuant to eight 10% convertible note payable agreements with various
unrelated individuals and entities. Each note was unsecured, and due the
earlier of 90 days from the date of issue or upon the receipt by the Company
of certain proceeds from a private offering of its securities. Each note
agreement also provided a warrant granting the holder the right to purchase
three and one half restricted shares of the Company's common stock for each
dollar of principal received by the Company, for an aggregate of 700,000
shares. The warrants have certain registration rights, an exercise price of
$3.00 per share and are exercisable for five years from the date the shares
become freely tradable. To the extent that the shares underlying the warrants
are not registered within two years of grant date, the holders have the right
to exercise the warrants on a cashless basis for a period of five years. In
April 1999, the Company amended the note agreements to allow the note holders
to convert their promissory notes to shares of common stock at $2.00 per
share. Upon issuing the amendment, all note holders converted their notes,
including accrued interest, to common stock resulting in new issuances of
common stock totaling 100,831 shares. Due to the immediate conversion of the
notes to common stock, none of the proceeds received upon issuance of the
notes payable were allocated to the warrants. The net effect of allocating
proceeds to the warrants would be an increase and corresponding equal
decrease in additional paid-in capital.
Stock options and warrants:
In April 1998, the Company granted stock options to Western Center for
Clinical Studies, Inc. to purchase 450,000 shares of the Company's common
stock at $1.50 per share (see Note 7).
In August 1998, the Company granted to each director options to purchase up
to 60,000 shares of the Company's common stock (300,000 shares in the
aggregate), exercisable for ten years at $3.00 per share. Options to purchase
20,000 shares each were fully vested February 1999, and the remaining 40,000
vest on a pro rata basis monthly through February 2001. Should any of the
directors cease to serve on the board of directors, all non-vested options
shall be forfeited. During 1999, a director resigned and options to purchase
35,000 shares were canceled.
In September 1998, the board of directors approved a compensation plan for
three officers and directors, to serve on a management team, which included
stock options in lieu of salary aggregating 295,000 shares, exercisable for
five years at $4.00 per share. Options to purchase 125,000 shares were fully
vested in December 1998 and January 1999, and the remaining 170,000 vested on
a pro rata basis monthly through June 30, 1999. During 1999, a director
resigned and options to purchase 20,000 shares were canceled. During the
period July through October 1999, the Company provided its management team
additional stock options in lieu of salary to purchase an aggregate of
430,000 shares of common stock. The options are exercisable at $4.00 per
share, and were fully vested at December 31, 1999.
F-17
<PAGE>
ENTROPIN, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
December 31, 1998 and 1999
5. Stockholders' equity (continued)
In October 1998, the Company provided a 100,000 share stock option agreement
to an organization, with whom the Company entered into a one year consulting
agreement. The consultant provided investor relations and development
services, and received compensation of $5,000 per month. The options are
exercisable at $4.00 per share and vest 50,000 shares as of the date of the
agreement, 25,000 shares on March 31, 1999 and 25,000 shares on June 30,
1999. During May and August 1999, the organization exercised options for a
total of 20,000 shares of common stock. In July 1999, the Company also agreed
to provide the organization with an additional cash payment of $10,000, a
warrant to purchase up to an additional 23,500 shares of the Company's common
stock, as well as a finder's fee for all funds received by the Company
related to fund raising activities attributable to the organization. The
warrant is exercisable for five years at $4.00 per share.
In December 1998, the board of directors approved a resolution whereby the
Company granted to a company and an individual two stock options to purchase
up to 17,500 shares of the Company's common stock (35,000 shares in the
aggregate) in exchange for services the Company received during 1998. The
options are exercisable at $4.00 per share for a period of five years and are
fully vested as of the date of the resolution.
On March 11, 1999, the Company provided a 175,000 share stock option
agreement to an organization with whom the Company entered a one year
consulting agreement. The Company may terminate the agreement after six
months. The organization provides investment community relations services,
and receives compensation of $3,000 per month. The option is exercisable at
$3.00 per share. The option provides certain registration rights to the
holder, and is exercisable the earlier of January 1, 2000 or when the shares
become registered. The exercise period is five years from the date the shares
become freely tradable. To the extent that the shares underlying the options
are not registered within two years of grant date, the holders have the right
to exercise the options on a cashless basis for a period of five years.
On March 15, 1999, the Company provided a 300,000 share stock warrant
agreement to an organization, with whom the Company entered into an eight
month consulting agreement. The organization was also to be paid a retainer
of $7,000 per month. The organization was engaged to raise capital
aggregating $8 million and provide financial advisory services. The warrants
were exercisable at $4.50 per share. In July 1999, the Company terminated the
consulting agreement. As final settlement, the organization received $69,084
for fees and expenses earned in conjunction with fund raising and a warrant
to purchase 50,000 shares of the Company's common stock, exercisable for five
years at $4.00 per share. The previous warrants to purchase 300,000 shares of
the Company's common stock were canceled.
F-18
<PAGE>
ENTROPIN, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
December 31, 1998 and 1999
5. Stockholders' equity (continued)
On March 22, 1999, the Company provided a 125,000 share stock option
agreement to a partnership, with whom the Company entered into a six month
consulting agreement. The partnership provides financial community relations
and debt funding services. The options are exercisable at $3.00 per share.
The options provide certain registration rights to the holder, and are
exercisable the earlier of January 1, 2000 or when the shares become
registered. The exercise period is five years from the date the shares become
freely tradable. To the extent that the shares underlying the options are not
registered within two years of grant date, the holders have the right to
exercise the options on a cashless basis for a period of five years.
On March 31, 1999, the Company provided a 300,000 share stock warrant
agreement to an organization, with whom the Company entered into an eight
month consulting agreement. The organization was engaged to raise capital
aggregating $8 million and provide financial advisory services. The warrants
are exercisable at $3.00 per share, provide certain registration rights, and
vest 100,000 shares as of the date of the agreement, with the remaining
200,000 shares to vest in May and August 1999, subject to certain funding
requirements. The 200,000 shares are subject to ratable reductions to the
extent that any of the funding is not attributable to the organization. The
term of the warrants will be through March 22, 2004. The Company had not
received any funding during 1999 attributable to the organization and
warrants to purchase 200,000 shares have been canceled. The remaining
warrants to purchase 100,000 shares are in dispute.
In June 1999, the Company provided a 60,000 share stock option agreement to
an individual providing intellectual property assistance and advice related
to the Company's technology and products. The options are exercisable at
$5.00 per share for five years. Options to purchase 20,000 shares vest on May
1, 2000, with the remaining shares vesting ratably monthly through May 1,
2002.
In June 1999, the Company provided a 20,000 share stock option agreement to
an officer in exchange for services rendered to the Company. The options are
exercisable at $4.00 per share for five years. The options vest ratably over
a 12 month period from date of grant.
In June and July 1999, the Company provided stock option agreements
aggregating 120,000 shares to an organization providing financial consulting
services. The options are exercisable at $3.00 to $4.00 per share and vest
25,400 shares as of June 30, 1999, 20,000 shares at August 5, 1999, with the
remaining shares vesting through February 1, 2001.
In September 1999, the Company provided a 101,681 share stock warrant
agreement to an organization providing assistance in the June and September
1999 private placements of common stock. The warrants are exercisable at
$4.00 per share for five years and are fully vested.
In November 1999, as partial consideration for consulting services, the
Company issued to a consultant a warrant to purchase 30,000 shares of common
stock, exercisable at $4.00 per share for five years.
F-19
<PAGE>
ENTROPIN, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
December 31, 1998 and 1999
5. Stockholders' equity (continued)
Also in November 1999, the Company granted an option to purchase 400,000
shares of common stock to its president at an exercise price of $5.00 per
share. The shares vest as follows: 100,000 shares upon completion of the
first part of the Phase III trials; 150,000 shares upon submission of the New
Drug Application (NDA); and, 150,000 shares upon approval of the NDA. The
options expire five years from the dates they become exercisable.
The following is a summary of stock option and warrant activity:
Option/ Options exercisable
warrant Wtd. avg. Wtd. avg.
price per exercise Number exercise Number of
share price of shares price shares
----- ----- --------- ----- ------
Balance December 31, 1997 $ - $ - - $ - -
Granted $.001 to $4.00 $2.47 1,540,002 - -
Exercised $0.001 $0.001 (180,001) - -
------ ------ ---------
Balance December 31, 1998 $1.50 to $4.00 $2.79 1,360,001 $3.36 635,001
Granted $3.00 to $5.00 $3.71 2,836,181 - -
Canceled $3.00 to $4.00 $3.04 (555,000) - -
Exercised $4.00 $4.00 (20,000) - -
----- ----- ---------- ----- ---------
Balance December 31, 1999 $1.50 to $5.00 $3.37 3,621,182 $ 3.59 1,667,848
========= =========
The following is additional information with respect to those options and
warrants outstanding at December 31, 1999:
Wtd.avg.
remaining
contractual Number Options
Option/warrant price per share life in years of shares exercisable
------------------------------ ------------- --------- -----------
$1.50 3.4 450,000 75,000
$2.80 3.0 180,001 180,001
$3.00 6.5 1,425,000 314,999
$4.00 4.4 1,076,181 1,067,848
$5.00 4.8 490,000 30,000
--------- ---------
3,621,182 1,667,848
========= =========
F-20
<PAGE>
ENTROPIN, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
December 31, 1998 and 1999
5. Stockholders' equity (continued)
At December 31, 1999, outstanding options and warrants aggregating 1,565,182
shares have certain registration rights and options and warrants aggregating
2,295,181 shares contain certain cashless exercise provisions.
4,114,564 shares of the 4,179,564 shares owned by the Company's directors,
officers, and 5% or greater stockholders, and substantially all of the shares
underlying the outstanding options and warrants are subject to lock-up
agreements which expire one year after the effective date of the proposed
public offering unless released sooner upon written consent.
Unearned stock compensation:
At December 31, 1999, the Company had outstanding an aggregate of 3,621,182
options and warrants of which 2,436,000 were granted at purchase prices lower
than fair value of the stock at date of grant, including the stock options
and warrants disclosed above and the 450,000 granted to the Western Center
for Clinical Studies, Inc. (see Note 7). The excess of the fair value at the
grant date of the options and warrants, over the exercise price has been
recorded as additional paid-in capital and unearned stock compensation.
Unearned compensation is being amortized to research and development and
general and administrative expense over the term of the related agreements,
as follows:
Year ended Cumulative
December 31, amounts from
1998 1999 inception
---- ---- ------------
Research and development $ 502,000 $ 709,224 $1,211,224
General and administrative 998,726 2,236,257 3,234,983
---------- ---------- ----------
$1,500,726 $2,945,481 $4,446,207
========== ========== ==========
The fair value of each option and warrant grant is estimated on the date of
grant using the Black-Scholes option pricing model with the following
assumptions used for grants in 1998 and 1999: dividend yield of 0%, expected
volatility of 51% - 100%, risk-free interest rate of 4.63% - 6.22%, and
expected life of five to nine years.
6. Basic and diluted net loss per share
Basic net loss per share is based on the weighted average number of shares
outstanding during the periods. Shares issued for nominal consideration are
considered outstanding since inception. Diluted loss per share excludes
dilution from common stock equivalents, as exercise of the outstanding stock
options and warrants would have an anti-dilutive effect. The 10% cumulative
dividends on Series B preferred stock have been accrued and added to net loss
for the purpose of determining net loss and net loss per share applicable to
common shareholders.
F-21
<PAGE>
ENTROPIN, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
December 31, 1998 and 1999
7. 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 I.B.C. Limited Partnership. The
limited partnership participated in the early development of Esterom(R)
solution (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 partner's technological access fee and
royalty payments. The limited 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, 1999, no liabilities have been accrued with
respect to this agreement.
In a separate agreement with certain former I.B.C. limited partners, the
Company has agreed to pay the partners 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 partners 17.86% of the earned payment. In accordance with the
agreement, the Company has agreed to pay these former limited partners the
amount of $40,000 and a minimum earned payment of $3,572 per calendar quarter
beginning on December 1, 1989. Such minimum earned payment is payable when
the Company is either reimbursed for expenses paid for the development of the
medicine or from the first income received by 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 partners. As of December 31, 1999, the
liability accrued with respect to this agreement totaled $184,071. The
Company will receive a credit against the earned payments of 50% of monies
which are expended in connection with preparing, filing, obtaining, and
maintaining patents involved with the sold rights.
Development and Supply Agreements:
On January 1, 1997, the Company entered into ten 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 received exclusive
rights as a supplier of the bulk active product to the Company in North
America. The price of the ingredient is based on the price of the components
in the bulk active product.
In addition, pursuant to the agreements, 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.
F-22
<PAGE>
ENTROPIN, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
December 31, 1998 and 1999
7. Commitments and contingencies (continued)
The Company is dependent upon Mallinckrodt, Inc. to provide the raw material
from which the active ingredients in Esterom(R) solution are derived.
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) solution, 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) solution, 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.
Management agreements:
During April 1998, the Company entered into an agreement with Western
Center for Clinical Studies, Inc. (WCCS), to provide assistance in taking
Esterom(R) solution through the clinical trials and New Drug Application(NDA)
approval. The agreement was subsequently amended in July 1999 and October
1999. The Company is required to pay management fees of $880,400 through
January 5, 2001 and $76,400 per quarter commencing January 2001 and
continuing until NDA submission. The Company also has granted stock options
to WCCS to purchase 450,000 shares of Entropin common stock at $1.50 per
share. The options will expire five years from the date they become
exercisable. The shares underlying the options are also provided with certain
registration rights. The difference between the fair value of the options at
date of grant and the exercise price, totaling approximately $1,950,000 using
the Black-Scholes option pricing model, has been recorded as additional
paid-in capital and unearned stock compensation. The unearned stock
compensation is being amortized to expense on a straight-line basis over the
initial 33 month term of the agreement.
In August 1999, the Company entered into an agreement with Therapeutic
Management, Inc. to provide clinical trial management services and monitor
all aspects of Esterom(R) solution's Phase III clinical studies. In November
1999, the Company entered into an agreement with WCCS to assume the Company's
obligations under Therapeutic Management Agreement. The Company will pay WCCS
approximately $350,000 based upon completion of certain project goals.
F-23
<PAGE>
ENTROPIN, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
December 31, 1998 and 1999
8. Financial instruments
The carrying values of cash and cash equivalents, accounts payable and
accounts payable - related party approximates 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 4 and 7.
F-24
<PAGE>
ENTROPIN, INC. [Logo]
2,000,000 Shares of Common Stock
and
2,000,000 Redeemable Common Stock Purchase Warrants
-----------
PROSPECTUS
-----------
NEIDIGER, TUCKER, BRUNER, INC.
WESTPORT RESOURCES INVESTMENT SERVICES, INC.
, 2000
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
A. The Colorado Business Corporation Act (the "Act") allows
indemnification of directors, officers, employees and agents of the Company
against liabilities and reasonable expenses, including attorneys' fees,
incurred in any proceeding in which an individual is made a party because
he was a director, officer, employee or agent of the Company if such person
conducted himself in good faith and reasonably believed his actions were
in, or not opposed to, the best interests of the Company, and with respect
to any criminal action or proceeding, had no reasonable cause to believe
his conduct was unlawful. A person must be found to be entitled to
indemnification under this statutory standard by procedures designed to
assure that disinterested members of the Board of Directors have approved
indemnification or that, absent the ability to obtain sufficient numbers of
disinterested directors, independent counsel or shareholders have approved
the indemnification based on a finding that the person has met the
standard. The Company's By-Laws provide that the Registrant shall have the
power to indemnify its officers, directors, employees and agents to the
extent permitted by the Act.
B. Article VIII of the Registrant's Amended and Restated Articles of
Incorporation provides for the elimination of personal liability for
monetary damages for the breach of fiduciary duty as a director except for
liability (i) resulting from a breach of the director's duty of loyalty to
the Registrant or its shareholders; (ii) for acts or omissions not in good
faith or which involve intentional misconduct or a knowing violation of the
law; (iii) for approving payment of distributions to shareholders to the
extent that any such actions are illegal under the Act; or (iv) for any
transaction from which a director derives an improper personal benefit.
This Article further provides that the personal liability of the
Registrant's directors shall be eliminated or limited to the fullest extent
permitted by the Act.
C. The Underwriting Agreement between the Registrant and the Underwriters
provides that the Underwriters will indemnify and hold harmless the
Registrant, the directors of the Registrant, and each person, if any, who
controls the Registrant within the meaning of Section 15 of the Securities
Act of 1933, as amended (the "1933 Act"), against any and all losses,
claims, demands, liabilities and expenses (including reasonable legal or
other expenses) to which it may become subject, arising out of or based
upon any untrue statement or alleged untrue statement of a material fact
contained in the Registration Statement or in any Blue Sky Application or
the omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not
misleading, resulting from the use of written information furnished to the
Registrant by the Underwriters or any participating dealer for use in the
preparation of the Registration Statement or in any Blue Sky Application.
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
II-1
<PAGE>
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.
Item 25. Other Expenses of Issuance and Distribution
-------------------------------------------
The following is an itemization of all expenses (subject to future
contingencies) incurred or to be incurred by the Registrant in connection
with the issuance and distribution of the securities being offered. All
expenses are estimated except the registration fee.
Registration and filing fee . . . . . . . . . . . . $ 7,609(1)
NASD filing fee . . . . . . . . . . . . . . . . . . 3,237(1)
NASDAQ Application fee . . . . . . . . . . . . . . 10,000(1)
Printing . . . . . . . . . . . . . . . . . . . . . 30,000(2)
Accounting fees and expenses . . . . . . . . . . . 12,000(2)
Legal fees and expenses . . . . . . . . . . . . . . 100,000(2)
Blue Sky fees and filing fees . . . . . . . . . . . 80,000(2)
Transfer and Warrant Agent fees . . . . . . . . . . 5,000(2)
Miscellaneous . . . . . . . . . . . . . . . . . . . 7,154(2)
-------
Total . . . . . . . . . . . . . . . . . . . . . . . $255,000
=======
___________
(1) Reflects filing fees paid with the original filing of the
Registration Statement
(2) Estimated
Item 26. Recent Sales of Unregistered Securities
---------------------------------------
During the past three years, the Registrant and Old Entropin issued
securities to the following persons for the cash or other consideration
indicated in transactions that were not registered under the 1933 Act.
I.
January 1998 Private Placement (Old Entropin)
---------------------------------------------
No. of Shares of
----------------
Name Common Stock Consideration Received
- ---- ------------ ----------------------
Suzanne Oliphant 10,000 $27,500
Albert W. White 10,000 $27,500
Stephen H. West 20,000 $55,000
C. Richard Harrison 10,000 $27,500
II-2
<PAGE>
No. of Shares of
----------------
Name Common Stock Consideration Received
- ---- ------------ ----------------------
Jeanette Y. Mihaly 20,000 $55,000
Joy Ann Svenson 10,000 $27,500
Richard L. Monfort 180,000 $495,000
David T. Treadwell 10,000 $27,500
David Bressler 5,000 $13,750
Gerald Olesh 10,000 $27,500
Arthur Kassoff 10,000 $27,500
Armond A. Azharian 5,000 $13,750
------- -------
Total 300,000 $825,000
======= ========
The offers and sales were made in reliance upon the exemption from
registration provided by Section 4(2) of the 1933 Act and/or Regulation D
and Rule 506 adopted thereunder. All of the purchasers are known by Old
Entropin's (now the Registrant's) Chairman, Higgins D. Bailey, or were
referred to him by other purchasers in this offering. Based upon the
written representations made by the purchasers and other information known
to the Registrant, the Registrant believes all of the purchasers were
Accredited Investors as that term is defined in Rule 501 of Regulation D.
No broker/dealers were involved in the sales and no commissions were paid.
All purchasers represented that they purchased the securities for
investment, and all certificates issued to the purchasers were impressed
with a restrictive legend advising that the shares represented by
certificates may not be sold, transferred, pledged or hypothecated without
having first been registered or the availability of an exemption from
registration established. Stop transfer instructions have been placed
against the transfer of these certificates by the Registrant's Transfer Agent.
II.
In November 1997, Old Entropin issued an 8% note in the principal
amount of $1,500,000 maturing December 31, 2000 payable to James E. Wynn as
compensation for research and development services provided since the
inception of the Company. In January 1998, Old Entropin converted this
obligation to 1,500,000 shares of its redeemable 8% non-voting, non-
cumulative Series A preferred stock, at $1.00 per share. The issuance of
the promissory note and the subsequent conversion into shares of Series A
preferred stock were made in reliance upon the exemption from registration
provided by Section 4(2) of the Act. The purchaser represented that he
acquired the securities for investment, and all certificates issued to the
purchaser were impressed with a restrictive legend advising that the shares
represented by certificates may not be sold, transferred, pledged or
hypothecated without having first been registered or the availability
II-3
<PAGE>
of an exemption from registration established. Stop transfer instructions
have been placed against the transfer of these certificates by the
Registrant's Transfer Agent.
III.
Debt/Equity Exchange (Old Entropin)
-----------------------------------
No. of Shares of Series
-----------------------
Name A Preferred Stock Consideration Received
- ---- ----------------- ----------------------
Higgins D. Bailey 178,000 $178,000
Lowell M. Somers 822,446 $822,446
Thomas T. Anderson Trust 710,041 $710,041
------- --------
Total 1,710,487 $1,710,487
========= ==========
Old Entropin had accrued $1,710,487, including interest, in long-term debt
owed to the abovementioned stockholders at December 31, 1997. On January
15, 1998, Old Entropin converted all of such long-term debt plus accrued
interest into 1,710,487 shares of Old Entropin's redeemable 8% non-voting,
non-cumulative Series A Preferred Stock at $1 per share. The issuance of
the shares of Series A preferred stock was made in reliance upon the
exemption from registration provided by Section 4(2) of the Act. The
purchasers represented that they acquired the securities for investment,
and all certificates issued to the purchasers were impressed with a
restrictive legend advising that the shares represented by certificates may
not be sold, transferred, pledged or hypothecated without having first been
registered or the availability of an exemption from registration
established. Stop transfer instructions have been placed against the
transfer of these certificates by the Registrant's Transfer Agent.
IV.
In December, 1997, Old Entropin entered into an agreement with LMU &
Company ("LMU"). As partial consideration for LMU's services under the
agreement, Old Entropin issued an option to purchase 180,001 shares of Old
Entropin's common stock, exercisable for cash of $100. The issuance of the
option to LMU was made in reliance upon the exemption from registration
provided by Section 4(2) of the Act. LMU represented that LMU acquired
the option for investment and not with a view to distribution. LMU
exercised its option in January 1998. Stop transfer instructions have been
placed against the transfer of these certificates by the Registrant's
transfer agent.
II-4
<PAGE>
V.
January 1998 Vanden- Old Entropin Merger
----------------------------------------
On January 15, 1998, in order to consummate the Agreement and Plan of
Merger with Entropin, Inc., a California corporation ("Old Entropin"), the
Registrant issued 5,700,001 shares of its Common Stock, $.001 par value per
share, and 3,210,487 shares of the Company's redeemable 8% non-voting, non-
cumulative Preferred Stock, $.001 par value per share, in exchange for all
of the issued and outstanding shares of Common Stock and Preferred Stock of
Old Entropin on a one-for-one basis, as follows:
<TABLE>
<CAPTION>
Consideration Received
No. of Old
No. of Shares Entropin Shares
------------------- ----------------------
Series A Series A
Name Common Preferred Common Preferred
- ---- ------ --------- ------ ---------
<S> <C> <C> <C> <C>
Caroline T. Somers 1,145,793 1,145,793
Higgins D. & Shirley A. Bailey 1,404,093 1,404,093
Higgins D. Bailey, Pledge 1,404,093 1,404,093
Higgins D. Bailey 178,000 178,000
Chandler G. Brown 257,085 257,085
CapMac Eighty-Two LP 73,130 73,130
Milton D. McKenzie, Trustee
for The Milton D. McKenzie
Revocable Trust 102,834 102,834
Milton D. McKenzie 52,632 52,632
James E. Wynn 518,085 1,500,000 518,085 1,500,000
CKC Partners 78,300 78,300
Danny and Nancy Yu 10,000 10,000
Brent and Marlene Jackson 50,000 50,000
William J. Currin 10,000 10,000
Jacquelyn D. Anderson Baker 5,455 5,455
Interstate Johnson Lane Corp. 10,000 10,000
Dennis K. Metzler 5,000 5,000
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
Consideration Received
No. of Old
No. of Shares Entropin Shares
------------------- ----------------------
Series A Series A
Name Common Preferred Common Preferred
- ---- ------ --------- ------ ---------
<S> <C> <C> <C> <C>
Jerry L. and Nancy Sands 1,000 1,000
The Macy Family Trust 10,000 10,000
Dewey H. and Virginia Crim 20,000 20,000
James W. Toot 7,500 7,500
Robert L. Simpson 5,000 5,000
Gladys F. Decker & Deloras D.
Hunter, Trustees for Gladys F.
Decker Trust No. 1 20,000 20,000
Donald Hunter, Trustee of the
Donald Hunter Residuary
Marital Trust 80,000 80,000
Deloras Decker Hunter, Trustee
of the Deloras Decker Hunter
Generation Skipping Trust 10,000 10,000
Lowell M. Somers 822,446 822,446
Thomas T. Anderson Trust 710,041 710,041
Underwood Family Partners 60,001 60,001
Steven C. and Lynn T. Quoy 60,000 60,000
Suzanne Oliphant 10,000 10,000
Albert W. White 10,000 10,000
Stephen H. West 20,000 20,000
C. Richard Harrison 10,000 10,000
Jeanette Y. Mihaly 20,000 20,000
Joy Ann Svenson 10,000 10,000
Richard L. Monfort 180,000 180,000
David T. Treadwell 10,000 10,000
</TABLE>
II-6
<PAGE>
<TABLE>
<CAPTION>
Consideration Received
No. of Old
No. of Shares Entropin Shares
------------------- ----------------------
Series A Series A
Name Common Preferred Common Preferred
- ---- ------ --------- ------ ---------
<S> <C> <C> <C> <C>
David Bressler 5,000 5,000
Gerald Olesh 10,000 10,000
Arthur Kassoff 10,000 10,000
Armond A. Azharian 5,000 5,000
--------- --------- --------- ---------
TOTAL 5,700,001 3,210,487 5,700,001 3,210,487
========= ========= ========= =========
</TABLE>
The exchange of Old Entropin shares for shares of the Registrant was
effected under the exemption from registration provided under Section 4(2)
of the Act and Rule 506 of Regulation D promulgated thereunder, for
transactions not involving a public offering. Based upon the written
representations made by the investors and other information known to the
Registrant, the Registrant believes all of the investors were Accredited
Investors as that term is defined in Rule 501 of Regulation D. All
investors represented that they purchased the securities for investment,
and all certificates issued to the investors were impressed with a
restrictive legend advising that the shares represented by certificates may
not be sold, transferred, pledged or hypothecated without having first been
registered or the availability of an exemption from registration
established. No broker/dealers were involved with the exchange, and no
commissions were paid. Stop transfer instructions have been placed against
the transfer of these certificates by the Registrant's Transfer Agent.
VI.
In January 1998, the Registrant entered into an agreement with LMU &
Company (LMU). As partial consideration for LMU's services under the
agreement, the Registrant granted an option to purchase 180,001 shares of
the Registrant's common stock for a period of five years at an exercise
price of $2.80 per share. The shares are fully vested. The Registrant
claims the exemption from registration provided by Section 4(2) of the 1933
Act for this transaction. No broker/dealers were involved in the sale and
no commissions were paid. The option certificate was impressed with a
restrictive legend advising that the shares represented by the certificate
may not be sold, transferred, pledged or hypothecated without having first
been registered or the availability of an exemption from registration
established.
II-7
<PAGE>
VII
In April 1998, the Registrant entered into an agreement with Western Center
for Clinical Studies (Western). As partial consideration for Western's
services under the agreement, the Registrant granted an option to purchase
450,000 shares of the Registrant's common stock at an exercise price of
$1.50 per share, of which 75,000 are vested. The remaining shares vest as
follows: 90,000 shares upon completion of the first Phase III trial,
110,000 upon completion of the second Phase III trial; and, 175,000 upon
the approval of a New Drug Application to the Food and Drug Administration.
The Registrant claims the exemption from registration provided by Section
4(2) of the 1933 Act for this transaction. No broker/dealers were involved
in the sale and no commissions were paid. The option certificate was
impressed with a restrictive legend advising that the shares represented by
the certificate may not be sold, transferred, pledged or hypothecated
without having first been registered or the availability of an exemption
from registration established. The options expire five years from the dates
they become exercisable.
VIII.
July 1998 Private Placement of Series B Preferred Stock
-------------------------------------------------------
Name No. of Shares Consideration
- ---- ------------- -------------
James Toot 25,000 $125,000
Brian P. Bertelsen 5,000 25,000
Cardiovascular Associates
P.C. Profit Sharing Plan
FBO Lester Lockspeiser M. D. 5,000 $25,000
CKC Partners 5,000 $25,000
Brett Conrad 5,000 $25,000
Russell L. Davis 10,000 $50,000
Gladys F. Decker Trust No. 1 5,000 $25,000
Paul Ernst 15,000 $75,000
Heather M. Evans 2,000 $10,000
Thomas A. Forti 5,000 $25,000
David L. Gertz 5,000 $25,000
Abdallah E. Ghusn 5,000 $25,000
Growth Ventures, Inc.
Pension Plan & Trust 10,000 $50,000
George Guerrieri 5,000 $25,000
II-8
<PAGE>
Name No. of Shares Consideration
- ---- ------------- -------------
Deloras Decker Hunter
Generation Skipping Trust 5,000 $25,000
Interstate/Lane Johnson F/B/O
Kenton R. Holden 5,000 $25,000
Inverness Investments Profit
Sharing Plan 5,000 $25,000
J. Paul Consulting Corporation 10,000 $50,000
Samantha Landy 4,000 $20,000
Arthur M. Lavenue 5,000 $25,000
Myron A. Leon 2,500 $12,500
Macy Family Trust 20,000 $100,000
Jeffrey S. Maen and Leonard L.
Maen 2,500 $12,500
B. Edwin Massey 2,500 $12,500
Sharon M. McDonald 15,000 $75,000
David N. and Arianne B. Nemelka 5,000 $25,000
Pete Perlman 2,000 $10,000
Douglas L. Ray 5,000 $25,000
Dan Rudden 5,000 $25,000
Joseph E. Kovarik 5,000 $25,000
Donald H. Schroeder 5,000 $25,000
Ralph Tash Trust DTD 5/28/71 20,000 $100,000
Richard F. and Barbara A. Van
Dresser, TTEES of the Living
Trust DTD 5-5-92 5,000 $25,000
Stephen H. West 5,000 $25,000
Danny Yu Defined Benefit
Pension Plan 5,000 $25,000
-------- ----------
TOTAL 245,500 $1,227,500
======== ==========
II-9
<PAGE>
The offers and sales were made in reliance upon the exemption from
registration provided by Section 4(2) of the 1933 Act and/or Regulation D
and Rule 506 adopted thereunder. Based upon written representations made
by each of the purchasers, the Registrant believes that all were Accredited
Investors as that term is defined in Rule 501 of Regulation D.
Broker/dealers were involved in the sale of $797,500 of the Series B
Preferred Stock and approximately $79,750 were paid in commissions. All
purchasers represented that they purchased the securities for investment,
and all certificates issued to the purchasers were impressed with a
restrictive legend advising that the shares represented by certificates may
not be sold, transferred, pledged or hypothecated without having first been
registered or the availability of an exemption from registration
established. Stop transfer instructions have been placed against the
transfer of these certificates by the Registrant's Transfer Agent.
IX.
In August 1998, the Registrant granted options to each of its
directors to purchase 60,000 shares of the Registrant's common stock at an
exercise price of $3.00 per share for five years. The grantees are Higgins
D. Bailey, Donald Hunter, Daniel Azarnoff, James D. Wynn and Dewey H. Crim.
The shares vest as follows: 20,000 shares at February 1, 1999 and the
remaining shares on a pro-rata basis monthly through February 1, 2001. Mr.
Crim resigned from the Board of Directors and 25,000 shares are vested.
The Registrant claims the exemption from registration provided by Section
4(2) of the 1933 Act for this transaction. No broker/dealers were involved
in the sale and no commissions were paid. The option certificates were
impressed with a restrictive legend advising that the shares represented by
the certificate may not be sold, transferred, pledged or hypothecated
without having first been registered or the availability of an exemption
from registration established.
X.
In September 1998, the Registrant granted options to purchase an
aggregate of 295,000 shares of the Registrant's common stock at an exercise
price of $4.00 per share for five years to its Executive Management as
follows: Donald Hunter 120,000 shares; Higgins D. Bailey 55,000 shares, and
Dewey H. Crim 120,000 shares. The shares are fully vested as to Messrs.
Hunter and Bailey. Mr. Crim resigned from Executive Management and 100,000
of his shares are vested. The Registrant subsequently granted additional
options on the same terms to Messrs. Hunter and Bailey, its Executive
Management, as follows: 2,500 shares each in February 1999; 5,000 shares
per month each for the period March through June 1999; and 15,000 shares
per month each for the period July through November 1999 . The Registrant
claims the exemption from registration provided by Section 4(2) of the 1933
Act for this transaction. No broker/dealers were involved in the sale and
no commissions were paid. The option certificates were impressed with a
restrictive legend advising that the shares represented by the certificate
may not be sold, transferred, pledged or hypothecated without having first
been registered or the availability of an exemption from registration
established.
II-10
<PAGE>
XI
In December 1998, the Registrant entered into an agreement with J.
Paul Consulting Corporation (JPC). As partial consideration for JPC's
services under the agreement, the Registrant granted an option to purchase
35,000 shares of the Registrant's common stock for a period of five years
at an exercise price of $4.00 per share. The shares are fully vested. The
Registrant claims the exemption from registration provided by Section 4(2)
of the 1933 Act for this transaction. No broker/dealers were involved in
the sale and no commissions were paid. The option certificate was impressed
with a restrictive legend advising that the shares represented by the
certificate may not be sold, transferred, pledged or hypothecated without
having first been registered or the availability of an exemption from
registration established. The options expire five years from the dates they
become exercisable.
XII.
In March 1999, the Registrant entered into an agreement with J. Paul
Consulting Corporation ("JPC"). As partial consideration for JPC's services
under the agreement, the Registrant issued JPC an option to purchase
175,000 shares of the Registrant's common stock, exercisable at $3.00 per
share. The option would become exercisable the earlier of January 1, 2000,
or when the shares become registered. The exercise period is five years
from the date the shares become freely tradeable. The issuance of the
option to JPC was made in reliance upon the exemption from registration
provided by Section 4(2) of the 1933 Act. No broker/dealers were involved
in the sale and no commissions were paid. JPC represented that JPC
acquired the option for investment and not with a view to distribution.
XIII.
In March 1999, the Registrant entered into an agreement with GJM
Trading Partners, Ltd.("GJM"). As partial consideration for GJM's services
under the agreement, the Registrant issued GJM an option to purchase
125,000 shares of the Registrant's common stock, exercisable at $3.00 per
share. The option would become exercisable the earlier of January 1, 2000,
or when the shares become registered. The exercise period is five years
from the date the shares become freely tradeable. The issuance of the
option to GJM was made in reliance upon the exemption from registration
provided by Section 4(2) of the 1933 Act. No broker/dealers were involved
in the sale and no commissions were paid. GJM represented that GJM
acquired the option for investment and not with a view to distribution.
XIV.
In March 1999, the Registrant entered into an agreement with
Transition Partners, Limited ("TPL"). The agreement terminated in July
1999. As part of the termination, TPL surrendered for cancellation a
previously issued warrant to acquire 300,000 shares of the Registrant's
common stock at $4.50 per share for five years, in exchange for a warrant
to purchase 50,000 shares of the
II-11
<PAGE>
Registrant's common stock at $4.00 per share. The issuance of the warrant
to TPL was made in reliance upon the exemption from registration provided
by Section 4(2) of the 1933 Act. No broker/dealers were involved in the
sale and no commissions were paid. TPL represented that TPL acquired the
option for investment and not with a view to distribution.
XV.
In March 1999, the Registrant entered into an agreement with Grayson
& Associates, Inc. ("G&A"). As partial consideration for G&A's services
under the agreement, the Registrant issued G&A a warrant to purchase up to
300,000 shares of the Registrant's common stock at $3.00 per share,
provided however, if the average of the closing bid/ask price for the
Registrant's common stock for the 20 consecutive trading days prior to
March 30, 2000 is less than $3.00 per share, the exercise price for the
first 100,000 shares represented by the Warrant will be adjusted down to
reflect a 25% discount from the average of the closing bid/ask price for
such period, exercisable as follows: 100,000 shares exercisable
immediately; an additional 100,000 shares shall become exercisable provided
that the Registrant has received $2 million in funding on or before May 15,
1999; and, the remaining 100,000 shares shall become exercisable provided
that the Registrant has received an additional $4 million in funding on or
before August 31, 1999, subject to ratable reductions to the extent that
any of the funding is not attributable to G&A. The warrant expires March
22, 2004. The issuance of the warrant to G&A was made in reliance upon the
exemption from registration provided by Section 4(2) of the 1933 Act. No
broker/dealers were involved in the sale and no commissions were paid. G&A
represented that G&A acquired the option for investment and not with a view
to distribution. As of August 31, 1999, G&A has performed no services on
behalf of the Registrant and the Registrant disputes any obligation under
the Warrant agreement.
XVI.
In March 1999, the Registrant conducted a private offering of its 10%
90-Day Promissory Notes, as amended ("Note"), convertible at the election
of the note holders into shares of the Registrant's common stock, at $2.00
per share, to the following:
Name Consideration No. of Warrants*
- ---- ------------- ----------------
J. Paul Consulting Corporation $60,000 210,000
James Toot $30,000 105,000
Claudia McAdam $15,000 52,500
GJM Trading Partners, Ltd. $15,000 52,500
Great Expectations Family L.P. $30,000 105,000
Bateman Dynasty $30,000 105,000
Cambridge Holdings, Ltd. $15,000 52,500
II-12
<PAGE>
Underwood Family Partners $5,000 17,500
------ ------
Total $200,000 700,000
======== =======
______________________
* Three and one-half warrants for each $1 of Promissory Notes
purchased, exercisable over a five year period from the date the shares
become freely tradeable at $3.00 per share.
The offers and sales set forth above were made in reliance upon the
exemption from registration provided by Section 4(2) of the 1933 Act and/or
Regulation D and Rule 506 adopted thereunder. Based upon information known
to the Registrant, and representations made by each of the purchasers, the
Registrant believes that all of the purchasers were Accredited Investors as
that term is defined in Rule 501 of Regulation D. No broker/dealers were
involved in the sale and no commissions were paid. All of such purchasers
represented that they purchased the securities for investment, and all
Notes and Warrants issued to the purchasers were impressed with a
restrictive legend advising that the Notes and Warrants may not be sold,
transferred, pledged or hypothecated without having first been registered
or the availability of an exemption from registration established.
XVII.
In April 1999, the Registrant issued the following shares of
Registrant's common stock at $2.00 per share, in exchange for the surrender
of its 10% 90-Day Convertible Promissory Notes, as amended ("Notes"), and
the unpaid accrued interest on such Notes:
Principal Amount of Note
------------------------
Name plus Interest No. of Shares
- ---- ------------- -------------
J. Paul Consulting Corporation $60,500 30,250
James Toot $30,250 15,125
Claudia McAdam $15,124 7,562
GJM Trading Partners, Ltd. $15,124 7,562
Great Expectations Family L.P. $30,250 15,125
Bateman Dynasty $30,250 15,125
Cambridge Holdings, Ltd. $15,124 7,562
Underwood Family Partners $5,040 2,520
------ ------
Total $201,662 100,831
======== =======
II-13
<PAGE>
The offers and sales set forth above were made in reliance upon the
exemption from registration provided by Section 4(2) of the 1933 Act and/or
Regulation D and Rule 506 adopted thereunder. Based upon information known
to the Registrant, and representations made by each of the purchasers, the
Registrant believes that all of the purchasers were Accredited Investors as
that term is defined in Rule 501 of Regulation D. No broker/dealers were
involved in the sale and no commissions were paid. All of such purchasers
represented that they purchased the securities for investment, and all
certificates issued to the purchasers were impressed with a restrictive
legend advising that the shares represented by the certificates may not be
sold, transferred, pledged or hypothecated without having first been
registered or the availability of an exemption from registration
established. Stop transfer instructions have been placed against the
transfer of these certificates by the Registrant's Transfer Agent.
XVIII.
April 1999 Private Placement
----------------------------
Name Consideration No. of Shares
- ---- ------------- -------------
Deloras Decker Hunter, Trustee $50,000 25,000
W. Douglas Moreland $40,000 20,000
L. Michael Underwood $15,000 7,500
Gladys F. Decker, Trustee $23,000 11,500
Paul C. and Carol A. Rivello $14,000 7,000
Max Gould $15,000 7,500
John J. Turk, Jr. $10,000 5,000
Myron A. Leon $20,000 10,000
Michael J. Kirby $10,000 5,000
Kenton Roy Holden IRA $10,000 5,000
Inverness Investment Profit
Sharing Plan $15,000 7,500
Bleu Ridge Consultants Profit $10,000 5,000
Danny Yu Defined Benefit
Pension Plan $18,000 9,000
Gulfstream Financial
Partners, LLC $15,000 7,500
Frank J. Kostro $15,000 7,500
Samuel F. Trussell $20,000 10,000
II-14
<PAGE>
Name Consideration No. of Shares
- ---- ------------- -------------
David M. Chapman $20,000 10,000
Richard F. and Barbara A.
Vandresser $10,000 5,000
Charles C. Bruner $6,500 3,250
Anthony B. Petrelli $6,500 3,250
Eugene L. Neidiger $7,000 3,500
Heather Evans $2,000 1,000
Steve Schulz Defined Benefit
Trust $25,000 12,500
Nancy Nita Macy, Trustee $40,000 20,000
William E. Ambrose $10,000 5,000
C. Richard and Johanna W.
Harrison $10,000 5,000
Business Development Corporation $10,000 5,000
Nanna B. Schov Custodian for
Davie Mork and Andreas B. Mork $8,000 4,000
Barry A. Bates $15,000 7,500
Thomas A. Forti, DDS $25,000 12,500
Brad Rhodes $10,000 5,000
Ronald Glosser $20,000 10,000
Brian P. and Cheri Bertelsen $10,000 5,000
Jeanette Y. Mihaly $10,000 5,000
Benedetto Casale $20,000 10,000
Colin David Rickson $10,000 5,000
Arthur Kassoff $16,000 8,000
Michael O'Hare $10,000 5,000
Arianne Nemelka $30,000 15,000
Boulder Family Partnership, Ltd. $50,000 25,000
Carla Johnson $10,000 5,000
II-15
<PAGE>
Name Consideration No. of Shares
- ---- ------------- -------------
Patrick N. Kephart $5,000 2,500
Dale Duncan $15,000 7,500
Len Rothstein $15,000 7,500
Abdallah E. Ghusn $12,000 6,000
Leona Connelly $10,000 5,000
Albert W. White $10,000 5,000
David L. Gertz $10,000 5,000
Gregory Pusey $10,000 5,000
Jill Pusey, Custodian for
Jacqueline Pusey $5,000 2,500
Jill Pusey, Custodian for
Christopher Pusey $5,000 2,500
Cambridge Holdings, Ltd. $50,000 25,000
Arthur Marsh Lavenue $10,000 5,000
Paul Ernst $30,000 15,000
Sharon M. McDonald $30,000 15,000
Douglas L. Ray $8,000 4,000
Scott Deitler $10,000 5,000
Michael P. Noonan $15,000 7,500
Russell L. Davis Profit
Sharing Plan $20,000 10,000
Cardiovascular Associates, PC
FBO L. Lockspeiser, M.D. $10,000 5,000
Charles Kirby $24,000 12,000
------- ------
TOTAL $ 995,000 497,500
========== ========
The offers and sales set forth above were made in reliance upon the
exemption from registration provided by Section 4(2) of the 1933 Act and/or
Regulation D and Rule 506 adopted thereunder. Based upon information known
to the Registrant, and representations made by each of the purchasers, the
Registrant believes that all of the purchasers were Accredited Investors as
that term is defined in Rule 501 of Regulation D. No broker/dealers were
involved in the sale and
II-16
<PAGE>
no commissions were paid. All of such purchasers represented that they
purchased the securities for investment, and all certificates issued to the
purchasers were impressed with a restrictive legend advising that the
shares represented by the certificates may not be sold, transferred,
pledged or hypothecated without having first been registered or the
availability of an exemption from registration established. Stop transfer
instructions have been placed against the transfer of these certificates by
the Registrant's Transfer Agent.
XIX.
In May 1999, a consultant to the Registrant exercised options for an
aggregate of 8,000 shares of the Registrant's common stock at $4.00 per
share. The Registrant claims the exemption from registration provided by
Section 4(2) of the 1933 Act. The certificate issued to the consultant was
impressed with a restrictive legend advising that the shares represented by
certificate may not be sold, transferred, pledged or hypothecated without
having first been registered or the availability of an exemption from
registration established. No brokers or dealers received compensation in
connection with the sale of these shares.
XX.
June 1999 Private Placement
---------------------------
Name Consideration No. of Shares
- ---- ------------- -------------
Torben Maersk $10,000 2,500
James M. Love $50,000 12,500
Al-Houda Hotels & Tourism $150,000 37,500
Concorde Bank Limited $50,000 12,500
Bobzin Dieter $40,000 10,000
Carlos Goncalves $50,000 12,500
Tectron-Industria de Productos
Electronicos, LDA $100,000 25,000
Jean Paul Desbrueres $30,000 7,500
Wilhelm Giersten $20,000 5,000
Dany Noujeim $2,000 500
Goran Gustafson $10,000 2,500
Lars Kellman $10,000 2,500
Gert Kristensson $20,000 5,000
II-17
<PAGE>
Name Consideration No. of Shares
- ---- ------------- -------------
Sune Persson $20,000 5,000
Johanna Brassert $25,000 6,250
Asuno, Inc. $300,000 75,000
Henri Jacob $26,000 6,500
Sylvie Lapidouse $40,000 10,000
Ernst Schneider $50,000 12,500
Kurt Marty $25,000 6,250
Helaba Schweiz $45,000 11,250
Jean-Pierre Delaloye $24,000 6,000
Coutts Bank LTD $24,000 6,000
Etoile Limited $24,000 6,000
Fondation Brigar $24,000 6,000
Galba Anstalt $50,000 12,500
------- ------
TOTAL $1,219,000 304,750
========== =======
The Company claims the exemption from registration provided by Section
4(2) of the Securities Act of 1933, as amended, and/or Rule 506 of
Regulation D adopted thereunder for the transactions described above. All
of the purchasers were either known to the Registrant, or were referred to
the Registrant by a consultant to the Company. Based upon the written
representations made by the purchasers and other information known to the
Registrant, the Registrant believes all of the purchasers were Accredited
Investors as that term is defined in Rule 501 of Regulation D. All
purchasers represented that they purchased the securities for investment,
and all certificates issued to the purchasers were impressed with a
restrictive legend advising that the shares represented by certificates may
not be sold, transferred, pledged or hypothecated without having first been
registered or the availability of an exemption from registration
established. Stop transfer instructions have been placed against the
transfer of these certificates by the Registrant's Transfer Agent. No
brokers or dealers received compensation in connection with the sale of
these shares.
XXI.
In June 1999, the Registrant granted options to acquire 20,000 shares
of the Registrant's common stock to Wellington Ewen, the Registrant's Chief
Financial Officer, at an exercise price of $4.00 per share for five years
from the dates the options become exercisable. The shares shall
II-18
<PAGE>
vest ratably over a 12 month period from date of grant. The Registrant
claims the exemption from registration provided by Section 4(2) of the 1933
Act for this transaction. No broker/dealers were involved in the sale and
no commissions were paid. The option certificate was impressed with a
restrictive legend advising that the shares represented by the certificate
may not be sold, transferred, pledged or hypothecated without having first
been registered or the availability of an exemption from registration
established.
XXII.
In June 1999, the Registrant granted options to acquire 60,000 shares
of the Registrant's common stock to Wendy Rieder, a consultant of the
Registrant, at an exercise price of $5.00 per share for five years from the
date the options become exercisable. The shares vest as follows: 20,000
shares as of May 1, 2000, with the remaining shares vesting on a pro rata
basis monthly through May 1, 2002. The Registrant claims the exemption from
registration provided by Section 4(2) of the 1933 Act for this transaction.
No broker/dealers were involved in the sale and no commissions were paid.
The option certificate was impressed with a restrictive legend advising
that the shares represented by the certificate may not be sold,
transferred, pledged or hypothecated without having first been registered
or the availability of an exemption from registration established.
XXIII.
In June 1999, the Registrant granted options to acquire 60,000 shares
of the Registrant's common stock to LMU & Company, a consultant of the
Registrant. The options are exercisable at $3.00 per share for nine years
and vest as to 20,000 shares covered hereby on February 1, 1999.
Thereafter, this Option shall vest as to the remaining 40,000 shares
covered hereby on a pro rata basis monthly commencing March 1, 1999, and
ending February 1, 2001. The Registrant claims the exemption from
registration provided by Section 4(2) of the 1933 Act for this transaction.
No broker/dealers were involved in the sale and no commissions were paid.
The option certificate was impressed with a restrictive legend advising
that the shares represented by the certificate may not be sold,
transferred, pledged or hypothecated without having first been registered
or the availability of an exemption from registration established.
XXIV.
In July 1999, the Registrant issued an aggregate of 24,550 shares of
its common stock to the holders of the Registrant's Series B Preferred
Stock as a dividend, valued at $5.00 per share. The issuance of the
dividend shares was exempt from registration in that there was no sale of
the shares by the Registrant. Each holder of the Registrant's Series B
Preferred Stock represented that he received the shares for investment and
not with a view to distribution. All certificates were endorsed with a
legend restricting the sale or transfer of the securities except in
accordance with federal securities laws. Stop transfer instructions have
been placed against the transfer of these certificates by the Registrant's
Transfer Agent.
II-19
<PAGE>
XXV.
In July 1999, a consultant to the Registrant exercised options for an
aggregate of 12,000 shares of the Registrant's common stock at $4.00 per
share. The Registrant claims the exemption from registration provided by
Section 4(2) of the 1933 Act. The certificate issued to the consultant was
impressed with a restrictive legend advising that the shares represented by
certificate may not be sold, transferred, pledged or hypothecated without
having first been registered or the availability of an exemption from
registration established. No brokers or dealers received compensation in
connection with the sale of these shares.
XXVI.
In July 1999, the Registrant granted options to acquire 60,000 shares
of the Registrant's common stock to LMU & Company, a consultant of the
Registrant. The options are exercisable at $4.00 per share for five years
from the dates they become exercisable and vest as follows: 20,000 shares
at August 5, 1999, and the remaining 40,000 shares ratably over a four
month period through December 5, 1999. The Registrant claims the exemption
from registration provided by Section 4(2) of the 1933 Act for this
transaction. No broker/dealers were involved in the sale and no commissions
were paid. The option certificate was impressed with a restrictive legend
advising that the shares represented by the certificate may not be sold,
transferred, pledged or hypothecated without having first been registered
or the availability of an exemption from registration established.
XXVII.
In July 1999, the Registrant granted performance bonus options to
purchase 120,000 shares of the Registrant's common stock to each of the
following executive officers of the Registrants: Higgins D. Bailey and
Donald Hunter. The options are fully vested upon grant and exercisable at
$4.00 per share for five years. The Registrant claims the exemption from
registration provided by Section 4(2) of the 1933 Act for this transaction.
No broker/dealers were involved in the sale and no commissions were paid.
The option certificate was impressed with a restrictive legend advising
that the shares represented by the certificate may not be sold,
transferred, pledged or hypothecated without having first been registered
or the availability of an exemption from registration established.
XXVIII.
In September 1999, the Registrant granted an option to purchase 23,500
shares of the Registrant's common stock to CCRI, a consultant of the
Registrant at an exercise price of $4.00 per share for five years. The
shares are fully vested. The Registrant claims the exemption from
registration provided by Section 4(2) of the 1933 Act for this transaction.
No broker/dealers were involved in the sale and no commissions were paid.
The option certificate was impressed with a restrictive legend advising
that the shares represented by the certificate may not be sold,
transferred,
II-20
<PAGE>
pledged or hypothecated without having first been registered or the
availability of an exemption from registration established.
XXIX.
September 1999 Private Placement
--------------------------------
Name Consideration No. of Shares
- ---- ------------- -------------
Metz Family Trust
John R. Metz and Theresa G.
Metz, TTEE $4,000 1,000
Sunbelt Holdings, Inc.
Dennis D. French 60,000 15,000
MRI, Inc.
Profit Sharing Plan
Dennis D. French 20,000 5,000
Barry Seidman 100,000 25,000
James G. Stevens
Jana C. Stevens 20,000 5,000
Edward Jones Custodian FBO
Sharon Witaker Roth IRA 2,000 500
Edward Jones, Custodian FBO
Ernest Handelin Roth IRA 10,200 2,550
Edward Jones, Custodian FBO
Carl Hendelin Roth IRA 6,000 1,500
Edward Jones, Custodian FBO
Kathleen Rounds Roth IRA 5,800 1,450
Edward Jones,Custodian FBO
Gary Handelin Roth IRA 5,800 1,450
Edward Jones, Custodian FBO
Alan E. Handelin Roth IRA 9,800 2,450
Leslie Rounds and Kathleen Rounds
Husband and Wife, JT 4,000 1,000
II-21
<PAGE>
Name Consideration No. of Shares
- ---- ------------- -------------
Ralph L. Fuentes and Diana C.
Fuentes Husband and Wife,
Community Property 3,000 750
Alan E. Handelin 4,000 1,000
Ernest E. Handelin 73,000 18,250
Joseph P. Sperty
Karen H. Sperty 8,000 2,000
David M. Chapman 20,000 5,000
Danny Yu Defined Benefit
Pension Plan 50,000 12,500
Russell L. Davis, Trustee of the
Davis Family Trust 20,000 5,000
Russell L. Davis, Trustee FBO
Russell L. Davis Attorney at Law
Profit Sharing Plan 20,000 5,000
Sylvia E. Davis, Trustee
Of the Sylvia E. Davis Trust 20,000 5,000
Danny Yu and Nancy Yu, Trustees
Yu Family Living Trust 20,000 5,000
Audrey Spangenberg 20,000 5,000
William H. Golod
Marsha B. Golod 8,000 2,000
Samuel F. Trussell 20,000 5,000
John and Donna Bruce 1996
Living Trust 5,000 1,250
Anders Johnson 2,000 500
Mikael E. Ibsen 8,000 2,000
Mohamed Ali Khawas
Malisco Switch Great Ind. 30,000 7,500
Torben Maersk 10,000 2,500
ATO Ram 2 Ltd. 100,000 25,000
II-22
<PAGE>
Name Consideration No. of Shares
- ---- ------------- -------------
ATO Ram 2 Ltd. 150,000 37,500
Staffan Lindskog 1,000 250
Tawfig S. Mohammed 20,000 5,000
Wilheim Giersten 60,000 15,000
Dany Novjeim 2,000 500
Goram Gustafsson 10,000 2,500
Edouard Rabbat
Riyadh Exhibitions Co. Ltd. 2,000 500
Salah Abdullah Dashti 50,000 12,500
Michael C. Saunders 6,000 1,500
Jean Paul Desbrueres 20,000 5,000
Mohammed Al-Nussif 1,200 300
Mahmound Mohammed Abileh 200,000 50,000
Amir Salim Huneidi 100,000 25,000
Henrik Boyander 4,000 1,000
Raghib Zuberi
Yamama-Al-Kuwait 5,000 1,250
Steen Thomsen 4,000 1,000
Carlos Goncalves 50,000 12,500
Robert and Joanne Penner,
Trustees of the Penner Family
Trust 20,000 5,000
Anders Jonson 2,000 500
Thomas M. Lyvers, Sr. 10,000 2,500
Brenda R. Lyvers
Charles Kirby 50,000 12,500
Heather M. Evans 10,000 2,500
David S. Haydan 20,000 5,000
Shirley C. Haydan
II-23
<PAGE>
Name Consideration No. of Shares
- ---- ------------- -------------
Direct Diamonds and 20,000 5,000
Gold Exchange, Inc.
Len Rothstein 20,000 5,000
Richard D. Reinisch and 40,000 10,000
Grace A. Reinish
David A. Zallar 20,000 5,000
Christopher A. Marlett Living Trust 20,000 5,000
David A. Zallar 20,000 5,000
------ -----
Total $1,625,800 406,450
========== =======
The Company claims the exemption from registration provided by Section
4(2) of the Securities Act of 1933, as amended, and/or Rule 506 of
Regulation D adopted thereunder for the transactions described above. All
of the purchasers were either known to the Registrant, or were referred to
the Registrant by a consultant to the Company. Based upon the written
representations made by the purchasers and other information known to the
Registrant, the Registrant believes all of the purchasers were Accredited
Investors as that term is defined in Rule 501 of Regulation D. All
purchasers represented that they purchased the securities for investment,
and all certificates issued to the purchasers were impressed with a
restrictive legend advising that the shares represented by certificates may
not be sold, transferred, pledged or hypothecated without having first been
registered or the availability of an exemption from registration
established. Stop transfer instructions have been placed against the
transfer of these certificates by the Registrant's Transfer Agent. No
brokers or dealers received compensation in connection with the sale of
these shares.
XXX.
In September 1999, as partial consideration for consulting services
the Registrant issued Neidiger Tucker Bruner Inc. a warrant to purchase up
to 101,680 shares of the Registrant's common stock, exercisable at $4.00
per share for five years. The Registrant claims the exemption from
registration provided by Section 4(2) of the 1933 Act for this transaction.
No broker/dealers were involved in the sale and no commissions were paid.
The warrant certificate was impressed with a restrictive legend advising
that the shares represented by the certificate may not be sold,
transferred, pledged or hypothecated without having first been registered
or the availability of an exemption from registration established.
II-24
<PAGE>
XXXI.
In November 1999, as partial consideration for consulting services,
the Registrant issued ATO Ram 2, Ltd. a warrant to purchase up to 30,000
shares of the Registrant's common stock, exercisable at $4.00 per share for
five years. The Registrant claims the exemption from registration provided
by Section 4(2) of the 1933 Act for this transaction. No broker/dealers
were involved in the sale and no commissions were paid. The warrant
certificate was impressed with a restrictive legend advising that the
shares represented by the certificate may not be sold, transferred, pledged
or hypothecated without having first been registered or the availability of
an exemption from registration established.
XXXII.
In November 1999, the Registrant granted an option to purchase 400,000
shares of the Registrant's common stock to Thomas G. Tachovsky, a Director,
President and Chief Executive Officer of the Registrant at an exercise
price of $5.00 per share. The shares vest as follows: 100,000 shares upon
completion of the first Phase III trial; 150,000 shares upon submission of
the NDA; and, 150,000 shares upon approval of the NDA. The options expire
five years from the dates they become exercisable. The Registrant claims
the exemption from registration provided by Section 4(2) of the 1933 Act
for this transaction. No broker/dealers were involved in the sale and no
commissions were paid. The option certificate was impressed with a
restrictive legend advising that the shares represented by the certificate
may not be sold, transferred, pledged or hypothecated without having first
been registered or the availability of an exemption from registration
established.
XXXIII.
As of September 1999, the holders of 15,000 shares of the Registrant's
Series B Preferred Stock converted their shares into 15,000 shares of the
Registrant's common stock. The issuance of the shares of common stock upon
the conversion is exempt from registration in that there was no sale of the
shares by the Registrant. Each holder of the Registrant's Series B
Preferred Stock represented that he received the shares for investment and
not with a view to distribution. All certificates were endorsed with a
legend restricting the sale or transfer of the securities except in
accordance with federal securities laws. Stop transfer instructions have
been placed against the transfer of these certificates by the Registrant's
Transfer Agent.
II-25
<PAGE>
Item 27. Exhibits and Financial Schedules
--------------------------------
The following is a complete list of exhibits filed as part of this
Registration Statement, which Exhibits are incorporated herein.
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
corrected(2)
3.5 Amended Articles of Incorporation, as filed with the Colorado
Secretary of State on July 20, 1998(6)
3.6 Amended and Restated Bylaws, dated March 20, 1999
4.1 Specimen copy of stock certificate for Common Stock,
$.001 par value(2)
4.2 Specimen copy of stock certificate for Series A Preferred Stock,
$.001 par value(2)
4.3 Form of Common Stock Purchase Warrant Certificate
5.1 Form of Opinion of Brenman Bromberg & Tenenbaum, P.C.
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)(4)
10.5 Lease Agreement, dated February 1, 1998, between the Registrant
and Thomas T. Anderson(4)
10.6 License Agreement dated January 1, 1998, between the Registrant
and Dr. James E. Wynn(4)
II-26
<PAGE>
10.7 Assignment of Patent #4,556,663 dated September 24, 1992, by
Lowell M. Somers, M.D. to Entropin, Inc(4)
10.8 Assignment of Patent #4,512,996 dated September 24, 1992, by
Lowell M. Somers, M.D. to Entropin, Inc (4)
10.9 Assignment of Patent #4,469,700 dated September 24, 1992, by
Lowell M. Somers, M.D. to Entropin, Inc.(4)
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(4)
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(4)
10.12 Agreement dated April 18, 1998 by and between the Registrant
and the Western Center for Clinical Studies, Inc.(5)
10.13 Agreement Among Shareholders, dated June 29, 1998(6)
10.14 1998 Compensatory Stock Plan (7)
10.15 Agreement dated August 16, 1999, by and between the Registrant
and Therapeutic Management, Inc. [Confidential treatment has
been granted](8)
10.16 Agreement Among Shareholders, dated March 3, 1999
10.17 Amendment, dated August 3, 1998, by and between the Registrant
and Western Center for Clinical Studies, Inc.
10.18 Second Amendment, dated July 21, 1999, between the Registrant
and the Western Center for Clinical Studies, Inc.
10.19 Amendment to License Agreement, dated June 5, 1999, between the
Registrant and Dr. James E. Wynn
10.20 Wrap Around Agreement dated November 10, 1999, by and between
the Registrant and Therapeutic Management, Inc. [Confidential
treatment has been requested.]
10.21 Form of Underwriting Agreement between the Registrant and
Neidiger Tucker Bruner, Inc.
II-27
<PAGE>
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)
24.1 Consent of Brenman Bromberg & Tenenbaum, P.C. (included in
Exhibit 5.1)
24.2 Consent of Causey Demgen & Moore Inc.
27 Financial Data Schedules
___________
(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, as amended, 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, as amended, dated
March 25, 1998.
(4) Incorporated by reference from the like numbered exhibits filed with
the Registrant's Annual Report on Form 10-KSB, dated April 15, 1998,
as amended.
(5) Incorporated by reference from the like numbered exhibit filed with
the Registrant's Current Report on Form 8-K, dated April 23, 1998.
(6) Incorporated by reference from the like numbered exhibits filed with
the Registrant's Registration Statement on Form S-1, No. 333-51737
effective August 21, 1998.
(7) Incorporated by reference from the like numbered exhibit as filed with
the Registrant's Registration Statement on Form S-8 as filed on
December 30, 1998.
(8) Incorporated by reference from the like numbered exhibit as filed with
the Registrant's Current Report on Form 8-K, as amended, dated
August 20, 1999.
(9) Incorporated by reference from the like numbered exhibits as filed with
the Registrant's Quarterly Report on Form 10-QSB, dated September 30, 1999,
and Annual Report on Form 10-KSB, dated December 31, 1998.
Item 28. Undertakings
------------
The undersigned Registrant will:
(a)(1) File, during any period in which it offers or sells
securities, a post-effective amendment to this registration statement to:
(i) include any prospectus required by Section 10(a)(3) of the Securities
Act; (ii) reflect in the prospectus any facts or events which, individually
or together, represent a fundamental change in the information in the
registration statement; and (iii) include any additional or changed
material information on the plan of distribution.
(2) For determining liability under the Securities Act, treat each
post-effective amendment as a new registration statement of the securities
offered, and the offering of the securities at that time to be the initial
bona fide offering.
(3) File a post-effective amendment to remove from registration any
of the securities that remain unsold at the end of the offering.
II-28
<PAGE>
The undersigned Registrant will provide to the Underwriters at the
closing specified in the underwriting agreement certificates in such
denominations and registered in such names as required by the Underwriters
to permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 (the "Act") may be permitted to directors, officers
and controlling persons of the Registrant pursuant to the foregoing
provisions, or otherwise, the Registrant 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 Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant 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 Registrant 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
Securities Act and will be governed by the final adjudication of such issue.
II-29
<PAGE>
SIGNATURES
----------
In accordance with the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it
meets all of the requirements for filing on Form SB-2 and authorized this
Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City and County of Denver, State of
Colorado on March 9, 2000.
ENTROPIN, INC.
By: /s/ Higgins D. Bailey
-----------------------------------
Higgins D. Bailey, Chairman
In accordance with the requirements of the Securities Act of 1933,
this Registration Statement was signed by the following persons in the
capacities and on the dates indicated.
Signatures Title Date
- ---------- ----- ----
/s/ Thomas G. Tachovsky President, CEO, Principal March 9, 2000
- --------------------------- Executive Officer and Director
Thomas G. Tachovsky
/s/ Higgins D. Bailey Chairman of the Board March 9, 2000
- --------------------------- of Directors, Secretary
Higgins D. Bailey and Director
/s/ Donald Hunter Vice Chairman of the Board March 9, 2000
- --------------------------- of Directors, Treasurer and
Donald Hunter Director
/s/ Daniel L. Azarnoff Director March 9, 2000
- ---------------------------
Daniel L. Azarnoff
/s/ James E. Wynn Director March 9, 2000
- ---------------------------
James E. Wynn
/s/ Wellington Ewen Chief Financial Officer and March 9, 2000
- --------------------------- Principal Financial Officer
Wellington Ewen
II-31
EXHIBIT 3.6
BYLAWS
OF
ENTROPIN, INC.
AS AMENDED AND RESTATED
MARCH 20, 1999
<PAGE>
INDEX TO
BYLAWS
OF
ENTROPIN, INC.
ARTICLE I - OFFICES. . . . . . . . . . . . . . . . . . . . . . . . . . .1
Section 1.1 PRINCIPAL OFFICE. . . . . . . . . . . . . . . . . . . .1
Section 1.2 REGISTERED OFFICE . . . . . . . . . . . . . . . . . . .1
ARTICLE II - SHAREHOLDERS. . . . . . . . . . . . . . . . . . . . . . . .1
Section 2.1 ANNUAL MEETING. . . . . . . . . . . . . . . . . . . . .1
Section 2.2 SPECIAL MEETINGS. . . . . . . . . . . . . . . . . . . .1
Section 2.3 COURT ORDERED MEETINGS. . . . . . . . . . . . . . . . .2
Section 2.4 PLACE OF MEETINGS . . . . . . . . . . . . . . . . . . .2
Section 2.5 NOTICE OF MEETING . . . . . . . . . . . . . . . . . . .2
Section 2.6 MEETING OF ALL SHAREHOLDERS . . . . . . . . . . . . . .3
Section 2.7 CLOSING OF TRANSFER BOOKS OR FIXING OF
RECORD DATE . . . . . . . . . . . . . . . . . . . . . .3
Section 2.8 VOTING LISTS. . . . . . . . . . . . . . . . . . . . . .4
Section 2.9 QUORUM. . . . . . . . . . . . . . . . . . . . . . . . .4
Section 2.10 MANNER OF ACTING . . . . . . . . . . . . . . . . . . .5
Section 2.11 PROXIES. . . . . . . . . . . . . . . . . . . . . . . .5
Section 2.12 VOTING OF SHARES . . . . . . . . . . . . . . . . . . .6
Section 2.13 VOTING OF SHARES BY CERTAIN SHAREHOLDERS . . . . . . .6
Section 2.14 ACTION BY SHAREHOLDERS WITHOUT A MEETING . . . . . . .7
Section 2.15 VOTING BY BALLOT . . . . . . . . . . . . . . . . . . .8
Section 2.16 NO CUMULATIVE VOTING . . . . . . . . . . . . . . . . .8
Section 2.17 WAIVER OF NOTICE . . . . . . . . . . . . . . . . . . .8
Section 2.18 PARTICIPATION BY ELECTRONIC MEANS. . . . . . . . . . .8
ARTICLE III - BOARD OF DIRECTORS . . . . . . . . . . . . . . . . . . . .8
Section 3.1 GENERAL POWERS. . . . . . . . . . . . . . . . . . . . .8
Section 3.2 PERFORMANCE OF DUTIES . . . . . . . . . . . . . . . . .8
Section 3.3 NUMBER, TENURE AND QUALIFICATIONS . . . . . . . . . . .9
Section 3.4 REGULAR MEETINGS. . . . . . . . . . . . . . . . . . . .9
Section 3.5 SPECIAL MEETINGS. . . . . . . . . . . . . . . . . . . .9
Section 3.6 NOTICE. . . . . . . . . . . . . . . . . . . . . . . . .9
Section 3.7 QUORUM. . . . . . . . . . . . . . . . . . . . . . . . 10
Section 3.8 MANNER OF ACTING. . . . . . . . . . . . . . . . . . . 10
Section 3.9 INFORMAL ACTION BY DIRECTORS OR COMMITTEE
MEMBERS . . . . . . . . . . . . . . . . . . . . . . . 10
Section 3.10 PARTICIPATION BY ELECTRONIC MEANS. . . . . . . . . . 11
Section 3.11 VACANCIES. . . . . . . . . . . . . . . . . . . . . . 11
Section 3.12 RESIGNATION. . . . . . . . . . . . . . . . . . . . . 11
<PAGE>
Section 3.13 REMOVAL. . . . . . . . . . . . . . . . . . . . . . . 11
Section 3.14 COMMITTEES . . . . . . . . . . . . . . . . . . . . . 11
Section 3.15 COMPENSATION . . . . . . . . . . . . . . . . . . . . 12
Section 3.16 PRESUMPTION OF ASSENT. . . . . . . . . . . . . . . . 12
ARTICLE IV - OFFICERS. . . . . . . . . . . . . . . . . . . . . . . . . 12
Section 4.1 NUMBER. . . . . . . . . . . . . . . . . . . . . . . . 12
Section 4.2 ELECTION AND TERM OF OFFICE . . . . . . . . . . . . . 12
Section 4.3 REMOVAL . . . . . . . . . . . . . . . . . . . . . . . 13
Section 4.4 VACANCIES . . . . . . . . . . . . . . . . . . . . . . 13
Section 4.5 CHAIRMAN OF THE BOARD . . . . . . . . . . . . . . . . 13
Section 4.6 PRESIDENT. . . . . . . . . . . . . . . . . . . . . . 13
Section 4.7 CHIEF EXECUTIVE OFFICER . . . . . . . . . . . . . . . 13
Section 4.8 VICE CHAIRMAN OF THE BOARD. . . . . . . . . . . . . . 14
Section 4.9 VICE PRESIDENT. . . . . . . . . . . . . . . . . . . . 14
Section 4.10 SECRETARY. . . . . . . . . . . . . . . . . . . . . . 14
Section 4.11 TREASURER. . . . . . . . . . . . . . . . . . . . . . 15
Section 4.12 ASSISTANT SECRETARIES AND ASSISTANT TREASURERS . . . 15
Section 4.13 BONDS. . . . . . . . . . . . . . . . . . . . . . . . 15
Section 4.14 SALARIES . . . . . . . . . . . . . . . . . . . . . . 15
ARTICLE V - CONTRACTS, LOANS, CHECKS AND DEPOSITS. . . . . . . . . . . 16
Section 5.1 CONTRACTS . . . . . . . . . . . . . . . . . . . . . . 16
Section 5.2 LOANS . . . . . . . . . . . . . . . . . . . . . . . . 16
Section 5.3 CHECKS, DRAFTS, ETC . . . . . . . . . . . . . . . . . 16
Section 5.4 DEPOSITS. . . . . . . . . . . . . . . . . . . . . . . 16
ARTICLE VI - SHARES, CERTIFICATES FOR SHARES AND TRANSFER
OF SHARES. . . . . . . . . . . . . . . . . . . . . . . . 16
Section 6.1 REGULATION. . . . . . . . . . . . . . . . . . . . . . 16
Section 6.2 SHARES WITHOUT CERTIFICATES . . . . . . . . . . . . . 16
Section 6.3 CERTIFICATES FOR SHARES . . . . . . . . . . . . . . . 17
Section 6.4 CANCELLATION OF CERTIFICATES. . . . . . . . . . . . . 17
Section 6.5 CONSIDERATION FOR SHARES. . . . . . . . . . . . . . . 17
Section 6.6 LOST, STOLEN OR DESTROYED CERTIFICATES. . . . . . . . 17
Section 6.7 TRANSFER OF SHARES. . . . . . . . . . . . . . . . . . 18
ARTICLE VII - FISCAL YEAR. . . . . . . . . . . . . . . . . . . . . . . 18
ARTICLE VIII - DISTRIBUTIONS . . . . . . . . . . . . . . . . . . . . . 18
ARTICLE IX - CORPORATE SEAL. . . . . . . . . . . . . . . . . . . . . . 19
ARTICLE X - AMENDMENTS . . . . . . . . . . . . . . . . . . . . . . . . 19
<PAGE>
ARTICLE XI - UNIFORMITY OF INTERPRETATIONAND SEVERABILITY. . . . . . . 19
ARTICLE XII - EMERGENCY BYLAWS . . . . . . . . . . . . . . . . . . . . 19
<PAGE>
BYLAWS
OF
ENTROPIN, INC.
ARTICLE I
OFFICES
SECTION 1.1 PRINCIPAL OFFICE. The principal office of the
corporation of the corporation shall be designated from time to time by the
corporation and may be within or outside of Colorado. The corporation may
have such other offices, either within or outside of the State of Colorado
as the Board of Directors may designate, or as the business of the
corporation may require from time to time.
SECTION 1.2 REGISTERED OFFICE. The registered office of the
corporation, required by the Colorado Business Corporation Act to be
maintained in the State of Colorado, may be, but need not be, identical
with the principal office in the State of Colorado, and the address of the
registered office may be changed from time to time by the Board of
Directors.
ARTICLE II
SHAREHOLDERS
SECTION 2.1 ANNUAL MEETING. The annual meeting of the shareholders
shall be held at such time on such day as shall be fixed by the Board of
Directors for the purpose of electing directors and for the transaction of
such other business as may come before the meeting. If the day fixed for
the annual meeting shall be a legal holiday in the State of Colorado, such
meeting shall be held on the next succeeding business day. If the election
of directors shall not be held on the day designated herein for any annual
meeting of the shareholders, or at any adjournment thereof, the Board of
Directors shall cause the election to be held at a special meeting of the
shareholders as soon thereafter as may be convenient.
SECTION 2.2 SPECIAL MEETINGS. Special meetings of the shareholders,
for any purpose or purposes, unless otherwise prescribed by statute, may be
called by the Chief Executive Officer or by the Board of Directors, and
shall be called by the Chief Executive Officer upon the receipt of one or
more written demands for a special meeting, stating the purpose or purposes
for which it is to be held, signed and dated by the holders of shares
representing at least ten percent of all the votes entitled to be cast on
any issue proposed to be considered at the meeting.
SECTION 2.3 COURT ORDERED MEETINGS. A shareholder may apply to the
district court in the county in Colorado where the corporation's principal
office is located or, if
<PAGE>
the corporation has no principal office in Colorado, to the district court
of the county in which the corporation's registered office is located to
seek an order that a shareholder meeting be held (i) if an annual meeting
was not held within six months after the close of the corporation's most
recently ended fiscal year or fifteen months after its last annual meeting,
whichever is earlier, or (ii) if a shareholder participated in a proper
call of or demand for a special meeting and notice of the special meeting
was not given within thirty days after the date of the call or the date of
the last of the demands necessary to require the calling of the meeting was
received by the corporation pursuant to the Colorado Business Corporation
Act, or the special meeting was not held in accordance with the notice.
SECTION 2.4 PLACE OF MEETINGS. The Board of Directors may designate
any place, either within or outside of the State of Colorado, as the place
of meeting for any annual meeting or for any special meeting called by the
Board of Directors. If no designation is made, or if a special meeting be
otherwise called, the place of meeting shall be the principal office of the
corporation.
SECTION 2.5 NOTICE OF MEETING. Written notice stating the place, day
and hour of the meeting of shareholders shall be delivered not less than
ten nor more than sixty days before the date of the meeting, except that
(i) if the number of authorized shares is to be increased, at least thirty
days' notice shall be given, or (ii) any other longer notice period is
required by the Colorado Business Corporation Act. Notice of a special
meeting shall include a description of the purpose or purposes of the
meeting. Notice of an annual meeting need not include a description of the
purpose or purposes of the meeting except the purpose or purposes shall be
stated with respect to (i) an amendment to the Articles of Incorporation of
the corporation, (ii) a merger or share exchange in which the corporation
is a party and, with respect to a share exchange, in which the
corporation's shares will be acquired, (iii) a sale, lease, exchange or
other disposition, other than in the usual and regular course of business,
of all or substantially all of the property of the corporation or of
another entity which this corporation controls, in each case with or
without the goodwill, (iv) a dissolution of the corporation, or (v) any
other purpose for which a statement of purpose is required by the Colorado
Business Corporation Act. Notice shall be given personally or by mail,
private carrier, telegraph, teletype, electronically transmitted facsimile
or other form of wire or wireless communication, by or at the direction of
the Chief Executive Officer, or the Secretary, or the officer or other
persons calling the meeting, to each shareholder entitled to vote at such
meeting. If mailed and in a comprehensible form, such notice shall be
deemed to be delivered when deposited in the United States mail, addressed
to the shareholder at his or her address as it appears on the stock
transfer books of the corporation, with postage thereon prepaid. If notice
is given other than by mail, and provided such notice is in a
comprehensible form, the notice is given and effective on the date received
by the shareholder.
No notice need be sent to any shareholder if three successive notices
mailed to the last known address of such shareholder have been returned as
undeliverable until such time as another address for such shareholder is
made known to the corporation by such shareholder. In
-2-
<PAGE>
order to be entitled to receive notice of any meeting, a shareholder shall
advise the corporation in writing of any change in such shareholder's
mailing address as shown on the corporation's books and records.
When a meeting is adjourned to another date, time or place, notice
need not be given of the new date, time or place if the new date, time or
place of such meeting is announced before adjournment at the meeting at
which the adjournment is taken. At the adjourned meeting the corporation
may transact any business which may have been transacted at the original
meeting. If the adjournment is for more than 120 days, or if a new record
date is fixed for the adjourned meeting, a new notice of the adjourned
meeting shall be given to each shareholder of record entitled to vote at
the meeting as of the new record date.
SECTION 2.6 MEETING OF ALL SHAREHOLDERS. If all of the shareholders
shall meet at any time and place, either within or outside of the State of
Colorado, and consent in writing to the holding of a meeting at such time
and place, such meeting shall be valid without call or notice, and at such
meeting any shareholder action may be taken.
SECTION 2.7 CLOSING OF TRANSFER BOOKS OR FIXING OF RECORD DATE. For
the purpose of determining shareholders entitled to (i) notice of or to
vote at any meeting of shareholders or any adjournment thereof, (ii) to
receive distributions or share dividends, (iii) demand a special meeting,
or (iv) in order to make a determination of shareholders for any other
proper purpose, the Board of Directors of the corporation may provide that
the share transfer books shall be closed for a stated period but not to
exceed, in any case, seventy days. If the share transfer books shall be
closed for the purpose of determining shareholders entitled to notice of or
to vote at a meeting of shareholders, such books shall be closed for at
least ten days immediately preceding such meeting. In lieu of closing the
share transfer books, the Board of Directors may fix in advance a date as
the record date for any such determination of shareholders, such date in
any case to be not more than seventy days and, in case of a meeting of
shareholders, not less than ten days prior to the date on which the
particular action, requiring such determination of shareholders, is to be
taken. If the share transfer books are not closed and no record date is
fixed for the determination of shareholders entitled to notice of or to
vote at a meeting of shareholders, or shareholders entitled to receive
payment of a distribution, the date on which notice of the meeting is
mailed or the date on which the resolution of the Board of Directors
declaring such distribution is adopted, as the case may be, shall be the
record date for such determination of shareholders. When a determination
of shareholders entitled to vote at any meeting of shareholders has been
made as provided in this section, such determination shall apply to any
adjournment thereof, unless the meeting is adjourned to a date more than
one hundred twenty days after the date fixed for the original meeting, in
which case the Board of Directors shall make a new determination as
provided in this section.
SECTION 2.8 VOTING LISTS. The officer or agent having charge of the
stock transfer books for shares of the corporation shall make, at the
earlier of ten days before such
-3-
<PAGE>
meeting of shareholders or two business days after notice of the meeting,
a complete list of the shareholders entitled to vote at each meeting of
shareholders or any adjournment thereof. The list shall be arranged by
voting groups and within each voting group by class or series of shares,
shall be arranged in alphabetical order, within each class or series, and
shall show the address of and the number of shares of each class or series
held by each shareholder. For the period beginning the earlier of ten days
prior to such meeting or two business days after notice of the meeting is
given and continuing through the meeting and any adjournment thereof, this
list shall be kept on file at the principal office of the corporation, or
at a place (which shall be identified in the notice) in the city where the
meeting will be held. Such list shall be available for inspection on
written demand by any shareholder (including for the purpose of this
Section any holder of voting trust certificates) or his or her agent or
attorney during regular business hours and during the period available for
inspection. The original stock transfer books shall be prima facie
evidence as to the shareholders entitled to examine such list or to vote at
any meeting of shareholders.
Any shareholder, his or her agent or attorney, may copy the list
during regular business hours and during the period it is available for
inspection, provided (i) the shareholder has been a shareholder for at
least three months immediately preceding the demand or is a shareholder of
at least five percent of all of the outstanding shares of any class of
shares as of the date of the demand, (ii) the demand is made in good faith
and for a purpose reasonably related to the demanding shareholder's
interest as a shareholder, (iii) the shareholder describes with reasonable
particularity the purpose and the list the shareholder desires to inspect,
(iv) the list is directly connected with the described purpose; and (v) the
shareholder pays a reasonable charge covering the cost of labor and
material for such copies.
SECTION 2.9 QUORUM. One-third of the votes entitled to be cast on the
matter by a voting group, represented in person or by proxy, constitutes a
quorum of that voting group for the action on the matter. If no specific
voting group is designated in the Articles of Incorporation or under the
Colorado Business Corporation Act for a particular matter, all outstanding
shares of the corporation entitled to vote, represented in person or by
proxy, shall constitute a voting group. In the absence of a quorum at any
such meeting, a majority of the shares so represented may adjourn the
meeting from time to time for a period not to exceed one hundred twenty
days without further notice. However, if the adjournment is for more than
one hundred twenty days, or if after the adjournment a new record date is
fixed for the adjourned meeting, a notice of the adjourned meeting shall be
given to each shareholder of record entitled to vote at the meeting.
At such adjourned meeting at which a quorum shall be present or
represented, any business may be transacted which might have been
transacted at the meeting as originally noticed. The shareholders present
at a duly organized meeting may continue to transact business until
adjournment, notwithstanding the withdrawal during such meeting of that
number of shareholders whose absence would cause there to be less than a
quorum.
-4-
<PAGE>
SECTION 2.10 MANNER OF ACTING. If a quorum is present, an action is
approved if the votes cast within the voting group favoring the action
exceeds the votes cast against the action, and the action so approved shall
be the act of the shareholders, unless the vote of a greater proportion or
number or voting by groups or classes is otherwise required by the Colorado
Business Corporation Act or by the Articles of Incorporation or these
Bylaws.
SECTION 2.11 PROXIES. At all meetings of shareholders, a shareholder
may vote by proxy by signing an appointment form or similar writing, either
personally or by his or her duly authorized attorney-in-fact. A
shareholder may also appoint a proxy by transmitting or authorizing the
transmission of a telegram, teletype, or other electronic transmission
providing a written statement of the appointment to the proxy, a proxy
solicitor, proxy support service organization, or other person duly
authorized by the proxy to receive appointments as agent for the proxy, or
to the corporation. The transmitted appointment shall set forth or be
transmitted with written evidence from which it can be determined that the
shareholder transmitted or authorized the transmission of the appointment.
The proxy appointment form or similar writing shall be filed with the
Secretary of the corporation before or at the time of the meeting. The
appointment of a proxy is effective when received by the corporation and is
valid for eleven months unless a different period is expressly provided in
the appointment form or similar writing.
Any complete copy, including an electronically transmitted facsimile,
of an appointment of a proxy may be substituted for or used in lieu of the
original appointment for any purpose for which the original appointment
could be used.
Revocation of a proxy does not affect the right of the corporation to
accept the proxy's authority unless (i) the corporation had notice that the
appointment was coupled with an interest and notice that such interest is
extinguished is received by the Secretary or other officer or agent
authorized to tabulate votes before the proxy exercises his or her
authority under the appointment, or (ii) other notice of the revocation of
the appointment is received by the Secretary or other officer or agent
authorized to tabulate votes before the proxy exercises his or her
authority under the appointment. Other notice of revocation may, in the
discretion of the corporation, be deemed to include the appearance at a
shareholders' meeting of the shareholder who granted the proxy and his or
her voting in person on any matter subject to a vote at such meeting.
The death or incapacity of the shareholder appointing a proxy does not
affect the right of the corporation to accept the proxy's authority unless
notice of the death or incapacity is received by the Secretary or other
officer or agent authorized to tabulate votes before the proxy exercises
his or her authority under the appointment.
The corporation shall not be required to recognize an appointment made
irrevocably if it has received a writing revoking the appointment signed by
the shareholder (including a shareholder who is a successor to the
shareholder who granted the proxy) either personally or by
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his or her attorney-in-fact, notwithstanding that the revocation may be a
breach of an obligation of the shareholder to another person not to revoke
the appointment.
SECTION 2.12 VOTING OF SHARES. Unless otherwise provided by these
Bylaws or the Articles of Incorporation, each outstanding share entitled to
vote shall be entitled to one vote upon each matter submitted to a vote at
a meeting of shareholders, and each fractional share shall be entitled to
a corresponding fractional vote on each such matter. Only shares are
entitled to vote.
SECTION 2.13 VOTING OF SHARES BY CERTAIN SHAREHOLDERS. If the name on
a vote, consent, waiver, proxy appointment, or proxy appointment revocation
corresponds to the name of a shareholder, the corporation, if acting in
good faith, is entitled to accept the vote, consent, waiver, proxy
appointment or proxy appointment revocation and give it effect as the act
of the shareholder.
If the name signed on a vote, consent, waiver, proxy appointment or
proxy appointment revocation does not correspond to the name of a
shareholder, the corporation, if acting in good faith, is nevertheless
entitled to accept the vote, consent, waiver, proxy appointment or proxy
appointment revocation and to give it effect as the act of the shareholder
if:
(i) the shareholder is an entity and the name signed purports to be
that of an officer or agent of the entity;
(ii) the name signed purports to be that of an administrator,
executor, guardian or conservator representing the shareholder and, if the
corporation requests, evidence of fiduciary status acceptable to the
corporation has been presented with respect to the vote, consent, waiver,
proxy appointment or proxy appointment revocation;
(iii) the name signed purports to be that of a receiver or trustee in
bankruptcy of the shareholder and, if the corporation requests, evidence of
this status acceptable to the corporation has been presented with respect
to the vote, consent, waiver, proxy appointment or proxy appointment
revocation;
(iv) the name signed purports to be that of a pledgee, beneficial
owner or attorney-in-fact of the shareholder and, if the corporation
requests, evidence acceptable to the corporation of the signatory's
authority to sign for the shareholder has been presented with respect to
the vote, consent, waiver, proxy appointment or proxy appointment
revocation;
(v) two or more persons are the shareholder as co-tenants or
fiduciaries and the name signed purports to be the name of at least one of
the co-tenants or fiduciaries, and the person signing appears to be acting
on behalf of all the co-tenants or fiduciaries; or
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(vi) the acceptance of the vote, consent, waiver, proxy appointment or
proxy appointment revocation is otherwise proper under rules established by
the corporation that are not inconsistent with this Section 2.14.
The corporation is entitled to reject a vote, consent, waiver, proxy
appointment or proxy appointment revocation if the Secretary or other
officer or agent authorized to tabulate votes, acting in good faith, has
reasonable basis for doubt about the validity of the signature on it or
about the signatory's authority to sign for the shareholder.
Neither the corporation nor any of its directors, officers, employees
or agents who accepts or rejects a vote, consent, waiver, proxy appointment
or proxy appointment revocation in good faith and in accordance with the
standards of this Section is liable in damages for the consequences of the
acceptance or rejection.
Redeemable shares are not entitled to be voted after notice of
redemption is mailed to the holders and a sum sufficient to redeem the
shares has been deposited with a bank, trust company or other financial
institution under an irrevocable obligation to pay the holders of the
redemption price on surrender of the shares.
SECTION 2.14 ACTION BY SHAREHOLDERS WITHOUT A MEETING. Unless the
Articles of Incorporation or these Bylaws provide otherwise, any action
required or permitted to be taken at a meeting of shareholders may be taken
without a meeting if the action is evidenced by one or more written
consents describing the action taken, signed by each shareholder entitled
to vote and delivered to the Secretary of the corporation for inclusion in
the minutes or for filing with the corporate records. Action taken by
consent is effective as of the date the written consent is received by the
corporation unless the writings specify a different effective date, in
which case such specified date shall be the effective date for such action.
If any shareholder revokes his or her consent as provided for herein prior
to what otherwise would be the effective date, the action proposed in the
consent shall be invalid.
Any such writing may be received by the corporation by electronically
transmitted facsimile or other form of wire or wireless communication
providing the corporation with a complete copy thereof, including a copy of
the signature thereto. The shareholder so transmitting such a writing
shall furnish an original of such writing to the corporation for the
permanent record of the corporation, but the failure of the corporation to
receive for record such original writing shall not affect the action so
taken. In addition, such writings shall be deemed to be received by the
corporation if such writings are received by an officer or director of the
corporation, or an attorney representing the corporation, wherever such
persons may be found.
The record date for determining shareholders entitled to take action
without a meeting shall be the date the corporation first receives a
writing upon which the action is taken.
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Any shareholder who has signed a writing describing and consenting to
action taken pursuant to this Section 2.14 may revoke such consent by a
writing signed and dated by the shareholder describing the action and
stating that the shareholder's prior consent thereto is revoked, if such
writing is received by the corporation prior to the date the last writing
necessary to effect the action is received by the corporation.
SECTION 2.15 VOTING BY BALLOT. Voting on any question or in any
election may be by voice vote unless the presiding officer shall order or
any shareholder shall demand that voting be by ballot.
SECTION 2.16 NO CUMULATIVE VOTING. No shareholder shall be permitted
to cumulate his or her votes in the election for directors or otherwise.
SECTION 2.17 WAIVER OF NOTICE. When any notice is required to be
given to any shareholder, a waiver thereof in writing signed by the person
entitled to such notice, whether before, at, or after the time stated
therein, shall be equivalent to the giving of such notice. Such waiver
shall be delivered to the corporation for filing with the corporate
records.
The attendance of a shareholder at any meeting shall constitute a
waiver of notice, waiver of objection to defective notice of such meeting,
or a waiver of objection to the consideration of a particular matter at the
shareholder meeting unless the shareholder, at the beginning of the
meeting, objects to the holding of the meeting, the transaction of business
at the meeting, or the consideration of a particular matter at the time it
is presented at the meeting.
ARTICLE III
BOARD OF DIRECTORS
SECTION 3.1 GENERAL POWERS. The business and affairs of the
corporation shall be managed by its Board of Directors.
SECTION 3.2 PERFORMANCE OF DUTIES. A director of the corporation
shall perform his or her duties as a director, including his or her duties
as a member of any committee of the board upon which he or she may serve,
in good faith, in a manner he or she reasonably believes to be in the best
interests of the corporation, and with such care as an ordinarily prudent
person in a like position would use under similar circumstances. In
performing his or her duties, a director shall be entitled to rely on
information, opinions, reports, or statements, including financial
statements and other financial data, in each case prepared or presented by
persons and groups listed in paragraphs (a), (b), and (c) of this Section
3.2; but he or she shall not be considered to be acting in good faith if he
or she has knowledge concerning the matter in question
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that would cause such reliance to be unwarranted. A person who so performs
his or her duties shall not have any liability by reason of being or having
been a director of the corporation.
Those persons and groups on whose information, opinions, reports, and
statements a director is entitled to rely upon are:
(a) One or more officers or employees of the corporation whom the
director reasonably believes to be reliable and competent in the matters
presented;
(b) Counsel, public accountants, or other persons as to matters which
the director reasonably believes to be within such persons' professional or
expert competence; or
(c) A committee of the board upon which he or she does not serve,
duly designated in accordance with the provision of the Articles of
Incorporation or these Bylaws, as to matters within its designated
authority, which committee the director reasonably believes to merit
confidence.
SECTION 3.3 NUMBER, TENURE AND QUALIFICATIONS. The number of
directors of the corporation shall be not less than three (3) nor more than
seven (7) directors, and the number of directors shall be fixed within this
range from time to time by resolution of the Board of Directors. Each
director shall hold office until the next annual meeting of shareholders or
until his or her successor shall have been elected and qualified.
Directors need not be residents of the State of Colorado or shareholders of
the corporation.
SECTION 3.4 REGULAR MEETINGS. A regular meeting of the Board of
Directors shall be held without notice other than this bylaw immediately
after, and at the same place as, the annual meeting of shareholders. The
Board of Directors may provide, by resolution, the time and place, either
within or without the State of Colorado, for the holding of additional
regular meetings without notice other than such resolution.
SECTION 3.5 SPECIAL MEETINGS. Special meetings of the Board of
Directors may be called by or at the request of the Chairman of the Board,
if any, the President or any two directors. The person or persons
authorized to call special meetings of the Board of Directors may fix any
place, either within or without the State of Colorado, as the place for
holding any special meeting of the Board of Directors called by them.
SECTION 3.6 NOTICE. Written notice of any special meeting of
directors shall be given as follows:
By mail to each director at his or her business address at least four
days prior to the meeting; or
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By personal delivery, facsimile or telegram at least twenty-four hours
prior to the meeting to the business address of each director, or in the
event such notice is given on a Saturday, Sunday or holiday, to the
residence address of each director.
If mailed, such notice shall be deemed to be delivered when deposited
in the United States mail, so addressed, with postage thereon prepaid. If
notice is given by facsimile, such notice shall be deemed to be delivered
when a confirmation of the transmission of the facsimile has been received
by the sender. If notice is given by telegram, such notice shall be deemed
to be delivered when the telegram is delivered to the telegraph company.
Any director may waive notice of any meeting before or after the time
and date of the meeting stated in the notice. The waiver shall be in
writing and signed by the director entitled to the notice. The attendance
of a director at any meeting shall constitute a waiver of notice of such
meeting, except where a director attends a meeting for the express purpose
of objecting to the transaction of any business because the meeting is not
lawfully called or convened. Neither the business to be transacted at, nor
the purpose of, any regular or special meeting of the Board of Directors
need be specified in the notice or waiver of notice of such meeting.
SECTION 3.7 QUORUM. A majority of the number of directors fixed by or
pursuant to Section 3.3 of this Article III, or if no such number is fixed,
a majority of the number of directors in office immediately before the
meeting begins, shall constitute a quorum for the transaction of business
at any meeting of the Board of Directors, but if less than such majority is
present at a meeting, a majority of the directors present may adjourn the
meeting from time to time without further notice.
SECTION 3.8 MANNER OF ACTING. Except as otherwise required by the
Colorado Business Corporation Act or by the Articles of Incorporation, the
act of the majority of the directors present at a meeting at which a quorum
is present when a vote is taken shall be the act of the Board of Directors.
SECTION 3.9 INFORMAL ACTION BY DIRECTORS OR COMMITTEE MEMBERS. Unless
the Articles of Incorporation or these Bylaws provide otherwise, any action
required or permitted to be taken at a meeting of the Board of Directors or
any committee designated by said board may be taken without a meeting if
the action is evidenced by one or more written consents describing the
action taken, signed by each director or committee member, and delivered to
the Secretary for inclusion in the minutes or for filing with the corporate
records. Action taken under this section is effective when all directors
or committee members have signed the consent, unless the consent specifies
a different effective date. Such consent has the same force and effect as
an unanimous vote of the directors or committee members and may be stated
as such in any document.
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SECTION 3.10 PARTICIPATION BY ELECTRONIC MEANS. Any members of the
Board of Directors or any committee designated by such Board may
participate in a meeting of the Board of Directors or committee by means of
telephone conference or similar communications equipment by which all
persons participating in the meeting can hear each other at the same time.
Such participation shall constitute presence in person at the meeting.
SECTION 3.11 VACANCIES. Any vacancy occurring in the Board of
Directors may be filled by the affirmative vote of a majority of the
shareholders or the Board of Directors. If the directors remaining in
office constitute fewer than a quorum of the board, the directors may fill
the vacancy by the affirmative vote of a majority of all the directors
remaining in office.
If elected by the directors, the director filling the vacancy shall
hold office until the next annual shareholders' meeting at which directors
are elected. If elected by the shareholders, the director filling the
vacancy shall hold office for the unexpired term of his or her predecessor
in office; except that, if the director's predecessor was elected by the
directors to fill a vacancy, the director elected by the shareholders shall
hold the office for the unexpired term of the last predecessor elected by
the shareholders.
If the vacant office was held by a director elected by a voting group
of shareholders, only the holders of shares of that voting group are
entitled to vote to fill the vacancy if it is filled by the shareholders,
and, if one or more of the remaining directors were elected by the same
voting group, only such directors so elected by the same voting group are
entitled to vote to fill the vacancy if it is filled by the directors.
SECTION 3.12 RESIGNATION. Any director of the corporation may resign
at any time by giving written notice to the Secretary of the corporation.
The resignation of any director shall take effect upon receipt of notice
thereof or at such later time as shall be specified in such notice; and,
unless otherwise specified therein, the acceptance of such resignation
shall not be necessary to make it effective. When one or more directors
shall resign from the board, effective at a future date, a majority of the
directors then in office, including those who have so resigned, shall have
power to fill such vacancy or vacancies, the vote thereon to take effect
when such resignation or resignations shall become effective.
SECTION 3.13 REMOVAL. Subject to any limitations contained in the
Articles of Incorporation, any director or directors of the corporation may
be removed at any time, with or without cause, in the manner provided in
the Colorado Business Corporation Act.
SECTION 3.14 COMMITTEES. By resolution adopted by a majority of the
Board of Directors, the directors may designate two or more directors to
constitute a committee, any of which shall have such authority in the
management of the corporation as the Board of Directors shall designate and
as shall be prescribed by or limited by the Colorado Business Corporation
Act and Article XI of these Bylaws.
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SECTION 3.15 COMPENSATION. By resolution of the Board of Directors
and irrespective of any personal interest of any of the directors, each
director may be paid his or her expenses, if any, of attendance at each
meeting of the Board of Directors, and may be paid a stated salary as
director or a fixed sum for attendance at each meeting of the Board of
Directors or both. No such payment shall preclude any director from
serving the corporation in any other capacity and receiving compensation
therefor.
SECTION 3.16 PRESUMPTION OF ASSENT. A director of the corporation who
is present at a meeting of the Board of Directors or committee of the board
at which action on any corporate matter is taken shall be presumed to have
assented to the action taken unless (i) the director objects at the
beginning of the meeting, or promptly upon his or her arrival, to the
holding of the meeting or the transaction of business at the meeting and
does not thereafter vote for or assent to any action taken at the meeting,
(ii) the director contemporaneously requests that his or her dissent or
abstention as to any specific action taken be entered in the minutes of the
meeting, or (iii) the director causes written notice of his or her dissent
or abstention as to any specific action to be received by the presiding
officer or the meeting before its adjournment or by the corporation
promptly after the adjournment of the meeting. A director may dissent to
a specific action at a meeting, while assenting to others. The right to
dissent to a specific action taken at a meeting of the Board of Directors
or a committee of the board shall not be available to a director who voted
in favor of such action.
ARTICLE IV
OFFICERS
SECTION 4.1 NUMBER. The officers of the corporation shall be a Chief
Executive Officer, President, a Secretary, and a Treasurer, each of whom
must be a natural person who is eighteen years or older and shall be
elected by the Board of Directors. A Chairman of the Board, Vice Chairman
of the Board, and one or more Vice Presidents shall be executive officers
if the Board so determines by resolution. Such other officers and
assistant officers as may be deemed necessary may be elected or appointed
and removed as the Board of Directors decides. Any two or more offices may
be held by the same person.
SECTION 4.2 ELECTION AND TERM OF OFFICE. The officers of the
corporation to be elected by the Board of Directors shall be elected
annually by the Board of Directors at the first meeting of the Board of
Directors held after the annual meeting of the shareholders. If the
election of officers shall not be held at such meeting, such election shall
be held as soon thereafter as practicable. Each officer shall hold office
until his or her successor shall have been duly elected and shall have
qualified or until his or her death or until he or she shall resign or
shall have been removed in the manner hereinafter provided.
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SECTION 4.3 REMOVAL. Any officer or agent may be removed by the Board
of Directors at any time, with or without cause, but such removal shall be
without prejudice to the contract rights, if any, of the person so removed.
Election or appointment of an officer or agent shall not of itself create
contract rights.
An officer may resign at any time by giving written notice of the
resignation to the Secretary of the corporation. The resignation is
effective when the notice is received by the corporation unless the notice
specifies a later effective date.
SECTION 4.4 VACANCIES. A vacancy in any office because of death,
resignation, removal, disqualification or otherwise, may be filled by the
Board of Directors for the unexpired portion of the term.
SECTION 4.5 CHAIRMAN OF THE BOARD. If a Chairman of the Board of
Directors (the "Chairman") shall be elected by the Board of Directors, the
Chairman shall preside at the meetings of the shareholders and of the Board
of Directors. The Chairman may sign, with the officers authorized by the
Chief Executive Officer or the Board of Directors, certificates for the
shares of the corporation and shall perform such other duties as from time
to time are assigned by the Chief Executive Officer or the Board of
Directors. The Chairman of the Board of Directors may be elected as the
Chief Executive Officer, in which case the Chairman shall perform the
duties hereinafter set forth in Article IV, Section 4.7, of these Bylaws.
SECTION 4.6 PRESIDENT. The Chief Executive Officer may sign, with the
officers authorized by the Chief Executive Officer or the Board of
Directors, certificates for shares of the corporation and shall perform
such other duties as from time to time are assigned by the Chief Executive
Officer or the Board of Directors. The President may be elected as the
Chief Executive Officer of the corporation, in which case, the President
shall perform the duties hereinafter set forth in Article IV, Section 4.7
of these Bylaws.
SECTION 4.7 CHIEF EXECUTIVE OFFICER. If no Chairman shall be elected
by the Board of Directors, the President shall be the Chief Executive
Officer of the corporation. If a Chairman is elected by the Board of
Directors, the Board of Directors shall designate who shall be the Chief
Executive Officer. The Chief Executive Officer shall be, subject to the
control of the Board of Directors, in general charge of the affairs of the
corporation. The Chief Executive Officer may sign, with the other officers
of the corporation authorized by the Board, deeds, mortgages, bonds,
contracts or other instruments whose execution the Board of Directors has
authorized, except in cases where the signing and execution thereof shall
be expressly delegated by the Board of Directors or these Bylaws to some
officer or agent of the corporation, or shall be required by law to be
otherwise signed or executed.
SECTION 4.8 VICE CHAIRMAN OF THE BOARD. If a Chairman shall be
elected by the Board of Directors, the Board of Directors may also elect a
Vice Chairman of the
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Board of Directors (the "Vice Chairman"). In the absence of the Chairman
or in the event of the death or inability or refusal to act of the
Chairman, the Vice Chairman shall perform the duties of the Chairman and
when so acting shall have all the powers of and be subject to all the
restrictions upon the Chairman. The Vice Chairman may sign, with the other
officers authorized by the Chief Executive Officer or the Board of
Directors, certificates for shares of the corporation and shall perform
such other duties as from time to time may be assigned by the Chief
Executive Officer or the Board of Directors.
SECTION 4.9 VICE PRESIDENT. In the absence of the President or in the
event of the death or inability or refusal to act of the President, the
Vice President shall perform the duties of the President, and when so
acting shall have all the powers of and be subject to all the restrictions
upon the President. In the event there is more than one Vice President,
the Vice Presidents in the order designated at the time of their election,
or in the absence of any designation, then in the order of their election,
shall perform the duties of the President and, when so acting, shall have
all the powers of and shall be subject to all the restrictions upon the
President. Any Vice President may sign, with the other officers authorized
by the Chief Executive Officer or the Board of Directors, certificates for
shares of the corporation and shall perform such other duties as from time
to time may be assigned by the Chief Executive Officer or the Board of
Directors.
SECTION 4.10 SECRETARY. The Secretary shall (a) prepare and maintain
as permanent records the minutes of the proceedings of the shareholders and
the Board of Directors, a record of all actions taken by the shareholders
or Board of Directors without a meeting, a record of all actions taken by
a committee of the Board in place of the Board of Directors on behalf of
the corporation, and a record of all waivers of notice and meetings of
shareholders and of the Board of Directors or any committee thereof, (b)
ensure that all notices are duly given in accordance with the provisions of
these Bylaws and as required by law, (c) serve as custodian of the
corporate records and of the seal of the corporation and affix the seal to
all documents when authorized by the Board of Directors, (d) keep at the
corporation's registered office or principal place of business a record
containing the names and addresses of all shareholders in a form that
permits preparation of a list of shareholders arranged by voting group and
by class or series of shares within each voting group, that is alphabetical
within each class or series and that shows the address of, and the number
of shares of each class or series held by, each shareholder, unless such a
record shall be kept at the office of the corporation's transfer agent or
registrar, (e) maintain at the corporation's principal office the originals
or copies of the corporation's Articles of Incorporation, Bylaws, minutes
of all shareholders' meetings and records of all action taken by
shareholders without a meeting for the past three years, all written
communications within the past three years to shareholders as a group or to
the holders of any class or series of shares as a group, a list of the
names and business addresses of the current directors and officers, a copy
of the corporation's most recent corporate report filed with the Secretary
of State, and financial statements showing in reasonable detail the
corporation's assets and liabilities and results of operations for the last
three years, (f) have general charge of the stock transfer books of the
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corporation, unless the corporation has a transfer agent, (g) authenticate
records of the corporation, and (h) in general, perform all duties incident
to the office of Secretary and such other duties as from time to time may
be assigned to him or her by the president or by the Board of Directors.
Assistant Secretaries, if any, shall have the same duties and powers,
subject to supervision by the Secretary. The directors or shareholders may
respectively designate a person other than the Secretary or Assistant
Secretary to keep the minutes of their respective meetings.
Any books, records, or minutes of the corporation may be in written
form or in any form capable of being converted into written form within a
reasonable time.
SECTION 4.11 TREASURER. The Treasurer shall: (a) have charge and
custody of and be responsible for all funds and securities of the
corporation; (b) receive and give receipts for moneys due and payable to
the corporation from any source whatsoever, and deposit all such moneys in
the name of the corporation in such banks, trust companies or other
depositories as shall be selected in accordance with the provisions of
Article V of these Bylaws; and (c) in general perform all of the duties
incident to the office of Treasurer and such other duties as from time to
time may be assigned to him or her by the President or by the Board of
Directors.
SECTION 4.12 ASSISTANT SECRETARIES AND ASSISTANT TREASURERS. The
Assistant Secretaries and Assistant Treasurers, in general, shall perform
such duties as shall be assigned to them by the Secretary or the Treasurer,
respectively, or by the President or the Board of Directors.
SECTION 4.13 BONDS. If the Board of Directors by resolution shall so
require, any officer or agent of the corporation shall give bond to the
corporation in such amount and with such surety as the Board of Directors
may deem sufficient, conditioned upon the faithful performance of his or
her respective duties and offices.
SECTION 4.14 SALARIES. The salaries of the officers shall be fixed
from time to time by the Board of Directors and no officer shall be
prevented from receiving such salary by reason of the fact that he or she
is also a director of the corporation.
ARTICLE V
CONTRACTS, LOANS, CHECKS AND DEPOSITS
SECTION 5.1 CONTRACTS. The Board of Directors may authorize any
officer or officers, agent or agents, to enter into any contract or execute
and deliver any instrument in the name of and on behalf of the corporation,
and such authority may be general or confined to specific instances.
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SECTION 5.2 LOANS. No loans shall be contracted on behalf of the
corporation and no evidences of indebtedness shall be issued in its name
unless authorized by a resolution of the Board of Directors. Such
authority may be general or confined to specific instances.
SECTION 5.3 CHECKS, DRAFTS, ETC. All checks, drafts or other orders
for the payment of money, notes or other evidences of indebtedness issued
in the name of the corporation shall be signed by such officer or officers,
agent or agents of the corporation and in such manner as shall from time to
time be determined by resolution of the Board of Directors.
SECTION 5.4 DEPOSITS. All funds of the corporation not otherwise
employed shall be deposited from time to time to the credit of the
corporation in such banks, trust companies or other depositories as the
Board of Directors may select.
ARTICLE VI
SHARES, CERTIFICATES FOR SHARES AND TRANSFER OF SHARES
SECTION 6.1 REGULATION. The Board of Directors may make such rules
and regulations as it may deem appropriate concerning the issuance,
transfer and registration of certificates for shares of the corporation,
including the appointment of transfer agents and registrars.
SECTION 6.2 SHARES WITHOUT CERTIFICATES. Unless otherwise provided by
the Articles of Incorporation or these Bylaws, the Board of Directors may
authorize the issuance of any of its classes or series of shares without
certificates. Such authorization shall not affect shares already
represented by certificates until they are surrendered to the corporation.
Within a reasonable time following the issue or transfer of shares
without certificates, the corporation shall send the shareholder a complete
written statement of the information required on certificates by the
Colorado Business Corporation Act.
SECTION 6.3 CERTIFICATES FOR SHARES. If shares of the corporation are
represented by certificates, the certificates shall be respectively
numbered serially for each class of shares, or series thereof, as they are
issued, and shall be signed by an officer of the corporation authorized by
these Bylaws or a resolution of the Board of Directors; provided that such
signatures may be facsimile. Each certificate shall state the name of the
corporation, the fact that the corporation is organized or incorporated
under the laws of the State of Colorado, the name of the person to whom
issued, the date of issue, the class (or series of any class), the number
of shares represented thereby. A statement of the designations,
preferences, qualifications, limitations, restrictions and special or
relative rights of the shares of each class shall be set forth in full or
summarized on the face or back of the certificates which the corporation
shall issue, or in lieu
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thereof, the certificate may set forth that such a statement or summary
will be furnished to any shareholder upon request without charge. Each
certificate shall be otherwise in such form as may be prescribed by the
Board of Directors and as shall conform to the rules of any stock exchange
on which the shares may be listed.
The corporation shall not issue certificates representing fractional
shares and shall not be obligated to make any transfers creating a
fractional interest in a share of stock. The corporation may, but shall
not be obligated to, issue scrip in lieu of any fractional shares, such
scrip to have terms and conditions specified by the Board of Directors.
SECTION 6.4 CANCELLATION OF CERTIFICATES. All certificates
surrendered to the corporation for transfer shall be cancelled and no new
certificates shall be issued in lieu thereof until the former certificate
for a like number of shares shall have been surrendered and cancelled,
except as herein provided with respect to lost, stolen or destroyed
certificates.
SECTION 6.5 CONSIDERATION FOR SHARES. Certificated or uncertificated
shares shall not be issued until the shares represented thereby are fully
paid. The Board of Directors may authorize the issuance of shares for
consideration consisting of any tangible or intangible property or benefit
to the corporation, including cash, promissory notes, services performed or
other securities of the corporation. Future services shall not constitute
payment or partial payment for shares of the corporation. The promissory
note of a subscriber or an affiliate of a subscriber shall not constitute
payment or partial payment for shares of the corporation unless the note is
negotiable, recourse and is secured by collateral, other than the shares
being purchased, having a fair market value of at least equal to the
principal amount of the note.
SECTION 6.6 LOST, STOLEN OR DESTROYED CERTIFICATES. Any shareholder
claiming that his or her certificate for shares is lost, stolen or
destroyed may make an affidavit or affirmation of that fact and lodge the
same with the Secretary of the corporation, accompanied by a signed
application for a new certificate. Thereupon, and upon the giving of a
satisfactory bond of indemnity to the corporation not exceeding an amount
double the value of the shares as represented by such certificate (the
necessity for such bond and the amount required to be determined by the
President and Treasurer of the corporation), a new certificate may be
issued of the same tenor and representing the same number, class and series
of shares as were represented by the certificate alleged to be lost, stolen
or destroyed.
SECTION 6.7 TRANSFER OF SHARES. Subject to the terms of any
shareholder agreement relating to the transfer of shares or other transfer
restrictions contained in the Articles of Incorporation or authorized
therein, shares of the corporation shall be transferable on the books of
the corporation by the holder thereof in person or by his or her duly
authorized attorney, upon the surrender and cancellation of a certificate
or certificates for a like number of shares. Upon presentation and
surrender of a certificate for shares properly endorsed and payment of all
taxes
-17-
<PAGE>
therefor, the transferee shall be entitled to a new certificate or
certificates in lieu thereof. As against the corporation, a transfer of
shares can be made only on the books of the corporation and in the manner
hereinabove provided, and the corporation shall be entitled to treat the
holder of record of any share as the owner thereof and shall not be bound
to recognize any equitable or other claim to or interest in such share on
the part of any other person, whether or not it shall have express or other
notice thereof, except as expressly provided by the Colorado Business
Corporation Act.
ARTICLE VII
FISCAL YEAR
The fiscal year of the corporation shall end on the last day of
December in each calendar year or shall be as determined by resolution of
the Board of Directors.
ARTICLE VIII
DISTRIBUTIONS
The Board of Directors may from time to time declare, and the
corporation may pay, distributions on its outstanding shares in the manner
and upon the terms and conditions provided by the Colorado Business
Corporation Act and its Articles of Incorporation.
ARTICLE IX
CORPORATE SEAL
The Board of Directors may authorize the use of a corporate seal which
shall be circular in form and shall have inscribed thereon the name of the
corporation and the state of incorporation and the words "CORPORATE SEAL."
ARTICLE X
AMENDMENTS
These Bylaws may be altered, amended or repealed and new Bylaws may be
adopted by a majority of the directors present at any meeting of the Board
of Directors of the corporation at which a quorum is present when a vote is
taken.
-18-
<PAGE>
ARTICLE XI
UNIFORMITY OF INTERPRETATION
AND SEVERABILITY
These Bylaws shall be so interpreted and construed as to conform to
the Articles of Incorporation, as amended, and the statutes of the State of
Colorado or of any other state in which conformity may become necessary by
reason of the qualification of the corporation to do business in such
foreign state, and where conflict between these Bylaws and the Articles of
Incorporation, as amended, or a statute has arisen or shall arise, the
Bylaws shall be considered to be modified to the extent, but only to the
extent, conformity shall require. If any Bylaw provision or its
application shall be deemed invalid by reason of the said nonconformity,
the remainder of the Bylaws shall remain operable in that the provisions
set forth in the Bylaws are severable.
ARTICLE XII
EMERGENCY BYLAWS
The Emergency Bylaws provided in this Article XII shall be operative
during any emergency in the conduct of the business of the corporation
resulting from a catastrophic event causing a quorum of directors to be not
readily obtained as a result thereof, notwithstanding any different
provision in the preceding articles of the Bylaws or in the Articles of
Incorporation of the corporation or in the Colorado Business Corporation
Act. To the extent not inconsistent with the provisions of this Article,
the Bylaws provided in the preceding articles shall remain in effect during
such emergency and upon its termination the Emergency Bylaws shall cease to
be operative.
During any such emergency:
(a) A meeting of the Board of Directors may be called by any officer
or director of the corporation. Notice of the time and place of the
meeting shall be given by the person calling the meeting to such of the
directors as it may be feasible to reach by any available means of
communication. Such notice shall be given at such time in advance of the
meeting as circumstances permit in the judgment of the person calling the
meeting.
(b) At any such meeting of the Board of Directors, a quorum shall
consist of the number of directors in attendance at such meeting.
-19-
<PAGE>
(c) The Board of Directors, either before or during any such
emergency, may, effective in the emergency, change the principal office or
designate several alternative principal offices or regional offices, or
authorize the officers so to do.
(d) The Board of Directors, either before or during any such
emergency, may provide, and from time to time modify, lines of succession
in the event that during such an emergency any or all officers or agents of
the corporation shall for any reason be rendered incapable of discharging
their duties.
(e) No officer, director or employee acting in accordance with these
Emergency Bylaws shall be liable except for willful misconduct.
(f) These Emergency Bylaws shall be subject to repeal or change by
further action of the Board of Directors or by action of the shareholders,
but no such repeal or change shall modify the provisions of the next
preceding paragraph with regard to action taken prior to the time of such
repeal or change. Any amendment of these Emergency Bylaws may make any
further or different provision that may be practical and necessary for the
circumstances of the emergency.
-20-
EXHIBIT 4.3
ENTROPIN, INC.
Incorporated Under the Laws of the State of Colorado
No. W- _____ Common Stock
Purchase Warrants
CUSIP
CERTIFICATE FOR (See Reverse
COMMON STOCK For Certain
PURCHASE WARRANTS Definitions)
This Warrant Certificate certifies that ___________________, or
registered assigns ("the Warrant Holder"), is the registered owner of the
above indicated number of Common Stock Purchase Warrants (the "Warrants")
expiring on __________________, 2005 (the "Expiration Date"). One Warrant
entitles the Warrant Holder to purchase one share of Common Stock ("Share")
from Entropin, Inc., a Colorado corporation (the "Company"), at a purchase
price of $___________ (the "Exercise Price"), commencing on ____________,
2000, and terminating on the Expiration Date ("Exercise Period"), upon
surrender of this Warrant Certificate with the exercise form hereon duly
completed and executed with payment of the Exercise Price at the office of
Corporate Stock Transfer, Inc. (the "Warrant Agent"), but only subject to
the conditions set forth herein and in a Warrant Agreement dated as of
___________, 2000 (the "Warrant Agreement") between the Company and the
Warrant Agent. The Exercise Price, the number of shares purchasable upon
exercise of each Warrant, the number of Warrants outstanding and the
Expiration Date are subject to adjustments upon the occurrence of certain
events. The Warrant Holder may exercise all or any number of Warrants.
Reference hereby is made to the provisions on the reverse side of this
Warrant Certificate and to the provisions of the Warrant Agreement, all of
which are incorporated by reference in and made a part of this Warrant
Certificate and shall for all purposes have the same effect as though fully
set forth at this place.
Upon due presentment for transfer of this Warrant Certificate at the
office of the Warrant Agent, a new Warrant Certificate or Warrant
Certificates of like tenor and evidencing in the aggregate a like number of
Warrants, subject to any adjustments made in accordance with the provisions
of the Warrant Agreement, shall be issued to the transferee in exchange for
this Warrant Certificate, subject to the limitations provided in the
Warrant Agreement, upon payment of $_________ per Warrant Certificate and
any tax or governmental charge imposed in connection with such transfer.
The Warrant Holder of the Warrants evidenced by this Warrant
Certificate may exercise all or any whole number of such Warrants during
the period and in the manner stated hereon. The Exercise Price shall be
payable in lawful money of the United States of America and in cash or by
certified or bank cashier's check or bank draft payable to the order of the
Company. If upon exercise
<PAGE>
of any Warrants evidenced by this Warrant Certificate the number of
Warrants exercised shall be less than the total number of Warrants so
evidenced, there shall be issued to the Warrant Holder a new Warrant
Certificate evidencing the number of Warrants not so exercised.
Subject to the following paragraph, no Warrant may be exercised after
5:00 p.m. Mountain Time on the Expiration Date and any Warrant not
exercised by such time shall become void, unless extended by the Company.
The Warrants are subject to redemption by the Company at $.25 per
Warrant, no earlier than ____________, 2001, at any time prior to their
expiration, or not less than 30 days' prior written notice to the holders
of Warrants, provided that the daily trading price per share of Common
Stock has been at least $___________ (200% of the Warrant exercise price)
for a period of at least 10 consecutive trading days ending within 5 days
prior to the date upon which the notice of redemption is given. The
Warrant Holders shall have the right to exercise the Warrants held by them
before the date specified in the redemption notice. Upon expiration of
such period, all rights of the Warrant Holders shall terminate, other than
the rights to receive the redemption price, without interest, and the right
to receive the redemption price shall itself expire on the Warrant
Expiration Date.
This Warrant Certificate shall not be valid unless countersigned by
the Warrant Agent.
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed
by its President and by its Secretary, each by a facsimile of his/her
signature, and has caused a facsimile of its corporate seal to be imprinted
hereon.
Dated: ______________________
ENTROPIN, INC.
_____________________________ By________________________________
Higgins D. Bailey, Secretary Thomas G. Tachovsky, President
CORPORATE STOCK TRANSFER, INC.
Warrant Agent
By_________________________________
Carylyn K. Bell, President
-2-
<PAGE>
FORM OF REVERSE SIDE OF WARRANT
This Warrant Certificate, when surrendered to the Warrant Agent at its
principal office by the Warrant Holder, in person or by attorney duly
authorized in writing, may be exchanged in the manner and subject to the
limitations provided in the Warrant Agreement, upon the payment of any tax
or other governmental charge imposed in connection with such exchange, for
another Warrant Certificate or Warrant Certificates of like tenor and
evidencing a like number of Warrants, subject to any adjustments made in
accordance with the provisions of the Warrant Agreement.
The Company and the Warrant Agent may deem and treat the registered
holder hereof as the absolute owner of this Warrant Certificate
(notwithstanding any notation of ownership or other writing hereon made by
anyone) for all proposes and neither the Company nor the Warrant Agent
shall be affected by any notice to the contrary. No Warrant Holder, as
such, shall have any rights of a holder of the Common Stock of the Company,
either at law or at equity, and the rights of the Warrant holder, as such,
are limited to those rights expressly provided in the Warrant Agreement and
in the Warrant Certificate.
Under the Warrant Agreement the Exercise Price is subject to
adjustment if the Company shall effect any stock split or stock combination
with respect to the Common Stock. Any such adjustment of the Exercise
Price will also result in an adjustment of the number of shares of Common
Stock purchasable upon exercise of a Warrant or, if the Company should
elect, an adjustment of each outstanding Warrant into a different number of
Warrants.
The Company shall not be required to issue fractions of Warrants upon
any such adjustment or to issue fractions of shares upon the exercise of
any Warrants upon any such adjustment, in accordance with the Warrant
Agreement.
The Warrant Agreement is subject to amendment upon the approval of
holders of at least two-thirds of the outstanding Warrants as a group,
except that no such approval is required for the reduction of the Exercise
Price or extension of the Expiration Date. No amendment shall accelerate
the Expiration Date or increase the Exercise Price without the approval of
all the holders of all outstanding Warrants. A copy of the Warrant
Agreement will be available at all reasonable times at the office of the
Warrant Agent for inspection by any Warrant Holder. As a condition of such
inspection, the Warrant Agent may require any Warrant Holder to submit the
Warrant Holder's Warrant Certificate for inspection.
IMPORTANT: The Warrants represented by this Certificate may not be
exercised by a Warrant Holder unless at the time of exercise the underlying
shares of Common Stock are qualified for sale by registration or otherwise
in the state where the Warrant Holder resides or unless the issuance of the
shares of Common Stock would be exempt under the applicable state
securities laws. Further, a registration statement under the Securities
Act of 1933, as amended, covering the issuance of shares of Common Stock
upon the exercise of this Warrant must be in effect and current at the time
of exercise unless the issuance of shares of Common Stock upon any exercise
is exempt from the registration requirements of the Securities Act of 1933.
Unless such registration statement is in effect and current at the time of
exercise, or unless such an exemption is available the Company may decline
to permit the exercise of this Warrant.
-3-
<PAGE>
TRANSFER FEE $_____ PER CERTIFICATE
ENTROPIN, INC.
The following abbreviations, when used in the inscription on the face
of this instrument, shall be construed as though they were written out in
full according to applicable laws or regulations:
TEN COM - as tenants in common UNIF GIFT MIN ACT -
TEN ENT - as tenants by the entireties Custodian
-------------
JT TEN - as joint tenants with right (Cust) (Minor)
of survivorship and not as under Uniform Gifts
tenants in common to Minors Act _______
(State)
Additional abbreviations may also be used though not in the above list.
FORM OF ASSIGNMENT
(To Be Executed by the Registered Holder if the Registered Holder
Desires to Assign Warrants Evidenced by the
Within Warrant Certificate)
FOR VALUE RECEIVED ______________________ hereby sells, assigns and
transfers unto __________________________ Warrants, evidenced by the within
Warrant Certificate, and does hereby irrevocably constitute and appoint
________________________ Attorney to transfer the said Warrants evidenced
by the within Warrant Certificate on the books of the Company, with full
power of substitution.
Dated: _________________ ________________________________
Signature
NOTICE: The above signature must correspond with the name as written upon
the face of the within Warrant Certificate in every particular,
without alteration or enlargement or any change whatsoever.
Signature Guaranteed: _________________________________________
-4-
<PAGE>
FORM OF ELECTION TO PURCHASE
(To be Executed by the Holder if the Registered Holder Desires to
Exercise Warrants Evidenced by the Within Warrant Certificate)
To Entropin, Inc.:
The undersigned hereby irrevocably elects to exercise ________
Warrants, evidenced by the within Warrant Certificate for, and to purchase
thereunder, ____________________ full shares of Common Stock issuable upon
exercise of said Warrants and delivery of $_________ and any applicable
taxes.
The undersigned requests that certificates for such shares be issued
in the name of:
PLEASE INSERT SOCIAL SECURITY OR
TAX IDENTIFICATION NUMBER
_______________________________ _________________________________
(Please print name and address)
_______________________________ _________________________________
_______________________________ _________________________________
If said number of Warrants shall not be all the Warrants evidenced by
the within Warrant Certificate, the undersigned requests that a new Warrant
Certificate evidencing the Warrants not so exercised be issued in the name
of and delivered to:
__________________________________________________________________________
(Please print name and address)
__________________________________________________________________________
__________________________________________________________________________
Dated: ____________________ Signature: __________________________
NOTICE: The above signature must correspond with the name as written upon
the face of the within Warrant Certificate in every particular,
without alteration or enlargement or any change whatsoever, or if
signed by any other person the Form of Assignment hereon must be
duly executed and if the certificate representing the shares or
any Warrant Certificate representing Warrants not exercised is to
be registered in a name other than that in which the within
Warrant Certificate is registered, the signature of the holder
hereof must be guaranteed.
Signature Guaranteed: ____________________________________
THE SIGNATURE(S) MUST BE GUARANTEED BY AN ELIGIBLE GUARANTOR INSTITUTION
(BANKS, STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS AND CREDIT UNIONS WITH
MEMBERSHIP IN AN APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM, PURSUANT
TO S.E.C. RULE 17Ad-15.
-5-
EXHIBIT 5.1
BRENMAN BROMBERG & TENENBAUM, P.C.
ATTORNEYS AT LAW
MELLON FINANCIAL CENTER
SUITE 1001
1775 SHERMAN STREET FACSIMILE
TELEPHONE DENVER, COLORADO 80203-4314 303-839-1633
303-894-0234 303-830-8890
March 7, 2000
Board of Directors
Entropin, Inc.
45926 Oasis Street
Indio, CA 92201
RE: ENTROPIN, INC.
REGISTRATION STATEMENT ON FORM SB-2
Gentlemen:
We have acted as counsel to Entropin, Inc., a Colorado corporation
(the "Company"), in connection with the preparation and filing with the
U.S. Securities and Exchange Commission (the "Commission") under the
Securities Act of 1933, as amended (the "Act"), the Company's registration
statement on Form SB-2 (the "Registration Statement"). The Registration
Statement relates to the registration under the Act of: (i) 2,500,000
shares of Common Stock (the "Shares"); (ii) 2,500,000 Warrants each to
purchase one share of Common Stock (the "Warrants"); and, (iii) and the
2,500,000 shares of Common Stock underlying the Warrants (the "Underlying
Shares").
In rendering this opinion, we have reviewed the Registration
Statement, as well as a copy of the Company's articles of incorporation and
bylaws, each as amended to date. We have also reviewed such documents and
such statutes, rules and judicial precedents as we have deemed necessary
for the opinions expressed herein.
In rendering this opinion, we have assumed the genuineness of all
signatures, the legal capacity of natural persons, the authenticity of
documents submitted to us as originals, the conformity to original
documents of documents submitted to us as certified or photostatic copies,
and the authenticity of originals of such photostatic copies.
Based upon and in reliance upon the foregoing, and subject to the
qualifications and limitations herein set forth, we are of the opinion that
the Shares and Warrants have been duly and validly authorized and issued,
and that the Underlying Shares, when issued for the consideration and in
the manner contemplated by the Registration Statement, will be validly
issued, fully paid and nonassessable.
Board of Directors
Entropin, Inc.
March 7, 2000
The opinion set forth in this letter is limited by, subject to and
based on the following:
1. We are admitted to practice before the Bar of the State
of Colorado and are not admitted to practice in any
other jurisdiction.
2. The foregoing opinion is limited in all respects to the
laws of the State of Colorado and applicable federal
securities laws of the United States.
We consent to the filing of this opinion with the Commission as an
exhibit to the Registration Statement.
This opinion may not be used, circulated, quoted or otherwise referred
to for any other purpose without prior written consent and may not be
relied upon by any person or entity other than the Company and its
successors and assigns. This opinion is based upon our knowledge of law
and facts as of this date. We assume no duty to communicate to you with
respect to any matter which comes to our attention hereafter.
Very truly yours,
/s/ Brenman Bromberg & Tenenbaum, P.C.
EXHIBIT 10.16
AGREEMENT AMONG SHAREHOLDERS
OF
ENTROPIN, INC.
Board of Directors
Entropin, Inc.
45926 Oasis Street
Indio, California 92201
Dear Sirs:
This letter is being delivered to you in connection with further financing
obligations undertaken subsequent to the filing of the Form SB-2
Registration Statement (the "Registration Statement") filed by Entropin,
Inc., (the "Company") with the United States Securities and Exchange
Commission (the "SEC"). Since the Registration Statement was declared
effective by the SEC on August 18, 1998 (the "Effective Date"), the
Company's Common Stock shares registered thereby (including those of the
undersigned) have been free-trading without restriction or limitation.
The Company has advised the undersigned that securities underwriters and
other sources of potential future funding of the Company may require that
the undersigned and other shareholders set forth below agree to extend the
term of the previous Agreement Among Shareholders dated June 29, 1998.
The Company has requested the undersigned to agree thereto.
Therefore, in consideration of each of the shareholders set forth below
entering into this Agreement, the undersigned agrees not to offer, sell or
contract to sell or otherwise dispose of, directly or indirectly, or
announce an offering of, any shares of the Company's Common Stock owned by
the undersigned (or any securities convertible into, or exchangeable for,
shares of the Company's Common Stock) during the period ending March 15, 2000.
In the event that, during the term of this Agreement, the Company permits
the sale or other disposition of a portion of shares (a "Permitted
Disposition") by the undersigned shareholders, it shall do so on a PRO RATA
basis. Since the shares are being registered in the Registration
Statement, the shares are free-trading upon a Permitted Disposition
during the term of this Agreement, or a disposition after the expiration of
this Agreement, provided that the Registration Statement is current at the
time of a disposition. The Company hereby undertakes to use its best
efforts to keep the Registration Statement current.
Yours very truly,
Date: 3-3-99 /s/ HIGGINS D. BAILEY /s/ SHIRLEY A. BAILEY
---------------- -------------------------------------------
Higgins D. Bailey and Shirley A. Bailey
<PAGE>
Date:
---------------- -------------------------------------------
Higgins D. Bailey, Pledgee
Date: /s/ JAMES E. WYNN /s/ JOYCE S. WYNN
---------------- -------------------------------------------
James E. Wynn and Joyce S. Wynn
Accepts this Agreement, providing that
during its term he retains the right to sell
50,000 shares.
Date: /s/ DONALD HUNTER
---------------- -------------------------------------------
Donald Hunter,
Trustee for the Donald Hunter Residuary
Marital Trust
Date:
---------------- -------------------------------------------
Dewey H. and Virginia Crim
Date: 4 Mar 1999 /s/ CAROLINE T. SOMERS
---------------- -------------------------------------------
Caroline T. Somers
I agree to the lock-up agreement providing
that the sale of 25,000 shares of my stock
at $4.00 per share, for $100,000 total, is
completed.
CapMac Eighty-Two Limited Partnership,
Date: By: /s/ MILTON D. MCKENZIE
---------------- -------------------------------------------
Milton D. McKenzie, General Partner
Date: /s/ MILTON D. MCKENZIE
---------------- -------------------------------------------
Milton D. McKenzie, Pledgee
2
<PAGE>
Thomas T. Anderson Trust,
Date: 3/16/99 By: /s/ THOMAS T. ANDERSON
---------------- -------------------------------------------
Thomas T. Anderson, Trustee
AGREED TO AND ACCEPTED BY ENTROPIN, INC.
Date: 3-3-99 By: /s/ HIGGINS D. BAILEY
---------------- -------------------------------------------
Higgins D. Bailey,
Chairman of the Board
3
EXHIBIT 10.17
AMENDMENT
This is an Amendment ("Amendment") dated August 3, 1998, to that
certain Agreement dated April 6, 1998 by and between Entropin, Inc.
("Entropin"), a Colorado corporation and Western Center for Clinical
Studies, Inc. ("WCCS"), a California corporation.
Article IV of the Agreement entitled "COMPENSATION TO WCCS" is hereby
amended to include the following provision:
4.3 ACCELERATION OF COMPENSATION: In the event that WCCS performs all
of the terms and conditions of this Agreement for which it is
obligated prior to January 5, 2001 (the "Completion Date"): (i)
all payments pursuant to Section 4.1 shall be accelerated to the
Completion Date; and, (ii) the Exercise Date of any stock options
set forth in Section 4.2 which is subsequent to the Completion
Date shall be accelerated to the Completion Date.
Article VI of the Agreement entitled "DIRECTORS AND OFFICERS LIABILITY
INSURANCE" is hereby amended as follows:
6.1 DIRECTORS AND OFFICERS LIABILITY INSURANCE: During the Term,
Entropin shall maintain directors and officers insurance in the
aggregate amount of not less than Three Million Dollars
($3,000,000.00). Such directors and officers insurance policy
shall be a claims made policy. If at any time the directors and
officers insurance policy required hereby is not in effect, none
of WCCS personnel, Daniel L. Azarnoff, M.D., Roy S. Azarnoff,
Ph.D., or Lois Rezler, Ph.D., shall have any obligation or duty
to
<PAGE>
perform any services for Entropin in their capacity as an officer
or director as contemplated by paragraph 3.2 of this Agreement.
Entropin agrees to maintain "tail" insurance covering Drs.
Azarnoff and Rezler for not less than two (2) years after the
termination of this Agreement.
6.2 INDEMNIFICATION: WCCS agrees to indemnify, defend, and hold
harmless Entropin, its employees, subcontractors or agents, for
any and all claims, demands and expenses, including litigation
costs, arising out of, or in any way resulting from or connected
with the services or work provided by WCCS, its employees,
subcontractors or agents.
It is agreed that this indemnity agreement shall include any
claim, demand or expense incurred arising out of, resulting from
or in any way connected with the services provided by WCCS, its
employees, subcontractors or agents for which WCCS, its
employees, subcontractors, or agents is solely legally liable.
It is agreed that WCCS shall carry a general liability policy and
a products liability policy, each naming Entropin, its employees,
subcontractors and agents as additional Insureds. The policies
shall be in force for a period of not less than two (2) years
after the termination of the Agreement and shall have limits of
not less than $2 million dollars. It is the responsibility of
WCCS to provide Entropin with the Certificate of Insurance and
certified copies of the policies. In the event that the
aggregate limit of either policy is reduced below the agreed
limit of $2 million dollars, it is the responsibility of WCCS to
purchase additional limits to comply with the terms of this
Agreement.
2
<PAGE>
IN WITNESS WHEREOF, the undersigned have entered into this AMENDMENT
effective August 3, 1998.
WESTERN CENTER FOR CLINICAL
STUDIES, INC. ENTROPIN, INC.
By: /s/ LOIS REZLER By: /s/ HIGGINS D. BAILEY
-------------------------- --------------------------
Lois Rezler Higgins D. Bailey
President Chairman
Date: 8/3/98 Date: 8-3-98
3
EXHIBIT 10.18
SECOND AMENDMENT
This is a Second Amendment ("Amendment") dated July 21, 1999, to that
certain Agreement dated April 6, 1998, by and between Entropin, Inc.
("Entropin"), a Colorado corporation and Western Center for Clinical
Studies, Inc. ("WCCS"), a California corporation.
1. Article II of the Agreement entitled "TERM OF AGREEMENT" is
hereby amended as follows:
This Agreement shall be for a term commencing as of April 6, 1998
and through the completion of the NDA phase: provided, however, (1)
the parties negotiating in good faith, can agree on terms and payment
commensurate with the agreed upon scope of work for WCCS to supply
support for the NDA phase; and, (2) either party shall have the right
to terminate this Agreement prior to such date as set forth in Article
VII of this Agreement. This time period shall be known as the "Term".
2. Article III of the Agreement entitled "OBLIGATIONS OF WCCS AND
ENTROPIN" is hereby amended as follows:
3.4 TIME COMMITMENTS: Unless otherwise agreed to in writing by
Entropin, Lois Rezler, Ph.D., Roy S. Azarnoff, Ph.D., and Daniel
L. Azarnoff, M.D. shall, during the Term, devote the effort
necessary and prudent to assure that their obligations under this
Agreement are completed within the Time Line and Budget. [THE
REMAINING SENTENCES CONTAINED IN PARAGRAPH 3.4 HAVE BEEN
ELIMINATED]
3.7 REPORTS: WCCS shall keep Entropin fully informed of all
activities undertaken by it for the benefit of Entropin and its
progress in completing its obligations under this Agreement. In
that regard, WCCS shall provide Entropin with progress reports
<PAGE>
as follows: (i) in compliance with the reporting requirements to
be determined by the parties no later than August 15, 1999; and,
(ii) a variance report when its progress relative to the Scope of
Work, Time Line and Budget varies to a material degree. Entropin
shall keep WCCS fully informed regarding its efforts to raise
additional funds. WCCS shall not disclose to any third party any
non-public information relating to the financial condition of
Entropin or its efforts to raise additional funds and neither it
nor any of its assigns shall at any time buy or sell any shares
of stock of Entropin based on any such non-public financial
information.
3.8 ENTROPIN OBLIGATIONS:
b. Entropin will establish a formal review process satisfactory
to both parties, to ensure that all public relations materials,
news releases, presentations or other information disseminated to
the public which refer to the officers, employees or Scope of
Work of WCCS, or to matters relating to the FDA, DEA, OSHA, and
other related regulatory agencies, will be presented to WCCS for
review and approval prior to release.
3.9 CRO ACTIVITIES: The parties will negotiate in good faith a
separate agreement regarding the retention of WCCS to perform the
wrap around scope of work of CRO activities for Phase III A and
III B.
3. Article IV of the Agreement entitled "COMPENSATION TO WCCS" is
hereby amended as follows:
4.1 PAYMENTS: Subject to any subsequent modification of the
term and scope of this Agreement, Entropin shall make payment for
management fees to WCCS in
2
<PAGE>
the aggregate amount of Eight Hundred Eighty Thousand Four
Hundred Dollars ($880,400.00), for the period from April 6, 1998,
through January 5, 2001, and Seventy-six Thousand Four Hundred
Dollars ($76,400.00) per quarter commencing January, 2001 and
continuing until NDA submission. The first such payment shall be
made concurrently with the execution of this Agreement by
authorized representatives of WCCS and Entropin and shall be in
the amount of Forty Thousand Dollars ($40,000). Thereafter,
payments shall be made to WCCS as set forth in Exhibit A.
Promptly upon execution of this Amendment, Entropin shall accrue
and escrow an amount equivalent to three (3) months of management
fees and Entropin agrees that such funds identified and dedicated
to WCCS for services under this Agreement may not nor will be
used for any purpose other than payment of such services without
prior written consent from WCCS. In the event the parties enter
an agreement concerning the NDA as set forth in Article II of the
Agreement, the management fees will be increased accordingly
4.2 STOCK OPTIONS:
b. OPTION TERM: The term of each option shall be for seven (7)
years from the date of its grant.
d. EXERCISE DATES: Subject to Article V of this Agreement,
WCCS or its assignees may exercise the options granted to it
under this Agreement according to the schedule listed below:
provided, however, in the case of any merger or consolidation of
Entropin with or into another corporation or any other type of
reorganization which results in a change of control whereby
Entropin's board of directors prior to
3
<PAGE>
the reorganization represents less than a majority of Entropin's
board of directors after the reorganization, all remaining
options shall become immediately exercisable at the effective
date of such merger, consolidation or change of control:
Number of Options Date of Vesting
----------------- ---------------
75,000 Fully vested
100,000 Start of Phase III Clinical Trials
75,000 Completion of Phase III, Part A,
Clinical Trials and submission of
report to FDA
75,000 Completion of Phase III, Part B,
Clinical Trials and submission of
report to FDA
125,000 The earlier of NDA approval or
contract termination, except in
the event of a termination by WCCS
under paragraphs 7.3, 7.4 or 7.7
of this Agreement
h. REGISTRATION RIGHTS: Subject to the approval of Entropin's
investment banker, Entropin shall include the shares underlying
options granted to WCCS in this Agreement in a registration
statement filed with the Securities and Exchange Commission under
the Act as soon as practicable following the completion of
Entropin's proposed secondary public offering; provided, however,
the shares underlying such options shall be subject to any lock-up
or other restrictions imposed upon Entropin's directors,
officers and major shareholders. Entropin shall make all
reasonable efforts to keep such registration current. Entropin
shall give 30 days' prior written notice to WCCS of Entropin's
intention to file a registration statement under the Act. WCCS
will provide Entropin with such information relating to WCCS and
its plan of distribution as may be necessary for the completion
of the
4
<PAGE>
registration statement, and will enter into appropriate
indemnification agreements, as well as any lock-up and other
restrictive agreements as entered into by principal shareholders,
officers or directors of Entropin, and make other customary
representations to Entropin related to the registration
statement.
4. Article V of the Agreement entitled "ADJUSTMENTS" is hereby
amended as follows:
5.1 INABILITY TO MEET CURRENT OBLIGATIONS: In the event
Entropin's financial forecasts project that Entropin is or will
become unable to meet its financial obligations accrued in the
normal course of business as they become due 60 days from the
forecast date, the parties will enter good faith negotiations to
modify this Agreement within thirty (30) days from written notice
to WCCS by Entropin of such forecast. If the parties are not
able to negotiate an acceptable modification of the Agreement,
either party may terminate the Agreement. Notwithstanding
paragraph 5.1(a), any negotiated reduction in WCCS' compensation
will be accrued and paid by Entropin as soon as practicable,
provided however, the parties reach an agreement on adjustments
in performance. Such termination shall release all parties of all
further obligations under the Agreement, except that Entropin
shall have the following obligations to WCCS: [PARAGRAPH 5.1(a)
REMAINS UNCHANGED AND PARAGRAPH 5.1(b) IS ELIMINATED.]
5. Article VI of the Agreement entitled "DIRECTORS AND OFFICERS
LIABILITY INSURANCE" is hereby amended to include the following provision:
5
<PAGE>
6.3 INDEMNIFICATION: Entropin agrees to indemnify, defend, and
hold harmless WCCS, its employees, subcontractors or agents,
for any and all claims, demands and expenses, including
litigation costs, arising out of, or in any way resulting
from or connected with the services or work provided by
WCCS, its employees, subcontractors or agents, insofar as
such claim, liability or action arises out of, or is based
upon, the actions or inactions of Entropin.
5. Article VII of the Agreement entitled "TERMINATION" is hereby
amended to include the following provisions:
7.7 CONTINUATION OF THE AGREEMENT: In the event that the results
of the Phase III, Part A, Clinical Trials indicate that
Esterom(R) is ineffective, either party may terminate this
Agreement upon written notice to the other party.
7.8 OPTION TO TERMINATE: At any time after the completion of the
Phase III, Part A, Clinical Trials, if Entropin shall have
obtained a commitment with an alliance partner or an equivalent
business relationship, Entropin shall have the option to
terminate this Agreement effective upon sixty (60) days written
notice to terminate. At the termination date, all options
granted to WCCS or its assignees under this Agreement shall
become immediately exercisable.
6. Article XI of the Agreement entitled "ARBITRATION" is hereby
amended as follows:
Any dispute arising between WCCS and Entropin concerning this
agreement or its interpretation shall be resolved by submission to
arbitration in Denver, Colorado in accordance with the rules of the
American Arbitration Association then in effect. The
6
<PAGE>
dispute will be heard by a panel of arbitrators familiar with
pharmaceutical manufacturing and/or pharmaceutical research and
development. Any award made by such arbitrators shall be binding and
conclusive for all purposes hereof, may include injunctive relief, and
may be entered as a final judgment in any court of competent
jurisdiction. The costs and expenses of such arbitration shall be
borne in accordance with the determination of the arbitrators.
7. Article XII of the Agreement entitled "MISCELLANEOUS" is hereby
amended as follows:
12.1 (a) if the WCCS: Lois Rezler, Ph.D
Western Center for Clinical Studies, Inc.
21550 Oxnard Street, Suite 810
Woodland Hills, CA 91367
8. The following Exhibits shall be amended as attached hereto as
Exhibits A and D, respectively:
Exhibit A: BUDGET
-----------------
Exhibit D: TIME LINE: Milestones, Tasks, and Sub Tasks
------------------------------------------------------
All other provisions of the Agreement shall remain in full force and
effect.
IN WITNESS WHEREOF, the undersigned have entered into this AMENDMENT
effective July 21, 1999.
WESTERN CENTER FOR CLINICAL
STUDIES, INC. ENTROPIN, INC.
By: /s/ LOIS REZLER By: /s/ DONALD HUNTER
----------------------------- -----------------------------
Lois Rezler Donald Hunter
President Chief Executive Officer
Date: 7/28/99 Date: 7/21/99
----------------- -----------------
7
EXHIBIT 10.19
AMENDMENT
---------
This Amendment to License Agreement dated January 1, 1998 (the
"Agreement") by and between Entropin, Inc., a Colorado corporation
("Entropin"), and Dr. James E. Wynn, individually ("Wynn"), is entered by,
between and among Entropin, Wynn and Distinguished Medical Research, Inc.,
a Nevada corporation ("DMR") (collectively, the "Parties") effective this
1st day of August, 1998.
RECITALS
WHEREAS, Wynn desires to assign his rights under the Agreement to DMR;
and,
WHEREAS, the parties desire to set forth the procedures pursuant to
which services are to be performed by Wynn on behalf of DMR for Entropin
and compensation for such services is to be paid to DMR by Entropin.
NOW, THEREFORE, for good and valuable consideration the sufficiency of
which is hereby acknowledged, the parties hereby agree:
1. ASSIGNMENT.
1.1 Contemporaneous with the execution of this Agreement, the
parties shall execute the Assignment Agreement and Consent attached as
Exhibit 1.
1.2 DMR shall be bound by all of the terms and conditions of the
Agreement and this Amendment.
1.3 DMR and Wynn jointly and severally warrant and represent
that Wynn shall:
(a) perform the scope of work set forth in Section 4 of the
Agreement; and,
(b) continue to be bound by all of the terms and conditions
of the Agreement and this Amendment.
<PAGE>
1.4 Entropin acknowledges that Dr. James Wynn is a full time
Assistant Dean and Professor at the College of Pharmacy, Medical University
of South Carolina ("MUSC"), and is governed by the outside activities and
conflict of interest provisions of MUSC. Wynn and DMR jointly and
severally warrant and represent that they are not subject to any
obligations which would limit or restrict the performance of services
hereunder, including but not limited to obligations with respect MUSC.
2. PRIOR TECHNICAL KNOWLEDGE. The definition of Prior Technical
Knowledge set forth in Article I, Section 1.5 of the Agreement is amended
in its entirety as follows:
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(R).
(b) Research leading to reproducing Esterom(R) to establish its
formulation
(c) Manufacturing Esterom(R) for animal studies.
(d) Supervising Phase I Clinical Studies (toxicity) in human
beings using Esterom(R).
(e) Supervising the Phase II Clinical Studies of Esterom(R)
(toxicity and efficacy) at MUSC.
(f) Completing preliminary research on Esterom(R).
(g) Developing an assay for benzoyl ecgonine and ecgonine for the
purposes of indicating the stability of Esterom(R) using a GC/MS
analytical method as well as an HPLC method for benzoylecgonine.
3. DIRECTOR'S AGREEMENT AND CONFIDENTIALITY. Dr. Wynn acknowledges
that he is bound by the provisions of the Directors' Agreement dated
October 16, 1998, entered into by him and
-2-
<PAGE>
Entropin, in regards to his role and responsibilities as a director of
Entropin. Dr. Wynn acknowledges that he is bound by the confidentiality
provisions contained within the Agreement, as it relates to his work and
responsibilities on behalf of DMR for Entropin.
4. SERVICES AND PAYMENT. Services to be performed by DMR to
Entropin shall be on a project-by-project basis. With respect to each
project, Entropin and DMR shall execute a written work order detailing the
work to be performed and the milestones therefor, up to and including a
completion date. The work order shall specify the compensation to be paid
for the project and the payment terms therefor; which terms shall include
payment net 30 days from invoice subject to acceptance, and shall otherwise
be commercially reasonable, and usual and customary for transactions of
this type.
5. ARBITRATION. Although Section 12.3 of the Agreement states that
arbitration shall be conducted in Los Angeles, California, and Section 13.4
of the Agreement states that arbitration shall be conducted in Las Vegas,
Nevada, any and all disputes arising under this Agreement shall be subject
to arbitration pursuant to the rules of the American Arbitration
Association and shall be conducted in Denver, Colorado.
6. RELATED PARTY TRANSACTION. Subsequent to execution of the
Agreement, Wynn was appointed to the Board of Directors of Entropin. He
has become the Scientific Advisor to Entropin and is acting as liaison to
the Board on behalf of the Scientific Advisory Board. As a result of
serving in these capacities, the Agreement has subsequently become a
related party transaction between Entropin and Wynn. Accordingly, the
Board has considered the fairness of the terms and conditions of the
Agreement and this Amendment thereto. The Board has determined that the
terms and conditions are fair and reasonable, and at least as favorable as
obtainable from a third-party capable of performing the services under the
Agreement.
-3-
<PAGE>
IN WITNESS WHEREOF, the undersigned have entered into this Amendment
as of the date first set forth above.
ENTROPIN, INC. DISTINGUISHED MEDICAL
RESEARCH, INC.
By: /s/ HIGGINS D. BAILEY By: /s/ JAMES E. WYNN
------------------------------ ------------------------------
Higgins D. Bailey, Chairman , an officer
Date: 6-5-99 Date: 6/5/99
---------------------------- ----------------------------
/s/ JAMES E. WYNN
---------------------------------
James E. Wynn, Individually
Date: 4/23/99
----------------------------
-4-
<PAGE>
Exhibit 1
ASSIGNMENT AND CONSENT
----------------------
THIS ASSIGNMENT of License Agreement dated January 1, 1998 (the
"License Agreement"), by and among Dr. James E. Wynn, hereinafter referred
to as Assignor, and Distinguished Medial Research, Inc., a Nevada
corporation ("DMR"), hereinafter referred to as Assignee, and Entropin,
Inc., a Colorado corporation, hereinafter referred to as the Company.
WITNESSETH:
WHEREAS, the Company contemporaneous herewith is entering into
Amendment to License Agreement with Assignee, in which this Assignment is
incorporated and made a part thereof; and
WHEREAS, the Company consents to the Assignment of the Agreement to
Assignee by Assignor.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto agree as
follows:
1. ASSIGNMENT. Assignor hereby assigns to Assignee all of its
right, title and interest in and to the Option Agreement, as amended.
2. CONSENT. Assignee hereby agrees to be bound by the terms and
conditions of the License Agreement, as amended.
3. BINDING NATURE. This Assignment shall be binding upon the
parties and upon each of their successors and assigns.
IN WITNESS WHEREOF, the parties have executed this Assignment on the
date first above written.
<PAGE>
ASSIGNOR:
By: /s/ JAMES E. WYNN
---------------------------------
ASSIGNEE:
By: /s/ HIGGINS D. BAILEY
---------------------------------
ENTROPIN, INC., a Colorado corporation
By: /s/ HIGGINS D. BAILEY
---------------------------------
Higgins D. Bailey, Chairman
-2-
EXHIBIT 10.20
WCCS WRAP AROUND AGREEMENT
--------------------------
This Agreement is made and entered into as of this 10th day of
November, 1999, by and between Entropin, Inc., a Colorado corporation
("Entropin") and Western Center for Clinical Studies, Inc., a California
corporation ("WCCS").
PURPOSE
WHEREAS, Entropin and Therapeutic Management, Inc. entered into a
Contract Research Organization Services Agreement, dated August 11, 1999
("Therapeutic Management Agreement"), whereby Therapeutic Management, Inc.
("CRO") agreed to assist Entropin in the development of, and/or to conduct
Phase IIIA of a multi-center clinical drug evaluation study to research
Entropin's product, Esterom(R) ("Study");
WHEREAS, Entropin desires to obtain the services of WCCS to act as
its representative in carrying out certain of its responsibilities and
obligations under the Therapeutic Management Agreement; and
WHEREAS, WCCS possesses the expertise to assume certain of Entropin's
obligations under the Therapeutic Management Agreement;
NOW THEREFORE, in consideration of the mutual covenants and agreements
contained herein, and for other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged and as set forth
herein, the parties hereby agree as follows:
ARTICLE I
TRANSFER OF RESPONSIBILITIES AND OBLIGATIONS
1.1 UNITED STATES FOOD AND DRUG ADMINISTRATION REGULATIONS. The Parties
enter into this Agreement for the express purpose of transferring from
Entropin to WCCS the responsibilities and obligations of Entropin to
conduct, coordinate, manage, and/or develop the Study in accordance with
United States Food and Drug Administration ("FDA") regulations set forth in
21 CFR Section 312, Subpart D, as such may be amended from time to time.
Accordingly, Entropin hereby transfers and WCCS hereby assumes the
compliance responsibilities and obligations for the services set forth in
APPENDIX A, attached hereto and made a part hereof, to conduct, coordinate,
manage and/or develop the Study pursuant to the Protocol, as that term is
defined in Article 1.2 (collectively, the "Services").
1.2 PROTOCOL. Prior to the Effective Date, as defined hereafter, the
Entropin protocol entitled: PROTOCOL NO: ESTEROM 99-02-01 VERSION 2.1 "A
STUDY TO DETERMINE THE EFFECTIVENESS AND SAFETY OF TOPICALLY APPLIED EST321
VERSUS VEHICLE IN PATIENTS WITH DECREASED ACTIVE RANGE OF MOTION ASSOCIATED
WITH IMPAIRED SHOULDER FUNCTION" (the "PROTOCOL"), attached hereto as
APPENDIX B and incorporated by reference herein, may be amended as a result
of FDA requests. Following the Effective Date, WCCS shall (i) modify when
necessary Entropin Protocol in accordance with the Project Specification
Sheet attached hereto as APPENDIX C and incorporated by reference herein;
and, (ii) WCCS
<PAGE>
shall conduct the Study in accordance with the Protocol, as amended or
revised from time to time with WCCS' approval which shall not be
unreasonably withheld.
1.3 ENTROPIN REPRESENTATIVE. WCCS shall act as Entropin's representative
for acceptance of all information, including, without limitation, any and
all reports and/or copies of tables, due and owing from the performance of
the Therapeutic Management Agreement by Therapeutic Management, Inc. In no
event shall any such information, or any copies thereof, in whole or in
part, be given to any party other than Entropin, without the express prior
consent of Entropin.
ARTICLE II
RESPONSIBILITIES
2.1 WCCS RESPONSIBILITIES
A. PROVISION OF INFORMATION. WCCS shall provide all necessary
information to CRO as reasonably required to assure initiation
and completion of the Study in accordance with APPENDIX G. In
addition, WCCS shall provide to Entropin all communications
received by WCCS from the CRO, FDA or other governmental
agencies.
B. APPROVAL. WCCS shall approve all copy, layouts, and Study
elements in a timely fashion so as to allow CRO to meet its
obligations under the Therapeutic Management Agreement.
C. SCOPE OF WORK. Subject to the provisions of Paragraph 2.4 and
2.5, WCCS shall perform the services set forth within the Project
Specification Sheet, as set forth in APPENDIX C, attached hereto
and incorporated by reference herein.
2.2 ENTROPIN RESPONSIBILITIES
A. PROVISION OF INFORMATION. Entropin shall provide to WCCS all
communications received by Entropin from the CRO, FDA or other
governmental agencies.
B. SUPPLY OF STUDY DRUG. Entropin will assure that the Study Drug
is available on a timely basis and in amounts WCCS deems adequate
to accommodate the patient treatment period as specified in the
Protocol.
2.3 TERM. This Agreement shall commence at such time as the Protocol has
been amended and accepted by the FDA, in accordance with the FDA
modifications requested in FDA correspondence, dated September 13, 1999
("Effective Date"), and remain in full force and effect until such time as
the Services have been completed (the "Term"), unless sooner suspended
pursuant to Article 2.8 or terminated pursuant to Articles 2.5, 2.6 or 2.7.
2
<PAGE>
2.4 EXTENSION OR MODIFICATION OF THE TERM. Subject to Suspension of the
Term as set forth in Article 2.8, the Term may only be extended or modified
in accordance with a written amendment signed by the Parties as set forth
in Article XX.
2.5 TERMINATION BY ENTROPIN.
A. TERMINATION AT WILL. At any time within three months from the
date hereof, Entropin may terminate this Agreement at will
immediately without cause and shall pay WCCS compensation to date
of termination. At any time during the remainder of the Term,
Entropin may terminate this Agreement without cause and shall pay
WCCS: (1) compensation to date of termination, and (2) a
termination fee consisting of: (a) forgiveness of the amount of
fee reduction set forth in paragraph 4.1 of the agreement between
WCCS and Entropin, dated April 6, 1998, and (b) waiver of that
portion of the fees previously paid to WCCS in accordance with
the payment schedule in Appendix E hereto which represents excess
funds for work and expenses not incurred ("Excess Funds").
B. TERMINATION FOR CAUSE. Entropin shall have the right to
terminate this Agreement for cause, as defined hereafter, upon
ten (10) days' written notice to WCCS; for purposes of this
Agreement, "cause" shall mean conviction of WCCS of a crime
involving moral turpitude, WCCS' habitual neglect of WCCS' duties
under this Agreement or theft of Entropin property. Upon
termination, Entropin's sole obligation to WCCS shall be to pay
WCCS any equitable pro-rated monies due for work actually
performed and/or expenses actually incurred up to the effective
date of termination. WCCS shall promptly refund to Entropin any
and all Excess Funds.
C. TERMINATION FOR BREACH. Entropin shall have the right to
immediately terminate this Agreement in the event WCCS commits a
material breach hereof and fails to cure such material breach
within 30 days of receipt of written notice thereof. Upon
termination, Entropin's sole obligation to WCCS shall be to pay
WCCS any equitable pro-rated monies due for work actually
performed and/or expenses actually incurred up to the effective
date of termination. WCCS shall promptly refund to Entropin any
and all Excess Funds.
D. TERMINATION OF THERAPEUTIC MANAGEMENT AGREEMENT. In the event
that the Therapeutic Management Agreement is terminated for any
reason, this Agreement may be terminated by Entropin upon 30 days
written notice to WCCS. Upon termination, Entropin's sole
obligation to WCCS shall be to pay WCCS any equitable pro-rated
monies due for work actually performed and/or expenses actually
incurred up to the effective date of termination. To the extent
that such actual costs and expenses shall be less than the total
monies previously paid to WCCS by or on behalf of Entropin, WCCS
shall promptly refund to Entropin any and all such excess funds.
3
<PAGE>
E. WCCS'S OBLIGATIONS UPON NOTICE OF TERMINATION. Upon the delivery
of notice of termination by Entropin, WCCS shall cease the Study.
WCCS will return to Entropin all Confidential Information (as
defined in Article IV) and transfer and assign all property and
materials (including unused materials) in WCCS's possession or
control that belong to Entropin, including, but not limited to,
the right, title, and interest in and to the Inventions (as
described in Article 14.1) and patent applications and patents
thereon. Following the receipt of such notice of termination,
WCCS shall not incur any additional expenses with respect to the
Study, except those expenses that are documented in detail and
are necessary in order to terminate the Study.
2.6 TERMINATION BY WCCS
A. MATERIAL BREACH. WCCS shall have the right to immediately
terminate this Agreement in the event Entropin commits a material
breach hereof and fails to cure such material breach within 30
days of receipt of written notice thereof.
B. WCCS'S OBLIGATIONS UPON TERMINATION. Upon WCCS's termination of
this Agreement, it shall cease the Study. WCCS will return to
Entropin all Confidential Information (as defined in Article IV)
and transfer and assign all property and materials (including
unused materials) in WCCS's possession or control that belong to
Entropin, including, but not limited to, the right, title and
interest in and to the Inventions (as described in Article 14.1)
and patent application and patents thereon. Following the notice
of such termination to Entropin, WCCS shall not incur any
additional expenses with respect to the Study, except those
expenses that are documented in detail and are necessary in order
to terminate the Study.
C. ENTROPIN'S OBLIGATIONS UPON TERMINATION. Upon termination,
Entropin's sole obligation to WCCS shall be to pay WCCS any
equitably pro rated monies due and owing it for work actually
performed and/or expenses actually incurred up to the effective
date of termination; to the extent that such actual costs and
expenses shall be less than the total monies previously paid to
WCCS by or on behalf of Entropin, WCCS shall promptly refund to
Entropin any and all such excess funds.
2.7 BANKRUPTCY. Both Parties shall have the right to immediately
terminate this Agreement in the event the other Party makes (i) a general
assignment for the benefit of its respective creditors; (ii) has a
custodian, receiver, or trustee appointed for either it or a substantial
part of its assets; (iii) commences a voluntary proceeding under either the
Federal Bankruptcy Act or any state law relating to insolvency; or (iv) a
court having
4
<PAGE>
jurisdiction over it enters a Decree or Order for Relief in an involuntary
case under any applicable bankruptcy or insolvency law and such Decree or
Order continues unstayed and in effect for a period of 60 days or more.
2.8 DELAY IN TERM. The Term may be delayed, suspended and/or put on hold
by Entropin for any reason upon 30 days' written notice to WCCS
("Suspension of the Term"). The Term may be suspended by WCCS pursuant to
Article 3.1. If there is a Suspension of the Term, Entropin agrees WCCS
shall have no obligation to renew performance unless Entropin and WCCS
agree on a modification of WCCS' obligations and compensation as
appropriate because of such Suspension. During such Suspension, WCCS shall
have no obligation to perform services hereunder.
2.9 SURVIVAL. Neither the expiration or termination of this Agreement
shall relieve the Parties of their respective obligations pursuant to
Articles IV, 5.4, 7.3, 10.2, 10.4, XII, XXI, XXV and XXVII.
ARTICLE III
COMPENSATION
3.1 TOTAL STUDY COST. The estimated total cost for the Services (the
"Total Study Cost") is detailed in APPENDIX D attached hereto and made a
part hereof. Notwithstanding Article 3.3, the Total Study Cost shall not
exceed the estimate for any reason without the prior written approval of
Entropin. Cost increases greater than 10% of the Total Study Cost will
require an amendment to this Agreement. In the event the prior written
consent of Entropin is not obtained or an amendment to the Agreement has
not been executed, WCCS will suspend all Services prior to exceeding the
estimated Total Study Cost, unless such suspension would result in risks to
the Study Subjects.
3.2 TOTAL STUDY COST PAYMENT SCHEDULE. The Total Study Cost shall be
payable in accordance with the terms of this Agreement and APPENDICES D AND
E attached hereto and made a part hereof.
3.3 ENTROPIN-REQUESTED CHANGES TO THE PROTOCOL AND/OR STUDY. Entropin
reserves the right to request WCCS to perform reasonable, related services
("Additional Services") in addition to the services set forth in APPENDICES
A, C AND D. Subject to the last sentence of this Article 3.3, in the event
Entropin does request WCCS in writing to perform Additional Services,
Entropin and WCCS shall mutually agree on the cost for such Additional
Services prior to WCCS being obligated to undertake such Additional
Services. Any costs incurred by WCCS under this Article 3.3, which cause
the Total Study Cost to be exceeded without Entropin's prior written
approval, shall not be reimbursed. Notwithstanding anything to the
contrary set forth in this Article 3.3, WCCS shall perform without any
increase in the Total Study Cost, Addional Services including, without
limitation, those services necessitated as a result of changes to the Study
and/or Protocol, provided that such Additional Services are, or would have
been, reasonably expected to be within the scope of the Study as determined
by industry standards.
5
<PAGE>
3.4 REDUCTION IN THE TOTAL STUDY COST. In the event any agreed upon
reduction in either the scope of the Study or amount of Services requested
by Entropin reduces the Total Study Cost such that the total amount
previously paid exceeds the reduced Total Study Cost, the difference shall
be returned to Entropin by WCCS in full at the end of the Term.
3.5 MONITORING/MEETING EXPENSE. Entropin shall reimburse WCCS for all
monitoring/meeting expenses actually incurred by WCCS in accordance with
Entropin's Reimbursement Policy attached hereto as Appendix F and made part
hereof. As a prerequisite to reimbursement under this Article, WCCS shall
maintain and have readily available appropriate documentation on file in
accordance with Entropin's Reimbursement Policy which may be audited at any
time upon request by Entropin.
3.6 ADDITIONAL POSTAGE. Entropin shall be invoiced on a monthly basis
and at WCCS's net costs for all necessary next day mail and/or courier
services related to the administration of the Study. For expedited
shipments, economy two-day delivery is the preferred method. WCCS will use
discretion when shipping by Standard Overnight delivery and will use
Priority Overnight delivery only when absolutely necessary.
ARTICLE IV
CONFIDENTIALITY
In the course of performance of WCCS' duties, WCCS will receive
confidential information as that term is defined in the Non-Disclosure
Agreement dated April 6, 1998, entered into by and between WCCS and
Entropin, attached hereto as Appendix H and incorporated by reference
herein ("Non-Disclosure Agreement"). Pursuant to the terms of the Non-
Disclosure Agreement, WCCS will not disclose the confidential information
to others, except as expressly authorized by Entropin and will not use this
information directly or indirectly for the benefit of WCCS.
ARTICLE V
STAFF REQUIREMENTS/WCCS AGENTS
5.1 DEBARMENT CERTIFICATION. WCCS represents and warrants that it did not
and will not use in any capacity the services of any person debarred under
subsections (a) or (b) of Section 306 of the Federal Food, Drug, and
Cosmetic Act, as amended, 21 U.S.C. Section 335a(a) and (b), in connection
with its performance of this agreement.
5.2 AFFILIATES, SUBSIDIARIES, SUBCONTRACTORS, AND CONSULTANTS. Without
the prior written consent of Entropin, WCCS shall not (i) contract with,
nor permit, anyone other than WCCS employees or CRO employees to perform
the Services or (ii) assign material aspects of the Services, or any
material portions thereof, to any outside investigator, affiliate,
subsidiary, subcontractor, and/or consultant (collectively, "WCCS Agent(s)").
6
<PAGE>
5.3 CHANGE OF STAFF. Any change in the personnel performing material
Services, or any portion thereof, shall be communicated in writing to
Entropin at least 15 days prior to such change by WCCS. Such written
communication shall be accompanied by written documents describing the
proposed personnel, including, without limitation, CURRICULUM VITAE;
provided that WCCS shall provide Entropin with any additional materials
concerning such proposed personnel as Entropin shall reasonably request
within three days of such request. WCCS shall remove and replace any
employee and/or WCCS Agent whose performance and/or qualifications are
deemed unsatisfactory by Entropin (in the sole opinion of Entropin).
5.4 CONFIDENTIALITY AND COMPLIANCE. WCCS will ensure that every WCCS
Agent approved in accordance with Article 5.2 will (i) execute a
confidentiality agreement containing the same provisions set forth in the
Appendix H; and (ii) adhere to the terms and conditions of this Agreement.
WCCS will provide a copy of all such agreements to Entropin in accordance
with Article XIII hereof following their execution.
5.5 WCCS AGENTS COSTS AND/OR FEES. WCCS shall bear sole responsibility
for any costs, fees, and/or expenses to be paid to any WCCS Agent;
provided, however, Entropin shall bear sole responsibility for all costs,
fees and/or expenses to be paid to the CRO and such other entities detailed
in Appendix D.
5.6 CRO EMPLOYEE DOCUMENTATION. WCCS will provide Entropin with a
document created and maintained by WCCS and the CRO within 15 days of the
execution of this Agreement containing the following information with
regard to each WCCS and CRO employee providing material services hereunder:
full name, title, services provided, and sample of employee's initials.
WCCS further agrees that it will provide Entropin with updated versions and
notification of any change in WCCS and/or CRO employees made in accordance
with this Agreement or the Therapeutic Management Agreement.
ARTICLE VI
TIME TABLE
6.1 TIME SCHEDULE. The timetable for the Services and the Study is set
forth in APPENDIX G attached hereto and made a part hereof. Entropin shall
be immediately notified by WCCS, in accordance with Article XIII, of any
anticipated or actual delays with respect to the Services and/or the Study.
ARTICLE VII
STUDY DRUG
7.1 SUPPLY. WCCS will assure that the Study Drug and comparative
agent(s), if applicable, and placebo(s), if applicable (collectively
referred to as "Vehicle"), are provided on a timely basis and at no charge
to the CRO in amounts WCCS deems adequate to accommodate the patient
treatment period as specified in the Protocol.
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7.2 STUDY DRUG SHIPMENT. WCCS will assure that all Study Drug and
Vehicle(s), if applicable, shall be shipped to the location(s) and/or
person(s) identified by CRO.
7.3 RETRIEVAL OF UNUSED STUDY DRUG. WCCS represents and warrants that it
will use its best efforts to (i) retrieve and identify all unused Study
Drug and comparative agent(s), if applicable, and placebo(s), if
applicable, from each investigator; (ii) identify each lot, physician, and
patient number; and (iii) log and record the foregoing information for
Entropin review.
7.4 ADVERSE EVENT REPORTING.
A. WCCS AGREEMENTS. WCCS will enter into an agreement with the CRO
that the following adverse events will be reported to WCCS
immediately by telephone from the investigator: (i) those events
which are defined by the Protocol as "serious", including events
which (a) result in death, severe or permanent disability,
cancer, congenital anomaly, or overdose; (b) are considered life-
threatening; and/or (c) which result in hospitalization or
prolongs an existing hospitalization; and, (ii) those events
which are defined by Protocol as "unexpected," meaning any event
which is not identified in nature, severity, or frequency in the
investigator brochure.
B. REPORTS TO ENTROPIN BY WCCS. WCCS will report to Entropin any
unfavorable and unintended sign (including an abnormal laboratory
finding), symptom, or disease temporally associated with the use
of the medicinal (investigational) product, whether or not
related to the medicinal (investigational) product.
C. PATIENT TREATMENT BY INVESTIGATOR(S). Any investigator, if
properly qualified, shall have the right to provide reasonable
and customary treatment to any Study Subject who exhibits
symptoms of an adverse reaction. Such properly qualified
investigator shall advise WCCS in advance of such treatment,
whenever reasonably possible, or as soon thereafter if prior
notice is not possible.
D. PAYMENT OF COSTS. If in the opinion of the investigator and
WCCS, the Study Subject's reaction directly resulted from the use
of the Study Drug, placebo provided in conjunction with the
Study, if applicable, or other required procedures involved in
the Study, then Entropin shall reimburse patients for all
reasonable and customary costs associated with the diagnosis and
treatment provided, to the extent such costs are not reimbursed
by medical insurance of Study Subjects. In the event that a
suspected adverse reaction is not, in the opinion of the
investigator and WCCS, Study related, Entropin shall provide
reimbursement for diagnostic work-up costs only. Entropin's
obligation to pay the foregoing costs is limited to incidents when
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the Study Drug was administered (a) in accordance with applicable
law, accepted medical practice, the Protocol and any other
written instructions, precautions, and/or indications furnished
by or on behalf of Entropin; and (b) without negligence,
recklessness, or willful misconduct or omission of the
investigator or the Study Subjects.
ARTICLE VIII
REPRESENTATIONS AND WARRANTIES
8.1 REPRESENTATION AND WARRANTIES OF WCCS
A. STAFF AND EXPERTISE. WCCS represents and warrants that it has
the facilities, professional, technical, and clerical staff,
experience and expertise sufficient in quality and quantity to
perform the Services and the Study pursuant to the Protocol
within the time frame set forth in APPENDIX G. Further, WCCS
represents and warrants that it did not and will not use in any
capacity the services of any person debarred under subsections
(a) or (b) of Section 306 of the Federal Food, Drug, and Cosmetic
Act, as amended, 21 U.S.C. Section 335a (a) and (b), in
connection with its performance of this Agreement.
B. COMPLIANCE WITH LAWS. WCCS represents and warrants that all the
Services performed and provided by WCCS, its employees and WCCS
Agents shall fully comply with all applicable federal, state, and
local laws, rules and/or regulations.
C. INCONSISTENT OBLIGATIONS. WCCS represents and warrants that the
responsibilities and obligations assumed by WCCS on behalf of
Entropin hereunder are not in conflict with any other obligations
WCCS might have.
D. INDUSTRY STANDARDS. WCCS hereby agrees that it will perform,
and cause its employees and WCCS Agents to perform, the Services
in a manner commensurate with the highest professional standards
applicable to its industry.
E. FINANCIAL STABILITY. WCCS shall at all times during the Term of
this Agreement have sufficient financial resources to perform its
obligations hereunder.
8.2 REPRESENTATIONS AND WARRANTIES OF ENTROPIN.
A. COMPLIANCE WITH LAWS. Entropin represents and warrants that all
Study Drug supplied pursuant to this Agreement shall fully comply
with all applicable federal, state and local laws, rules and
regulations.
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B. INSURANCE. Entropin has delivered to Buyer information as of
September 1, 1999, detailing the clinical trial liability
insurance policies carried by Entropin.
C. AUTHORITY Entropin has full power and authority to execute and
deliver this Agreement and has taken all requisite corporate
action to authorize the execution, delivery and performance of
this Agreement.
D. FINANCIAL STABILITY. Entropin shall at all times during the
Term of this Agreement have sufficient financial resources to
perform its obligations for Phase IIIA of the Study.
E. OWNERSHIP OF PATENTS. Entropin has obtained assignments of all
patents underlying the Study Drug and has no knowledge of
ownership or proprietary rights by any third person. Further,
Entropin has taken the necessary steps to safeguard its
proprietary technology and confidential information.
ARTICLE IX
COMPLIANCE
9.1 PERFORMANCE. WCCS will perform the Services in accordance with the
current state of Good Clinical Practices. WCCS will also comply with all
federal, state, local laws, rules and regulatory requirements applicable to
its performance under this Agreement.
9.2 COMPLIANCE CHANGES. In the event currently applicable federal,
state, or local laws, rules and/or regulations are changed or new
applicable laws, rules and/or regulations are promulgated, WCCS shall
comply with such change(s) and/or additions. In the event that compliance
with such new requirements necessitates change(s) in the Services, WCCS
will submit to Entropin a revised technical and cost proposal for
Entropin's review and acceptance prior to WCCS making any changes in the
Services. The continuation of the Services shall be subject to Entropin's
written approval of such changes and the related costs.
ARTICLE X
RECORDS, AUDIT AND INSPECTION
10.1 RECORD INSPECTIONS. Entropin or its designated representatives shall
have access to, and be permitted to review, during normal business hours
and upon reasonable advance notice during the Term (including any Delay of
the Term in accordance with Article 2.8), all papers, correspondence,
books, records, data, information, instructions, receipts, and/or reports
relating to the Services (collectively, "Records") performed by or on
behalf of WCCS pursuant to this Agreement including, but not limited to,
those Records concerning
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the Services which may be either in the possession of WCCS, the CRO or
located at the investigator site(s). Records shall include Study-related
financial records with respect to monitoring/meeting expenses, payments to
WCCS Agents or CRO Agents and when applicable, investigator Study grant
payments (i.e., honoraria).
10.2 MAINTENANCE OF THE RECORDS. WCCS shall preserve the Records, without
additional compensation therefor, during the Term and thereafter for a
period of five (5) years (or longer if required by law). Entropin shall
provide instructions to WCCS with respect to the removal of the Records
from the WCCS and/or CRO facility and shall bear all costs of removal.
Once the Records have been satisfactorily removed in accordance with
Entropin's instructions, Entropin shall be solely responsible for the
storage of Records.
10.3 SITE MONITORING VISITS. WCCS and/or Entropin's representatives may,
during the Term, visit the CRO's and/or CRO Agents' facilities and
laboratories at reasonable times and with reasonable frequency during
normal business hours to (i) observe the progress of the Study; (ii)
monitor the accuracy and completeness of the Services, including but not
limited to, quality control and assurance; and/or (iii) review the
responsibilities and/or performance obligations of the CRO and/or CRO
Agents. WCCS will assist Entropin in scheduling such visits and will make
Records and any other relevant information available to Entropin and/or
representatives.
10.4 AUDIT AND/OR INSPECTION. WCCS shall notify Entropin immediately upon
being notified or becoming aware of any planned, scheduled or ongoing FDA
audit and/or inspection of any study site, WCCS and/or WCCS Agents, the CRO
and/or CRO Agents during the Term and thereafter for a period of five (5)
years.
ARTICLE XI
INSURANCE
11.1 REQUIRED INSURANCE. WCCS will, at its own cost and expense, obtain
and maintain in full force and effect, the following insurance during the
term of this Agreement:
A. Workers' Compensation Insurance in accordance with the statutory
requirements of the state in which the Services are to be
performed;
B. Employers Liability Insurance with minimum coverage of One
Million Dollars ($1,000,000);
C. Comprehensive General Liability Insurance including a products
liability coverage endorsement, covering all of WCCS' operations
under this Agreement including broad contractual liability
coverage, with minimum coverage of Three Million Dollars
($3,000,000) per occurrence, and Three Million Dollars
($3,000,000) in the aggregate.
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11.2 CERTIFICATE(S) OF INSURANCE. WCCS agrees to provide within 15 days
of execution of this Agreement, an original signed Certificate(s) of
Insurance evidencing all coverage required pursuant to this Article XI.
The Certificate(s) must provide that 30 days' prior written notice of
cancellation will be given to Entropin.
11.3 REQUIREMENTS FOR WCCS AGENTS. WCCS will not permit any WCCS Agent to
perform Services unless such WCCS Agent is and remains insured in
accordance with the insurance requirements outlined in this Article XI.
WCCS shall indemnify Entropin for any loss suffered by Entropin for the
failure of any WCCS Agent to be so insured.
ARTICLE XII
INDEMNIFICATION
12.1 ENTROPIN INDEMNIFICATION OF WCCS
A. PROPER PERFORMANCE AND STUDY DRUG CLAIMS. Entropin agrees to
indemnify, defend and hold harmless WCCS, WCCS Agents, WCCS'
affiliates and their respective officers, directors and employees
("Indemnitee") from and against any loss, damages, claims, suits,
actions or demands, including but not limited to reasonable
attorneys' fees, costs of suit, judgments and settlements, which
Indemnitee becomes legally obligated to pay on a claim made
against Indemnitee by any party ("Loss") to the extent that such
Loss (i) is a result of administration of the Study Drug; (ii)
arises out of the activities or procedures carried out in the
Services; or (iii) arises out any material violation of this
Agreement by Entropin; provided that any such Loss to the extent
it results either directly or indirectly from the following is
excluded from this Agreement to indemnify and hold harmless (a)
the negligence or gross negligence of Indemnitee, (b) the willful
malfeasance or nonfeasance by Indemnitee, (c) any material non-
compliance or violation by Indemnitee of this Agreement,
including, but not limited to, Articles IV (Confidentiality), 7.4
(Adverse Event Reporting), 8.1 (Representations and Warranties of
WCCS), IX (Compliance) or the Protocol, or (d) any material non-
compliance or violation by Indemnitee of any applicable local,
state, or federal law(s), rule(s), or regulation(s) including,
but not limited to, applicable FDA regulations and other
governmental requirements.
B. CONDITIONS OF INDEMNITY OBLIGATIONS. As condition precedent to
indemnification under Article 12.1 (A), Indemnitee agrees to
notify Entropin in writing within ten (10) days of Indemnitee
becoming aware of any claim threatened, asserted, made, brought
or instituted against it that could or may result in a Loss.
Whenever the Indemnitee has information from which it may
reasonably conclude that any incident of bodily injury, sickness,
disease or death has occurred or will occur (an "Incident") to a
Study Subject during the Study, Indemnitee shall immediately
notify Entropin of all pertinent data
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surrounding such Incident. Indemnitee shall cooperate fully in
assisting Entropin with respect to gathering information
concerning the time, place and circumstances of such potential or
actual claim(s) and in obtaining the names and addresses of the
injured parties and all available witnesses. Indemnitee agrees
to cooperate with and to authorize Entropin to control the
defense of such claim(s) (including all decisions as to legal
counsel, litigation, settlement and appeal). No Indemnitee shall
compromise or settle any claim(s) without the prior written
approval of Entropin.
12.2 WCCS INDEMNIFICATION OF ENTROPIN. In addition to the indemnification
requirements set forth in Article 11.3, WCCS hereby agrees to the following:
A. BODILY INJURY OR PROPERTY LOSS. WCCS agrees to indemnify,
defend and hold harmless Entropin, Entropin's affiliates and
their respective officers, directors and employees ("Indemnitee")
from and against any loss, damages, claims, suits, actions or
demands, including but not limited to reasonable attorneys' fees,
cost of suit, judgments and settlements, which Indemnitee becomes
legally obligated to pay on a claim made against Indemnitee by
any party ("Loss") to the extent that such Loss results either
directly or indirectly from any bodily injury sustained,
including death, and/or for damage to or loss of any property
incurred during or as a result of WCCS', its officers',
directors', agents', or employees' or WCCS Agent's acts,
omissions, and/or performance under this Agreement, to the extent
such Loss is not indemnified by Entropin pursuant to Article
12.1. Notwithstanding anything to the contrary set forth in this
Article 12.2 (A), to the extent that Entropin has expressly
directed WCCS and/or the CRO to engage certain investigator(s) to
perform Services, WCCS shall be relieved of its indemnification
obligations under this Article 12.2 (A) but only to the extent
such Loss is a result of the acts and/or omissions of such
investigator(s).
B. BODILY INJURY AND PROPERTY LOSS. WCCS agrees to indemnify,
defend and hold harmless Indemnitee from and against any loss,
damages, claims, suits actions or demands, including but not
limited to reasonable attorneys' fees, costs of suits, judgments
and settlements which Indemnitee becomes legally obligated to pay
on a claim made against Indemnitee by any party ("Loss") to the
extent such Loss results either directly or indirectly from any
bodily injury, damage to or loss of any property incurred due to
WCCS', its officers', directors', agents', or employees' or WCCS'
Agent's (i) negligence or gross negligence or willful malfeasance
or nonfeasance; (ii) willful malfeasance or nonfeasance; (iii)
any material violation of this Agreement, including but not
limited to, Articles IV (Confidentiality), 7.4 (Adverse Event
Reporting), 8.1 (Representations and Warranties of WCCS), IX
(Compliance) or the Protocol; and (iv) material non-compliance or
violation of any applicable local, state or federal law(s),
rule(s), or regulation(s), including, but not limited to
applicable FDA regulations and other governmental requirements.
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ARTICLE XIII
NOTICES
Any report or notice required or permitted to be given hereunder shall
be effective when received. All notices shall be in writing and given
personally or by prepaid certified mail, return receipt requested, or sent
by telex, telegram, expedited delivery service of facsimile transmission
(with written confirmation by certified mail, return receipt requested)
addressed to the Parties at their respective addresses as follows.
If to Entropin: Entropin, Inc.
41926 Oasis Street
Indio, CA 92201
Attention: Donald Hunter, Chief Executive Officer
Telephone: (760) 775-8333
Fax: (760) 347-6563
If to WCCS: Western Center for Clinical Studies, Inc.
21550 Oxnard Street, Suite 810
Woodland Hills, CA 91367
Attention: Roy Azarnoff, COO
Telephone: (818) 340-2323
Fax: (818) 340-3006
ARTICLE XIV
INTELLECTUAL PROPERTY
14.1 ENTROPIN PROPERTY. Any and all materials, information, documents,
inventions, discoveries and improvements whether or not patentable, which
during the Term (i) are prepared, made or developed by WCCS its employees
and/or any WCCS Agent; (ii) and/or were conceived, made or reduced to
practice by WCCS, its employees or any WCCS Agent; and/or (iii) as a result
of Confidential Information (collectively, the "Inventions") shall be
promptly disclosed to Entropin and shall be the sole and exclusive property
of Entropin.
WCCS will, upon request of Entropin, promptly execute and will use its
best efforts to cause its employees and WCCS Agents to execute any and all
applications, assignments or other instruments which Entropin shall
reasonably deem necessary or useful in order to apply for and/or obtain
patent protection worldwide for the Inventions, and/or in order to assign
and convey to Entropin the sole and exclusive right, title and interest in
and to the Inventions, patent applications and patents thereon. WCCS shall
ensure that its contractual arrangements with its employees and/or WCCS
Agents provide for their automatic assignment to Entropin of all such
Inventions, patent applications and patents. Entropin
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will bear the costs of preparation and filing of all patent applications
with respect to the Inventions.
14.2 PRESERVATION OF ENTROPIN PROPERTY. All materials and documents
prepared, purchased or furnished by WCCS on Entropin's account in
connection with the Study shall belong to Entropin, and shall be preserved
by WCCS in accordance with Article 10.2 and in compliance with regulatory
requirements for delivery to Entropin upon its request. Except as set
forth in the Protocol, Entropin retains the title to and exclusive right to
publish all documentation, research data, records, raw data, other work
product, data, and/or results generated with respect to the Services ("Work
Product"). Such Work Product will be retained in the WCCS's archive in
compliance with regulatory requirements and Article 10.2.
14.3 EXPIRATION OR TERMINATION. Upon the expiration or termination of
this Agreement, WCCS shall transfer, assign and make available to Entropin,
if Entropin so requests, all property and materials in WCCS' possession or
control belonging to Entropin including, without limitation, the right,
title and interest in and to the Inventions and patent applications and
patents thereon. WCCS shall cooperate in obtaining the consents of third
parties in interest, if any.
ARTICLE XV
RELATIONSHIP OF THE PARTIES
15.1 NATURE OF RELATIONSHIP. WCCS agrees that, in its relationship with
Entropin hereunder, it is acting in the capacity of an independent
contractor and that it has no authority to create or assume in Entropin's
name or on Entropin's behalf any obligation, expressed or implied, or to
act or purport to act as Entropin's agent or legally empowered
representative for any purpose whatsoever, except as expressly provided
herein, without Entropin's prior written consent. Accordingly, WCCS shall
perform the Study as an independent contractor and shall have complete and
exclusive control over its employees and/or WCCS Agents.
15.2 NON-LIABILITY. Entropin shall not be liable to any third party in
any way for the engagement, obligation, commitment, contract,
representation, transaction or for any negligent act of or omission to act
by WCCS, except as expressly provided in Article XII.
ARTICLE XVI
FORCE MAJEURE
16.1 EXCUSE. If the performance or observance of this Agreement by either
Party or if any of either Party's respective obligations under this
Agreement are prevented or delayed by reason of an act of God, civil
commotion, storm, fire, riots, strikes, legal moratorium, war, revolution
or action by government, the Party so affected shall, upon prompt notice of
such cause being given to the other Party, be excused from such
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performance or observance to the extent of such prevention or during the
period of such delay provided that (i) the Party so affected shall use its
best efforts to avoid or remove the cause(s) of non-performance and
observance with utmost dispatch, and (ii) notwithstanding any other
provision of this Agreement, the Party so affected may terminate this
Agreement if such delay continues more than 180 days and upon such
termination, such party shall have no further obligations under this
Agreement except for its obligations upon termination as set forth in
Article 12 hereof.
16.2 REPERFORMANCE. In the event that any part of the Study is rendered
invalid as a result of claiming excuse pursuant to Article 16.1, WCCS
shall, after written authorization from Entropin to proceed and at
Entropin's sole cost and expense, reperform that part of the Study affected
by such claim of excuse.
ARTICLE XVII
ASSIGNMENT
Subject to Article 5.2, WCCS shall not, in whole or in part, assign
its interests and/or obligations under this Agreement, including
performance of any monies due hereunder, to any person, firm, partnership,
corporation or other entity (including by operation of law, judicial
process, or otherwise) without the prior written consent of Entropin, which
consent may be withheld for any reason. Entropin may assign this Agreement
to any of its affiliates (including by operation of law, judicial process
or otherwise) without the prior written consent of WCCS.
ARTICLE XVIII
NON-WAIVER OF RIGHTS
No failure or delay on the part of a Party in either exercising or
enforcing any right hereunder will operate as a waiver of, or impair, any
such right. No single or partial exercise or enforcement of any such right
will preclude any other or further exercise or enforcement thereof or the
exercise or enforcement of any other right. No waiver of any such right
will have effect unless given in a signed writing. No waiver of any such
right will be deemed a waiver of any other right hereunder.
ARTICLE XIX
BURDEN OR BENEFIT
This Agreement and all the rights, obligations, duties,
representations, warranties and covenants of each Party shall inure to the
benefit, and be the burden of, and shall be binding upon their respective
affiliates, successors (including by operation of law), and lawful assigns,
and other legal representatives.
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ARTICLE XX
AMENDMENTS
This Agreement may neither be amended nor any of the provisions
contained herein rescinded, altered, or modified except by writing executed
by the Parties.
ARTICLE XXI
GOVERNING LAW AND JURISDICTION
It is understood and agreed that no provision of this Agreement shall
be construed so as to be in conflict with the laws of the State of
Colorado. It is further agreed that this Agreement is deemed to be
consummated in the State of Colorado, and that the terms and provisions of
this Agreement shall be construed and interpreted pursuant to the laws of
Colorado, without regard to the conflict of laws rules or principles
thereof. The state or federal courts located in the State of Colorado are
the agreed-upon forum for the resolution of all disputes hereunder, and the
Parties, their officers and employees hereby consent to (i) the
jurisdiction and venue of the aforesaid courts for the purpose of resolving
all such disputes; and (ii) service for process by registered mail, return
receipt requested, or any other manner consistent with federal or Colorado law.
Any dispute arising between WCCS and Entropin concerning this
Agreement or its interpretation shall be resolved by submission to
arbitration in Denver, Colorado in accordance with the rules of the
American Arbitration Association then in effect. Any award made by such
arbitrators shall be binding and conclusive for all purposes hereof, may
include injunctive relief, and may be entered as a final judgement in any
court of competent jurisdiction. The costs and expenses of such
arbitration shall be borne in accordance with the determination of the
arbitrators.
ARTICLE XXII
SEVERABILITY
In the event any portion of this Agreement shall be held illegal,
void, or ineffective, the remaining portions hereof shall remain in full
force and effect. If any of the terms or provisions of this Agreement are
in conflict with any applicable statute or rule of law, then such term(s)
or provision (s) shall be deemed inoperative to the extent that they may
conflict therewith and shall be deemed to be modified to conform with such
statute or rule of law.
ARTICLE XXIII
HEADINGS
The headings contained in this Agreement are for convenience for
reference only and shall not affect or alter the meaning of effect of any
provision hereof.
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ARTICLE XXIV
COUNTERPARTS
This Agreement may be executed simultaneously in one or more
counterparts, each of which shall be deemed to be an original, but all of
which together shall constitute one and the same instrument.
ARTICLE XXV
ENTIRE AGREEMENT
This Agreement, together with Appendices A, B, C, D, E, F, G and H set
forth all of the promises, agreements, understandings, covenants,
warranties and representations by and among the Parties and there are no
other promises, agreements, understandings, covenants, warranties, or
representations, oral or written, express of implied, between them with
respect to the subject matter addressed herein. This Agreement, together
with the attached Appendices, is intended by the Parties to be an
integration of any and all prior agreements and understandings, oral or
written, with respect to the subject matter addressed herein.
ARTICLE XXVI
ATTACHMENTS/ADDENDA
Any attachment(s) or addenda referred to herein to be delivered and
the acts to be performed at or subsequent to the Effective Date, including,
without limitation, Protocol (collectively, "Items") are incorporated
herein and expressly made a part of this Agreement as fully as though
completely set forth herein, and all references to this Agreement herein or
in any such Items shall be deemed to refer to and include all said Items.
ARTICLE XXVII
YEAR 2000 COMPLIANCE
WCCS represents, warrants and covenants to and, for the benefit of,
Entropin that:
A. All hardware, software, operating systems, mechanical devices,
electronic devices, and any other components or items of CRO's computer
system which are used to produce reports and data for Entropin's use
(collectively, "CRO's Computer Equipment"), and all data provided to
Entropin under this Agreement shall be "Year 2000 compliant" and shall be
free of bugs, viruses, and errors. "Year 2000 Compliant" means that all of
CRO's Computer Equipment, and all data provided to Entropin under this
Agreement:
(i) Shall be free of bugs, viruses and errors that may materially
adversely affect the performance or operation of CRO's Computer Equipment
on or following January 1, 2000 or cause material delays in the services
(including, but not limited to, reports and data) to be provided by CRO's
to Entropin under this Agreement before and/or after January 1, 2000;
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(ii) Shall operate in the same manner and will have the same
functionality in all respects before and after January 1, 2000;
(iii) Shall operate without interruption in all respects from the
effective date of this Agreement continuously though January 1, 2000, and
afterwards;
(iv) Shall successfully process without interruption data consisting
of or relating to dates from the date of installation continuously through
January 1, 2000, and afterwards;
(v) Shall operate such that all features and functionality containing
or calling on a calendar function, including without limitation, any
function indexed to a CPU or other clock, and any function providing
specific dates or days, or calculating spans of dates or days, shall
record, store, process, provide, and, where appropriate, insert, true and
accurate dates and calculations for dates in spans including and following
January 1, 2000;
(vi) Shall have no lesser functionality with respect to records
containing dates both, or either, before or after January 1, 2000, that
with respect to dated prior to January 1, 2000, only;
(vii) Shall not crash, fail, cause data to be corrupted, or cause any
of Entropin's hardware or software to crash, fail, or cause data to be
corrupted as a result of operating up to and beyond January 1, 2000, or as
a result of processing data consisting of or relating to dates from the
effective date of this Agreement continuously though January 1, 2000, and
afterwards; and
(viii) Has successfully been tested for Year 2000 Compliance as set
forth herein, and as to any greater operating requirements as specified by
the relevant hardware or software manufacturer(s).
B. If WCCS discovers or learns at any time subsequent to the
execution of this Agreement that any of WCCS' Computer Equipment or any
data provided to Entropin or to be provided to Entropin under this
Agreement does not comply with paragraph A above ('non-compliant"), WCCS
shall notify Entropin of this fact within ten days of dicovering or
learning of said non-compliance. WCCS' notification shall set forth, with
specificity, the following:
(i) A detailed description of the specific hardware, software,
and/or other components or data that WCCS has discovered or learned are
non-compliant, and the manner in which the are non-compliant;
(ii) A detailed description of the problems that will occur on
or after January 1, 2000, as a result of non-compliance; and
19
<PAGE>
(iii) A detailed description of the method(s) by which WCCS will
make the non-compliant components or data compliant, and the date by which
WCCS will provide such solutions to Entropin in order to bring the
components or data into compliance.
C. If WCCS discovers or learns at any time subsequent to the
execution of this agreement that any of WCCS's Computer Equipment or any
data provided to Entropin or to be provided to Entropin under this
Agreement is non-compliant, WCCS shall cure the non-compliance at WCCS's
sole expense within 30 days of discovering or learning of said non-compliance.
If WCCS fails to cure the non-compliance, in addition to and without waiving
any other rights or remedies provided under the law and/or under this
Agreement, Entropin may terminate this Agreement.
The Parties hereby execute this Agreement as of the date set forth
above.
Western Center for Clinical Studies, Inc. Entropin, Inc.
By:_______________________ By:______________________
Roy Azarnoff, COO Donald Hunter, CEO
Date: 11/26/99 Date: 12/2/99
------------------------ --------------------
20
<PAGE>
Appendix A
Transfer of Sponsor's Obligations
to WCCS
APPENDIX A IS CONFIDENTIAL IN ITS ENTIRETY AND HAS BEEN
OMITTED AND FILED SEPARATELY WITH THE COMMISSION.
<PAGE>
Appendix B
Protocol No: Esterom 99-02-01 Version 2.1
A Study to Determine the Effectiveness and Safety of Topically Applied EST 321
Esterom(R) versus Vehicle in Patients with Decreased Active Range of Motion
Associated with Impaired Shoulder Function
APPENDIX B IS CONFIDENTIAL IN ITS ENTIRETY AND HAS BEEN
OMITTED AND FILED SEPARATELY WITH THE COMMISSION.
<PAGE>
Appendix C
Project Specification Sheet
APPENDIX C IS CONFIDENTIAL IN ITS ENTIRETY AND HAS BEEN
OMITTED AND FILED SEPARATELY WITH THE COMMISSION.
<PAGE>
Appendix D
WCCS - A Clinical Budget for Phase III
(The attached schedules shall be incorporated with Appendix "D")
APPENDIX D IS CONFIDENTIAL IN ITS ENTIRETY AND HAS BEEN
OMITTED AND FILED SEPARATELY WITH THE COMMISSION.
<PAGE>
Appendix E
WCCS Wrap Around Cost Payment Schedule
APPENDIX E IS CONFIDENTIAL IN ITS ENTIRETY AND HAS BEEN
OMITTED AND FILED SEPARATELY WITH THE COMMISSION.
<PAGE>
Appendix F
CRO/Vendor/Consultant
Monitoring/Meeting Guidelines and Reimbursement Policy
APPENDIX F IS CONFIDENTIAL IN ITS ENTIRETY AND HAS BEEN
OMITTED AND FILED SEPARATELY WITH THE COMMISSION.
<PAGE>
Appendix G
Study Time Table
APPENDIX G IS CONFIDENTIAL IN ITS ENTIRETY AND HAS BEEN
OMITTED AND FILED SEPARATELY WITH THE COMMISSION.
<PAGE>
Appendix H
Non-Disclosure Document dated April 6, 1998
<PAGE>
NON-DISCLOSURE AGREEMENT
WHEREAS:
A. the undersigned parties contemplate entering into or
participating in one or more transactions, and
B. the undersigned parties realize that in the course of developing
and negotiating such commercial transactions, each may disclose to the
other information including, but not limited to, financial data, strategies
and proprietary information (herein referred to as "Confidential
Information").
THEREFORE, in consideration of mutual promises and covenants contained in
this Non-Disclosure Agreement, the undersigned do hereby agree as follows:
1. Confidential Information which each party to this Agreement may
disclose to the other is considered within this Non-Disclosure Agreement a
valuable business asset and shall remain the exclusive property of each
such party.
2. All information they receive from the other, its agents or
advisors they shall hold in confidence and with the terms and conditions
contained in this Non-Disclosure Agreement.
3. They will not use Confidential Information they receive from the
other party to directly or indirectly abrogate or circumvent any right
and/or interest of such party in any manner whatsoever and shall not use
the other party's Confidential Information to enter into or cause a third
party to enter into any investment, acquisition, financial provision,
promotion, project development, product purchase or any other
representation or warranty to the detriment of the interests of the other
party.
4. They will, in handling the flow of information from the other,
take all reasonable precautions and exact all necessary obligations to
prevent the use of the information by any party who is not a party to this
Non-Disclosure Agreement to the detriment of the interests of the other party.
5. The disclosure of Confidential Information by either party is
made solely for the purposes agreed to by both parties so each party agrees
not to use or authorize the use of such confidential information for any
purpose without the prior consent of the other.
6. This Non-Disclosure Agreement shall not restrict the use by
either party of information which is freely available to the public at
large without payment or which either party can prove to have known other
than by disclosure by the other party, their representatives or agents.
Page 1 of 2
<PAGE>
7. Any dispute or controversy involving this Non-Disclosure
Agreement shall be settled by arbitration in accordance with the Agreement
to which this document is an exhibit.
8. This Non-Disclosure Agreement shall inure to the benefit of each
party's successors, transferees, heirs, executors, administrators and
assigns for a period of not less than three years from the date of this
Agreement and shall renew automatically in conformity with the laws of the
State of California.
9. This Non-Disclosure Agreement shall be construed in conformity
with the laws of the State of California.
10. If any provision of this Non-Disclosure Agreement, or the
application of such provision, entity, or circumstances shall be held
invalid, the remainder of this Non-Disclosure Agreement or the application
of such provision to any person, entity, or circumstances other than those
as to which it is held invalid, shall not be affected thereby.
For Entropin, Inc. For Western Center for Clincial Studies, Inc.
/s/ Donald Hunter /s/ Roy S. Azarnoff
- -------------------------------- -------------------------------------
Date 12/2/99 Date 11/26/99
- -------------------------------- -------------------------------------
Page 2 of 2
EXHIBIT 10.21
ENTROPIN, INC.
____________ Shares of Common Stock
UNDERWRITING AGREEMENT
----------------------
________________, 1999
Neidiger Tucker Brunner, Inc.
1675 Larimer Street, Suite 300
Denver, CO 80202
Gentlemen:
Entropin, Inc., a Colorado corporation (the "Company"), hereby
confirms its agreement with Neidiger Tucker Brunner, Inc. ("NTB"), as
representative (the "Representative") of the several underwriters listed on
Schedule 1 annexed hereto (the "Underwriters"), as set forth below.
The Company proposes to issue and sell to the Underwriters _________
shares of the Company's $.001 par value common stock (the "Common Stock").
The shares of Common Stock being sold by the Company are referred to as the
"Firm Shares."
In addition, for the sole purpose of covering over-allotments from the
sale of the Firm Shares the Company proposes to grant to the Underwriters
an option to purchase an additional ______ shares of Common Stock (the
"Firm Option Shares" or the "Option Shares"), all as provided in Section
2(c) of this agreement (the "Agreement") and to issue to you the
Representative's Warrant (as defined in Section 2 hereof) to purchase
certain further additional shares of Common Stock. The Firm Shares and the
Option Shares are collectively referred to herein as either the "Shares" or
the "Securities."
1. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company
represents and warrants to, and agrees with, the Underwriter that:
(a) A registration statement on Form SB-2 (File No. 333-_____),
with respect to the Securities and the Representative's Warrant Securities
(as hereinafter defined), including a prospectus subject to completion, has
been filed by the Company with the Securities and Exchange Commission (the
"Commission") under the Securities Act of 1933, as amended (the "Act "),
and one or more amendments to that registration statement may have been so
filed. Copies of such registration statement and of each amendment
heretofore filed by the Company with the Commission have been delivered to
the Underwriters. After the execution of this Agreement, the Company will
file with the Commission either (i) if the registration statement, as it
may have been amended, has been declared
<PAGE>
by the Commission to be effective under the Act, a prospectus in the form
most recently included in that registration statement (or, if an amendment
thereto shall have been filed, in such amendment), with such changes or
insertions as are required by Rule 430A under the Act or permitted by Rule
424(b) under the Act and as have been provided to and approved by the
Underwriters prior to the execution of this Agreement, or (ii) if that
registration statement, as it may have been amended, has not been declared
by the Commission to be effective under the Act, an amendment to that
registration statement, including a form of prospectus, a copy of which
amendment has been furnished to and approved by the Underwriters prior to
the execution of this Agreement. The Company also may file a related
registration statement with the Commission pursuant to Rule 462(b) under
the Act for purposes of registering certain additional Securities, which
registration statement shall become effective upon filing with the
Commission (the "Rule 462(b) Registration Statement"). As used in this
Agreement, the term "Registration Statement" means that registration
statement, as amended at the time it was or is declared effective, and any
amendment thereto that was or is thereafter declared effective, including
all financial schedules and exhibits thereto and any information omitted
therefrom pursuant to Rule 430A under the Act and included in the
Prospectus (as hereinafter defined), together with any Rule 462(b)
Registration Statement; the term "Preliminary Prospectus" means each
prospectus subject to completion filed with the Registration Statement
(including the prospectus subject to completion, if any, included in the
Registration Statement at the time it was or is declared effective); and
the term "Prospectus" means the prospectus first filed with the Commission
pursuant to Rule 424(b) under the Act or, if no prospectus is so filed
pursuant to Rule 424(b), the prospectus included in the Registration
Statement. The Company has caused to be delivered to the Underwriters
copies of each Preliminary Prospectus and has consented to the use of those
copies for the purposes permitted by the Act. If the Company has elected
to rely on Rule 462(b) and the Rule 462(b) Registration Statement has not
been declared effective, then (i) the Company has filed a Rule 462(b)
Registration Statement in compliance with and that is effective upon filing
pursuant to Rule 462(b) and has received confirmation of its receipt and
(ii) the Company has given irrevocable instructions for transmission of the
applicable filing fee in connection with the filing of the Rule 462(b)
Registration Statement, in compliance with Rule 111 promulgated under the
Act or the Commission has received payment of such filing fee.
(b) The Commission has not issued any order preventing or
suspending the use of any Preliminary Prospectus. When each Preliminary
Prospectus and each amendment and each supplement thereto was filed with
the Commission it (i) contained all statements required to be stated
therein, in accordance with, and complied with the requirements of, the Act
and the rules and regulations of the Commission thereunder and (ii) did not
include any untrue statement of a material fact or omit to state any
material fact necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading. When
the Registration Statement was or is declared effective, it (i) contained
or will contain all statements required to be stated therein in accordance
with, and complied or will comply with the requirements of, the Act and the
rules and regulations of the Commission thereunder and (ii) did not or will
not include any untrue statement of a material fact or omit to state any
material fact necessary to make the statements therein not misleading. When
the Prospectus and each amendment or supplement thereto is filed with the
Commission pursuant to Rule 424(b) (or, if the Prospectus or such amendment
or supplement is not required so to be filed, when the Registration
Statement containing such Prospectus or amendment
2
<PAGE>
or supplement thereto was or is declared effective) and on the Firm Closing
Date and any Option Closing Date (as each such term is hereinafter
defined), the Prospectus, as amended or supplemented at any such time, (i)
contained or will contain all statements required to be stated therein in
accordance with, and complied or will comply with the requirements of, the
Act and the rules and regulations of the Commission thereunder and (ii) did
not or will not include any untrue statement of a material fact or omit to
state any material fact necessary in order to make the statements therein,
in light of the circumstances under which they were made, not misleading.
The foregoing provisions of this paragraph (b) do not apply to statements
or omissions made in any Preliminary Prospectus, the Registration Statement
or the Prospectus or any amendment or supplement thereto in reliance upon
and in conformity with written information furnished to the Company by the
Underwriters specifically for use therein.
(c) The Company is duly incorporated, validly existing and in
good standing under the laws of its jurisdiction of incorporation, and is
duly qualified or authorized to transact business as a foreign corporation
and is in good standing in each jurisdiction where the ownership or leasing
of its properties or the conduct of its businesses require such
qualification or authorization. The Company has no subsidiaries.
(d) The Company has full corporate power and authority, and all
necessary material authorizations, approvals, orders, licenses,
certificates and permits of and from all governmental regulatory
authorities, to own or lease its property and conduct its business as now
being conducted and as proposed to be conducted as described in the
Registration Statement and the Prospectus (and, if the Prospectus is not in
existence, the most recent Preliminary Prospectus).
(e) The Company does not own, directly or indirectly, an
interest in any corporation, partnership, limited liability company, joint
venture, trust or other business entity.
(f) The Company has an authorized, issued and outstanding
capitalization as set forth in the Prospectus (and, if the Prospectus is
not in existence, the most recent Preliminary Prospectus). All of the
issued shares of capital stock of the Company, have been duly authorized
and validly issued and are fully paid, nonassessable and free of preemptive
rights. There are no outstanding options, warrants or other rights granted
by the Company to purchase shares of its Common Stock or other securities,
other than as described in the Prospectus (and, if the Prospectus is not in
existence, the most recent Preliminary Prospectus). The Firm Shares have
been duly authorized, by all necessary corporate action on the part of the
Company and, when the Firm Shares are issued and delivered to and paid for
by the Underwriter pursuant to this Agreement, the Firm Shares will be
validly issued, fully paid, nonassessable and free of preemptive rights and
will conform to the description thereof in the Prospectus (and, if the
Prospectus is not in existence, the most recent Preliminary Prospectus).
No holder of outstanding securities of the Company is entitled as such to
any preemptive or other right to subscribe for any of the Securities, and
no person is entitled to have securities registered by the Company under
the Registration Statement or otherwise under the Act other than as
described in the Prospectus (and, if the Prospectus is not in existence,
the most recent Preliminary Prospectus).
3
<PAGE>
(g) The capital stock of the Company conforms to the description
thereof contained in the Prospectus (and, if the Prospectus is not in
existence, the most recent Preliminary Prospectus).
(h) All issuances of securities of the Company have been
effected pursuant to an exemption from the registration requirements of the
Act. Except as previously disclosed in writing to the Representative, no
compensation was paid to or on behalf of any member of the National
Association of Securities Dealers, Inc. ("NASD"), or any affiliate or
employee thereof, in connection with any such issuance.
(i) The financial statements of the Company included in the
Registration Statement and the Prospectus (and, if the Prospectus is not in
existence, the most recent Preliminary Prospectus) fairly present the
financial position of the Company as of the dates indicated and the results
of operations of the Company for the periods specified. Such financial
statements have been prepared in accordance with generally accepted
accounting principles in effect in the United States of America,
consistently applied, except to the extent that certain footnote
disclosures regarding unaudited interim periods may have been omitted in
accordance with the applicable rules of the Commission under the Securities
Exchange Act of 1934, as amended (the "1934 Act"). The financial data set
forth under the caption "Summary Financial Information" in the Prospectus
(and, if the Prospectus is not in existence, the most recent Preliminary
Prospectus) fairly present, on the basis stated in the Prospectus (or such
Preliminary Prospectus), the information included therein.
(j) Causey Demgen & Moore Inc., Certified Public Accountants,
which has audited certain financial statements of the Company and delivered
its report with respect to the financial statements included in the
Registration Statement and the Prospectus (and, if the Prospectus is not in
existence, the most recent Preliminary Prospectus), is an independent
public accountant with respect to the Company as required by the Act and
the applicable rules and regulations thereunder.
(k) Since the respective dates as of which information is given
in the Registration Statement and the Prospectus (and, if the Prospectus is
not in existence, the most recent Preliminary Prospectus), (i) except as
otherwise contemplated therein, there has been no material adverse change
in the business, operations, condition (financial or otherwise), earnings
or prospects of the Company, whether or not arising in the ordinary course
of business, (ii) except as otherwise stated therein, there have been no
transactions entered into by the Company and no commitments made by the
Company that, individually or in the aggregate, are material with respect
to the Company, (iii) there has not been any change in the capital stock or
indebtedness of the Company, and (iv) there has been no dividend or
distribution of any kind declared, paid or made by the Company in respect
of any class of its capital stock.
(l) The Company has full corporate power and authority to enter
into and perform its obligations under this Agreement and the
Representative's Warrant Agreement (as hereinafter defined). The execution
and delivery of this Agreement and the Representative's Warrant Agreement
have been duly authorized by all necessary corporate action on the part of
the Company and this Agreement and the Representative's Warrant Agreement
have each been duly executed and delivered
4
<PAGE>
by the Company and each is a valid and binding agreement of the Company,
enforceable against the Company in accordance with its terms, except as the
enforceability thereof may be limited by bankruptcy, insolvency,
reorganization, fraudulent conveyance, moratorium and other similar laws
affecting creditors' rights generally and by general principles of equity
(regardless of whether enforcement is considered in a proceeding in equity
or at law), and except as rights to indemnity and contribution under this
Agreement may be limited by applicable law. The issuance, offering and
sale by the Company to the Underwriters of the Securities pursuant to this
Agreement or the Representative's Securities pursuant to the
Representative's Warrant Agreement, the compliance by the Company with the
provisions of this Agreement and the Representative's Warrant Agreement,
and the consummation of the other transactions contemplated by this
Agreement and the Representative's Warrant Agreement do not (i) require the
consent, approval, authorization, registration or qualification of or with
any court or governmental or regulatory authority, except such as have been
obtained or may be required under state securities or blue sky laws and, if
the Registration Statement filed with respect to the Securities (as
amended) is not effective under the Act as of the time of execution hereof,
such as may be required (and shall be obtained as provided in this
Agreement) under the Act, or (ii) conflict with or result in a breach or
violation of, or constitute a default under, any material contract,
indenture, mortgage, deed of trust, loan agreement, note, lease or other
material agreement or instrument to which the Company is a party or by
which the Company or any of its property is bound or subject, or the
certificate of incorporation or by-laws of the Company, or any statute or
any rule, regulation, judgment, decree or order of any court or other
governmental or regulatory authority or any arbitrator applicable to the
Company.
(m) No legal or governmental proceedings are pending to which
the Company is a party or to which the property of the Company is subject,
and no such proceedings have been threatened against the Company or with
respect to any of its property, except such as are described in the
Prospectus (and, if the Prospectus is not in existence, the most recent
Preliminary Prospectus). No contract or other document is required to be
described in the Registration Statement or the Prospectus or to be filed as
an exhibit to the Registration Statement that is not described therein
(and, if the Prospectus is not in existence, in the most recent Preliminary
Prospectus) or filed as required.
(n) The Company is not in (i) violation of its certificate of
incorporation, by-laws or other governing documents, (ii) violation in any
material respect of any law, statute, regulation, ordinance, rule, order,
judgment or decree of any court or any governmental or regulatory authority
applicable to it, or (iii) default in any material respect in the
performance or observance of any obligation, agreement, covenant or
condition contained in any material contract, indenture, mortgage, deed of
trust, loan agreement, note, lease or other material agreement or
instrument to which it is a party or by which it or any of its property may
be bound or subject, and no event has occurred which with notice or lapse
of time or both would constitute such a default.
(o) The Company currently owns or possesses adequate rights to
use all intellectual property, including all trademarks, service marks,
trade names, copyrights, inventions, know-how, trade secrets, proprietary
technologies, processes and substances, or applications or licenses
therefor, that are described in the Prospectus (and if the Prospectus is
not in existence, the most recent Preliminary Prospectus), and any other
rights or interests in items of intellectual property
5
<PAGE>
as are necessary for the conduct of the business now conducted or proposed
to be conducted by them as described in the Prospectus (or, such
Preliminary Prospectus), and, except as disclosed in the Prospectus (and
such Preliminary Prospectus), the Company is not aware of the granting of
any patent rights to, or the filing of applications therefor by, others,
nor is the Company aware of, nor has the Company received notice of,
infringement of or conflict with asserted rights of others with respect to
any of the foregoing. All such intellectual property rights and interests
are (i) valid and enforceable and (ii) to the best knowledge of the
Company, not being infringed by any third parties.
(p) The Company possesses adequate licenses, orders,
authorizations, approvals, certificates or permits issued by the
appropriate federal, state or foreign regulatory agencies or bodies
necessary to conduct its business as described in the Registration
Statement and the Prospectus (and, if the Prospectus is not in existence,
the most recent Preliminary Prospectus), and, except as disclosed in the
Prospectus (and, if the Prospectus is not in existence, the most recent
Preliminary Prospectus), there are no pending or, to the best knowledge of
the Company, threatened, proceedings relating to the revocation or
modification of any such license, order, authorization, approval,
certificate or permit.
(q) The Company has good and marketable title to all of the
properties and assets reflected in the Company's financial statements or as
described in the Registration Statement and the Prospectus (and, if the
Prospectus is not in existence, the most recent Preliminary Prospectus),
subject to no lien, mortgage, pledge, charge or encumbrance of any kind,
except those reflected in such financial statements or as described in the
Registration Statement and the Prospectus (and such Preliminary
Prospectus). Except as disclosed in the Prospectus, the Company occupies
its leased properties under valid and enforceable leases conforming to the
description thereof set forth in the Registration Statement and the
Prospectus (and such Preliminary Prospectus).
(r) The Company is not and does not intend to conduct its
business in a manner in which it would be an "investment company" as
defined in Section 3(a) of the Investment Company Act of 1940 (the
"Investment Company Act").
(s) The Company has obtained and delivered to the Representative
the agreements (the "Lock-up Agreements") with the officers, directors and
certain other security holders owning shares of Common Stock substantially
to the effect that, among other things, each such person will not,
commencing on the date that the Registration Statement is declared
effective by the Commission (the "Effective Date") and continuing until
March 15, 2000, without the prior written consent of the Representative,
directly or indirectly, publicly sell, offer or contract to sell or grant
any option to purchase, transfer, assign or pledge, or otherwise encumber,
or dispose of any shares of Common Stock now or hereafter owned by such
person and that the purchaser or transferee in any private sale agrees to
be bound by the Lock-up Agreement.
(t) No labor dispute with the employees of the Company exists,
is threatened or, to the best of the Company's knowledge, is imminent that
could result in a material adverse change in the condition (financial or
otherwise), business, prospects, net worth or results of operations of the
Company, except as described in or contemplated by the Prospectus (and, if
the Prospectus is not in
6
<PAGE>
existence, the most recent Preliminary Prospectus).
(u) The Company is insured by insurers of recognized financial
responsibility against such losses and risks and in such amounts as are
prudent and customary in the businesses in which it is engaged; the Company
has not been refused any insurance coverage sought or applied for; and the
Company has no reason to believe that it will not be able to renew its
existing insurance coverage as and when such coverage expires or to obtain
similar coverage from similar insurers as may be necessary to continue its
business at a cost that would not materially and adversely affect the
condition (financial or otherwise), business, prospects, net worth or
results of operations of the Company, except as described in or
contemplated by the Prospectus (and, if the Prospectus is not in existence,
the most recent Preliminary Prospectus).
(v) The Representative's Warrant (as hereinafter defined) will
conform to the description thereof in the Registration Statement and in the
Prospectus (and, if the Prospectus is not in existence, the most recent
Preliminary Prospectus) and, when sold to and paid for by the
Representative in accordance with the Representative's Warrant Agreement,
will have been duly authorized and validly issued and will constitute valid
and binding obligations of the Company entitled to the benefits of the
Representative's Warrant Agreement. The shares of Common Stock issuable
upon exercise of the Representative's Warrant (the "Representative's
Warrant Shares") have been duly authorized and reserved for issuance upon
exercise of the Representative's Warrant by all necessary corporate action
on the part of the Company and, when issued and delivered and paid for upon
such exercise in accordance with the terms of the Representative's Warrant
Agreement and the Representative's Warrant, respectively, will be validly
issued, fully paid, nonassessable and free of preemptive rights and will
conform to the description thereof in the Prospectus (and, if the
Prospectus is not in existence, the most recent Preliminary Prospectus).
(w) No person has acted as a finder in connection with, or is
entitled to any commission, fee or other compensation or payment for
services as a finder for or for originating, or introducing the parties to,
the transactions contemplated herein and the Company will indemnify the
Underwriter with respect to any claim for finder's fees in connection
herewith. Except as set forth in the Registration Statement and the
Prospectus (and, if the Prospectus is not in existence, the most recent
Preliminary Prospectus), the Company has no management or financial
consulting agreement with anyone except __________. No promoter, officer,
director or stockholder of the Company is, directly or indirectly,
affiliated or associated with an NASD member and no securities of the
Company have been acquired by an NASD member, except as previously
disclosed in writing to the Representative.
(x) The Company has filed all federal, state, local and foreign
tax returns which are required to be filed through the date hereof, or has
received extensions thereof, and has paid all taxes shown on such returns
and all assessments received by it to the extent that the same are material
and have become due.
(y) Neither the Company nor any director, officer, agent,
employee or other person associated with or acting on behalf of the Company
has, directly or indirectly; used any
7
<PAGE>
corporate funds for unlawful contributions, gifts, entertainment, or other
unlawful expenses relating to political activity; made any unlawful payment
to foreign or domestic government officials or employees or to foreign or
domestic political parties or campaigns from corporate funds; violated any
provision of the Foreign Corrupt Practices Act of 1977, as amended; or made
any bribe, rebate, payoff, influence payment, kickback, or other unlawful
payment. No transaction has occurred between or among the Company and any
of its officers or directors or any affiliates of any such officer or
director, that is required to be described in and is not described in the
Registration Statement and the Prospectus.
(z) Neither the Company nor any of its officers, directors or
affiliates (as defined in the Regulations), has taken or will take,
directly or indirectly, prior to the completion of the Offering, any action
designed to stabilize or manipulate the price of any security of the
Company, or which has caused or resulted in, or which might in the future
reasonably be expected to cause or result in, stabilization or manipulation
of the price of any security of the Company, to facilitate the sale or
resale of any of the Securities or the Option Securities.
2. PURCHASE, SALE AND DELIVERY OF THE SECURITIES AND THE
REPRESENTATIVE'S WARRANTS.
(a) On the basis of the representations, warranties, agreements
and covenants herein contained and subject to the terms and conditions
herein set forth, the Company agrees to issue and sell to each Underwriter,
and each Underwriter agrees, severally and not jointly, to purchase from
the Company, the number of Firm Shares as set forth opposite its name on
Schedule 1 annexed hereto, at the purchase price indicated in the
Prospectus.
(b) Certificates in definitive form for the Firm Securities that
the Underwriters have agreed to purchase hereunder, and in such
denomination or denominations and registered in such name or names as the
Underwriters request upon notice to the Company at least 48 hours prior to
the Firm Closing Date, shall be delivered by or on behalf of the Company to
the Underwriters, against payment by or on behalf of the Underwriters of
the purchase prices therefor by wire transfer of immediately available
funds to a bank account specified by the Company. Such delivery of the
Firm Securities shall be made at the offices of Counsel for the
Underwriters, 5445 DTC Parkway, Suite 520, Englewood, Colorado 80111 at
7:30 A.M., Denver time within five days from the Effective Date of the
Offering, or at such other place, time or date as the Underwriters and the
Company may agree upon, such time and date of delivery against payment
being herein referred to as the "Firm Closing Date." The Company will make
such certificates for the Firm Securities available for checking and
packaging by the Underwriters, at such offices as may be designated by the
Representative, at least 24 hours prior to the Firm Closing Date. In lieu
of physical delivery, the closing may occur by "DTC" delivery.
(c) For the purpose of covering any over-allotments in
connection with the distribution and sale of the Firm Securities as
contemplated by the Prospectus, the Company hereby grants to the
Underwriter an option to purchase any or all of the Option Shares, which
options are exercisable by the Representative on behalf of and for the
account of the Underwriters. The purchase price to be paid for any of the
Option Shares shall be the same price per share for the Firm Securities
8
<PAGE>
set forth above in paragraph (a) of this Section 2. The option granted
hereby may be exercised as to all or any part of the Option Shares from
time to time within 45 calendar days after the Firm Closing Date. The
Underwriters shall not be under any obligation to purchase any of the
Option Shares prior to the exercise of such option. The Representative may
from time to time exercise the option granted hereby on behalf of the
Underwriters by giving notice in writing or by telephone (confirmed in
writing) to the Company setting forth the aggregate number of Option Shares
as to which the Underwriters are then exercising the option and the date
and time for delivery of and payment for such Option Shares. Any such date
of delivery shall be determined by the Underwriters but shall not be
earlier than two business days or later than three business days after such
exercise of the option and, in any event, shall not be earlier than the
Firm Closing Date. The time and date set forth in such notice, or such
other time on such other date as the Representative and the Company may
agree upon, is herein called the "Option Closing Date" with respect to such
Option Shares. Upon exercise of the option as provided herein, the Company
shall become obligated to sell to the Underwriters, and, subject to the
terms and conditions herein set forth, each Underwriter shall become
obligated to purchase from the Company, the Option Shares as to which the
Underwriter is then exercising its option. If the option is exercised as to
all or any portion of the Option Shares, certificates in definitive form
for such Option Shares, and payment therefor, shall be delivered on the
related Option Closing Date in the manner, and upon the terms and
conditions, set forth in paragraph (b) of this Section 2, except that
reference therein to the Firm Securities and the Firm Closing Date shall be
deemed, for purposes of this paragraph (c), to refer to such Option Shares
and Option Closing Date, respectively.
(d) On the Firm Closing Date, the Company will further issue and
sell to the Representative or, at the direction of the Representative, to
bona fide officers of the Underwriters, for an aggregate purchase price of
$100, warrants to purchase Common Stock (the "Representative's Warrant")
entitling the holders thereof to purchase an aggregate of ______ shares of
Common Stock for a period of four years, such period to commence on the
first anniversary of the Effective Date. The Representative's Warrant shall
be exercisable at the price indicated in the Prospectus, and shall contain
terms and provisions more fully described herein below and as set forth
more particularly in the warrant agreement relating to the Representative's
Warrant to be executed by the Company on the Effective Date (the
"Representative's Warrant Agreement"), including, but not limited to, (i)
customary anti-dilution provisions in the event of stock dividends, split
mergers, sales of all or substantially all of the Company's assets, sales
of stock below then prevailing market or exercise prices and other events,
and (ii) prohibitions of mergers, consolidations or other reorganizations
of or by the Company or the taking by the Company of other action during
the five-year period following the Effective Date unless adequate provision
is made to preserve, in substance, the rights and powers incidental to the
Representative's Warrant. As provided in the Representative's Warrant
Agreement, the Representative may designate that the Representative's
Warrant be issued in varying amounts directly to bona fide officers of the
Underwriters. As further provided, no sale, transfer, assignment, pledge or
hypothecation of the Representative's Warrant shall be made for a period of
12 months from the Effective Date, except (i) by operation of law or
reorganization of the Company, or (ii) to the Underwriters and bona fide
partners, officers of the Underwriters and selling group members.
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<PAGE>
3. OFFERING BY THE UNDERWRITERS. The Underwriters propose to offer
the Firm Securities for sale to the public upon the terms set forth in the
Prospectus (the "Offering").
4. COVENANTS OF THE COMPANY. The Company covenants and agrees with
the Underwriters that:
(a) The Company will use its best efforts to cause the
Registration Statement, if not effective at the time of execution of this
Agreement, to become effective as promptly as possible. If required, the
Company will file the Prospectus and any amendment or supplement thereto
with the Commission in the manner and within the time period required by
Rule 424(b) under the Act. During any time when a prospectus relating to
the Securities is required to be delivered under the Act, the Company (i)
will comply with all requirements imposed upon it by the Act and the rules
and regulations of the Commission thereunder to the extent necessary to
permit the continuance of sales of or dealings in the Securities in
accordance with the provisions hereof and of the Prospectus, as then
amended or supplemented, and (ii) will not file with the Commission any
prospectus or amendment referred to in the first sentence of section (a)
(i) hereof, any amendment or supplement to such prospectus or any amendment
to the Registration Statement as to which the Underwriters shall not
previously have been advised and furnished with a copy for a reasonable
period of time prior to the proposed filing and as to which filing the
Underwriters shall not have given their consent. The Company will prepare
and file with the Commission, in accordance with the rules and regulations
of the Commission, promptly upon request by the Underwriters or counsel to
the Underwriters, any amendments to the Registration Statement or
amendments or supplements to the Prospectus that may be necessary or
advisable in connection with the distribution of the Securities by the
Underwriters, and will use its best efforts to cause any such amendment to
the Registration Statement to be declared effective by the Commission as
promptly as possible. The Company will advise the Underwriters, promptly
after receiving notice thereof, of the time when the Registration Statement
or any amendment thereto has been filed or declared effective or the
Prospectus or any amendment or supplement thereto has been filed and will
provide evidence satisfactory to the Underwriters of each such filing or
effectiveness.
(b) The Company will advise the Underwriters, promptly after
receiving notice or obtaining knowledge thereof, of (i) the issuance by the
Commission of any stop order suspending the effectiveness of the
Registration Statement or any order preventing or suspending the use of any
Preliminary Prospectus or the Prospectus or any amendment or supplement
thereto, (ii) the suspension of the qualification of any Securities for
offering or sale in any jurisdiction, (iii) the institution, threat or
contemplation of any proceeding for any such purpose, or (iv) any request
made by the Commission for amending the Registration Statement, for
amending or supplementing the Prospectus or for additional information. The
Company will use its best efforts to prevent the issuance of any such stop
order and, if any such stop order is issued, to obtain the withdrawal
thereof as promptly as possible.
(c) The Company will, in cooperation with counsel to the
Underwriters, arrange for the qualification of the Securities for offering
and sale under the blue sky or securities laws of such jurisdictions as the
Underwriters may designate and will continue such qualifications in effect
for as
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<PAGE>
long as may be necessary to complete the distribution of the Securities.
(d) If, at any time when a prospectus relating to the Securities
is required to be delivered under the Act, any event occurs as a result of
which the Prospectus, as then amended or supplemented, would include any
untrue statement of a material fact or omit to state a material fact
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading, or if for any
other reason it is necessary at any time to amend or supplement the
Prospectus to comply with the Act or the rules or regulations of the
Commission thereunder, the Company will promptly notify the Underwriters
thereof and, subject to Section 4(a) hereof, will prepare and file with the
Commission, at the Company's expense, an amendment to the Registration
Statement or an amendment or supplement to the Prospectus that corrects
such statement or omission or effects such compliance.
(e) Intentionally left blank.
(f) The Company will, without charge, provide to the
Underwriters and to counsel for the Underwriters (i) as many signed copies
of the Registration Statement originally filed with respect to the
Securities and each amendment thereto (in each case including exhibits
thereto) as the Underwriters may reasonably request, (ii) as many conformed
copies of such Registration Statement and each amendment thereto (in each
case without exhibits thereto) as the Underwriters may reasonably request,
and (iii) so long as a prospectus relating to the Securities is required to
be delivered under the Act, as many copies of each Preliminary Prospectus
or the Prospectus or any amendment or supplement thereto as the
Underwriters may reasonably request.
(g) The Company, as soon as practicable, will make generally
available to its security holders and to the Underwriters an earnings
statement of the Company that satisfies the provisions of Section 11 (a) of
the Act and Rule 158 thereunder.
(h) The Company will reserve and keep available for issuance
that maximum number of authorized but unissued shares of Common Stock which
are issuable upon exercise of any outstanding warrants and the
Representative's Warrant (including the underlying securities) outstanding
from time to time.
(i) The Company will apply the net proceeds from the sale of the
Securities being sold by it as set forth under "Use of Proceeds" in the
Prospectus.
(j) Intentionally left blank.
(k) Prior to the Closing Date or the Option Closing Date (if
any), the Company will not, directly or indirectly, without prior written
consent of the Representative, issue any press release or other public
announcement or hold any press conference with respect to the Company or
its activities with respect to the Offering (other than trade releases
issued in the ordinary course of the Company's business consistent with
past practices with respect to the Company's operations).
11
<PAGE>
(l) If, at the time that the Registration Statement becomes
effective, any information shall have been omitted therefrom in reliance
upon Rule 430A under the Act, then immediately following the execution of
this Agreement, the Company will prepare, and file or transmit for filing
with the Commission in accordance with Rule 430A and Rule 424(b) under the
Act, copies of the Prospectus including the information omitted in reliance
on Rule 430A, or, if required by such Rule 430A, a post-effective amendment
to the Registration Statement (including an amended Prospectus), containing
all information so omitted.
(m) The Company will cause the Securities to be included in The
Nasdaq SmallCap Market on the Effective Date and to maintain such listing
thereafter. The Company will file with The Nasdaq SmallCap Market all
documents and notices that are required by companies with securities that
are traded on The Nasdaq SmallCap Market.
(n) During the period of five years from the Firm Closing Date,
the Company will, as promptly as possible, not to exceed 135 days, after
each annual fiscal period render and distribute reports to its stockholders
which will include audited statements of its operations and changes of
financial position during such period and its audited balance sheet as of
the end of such period, as to which statements the Company's independent
certified public accountants shall have rendered an opinion and shall
timely file all reports required to be filed under the securities laws.
(o) During a period of three years commencing with the Firm
Closing Date, the Company will furnish to the Representative, at the
Company's expense, copies of all periodic and special reports furnished to
stockholders of the Company and of all information, documents and reports
filed with the Commission.
(p) The Company has appointed Corporate Stock Transfer, Inc. as
transfer agent for the Common Stock, subject to the Closing. The Company
will not change or terminate such appointment for a period of three years
from the Firm Closing Date without first obtaining the written consent of
the Representative. For a period of three years after the Effective Date,
the Company shall cause the transfer agent to deliver promptly to the
Underwriters a duplicate copy of the daily transfer sheets relating to
trading of the Securities. The Company shall also provide to the
Representative, on a weekly basis, copies of the DTC special securities
positions listing report.
(q) During the period of 180 days after the date of this
Agreement, the Company will not at any time, directly or indirectly, take
any action designed to or that will constitute, or that might reasonably be
expected to cause or result in, the stabilization of the price of the
Common Stock to facilitate the sale or resale of any of the Securities.
(r) The Company will not take any action to facilitate the sale
of any shares of Common Stock pursuant to Rule 144 under the Act if any
such sale would violate any of the terms of the Lock-up Agreements.
(s) Prior to the 120th day after the Firm Closing Date, the
Company will provide the Underwriters and their designees with three bound
volumes of the transaction documents relating
12
<PAGE>
to the Registration Statement and the closing(s) hereunder, in form and
substance reasonably satisfactory to the Representative.
(t) The Company shall consult with the Representative prior to
the distribution to third parties of any financial information news
releases or other publicity regarding the Company, its business, or any
terms of this offering and the Underwriters will consult with the Company
prior to the issuance of any research report or recommendation concerning
the Company's securities. Copies of all documents that the Company or its
public relations firm intend to distribute will be provided to the
Representative for review prior to such distribution.
(u) The Company and the Underwriters will advise each other
immediately in writing as to any investigation, proceeding, order, event or
other circumstance, or any threat thereof, by or relating to the Commission
or any other governmental authority, that could impair or prevent the
Offering. Except as required by law or as otherwise mutually agreed in
writing, neither the Company nor the Underwriters will acquiesce in such
circumstances and each will actively defend any proceedings or orders in
that connection.
(v) The Company shall first submit to the Representative
certificates representing the Securities for approval prior to printing,
and shall, as promptly as possible, after filing the Registration Statement
with the Commission, obtain CUSIP numbers for the Securities.
(w) The Company will prepare and file a registration statement
with the Commission pursuant to section 12 of the 1934 Act, and will use
its best efforts to have such registration statement declared effective by
the Commission on the Effective Date. For this purpose the Company shall
prepare and file with the Commission a General Form of Registration of
Securities (Form 8-A).
(x) For so long as the Securities are registered under the 1934
Act, the Company will hold an annual meeting of stockholders for the
election of directors within 180 days after the end of each of the
Company's fiscal years and within 135 days after the end of each of the
Company's fiscal years will provide the Company's stockholders with the
audited financial statements of the Company as of the end of the fiscal
year just completed prior thereto. Such financial statements shall be those
required by Rule 14a-3 under the 1934 Act and shall be included in an
annual report pursuant to the requirements of such Rule.
(y) The Company will engage a financial public relations firm
reasonably satisfactory to the Representative on or before the Firm Closing
Date, and continuously engage such firm, or a substitute firm reasonably
acceptable to the Representative, for a period of twelve (12) months
following the Firm Closing Date.
(z) The Company will take all necessary and appropriate actions
to be included in Standard and Poor's Corporation Descriptions or other
equivalent manual and to maintain its listing therein for a period of five
(5) years from the Effective Date. Such application shall be made on an
accelerated basis no more than two days following the Effective Date.
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<PAGE>
(aa) On or prior to the Effective Date, the Company will give
written instructions to the transfer agent for the Common Stock directing
said transfer agent to place stop-order restrictions against, and
appropriate legends advising of the Lock-up Agreements on, the certificates
representing the securities of the Company owned by the persons who have
entered into the Lock-up Agreements.
(bb) During the twelve-month period commencing on the later of
the Effective Date and the Closing Date, and provided that the
Representative agrees to a complete or partial release of the restrictions
contained in a Lock-up Agreement, the Company shall grant the
Representative the right to sell, within seven business days of the
effective date of such release, for the account of any person who was a
shareholder of the Company prior to the Offering and who owns at least five
percent (5%) of the Company's Common Stock after the Offering, any
securities sold pursuant to Rule 144 under the Act, provided that such sale
is made in accordance with the applicable shareholder's instructions.
(cc) [???] During the twelve-month period commencing on the later
of the Effective Date or the Firm Closing Date, the Company and each of the
shareholders owning 5% or more of the Company's Common Stock immediately
preceding the Effective Date, shall grant the Representative the right of
first offer to act as lead manager, placement agent, or investment banker
with respect to any proposed underwritten public distribution or private
placement of the Company's securities having an aggregate value of
$5,000,000 or more, or any merger, acquisition or disposition of assets of
the Company and any fairness opinions or valuations. Accordingly, if
during such period, the Company intends to make such a transaction, the
Company shall notify the Representative in writing of such intention and of
the proposed terms of the transaction. The Representative shall notify the
Company within seven (7) days of the receipt of such notice of intention,
of the Representative's election to exercise its right to act as lead
manager, placement agent or investment banker, with respect to such
transaction. If such right is not exercised by the Representative and the
terms of the applicable transaction are subsequently modified, the Company
shall resubmit such modified transaction to the Representative. The
Representative's election not to exercise its rights in any particular
instance shall not affect in any way such right with respect to any
subsequent transaction by the Company.
(dd) Prior to the Effective Date, the Company will have taken all
necessary and appropriate action to have at least two persons be elected to
the Company's Board of Directors who are deemed to be independent of the
Company's management.
4. EXPENSES
(a) The Company shall pay all costs and expenses incident to the
performance of its obligations under this Agreement, whether or not the
transactions contemplated hereby are consummated or this Agreement is
terminated pursuant to Section 10 hereof, including all costs and expenses
incident to (i) the preparation, printing and filing or other production of
documents with respect to the transactions, including any costs of printing
the Registration Statement originally filed
14
<PAGE>
with respect to the Securities and any amendment thereto, any Preliminary
Prospectus and the Prospectus and any amendment or supplement thereto, this
Agreement, the selected dealer agreement and the other agreements and
documents governing the underwriting arrangements and any blue sky
memoranda, (ii) all reasonable and necessary arrangements relating to the
delivery to the Underwriters of copies of the foregoing documents, and the
costs and expenses of the Underwriters in mailing or otherwise distributing
the same including telephone charges, duplications and other accountable
expenses, (iii) the fees and disbursements of the counsel, the accountants
and any other experts or advisors retained by the Company, (iv) the
preparation, issuance and delivery to the Underwriters of any certificates
evidencing the Securities, including transfer agent's, warrant agent's and
registrar's fees or any transfer or other taxes payable thereon, (v) the
qualification of the Securities under state blue sky or securities laws,
including filing fees and fees and disbursements, (vi) the filing fees of
the Commission and the NASD relating to the Securities, (vii) the inclusion
of the Securities on The Nasdaq SmallCap Market and in the Standard and
Poor's Corporation Descriptions Manual, (viii) any "road shows" or other
meetings with prospective investors in the Securities, including
transportation, accommodation, meal, conference room, audio-visual
presentation and similar expenses, but not including such expenses for the
Underwriters or their representatives or designees in excess of $15,000 and
(ix) the publication of "tombstone advertisements" in THE WALL STREET
JOURNAL and/or INVESTOR'S BUSINESS DAILY to be selected by the
Representative, and the manufacture of prospectus memorabilia. In addition
to the foregoing, the Company, shall reimburse the Representative for its
expenses on the basis of a non-accountable expense allowance in the amount
of 3.00% of the gross offering proceeds to be received by the Company. The
non-accountable expense allowance, based on the gross proceeds from the
sale of the Firm Securities, shall be deducted from the funds to be paid by
the Representative in payment for the Firm Securities, pursuant to Section
2 of this Agreement, on the Firm Closing Date. To the extent any Option
Shares are sold, any remaining non-accountable expense allowance based on
the gross proceeds from the sale of the Option Shares shall be deducted
from the funds to be paid by the Representative in payment for the Option
Shares, pursuant to Section 2 of this Agreement, on the Option Closing
Date. The Company warrants, represents and agrees that all such payments
and reimbursements will be promptly and fully made.
(b) Notwithstanding any other provision of this Agreement, if
the Offering is terminated in accordance with the provisions of Section 6
or Section 10(a)(i), the Company agrees that, in addition to the Company
paying its own expenses as described in subparagraph (a) above, the Company
shall reimburse the Representative for its actual accountable out-of-pocket
expenses net of the [$_______] which has previously been advanced to the
Representative, up to a maximum of $100,000. Such expenses shall include,
but are not to be limited to, fees for the services and time of counsel for
the Underwriters to the extent not covered by clause (a) above, plus any
additional expenses and fees, including, but not limited to, travel
expenses, postage expenses, duplication expenses, long-distance telephone
expenses, and other expenses incurred by the Representative in connection
with the proposed offering.
5. Intentionally left blank.
15
<PAGE>
6. CONDITIONS OF THE UNDERWRITERS' OBLIGATIONS. The obligations of
the Underwriters to purchase and pay for the Firm Shares shall be subject,
in the Underwriters' sole discretion, to the accuracy of the
representations and warranties of the Company contained herein as of the
date hereof and as of the Firm Closing Date as if made on and as of the
Firm Closing Date, to the accuracy of the statements of the Company's
officers made pursuant to the provisions hereof, to the performance by the
Company of its covenants and agreements hereunder and to the following
additional conditions:
(a) If the Registration Statement, as heretofore amended, has
not been declared effective as of the time of execution hereof, the
Registration Statement, as heretofore amended or as amended by an amendment
thereto to be filed prior to the Firm Closing Date, shall have been
declared effective not later than 5:30 P.M., New York City time, on the
date on which the amendment to such Registration Statement containing
information regarding the initial public offering price of the Securities
has been filed with the Commission, or such later time and date as shall
have been consented to by the Underwriters; if required, the Prospectus and
any amendment or supplement thereto shall have been filed with the
Commission in the manner and within the time period required by Rule 424(b)
under the Act, no stop order suspending the effectiveness of the
Registration Statement shall have been issued, and no proceedings for that
purpose shall have been instituted or threatened or, to the knowledge of
the Company or the Underwriters, shall be contemplated by the Commission;
and the Company shall have complied with any request of the Commission for
additional information (to be included in the Registration Statement or the
Prospectus or otherwise).
(b) The Underwriters shall have received an opinion, dated the
Firm Closing Date, of Brenman Bromberg & Tennenbaum, P.C., counsel to the
Company, as to law, substantially to the effect that:
(1) the Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the
jurisdiction of its organization and is duly qualified to transact business
as a foreign corporation and is in good standing under the laws of each
other jurisdiction in which its ownership or leasing of any properties or
the conduct of its business requires such qualification, except where the
failure to be in good standing or so qualify would not have a materially
adverse effect upon the Company;
(2) the Company has full corporate power and authority to
own or lease its property and conduct its business as it is now being
conducted and as it is proposed to be conducted, as described in the
Registration Statement and the Prospectus, and the Company has full
corporate power and authority to enter into this Agreement and the
Representative's Warrant Agreement and to carry out all the terms and
provisions hereof and thereof to be carried out by it;
(3) to the knowledge of such counsel, there are no
outstanding options, warrants or other rights granted by the Company to
purchase shares of its Common Stock, preferred stock or other securities
other than as described in the Prospectus; the Shares have been duly
authorized and the Representative's Warrant Shares have been duly reserved
for issuance by all necessary corporate action on the part of the Company
and the Shares when issued and delivered to and paid for by the
Representative, pursuant to this Agreement, the Representative's Warrant
when
16
<PAGE>
issued and delivered and paid for in accordance with this Agreement and the
Representative's Warrant Agreement by the Underwriters, and the
Representative's Warrant Shares when issued upon payment of the exercise
price specified in the Representative's Warrant, will be validly issued,
fully paid, nonassessable and free of preemptive rights and will conform to
the description thereof in the Prospectus; to the knowledge of such
counsel, no holder of outstanding securities of the Company is entitled as
such to any preemptive or other right to subscribe for any of the Shares or
the Representative's Warrant Shares; and to the knowledge of such counsel,
no person is entitled to have securities registered by the Company under
the Registration Statement or otherwise under the Act other than as
described in the Prospectus;
(4) the execution and delivery of this Agreement and the
Representative's Warrant Agreement have been duly authorized by all
necessary corporate action on the part of the Company and this Agreement
and the Representative's Warrant Agreement have been duly executed and
delivered by the Company, and each is a valid and binding agreement of the
Company, enforceable against the Company in accordance with its terms,
except as enforceability may be limited by bankruptcy, insolvency,
reorganization, fraudulent conveyance, moratorium and other similar laws
affecting creditors' rights generally and by general principles of equity
(regardless of whether enforcement is considered in a proceeding in equity
or at law) and except as rights to indemnity and contribution under this
Agreement and the Representative's Warrant Agreement may be limited by
applicable securities laws and the public policy underlying such laws;
(5) the Representative's Warrant is duly authorized and
upon payment of the purchase price therefore specified in Section 2(d) of
this Agreement will be validly issued and constitute valid and binding
obligations of the Company; and the certificates representing the
Securities are in due and proper form under law;
(6) the statements set forth in the Prospectus under the
caption "Description of Securities" insofar as those statements purport to
summarize the terms of the capital stock and warrants of the Company,
provide a fair summary of such terms; to the knowledge of such counsel, the
statements set forth in the Prospectus describing statutes and regulations
and the descriptions of the consequences to the Company under such statutes
and regulations are fair summaries of the information set forth therein and
are accurate in all material respects; to the knowledge of such counsel,
the statements in the Prospectus, insofar as those statements constitute
summaries of the contracts, instruments, leases or licenses referred to
therein, constitute a fair summary in all material respects of those
contracts, instruments, leases or licenses and include all material terms
thereof, as applicable;
(7) none of (A) the execution and delivery of this
Agreement and the Representative's Warrant Agreement, (B) the issuance,
offering and sale by the Company to the Underwriters of the Securities
pursuant to this Agreement and the Representative's Warrant Shares pursuant
to the Representative's Warrant Agreement, or (C) the compliance by the
Company with the other provisions of this Agreement and the
Representative's Warrant Agreement and the consummation of the transactions
contemplated hereby and thereby, to the knowledge of such counsel (1)
requires the consent, approval, authorization, registration or
qualification of or with any
17
<PAGE>
court or governmental authority known to us, except such as have been
obtained and such as may be required under state blue sky or securities
laws as to which we express no opinion or (2) conflicts with or results in
a breach or violation of, or constitutes a default under, any material
contract, indenture, mortgage, deed of trust, loan agreement, note, lease
or other material agreement or instrument known to such counsel to which
the Company is a party or by which the Company or any of its property is
bound or subject, or the certificate of incorporation or by-laws of the
Company, or any material statute or any judgment, decree, order, rule or
regulation of any court or other governmental or regulatory authority known
to us applicable to the Company;
(8) to the knowledge of such counsel, (A) no legal or
governmental proceedings are pending to which the Company is a party or to
which the property of the Company is subject except those arising in the
ordinary course of business and fully covered by insurance and (B) no
contract or other document is required to be described in the Registration
Statement or the Prospectus or to be filed as an exhibit to the
Registration Statement that is not described therein or filed as required;
(9) to the knowledge of such counsel, the Company possesses
adequate licenses, orders, authorizations, approvals, certificates or
permits issued by the appropriate federal, state or local regulatory
agencies or bodies necessary to conduct its business as described in the
Registration Statement and the Prospectus, and, there are no pending or
threatened proceedings relating to the revocation or modification of any
such license, order, authorization, approval, certificate or permit, except
as disclosed in the Registration Statement and the Prospectus, which would
have a material adverse effect on the Company;
(10) The Company is not in violation or breach of, or in
default with respect to, any term of its certificate of incorporation or
by-laws, and to the knowledge of such counsel, the Company is not in (i)
violation in any material respect of any law, statute, regulation,
ordinance, rule, order, judgment or decree of any court or any governmental
or regulatory authority applicable to it, or (ii) default in any material
respect in the performance or observance of any obligation, agreement,
covenant or condition contained in any material contract, indenture,
mortgage, deed of trust, loan agreement, note, lease or other material
agreement or instrument to which it is a party or by which it or any of its
property may be bound or subject, and no event has occurred which with
notice, lapse of time or both would constitute such a default.
(11) The Shares have been approved for inclusion on The
Nasdaq SmallCap Market;
(12) The Registration Statement is effective under the Act;
any required filing of the Prospectus pursuant to Rule 424(b) has been made
in the manner and within the time period required by Rule 424(b); and to
our knowledge, no stop order suspending the effectiveness of the
Registration Statement or any amendment thereto has been issued, and no
proceedings for that purpose have been instituted or threatened or, to the
best knowledge of such counsel, are contemplated by the Commission;
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<PAGE>
(13) The Registration Statement originally filed with
respect to the Securities and each amendment thereto and the Prospectus (in
each case, other than the financial statements, the notes, schedules and
other financial and statistical information contained therein, as to which
such counsel need express no opinion) comply as to form in all material
respects with the applicable requirements of the Act and the rules and
regulations of the Commission thereunder; and
(14) the Company is not an "investment company" as defined
in Section 3(a) of the Investment Company Act of 1940 and, if the Company
conducts its business as set forth in the Prospectus, it will not become an
"investment company" and will not be required to register under the
Investment Company.
Such counsel also shall state in its opinion that it has
participated in the preparation of the Registration Statement and the
Prospectus and that nothing has come to its attention that has caused it to
believe that the Registration Statement, at the time it became effective
(including the information deemed to be a part of the Registration
Statement at the time of effectiveness pursuant to Rule 430A(b), if
applicable), contained an untrue statement of a material fact or omitted to
state a material fact required to be stated therein or necessary to make
the statements therein not misleading or that the Prospectus, as of its
date or as of the Firm Closing Date, contained an untrue statement of
material fact or omitted to state a material fact necessary in order to
make the statements therein, in the light of the circumstances under which
they were made, not misleading.
In rendering any such opinion, such counsel may rely, as to matters of
fact, to the extent such counsel deems proper, on certificates of
responsible officers of the Company and public officials, copies of which
certificates will be provided to the Underwriters, and, as to matters of
the laws of certain jurisdictions, on the opinions of other counsel to the
Company, which opinions shall also be delivered to the Underwriters, in
form and substance acceptable to the Underwriters, if such other counsel
expressly authorize such reliance and counsel to the Company expressly
states in their opinion that such counsel's and the Underwriters' reliance
upon such opinion is justified.
(d) A. At the time this Agreement is executed, the
Representative shall have received a letter, dated such date, addressed to
the Underwriters in form and substance satisfactory (including the non-
material nature of the changes or decreases, if any, referred to in clause
(iii) below) in all respects to the Representative and Representative's
counsel, from Causey Demgen & Moore Inc., Certified Public Accountants:
(i) confirming that it is a independent certified public
accountant with respect to the Company within the meaning of the Act and
the applicable Rules and Regulations;
(ii) stating that it is their opinion that the financial
statements of the Company included in the Registration Statement comply as
to form in all material respects with the applicable accounting
requirements of the Act and the Rules and Regulations thereunder and that
the Representative may rely upon the opinion of the Certified Public
Accountants with respect to the financial statements included in the
Registration Statement;
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(iii) stating that, on the basis of a limited review
which included a reading of the latest available unaudited interim
financial statements of the Company, a reading of the latest available
minutes of the stockholders and board of directors and the various
committees of the boards of directors of the Company, consultations with
officers and other employees of the Company responsible for financial and
accounting matters and other specified procedures and inquiries (which, as
to the interim financial statements included in the Registration Statement,
shall constitute a review as described in SAS No. 71, Interim Financial
Statements), nothing has come to the Certified Public Accountants'
attention which would lead them to believe that (A) the unaudited financial
statements of the Company included in the Registration Statement do not
comply as to form in all material respects with the applicable accounting
requirements of the Act and the Rules and Regulations or are not fairly
presented in conformity with generally accepted accounting principles
applied on a basis substantially consistent with that of the audited
financial statements of the Company included in the Registration Statement,
or (B) at a specified date not more than five (5) days prior to the
Effective Date, there has been any change in the capital stock or long-term
debt of the Company, or any decrease in the stockholders' equity or net
current assets or net assets of the Company as compared with amounts shown
in the December 31, 1998 balance sheet included in the Registration
Statement, other than as set forth in or contemplated by the Registration
Statement, or, if there was any change or decrease, setting forth the
amount of such change or decrease, and (C) during the period from December
31, 1998 to a specified date not more than five (5) days prior to the
Effective Date, there was any decrease (increase) in net revenues, net
income (loss) or in net earnings (loss) per common share of the Company, in
each case as compared with the corresponding period in December 31, 1998,
other than as set forth in or contemplated by the Registration Statement,
or, if there was any such decrease, setting forth the amount of such
decrease (increase);
(iv) setting forth, at a date not later than five (5) days
prior to the Effective Date, the amount of liabilities of the Company;
(v) stating that they have compared specific dollar
amounts, numbers of shares, percentages of revenues and earnings,
statements and other financial information pertaining to the Company set
forth in the Prospectus in each case to the extent that such amounts,
numbers, percentages, statements and information may be derived from the
general accounting records, including work sheets, of the Company and
excluding any questions requiring an interpretation by legal counsel, with
the results obtained from the application of specified readings, inquiries
and other appropriate procedures (which procedures do not constitute an
examination in accordance with generally accepted auditing standards) set
forth in the letter and found them to be in agreement; and
(vi) statements as to such other matters incident to the
transaction contemplated hereby as the Representative may request.
B. At the Firm Closing Date and the Option Closing Date, if
any, the Representative shall have received from the Certified Public
Accountants, a letter, dated as of the Firm Closing Date or the Option
Closing Date, as the case may be, to the effect that it reaffirms that
statements made in the letter furnished pursuant to subsection A of this
Section 6(e), except that the specified date referred to shall be a date
not more than five (5) days prior to the Firm Closing Date
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or the Option Closing Date, as the case may be, and, if the Company has
elected to rely on Rule 430A of the Rules and Regulations, to the further
effect that they have carried out procedures as specified in clause (v) of
subsection A of this Section 6(e) with respect to certain amounts,
percentages and financial information as specified by the Representative
and deemed to be a part of the Registration Statement pursuant to Rule
430A(b) and have found such amounts, percentages and financial information
to be in agreement with the records specified in such clause (v).
(e) The representations and warranties of the Company contained
in this Agreement shall be true and correct as if made on and as of the
Firm Closing Date; the Registration Statement shall not include any untrue
statement of a material fact or omit to state any material fact required to
be stated therein in order to make the statements therein not misleading,
and the Prospectus, as amended or supplemented as of the Firm Closing Date,
shall not include any untrue statement of a material fact or omit to state
any material fact necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading; and
the Company shall have performed all covenants and agreements and satisfied
all conditions on its part to be performed or satisfied at or prior to the
Firm Closing Date.
(f) No stop order suspending the effectiveness of the
Registration Statement or any amendment thereto shall have been issued, and
no proceedings for that purpose shall have been instituted or threatened or
contemplated by the Commission.
(g) Subsequent to the respective dates as of which information
is given in the Registration Statement and the Prospectus, there shall not
have been any material adverse change, or any development involving a
prospective material adverse change, in the business, operations, condition
(financial or otherwise), earnings or prospects of the Company, except in
each case as described in or contemplated by the Prospectus (exclusive of
any amendment or supplement thereto).
(h) The Underwriters shall have received a certificate, dated
the Firm Closing Date, of the Chief Executive Officer and the Secretary of
the Company to the effect set forth in subparagraphs (d) through (f) above.
(i) The Common Stock shall be qualified in such jurisdictions as
the Underwriters may reasonably request pursuant to Section 4(c), and each
such qualification shall be in effect and not subject to any stop order or
other proceeding on the Firm Closing Date.
(j) The Company shall have executed and delivered to the
Underwriters the Representative's Warrant Agreement and a certificate or
certificates evidencing the Representative's Warrant, in each case in a
form acceptable to the Underwriters.
(k) The Underwriters shall have received Lock-up Agreements
executed by the persons listed on Schedule 2 annexed hereto.
(l) On or before the Firm Closing Date, the Underwriters and
counsel for the Underwriters shall have received such further certificates,
documents, letters or other information as
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they may have reasonably requested from the Company and other security
holders of the Company.
All opinions, certificates, letters and documents delivered pursuant
to this Agreement will comply with the provisions hereof only if they are
reasonably satisfactory in all material respects to the Underwriters and
counsel for the Underwriters. The Company shall furnish to the Underwriters
such conformed copies of such opinions, certificates, letters and documents
in such quantities as the Underwriters and counsel for the Underwriters
shall reasonably request.
The obligation of the Underwriters to purchase and pay for any Option
Shares shall be subject, in its discretion, to each of the foregoing
conditions, except that all references to the Firm Securities and the Firm
Closing Date shall be deemed to refer to such Option Shares and the related
Option Closing Date, respectively.
7. INDEMNIFICATION AND CONTRIBUTION.
(a) The Company agrees to indemnify and hold harmless the
Underwriters and each person, if any, who controls the Underwriters within
the meaning of Section 15 of the Act or Section 20 of the 1934 Act against
any losses, claims, damages, or liabilities, joint or several, to which the
Underwriters, or such controlling person may become subject under the Act
or otherwise, insofar as such losses, claims, damages or liabilities (or
actions in respect thereof) arise out of or are based upon:
(1) any untrue statement or alleged untrue statement of any
material fact contained in (A) the Registration Statement or any amendment
thereto, any Preliminary Prospectus or the Prospectus or any amendment or
supplement thereto, or (B) any application or other document, or any
amendment or supplement thereto, executed by the Company or based upon
written information furnished by or on behalf of the Company filed in any
jurisdiction in order to qualify the Securities under the Blue Sky or
securities laws thereof or filed with the Commission or any securities
association or securities exchange (each an "Application"), or
(2) the omission or alleged omission to state in such
Registration Statement or any amendment thereto, any Preliminary Prospectus
or the Prospectus or any amendment or supplement thereto, or any
Application a material fact required to be stated therein or necessary to
make the statements therein not misleading, and will reimburse, as
incurred, the Underwriters and such controlling person for any legal or
other expenses reasonably incurred by the Underwriters or such controlling
person in connection with investigating or defending against any loss,
claim, damage, liability, action, investigation, litigation or proceeding;
PROVIDED, HOWEVER, that the Company will not be liable in any such case to
the extent that any such loss, claim, damage or liability arises out of or
is based upon any untrue statement or alleged untrue statement or omission
or alleged omission made in such Registration Statement or any amendment
thereto, any Preliminary Prospectus, the Prospectus or any amendment or
supplement thereto, or any Application in reliance upon and in conformity
with written information furnished to the Company by the Underwriters,
specifically for use therein. This indemnity agreement will be in addition
to any liability which the Company may otherwise have. The Company will
not, without the prior written consent of the Underwriters, or controlling
person, settle
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<PAGE>
or compromise or consent to the entry of any judgment in any pending or
threatened claim, action, suit or proceeding in respect of which
indemnification may be sought hereunder (whether or not the Underwriters or
any person who controls the Underwriters or within the meaning of Section
15 of the Act or Section 20 of the 1934 Act is a party to such claim,
action, suit or proceeding), unless such settlement, compromise or consent
includes an unconditional release of the Underwriters and each such
controlling person from all liability arising out of such claim, action,
suit or proceeding.
(b) The Underwriters will indemnify and hold harmless the
Company, each of its directors, each of its officers who signed the
Registration Statement, and each person, if any, who controls the Company
within the meaning of Section 15 of the Act or Section 20 of the 1934 Act
against, any losses, claims, damages or liabilities to which the Company or
any such director, officer, or controlling person may become subject under
the Act or otherwise, but only insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon
(i) any untrue statement or alleged untrue statement of any material fact
contained in the Registration Statement or any amendment thereto, any
Preliminary Prospectus or the Prospectus or any amendment or supplement
thereto, or any Application, or (ii) the omission or the alleged omission
to state therein a material fact required to be stated in the Registration
Statement or any amendment thereto, any Preliminary Prospectus or the
Prospectus or any amendment or supplement thereto, or any Application, or
necessary to make the statements therein not misleading, in each case to
the extent, but only to the extent, that such untrue statement or alleged
untrue statement or omission or alleged omission was made in reliance upon
and in conformity with written information furnished to the Company by the
Underwriters specifically for use therein; and, subject to the limitation
set forth immediately preceding this clause, will reimburse, as incurred,
any legal or other expenses reasonably incurred by the Company or any such
director, officer, or controlling person in connection with investigating
or defending against any such loss, claim, damage, liability, action
investigation, litigation or proceedings, in respect thereof. This
indemnity agreement will be in addition to any liability which the
Underwriters may otherwise have.
(c) Promptly after receipt by an indemnified party under this
Section 7 of notice of the commencement of any action, such indemnified
party will, if a claim in respect thereof is to be made against the
indemnifying party under this Section 7, notify the indemnifying party of
the commencement thereof; but the omission so to notify the indemnifying
party will not relieve it from any liability which it may have to any
indemnified party otherwise than under this Section 7. In case any such
action is brought against any indemnified party, and it notifies the
indemnifying party of the commencement thereof, the indemnifying party will
be entitled to participate therein and, to the extent that it may wish,
jointly with any other indemnifying party similarly notified, to assume the
defense thereof, with counsel satisfactory to such indemnified party;
PROVIDED, HOWEVER, that if the defendants in any such action include both
the indemnified party and the indemnifying party and the indemnified party
shall have reasonably concluded that there may be one or more legal
defenses available to it and/or other indemnified parties which are
different from or additional to those available to the indemnifying party,
the indemnifying party shall not have the right to direct the defense of
such action on behalf of such indemnified party or parties and such
indemnified party or parties shall have the right to select separate
counsel to defend such action on behalf of such indemnified party or
parties. After notice from the indemnifying party to such indemnified party
of its election so to assume the
23
<PAGE>
defense thereof and approval by such indemnified party of counsel appointed
to defend such action, the indemnifying party will not be liable to such
indemnified party under this Section 7 for any legal or other expenses,
other than reasonable costs of investigation, subsequently incurred by such
indemnified party in connection with the defense thereof, unless (i) the
indemnified party shall have employed separate counsel in accordance with
the proviso to the next preceding sentence or (ii) the indemnifying party
has authorized the employment of counsel for the indemnified party at the
expense of the indemnifying party. After such notice from the indemnifying
party to such indemnified party, the indemnifying party will not be liable
for the costs and expenses of any settlement of such action effected by
such indemnified party without the consent of the indemnifying party.
(d) In circumstances in which the indemnity obligation provided
for in the preceding paragraphs of this Section 7 is unavailable or
insufficient to hold harmless an indemnified party in respect of any
losses, claims, damages or liabilities (or actions in respect thereof),
each indemnifying party, in order to provide for just and equitable
contribution, shall contribute to the amount paid or payable by such
indemnified party as a result of such losses, claims, damages or
liabilities (or actions in respect thereof) in such proportion as is
appropriate to reflect (i) the relative benefits received by the
indemnifying party or parties on the one hand and the indemnified party on
the other from the offering of the Securities, or (ii) if the allocation
provided by the foregoing clause (i) is not permitted by applicable law,
not only such relative benefits but also the relative fault of the
indemnifying party or parties on the one hand and the indemnified party on
the other in connection with the statements or omissions or alleged
statements or omissions that resulted in such losses, claims, damages or
liabilities (or actions in respect thereof). The relative benefits received
by the Company on the one hand and the Underwriters on the other shall be
deemed to be in the same proportion as the total proceeds from the Offering
(net of underwriting discounts and commissions but before deducting
expenses) received by the Company bear to the total underwriting discounts
and commissions received by the Underwriters. The relative fault of the
parties shall be determined by reference to, among other things, whether
the untrue or alleged untrue statement of a material fact or the omission
or alleged omission to state a material fact relates to information
supplied by the Company or the Underwriters, the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission, and the other equitable considerations appropriate
in the circumstances. The Company and the Underwriters agree that it would
not be equitable if the amount of such contribution were determined by pro
rata or per capita allocation or by any other method of allocation that
does not take into account the equitable considerations referred to in the
first sentence of this paragraph (d). Notwithstanding any other provision
of this paragraph (d), the Underwriters shall not be obligated to make
contributions hereunder that in the aggregate exceeding the total public
offering price of the Securities purchased by the Underwriters under this
Agreement, less the aggregate amount of any damages that the Underwriters
have otherwise been required to pay in respect of the same or any
substantially similar claim, and no person guilty of fraudulent
misrepresentation (within the meaning of Section 11 (f) of the Act) shall
be entitled to contribution from any person who is not guilty of such
fraudulent misrepresentation. For purposes of this paragraph (d), each
person, if any, who controls an Underwriter within the meaning of Section
15 of the Act or Section 20 of the 1934 Act shall have the same rights to
contribution as the Underwriters, and each director of the Company, each
officer of the Company who signed the Registration Statement and each
person, if any, who controls the Company within the meaning of
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Section 15 of the Act or Section 20 of the 1934 Act, shall have the same
rights to contribution as the Company.
8. SUBSTITUTION OF UNDERWRITERS.
If any Underwriter shall for any reason not permitted hereunder cancel
its obligations to purchase the Firm Securities hereunder, or shall fail to
take up and pay for the number of Firm Securities set forth opposite names
in Schedule 1 hereto upon tender of such Firm Securities in accordance with
the terms hereof, then:
(a) If the aggregate number of Firm Securities which such
Underwriter or Underwriters agreed but failed to purchase does not exceed
10% of the total number of Firm Securities, the other Underwriters shall be
obligated to purchase the Firm Securities which such defaulting Underwriter
agreed but failed to purchase.
(b) If any Underwriter so defaults and the agreed number of Firm
Securities with respect to which such default or defaults occurs is more
than 10% of the total number of Firm Securities, the remaining Underwriters
shall have the right to take up and pay for the Firm Securities which the
defaulting Underwriter agreed but failed to purchase. If such remaining
Underwriters do not, at the Firm Closing Date, take up and pay for the Firm
Securities which the defaulting Underwriter agreed but failed to purchase,
the time for delivery of the Firm Securities shall be extended to the next
business day to allow the remaining Underwriters the privilege of
substituting within twenty-four hours (including nonbusiness hours) another
underwriter or underwriters satisfactory to the Company. If no such
underwriter or underwriters shall have been substituted as aforesaid,
within such twenty-four hour period, the time of delivery of the Firm
Securities may, at the option of the Company, be again extended to the next
following business day, if necessary, to allow the Company the privilege of
finding within twenty-four hours (including nonbusiness hours) another
underwriter or underwriters to purchase the Firm Securities which the
defaulting Underwriter or Underwriters agreed but failed to purchase. If it
shall be arranged for the remaining Underwriter or substituted Underwriters
to take up the Firm Securities of the defaulting Underwriter as provided in
this section, (i) the Company or the Underwriters shall have the right to
postpone the time of delivery for a period of not more than seven business
days, in order to effect whatever changes may thereby be made necessary in
the Registration Statement or the Prospectus, or in any other document or
arrangements, and the Company agrees promptly to file any amendments to the
Registration Statement or supplements to the Prospectus which may thereby
be made necessary, and (ii) the respective numbers of Firm Securities to be
purchased by the remaining Underwriters or substituted Underwriters shall
be taken as the basis of the underwriting obligation for all purposes of
this agreement.
If in the event of a default by any Underwriter and the remaining
Underwriters shall not take up and pay for all the Firm Securities agreed
to be purchased by the defaulting Underwriter or substitute another
underwriter or underwriters as aforesaid, the Company shall not find or
shall not elect to seek another underwriter or underwriters for such Firm
Securities as aforesaid, then this Agreement shall terminate.
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<PAGE>
If, following exercise of the option provided in Section 2(c) hereof,
any Underwriter or Underwriters shall for any reason not permitted
hereunder cancel their obligations to purchase Option Shares at the Option
Closing Date, or shall fail to take up and pay for the number of Option
Shares, which it became obligated to purchase at the Option Closing Date
upon tender of such Option Shares in accordance with the terms hereof, then
the remaining Underwriters or substituted Underwriters may take up and pay
for the Option Shares of the defaulting Underwriters in the manner provided
in Section 8(b) hereof. If the remaining Underwriters or substituted
Underwriters shall not take up and pay for all such Option Shares, the
Underwriters shall be entitled to purchase the number of Option Shares for
which there is no default or, at their election, the option shall
terminate, the exercise thereof shall be of no effect.
As used in this Agreement, the term "Underwriter" includes any person
substituted for an Underwriter under this Section. In the event of
termination, there shall be no liability on the part of any non-defaulting
Underwriter to the Company, provided that the provisions of this Section 8
shall not in any event affect the liability of any defaulting Underwriter
to the Company arising out of such default.
9. SURVIVAL. The respective representations, warranties, agreements,
covenants, indemnities and other statements of the Company, any of its
officers or directors and the Underwriter set forth in this Agreement or
made by or on behalf of them, respectively, pursuant to this Agreement
shall remain in full force and effect, regardless of (i) any investigation
made by or on behalf of the Company, any of its officers or directors, the
Underwriter or any controlling person referred to in Section 7 hereof, and
(ii) delivery of and payment for the Securities. The respective agreements,
covenants, indemnities and other statements set forth in Sections 4 and 7
hereof shall remain in full force and effect, regardless of any termination
or cancellation of this Agreement.
10. TERMINATION.
(a) This Agreement may be terminated with respect to the Firm
Securities or any Option Shares in the sole discretion of the
Representative by notice to the Company given prior to the Firm Closing
Date or the related Option Closing Date, respectively, in the event that
the Company shall have failed, refused or been unable to perform all
obligations and satisfy all conditions on its part to be performed or
satisfied under Section 6 hereunder at or prior thereto or if at or prior
to the Firm Closing Date or such Option Closing Date, respectively:
(1) the Company sustains a loss by reason of explosion,
fire, flood, accident or other calamity, which, in the opinion of the
Underwriter, substantially affects the value of the properties of the
Company or which materially interferes with the operation of the business
of the Company regardless of whether such loss shall have been insured;
there shall have been any material adverse change, or any development
involving a prospective material adverse change (including, without
limitation, a change in management or control of the Company), in the
business, operations, condition (financial or otherwise), earnings or
prospects of the Company, except in each case as described in or
contemplated by the Prospectus (exclusive of any amendment or supplement
thereto);
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(2) any action, suit or proceeding shall be threatened,
instituted or pending, at law or in equity, against the Company, by any
person or by any federal, state, foreign or other governmental or
regulatory commission, board or agency wherein any unfavorable result or
decision could materially adversely affect the business, operations,
condition (financial or otherwise), earnings or prospects of the Company;
(3) trading in the Common Stock shall have been suspended
by the Commission, the NASD or on Nasdaq, or trading in securities
generally on the New York Stock Exchange shall have been suspended or
minimum or maximum prices shall have been established on either such
exchange or quotation system;
(4) a banking moratorium shall have been declared by New
York or United States authorities;
(5) there shall have been (A) an outbreak of hostilities
between the United States and any foreign power (or, in the case of any
ongoing hostilities, a material escalation thereof), (B) an outbreak of any
other insurrection or armed conflict involving the United States or (C) any
other calamity or crisis or material change in financial, political or
economic conditions, having an effect on the financial markets that, in any
case referred to in this clause (5), in the sole judgment of the
Underwriter makes it impracticable or inadvisable to proceed with the
public offering or the delivery of the Securities as contemplated by the
Registration Statement; and
(6) termination of this Agreement pursuant to this Section
10 shall be without liability of any party to any other party, except as
provided in Section 5(b) and Section 7 hereof.
11. INFORMATION SUPPLIED BY THE UNDERWRITER. The statements set
forth in the "Underwriting Section" in any Preliminary Prospectus or the
Prospectus constitute the only information furnished by the Underwriter to
the Company for the purposes of Section 7(b) hereof. The Underwriter
confirms that such statements (to such extent) are correct.
12. NOTICES. All notice hereunder to or upon either party hereto
shall be deemed to have been duly given for all purposes if in writing and
(i) delivered in person or by messenger or an overnight courier service
against receipt, or (ii) send by certified or registered mail, postage
paid, return receipt requested, or (iii) sent by telegram, facsimile, telex
or similar means, provided that a written copy thereof is sent on the same
day by postage paid first-class mail, to such party at the following
address:
To the Company: At the address listed in the Prospectus
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To the Representative: Neidiger Tucker Brunner, Inc.
1675 Larimer Street, Suite 300
Denver, CO 80202
or such other address as either party hereto may at any time, or from time
to time, direct by notice given to the other party in accordance with this
section. The date of giving of any such notice shall be, in the case of
clause (i), the date of the receipt; in the case of clause (ii), five
business days after such notice or demand is sent; and, in the case of
clause (iii), the business day next following the date such notice is sent.
13. AMENDMENT. Except as otherwise provided
herein, no amendment of this Agreement shall be valid or effective, unless
in writing and signed by or on behalf of the parties hereto.
14. WAIVER. No course of dealing or omission or
delay on the part of either party hereto in asserting or exercising any
right hereunder shall constitute or operate as a waiver of any such right.
No waiver of any provision hereof shall be effective, unless in writing and
signed by or on behalf of the party to be charged therewith. No waiver
shall be deemed a continuing waiver or waiver in respect of any other or
subsequent breach or default, unless expressly so stated in writing.
15. APPLICABLE LAW. This agreement shall be
governed by, and interpreted and enforced in accordance with, the laws of
the State of Colorado without regard to principles of choice of law or
conflict of laws.
16. JURISDICTION. Each of the parties hereto
hereby irrevocably consents and submits to the exclusive jurisdiction of
the Colorado courts and the United States District Court for the District
of Colorado in connection with any suit, action or other proceeding arising
out of or relating to this Agreement or the transactions contemplated
hereby, waives any objection to venue in the City and County of Denver,
State of Colorado, or such District and agrees that service of any summons,
complaint, notice or other process relating to such suit, action or other
proceeding may be effected in the manner provided by clause (ii) of Section 12.
17. REMEDIES. In the event of any actual or
prospective breach or default by either party hereto, the other party shall
be entitled to equitable relief, including remedies in the nature of
rescission, injunction and specific performance. All remedies hereunder are
cumulative and not exclusive, and nothing herein shall be deemed to
prohibit or limit either party from pursuing any other remedy or relief
available at law or in equity for such actual or prospective breach or
default, including the recovery of damages.
18. ATTORNEYS' FEES. The prevailing party in any
suit, action or other proceeding arising out of or relating to this
Agreement or the transactions contemplated hereby, shall be entitled to
recover its costs and reasonable attorneys' fees.
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19. SEVERABILITY. The provisions hereof are
severable and in the event that any provision of this Agreement shall be
determined to be invalid or unenforceable in any respect by a court of
competent jurisdiction, the remaining provisions hereof shall not be
affected, but shall, subject to the discretion of such court, remain in
full force and effect, and any invalid or unenforceable provision shall be
deemed, without further action on the part of the parties hereto, amended
and limited to the extent necessary to render the same valid and
enforceable.
20. COUNTERPARTS. This Agreement may be executed
in counterparts, each of which shall be deemed an original and which
together shall constitute one and the same agreement.
21. SUCCESSORS. This Agreement shall inure to
the benefit of and be binding upon the Underwriter, the Company and their
respective successors and assigns. Nothing expressed or mentioned in this
Agreement is intended or shall be construed to give any other person any
legal or equitable right, remedy or claim under or in respect of this
Agreement or any provisions herein contained, this Agreement and all
conditions and provisions hereof being intended to be and being for the
sole and exclusive benefit of such persons and for the benefit of no other
person except that (i) the indemnities of the Company contained in Section
7 of this Agreement shall also be for the benefit of any person or persons
who control any Underwriter within the meaning of Section 15 of the Act or
Section 20 of the 1934 Act, and (ii) the indemnities of the Underwriter
contained in Section 7 of this Agreement shall also be for the benefit of
the directors of the Company, the officers of the Company who have signed
the Registration Statement and any person or persons who control the
Company within the meaning of Section 15 of the Act or Section 20 of the
1934 Act. No purchaser of Securities from the Underwriter shall be deemed
a successor because of such purchase.
22. TITLES AND CAPTIONS. The titles and captions
of the articles and sections of this Agreement are for convenience of
reference only and do not in any way define or interpret the intent of the
parties or modify or otherwise affect any of the provisions hereof.
23. GRAMMATICAL CONVENTIONS. Whenever the
context so requires, each pronoun or verb used herein shall be construed in
the singular or the plural sense and each capitalized term defined herein
and each pronoun used herein shall be construed in the masculine, feminine
or neuter sense.
24. REFERENCES. The terms "herein," "hereto,"
"hereof," "hereby," and "hereafter," and other terms of similar import,
refer to this Agreement as a whole, and not to any Article, Section or
other part hereof.
25. ENTIRE AGREEMENT. This Agreement embodies
the entire agreement of the parties hereto with respect to the subject
matter hereof and supersedes any prior agreement, commitment or arrangement
relating thereto.
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If the foregoing correctly sets forth our understanding, please
indicate your acceptance thereof in the space provided below for that
purpose, whereupon this letter shall constitute an agreement binding the
Company, and the Underwriter.
Very truly yours,
Entropin , Inc.
By:_______________________________________
Chief Executive Officer
The foregoing agreement is hereby confirmed and accepted as of the date
first above written.
Neidiger Tucker Brunner, Inc.
as representative of the several underwriters listed
on Schedule l annexed hereto
By:______________________________________
Chief Executive Officer
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<PAGE>
Schedule 1
Underwriter Number of Shares
- ----------- ----------------
31
<PAGE>
SCHEDULE 2
Lock Up period ends March 15, 2000 with respect to the following
shareholders:
[LIST NAMES OF ALL SHAREHOLDERS]
32
<PAGE>
ENTROPIN, INC.
AND
NEIDIGER TUCKER BRUNNER, INC.
REPRESENTATIVE'S
WARRANT AGREEMENT
REPRESENTATIVE'S WARRANT AGREEMENT dated as of ____________, 1999
by and between ENTROPIN, INC., (the "Company") and NEIDIGER TUCKER BRUNNER,
INC. ("Representative").
W I T N E S S E T H:
-------------------
WHEREAS, the Company proposes to issue to the Representative _______
warrants (each a "Representative's Warrant") each to purchase one share of
the Company's $.001 par value common stock, (the "Common Stock").
WHEREAS, the Representative has agreed, pursuant to the underwriting
agreement (the "Underwriting Agreement") dated _________, 1999 by and
between the Representative and the Company, to act as the Representative in
connection with the Company's proposed public offering (the "Public
Offering") of _________ shares of Common Stock (the "Offering Securities");
and
WHEREAS, the Representative's Stock Warrants to be issued pursuant to
this Agreement will be issued on the Firm Closing Date (as such term is
defined in the Underwriting Agreement) by the Company to the Representative
in consideration for, and as part of, the Representative's compensation in
connection with the Representative's acting as the Representative pursuant
to the Underwriting Agreement;
NOW, THEREFORE, in consideration of the premises, the payment by the
Representative to the Company of One Hundred Dollars ($100.00), the
agreements herein set forth and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties
hereto agree as follows:
1. GRANT. The Holder (as defined in Section 3 below) is hereby
granted the right to purchase, at any time from ____________, 2000 until
5:00 p.m., New York time, __________, 2004, up to ________ shares of
Common Stock, at an initial purchase price (subject to adjustment as
provided in Section 8 hereof) of $______ per share of Common Stock subject
to the terms and conditions of this Agreement. The securities issuable
upon exercise of the Representative's Warrant are sometimes referred to
herein as the "Representative's Securities."
<PAGE>
2. WARRANT CERTIFICATES. The warrant certificate (the
"Representative's Warrant Certificate") to be delivered pursuant to this
Agreement shall be in the form set forth in Exhibit A attached hereto and
made a part hereof, with such appropriate insertions, omissions,
substitutions, and other variations as required or permitted by this Agreement.
3. EXERCISE OF REPRESENTATIVE'S WARRANT.
(a) The Representative's Warrant is exercisable during the term
set forth in Section 1 hereof payable by certified or cashier's check or
money order in lawful money of the United States. Upon surrender of
Representative's Warrant Certificate with the annexed Form of Election to
Purchase duly executed, together with payment of the Purchase Price (as
hereinafter defined) for the Representative's Securities (and such other
amounts, if any, arising pursuant to Section 4 hereof) at the Company's
principal office, the registered holder of a Representative's Warrant
Certificate ("Holder" or "Holders") shall be entitled to receive a
certificate or certificates for the Representative's Securities so
purchased. The purchase rights represented by each Representative's
Warrant Certificate are exercisable at the option of the Holder or Holders
thereof, in whole or in part as to Representative's Securities. The
Representative's Warrant may be exercised to purchase all or any part of
the Representative's Securities represented thereby. In the case of the
purchase of less than all the Representative's Securities purchasable on
the exercise of the Representative's Warrant represented by a
Representative's Warrant Certificate, the Company shall cancel the
Representative's Warrant Certificate represented thereby upon the surrender
thereof and shall execute and deliver a new Representative's Warrant
Certificate of like tenor for the balance of the Representative's
Securities purchasable thereunder.
(b) In lieu of the payment of cash upon exercise of the
Representative's Warrant as provided in Section 3(a), the Holder may
exercise the Representative's Warrant by surrendering the Representative's
Warrant Certificate at the principal office of the Company, accompanied by
a notice stating (i) the Holder's intent to effect such exercise by an
exchange, (ii) the Common Stock to be issued upon the exchange, (iii)
whether Representative's Warrants are to be surrendered in connection with
the exchange, and (iv) the date on which the Holder requests that such
exchange is to occur. The Purchase Price for the Representative's
Securities to be acquired in the exchange shall be paid by the surrender as
indicated in the notice, of Representative's Warrants, having a "Value", as
defined below, equal to the Purchase Price. "Value" as to each
Representative's Warrant shall mean the difference between the "Market
Price", as hereinafter defined, of a share of Common Stock and the then
Purchase Price for a share of Common Stock.
By way of example of the application of the formula, assume that
the Market Price of the Common Stock is $8.00, the Purchase Price of the
Representative's Warrant is $6.00. On such assumptions, the Value of a
Representative's Warrant is $2.00 ($8.00-$6.00) and therefore for each
three (3) Representative's Warrants surrendered, the Holder could acquire
one (1) share of Common Stock in the exchange. Notwithstanding the
example, the Holder shall not be limited to exchanging Representative's
Warrants for Common Stock.
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<PAGE>
The Warrant Exchange shall take place on the date specified in the
notice or if the date the notice is received by the Company is later than
the date specified in the notice, on the date the notice is received by the
Company.
4. ISSUANCE OF CERTIFICATES. Upon the exercise of the
Representative's Warrant and payment of the Purchase Price therefor, the
issuance of certificates representing the Representative's Securities or
other securities, properties or rights underlying such Representative's
Warrant, shall be made forthwith (and in any event within five (5) business
days thereafter) without further charge to the Holder thereof, and such
certificates shall (subject to the provisions of Sections 5 and 7 hereof)
be issued in the name of, or in such names as may be directed by, the
Holder thereof; provided, however, that the Company shall not be required
to pay any tax which may be payable in respect of any transfer involved in
the issuance and delivery of any such certificates in a name other than
that of the Holder, and the Company shall not be required to issue or
deliver such certificates unless or until the person or persons requesting
the issuance thereof shall have paid to the Company the amount of such tax
or shall have established to the satisfaction of the Company that such tax
has been paid. The Representative's Warrant Certificates and the
certificates representing the Representative's Securities or other
securities, property or rights (if such property or rights are represented
by certificates) shall be executed on behalf of the Company by the manual
or facsimile signature of the then present Chairman or Vice Chairman of the
Board of Directors or President or Vice President of the Company, attested
to by the manual or facsimile signature of the then present Secretary or
Assistant Secretary or Treasurer or Assistant Treasurer of the Company.
The Representative's Warrant Certificates shall be dated the date of
issuance thereof by the Company upon initial issuance, transfer or exchange.
5. RESTRICTION ON TRANSFER OF REPRESENTATIVE'S WARRANT. The Holder
of a Representative's Warrant Certificate (and its Permitted Transferee, as
defined below), by its acceptance thereof, covenants and agrees that until
____________, 2000 (one year following the effective date of the Public
Offering), the Representative's Warrant may not be sold, transferred,
assigned, hypothecated or otherwise disposed of, in whole or in part,
except to officers and partners of the Representatives, or any Public
Offering selling group member and their respective officers and partners,
("Permitted Transferees"). Thereafter the Representative's Warrant may be
transferred, assigned, hypothecated or otherwise disposed of in compliance
with applicable law.
6. PURCHASE PRICE.
(a) INITIAL AND ADJUSTED PURCHASE PRICE. Except as otherwise
provided in Section 8 hereof, the initial purchase price of the
Representative's Securities is set forth in Section 1. The adjusted
purchase price shall be the price which shall result from time to time from
any and all adjustments of the initial purchase price in accordance with
the provisions of Section 8 hereof.
(b) PURCHASE PRICE. The term "Purchase Price" herein shall mean
the initial purchase price or the adjusted purchase price, depending upon
the context.
3
<PAGE>
7. REGISTRATION RIGHTS.
(a) REGISTRATION UNDER THE SECURITIES ACT OF 1933 AS AMENDED
("ACT"). The Representative's Warrant may have not been registered under
the Act. The Representative's Warrant Certificates may bear the following
legend:
"The securities represented by this certificate have not been
registered under the Securities Act of 1933 (the "Act"), and may not be
offered for sale or sold except pursuant to (i) an effective registration
statement under the Act, or (ii) an opinion of counsel, if such opinion and
counsel shall be reasonably satisfactory to counsel to the issuer, that an
exemption from registration under the Act is available."
(b) DEMAND REGISTRATION. (1) At any time commencing on the
first anniversary of and expiring on the fifth anniversary of the effective
date of the Company's Registration Statement relating to the Public
Offering (the "Effective Date"), the Holders of a Majority (as hereinafter
defined) in interest of the Representative's Warrant, or the Majority in
interest of the Representative's Securities (assuming the exercise of all
of the Representative's Warrant) shall have the right, exercisable by
written notice to the Company, to have the Company prepare and file with
the U.S. Securities and Exchange Commission (the "Commission"), on one (1)
occasion, a registration statement on Form S-1 or SB-2 or other
appropriate form, and such other documents, including a prospectus, as may
be necessary in the opinion of both counsel for the Company and counsel for
the Holders, in order to comply with the provisions of the Act, so as to
permit a public offering and sale, of the Representative's Securities by
such Holders and any other Holders of the Representative's Warrant and/or
the Representative's Securities who notify the Company within fifteen (15)
business days after receipt of the notice described in Section 7(b)(2).
(2) The Company covenants and agrees to give written notice
of any registration request under this Section 7(b) by any Holders to all
other registered Holders of the Representative's Warrant and the
Representative's Securities within ten (10) calendar days from the date of
the receipt of any such registration request.
(3) For purposes of this Agreement, the term "Majority" in
reference to the Holders of the Representative's Warrant or
Representative's Securities, shall mean in excess of fifty percent (50%) of
the then outstanding Representative's Warrant or Representative's
Securities that (i) are not held by the Company, an affiliate, officer,
creditor, employee or agent thereof or any of their respective affiliates,
members of their family, persons acting as nominees or in conjunction
therewith, or (ii) have not been resold to the public pursuant to a
registration statement filed with the Commission under the Act.
(4) The Company shall have no obligation to prepare and
file a registration statement pursuant to this Section 7(b) if, within
twenty (20) days after the Company receives such a demand for
registration, the Company agrees, or insiders who own individually more
than 5% of the Company's outstanding Common Stock agree, to purchase the
Holder's Warrants and/or Warrant Shares from the requesting Holders at a
price equal to the difference between the Exercise Price then
4
<PAGE>
in effect and the then current market price of the Company's Common Stock.
The market price of the Company's Common Stock shall be the average of the
closing asked prices for the Company's Common Stock during the ten (10)
business days period preceding such request.
(c) PIGGYBACK REGISTRATION. (1) If, at any time within the
period commencing on the first anniversary and expiring on the sixth
anniversary of the Effective Date, the Company should file a registration
statement with the Commission under the Act (other than in connection with
a merger or other business combination transaction or pursuant to Form
S-8), it will give written notice at least twenty (20) calendar days prior
to the filing of each such registration statement to the Representative and
to all other Holders of the Representative's Warrant and/or the
Representative's Securities of its intention to do so. If a Representative
or other Holders of the Representative's Warrant and/or the
Representative's Securities notify the Company within fifteen (15) calendar
days after receipt of any such notice of its or their desire to include any
Representative's Securities in such proposed registration statement, the
Company shall afford the Representative and such Holders of the
Representative's Warrant and/or Representative's Securities the opportunity
to have any such Representative's Securities registered under such
registration statement. Notwithstanding the provisions of this Section
7(c)(1) and the provisions of Section 7(d), the Company shall have the
right at any time after it shall have given written notice pursuant to this
Section 7(c)(1) (irrespective of whether a written request for inclusion of
any such securities shall have been made) to elect not to file any such
proposed registration statement, or to withdraw the same after the filing
but prior to the effective date thereof.
(2) If the managing underwriter of an offering to which the
above piggyback rights apply, in good faith and for valid business reasons,
objects to such rights, such objection shall preclude such inclusion.
(d) COVENANTS OF THE COMPANY WITH RESPECT TO REGISTRATION. In
connection with any registrations under Sections 7(b) and 7(c) hereof, the
Company covenants and agrees as follows:
(1) The Company shall use its best efforts to file a
registration statement within thirty (30) calendar days of receipt of any
demand therefor pursuant to Section 7(b); provided, however, that the
Company shall not be required to produce audited or unaudited financial
statements for any period prior to the date such financial statements are
required to be filed in a report on Form 10-K or Form 10-Q (or Form 10-KSB
or Form 10-QSB), as the case may be. The Company shall use its best
efforts to have any registration statement declared effective at the
earliest possible time, and shall furnish each Holder desiring to sell
Representative's Securities such number of prospectuses as shall reasonably
be requested.
(2) The Company shall maintain the effectiveness of the
registration statement for a period of time equal to the lesser of 9 months
or until such time as all of the Warrant Shares have been sold pursuant to
the registration statement.
(3) The Company shall pay all costs (excluding fees and
expenses of Holders' counsel and any underwriting discounts or selling
fees, expenses or commissions), fees and
5
<PAGE>
expenses in connection with any registration statement filed pursuant to
Sections 7(b) and 7(c) hereof including, without limitation, the Company's
legal and accounting fees, printing expenses, blue sky fees and expenses.
(4) The Company will use its best efforts to qualify or
register the Representative's Securities included in a registration
statement for offering and sale under the securities or blue sky laws of
such states as reasonably are requested by the Holders, provided that the
Company shall not be obligated to execute or file any general consent to
service of process or to qualify as a foreign corporation to do business
under the laws of any such jurisdiction.
(5) The Company shall indemnify the Holders of the
Representative's Securities to be sold pursuant to any registration
statement and each person, if any, who controls such Holders within the
meaning of Section 15 of the Act or Section 20(a) of the Securities
Exchange Act of 1934 (the "Exchange Act"), against all loss, claim, damage,
expense or liability (including all expenses reasonably incurred in
investigating, preparing or defending against any claim whatsoever) to
which any of them may become subject under the Act, the Exchange Act or
otherwise, arising from such registration statement, but only to the same
extent and with the same effect as the provisions pursuant to which the
Company has agreed to indemnify the Representative contained in Section 8
of the Underwriting Agreement.
(6) The Holders of the Representative's Securities to be
sold pursuant to a registration statement, and their successors and
assigns, shall indemnify the Company, its officers and directors and each
person, if any, who controls the Company within the meaning of Section 15
of the Act or Section 20(a) of the Exchange Act, against all loss, claim,
damage or expense or liability to which they may become subject under the
Act, the Exchange Act or otherwise, arising from information furnished by
or on behalf of such Holders, or their successors or assigns, for specific
inclusion in such registration statement to the same extent and with the
same effect as the provisions contained in Section 8 of the Underwriting
Agreement pursuant to which the Representative has agreed to indemnify the
Company.
(7) Nothing contained in this Agreement shall be construed
as requiring the Holders to exercise their Representative's Warrant prior
to the initial filing of any registration statement or the effectiveness
thereof, provided that such Holders have made arrangements reasonably
satisfactory to the Company to pay the exercise price from the proceeds of
such offering.
(8) The Company shall furnish to each Representative for
the offering, if any, such documents as such Representative may reasonably
require.
(9) The Company shall as soon as practicable after the
effective date of the registration statement, and in any event within 15
months thereafter, make "generally available to its security holders"
(within the meaning of Rule 158 under the Act) an earnings statement (which
need not be audited) complying with Section 11(a) of the Act and covering
a period of at least 12 consecutive months beginning after the effective
date of the registration statement.
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<PAGE>
(10) The Company shall deliver promptly to each Holder
participating in the offering requesting the correspondence described below
and any managing Representative copies of all correspondence between the
Commission and the Company, its counsel or auditors with respect to the
registration statement and permit each Holder and Representative to do such
investigation, upon reasonable advance notice, with respect to information
contained in or omitted from the registration statement as it deems
reasonably necessary to comply with applicable securities laws or rules of
the National Association of Securities Dealers, Inc. ("NASD"). Such
investigation shall include access to books, records and properties and
opportunities to discuss the business of the Company with its officers and
independent auditors, all to such reasonable extent and at such reasonable
times and as often as any such Holder shall reasonably request.
(11) The Company shall enter into an underwriting agreement
with the managing underwriter selected for such underwriting by Holders
holding a Majority of the Representative's Securities requested to be
included in such underwriting, provided, however that such managing
underwriter shall be reasonably acceptable to the Company, except that in
connection with an offering for which the Holders have piggyback rights,
the Company shall have the sole right to select the managing underwriter or
underwriters. Such underwriting agreement shall be satisfactory in form
and substance to the Company, a Majority of such Holders (in respect of a
registration under Section 7(b) only) and such managing underwriter, and
shall contain such representations, warranties and covenants by the Company
and such other terms as are customarily contained in agreements of that
type. The Holders shall be parties to any underwriting agreement relating
to an underwritten sale of their Representative's Securities. Such Holders
shall not be required to make any representations or warranties to or
agreements with the Company or the underwriters except as they may relate
to such Holders and their intended methods of distribution.
8. ADJUSTMENTS TO PURCHASE PRICE AND NUMBER OF SECURITIES.
(a) COMPUTATION OF ADJUSTED PURCHASE PRICE. Except as
hereinafter provided, in case the Company shall at any time after the date
hereof issue or sell any shares of Common Stock (other than the issuances
referred to in Section 8(g) hereof), including shares held in the Company's
treasury, for a consideration per share less than the "Market Price" (as
defined in Section 8(a)(6) hereof) per share of Common Stock on the date
immediately prior to the issuance or sale of such shares, or without
consideration, then forthwith upon any such issuance or sale, the Purchase
Price of the Common Stock shall (until another such issuance or sale) be
reduced to the price (calculated to the nearest full cent) determined by
dividing (1) the product of (a) the Purchase Price in effect immediately
before such issuance or sale and (b) the sum of (i) the total number of
shares of Common Stock outstanding immediately prior to such issuance or
sale, and (ii) the number of shares determined by dividing (A) the
aggregate consideration, if any, received by the Company upon such sale or
issuance, by (B) the Market Price, and by (2) the total number of shares of
Common Stock outstanding immediately after such issuance or sale provided,
however, that in no event shall the Purchase Price be adjusted pursuant to
this computation to an amount in excess of the Purchase Price in effect
immediately prior to such computation, except in the case of a combination
of outstanding shares of Common Stock, as provided by Section 8(c) hereof.
7
<PAGE>
For the purposes of this Section 8, the term "Purchase Price"
shall mean the Purchase Price of the Common Stock forming a part of the
Representative's Securities set forth in Section 6 hereof, as adjusted from
time to time pursuant to the provisions of this Section 8.
For the purposes of any computation to be made in accordance with
this Section 8(a), the following provisions shall be applicable:
(1) In case of the issuance or sale of shares of Common
Stock (or of other securities deemed hereunder to involve the issuance or
sale of shares of Common Stock) for a consideration part or all of which
shall be cash, the amount of the cash consideration therefor shall be
deemed to be the amount of cash received by the Company for such shares
(or, if shares of Common Stock are offered by the Company for subscription,
the subscription price, or, if such securities shall be sold to
Representatives or dealers for public offering without a subscription
offering, the initial public offering price) before deducting therefrom any
compensation paid or discount allowed in the sale, underwriting or purchase
thereof by Representatives or dealers or others performing similar
services, or any expenses incurred in connection therewith.
(2) In case of the issuance or sale (otherwise than as a
dividend or other distribution on any stock of the Company, and otherwise
than on the exercise of options, rights or warrants or the conversion or
exchange of convertible or exchangeable securities) of shares of Common
Stock (or of other securities deemed hereunder to involve the issuance or
sale of shares of Common Stock) for a consideration part or all of which
shall be other than cash, the amount of the consideration therefor other
than cash shall be deemed to be the value of such consideration as
determined in good faith by the Board of Directors of the Company.
(3) Shares of Common Stock issuable by way of dividend or
other distribution on any stock of the Company shall be deemed to have been
issued immediately after the opening of business on the day following the
record date for the determination of stockholders entitled to receive such
dividend or other distribution and shall be deemed to have been issued
without consideration.
(4) The reclassification of securities of the Company other
than shares of Common Stock into securities including shares of Common
Stock shall be deemed to involve the issuance of such shares of Common
Stock for a consideration other than cash immediately prior to the close of
business on the date fixed for the determination of security holders
entitled to receive such shares, and the value of the consideration
allocable to such shares of Common Stock shall be determined as provided in
Section 8(a)(2).
(5) The number of shares of Common Stock at any one time
outstanding shall include the aggregate number of shares of Common Stock
issued or issuable (subject to readjustment upon the actual issuance
thereof) upon the exercise of options, rights or warrants and upon the
conversion or exchange of convertible or exchangeable securities.
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(6) As used herein in the phrase "Market Price" at any date
shall be deemed to be the last reported sale price, or, in the case no such
reported sale takes place on such day, the average of the last reported
sales prices for the last three (3) trading days, in either case as
officially reported by the principal securities exchange on which the
Common Stock is listed or admitted to trading, or, if the Common Stock is
not listed or admitted to trading on any national securities exchange, the
average closing bid price as furnished by the NASD through the NASD
Automated Quotation System ("NASDAQ") or similar organization if NASDAQ is
no longer reporting such information, or if the Common Stock is not quoted
on NASDAQ, as determined in good faith by resolution of the Board of
Directors of the Company, based on the best information available to it.
(b) OPTIONS, RIGHTS, WARRANT AND CONVERTIBLE AND EXCHANGEABLE
SECURITIES. Except in the case of the Company issuing rights to subscribe
for shares of Common Stock distributed to all the stockholders of the
Company and Holders of Representative's Warrant pursuant to Section 8(i)
hereof, if the Company shall at any time after the date hereof issue
options, rights or warrants to purchase shares of Common Stock, or issue
any securities convertible into or exchangeable for shares of Common Stock
(other than the issuances referred to in Section 8(g) hereof), (i) for a
consideration per share less than the Market Price (including the issuance
thereof without consideration such as by way of dividend or other
distribution), or (ii) without consideration, the Purchase Price in effect
immediately prior to the issuance of such options, rights or warrants, or
such convertible or exchangeable securities, as the case may be, shall be
reduced to a price determined by making a computation in accordance with
the provisions of Section 8(a) hereof, provided that:
(1) The aggregate maximum number of shares of Common Stock
issuable or that may become issuable under such options, rights or warrants
(assuming exercise in full even if not then currently exercisable or
currently exercisable in full) shall be deemed to be issued and outstanding
at the time such options, rights or warrants were issued, and for a
consideration equal to the minimum purchase price per share provided for in
such options, rights or warrants at the time of issuance, plus the
consideration (determined in the same manner as consideration received on
the issue or sale of shares in accordance with the terms of the
Representative's Warrant), if any, received by the Company for such
options, rights or warrants; provided, however, that upon the expiration or
other termination of such options, rights or warrants, if any thereof shall
not have been exercised, the number of shares of Common Stock deemed to be
issued and outstanding pursuant to this Section 8(b)(1) (and for the
purposes of Section 8(a)(5) hereof) shall be reduced by such number of
shares as to which options, warrants and/or rights shall have expired or
terminated unexercised, and such number of shares shall no longer be deemed
to be issued and outstanding, and the Purchase Price then in effect shall
forthwith be readjusted and thereafter be the price which it would have
been had adjustment been made on the basis of the issuance only of shares
actually issued or issuable upon the exercise of those options, rights or
warrants as to which the exercise rights shall not be expired or terminated
unexercised.
(2) The aggregate maximum number of shares of Common Stock
issuable upon conversion or exchange of any convertible or exchangeable
securities (assuming conversion or exchange in full even if not then
currently convertible or exchangeable in full) shall be deemed to be issued
and outstanding at the time of issuance of such securities, and for a
consideration equal to the
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consideration (determined in the same manner as consideration received on
the issue or sale of shares of Common Stock in accordance with the terms of
the Representative's Warrant) received by the Company for such securities,
plus the minimum consideration, if any, receivable by the Company upon the
conversion or exchange thereof; provided, however, that upon the expiration
or other termination of the right to convert or exchange such convertible
or exchangeable securities (whether by reason or redemption or otherwise),
the number of shares deemed to be issued and outstanding pursuant to this
Section 8(b)(2) (and for the purpose of Section 8(a)(5) hereof) shall be
reduced by such number of shares as to which the conversion or exchange
rights shall have expired or terminated unexercised, and such number of
shares shall no longer be deemed to be issued and outstanding and the
Purchase Price then in effect shall forthwith be readjusted and thereafter
be the price which it would have been had adjustment been made on the basis
of the issuance only of the shares actually issued or issuable upon the
conversion or exchange of those convertible or exchangeable securities as
to which the conversion or exchange rights shall not have expired or
terminated unexercised.
(3) If any change shall occur in the price per share
provided for in any of the options, rights or warrants referred to in
Section 8(b)(1), or in the price per share at which the securities referred
to in Section 8(b)(2) are convertible or exchangeable, and if a change in
the Purchase Price has not occurred by reason of the event giving rise to
the change in the price per share of such other options, rights, warrants,
or convertible or exchangeable securities, such options, rights or warrants
or conversion or exchange rights, as the case may be, to the extent not
theretofore exercised, the shall be deemed to have expired or terminated
on the date when such price change became effective in respect of shares
not theretofore issued pursuant to the exercise or conversion or exchange
thereof, and the Company shall be deemed to have issued upon such date new
options, rights or warrants or convertible or exchangeable securities at
the new price in respect of the number of shares issuable upon the exercise
of such options, rights or warrants or the conversion or exchange of such
convertible or exchangeable securities.
(c) SUBDIVISION AND COMBINATION. In case the Company shall at
any time issue any shares of Common Stock in connection with a stock
dividend in shares of Common Stock or subdivide or combine the outstanding
shares of Common Stock, the Purchase Price shall forthwith be
proportionately decreased in the case of a stock dividend or a subdivision
or increased in the case of combination.
(d) ADJUSTMENT IN NUMBER OF SECURITIES. Upon each adjustment of
the Purchase Price pursuant to the provisions of this Section 8, the number
of Representative's Securities issuable upon the exercise of the
Representative's Warrant shall be adjusted to the nearest whole share by
multiplying a number equal to the Purchase Price in effect immediately
prior to such adjustment by the number of Representative's Securities
issuable upon exercise of the Representative's Warrant immediately prior to
such adjustment and dividing the product so obtained by the adjusted
Purchase Price.
(e) DEFINITION OF COMMON STOCK. For the purpose of this
Agreement, the term "Common Stock" shall mean the class of stock designated
as Common Stock in the Certificate of Incorporation, of the Company as it
may be amended as of the date hereof.
10
<PAGE>
(f) RECLASSIFICATION, MERGER OR CONSOLIDATION. The Company will
not merge, reorganize or take any other action which would terminate the
Representative's Warrant without first making adequate provision for the
Representative's Warrant. In case of any reclassification or change of the
outstanding shares of Common Stock issuable upon exercise of the
outstanding warrants (other than a change in par value to no par value, or
from nor par value to par value, or as a result of a subdivision or
combination), or in case of any consolidation of the Company with, or
merger of the Company with, or merger of the Company into, another
corporation (other than a consolidation or merger in which the Company is
the continuing corporation and which does not result in any
reclassification or change of the outstanding Common Stock except a change
as a result of a subdivision or combination of such shares or a change in
par value, as aforesaid), or in the case of a sale or conveyance to another
corporation or other entity of the property of the Company as an entirety
or substantially as an entirety, the Holders of each Representative's
Warrant then outstanding or to be outstanding shall have the right
thereafter (until the expiration of such Representative's Warrant) to
purchase, upon exercise of such Representative's Warrant, the kind and
number of shares of stock and other securities and property receivable upon
such reclassification, change, consolidation, merger, sale or conveyance as
if the Holders were the owner of the shares of Common Stock underlying the
Representative's Warrant immediately prior to any such events at a price
equal to the product of (x) the number of shares issuable upon exercise of
the Representative's Warrant and (y) the Purchase Price in effect
immediately prior to the record date for such reclassification, change,
consolidation, merger, sale or conveyance, as if such Holders had exercised
the Representative's Warrant. In the event of a consolidation, merger,
sale or conveyance of property, the corporation formed by such
consolidation or merger, or acquiring such property, shall execute and
deliver to the Holders a supplemental Representative's warrant agreement to
such effect. Such supplemental Representative's warrant agreement shall
provide for adjustments which shall be identical to the adjustment provided
for in this Section 8. The provisions of this Section 8(f) shall similarly
apply to successive consolidations or mergers.
(g) NO ADJUSTMENT OF PURCHASE PRICE IN CERTAIN CASES. No
adjustment of the Purchase Price shall be made:
(1) Upon the issuance or sale of (i) the Representative's
Warrant or the securities underlying the Representative's Warrant, (ii) the
securities sold pursuant to the Public Offering (including those sold upon
exercise of the Representative's over-allotment option), or (iii) the
shares issuable pursuant to the options, warrants, rights, stock purchase
agreements or convertible or exchangeable securities outstanding or in
effect on the date hereof as described in the prospectus relating to the
Public Offering.
(2) If the amount of said adjustments shall aggregate less
than two ($.02) cents for one (1) share of Common Stock; provided, however,
that in such case any adjustment that would otherwise be required then to
be made shall be carried forward and shall be made at the time of and
together with the next subsequent adjustment which, together with any
adjustment so carried forward, shall aggregate at least two ($.02) cents
for one (1) share of Common Stock. In addition, Registered Holders shall
not be entitled to cash dividends paid by the Company prior to the exercise
of any warrant or warrants held by them.
11
<PAGE>
9. EXCHANGE AND REPLACEMENT OF WARRANT CERTIFICATES. Each
Representative's Warrant Certificate is exchangeable without expense, upon
the surrender thereof by the registered Holders at the principal executive
office of the Company, for a new Representative's Warrant Certificate of
like tenor and date representing in the aggregate the right to purchase the
same number of Representative's Securities in such denominations as shall
be designated by the Holders thereof at the time of such surrender.
10. LOSS, THEFT, ETC. OF CERTIFICATES Upon receipt by the Company of
evidence reasonably satisfactory to it of the loss, theft, destruction or
mutilation of any Representative's Warrant Certificate, and, in case of
loss, theft or destruction, of indemnity or security reasonably
satisfactory to it, and reimbursement to the Company of all reasonable
expenses incidental thereto, and upon surrender and cancellation of the
Representative's Warrant Certificates, if mutilated, the Company will make
and deliver a new Representative's Warrant Certificate of like tenor, in
lieu thereof.
11. ELIMINATION OF FRACTIONAL INTERESTS. The Company shall not be
required to issue certificates representing fractions of shares of Common
Stock upon the exercise of the Representative's Warrant, nor shall it be
required to issue scrip or pay cash in lieu of fractional interests;
provided, however, that if a Holder exercises all Representative's Warrant
held of record by such Holder the fractional interests shall be eliminated
by rounding any fraction to the nearest whole number of shares of Common
Stock or other securities, properties or rights.
12. RESERVATION AND LISTING OF SECURITIES. The Company shall at all
times reserve and keep available out of its authorized shares of Common
Stock, solely for the purpose of issuance upon the exercise of the
Representative's Warrant, such number of shares of Common Stock or other
securities and properties or rights as shall be issuable upon the exercise
thereof. The Company covenants and agrees that, upon exercise of
Representative's Warrant and payment of the Purchase Price therefor, all
the shares of Common Stock issuable upon such exercise shall be duly and
validly issued, fully paid, non-assessable and not subject to the
preemptive rights of any stockholder. As long as the Representative's
Warrant shall be outstanding, the Company shall use its best efforts to
cause the Common Stock to be listed (subject to official notice of
issuance) on all securities exchanges on which the Common Stock issued to
the public in connection herewith may then be listed or quoted.
13. NOTICES TO REPRESENTATIVE'S WARRANT HOLDERS. Nothing contained in
this Agreement shall be construed as conferring upon the Holders the right
to vote or to consent or to receive notice as a stockholder in respect of
any meetings of stockholders for the election of directors or any other
matter, or as having any rights whatsoever as a stockholder of the Company.
If, however, at any time prior to the expiration of the Representative's
Warrant and their exercise, any of the following events shall occur:
(a) the Company shall take a record of the holders of its shares
of Common Stock for the purpose of entitling them to receive a dividend or
distribution payable otherwise than in cash, or a cash dividend or
distribution payable otherwise than out of current or retained earnings, as
indicated by the accounting treatment of such dividend or distribution on
the books of the Company; or
12
<PAGE>
(b) the Company shall offer to all the holders of its Common
Stock any additional shares of capital stock of the Company or securities
convertible into or exchangeable for shares of capital stock of the
Company, or any option, right or warrant to subscribe therefor; or
(c) a dissolution, liquidation or winding up of the Company
(other than in connection with a consolidation or merger) or a sale of all
or substantially all of its property, assets and business as an entirety
shall be proposed; then, in any one or more of said events, the Company
shall give written notice of such event at least fifteen (15) calendar days
prior to the date fixed as a record date or the date of closing the
transfer books for the determination of the stockholders entitled to such
dividend, distribution, convertible or exchangeable securities or
subscription rights, or entitled to vote on such proposed dissolution,
liquidation, winding up or sale. Such notice shall specify such record date
or the date of closing the transfer books, as the case may be. Failure to
give such notice or any defect therein shall not affect the validity of any
action taken in connection with the declaration or payment of any such
dividend, or the issuance of any convertible or exchangeable securities, or
subscription rights, options or warrants, or any proposed dissolution,
liquidation, winding up or sale.
14. NOTICES. All notices, requests, consents and other
communications hereunder shall be in writing and shall be deemed to have
been duly made when delivered, or five days after being mailed by
registered or certified mail, return receipt requested:
(a) If to the registered Holders of the Representative's
Warrant, to the address of such Holders as shown on the books of the
Company; or
(b) If to the Company to the address shown in the Underwriting
Agreement or to such other address as the Company may designate by notice
to the Holders.
15. SUPPLEMENTS AND AMENDMENTS. The Company and the Representative
may from time to time supplement or amend this Agreement without the
approval of any Holders of Representative's Warrant Certificates (other
than the Representative) in order to cure any ambiguity, to correct or
supplement any provision contained herein which may be defective or
inconsistent with any provisions herein, or to make any other provision in
regard to matters or questions arising hereunder which the Company and the
Representative may deem necessary or desirable and which the Company and
the Representative deem shall not adversely affect the interests of the
Holders of Representative's Warrant Certificates.
16. SUCCESSORS. All the covenants and provisions of this Agreement
shall be binding upon and inure to the benefit of the Company, the
Representative, the Holders and their respective successors and assigns
hereunder.
17. TERMINATION. This Agreement shall terminate at the close of
business on _____________, 2005. Notwithstanding the foregoing, the
indemnification provisions of Section 7 shall survive such termination
until the close of business on the expiration of any applicable statue of
limitations.
13
<PAGE>
18. GOVERNING LAW; SUBMISSION TO JURISDICTION. This Agreement and
each Representative's Warrant Certificate issued hereunder shall be deemed
to be a contract made under the laws of the State of Colorado and for all
purposes shall be construed in accordance with the laws of said state
without giving effect to the rules of said state governing the conflicts of
laws.
19. ENTIRE AGREEMENT; MODIFICATION. This Agreement (including the
Underwriting Agreement, to the extent portions thereof are referred to
herein) contains the entire understanding between the parties hereto with
respect to the subject matter hereof and thereof. This Agreement may not
be modified or amended except by a writing duly signed by the Company and
the Holders of a Majority in Interest of the Representative's Securities
(for this purpose, treating all then outstanding Representative's Warrants
as if they had been exercised).
20. SEVERABILITY. If any provision of this Agreement shall be held
to be invalid or unenforceable, such invalidity or unenforceability shall
not affect any other provision of this Agreement.
21. CAPTIONS. The caption headings of the Sections of this Agreement
are for convenience of reference only and are not intended, nor should they
be construed as, a part of this Agreement and shall be given no substantive
effect.
22. BENEFITS OF THIS AGREEMENT. Nothing in this Agreement shall be
construed to give to any person or corporation other than the Company and
the Representative and any other registered Holders of the Representative's
Warrant Certificates or Representative's Securities any legal or equitable
right, remedy or claim under this Agreement; and this Agreement shall be
for the sole and exclusive benefit of the Company and the Representative
and any other Holders of the Representative's Warrant Certificates or
Representative's Securities.
23. COUNTERPARTS. This Agreement may be executed in any number of
counterparts and each of such counterparts shall for all purposes be deemed
to be an original, and such counterparts shall together constitute but one
and the same instrument.
24. BINDING EFFECT. This Agreement shall be binding upon and inure
to the benefit of the Company, the Representative and their respective
successors and assigns and the Holders from time to time of the
Representative's Warrant Certificates or any of them.
14
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be duly executed, as of the day and year first above written.
ENTROPIN, INC.
By:__________________________________________
Chief Executive Officer
NEIDIGER TUCKER BRUNNER, INC., for itself
and as Representative of the Several
Underwriters listed On Schedule A
By:__________________________________________
Chief Executive Officer
15
<PAGE>
Schedule A
to
Representative's Warrant Agreement
Between
Entropin, Inc.
and
Neidiger Tucker Brunner, Inc.
Representative
Neidiger Tucker Brunner, Inc.
Underwriters:
16
<PAGE>
ENTROPIN, INC.
--------------
WARRANT CERTIFICATE
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933 (THE "ACT"), AND MAY NOT BE OFFERED FOR
SALE OR SOLD EXCEPT PURSUANT TO (i) AN EFFECTIVE REGISTRATION STATEMENT
UNDER THE ACT, OR (ii) AN OPINION OF COUNSEL, IF SUCH OPINION AND COUNSEL
SHALL BE REASONABLY SATISFACTORY TO COUNSEL TO THE ISSUER, THAT AN
EXEMPTION FROM REGISTRATION UNDER THE ACT IS AVAILABLE.
THE TRANSFER OR EXCHANGE OF THE WARRANTS REPRESENTED BY THIS CERTIFICATE IS
RESTRICTED IN ACCORDANCE WITH THE WARRANT AGREEMENT REFERRED TO HEREIN.
EXERCISABLE COMMENCING _________, 2000 THROUGH
5:00 P.M., NEW YORK TIME ON ___________, 2005
Warrant covering 110,000 shares of
Common Stock
No. UW-1
This Warrant Certificate certifies that Neidiger Tucker Brunner,
Inc. or registered assigns, is the registered holder of this Warrant to
purchase initially, at any time from ___________, 2000, until 5:00 p.m.,
New York time on __________, 2005 (the "Expiration Date"), up to 110,000
shares of Common Stock, $[___] par value (the "Common Stock") of Entropin,
Inc. ("Company") exercisable to purchase one share of Common Stock at a
purchase price of $_____ per share (the "Purchase Price"), upon the
surrender of this Warrant Certificate and payment of the applicable
Purchase Price at an office or agency of the Company, but subject to the
conditions set forth herein and in the Representative's Warrant Agreement,
dated as of _______, 1999, by and between the Company and Neidiger Tucker
Brunner, Inc. (the "Warrant Agreement"). Payment of the Purchase Price
shall be made by certified or cashier's check or money order payable to the
order of the Company.
No Warrant may be exercised after 5:00 p.m., New York time, on
the Expiration Date, at which time all Warrant evidenced hereby, unless
exercised prior thereto, shall thereafter be void.
The Warrant evidenced by this Warrant Certificate is part of a
duly authorized issue of Warrants issued pursuant to the Warrant Agreement
between the Company and the Representative, which Warrant Agreement is
hereby incorporated by reference in and made a part of this instrument
17
<PAGE>
and is hereby referred to for a description of the rights, limitation of
rights, obligations, duties and immunities thereunder of the Company and
the holders (the words "holders" or "holder" meaning the registered holders
or registered holder) of the Warrant.
The Warrant Agreement provides that upon the occurrence of
certain events the Purchase Price and the type and/or number of the
Company's securities issuable upon the exercise of this Warrant, may,
subject to certain conditions, be adjusted. In such event, the Company
will, at the request of the holder, issue a new Warrant Certificate
evidencing the adjustment in the Purchase Price and the number and/or type
of securities issuable upon the exercise of the Warrant; provided, however,
that the failure of the Company to issue such new Warrant Certificates
shall not in any way change, alter, or otherwise impair, the rights of the
holder as set forth in the Warrant Agreement.
Upon due presentment for registration of transfer of this Warrant
Certificate at an office or agency of the Company, a new Warrant
Certificate or Warrant Certificates of like tenor and evidencing in the
aggregate a like number of Warrant shall be issued to the transferee(s) in
exchange as provided herein, without any charge except for any tax or other
governmental charge imposed in connection with such transfer.
Upon the exercise of less than all of the Warrants evidenced by
this Certificate, the Company shall forthwith issue to the holder hereof a
new Warrant Certificate representing such number of unexercised Warrants.
The Company may deem and treat the registered holder(s) hereof as
the absolute owner(s) of this Warrant Certificate (notwithstanding any
notation of ownership or other writing hereon made by anyone), for the
purpose of any exercise hereof, and of any distribution to the holder(s)
hereof, and for all other purposes, and the Company shall not be affected
by any notice to the contrary.
All terms used in this Warrant Certificate which are defined in
the Warrant Agreement shall have the meanings assigned to them in the
Warrant Agreement.
IN WITNESS WHEREOF, the undersigned has executed this certificate
this ____day of ________________, 1999.
ENTROPIN, INC.
By:______________________________________
Chief Executive Officer
ATTEST:
By:__________________________________
Secretary
18
<PAGE>
FORM OF ASSIGNMENT
(To be executed by the registered holder if such holder
desires to transfer the Warrant Certificate.)
FOR VALUE RECEIVED___________________________
hereby sells, assigns and transfers unto _____________________
(Please print name and address of transferee)
this Warrant Certificate, together with all right, title and interest
therein, and does hereby irrevocably constitute and appoint
_____________________ Attorney, to transfer the within Warrant Certificate
on the books of Entropin, Inc., with full power of substitution.
Dated:_____________________
Signature_____________________
(Signature must conform in all respects to
the name of holder as specified on the face of the Warrant Certificate.)
[Signature guarantee] ________________________________
(Insert Social Security or Other
Identifying Number of Holders)
19
<PAGE>
FORM OF ELECTION TO PURCHASE
The undersigned hereby irrevocably elects to exercise the right,
represented by this Warrant Certificate, to purchase ______ shares of
Common Stock Warrant and herewith tenders in payment for such securities a
certified or cashier's check or money order payable to the order of
Entropin, Inc in the amount of $______, all in accordance with the terms
hereof. The undersigned requests that certificates for such securities be
registered in the name of ___________________________ whose address is
_____________________ and that such certificates be delivered to
______________________________ whose address is ____________________
________________________________________.
Dated:__________________________________
Signature_______________________
(Signature must conform in all respects to the name of holder as specified
on the face of the Warrant Certificate.)
___________________________
(Insert Social Security or Other
Identifying Number of Holders)
[Signature guarantee]
20
EXHIBIT 24.2
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We consent to the use in the Registration Statement of Entropin, Inc. on
Form SB-2 of our report dated February 4, 2000, relating to the balance
sheet of Entropin, Inc. as of December 31, 1998 and 1999 and the related
statements of operations, stockholders' equity and cash flows for the years
then ended and for the period from August 27, 1984 (inception) through
December 31, 1999. We also consent to the reference to us under the heading
"Experts" in such Prospectus.
Denver, Colorado CAUSEY DEMGEN & MOORE INC.
March 7, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
AUDITED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1999
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 2,260,526
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 2,260,526
<PP&E> 85,292
<DEPRECIATION> (23,429)
<TOTAL-ASSETS> 2,825,225
<CURRENT-LIABILITIES> 322,805
<BONDS> 0
4,303,662
0
<COMMON> 7,382
<OTHER-SE> (1,992,695)
<TOTAL-LIABILITY-AND-EQUITY> 2,825,225
<SALES> 0
<TOTAL-REVENUES> 64,888
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 5,002,488
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,662
<INCOME-PRETAX> (4,939,262)
<INCOME-TAX> 0
<INCOME-CONTINUING> (4,939,262)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,939,262)
<EPS-BASIC> (0.75)
<EPS-DILUTED> (0.75)
</TABLE>
