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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------------
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended March 31, 1997
Commission File Number 1-12584
----------------------------
SHEFFIELD MEDICAL TECHNOLOGIES INC.
(Exact Name Of Registrant In Its Charter)
DELAWARE 13-3808303
(State of Incorporation) (IRS Employer Identification No.)
30 ROCKEFELLER PLAZA, SUITE 4515
NEW YORK, NEW YORK 10112
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (212) 957-6600
Indicate by check whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes /X/ No / /
The number of shares outstanding of the issuer's Common Stock is
11,388,274 shares of Common Stock as of March 31, 1997.
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<PAGE>
SHEFFIELD MEDICAL TECHNOLOGIES INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
INDEX
Page
PART I. Financial Information
ITEM 1. Financial Statements.
Consolidated Balance Sheets - 1
March 31, 1997 and December 31,
1996.
Consolidated Statements of 2
Operations for the three
months ended March 31, 1997
and 1996 and for the period
from October 17, 1986
(inception) to March 31, 1997.
Consolidated Statements of 3
Cash Flows for the three
months ended March 31, 1997
and 1996 and for the period
from October 17, 1986
(inception) to March 31, 1997.
Notes to Consolidated Financial 4
Statements.
ITEM 2. Management's Discussion and 6
Analysis of Financial Condition
and Results of Operations.
PART II. Other Information. 9
SIGNATURES 10
<PAGE>
SHEFFIELD MEDICAL TECHNOLOGIES INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996
------------ ------------
(Unaudited)
ASSETS
Current assets:
<S> <C> <C>
Cash and cash equivalents $ 3,027,503 $ 1,979,871
Marketable securities 219,585 460,768
Prepaid expenses and other current assets 28,969 43,975
------------ ------------
Total current assets 3,276,057 2,484,614
------------ ------------
Property and equipment:
Laboratory equipment 185,852 185,852
Office equipment 80,157 89,019
Leasehold improvements 61,390 61,390
------------ ------------
327,399 336,261
Less accumulated depreciation and amortization 170,921 162,007
------------ ------------
Net property and equipment 156,478 174,254
------------ ------------
Segregated cash 75,000 75,000
Other assets 39,417 40,016
------------ ------------
Total assets $ 3,546,952 $ 2,773,884
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities $ 332,565 $ 446,965
Sponsored research payable 1,172,310 580,157
Capital lease obligation-current portion 22,626 23,719
------------ ------------
Total current liabilities 1,527,501 1,050,841
Capital lease obligation - non-current portion 20,749 27,206
Cumulative convertible redeemable preferred stock, $.01 par value. Authorized,
3,000,000 shares; issued and outstanding, 35,700 and 0 shares, at
March 31, 1997 and December 31, 1996, respectively 357 --
Additional paid-in capital associated with cumulative convertible
redeemable preferred stock 3,211,779 --
Stockholders' equity:
Common stock, $.01 par value. Authorized, 30,000,000 shares; issued and outstanding,
11,388,274 shares at March 31, 1997 and December 31, 1996 113,883 113,883
Notes receivable in connection with sale of stock (110,000) (110,000)
Additional paid-in capital 28,319,838 28,319,838
Unrealized loss on marketable securities (280,415) (39,232)
Deficit accumulated during development stage (29,256,740) (26,588,652)
------------ ------------
(1,213,434) 1,695,837
------------ ------------
Total liabilities and stockholders' equity $ 3,546,952 $ 2,773,884
============ ============
</TABLE>
1
See accompanying notes to unaudited consolidated financial statements.
<PAGE>
SHEFFIELD MEDICAL TECHNOLOGIES INC. AND SUBSIDIARIES
(a development stage enterprise)
Consolidated Statements of Operations
For the three months ended March 31, 1997 and 1996 and for the period from
October 17, 1986 (inception) to March 31, 1997
(Unaudited)
<TABLE>
<CAPTION>
October 17, 1986
Three months ended (inception) to
March 31, March 31,
--------------------------------- ------------
1997 1996 1997
---- ---- ----
Revenues:
<S> <C> <C> <C>
Sub-license revenue $ -- $ -- $ 510,000
Interest income 18,225 16,515 415,138
------------ ----------- ------------
Total revenue 18,225 16,515 925,138
Expenses:
Research and development 1,938,037 1,239,791 17,461,234
General and administrative 745,597 430,548 12,640,289
Interest 2,679 1,829 123,142
------------ ----------- ------------
Total expenses 2,686,313 1,672,168 30,224,665
------------ ----------- ------------
Loss before extraordinary item (2,668,088) (1,655,653) (29,299,527)
Extraordinary item -- -- 42,787
------------ ----------- ------------
Net loss $ (2,668,088) $(1,655,653) $(29,256,740)
============ =========== ============
Loss per share of common stock:
Loss before extraordinary item $ (0.23) $ (0.17) $ (6.62)
Extraordinary item -- -- 0.01
------------ ----------- ------------
Net loss $ (0.23) $ (0.17) $ (6.61)
============ =========== ============
Weighted average common shares outstanding 11,388,274 9,656,540 4,426,210
============ =========== ============
</TABLE>
2
See accompanying notes to unaudited consolidated financial statements.
<PAGE>
SHEFFIELD MEDICAL TECHNOLOGIES INC. AND SUBSIDIARIES
(a development stage enterprise)
Consolidated Statements of Cash Flows
For the three months ended March 31, 1997 and 1996 and for the period from
October 17, 1986 (inception) to March 31, 1996
(Unaudited)
<TABLE>
<CAPTION>
October 17, 1986
Three months ended (inception) to
March 31, March 31,
----------------------------- -----------
1997 1996 1997
---------- ---------- -----------
<S> <C> <C> <C>
Cash outflows from development stage activities and
extraordinary gain:
Loss before extraordinary item $(2,668,088) $(1,655,653) $(29,299,527)
Extraordinary gain on extinguishment of debt -- -- 42,787
---------- ---------- -----------
Net loss (2,668,088) (1,655,653) (29,256,740)
Adjustments to reconcile net loss to net cash used by
development stage activities:
Issuance of common stock, stock options/warrants for services -- -- 1,541,003
Non-cash interest expense -- -- 50,000
Issuance of common stock for license -- -- 5,216
Securities acquired under sub-license agreement -- -- (500,000)
Issuance of common stock for intellectual property rights -- -- 866,250
Amortization of organizational and debt issuance costs -- -- 77,834
Depreciation 12,659 18,537 154,203
Amortization 5,116 -- 25,579
Increase in debt issuance and organizational costs -- -- (77,834)
Decrease (increase) in prepaid expenses and other current assets 15,006 91,684 (88,010)
Decrease (increase) in other assets 600 (116,720) 19,625
Decrease in accounts payable, accrued liabilities (114,400) (26,576) (244,505)
Increase in sponsored research payable 592,153 17,537 1,749,380
---------- ---------- -----------
Net cash used by development stage activities (2,156,954) (1,671,191) (25,677,999)
---------- ---------- -----------
Cash flows from investing activities:
Acquisition of laboratory and office equipment -- (44,314) (263,809)
Increase in segregated cash -- -- (75,000)
Increase in notes receivable in connection with sale of stock -- -- (240,000)
Payments of notes receivable -- -- 130,000
---------- ---------- -----------
Net cash used by investing activities -- (44,314) (448,809)
---------- ---------- -----------
Cash flows from financing activities:
Principal payments under capital lease (7,550) (5,491) (29,078)
Conversion of convertible, subordinated notes -- -- 749,976
Proceeds from issuance of debt -- -- 550,000
Proceeds from issuance of common stock -- -- 13,268,035
Proceeds from issuance of cumulative convertible redeemable
preferred stock 3,212,136 -- 3,212,136
Proceeds from exercise of stock options -- 137,175 1,337,677
Proceeds from exercise of warrants -- 1,766,003 10,064,481
---------- ---------- -----------
Net cash and cash equivalents provided by financing activities 3,204,586 1,897,687 29,153,227
---------- ---------- -----------
Net increase in cash and cash equivalents 1,047,632 182,182 3,026,419
Cash and cash equivalents at beginning of period 1,979,871 1,860,577 1,084
---------- ---------- -----------
Cash and cash equivalents at end of period $ 3,027,503 $ 2,042,759 $ 3,027,503
=========== =========== ============
Noncash investing and financing activities:
Common stock, stock options and warrants issued for services $ -- $ -- $ 1,541,003
Common stock issued for license -- -- 5,216
Common stock issued for intellectual property rights -- -- 866,250
Common stock issued to retire debt -- -- 600,000
Securities acquired under sub-license agreement -- -- 500,000
Unrealized depreciation of investments 241,183 -- 280,415
Equipment acquired under capital lease -- 72,453 72,453
Notes payable converted to common stock -- -- 749,976
=========== =========== ============
Supplemental disclosure of cash flow information:
Interest paid $ 2,679 $ 1,829 $ 123,142
=========== =========== ============
</TABLE>
3
See accompanying notes to unaudited consolidated financial statements.
<PAGE>
SHEFFIELD MEDICAL TECHNOLOGIES INC. AND SUBSIDIARIES
(a development stage enterprise)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1997
(UNAUDITED)
1. CONSOLIDATED FINANCIAL STATEMENTS
The accompanying consolidated balance sheets as of March 31, 1997
and December 31, 1996 and the accompanying consolidated statements
of operations and cash flows for the three months ended March 31,
1997 and 1996 and for the period from October 17, 1986 (inception)
to March 31, 1997, have been prepared by Sheffield Medical
Technologies Inc. (the "Company"), without audit. In the opinion of
management, all adjustments (consisting only of normal recurring
accruals) necessary to present fairly the financial position,
results of operations, and changes in cash flows at March 31, 1997
and for all periods presented have been made.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted. It is
suggested that these consolidated financial statements be read in
conjunction with the financial statements and notes thereto included
in the Company's annual report on Form 10-KSB for the year ended
December 31, 1996. The results of operations for the three months
ended March 31, 1997 and 1996 are not necessarily indicative of the
operating results for the full years.
The Company was incorporated on October 17, 1986, under the Canada
Business Corporations Act. The Company's wholly-owned subsidiary,
U-Tech Medical Corporation ("U-Tech") was incorporated in the state
of Texas on January 13, 1992 and is inactive at March 31, 1997. On
January 10, 1996, Ion Pharmaceuticals, Inc., a Delaware corporation
("Ion"), was formed as a wholly-owned subsidiary of the Company. At
that time, Ion acquired the Company's rights with respect to its
anti-proliferative technology. Unless the context requires
otherwise, Sheffield, U-Tech and Ion are referred to as "the
Company". The Company commenced its biotechnology operations in the
United States in January 1992 under new management and Sheffield
became domesticated as a Wyoming corporation in May 1992. At the
Annual Meeting of shareholders of the Company held on January 26,
1995, the Company's shareholders approved the proposal to
reincorporate the Company in Delaware, which was effected on June
13, 1995. All significant intercompany transactions are eliminated
in consolidation.
The Company is in the development stage and as such has been
principally engaged in licensing and research efforts. The Company
has generated minimal operating revenue and requires additional
capital, which the Company intends to obtain through equity and debt
offerings to continue to operate its business. The Company's ability
to meet its obligations as they become due and to continue as a
going concern must be considered in light of the expenses,
difficulties and delays frequently encountered in starting a new
business, particularly since the Company will focus on research,
development and unproven technology which may require a lengthy
period of time and substantial expenditures to complete. Even if the
Company is able to successfully develop new products or
technologies, there can be no assurance the Company will generate
sufficient revenues from the sale or licensing of such products and
technologies to be profitable. Management believes that the
Company's ability to meet its obligations as they become due and to
continue as a going concern through December 1997 are dependent upon
obtaining additional financing.
4
<PAGE>
SHEFFIELD MEDICAL TECHNOLOGIES INC. AND SUBSIDIARIES
(a development stage enterprise)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1997
(UNAUDITED)
2. NET LOSS PER COMMON SHARE
Net loss per common share is based on net loss for the relevant
period divided by the weighted average number of shares issued and
outstanding during the period. Stock options, common stock issuable
upon conversion of warrants and common stock issuable upon the
conversion of cumulative convertible redeemable preferred stock are
not reflected as their effect would be antidilutive for both primary
and fully diluted earnings per share computations.
In February 1997, the Financial Accounting Standards Board issued
Statement No. 128, EARNINGS PER SHARE, which is required to be
adopted on December 31, 1997. At that time, the Company will be
required to change the method currently used to compute earnings per
share and to restate all prior periods. The impact of Statement 128
on the calculation of primary and fully diluted earnings per share
is not expected to be material.
3. PRIVATE PLACEMENT
On February 28, 1997, the Company completed a private placement of
35,700 shares of its 7% Series A Cumulative Convertible Redeemable
Preferred Stock (the "Series A Preferred Stock"), which raised total
gross proceeds of $3.5 million. The proceeds of this offering are
being used to fund research and development, patent prosecution and
for working capital and general corporate purposes, including the
possible acquisition of rights in new technologies in the Company's
ordinary course of business.
Dividends on the Series A Preferred Stock are cumulative from the
date of original issue at an annual rate of 7% per share payable in
common stock on the date of each conversion at the then applicable
conversion rate. The Series A Preferred Stock is redeemable by the
holders under certain circumstances through February 28, 1999.
Holders of Series A Preferred Stock also have the right to convert
any or all shares of Series A Preferred Stock into shares of common
stock at a defined conversion rate ending on February 28, 1999. The
Series A Preferred Stock had a liquidation value of $3,570,000 at
March 31, 1997.
4. SUPPLY AND LICENSE AGREEMENTS
In March 1997, the Company exercised its option and entered into
exclusive supply and license agreements for the world-wide rights to
the multi-dose inhaler technology (MSI) of Siemens A.G. The
agreements call for Siemens to be the exclusive supplier of the MSI
system, a hand-held, portable pulmonary deliverysystem. The Company
paid a license fee of $1.1 million in April 1997 to Siemens pursuant
to its agreements and is required to make additional payments to
Siemens of DM 2.0 million on January 1, 1998 and 1999.
5. SUBSEQUENT EVENT
On April 25, 1997, the Company acquired Camelot Pharmacal, L.L.C.,
of St. Louis, Missouri, a privately held emerging pharmaceutical
company. The members of Camelot's management team have been
appointed officers of the Company and Loren G. Peterson, a principal
of Camelot, has been named Chief Executive Officer of the Company
and has joined the Company's Board of Directors. Consideration for
this transaction was 600,000 shares of Company common stock. In
addition, the members of the Camelot management team have been
granted options to acquire 1.2 million common shares exercisable at
market price as of the date of grant.
5
<PAGE>
SHEFFIELD MEDICAL TECHNOLOGIES INC. AND SUBSIDIARIES
(a development stage enterprise)
ITEM 2:
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The Company, being a development stage enterprise, has incurred a net loss in
each of the fiscal years since its inception and has had to rely on outside
sources of funds to maintain its liquidity. Substantial operating losses are
expected to be incurred for the next several years as the Company expends its
resources for product acquisition, sponsored research and development and
preclinical and clinical testing.
As a development stage company without significant revenues, the Company has
financed its technology development activities and operations primarily through
public and private offerings of securities, from which it has raised an
aggregate of approximately $28.4 million through March 31, 1997. On February 28,
1997, the company completed a private offering of 35,000 shares of its 7% Series
A Cumulative Convertible Redeemable Preferred Stock, which raised total gross
proceeds of $3.5 million. The proceeds of this offering are being used to fund
research and development, patent prosecution and for working capital and general
corporate purposes, including the possible acquisition of rights in new
technologies in the Company's ordinary course of business. Management estimates
that based on its successful history of raising capital, its plans to seek
additional funds through planned offerings and the continued focus on selling,
licensing and commercialization of its technologies, the Company will have
sufficient resources to fund its activities for at least the next twelve months.
There can be no assurance that planned securities offerings will be completed
or, if not completed as planned, that other sources of capital can be obtained
in amounts and upon terms acceptable to the Company during the twelve month
period. In the event that such funds are not available when needed, the Company
would be required to reduce or delay its funding of current research projects
and delay making commitments for future research projects. The Company's
operating results have fluctuated significantly during each quarter since its
reorganization, and the Company anticipates that such fluctuations, largely
attributable to varying sponsored research and development commitments and
expenditures, will continue into the foreseeable future.
The Company continues to conduct scientific research, clinical trials,
development, and intellectual property protection. During the three months ended
March 31, 1997, the Company funded $1.9 million for research and development on
its projects of which $1.1 million represents the license fee for entering into
exclusive supply and license agreements for the world-wide rights to Siemens'
multi-dose inhaler (MSI). During the succeeding 12-month period, approximately
$6.3 million in additional funding is projected to be incurred on clinical and
laboratory research and development. Of this estimated funding of $6.3 million,
approximately $150,000 is expected to be applied to the HIV/AIDS Vaccines,
$150,000 to the UGIF Technology-Prostate Cancer, $250,000 to the Membrane Attack
Complex (MAC)/Complement Technology, $950,000 to the Ion Pharmaceuticals
Technologies and $4,800,000 to the MSI.
In addition to clinical and laboratory research development, the Company expects
to incur ongoing costs in connection with its intellectual property protection
and patent prosecution, which costs are expected to approximate $100,000 over
the next 12 months.
6
<PAGE>
SHEFFIELD MEDICAL TECHNOLOGIES INC. AND SUBSIDIARIES
(a development stage enterprise)
REVENUES AND EXPENSES
Revenues:
From inception through the period ended March 31, 1997, the Company has earned
sub-license revenue of $510,000 primarily from the sub-license agreement for its
liposome-CD4 technology.
From inception through the period ended March 31, 1997, the Company has earned
interest income of $415,138 and an extraordinary item from gain on early
extinguishment of debt of $42,787. The Company's ability to generate material
revenues is contingent on the successful commercialization its technologies and
other technologies which it may acquire, followed by the successful marketing
and commercialization of such technologies through licenses, joint ventures or
other arrangements.
Interest income for the three months ended March 31, 1997 was $18,225 compared
to $16,515 for the same period ended March 31, 1996. The increase in interest
earned is attributable to an increase of cash invested in short-term investments
Except for the sub-license revenue mentioned above, interest income represented
all of the Company's income in each of the prior periods.
Operating Expenses:
From inception through the period ended March 31, 1997, the Company incurred
$30,224,665 of operating expenses. Of the total operating expenses for that
period, $17,461,234 were costs of research and development for the Company's
technologies. The remainder of expenses for the same period were incurred
principally as consulting costs, costs of management, legal and other
professional fees and expenses relating to the Company's technologies, and for
its completed and proposed financing plans. Research and development costs are
expected to remain high as the Company implements later-stage research projects
of its technologies and such costs will continue to be expensed for financial
reporting purposes.
Operating expenses for the three months ended March 31, 1997, were $2,686,313
compared to $1,672,168 for the same period ended March 31, 1996. The increase in
research and development expenses was primarily due to the payment of $1.1
million for the acquisition of an exclusive supply and license agreement for the
world-wide rights to Siemens' multi-dose inhaler (MSI). The increase in general
and administrative expenses was primarily due to increased salary expense as a
result of the additions to the Company's management team and higher professional
fees.
LIQUIDITY AND CAPITAL RESOURCES
In February 1993, the Company conducted its initial United States public
offering of 833,334 Units, each Unit consisting of two shares of Common Stock
and one Redeemable Common Stock Purchase Warrant exercisable for one share of
Common Stock at a price of $3.75, subject to adjustment in certain
circumstances, at any time until February 10, 1998 (the "public offering"). The
net proceeds of the public offering to the Company, after payment of
Underwriter's discounts and commissions, non-accountable expenses and
reimbursable expenses, and other expenses of the public offering, were
approximately $4,190,000. Also, during fiscal year 1993, the Company received
$762,833 in total proceeds from the exercise of warrants. In March 1994 a total
of $3,121,164 was received from the exercise of 832,324 of the Company's
Redeemable Stock Purchase Warrants. Each such warrant was exercisable for one
share of Sheffield's Common Stock at an exercise price of $3.75.
In April 1995, the Company completed a private placement of 410,075 units to
accredited investors at a price of $8.00 per unit for gross proceeds of
$3,280,600. Each such unit consists of two shares of the Company's common
7
<PAGE>
SHEFFIELD MEDICAL TECHNOLOGIES INC. AND SUBSIDIARIES
(a development stage enterprise)
stock and a warrant to purchase one share of common stock at a price of $5.00 at
any time to and including February 10, 2000. The warrants are redeemable by the
Company under certain circumstances. In July 1995, the Company completed a
second private placement of 1,375,000 units at $4.00 per unit, which grossed
$5,500,000. Each such unit consists of one share of the Company's common stock
and one warrant to purchase one share of common stock at a price of $4.50 at any
time from March 1, 1996 to and including February 10, 2000. The warrants are
subject to redemption under certain conditions.
On April 30, 1996, the Company completed a warrant discount program through
which the Company offered holders of warrants issued in private placements
completed in 1995 the opportunity to exercise such warrants at up to a 12 1/2%
discount from the actual exercise prices of such warrants. A total of $5.6
million was received from the exercise of such warrants and the related issuance
of 1,373,250 shares of common stock.
On February 28, 1997, the Company completed a private offering of 35,000 shares
of its 7% Series A Cumulative Convertible Redeemable Preferred Stock, which
raised total gross proceeds of $3.5 million. The proceeds of this offering are
being used to fund research and development, patent prosecution and for working
capital and general corporate purposes, including the possible acquisition of
rights in new technologies in the Company's ordinary course of business.
In March 1997, the Company exercised its option and entered into exclusive
supply and license agreements for the world-wide rights to Siemens' multi-dose
inhaler (MSI). The agreements call for Siemens to be the exclusive supplier of
the MSI system, a hand-held, portable pulmonary delivery system. The Company
paid Siemens a license fee of $1.1 million in April 1997 pursuant to its
agreements and is required to make additional payments of DM 2.0 million on
January 1, 1998 and 1999.
In addition to the potential commercialization of its technologies, the Company
plans to seek additional funds through financings, joint ventures or other
commercial arrangements to obtain necessary working capital. It is not uncommon,
for instance, for a third-party commercial partner to enter into a license
agreement with a development company, on the merits of successful research
relating to a given technology, which would yield up-front royalty advances to
such company before market-ready products are developed. It is also not uncommon
for a third-party commercial partner to enter into an agreement with a
development company whereby a third party will contribute funds in support of
the research and operating needs of such development companies in consideration
for rights related to the technologies.
At March 31, 1997, the Company's assets were $3.5 million of which $3.2 million
was cash and cash equivalents and marketable securities.
THIS REPORT CONTAINS CERTAIN FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF
SECTION 27A OF THE SECURITIES ACT OF 1933, AS AMENDED, AND SECTION 21E OF THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED, WHICH ARE INTENDED TO BE COVERED BY
THE SAFE HARBORS CREATED HEREBY. ALL FORWARD-LOOKING STATEMENTS INVOLVE RISKS
AND UNCERTAINTY, INCLUDING WITHOUT LIMITATION, THE SUCCESSFUL DEVELOPMENT AND
LICENSING OF THE COMPANY'S TECHNOLOGIES AND THE SUCCESSFUL COMPLETION OF PLANNED
FINANCINGS. ALTHOUGH THE COMPANY BELIEVES THAT THE ASSUMPTIONS UNDERLYING THE
FORWARD-LOOKING STATEMENTS CONTAINED HEREIN ARE REASONABLE, ANY OF THE
ASSUMPTIONS COULD BE INACCURATE, AND THEREFORE, THERE CAN BE NO ASSURANCE THAT
THE FORWARD-LOOKING STATEMENTS INCLUDED IN THIS REPORT WILL PROVE TO BE
ACCURATE. IN LIGHT OF THE SIGNIFICANT UNCERTAINTIES INHERENT IN THE
FORWARD-LOOKING STATEMENTS INCLUDED HEREIN, THE INCLUSION OF SUCH INFORMATION
SHOULD NOT BE REGARDED AS A REPRESENTATION BY THE COMPANY OR ANY OTHER PERSON
THAT THE OBJECTIVES AND PLANS OF THE COMPANY WILL BE ACHIEVED.
8
<PAGE>
SHEFFIELD MEDICAL TECHNOLOGIES INC. AND SUBSIDIARIES
(a development stage enterprise)
PART II: OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
EXHIBITS
NO. DESCRIPTION
10.1 Agreement and Plan of Merger Among the Company, CP
Pharmaceuticals, Inc. Camelot Pharmacal, L.L.C., David
A. Byron, Loren G. Peterson and Carl S. Siekmann, dated
April 25, 1997.
10.2 Employment Agreement dated as of April 25, 1997 between
the Company and David A. Byron.
10.3 Employment Agreement dated as of April 25, 1997 between
the Company and Loren G. Peterson.
10.4 Employment Agreement dated as of April 25, 1997 between
the Company and Carl S. Siekmann
27 Financial Data Schedule
No reports on Form 8-K were filed by the Company during the quarter
ended March 31, 1997
9
<PAGE>
SHEFFIELD MEDICAL TECHNOLOGIES INC. AND SUBSIDIARIES
(a development stage enterprise)
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
SHEFFIELD MEDICAL TECHNOLOGIES INC.
Dated: May 14, 1997 /S/ LOREN G. PETERSON
----------------------
Loren G. Peterson
Chief Executive Officer
Dated: May 14, 1997 /S/ GEORGE LOMBARDI
-------------------
George Lombardi
Vice President & Chief Financial Officer
(Principal Financial and Accounting Officer)
AGREEMENT AND PLAN OF MERGER
By and Among
Sheffield Medical Technologies Inc.
CP Pharmaceuticals, Inc.
Camelot Pharmacal, L.L.C.
Loren G. Peterson
Carl F. Siekmann
and
David A. Byron
- - --------------------------------------------------------------------------------
Dated as of April 25, 1997
- - --------------------------------------------------------------------------------
<PAGE>
AGREEMENT AND PLAN OF MERGER
----------------------------
AGREEMENT AND PLAN OF MERGER (the "Agreement"), dated as of April
25, 1997, by and among Sheffield Medical Technologies Inc., a Delaware
corporation ("Parent"), CP Pharmaceuticals, Inc., a Delaware corporation
("Acquisition Corp."), Camelot Pharmacal, L.L.C., a Missouri limited liability
company ("Camelot"), and Loren G. Peterson, Carl F. Siekmann and David A. Byron
(each a "Member" and, collectively, "Members").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, Camelot is a new, development stage limited liability
company which is in the process of acquiring and/or developing promising
late-stage pharmaceuticals and pharmaceutical technology for commercialization;
WHEREAS, the Board of Directors of the Parent and Acquisition
Corp. have determined that it is desirable and in the best interests of their
respective corporations and shareholders for Camelot to merge with and into
Acquisition Corp. and each of them has unanimously approved this Agreement and
the transactions contemplated hereby; and
WHEREAS, the Members have determined that it is desirable and in
their best interest to merge Camelot with and into Acquisition Corp. and each of
them have approved this Agreement and the transactions contemplated hereby; and
WHEREAS, upon the terms and subject to the conditions hereinafter
set forth: (a) Camelot shall be merged with and into Acquisition Corp. (the
"Merger") and Acquisition Corp. shall be the surviving entity in the Merger and
(b) the issued and outstanding membership interests of Camelot shall be
converted into shares of the Parent's common stock, par value $.01 per share
("Parent Common Stock").
WHEREAS, it is intended that the Merger shall qualify as a
reorganization within the meaning of Section 368(a) of the Internal Revenue Code
of 1986, as amended (the "Code") and that this Agreement shall constitute a
"plan of reorganization."
NOW, THEREFORE, in consideration of the premises and the
representations, warranties, and mutual covenants and agreements herein
contained, the parties hereby agree as follows:
<PAGE>
ARTICLE I
THE MERGER
SECTION 1.1 THE MERGER. At the Effective Time (as defined in
Section 1.2), subject to and upon the terms and conditions of this Agreement and
in accordance with the General Corporation Law of the State of Delaware (the
"Delaware Act") and the Limited Liability Company Act of the State of Missouri
(the "Missouri Act"), Camelot shall be merged with and into Acquisition Corp.,
the separate existence of Camelot shall cease, and following the Merger,
Acquisition Corp. shall continue as the surviving corporation (as such, the
"Surviving Corporation").
SECTION 1.2 EFFECTIVE TIME. As promptly as practicable after the
satisfaction or waiver of the conditions set forth in Articles VII and VIII, the
parties hereto shall cause the Merger to be consummated by filing certificates
of merger with the Secretary of State of each of Delaware and Missouri, in such
form as is required by, and executed in accordance with, the relevant provisions
of the Delaware Act and the Missouri Act. The time of filing the certificate of
merger in respect of the Merger with the Secretary of State of the State of
Delaware shall be the "Effective Time."
SECTION 1.3 EFFECT OF THE MERGER. At the Effective Time, the
Merger shall be effective as provided in the applicable provisions of the
Delaware Act and the Missouri Act. Without limiting the generality of the
foregoing, and subject thereto, at the Effective Time all the property, rights,
privileges, powers and franchises of Camelot shall vest in Acquisition Corp.,
and all debts, liabilities and duties of Camelot shall become the debts,
liabilities and duties of Acquisition Corp. From and after the Effective Time,
the Surviving Corporation shall be a wholly-owned subsidiary of the Parent.
SECTION 1.4 SUBSEQUENT ACTIONS. If, at any time after the
Effective Time, the Surviving Corporation shall consider or be advised that any
deeds, bills of sale, assignments, assurances or any other actions or things are
necessary or desirable to perfect, confirm, record or otherwise vest in the
Surviving Corporation its right, title or interest in, to or under any of the
rights, properties or assets of Camelot acquired or to be acquired by the
Surviving Corporation as a result of, or in connection with, the Merger, or
otherwise to carry out this Agreement, the officers and directors of the
Surviving Corporation shall be authorized to execute and deliver, in the name
and on behalf of Camelot, all such deeds, bills of sale, assignments and
assurances, and to take and do, in the name and on behalf of Camelot, all such
other actions and things as may be necessary or desirable to perfect, confirm,
record or otherwise vest any and all right, title and interest in,
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to and under such rights, properties or assets in the Surviving Corporation, or
otherwise to carry out this Agreement.
SECTION 1.5 CERTIFICATE OF INCORPORATION; BY-LAWS; DIRECTORS AND
OFFICERS. (i) The Certificate of Incorporation of Acquisition Corp., as in
effect immediately before the Effective Time, shall be the Certificate of
Incorporation of the Surviving Corporation until thereafter amended as provided
by law and such Certificate of Incorporation.
(ii) The By-Laws of Acquisition Corp., as in effect immediately
before the Effective Time, shall be the By-Laws of the Surviving Corporation
until thereafter amended as provided by law, the Articles of Incorporation of
the Surviving Corporation or such By-Laws.
(iii) The directors of Acquisition Corp. immediately before the
Effective Time will be the initial directors of the Surviving Corporation, and
the officers of Acquisition Corp. immediately before the Effective Time will be
the initial officers of the Surviving Corporation, in each case until their
successors are elected or appointed and qualified. If, at the Effective Time, a
vacancy shall exist on the Board of Directors or in any office of the Surviving
Corporation, such vacancy may thereafter be filled in the manner provided by the
Delaware Act and the By-Laws of the Surviving Corporation.
SECTION 1.6 CONVERSION OF SECURITIES. As of the Effective Time, by
virtue of the Merger and without any action on the part of Parent Acquisition
Corp., Camelot or the Members, the issued and outstanding Member Interests in
Camelot owned by all of the Members immediately prior to the Effective Time (the
"Member Interest") shall cease to be outstanding and shall be converted to the
right to receive an aggregate of 600,000 fully paid and non- assessable shares
of Parent Common Stock (the "Merger Consideration").
SECTION 1.7 DELIVERY OF MERGER CONSIDERATION.
(i) On the terms and subject to the conditions set forth in this
Agreement, the Parent will issue and contribute to the capital of Acquisition
Corp. a sufficient number of shares of Parent Common Stock to enable it to pay
the Merger Consideration in full in accordance with the terms of this Agreement.
(ii) On the terms and subject to the conditions set forth in this
Agreement, Acquisition Corp. shall deliver the Merger Consideration to the
Members by delivering to each Member certificates representing the number of
shares of Parent Common Stock as set forth opposite each Member's name in
Schedule 1.7.
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ARTICLE II
CLOSING
Subject to the satisfaction or waiver of all conditions to the
parties' obligations to consummate the Merger set forth herein, the closing of
the Merger (the "Closing") shall take place at 10:00 a.m. on May 16, 1997 at the
offices of Olshan Grundman Frome & Rosenzweig LLP, 505 Park Avenue, New York,
New York, or at such other time and place as Camelot, the Parent, Acquisition
Corp. and the Members shall agree (the date and time of such Closing being
herein referred to as the "Closing Date").
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF CAMELOT AND THE MEMBERS
Camelot and each of the Members jointly and severally represent
and warrant to the Parent and Acquisition Corp. as follows:
Section 3.1 CORPORATE ORGANIZATION; REQUISITE AUTHORITY TO CONDUCT
BUSINESS; ARTICLES OF ORGANIZATION AND OPERATING AGREEMENT, ETC. Camelot is a
limited liability company duly organized, validly existing and in good standing
under the laws of Missouri. Camelot has provided Parent with true and complete
copies of Camelot's articles of organization (certified by the appropriate
public official in the State of Missouri) and the operating agreement of Camelot
and any amendment thereto (the "Camelot Operating Agreement"), in each case as
in effect on the date hereof. Camelot has all necessary power and authority to
own, operate and lease its properties and to carry on its business as the same
is now being conducted, and is duly qualified or licensed to do business and is
in good standing as foreign limited liability company in every jurisdiction in
which the conduct of its business or the ownership or leasing of its properties
requires it to be so qualified or licensed, except where the failure to be so
qualified or licensed, individually or in the aggregate, will not have a
material adverse effect on the business, properties, assets, liabilities,
financial condition or operations of Camelot (a "Camelot Material Adverse
Effect").
Section 3.2 MEMBERS' INTEREST. All outstanding Member Interests in
Camelot are held by the Members. Camelot does not have outstanding, and is not
bound by or subject to, any subscription, option, warrant, call, right,
contract, commitment, agreement, understanding or arrangement to issue any
additional Member Interests.
Section 3.3 MEMBERS APPROVAL OF MERGER. The Members have approved
this Agreement and the transactions contemplated hereby.
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Section 3.4 SUBSIDIARIES, ETC. Camelot does not have any
subsidiaries and holds no equity interest in any corporation, partnership,
limited liability company or other entity.
Section 3.5 AUTHORITY RELATIVE TO AND VALIDITY OF THIS AGREEMENT.
Camelot has full corporate power and authority to execute and deliver this
Agreement and to assume and perform all of its obligations hereunder. The
execution and delivery of this Agreement by Camelot and the performance by
Camelot of its obligations thereunder have been duly authorized by all of the
Members and no further authorization on the part of Camelot or the Members is
necessary to authorize the execution, delivery and the performance by it of this
Agreement. There are no contractual, statutory or other restrictions of any kind
upon the power and authority of Camelot to execute and deliver this Agreement
and to consummate the transactions contemplated hereunder and no action, waiver
or consent by any federal, state, municipal or other governmental department,
commission or agency ("Governmental Authority") is necessary to make this
Agreement valid and binding upon Camelot and the Members in accordance with the
terms hereof. This Agreement has been duly executed and delivered on behalf of
Camelot and constitutes the legal, valid and binding obligations of Camelot
enforceable against Camelot in accordance with its terms, except (i) as such
enforceability may be limited by or subject to bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting creditors' rights
generally, (ii) as such obligations are subject to general principles of equity
and (iii) as rights to indemnity may be limited by federal or state securities
laws or by public policy.
Section 3.6 REQUIRED FILINGS AND CONSENTS; NO CONFLICT. Neither
Camelot nor any Member is required to submit any notice, report or other filing
with any Governmental Authority in connection with the execution, delivery or
performance of the this Agreement, other than the filing of the certificate of
merger referred to in Section 8.7. The execution, delivery and performance of
the this Agreement by Camelot and the Members and the consummation of the
transactions contemplated hereby do not and will not (a) conflict with or
violate any law, regulation, judgment, order or decree binding upon Camelot or
any Member, (b) conflict with or violate any provision of the Camelot Articles
or the Camelot Operating Agreement or (c) conflict with or result in a breach of
any condition or provision of, or constitute a default (or an event which with
notice or lapse of time or both would become a default) under, or result in the
creation or imposition of any lien, charge or encumbrance upon any properties or
assets of Camelot under, any indenture, loan agreement, mortgage, deed of trust,
lease, contract, license, franchise or other agreement or instrument to which
Camelot is a party or which is or purports to be binding upon Camelot or by
which any of Camelot's properties are bound. The execution, delivery and
performance of this Agreement
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by Camelot and the consummation of the transactions contemplated hereby will not
result in the loss of any license, franchise, legal privilege or permit
possessed by Camelot or give a right of termination to any party to any
agreement or other instrument to which Camelot is a party or by which any of
Camelot's properties are bound.
Section 3.7 FINANCIAL STATEMENTS. The following internally
prepared financial statements have been previously delivered to the Parent
(collectively the "Financial Statements"):
(i) balance sheet of Camelot as of March 31, 1997 (the
"Balance Sheet").
(ii) statement of operations for the three month period ended
March 31, 1997 (the "Statement of Operations").
The Financial Statements thereto fairly present in all material
respects the financial condition and results of operations of Camelot as of the
date thereof with respect to the Balance Sheet and as to the period then ended
with respect to the Statement of Operations and have been prepared in accordance
with generally accepted accounting principles ("GAAP"), except that a statement
of cash flows and all footnote disclosure otherwise required by GAAP have been
omitted. Except as disclosed on Schedule 3.7 hereto, Camelot had at March 31,
1997 no material liability or obligation of any kind or manner, either
liquidated, unliquidated, direct, accrued, absolute, contingent or otherwise,
whether due or to become due which was not accurately reflected in the Financial
Statements.
Section 3.8 ABSENCE OF CERTAIN CHANGES AND EVENTS. Since March 31,
1997, except as set forth on Schedule 3.8 hereto, there has not been, with
respect to Camelot, (i) any change or event that has caused a Camelot Material
Adverse Effect; (ii) any material damage, destruction or loss (whether or not
covered by insurance) with respect to any assets or properties; (iii) any
distribution in cash, stock or property in respect of Member Interests; (iv) any
entry into any material commitment or transaction (including, without
limitation, any borrowing or capital expenditure); (v) any transfer, assignment
or sale of, or rights granted under, any material leases, licenses, agreements,
patents, trademarks, trade names, copyrights or other assets; (vi) any mortgage,
pledge, security interest or imposition of any other encumbrance on any assets
or properties; (vii) any payment of any debts, liabilities or obligations
("Liabilities") of any kind other than Liabilities currently due; (viii) any
cancellation of any debts or claims or forgiveness of amounts owed to Camelot;
or (ix) any change in accounting principles or methods. Since March 31, 1997,
Camelot has conducted its business only in the ordinary course consistent with
it past practices and has not made any
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material change in the conduct of its business or operations except as otherwise
disclosed herein or in connection with the transactions contemplated hereby.
Section 3.9 TAXES AND TAX RETURNS. (a) For purposes of this
Agreement, (i) the term "Taxes" shall mean all taxes, charges, fees, levies or
other assessments, including, without limitation, income, gross receipts,
excise, property, sales, license, payroll and franchise taxes, imposed by the
United States, or any state, local or foreign government or subdivision or
agency thereof whether computed on a unitary, combined or any other basis; and
such term shall include any interest and penalties or additions to tax; and (ii)
the term "Tax Return" shall mean any report, return or other information
required to be filed with, supplied to or otherwise made available to a taxing
authority in connection with Taxes.
(b) Camelot has (i) duly filed with the appropriate taxing
authorities all Tax Returns required to be filed by or with respect to Camelot
or such Tax Returns are properly on extension and all such duly filed Tax
Returns are true, correct and complete in all material respects, and (ii) paid
in full or made adequate provisions for on the Balance Sheet (in accordance with
GAAP) all Taxes shown to be due on such Tax Returns. There are no liens for
Taxes upon the assets of Camelot, except for statutory liens for current Taxes
not yet due and payable or which may thereafter be paid without penalty or are
being contested in good faith. Camelot has not received any notice of audit, is
not to Camelot's and the Members' knowledge, undergoing any audit of its Tax
Returns, and has not received any notice of deficiency or assessment from any
taxing authority with respect to liability for Taxes of Camelot that has not
been fully paid or finally settled.
(c) Each of the Members has duly (i) filed with the appropriate
taxing authorities all Tax Returns required to be filed by them with respect to
Camelot, or are properly on extension, and all such duly filed Tax Returns are
true, correct and complete in all material respects and (ii) paid in full or
made adequate provision for all Taxes, if any, shown to be due on such Tax
Returns.
(d) Camelot has filed with the Internal Revenue Service on a
timely basis all appropriate election forms required for Camelot to elect to be
treated as an association taxable as a corporation.
Section 3.10 EMPLOYEE BENEFIT PLANS. (a) Schedule 3.10 hereto
comprises a listing of each bonus, benefit, profit sharing, savings, retirement,
liability, insurance, incentive, deferred compensation, and other similar fringe
or employee benefit plans, programs or arrangements for the benefit of or
relating to, any employee of, or independent contractor or consultant to, and
all
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other compensation practices, policies, terms or conditions, whether written or
unwritten of Camelot (the "Camelot Employee Plans") that Camelot presently
maintains, to which Camelot presently contributes or under which Camelot has any
liability. The Camelot Employee Plans administered by Camelot have been
administered in all material respects in accordance with all requirements of
applicable law and terms of each such plan. All contributions (including
premiums) in material amounts required by law or contract to have been made or
accrued by Camelot under or with respect to any Camelot Employee Plan have been
paid or accrued by Camelot. Camelot has not received notice of any
investigation, litigation or other enforcement action against Camelot with
respect to any of the Camelot Employee Plans. There are no pending actions,
suits or claims by former or present employees of Camelot (or their
beneficiaries) with respect to Camelot Employee Plans or the assets or
fiduciaries thereof (other than routine claims for benefits).
(b) None of Camelot, any trustee, administrator or other fiduciary
has engaged in any transaction or acted in a manner that could, or failed to act
so as to, subject Camelot or any fiduciary to any liability for breach of
fiduciary duty under ERISA or other applicable Law.
Section 3.11 TITLE TO PROPERTY. Camelot has good and marketable
title, or valid leasehold rights (in the case of leased property), to all
personal property owned or leased by it or used by it in the operation of its
business, free and clear of all encumbrances, excluding (i) liens for taxes,
fees, levies, imposts, duties or governmental charges of any kind which are not
yet delinquent or are being contested in good faith by appropriate proceedings
which suspend the collection thereof; (ii) liens for mechanics, materialmen,
laborers, employees, suppliers or other which are not yet delinquent or are
being contested in good faith by appropriate proceedings; (iii) liens created in
the ordinary course of business in connection with the leasing or financing of
office, computer and related equipment and supplies; (iv) easements and similar
encumbrances ordinarily created for fuller utilization and enjoyment of
property; and (v) liens or defects in title or leasehold rights that either
individually or in the aggregate do not and will not have an Camelot Material
Adverse Effect. Camelot owns no real property.
Section 3.12 TRADEMARKS, PATENTS AND COPYRIGHTS. Schedule 3.12
hereto sets forth all patents, trademarks, copyrights, service marks and trade
names, all applications for any of the foregoing, and all permits, grants and
licenses or other rights running to or from Camelot relating to any of the
foregoing ("Camelot Rights"). There are no other patents, trademarks,
copyrights, service marks or trade names which are material to the business of
Camelot or any Subsidiary as presently conducted. To the best of their
knowledge, Camelot has the right to use, free and
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clear of any claims or rights of others, all trade secrets, know-how, processes,
technology, blue prints and designs utilized in or incident to its business as
presently conducted ("Trade Secrets") and such use does not infringe on any
patent, trademark, copyright, service mark or trade name. Camelot has not
received notice of any adversely held patent, invention, trademark, copyright,
service mark or trade name of any other person or notice of any claim of any
other person relating to any of the Camelot Rights set forth on Schedule 3.12
hereto or any Trade Secret of Camelot and Camelot does not know of any basis for
any such charge or claim. To the best of Camelot's and the Members' knowledge,
there is no present or threatened use or encroachment of any Trade Secret.
Section 3.13 LEGAL PROCEEDINGS, CLAIMS, INVESTIGATIONS, ETC.
Except as set forth on Schedule 3.13, there is no legal, administrative,
arbitration or other action or proceeding or governmental investigation pending,
or to the knowledge of Camelot, threatened, against Camelot. Camelot has not
been informed of any violation of or default under, any laws, ordinances,
regulations, judgments, injunctions, orders or decrees (including without
limitation, any immigration laws or regulations) of any court, governmental
department, commission, agency, instrumentality or arbitrator applicable to the
business of Camelot. Camelot is not currently subject to any material judgment,
order, injunction or decree of any court, arbitral authority, administrative
agency or other governmental authority.
Section 3.14 INSURANCE. Camelot has insurance policies in such
amounts as the management of Camelot has reasonably determined to be necessary
in regard to its respective business properties, personnel or assets. Camelot is
not in default with respect to any provision contained in any insurance policy,
and has not failed to give any notice or present any claim under any insurance
policy in due and timely fashion. Any such policies shall have been delivered
prior to the Closing to the Parent and are in full force and effect. All
payments with respect to such policies are current and Camelot has received any
notice threatening a suspension, revocation, modification or cancellation of any
such policy.
Section 3.15 MATERIAL CONTRACTS. (a) Set forth in Schedule 3.15
hereto is a description of each contract and commitment (including contracts or
commitments pertaining to employment), whether written or oral to which Camelot
is a party. Each of the contracts and commitments set forth in Schedule 3.15
hereto and each of the other material contracts and commitments to which Camelot
is a party, is valid and existing, in full force and effect and enforceable in
accordance with its terms (subject to laws affecting creditors' rights and
equitable principles) and there is no material default or claim of default
against Camelot or any notice of termination with respect thereto. To the extent
required thereby, Camelot has complied in all material respects
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with all requirements of, and performed all of its obligations under, such
contracts and commitments. In addition, no other party to any such contract or
commitment is, to the best of Camelot's knowledge, in default under or in breach
of any material term or provision thereof, and there exists no condition or
event which, after notice or lapse of time or both, would constitute a material
default by any party to any such contract or commitment. Copies of all the
written documents and a synopsis of all oral contracts and commitments described
in Schedule 3.15 hereto have heretofore been made available to the Parent and
are true and complete and include all amendments and supplements thereto and
modifications thereof to and including the date hereof.
(b) Except as set forth in Schedule 3.15 hereto, Camelot is not a
party to any oral or written (i) agreement with any consultant, executive
officer or other key employee the benefits of which are contingent, or the terms
of which are materially altered, upon the occurrence of the transactions
contemplated by this Agreement, or (ii) agreement or plan, including any stock
option plan and the like, any of the benefits of which will be increased, or the
vesting of the benefits of which will be accelerated, by the occurrence of the
transactions contemplated by this Agreement.
Section 3.16 CERTAIN TRANSACTIONS. Except as set forth in Schedule
3.16 hereto, neither any Member nor any officer or any employee of Camelot, nor
any member of any such person's immediate family is presently a party to any
material agreement or transaction with Camelot, including without limitation,
any contract, agreement or other arrangement (i) providing for the furnishing of
services by, (ii) providing for the rental of real or personal property from, or
(iii) otherwise requiring payments to (other than for services as officers or
employees of Camelot), any such person or any corporation, partnership, trust or
other entity in which any such person has a substantial interest as a
stockholder, officer, director, trustee or partner.
Section 3.17 BROKER. No broker, finder or investment banker is
entitled to any brokerage or finder's fee or other commission in connection with
the transactions contemplated hereby based on the arrangements made by or on
behalf of Camelot or the Members.
Section 3.18 ENVIRONMENTAL MATTERS. (a) Camelot is not the subject
of, or to the knowledge of Camelot or the Members, being threatened to be the
subject of (i) any enforcement proceeding, or (ii) any investigation, brought in
either case under any Federal, state or local environmental law, rule,
regulation, or ordinance at any time in effect or (iii) any third party claim
relating to environmental conditions on or off the properties of Camelot.
Camelot has not been notified that it must obtain any permits and licenses or
file documents for the operation of its
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business under federal, state and local laws relating to pollution protection of
the environment. Except as set forth in Schedule 3.18 hereto, Camelot has not
been notified of any conditions on or off the properties of Camelot which may
give rise to any liabilities of Camelot under any Federal, state or local
environmental law, rule, regulation or ordinance or as the result of any claim
of any third party. For the purposes of this Section 3.18, an investigation
shall include, but is not limited to, any written notice received by Camelot
that relates to the onsite or offsite disposal, release, discharge or spill of
any waste, waste water, pollutant or contaminants.
(b) To Camelot's knowledge, there are no toxic wastes or other
toxic or hazardous substances or materials, pollutants or contaminants that
Camelot (or, to Camelot's knowledge, any previous occupant of Camelot's
facilities) has used, stored or otherwise held in or on any of the facilities of
Camelot. Camelot has not disposed of or arranged (by contract, agreement or
otherwise) for the disposal of any material or substance that was generated or
used by Camelot at any off-site location that has been or is listed or proposed
for inclusion on any list promulgated by any Governmental Authority for the
purpose of identifying sites which pose a danger to health and safety. To the
knowledge of Camelot and the Members there have been no environmental studies,
reports and analyses made or prepared relating to the facilities of Camelot.
Camelot has not installed any underground storage tanks in any of its facilities
and, to the best of Camelot's and the Members' knowledge, none of such
facilities contain any underground storage tanks.
Section 3.19 COMPLIANCE WITH LAW. Camelot has complied in all
material respects with all laws, rules, regulations, arbitral determinations,
orders, writs, decrees and injunctions which are applicable to or binding upon
Camelot or its properties, except where such failure would not cause an Camelot
Material Adverse Effect.
Section 3.20 FULL DISCLOSURE. All schedules and annexes to this
Agreement (collectively, "Documents") delivered by or on behalf of Camelot or
any Member pursuant to this Agreement are true and complete in all material
respects and are authentic. No representation or warranty of Camelot or the
Members contained in this Agreement, and no Document furnished by or on behalf
of Camelot or the Members to the Parent pursuant to this Agreement, contains an
untrue statement of a material fact or omits to state a material fact required
to be stated therein or necessary to make the statements made, in the context in
which made, not materially false or misleading. The Members have advised Parent
that Camelot is a new, development stage entity, without current substantial
business operations or revenues in respect of its business.
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ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE MEMBERS
Each Member hereby represents and warrants to the Parent and the
Acquisition Corp., as follows:
Section 4.1 MEMBERS' INTERESTS. Such Member owns the percentage of
the outstanding Member Interests of Camelot set forth opposite his name under
the column "Member Interests Held" on Schedule 1.7 hereto, free and clear of all
liens, claims or encumbrances.
Section 4.2 AUTHORITY RELATIVE TO AND VALIDITY OF THIS AGREEMENT.
This Agreement has been duly executed and delivered by such Member and
constitutes the legal, valid and binding obligations of such Member enforceable
against such Member in accordance with its terms, except (i) as such
enforceability may be limited by or subject to bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting creditors' rights
generally, (ii) as such obligations are subject to general principles of equity
and (iii) as rights to indemnity may be limited by federal or state securities
laws or by public policy. Neither the execution and delivery by this Agreement
nor the consummation of the transactions contemplated thereby will violate any
provision of law, any order of any court or other agency of government, or any
judgment, award or decree or any agreement or instrument to which such Member is
a party, or by which he or any of his properties or assets is bound or affected,
or result in a breach of or constitute (with due notice or lapse of time or
both) a default under any such agreement or instrument, or result in the
creation or imposition of any lien, charge or encumbrance of any nature
whatsoever upon any of the properties or assets of such Member.
Section 4.3 BROKERS' OR FINDERS' FEES. All negotiations relative
to the this Agreement and the transactions contemplated hereby have been carried
out by such Member or the other Members directly with the Parent, without the
intervention of any person on behalf of the Members, in such manner as not to
give rise to any claim by any person against the Parent or Acquisition Corp. for
a finder's fee, brokerage commission or similar payment.
Section 4.4 MEMBERS' ADDRESSES, ACCESS TO INFORMATION, EXPERIENCE,
ETC.
(a) The address set forth under such Member's name on the
signature pages of this Agreement is such Member's true and correct business,
residence or domicile address. Such Member has received, read and is familiar
with the Parent's Annual Report on Form 10-KSB for the fiscal year ended
December 31, 1996 (the "1996 10-KSB"). Such Member has had an opportunity to ask
questions of
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and receive answers from representatives of the Parent concerning the terms and
conditions of this transaction. Such Member has received such documentation
relating to Parent's business, results of operations and financial condition as
such Member has deemed necessary. Such Member has substantial experience in
evaluating non-liquid investments such as the Merger Consideration and is
capable of evaluating the merits and risks of an investment in the Parent.
(b) Such Member acknowledges that he has had an opportunity to
evaluate all information regarding the Parent as he has deemed necessary or
desirable in connection with the transactions contemplated by this Agreement,
has independently evaluated the transactions contemplated by this Agreement and
has reached his own decision to enter into this Agreement.
Section 4.5 ACCREDITED INVESTOR; PURCHASE ENTIRELY FOR OWN
ACCOUNT. Such Member is an "accredited investor" within the meaning of
Regulation D promulgated under the Securities Act of 1933, as amended (the
"Securities Act"). The Merger Consideration to be received by such Member
pursuant to the terms hereof will be acquired for investment for such Member's
own account, not as a nominee or agent, and not with a view to the resale or
distribution of any part thereof. Such Member has no present plan or arrangement
to dispose of the Merger Consideration in any manner.
Section 4.6 RESTRICTED SECURITIES. Such Member understands that
the Merger Consideration he is receiving is characterized as "restricted
securities" under the federal securities laws inasmuch as such securities are
being acquired in a transaction not involving a public offering and that under
such laws and applicable regulations such securities may be resold without
registration under the Securities Act only in certain limited circumstances. In
this regard, Such Member represents that he is familiar with Rule 144
promulgated under the Securities Act ("Rule 144"), as presently in effect, and
understands the resale limitations imposed thereby and by the Securities Act.
Section 4.7 LEGENDS. It is understood that the certificates
evidencing the shares of Parent Common constituting the Merger Consideration
shall bear a legend substantially as follows:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"ACT") AND MAY NOT BE TRANSFERRED UNTIL (I) A REGISTRATION
STATEMENT UNDER THE ACT SHALL HAVE BECOME EFFECTIVE WITH REGARD
THERETO OR (II) IN THE OPINION OF COUNSEL REASONABLY SATISFACTORY
TO THE CORPORATION TO THE EFFECT THAT REGISTRATION UNDER THE ACT
IS NOT REQUIRED IN CONNECTION WITH SUCH PROPOSED TRANSFER."
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The legend referred to above shall be removed by the Parent from
any certificate at such time as the Parent receives an opinion of counsel
reasonably satisfactory to the Parent to the effect that such legend is not
required in order to establish compliance with any provisions of the Securities
Act, or at such time as the holder of such shares satisfies the requirements of
Rule 144 under the Securities Act.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF
THE PARENT AND ACQUISITION CORP.
The Parent and Acquisition Corp. hereby represent and warrant to
Camelot and the Members as follows:
Section 5.1 CORPORATE ORGANIZATION; REQUISITE AUTHORITY TO CONDUCT
BUSINESS; ARTICLES OF INCORPORATION AND BY-LAWS. Each of the Parent and
Acquisition Corp. is a corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware. Each of Parent and Acquisition
Corp. have provided Camelot with true and complete copies of their respective
certificate of incorporation (certified by the Secretary of State of Delaware)
and By-laws (certified by the Secretary of the Parent) as in effect on the date
hereof. Parent and Acquisition Corp. have all corporate power and authority to
own, operate and lease their properties and to carry on their respective
businesses as the same are now being conducted, and are duly qualified or
licensed to do business and are in good standing as foreign corporations in
every jurisdiction in which the conduct of their business or the ownership or
leasing of their respective properties requires them to be so qualified or
licensed, except where the failure to be so qualified or licensed, individually
or in the aggregate, will not have a material adverse effect on the business,
properties, financial condition or operations of Parent and Acquisition Corp.,
taken as a whole (a "Sheffield Material Adverse Effect"). Each of the Parent and
Acquisition Corp. has all necessary corporate power and authority to enter into
this Agreement, to perform its obligations hereunder and to consummate the
transactions contemplated hereby.
Section 5.2 EXECUTION AND DELIVERY. Neither Parent nor Acquisition
Corp. are required to submit any notice, report or other filing with any
Governmental Authority in connection with the execution, delivery or performance
of this Agreement, other than the filing of the certificate of merger referred
to in Section 7.7. This Agreement has been duly executed and delivered by each
of the Parent and Acquisition Corp. and constitutes the legal, valid and binding
obligations of Parent and Acquisition Corp. enforceable against the Parent and
Acquisition Corp. in accordance with its terms, except (i) as such
enforceability may be limited by or subject to any bankruptcy, insolvency,
reorganization, moratorium
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or other similar laws affecting creditors' rights generally, (ii) as such
obligations are subject to general principles of equity and (iii) as rights to
indemnity may be limited by federal or state securities laws or by public
policy.
Section 5.3 CAPITALIZATION. The authorized capital stock of the
Parent consists of (i) 30,000,000 shares of Common Stock, of which 11,388,274
shares were issued and outstanding as of the date of this Agreement and (ii)
3,000,000 shares of preferred stock, par value $.01 per share, of which 35,700
shares of Series A Cumulative Convertible Redeemable Preferred Stock are issued
and outstanding as of the date of this Agreement.
Section 5.4 SEC REPORT; ABSENCE OF MATERIAL ADVERSE EFFECT. Parent
has made available to Camelot and the Members copies of the 1996 10-KSB as filed
with the Securities and Exchange Commission (the "SEC"). As of its date, the
1996 10-KSB (including without limitation, any financial statements or schedules
included therein) did not contain any untrue statement of a material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading. Each of the consolidated financial statements included in the SEC
Reports has been prepared from, and are in accordance with, the books and
records of the Parent, comply in all material respects with applicable
accounting requirements and with the published rules and regulations of the SEC
with respect thereto, have been prepared in accordance with GAAP applied on a
consistent basis during the periods involved (except as may be indicated in the
notes thereto) and fairly present in all material respects the consolidated
financial condition, results of operations and cash flows of the Parent as of
the dates thereof and for the periods presented therein. Parent had at December
31, 1996 no material liability or obligation of any kind or manner, either
liquidated, unliquidated, direct, accrued, absolute, contingent or otherwise,
whether due or to become due which was not accurately reflected in the 1996
10-KSB.
Section 5.5 BROKER. No broker, finder or investment banker is
entitled to any brokerage or finder's fee or other commission in connection with
the transactions contemplated hereby based upon the arrangements made by or on
behalf of the Parent or Acquisition Corp.
Section 5.6 AUTHORITY RELATIVE TO THIS AGREEMENT. Each of Parent
and Acquisition Corp. has full corporate power and authority to execute and
deliver this Agreement and to assume and perform all of its obligations
hereunder. The execution and delivery of the this Agreement by each the Parent
and Acquisition Corp. and the performance by Parent and Acquisition Corp. of
their respective obligations hereunder have been duly authorized by their
respective Boards of Directors and no further authorization on the part of
Parent or Acquisition Corp. or their shareholders is
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necessary to authorize the execution and delivery by them of, and the
performance of their respective obligations under, this Agreement.
Section 5.7 REQUIRED FILINGS AND CONSENTS; NO CONFLICT. Neither
Parent nor Acquisition Corp. is required to submit any notice, report or other
filing with any Governmental Authority in connection with the execution,
delivery or performance of this Agreement. The execution, delivery and
performance of this Agreement by Acquisition Corp. and Parent and the
consummation of the transactions contemplated hereby do not and will not (a)
conflict with or violate any law, regulation, judgment, order or decree binding
upon Acquisition Corp. or Parent, (b) conflict with or violate any provision of
their certificates of incorporation or by-laws, or (c) conflict with or result
in a breach of any condition or provision of, or constitute a default (or an
event which with notice or lapse of time or both would become a default) under,
or result in the creation or imposition of any lien, charge or encumbrance upon,
any properties or assets of Parent or Acquisition Corp. pursuant to any
indenture, loan agreement, mortgage, deed of trust, lease, contract, license,
franchise or other agreement or instrument to which Parent or Acquisition Corp.
is a party or which is or purports to be binding upon Parent or Acquisition
Corp. or by which either of their properties are bound, except for conflicts,
breaches, defaults, events of default or impositions that would not have a
Sheffield Material Adverse Effect.
Section 5.8 ABSENCE OF CERTAIN CHANGES AND EVENTS. Except as
disclosed in the 1996 10-KSB, since December 31, 1996, there has not been, with
respect to the Parent, (i) any change or event that has caused a Sheffield
Material Adverse Effect, (ii) any material damage, destruction or loss (whether
or not covered by insurance) with respect to any assets or properties or (iii)
any change in accounting principles or methods (except insofar as may have been
required by a change in GAAP). Except as disclosed in the 1996 10-KSB or in
Schedule 5.8 or as contemplated by this Agreement, Parent has not incurred any
material liability or entered into any material commitment other than in the
ordinary course of the Company's business consistent with past practice.
Section 5.9 TITLE TO PROPERTY. Parent has good and marketable
title or valid leasehold rights (in the case of leased property) to all real
property and all personal property purported to be owned or leased by it or used
by it in the operation of its business.
Section 5.10 LEGAL PROCEEDINGS, CLAIMS, INVESTIGATIONS, ETC. There
is no legal, administrative, arbitration or other action or proceeding or
governmental investigation pending, or to the knowledge of Parent, threatened,
against Parent.
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Section 5.11 COMPLIANCE WITH LAW. Parent has complied in all
material respects with all laws, rules, regulations, arbitral determinations,
orders, writs, decrees and injunctions which are applicable to or binding upon
Parent or its properties, except where such failure would not cause a Sheffield
Material Adverse Effect.
Section 5.12 TAXES AND TAX RETURNS. Parent has (i) duly filed with
the appropriate taxing authorities all Tax Returns required to be filed by or
with respect to Parent or such Tax Returns are properly on extension and all
such duly filed Tax Returns are true, correct and complete in all material
respects, and (ii) paid in full or made adequate provisions for all Taxes shown
to be due on such Tax Returns. There are no liens for Taxes upon the assets of
Parent, except for statutory liens for current Taxes not yet due and payable or
which may thereafter be paid without penalty or are being contested in good
faith. Parent has not received any notice of audit, is not to Parent's
knowledge, undergoing any audit of its Tax Returns, and has not received any
notice of deficiency or assessment from any taxing authority with respect to
liability for Taxes of Parent that has not been fully paid or finally settled.
ARTICLE VI
COVENANTS OF CAMELOT, PARENT, ACQUISITIONS CORP.
AND THE MEMBERS
Section 6.1 COVENANTS OF CAMELOT AND THE MEMBERS REGARDING CONDUCT
OF BUSINESS OPERATIONS PENDING THE CLOSING. Camelot and the Members covenant and
agree that between the date of this Agreement and the Closing Date, Camelot will
carry on its business in the ordinary course and consistent with past practice
and (i) will use its best efforts to preserve its business organization intact,
(ii) will use its best efforts to retain the services of its present employees,
(iii) will not enter into any material commitments for services or otherwise
without the prior written notification to, and written approval of, such
contemplated action by the Parent and (iv) will not purchase, sell, lease or
dispose of any material property or assets or incur any material liability or
enter into any other material transaction without prior written notification to,
and receipt of written approval of, such contemplated action by the Parent. By
way of example and not limitation, (except as contemplated hereunder), between
the date of this Agreement and the Closing Date, Camelot shall not, directly or
indirectly, do any of the following without the prior written consent of the
Parent:
(i) issue, sell, pledge, dispose of, encumber, authorize, or
propose the issuance, sale, pledge, disposition, encumbrance or
authorization of any Member Interests in Camelot;
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(ii) take any action other than in the ordinary course of business
and in a manner consistent with past practice (none of which actions
shall be unreasonable or unusual) with respect to the grant of any
severance or termination pay (otherwise than pursuant to its policies
in effect on the date hereof) or with respect to any increase of
benefits payable under its severance or termination pay policies in
effect on the date hereof;
(iii) make any payments (except in the ordinary course of business
and in amounts and in a manner consistent with past practice) under any
Camelot Employee Plan to any employee, independent contractor or
consultant, enter into any new Camelot Employee Plan or any new
consulting agreement or grant or establish any awards under such
Camelot Employee Plan or agreement, or adopt or otherwise amend any of
the foregoing;
(iv) take any action except in the ordinary course of business and
in a manner consistent with past practice (none of which actions shall
be unreasonable or unusual) with respect to accounting policies or
procedures (including without limitation its procedures with respect to
the payment of accounts payable);
(v) enter into or terminate any material contract or agreement or
make any material change in any of its material contracts or
agreements, other than agreements, if any, relating to the transactions
contemplated hereby; or
(vi) take, or agree in writing or otherwise to take, any of the
foregoing actions or any action which would make any of their
respective representations or warranties contained in this Agreement
untrue or incorrect in any material respect as of the date when made or
as of a future date.
Section 6.2 COVENANTS OF PARENT REGARDING CONDUCT OF BUSINESS
OPERATIONS PENDING THE CLOSING. Parent covenants and agrees that between the
date of this Agreement and the Closing Date, Parent will carry on its respective
businesses in the ordinary course and consistent with past practice and (i) will
use its best efforts to preserve its business organization intact, (ii) will use
its best efforts to retain the services of its present employees, (iii) will not
enter into any material commitments for services or otherwise without giving
prior written notification of such contemplated action to Camelot and the
Members and (iv) will not purchase, sell, lease or dispose of any material
property or assets or incur any material liability or enter into any other
material transaction without prior written notification of such action to
Camelot and the Members.
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Section 6.3 NO OTHER NEGOTIATIONS. Camelot and the Members agree
that they will not, prior to the termination of this Agreement, (i) take any
action intended to encourage discussions or negotiations, (ii) participate in
discussions or negotiations or (iii) provide any information, access to books or
records to or with any person or entity other than the Parent and Acquisition
Corp. relating to a merger of Camelot, the sale of Camelot or the Members'
employment.
Section 6.4 REGULATORY APPROVALS. Camelot, the Members, and
Acquisition Corp. covenant and agree to fully cooperate in obtaining any
Required Filings and Consents.
Section 6.5 DUE DILIGENCE REVIEW. (a) Camelot and the Members
shall, upon reasonable notice, give access to, and cooperate fully with, the
attorneys, auditors, representatives and agents of the Parent to conduct a due
diligence review of the business activities of Camelot, including all
appropriate management matters, all appropriate financial, accounting and
business records and all contracts and other legal documents reasonably
requested by the Parent.
(b) The Parent shall, upon reasonable notice, give access to, and
cooperate fully with, the attorneys, auditors, representatives and agents of
Camelot to conduct a due diligence review of the business activities of the
Parent, including all appropriate management matters, all appropriate financial,
accounting and business records and all contracts and legal documents,
including, but not limited to, all financial information, reasonably requested
by Camelot.
Section 6.6 ANNOUNCEMENTS. None of Camelot, any Member or the
Parent shall issue any report, statement or press release to the public, the
trade or the press or any third party relating to this Agreement or the
transactions contemplated hereby, except as agreed to in writing by Camelot and
the Parent before the issuance thereof; PROVIDED, HOWEVER, that Parent may make
any disclosure relating to this Agreement or the transactions contemplated
hereby that Parent deems necessary to comply with its disclosure obligations
under applicable law (including securities laws).
Section 6.7 PARENT PROXY FILING. Parent will use its best efforts
to mail to its stockholders a proxy statement in respect of an annual meeting of
its stockholders containing, among other items, the matters referred to in (i) -
(iv) of Section 7.9 on or before June 6, 1997.
Section 6.8 DELIVERY OF MERGER CONSIDERATION. On the earlier to
occur of (i) the listing of the Parent Common Stock constituting the Merger
Consideration for sale on the American Stock Exchange or (ii) 30 days after the
Closing Date, the Parent will issue and contribute to the capital of Acquisition
Corp. a
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number of shares of Parent Common Stock equal to the Merger Consideration and
Acquisition Corp. shall deliver the Merger Consideration to the Members by
delivery to each Member of certificate(s) representing the numbers of shares of
Parent Common Stock as set forth opposite such Member's name in Schedule 1.7.
Section 6.9 ADDITIONAL COVENANTS OF CAMELOT, THE MEMBERS, THE
PARENT AND ACQUISITION CORP. Each of Camelot, the Members, Parent and
Acquisition Corp. covenant and agree:
(a) BEST EFFORTS. To proceed diligently and use its best efforts
to take or cause to be taken all actions and to do or cause to be done all
things necessary, proper and advisable to consummate the transactions
contemplated by this Agreement.
(b) COMPLIANCE. To comply in all material respects with all
applicable rules and regulations of any Governmental Authority in connection
with the execution, delivery and performance of this Agreement and the
transactions contemplated hereby; to use all reasonable efforts to obtain in a
timely manner all necessary waivers, consents and approvals and to take, or
cause to be taken, all other actions and to do, or cause to be done, all other
things necessary, proper or advisable to consummate and make effective as
promptly as practicable the transactions contemplated by this Agreement.
(c) NOTICE. To give prompt notice to the other party or parties of
(i) the occurrence, or failure to occur, of any event whose occurrence or
failure to occur, would be likely to cause any representation or warranty
contained in this Agreement to be untrue or incorrect in any material respect at
any time from the date hereof to the Closing Date and (ii) any material failure
on its part, or on the part of any of its officers, directors, employees or
agents, to comply with or satisfy any covenant, condition or agreement to be
complied with or satisfied by it hereunder; PROVIDED, HOWEVER, that the delivery
of any such notice shall not limit or otherwise affect the remedies available
hereunder to the party receiving such notice.
(d) CONFIDENTIALITY. To hold in strict confidence all data and
information obtained from the other party hereto or any subsidiary, division,
associate, representative, agent or affiliate of any such party (unless such
information is or becomes publicly available without the fault of any
representative of such party, or public disclosure of such information is
required by law in the opinion of counsel to such party) and shall insure that
such representatives do not disclose information to others without the prior
written consent of the other party hereto, and in the event of the termination
of this Agreement, to cause its representatives to return promptly every
document furnished by the other party hereto or any subsidiary, division,
associate, representative, agent or affiliate of any such party in connection
with the
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transactions contemplated hereby and any copies thereof which may have been
made, other than documents which are publicly available.
ARTICLE VII
CONDITIONS PRECEDENT TO OBLIGATIONS OF
CAMELOT AND THE MEMBERS
The obligations of Camelot and the Members under this Agreement
are subject to the satisfaction, on or prior to the Closing Date, unless waived
by them in writing, of each of the following conditions:
Section 7.1 REPRESENTATIONS AND WARRANTIES TRUE. The
representations and warranties of the Parent and Acquisition Corp. contained in
this Agreement shall be true and correct in all material respects as of the date
when made and at and as of the Closing Date, with the same force and effect as
if made on and as of the Closing Date, and the Members shall have received a
certificate to that effect and as to the matters set forth in Section 7.2
hereof, dated the Closing Date, from the Chairman of the Parent.
Section 7.2 PERFORMANCE OF COVENANTS. Parent and Acquisition Corp.
shall have performed or complied in all material respects with all agreements,
conditions and covenants required by this Agreement to be performed or complied
with by it on or before the Closing Date.
Section 7.3 NO PROCEEDINGS. No preliminary or permanent injunction
or other order (including a temporary restraining order) of any state, federal
or local court or other governmental agency or of any foreign jurisdiction which
prohibits the consummation of the transactions which are the subject of this
Agreement shall have been issued or entered and remain in effect.
Section 7.4 CONSENTS AND APPROVALS. All filings and registrations
with, and notifications to, all federal, state, local and foreign authorities
required for consummation of the transactions contemplated by this Agreement
shall have been made, and all consents, approvals and authorizations of all
federal, state, local and foreign authorities and parties to material contracts,
licenses, agreements or instruments required for consummation of the
transactions contemplated by this Agreement (the "Required Filings and
Consents") shall have been received and shall be in full force and effect.
Section 7.5 RESIGNATIONS FROM PARENT'S BOARD. Messrs. Alphin,
Laurent, Sohn and Zeldin shall have resigned as directors of the Parent and the
Members shall have received copies of their resignation letters.
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Section 7.6 ELECTION TO PARENT BOARD. Loren G. Peterson shall have
been elected a Director of Parent.
Section 7.7 MERGER CERTIFICATE FILED. The Parent shall have filed
a certificate of merger in accordance with the General Corporation Law of
Delaware effecting the merger of Camelot with and into Acquisition Corp.
Section 7.8 OPINION OF PARENT'S COUNSEL. Camelot and the Members
shall have received the opinion of Olshan Grundman Frome & Rosenzweig LLP,
counsel to the Parent, dated as of the Closing Date in substantially the form of
Exhibit A hereto.
Section 7.9 PROXIES. Preparation of proxy materials substantially
ready for filing with the SEC promptly after the Closing providing for:
(i) the election of Douglas R. Eger, Thomas Fitzgerald and Loren
G. Peterson as directors of Parent and the election of such other persons as
directors of Parent as may be approved by Members (it being understood that John
M. Bailey and Digby W. Barrios have been so approved by Members);
(ii) an increase of the number of shares of Common Stock available
for issuance under the 1993 Stock Option Plan to at least 2,500,000 shares of
Common Stock;
(iii) the change in Parent's name to "Sheffield Pharmaceuticals,
Inc." or such other name as may be reasonably acceptable to Members; and
(iv) a description of the employment agreements entered into
between Parent and each of the Members reasonably acceptable to the Members.
Section 7.10 EMPLOYMENT AGREEMENT. Each of the Members shall have
executed an employment agreement with the Parent in form and substance
satisfactory to each such Member (collectively the "Employment Agreements").
Section 7.11 MATERIAL CHANGES. Since the date hereof, there shall
not have been any material change in the business, operations, financial
condition, assets or liabilities of Parent.
ARTICLE VIII
CONDITIONS PRECEDENT TO OBLIGATIONS OF
THE PARENT AND ACQUISITION CORP.
The obligations of the Parent and Acquisition Corp. under this
Agreement are subject to the satisfaction, on or prior to the
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Closing Date, unless waived in writing, of each of the following conditions:
Section 8.1 REPRESENTATION AND WARRANTIES TRUE. The
representations and warranties of Camelot and the Members contained in this
Agreement shall be true and correct in all material respects as of the date when
made and at and as of the Closing Date, with the same force and effect as if
made on and as of the Closing Date, and the Parent shall have received a
certificate to that effect and as to the matters set forth in Section 8.2
hereof, dated the Closing Date, from Camelot and the Members.
Section 8.2 PERFORMANCE OF COVENANTS. Camelot and the Members
shall have performed or complied in all material respects with all agreements,
conditions and covenants required by this Agreement to be performed or complied
with by them on or before the Closing Date.
Section 8.3 NO PROCEEDINGS. No preliminary or permanent injunction
or other order, whether pending or threatened, (including a temporary
restraining order) of any state, federal or local court or other governmental
agency or of any foreign jurisdiction which prohibits the consummation of the
transactions which are the subject of this Agreement or prohibits the Parent's
operation of Camelot's business shall have been issued or entered and remain in
effect.
Section 8.4 CONSENTS AND APPROVALS. All Required Filings and
Consents shall have been received and shall be in full force and effect and the
Board of Directors of Parent shall have approved the transactions contemplated
by this Agreement.
Section 8.5 RESIGNATIONS FROM PARENT'S BOARD. Messrs. Alphin,
Laurent, Sohn and Zeldin shall have resigned as directors of the Parent and the
Members shall have received copies of their resignation letters.
Section 8.6 EMPLOYMENT AGREEMENT. The Employment Agreements shall
have been executed by the parties thereto in form and substance satisfactory to
Parent.
Section 8.7 OPINION OF CAMELOT'S AND THE MEMBERS' COUNSEL. The
Parent shall have received the opinion of Greensfelder, Hemker & Gale, P.C.,
counsel to Camelot and the Members, in substantially the form of Exhibit B
hereto.
Section 8.8 MATERIAL CHANGES. Since the date hereof, there shall
not have been any material adverse change in the business, operations, financial
condition, assets or liabilities, of Camelot.
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ARTICLE IX
INDEMNIFICATION
Section 9.1 INDEMNIFICATION BY CAMELOT AND THE MEMBERS. Subject to
the limitations set forth below, Camelot and the Members jointly and severally
agree to indemnify, defend and hold the Parent, Acquisition Corp. and each of
their respective directors, officers, employees, affiliates and agents harmless
from and against any and all loss, liability, damage, costs and expenses
(including interest, penalties and reasonable attorneys' fees and disbursements)
(collectively, "Losses") that Parent, Acquisition Corp. or such other persons
may incur or become subject to arising out of or due to any inaccuracy of any
representation or the breach of any warranty or covenant of Camelot or any
Member contained in this Agreement. Subject to the limitations set forth below,
Camelot and the Members jointly and severally agree to reimburse the Parent,
Acquisition Corp. and such other persons for any legal or any other expenses
reasonably incurred by them in connection with investigating or defending any
such loss, claim, liability, action or proceeding. The liabilities of each
member pursuant to the Section 9.1 shall be limited to $100,000 per Member.
Section 9.2 INDEMNIFICATION BY THE PARENT AND ACQUISITION CORP.
Parent and Acquisition Corp. jointly and severally agree to indemnify, defend
and hold the Camelot and the Members and their affiliates harmless from and
against any and all Losses that Camelot, the Members and their affiliates may
incur or become subject to arising out of or due to any inaccuracy of any
representation or the breach of any warranty or covenant of Parent or
Acquisition Corp. contained in this Agreement. Parent and Acquisition Corp.
jointly and severally agree to reimburse Camelot, the Members and their
affiliates for any legal or other expenses reasonably incurred by them in
connection with investigating or defending any such loss, claim, liability,
action or proceeding.
Section 9.3 SURVIVAL. The representations, warranties and
covenants of Camelot, the Members, the Parent and Acquisition Corp. set forth in
this Agreement shall survive the Closing for a period of one (1) year after the
Closing Date.
Section 9.4 THIRD PARTY CLAIMS. In order for a party (the
"indemnified party") to be entitled to any indemnification provided for under
this Agreement in respect of, arising out of, or involving a claim or demand or
written notice made by any third party against the indemnified party (a "Third
Party Claim") after the Closing Date, such indemnified party must notify the
indemnifying party (the "indemnifying party") in writing of the Third Party
Claim within 30 business days after receipt by such indemnified party of written
notice of the Third Party Claim; provided that the failure of any indemnified
party to give timely notice shall not affect his right of indemnification
hereunder
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except to the extent the indemnifying party has actually been prejudiced or
damaged thereby. If a Third Party Claim is made against an indemnified party,
the indemnifying party shall be entitled, if it so chooses, to assume the
defense thereof with counsel selected by the indemnifying party (which counsel
shall be reasonably satisfactory to the indemnified party), unless the
indemnified party reasonably concludes that the assumption of control by the
indemnifying party creates a risk of a significant adverse effect on the
indemnified party's business operations, in which case the indemnifying party
shall not be entitled to assume the defense thereof and shall be freed of any
responsibility for indemnification thereunder. If the indemnifying party assumes
the defense of a Third Party Claim, the indemnified party will cooperate in all
reasonable respects with the indemnifying party in connection with such defense,
and shall have the right to participate in such defense with counsel selected by
it. The fees and disbursements of such counsel, however, shall be at the expense
of the indemnified party; PROVIDED, HOWEVER, that in the case of any Third Party
Claim of which the indemnifying party has not employed counsel to assume the
defense, the fees and disbursements of such counsel shall be at the expense of
the indemnifying party.
ARTICLE X
TERMINATION, AMENDMENT AND WAIVER
Section 10.1 TERMINATION. This Agreement may be terminated and the
transactions contemplated by this Agreement abandoned at any time prior to the
Closing (unless otherwise specified) as follows:
(a) by mutual written consent duly executed by all the parties
hereto;
(b) by Parent or Acquisition Corp. (i) if any representation or
warranty of Camelot or the Members set forth in this Agreement shall be untrue
when made or shall have become untrue such that any condition set forth in
Article VIII would not be satisfied as of the Closing Date or (ii) upon a breach
of any covenant or agreement on the part of Camelot or any of the Members set
forth in this Agreement such that any condition set forth in Article VIII would
not be satisfied as of the Closing Date;
(c) by Camelot (i) if any representation or warranty of the Parent
or Acquisition Corp. set forth in this Agreement shall be untrue when made or
shall have become untrue such that any condition set forth in Article VII would
not be satisfied as of the Closing Date or (ii) upon a breach of any covenant or
agreement on the part of the Parent or Acquisition Corp. set forth in this
Agreement such that any condition set forth in Article VII would not be
satisfied as of the Closing Date;
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(d) by either Camelot or the Parent if the Closing does not occur
on or before June 6, 1997.
Section 10.2 EFFECT OF TERMINATION. In the event of any
termination of this Agreement in accordance with Section 10.1(a) or (d) hereof,
this Agreement shall forthwith become void, except as provided in Section 10.3,
and there shall be no liability under this Agreement on the part of any party
hereto or their respective affiliates, officers, directors, employees or agents
by virtue of such termination.
Section 10.3 AMENDMENT. This Agreement may be amended only by the
written agreement of Camelot, the Members, the Parent and Acquisition Corp.
ARTICLE XI
MISCELLANEOUS
Section 11.1 EXPENSES. Each of the parties hereto shall bear their
own expenses in connection with this Agreement and the transactions contemplated
hereby regardless of the failure to consummate transactions contemplated hereby;
provided, however, that Parent shall reimburse Camelot for all out-of-pocket
travel and lodging costs individually incurred by the Members in connection with
the negotiation of the transactions contemplated hereby, regardless of whether
such transactions are consummated. Such costs shall be paid within fifteen days
of submission to Parent or appropriate evidence of the incurrence of such costs.
Section 11.2 NOTICES. All notices, requests, demands and other
communications which are required or may be given under this Agreement shall be
in writing and shall be deemed to have been duly given when delivered personally
or by facsimile transmission, in either case with receipt acknowledged, or three
days after being sent by registered or certified mail, return receipt requested,
postage prepaid:
(a) If the Parent or Acquisition Corp. to:
Sheffield Medical Technologies Inc.
30 Rockefeller Plaza
Suite 4515
New York, NY 10112
Attention: Chief Financial Officer
with a copy to:
Olshan Grundman Frome & Rosenzweig LLP
505 Park Avenue
New York, New York 10022
Attention: Daniel J. Gallagher, Esq.
26
<PAGE>
(b) If to any of the Members, to their respective addresses listed
on the signature pages hereto.
(c) If to Camelot to:
Camelot Pharmacal, L.L.C.
11960 Westline Industrial Drive
Suite 180
St. Louis, Missouri 63146
Attention: Loren G. Peterson
with a copy to:
Greensfelder, Hember & Gale, P.C.
2000 Equitable Building
10 South Broadway
St. Louis, Missouri 63102
Attn: M. Spencer Garland, Esq.
or to such other address as any party shall have specified by notice in writing
to the other in compliance with this Section 11.2.
Section 11.3 ENTIRE AGREEMENT. This Agreement constitutes the
entire agreement among the parties hereto with respect to the subject matter
hereof.
Section 11.4 BINDING EFFECT, BENEFITS, ASSIGNMENTS. This Agreement
shall inure to the benefit of and be binding upon the parties hereto and their
respective successors and assigns; nothing in this Agreement, expressed or
implied, is intended to confer on any other person, other than the parties
hereto or their respective successors and assigns, any rights, remedies,
obligations or liabilities under or by reason of this Agreement. This Agreement
may not be assigned by any party hereto without the prior written consent of the
other parties hereto.
Section 11.5 APPLICABLE LAW. This Agreement and the legal
relations between the parties hereto shall be governed by and construed in
accordance with the laws of the State of New York, without regard to principles
of conflicts of law.
Section 11.6 HEADINGS. The headings and captions in this Agreement
are included for purposes of convenience only and shall not affect the
construction or interpretation of any of its provisions.
Section 11.7 ARBITRATION. Any disputes arising under this
Agreement shall be submitted to and determined by arbitration in New York City,
New York; provided, however, that such
27
<PAGE>
arbitration shall be held in St. Louis, Missouri in the event that the Company's
principal executive offices have been relocated to St. Louis, Missouri. Such
arbitration shall be conducted in accordance with the rules of the American
Arbitration Association. Any award or decision of the arbitration shall be
conclusive in the absence of fraud and judgment thereon may be entered in any
court having jurisdiction thereof. The costs of such arbitration shall be paid
by the non-prevailing party to the extent directed by the arbitrator(s).
Section 11.8 COUNTERPARTS. This Agreement may be executed
simultaneously in two or more counterparts, each of which shall be deemed an
original, but all of which together shall constitute one and the same
instrument.
THIS AGREEMENT CONTAINS BINDING ARBITRATION PROVISIONS WHICH MAY BE ENFORCED BY
THE PARTIES.
28
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the day and year hereinabove first set forth.
CAMELOT PHARMACAL, L.L.C.
By: /s/ Loren G. Peterson
--------------------------------
Loren G. Peterson, as authorized
Member
SHEFFIELD MEDICAL TECHNOLOGIES INC.
By: /s/ George Lombardi
--------------------------------
George Lombardi, Vice President
and Chief Financial Officer
CP PHARMACEUTICALS, INC.
By: /s/ George Lombardi
--------------------------------
George Lombardi, Vice President
and Chief Financial Officer
/s/ LOREN G. PETERSON
- - ------------------------
LOREN G. PETERSON
Address:
1776 Stifel Lane Drive
Town & Country, MO 63017
/s/ CARL F. SIEKMANN
- - ------------------------
CARL F. SIEKMANN
Address:
15915 Wetherburn Road
Chesterfield, MO 63017
/s/ DAVID A. BYRON
- - ------------------------
DAVID A. BYRON
Address:
17674 Lasiandra Drive
Chesterfield, MO 63005
29
<PAGE>
Schedule 1.7
------------
% of Members' Parent Common Stock to be
Name of Member Interest Held Received
- - -------------- ------------- -------------------------
Loren Peterson 331/3% 200,000
Carl F. Siekmann 331/3% 200,000
David A. Byron 331/3% 200,000
<PAGE>
Schedule 3.7
------------
Financial Statements
--------------------
Camelot and its Members have incurred legal and other fees in
connection with the Merger, including, without limitation, fees in regard to the
negotiation of this Agreement, the Employment Agreements and stock options
issued in connection therewith, the payment for which shall become the
obligations of Acquisition Corp. and Parent.
<PAGE>
Schedule 3.8
------------
Absence of Certain Changes
--------------------------
NONE
<PAGE>
Schedule 3.10
-------------
Employee Benefit Plans
----------------------
Insurance Policy/Member Number Term
- - --------- -------------------- ----
United HealthCare One Individual coverage No term
Choice Plan C for Sally Reiter
77 West Port Plaza 51001-498884307
Suite 500
St. Louis, MO 63146-3100
(314)523-1380
Rate: $171.29/month
United Dental Care of Individual coverage One year
Missouri, Inc. for Sally Reiter
12400 Olive Blvd SS####-##-####
Suite 310
St. Louis, MO 63141
Rate: $135/year
<PAGE>
Schedule 3.12
-------------
Trademarks, Patents and Copyrights
----------------------------------
NONE
<PAGE>
Schedule 3.13
-------------
Legal Proceedings, Claims, Investigations, etc.
-----------------------------------------------
NONE
<PAGE>
SCHEDULE 3.15
MATERIAL CONTRACTS
Camelot has entered into two (2) letter agreements granting
rights of first refusal with respect to certain pharmaceutical products as
follows:
1. Letter Agreement dated March 24, 1997 with Entropin, Inc.
regarding investigation and potential development of its
Esterom product.
2. Letter Agreement dated February 17, 1997, as extended on
April 8, 1997, with Barbeau Technologies, Inc. regarding
investigation and development of a proprietary form of
metroprolol for migraine prophylaxis and a proprietary form
of valproic acid for treatment of certain phases of bipolar
disorder.
<PAGE>
SCHEDULE 3.16
CERTAIN TRANSACTIONS
NONE
<PAGE>
SCEDULE 3.18
ENVIRONMENTAL MATTERS
NONE
<PAGE>
Schedule 5.8
------------
Absence Of Certain Changes And Events
-------------------------------------
In March 1997 Parent exercised its option and entered into an
exclusive supply and license agreement with an affiliate of Siemens AG
("Siemens") for the world-wide rights to Siemens' multi-dose inhaler, a
hand-held portable pulmonary delivery system.
EMPLOYMENT AGREEMENT
AGREEMENT made as of the 25th day of April, 1997, by and between
Sheffield Medical Technologies Inc., a Delaware corporation with its principal
offices at 30 Rockefeller Plaza, Suite 4515, New York, New York 10112 (the
"Corporation"), and David A. Byron residing at 17674 Lasiandra Drive,
Chesterfield, Missiouri 63017 ("Executive").
W I T N E S S E T H :
- - - - - - - - - -
WHEREAS, the Corporation desires to employ and retain Executive as
its Executive Vice President - Scientific Affairs, upon the terms and subject to
the conditions of this Agreement; and
NOW, THEREFORE, in consideration of the premises and the mutual
covenants hereinafter set forth, the parties hereto agree as follows:
1. EMPLOYMENT OF EXECUTIVE. The Corporation hereby employs
Executive as its Executive Vice President - Scientific Affairs, to perform the
duties and responsibilities traditionally incident to such office, subject at
all times to the control and direction of the Board of Directors of the
Corporation.
2. ACCEPTANCE OF EMPLOYMENT; OFFICES; TIME AND ATTENTION, ETC. (a)
Executive hereby accepts such employment and agrees that throughout the period
of his employment hereunder, except as hereinafter provided, he will devote his
full business and professional time in utilizing his business and professional
expertise, with proper attention, knowledge and skills faithfully, diligently
and to the best of his ability in furtherance of the business of the Corporation
and its subsidiaries and will perform the duties assigned to him pursuant to
Paragraph 1 hereof. As Executive Vice President - Scientific Affairs, Executive
shall also perform such specific duties and shall exercise such specific
authority related to the management of the day-to-day operations of the
Corporation and its subsidiaries as may be reasonably assigned to Executive from
time to time by the Board of Directors of the Corporation.
(b) Executive shall at all times be subject to, observe and carry
out such rules, regulations, policies, directions and restrictions as the Board
of Directors of the Corporation shall from time to time establish. During the
period of his employment hereunder, Executive shall not, directly or indirectly,
accept employment or compensation from, or perform services of any nature for,
any business enterprise other than the Corporation and its subsidiaries.
Notwithstanding the foregoing in this Paragraph 2, Executive shall not be
precluded from engaging in recreational, eleemosynary, educational and other
activities which do not materially interfere with his duties hereunder during
vacations, holidays and other periods outside of business hours.
(c) It is anticipated that the Corporation's principal executive
office (now located in New York City) shall be relocated
<PAGE>
to St. Louis, Missouri but that Executive may be required to spend substantial
amounts of time at locations in and outside of St. Louis, Missouri relating to
the business of the Corporation and its subsidiaries. It is understood that
Executive shall continue to reside in the vicinity of St. Louis, Missouri and
that the Corporation shall maintain an office in St. Louis, Missouri, which is
where Executive shall maintain his principal office until the Corporation
relocates from New York City to St. Louis, Missouri. The Corporation agrees to
reimburse Executive for his reasonable expenses, including hotel and travel
costs, associated with the Corporation's business. In addition, until completion
of such relocation, it is understood that Executive shall visit the
Corporation's executive office in New York City on a regular basis for meetings
and to conduct Corporation business that is more appropriately conducted from
such executive office.
3. TERM. Except as otherwise provided herein, the term of
Executive's employment hereunder shall commence on the date of the consummation
of the merger of Camelot Pharmacal, L.L.C., a Missouri limited liability
company, with and into a subsidiary of the Company (the "Merger") and shall
continue to and including April 25, 2002. Notwithstanding anything to the
contrary contained in the Agreement, this Agreement shall terminate and have no
force and effect in the event that the Merger is not consummated on or before
June 6, 1997. Unless terminated earlier in accordance with the terms hereof,
this Agreement shall automatically be extended for one or more additional
consecutive one year terms unless either party notifies the other party in
writing at least six months before the end of the then current term (including
the initial term) of its or his desire to terminate this Agreement. The last day
of the term of this Agreement pursuant to this Paragraph 3 (including any early
termination pursuant to the terms hereof) is referred to herein as the
"Termination Date."
4. COMPENSATION. (a) As compensation for his services hereunder,
the Corporation shall pay to Executive (i) a base annual salary at the rate of
$160,000, payable in equal installments in accordance with the normal payroll
practices of the Corporation but in no event less frequently than semi-monthly,
and (ii) such incentive compensation and bonuses, if any, as the Board of
Directors of the Corporation in its absolute discretion may determine to award
Executive (it being understood that this Agreement shall in no event be
construed to require the payment to Executive of any incentive compensation or
bonuses), it being understood that Executive shall be entitled to receive such
incentive compensation and bonuses determined on a basis comparable to the
incentive compensation and/or bonuses awarded to other executive officers of the
Corporation. All compensation paid to Executive shall be subject to withholding
and other employment taxes imposed by applicable law.
(b) During the period of Executive's employment hereunder,
Executive shall not be entitled to any additional compensation for rendering
employment services to subsidiaries of
2
<PAGE>
the Corporation or for serving in any office of the Corporation or any of its
subsidiaries to which he is elected or appointed.
(c) In the event that Executive is elected to the Corporation's
Board of Directors, Executive will receive compensation and benefits as a
director of the Corporation consistent with the compensation and benefits
received by the Corporation's other directors who are also employees of the
Corporation.
5. STOCK OPTIONS. (a) As additional compensation for his services
hereunder, the Corporation shall grant to Executive an option under the
Corporation's 1993 Stock Option Plan (the "Plan") to acquire a total of 400,000
shares of the Corporation's common stock at an exercise price per share equal to
the closing sale price of the Corporation's common stock as reported by the
American Stock Exchange on the date hereof, with the terms of such option to be
evidenced by (i) one option letter agreement in the form annexed as Exhibit "A"
hereto ("Option Letter A-1") being exercisable for 100,000 shares of Common
Stock, (ii) one option letter agreement in the form annexed as Exhibit "A-2"
hereto ("Option Letter A-2") being exercisable for 150,000 shares of Common
Stock and (iii) one option letter agreement in the form annexed as Exhibit "B"
hereto ("Option Letter B") being exercisable for 150,000 shares of Common Stock
(such option letters being referred to collectively herein as the "Plan Option
Letters").
(b) The Company represents and warrants that there are sufficient
shares of Common Stock currently available under the Company's 1993 Stock Option
Plan (the "1993 Plan") to cover the shares of Common Stock issuable to Executive
upon exercise of Option Letter A-1.
(c) In the event that the Company's stockholders fail at the next
annual meeting of stockholders of the Corporation to approve both (i) an
amendment increasing the number of shares available for the issuance of options
under the Plan to an amount at least sufficient to cover all the shares of
Common Stock issuable upon exercise of Option Letter A-2 and Option Letter B and
(ii) appropriate amendments to the Plan specifically confirming the right of the
Corporation's Board of Directors, in the issuance of stock options under the
Plan, to determine provisions regarding terms of the exercise of such stock
options (including without limitation, the period of exercisability of stock
options under the Plan upon termination of employment for cause or without
cause) and provisions regarding forfeiture of stock options under the Plan upon
termination of employment, the Company agrees, upon receipt of a written demand
from Executive, to promptly amend the Plan Option Letters to provide for three
non-qualified options outside the Plan having substantially the same terms and
provisions of the Plan Stock Options.
(d) In the event that (i) the Corporation is required to amend the
Plan Option Letters pursuant to Paragraph 5(c) or (ii) Executive's employment by
the Corporation is terminated (x) by the
3
<PAGE>
Corporation for any reason other than for Cause, (y) by Executive as a result of
an Employer Breach or (z) by the Corporation by reason of the Executive's
disability or death prior to the expiration of the options evidenced by the Plan
Option Letters and Executive is required after such event to pay any U.S.
federal or state income and withholding tax (collectively, "Income Taxes") on
any income recognized by Executive arising upon any exercise of options
evidenced by the Plan Option Letters, the Corporation agrees to reimburse
Executive the difference between (A) the amount of Income Taxes Executive would
have been required to pay had the income recognized on such exercise been
treated as a long term capital gain and (B) the amount of Income Taxes payable
by Executive in respect of such exercise (the amount of such difference being
referred to as the "Tax Difference" in respect of such exercise). In computing
the Tax Difference, the amount of taxes payable by Executive shall be determined
by assuming that the income recognized as a result of such exercise is taxed at
the highest marginal federal and state income tax rates applicable to ordinary
income. In addition, the Corporation shall pay Executive an amount equal to the
Tax Difference arising in respect of such exercise multiplied by a fraction, the
numerator of which is 1 and the denominator of which is equal to 1 minus (i) the
highest marginal federal income tax rate (currently 39.6%) and (ii) the highest
marginal state income tax rate applicable to Executive, in each case in respect
of ordinary income, in effect at the time of such exercise. Such amount shall be
paid by the Corporation within ninety (90) days after any such exercise.
Notwithstanding anything to the contrary in this Agreement or the Plan Option
Letters, the Corporation shall have no obligation to pay Executive any amount in
excess of $250,000 in the aggregate in respect of its obligations under this
subparagraph.
6. ADDITIONAL BENEFITS; VACATION. (a) In addition to such base
salary, Executive shall receive and be entitled to participate, to the extent he
is eligible under the terms and conditions thereof, in any profit sharing,
pension, retirement, hospitalization, disability, medical service, insurance or
other employee benefit plan generally available to the executive officers of the
Corporation that may be in effect from time to time during the period of
Executive's employment hereunder. The Corporation agrees to cover Executive
under any directors' and officers' liability policy maintained by the
Corporation.
(b) Executive shall be entitled to four (4) weeks' paid vacation
in respect of each 12-month period during the term of his employment hereunder,
such vacation to be taken at times mutually agreeable to Executive and the Board
of Directors of the Corporation.
(c) Executive shall be entitled to recognize as holidays all days
recognized as such by the Corporation.
7. REIMBURSEMENT OF EXPENSES. The Corporation shall reimburse
Executive in accordance with applicable policies of the Corporation for all
expenses reasonably incurred by him in
4
<PAGE>
connection with the performance of his duties hereunder and the business of the
Corporation, upon the submission to the Corporation of appropriate receipts or
vouchers.
8. RESTRICTIVE COVENANT. (a) In consideration of the Corporation's
entering into this Agreement, Executive agrees that during the period of his
employment hereunder and, in the event of termination of this Agreement (i) by
the Corporation upon Executive becoming Disabled (as that term is defined in
Paragraph 13 hereof), (ii) by the Corporation for Cause (as that term is defined
in Paragraph 14 hereof) or (iii) by Executive otherwise than for Employer Breach
(as that term is defined in Paragraph 15 hereof), for a further period of six
months thereafter, he will not (x) directly or indirectly own, manage, operate,
join, control, participate in, invest in, whether as an officer, director,
employee, partner, investor or otherwise, any business entity that is engaged in
a directly competitive business (as hereinafter defined) to that of the
Corporation or any of its subsidiaries within the United States of America, (y)
for himself or on behalf of any other person, partnership, corporation or
entity, call on any customer of the Corporation or any of its subsidiaries for
the purpose of soliciting away, diverting or taking away any customer from the
Corporation or its subsidiaries, or (z) solicit any person then engaged as an
employee, representative, agent, independent contractor or otherwise by the
Corporation or any of its subsidiaries, to terminate his or her relationship
with the Corporation or any of its subsidiaries. For purposes of this Agreement,
the term "directly competitive business" shall mean any business that is then
involved in the research, development, manufacturing or commercialization in any
way of any product, compound, device or method that acts or functions by,
through or on the same active, binding or receptor site, mechanism of action,
signaling pathway or channel as any product, compound, device or method that is
or becomes a part of the Corporation's business or the business of any of its
subsidiaries during Executive's employment by the Corporation or any of its
subsidiaries. Nothing contained in this Agreement shall be deemed to prohibit
Executive from investing his funds in securities of an issuer if the securities
of such issuer are listed for trading on a national securities exchange or are
traded in the over-the-counter market and Executive's holdings therein represent
less than 10% of the total number of shares or principal amount of the
securities of such issuer outstanding.
(b) Executive acknowledges that the provisions of this Paragraph 8
are reasonable and necessary for the protection of the Corporation, and that
each provision, and the period or periods of time, geographic areas and types
and scope of restrictions on the activities specified herein are, and are
intended to be, divisible. In the event that any provision of this Paragraph 8,
including any sentence, clause or part hereof, shall be deemed contrary to law
or invalid or unenforceable in any respect by a court of competent jurisdiction,
the remaining provisions shall not be affected, but shall, subject to the
discretion of such court, remain in full force and effect.
5
<PAGE>
9. CONFIDENTIAL INFORMATION.
(a) Executive shall hold in a fiduciary capacity for the
benefit of the Corporation and its subsidiaries all confidential information,
knowledge and data relating to or concerned with its operations, sales, business
and affairs, and he shall not, at any time during his employment hereunder and
for two years thereafter, use, disclose or divulge any such information,
knowledge or data to any person, firm or corporation other than to the
Corporation and its subsidiaries or their respective designees or except as may
otherwise be reasonably required or desirable in connection with the business
and affairs of the Corporation and its subsidiaries.
(b) Notwithstanding anything to the contrary contained herein,
Executive's obligations under Paragraph 9(a) hereof shall not apply to any
information which:
(i) becomes rightfully known to Executive subsequent or prior to
his employment by the Corporation;
(ii) is or becomes available to the public other than as a result
of wrongful disclosure by Executive;
(iii) becomes available to Executive subsequent to his employment
by the Corporation on a nonconfidential basis from a source other than the
Corporation or its agents which source has a right to disclose such
information; or
(iv) results from research and development and/or commercial
operations at any time by or on behalf of any person, company or other
entity with which or with whom Executive shall become associated (in a
manner consistent with the terms of this Agreement) subsequent to his
employment by the Corporation or its agents totally independent from any
disclosure from the Corporation or its agents.
(c) Notwithstanding anything to the contrary contained
herein, in the event that Executive becomes legally compelled to disclose any
confidential information, Executive will provide the Corporation with prompt
notice so that the Corporation may seek a protective order or other appropriate
remedy. In the event that such protective order or other remedy is not obtained,
Executive shall furnish only such confidential information which is legally
required to be disclosed.
10. INTELLECTUAL PROPERTY. Any idea, invention, design, written
material, manual, system, procedure, improvement, development or discovery
conceived, developed, created or made by Executive alone or with others, during
the period of his employment hereunder and applicable to the business of the
Corporation or any of its subsidiaries, whether or not patentable or
registrable, shall become the sole and exclusive property of the Corporation or
such subsidiary. Executive shall disclose the same promptly and completely to
the Corporation and shall, during the period of his
6
<PAGE>
employment hereunder and at any time and from time to time hereafter at no cost
to Executive (i) execute all documents reasonably requested by the Corporation
for vesting in the Corporation or any of its subsidiaries the entire right,
title and interest in and to the same, (ii) execute all documents reasonably
requested by the Corporation for filing and prosecuting such applications for
patents, trademarks, service marks and/or copyrights as the Corporation, in its
sole discretion, may desire to prosecute, and (iii) give the Corporation all
assistance it reasonably requires, including the giving of testimony in any
suit, action or proceeding, in order to obtain, maintain and protect the
Corporation's right therein and thereto.
11. EQUITABLE RELIEF. The parties hereto acknowledge that
Executive's services are unique and that, in the event of a breach or a
threatened breach by Executive of any of his obligations under Paragraphs 8, 9
or 10 this Agreement, the Corporation shall not have an adequate remedy at law.
Accordingly, in the event of any such breach or threatened breach by Executive,
the Corporation shall be entitled to such equitable and injunctive relief as may
be available to restrain Executive and any business, firm, partnership,
individual, corporation or entity participating in such breach or threatened
breach from the violation of the provisions of Paragraph 8, 9 or 10 hereof.
Nothing herein shall be construed as prohibiting the Corporation from pursuing
any other remedies available at law or in equity for such breach or threatened
breach, including the recovery of damages and the immediate termination of the
employment of Executive hereunder, if and to the extent permitted hereunder.
12. TERMINATION OF AGREEMENT; TERMINATION OF EMPLOYMENT;
SEVERANCE; SURVIVAL. (a) This Agreement and Executive's employment hereunder
shall terminate upon the first to occur of the following: (i) Executive becoming
Disabled (as that term is defined in Paragraph 13 hereof); (ii) Executive's
death; (iii) termination of Executive's employment by the Corporation for Cause
or pursuant to subparagraph (b) of this Paragraph 12; (iv) termination of
Executive's employment for Employer Breach and (v) the termination of this
Agreement at the end of the term of this Agreement on the Termination Date
pursuant to Paragraph 3.
(b) Notwithstanding anything to the contrary contained in
this Agreement, in the event of the termination of the Executive's employment by
the Corporation for any reason (other than for Cause), Executive shall be paid a
severance payment equal to 75% of Executive's then current annual base salary
payable in nine equal monthly installments, with the first installment being
payable on the date falling two weeks after the date of such termination and
each additional installment being paid every month after such date until such
severance is paid in full. In the event of such termination of the Executive's
employment by the Corporation (other than for Cause), the Corporation shall have
no further obligation to the Executive under this Agreement other than the
Corporation's obligation (i) to make such severance payment to the Executive
(ii) to pay Executive's COBRA premium payments for
7
<PAGE>
hospitalization and medical insurance coverage provided by the Corporation and
to pay Executive's premiums on any death and/or disability insurance being
maintained by the Corporation for Executive at the time of such termination, in
each case until the payment in full of such severance payments
(c) Paragraph 5(c) of this Agreement shall survive the
termination of Executive's employment hereunder until the earlier to occur of
Executive's exercise of all of the stock options granted pursuant to paragraph 5
and the expiration of all such stock options pursuant to the Stock Option
Letters. Paragraphs 7, 8, 9, 10, 11 and 26 of this Agreement shall survive the
termination of Executive's employment hereunder, except in the case of
termination pursuant to Paragraph 15.
13. DISABILITY. In the event that during the term of his
employment by the Corporation Executive shall become Disabled (as that term is
hereinafter defined) he shall continue to receive the full amount of the base
salary to which he was theretofore entitled for a period of six months after he
shall be deemed to have become Disabled (the "First Disability Payment Period").
If the First Disability Payment Period shall end prior to the Termination Date,
Executive thereafter shall be entitled to receive salary at an annual rate equal
to 80% of his then current base salary for a further period ending on the
earlier of (i) six months thereafter or (ii) the Termination Date (the "Second
Disability Payment Period"). Upon the expiration of the Second Disability
Payment Period, Executive shall not be entitled to receive any further payments
on account of his base salary until he shall cease to be Disabled and shall have
resumed his duties hereunder and provided that the Corporation shall not have
theretofore terminated this Agreement as hereinafter provided. The Corporation
may terminate Executive's employment hereunder at any time after Executive is
Disabled, upon at least 10 days' prior written notice; PROVIDED, HOWEVER, that
such termination shall not relieve the Corporation from its obligation to make
the payments to Executive described above in this Paragraph 13. For the purposes
of this Agreement, Executive shall be deemed to have become Disabled when (x) by
reason of physical or mental incapacity, Executive is not able to perform his
duties hereunder for a period of 90 consecutive days or for 120 days in any
consecutive 180-day period or (y) when Executive's physician or a physician
designated by the Corporation shall have determined that Executive shall not be
able, by reason of physical or mental incapacity, to perform a substantial
portion of his duties hereunder. In the event that Executive shall dispute any
determination of his disability pursuant to clauses (x) or (y) above, the matter
shall be resolved by the determination of three physicians qualified to practice
medicine in the United States of America, one to be selected by each of the
Corporation and Executive and the third to be selected by the designated
physicians. If Executive shall receive benefits under any disability policy
maintained by the Corporation, the Corporation shall be entitled to deduct the
amount equal to the benefits so received from base salary that it otherwise
would have been required to pay to Executive as provided above.
8
<PAGE>
14. TERMINATION FOR CAUSE. The Corporation may at any time upon
written notice to Executive terminate Executive's employment for Cause. For
purposes of this Agreement, the following shall constitute Cause: (i) the
willful and repeated failure of Executive to perform any material duties
hereunder or gross negligence of Executive in the performance of such duties,
and if such failure or gross negligence is susceptible to cure by Executive, the
failure to effect such cure within twenty (20) days after written notice of such
failure or gross negligence is given to Executive; (ii) except as permitted
hereunder, unexplained, willful and regular absences of Executive from the
Corporation; (iii) excessive use of alcohol or illegal drugs, interfering with
the performance of Executives duties hereunder; (iv) indictment for a crime of
theft, embezzlement, fraud, misappropriation of funds, other acts of dishonesty
or the violation of any law or ethical rule relating to Executive's employment;
(v) indicted for any other felony or other crime involving moral turpitude by
Executive; or (vi) the breach by Executive of any of the provisions of
paragraphs 8, 9 or 10 and if such breach is susceptible of cure by Executive,
the failure to effect such cure within twenty (20) days after written notice of
such breach is given to Executive. For purposes of this Agreement, an action
shall be considered "willful" if it is done intentionally, purposely or
knowingly, distinguished from an act done carelessly, thoughtlessly or
inadvertently. In any such event, Executive shall be entitled to receive his
base salary to and including the date of termination.
15. TERMINATION FOR EMPLOYER BREACH. Executive may upon written
notice to the Corporation terminate this Agreement (including paragraphs 8, 9,
10 and 11) in the event of the breach by the Corporation of any material
provision of this Agreement, and if such breach is susceptible of cure, the
failure to effect such cure within 20 days after written notice of such breach
is given to the Corporation (an "Employer Breach"). Executive's right to
terminate this Agreement under this Paragraph 15 shall be in addition to any
other remedies Executive may have under law or equity. Paragraphs 2(d), 7 and
12(b) of this Agreement shall survive the termination of this Agreement by
Executive pursuant to this Paragraph 15.
16. INSURANCE POLICIES. The Corporation shall have the right from
time to time to purchase, increase, modify or terminate insurance policies on
the life of Executive for the benefit of the Corporation, in such amounts as the
Corporation shall determine in its sole discretion. In connection therewith,
Executive shall, at such time or times and at such place or places as the
Corporation may reasonably direct, submit himself to such physical examinations
and execute and deliver such documents as the Corporation may reasonably deem
necessary or desirable.
17. ENTIRE AGREEMENT; AMENDMENT. This Agreement constitutes the
entire agreement of the parties hereto, and any prior agreement between the
Corporation and Executive is hereby superseded and terminated effective
immediately and shall be without further force or effect. No amendment or
modification
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himself shall be valid or binding unless made in writing and signed by the party
against whom enforcement thereof is sought.
18. NOTICES. Any notice required, permitted or desired to be given
pursuant to any of the provisions of this Agreement shall be delivered in person
or sent by responsible overnight delivery service or sent by certified mail,
return receipt requested, postage and fees prepaid, if to the Corporation, at
its address set forth above to the attention of the Corporation's Chief
Financial Officer and, if to Executive, at his address set forth above. Either
of the parties hereto may at any time and from time to time change the address
to which notice shall be sent hereunder by notice to the other party given under
this Paragraph 18. Notices shall be deemed effective upon receipt.
19. NO ASSIGNMENT; BINDING EFFECT. Neither this Agreement, nor the
right to receive any payments hereunder, may be assigned by either party without
the other party's prior written consent. This Agreement shall be binding upon
Executive, his heirs, executors and administrators and upon the Corporation, its
successors and assigns.
20. WAIVERS. No course of dealing nor any delay on the part of
either party in exercising any rights hereunder shall operate as a waiver of any
such rights. No waiver of any default or breach of this Agreement shall be
deemed a continuing waiver or a waiver of any other breach or default.
21. GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York, except that body
of law relating to choice of laws.
22. INVALIDITY. If any clause, paragraph, section or part of this
Agreement shall be held or declared to be void, invalid or illegal, for any
reason, by any court of competent jurisdiction, such provision shall be
ineffective but shall not in any way invalidate or affect any other clause,
paragraph, section or part of this Agreement.
23. FURTHER ASSURANCES. Each of the parties shall execute such
documents and take such other actions as may be reasonably requested by the
other party to carry out the provisions and purposes of this Agreement in
accordance with its terms.
24. HEADINGS. The headings contained in this Agreement have been
inserted for convenience only and shall not affect in any way the meaning or
interpretation of this Agreement.
25. PUBLICITY. The Corporation and Executive agree that they will
not make any press releases or other announcements prior to or at the time of
execution of this Agreement with respect to the terms contemplated hereby,
except as required by applicable law, without the prior approval of the other
party, which approval will not be unreasonably withheld.
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26. ARBITRATION. Any disputes arising under this Agreement shall
be submitted to and determined by arbitration in New York City, New York;
PROVIDED, HOWEVER, that such arbitration shall be held in St. Louis, Missouri in
the event that the Company's principal executive offices is located at the time
of such dispute in St. Louis, Missouri. Such arbitration shall be conducted in
accordance with the rules of the American Arbitration Association. Any award or
decision of the arbitration shall be conclusive in the absence of fraud and
judgment thereon may be entered in any court having jurisdiction thereof. The
costs of such arbitration shall be paid by the non-prevailing party to the
extent directed by the arbitrator(s).
THIS AGREEMENT CONTAINS BINDING ARBITRATION PROVISIONS WHICH MAY BE ENFORCED BY
THE PARTIES.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be duly executed as of the day and year first above written.
SHEFFIELD MEDICAL TECHNOLOGIES INC.
By: /s/ George Lombardi
------------------------------
George Lombardi
Vice President and Chief
Financial Officer
/s/ David A. Byron
------------------------------
David A. Byron
12
EMPLOYMENT AGREEMENT
AGREEMENT made as of the 25th day of April, 1997, by and between
Sheffield Medical Technologies Inc., a Delaware corporation with its principal
offices at 30 Rockefeller Plaza, Suite 4515, New York, New York 10112 (the
"Corporation"), and Loren G. Peterson residing at 1776 Stifel Lane Drive, Town &
Country, Missiouri 63017 ("Executive").
W I T N E S S E T H :
- - - - - - - - - -
WHEREAS, the Corporation desires to employ and retain Executive as
its Chief Executive Officer, upon the terms and subject to the conditions of
this Agreement; and
NOW, THEREFORE, in consideration of the premises and the mutual
covenants hereinafter set forth, the parties hereto agree as follows:
1. EMPLOYMENT OF EXECUTIVE. The Corporation hereby employs
Executive as its Chief Executive Officer, to perform the duties and
responsibilities traditionally incident to such office, subject at all times to
the control and direction of the Board of Directors of the Corporation.
2. ACCEPTANCE OF EMPLOYMENT; OFFICES; TIME AND ATTENTION, ETC. (a)
Executive hereby accepts such employment and agrees that throughout the period
of his employment hereunder, except as hereinafter provided, he will devote his
full business and professional time in utilizing his business and professional
expertise, with proper attention, knowledge and skills faithfully, diligently
and to the best of his ability in furtherance of the business of the Corporation
and its subsidiaries and will perform the duties assigned to him pursuant to
Paragraph 1 hereof. As Chief Executive Officer, Executive shall also perform
such specific duties and shall exercise such specific authority related to the
management of the day-to-day operations of the Corporation and its subsidiaries
as may be reasonably assigned to Executive from time to time by the Board of
Directors of the Corporation.
(b) Executive shall at all times be subject to, observe and carry
out such rules, regulations, policies, directions and restrictions as the Board
of Directors of the Corporation shall from time to time establish. During the
period of his employment hereunder, Executive shall not, directly or indirectly,
accept employment or compensation from, or perform services of any nature for,
any business enterprise other than the Corporation and its subsidiaries.
Notwithstanding the foregoing in this Paragraph 2, Executive shall not be
precluded from engaging in recreational, eleemosynary, educational and other
activities which do not materially interfere with his duties hereunder during
vacations, holidays and other periods outside of business hours.
(c) It is anticipated that the Corporation's principal executive
office (now located in New York City) shall be relocated
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to St. Louis, Missouri but that Executive may be required to spend substantial
amounts of time at locations in and outside of St. Louis, Missouri relating to
the business of the Corporation and its subsidiaries. It is understood that
Executive shall continue to reside in the vicinity of St. Louis, Missouri and
that the Corporation shall maintain an office in St. Louis, Missouri, which is
where Executive shall maintain his principal office until the Corporation
relocates from New York City to St. Louis, Missouri. The Corporation agrees to
reimburse Executive for his reasonable expenses, including hotel and travel
costs, associated with the Corporation's business. In addition, until completion
of such relocation, it is understood that Executive shall visit the
Corporation's executive office in New York City on a regular basis for meetings
and to conduct Corporation business that is more appropriately conducted from
such executive office.
3. TERM. Except as otherwise provided herein, the term of
Executive's employment hereunder shall commence on the date of the consummation
of the merger of Camelot Pharmacal, L.L.C., a Missouri limited liability
company, with and into a subsidiary of the Company (the "Merger") and shall
continue to and including April 25, 2002. Notwithstanding anything to the
contrary contained in the Agreement, this Agreement shall terminate and have no
force and effect in the event that the Merger is not consummated on or before
June 6, 1997. Unless terminated earlier in accordance with the terms hereof,
this Agreement shall automatically be extended for one or more additional
consecutive one year terms unless either party notifies the other party in
writing at least six months before the end of the then current term (including
the initial term) of its or his desire to terminate this Agreement. The last day
of the term of this Agreement pursuant to this Paragraph 3 (including any early
termination pursuant to the terms hereof) is referred to herein as the
"Termination Date."
4. COMPENSATION. (a) As compensation for his services hereunder,
the Corporation shall pay to Executive (i) a base annual salary at the rate of
$175,000, payable in equal installments in accordance with the normal payroll
practices of the Corporation but in no event less frequently than semi-monthly,
and (ii) such incentive compensation and bonuses, if any, as the Board of
Directors of the Corporation in its absolute discretion may determine to award
Executive (it being understood that this Agreement shall in no event be
construed to require the payment to Executive of any incentive compensation or
bonuses), it being understood that Executive shall be entitled to receive such
incentive compensation and bonuses determined on a basis comparable to the
incentive compensation and/or bonuses awarded to other executive officers of the
Corporation. All compensation paid to Executive shall be subject to withholding
and other employment taxes imposed by applicable law.
(b) During the period of Executive's employment hereunder,
Executive shall not be entitled to any additional compensation for rendering
employment services to subsidiaries of
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the Corporation or for serving in any office of the Corporation or any of its
subsidiaries to which he is elected or appointed.
(c) In the event that Executive is elected to the Corporation's
Board of Directors, Executive will receive compensation and benefits as a
director of the Corporation consistent with the compensation and benefits
received by the Corporation's other directors who are also employees of the
Corporation.
5. STOCK OPTIONS. (a) As additional compensation for his services
hereunder, the Corporation shall grant to Executive an option under the
Corporation's 1993 Stock Option Plan (the "Plan") to acquire a total of 400,000
shares of the Corporation's common stock at an exercise price per share equal to
the closing sale price of the Corporation's common stock as reported by the
American Stock Exchange on the date hereof, with the terms of such option to be
evidenced by (i) one option letter agreement in the form annexed as Exhibit "A"
hereto ("Option Letter A-1") being exercisable for 100,000 shares of Common
Stock, (ii) one option letter agreement in the form annexed as Exhibit "A-2"
hereto ("Option Letter A-2") being exercisable for 150,000 shares of Common
Stock and (iii) one option letter agreement in the form annexed as Exhibit "B"
hereto ("Option Letter B") being exercisable for 150,000 shares of Common Stock
(such option letters being referred to collectively herein as the "Plan Option
Letters").
(b) The Company represents and warrants that there are sufficient
shares of Common Stock currently available under the Company's 1993 Stock Option
Plan (the "1993 Plan") to cover the shares of Common Stock issuable to Executive
upon exercise of Option Letter A-1.
(c) In the event that the Company's stockholders fail at the next
annual meeting of stockholders of the Corporation to approve both (i) an
amendment increasing the number of shares available for the issuance of options
under the Plan to an amount at least sufficient to cover all the shares of
Common Stock issuable upon exercise of Option Letter A-2 and Option Letter B and
(ii) appropriate amendments to the Plan specifically confirming the right of the
Corporation's Board of Directors, in the issuance of stock options under the
Plan, to determine provisions regarding terms of the exercise of such stock
options (including without limitation, the period of exercisability of stock
options under the Plan upon termination of employment for cause or without
cause) and provisions regarding forfeiture of stock options under the Plan upon
termination of employment, the Company agrees, upon receipt of a written demand
from Executive, to promptly amend the Plan Option Letters to provide for three
non-qualified options outside the Plan having substantially the same terms and
provisions of the Plan Stock Options.
(d) In the event that (i) the Corporation is required to amend the
Plan Option Letters pursuant to Paragraph 5(c) or (ii) Executive's employment by
the Corporation is terminated (x) by the
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Corporation for any reason other than for Cause, (y) by Executive as a result of
an Employer Breach or (z) by the Corporation by reason of the Executive's
disability or death prior to the expiration of the options evidenced by the Plan
Option Letters and Executive is required after such event to pay any U.S.
federal or state income and withholding tax (collectively, "Income Taxes") on
any income recognized by Executive arising upon any exercise of options
evidenced by the Plan Option Letters, the Corporation agrees to reimburse
Executive the difference between (A) the amount of Income Taxes Executive would
have been required to pay had the income recognized on such exercise been
treated as a long term capital gain and (B) the amount of Income Taxes payable
by Executive in respect of such exercise (the amount of such difference being
referred to as the "Tax Difference" in respect of such exercise). In computing
the Tax Difference, the amount of taxes payable by Executive shall be determined
by assuming that the income recognized as a result of such exercise is taxed at
the highest marginal federal and state income tax rates applicable to ordinary
income. In addition, the Corporation shall pay Executive an amount equal to the
Tax Difference arising in respect of such exercise multiplied by a fraction, the
numerator of which is 1 and the denominator of which is equal to 1 minus (i) the
highest marginal federal income tax rate (currently 39.6%) and (ii) the highest
marginal state income tax rate applicable to Executive, in each case in respect
of ordinary income, in effect at the time of such exercise. Such amount shall be
paid by the Corporation within ninety (90) days after any such exercise.
Notwithstanding anything to the contrary in this Agreement or the Plan Option
Letters, the Corporation shall have no obligation to pay Executive any amount in
excess of $250,000 in the aggregate in respect of its obligations under this
subparagraph.
6. ADDITIONAL BENEFITS; VACATION. (a) In addition to such base
salary, Executive shall receive and be entitled to participate, to the extent he
is eligible under the terms and conditions thereof, in any profit sharing,
pension, retirement, hospitalization, disability, medical service, insurance or
other employee benefit plan generally available to the executive officers of the
Corporation that may be in effect from time to time during the period of
Executive's employment hereunder. The Corporation agrees to cover Executive
under any directors' and officers' liability policy maintained by the
Corporation.
(b) Executive shall be entitled to four (4) weeks' paid vacation
in respect of each 12-month period during the term of his employment hereunder,
such vacation to be taken at times mutually agreeable to Executive and the Board
of Directors of the Corporation.
(c) Executive shall be entitled to recognize as holidays all days
recognized as such by the Corporation.
7. REIMBURSEMENT OF EXPENSES. The Corporation shall reimburse
Executive in accordance with applicable policies of the Corporation for all
expenses reasonably incurred by him in
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connection with the performance of his duties hereunder and the business of the
Corporation, upon the submission to the Corporation of appropriate receipts or
vouchers.
8. RESTRICTIVE COVENANT. (a) In consideration of the Corporation's
entering into this Agreement, Executive agrees that during the period of his
employment hereunder and, in the event of termination of this Agreement (i) by
the Corporation upon Executive becoming Disabled (as that term is defined in
Paragraph 13 hereof), (ii) by the Corporation for Cause (as that term is defined
in Paragraph 14 hereof) or (iii) by Executive otherwise than for Employer Breach
(as that term is defined in Paragraph 15 hereof), for a further period of six
months thereafter, he will not (x) directly or indirectly own, manage, operate,
join, control, participate in, invest in, whether as an officer, director,
employee, partner, investor or otherwise, any business entity that is engaged in
a directly competitive business (as hereinafter defined) to that of the
Corporation or any of its subsidiaries within the United States of America, (y)
for himself or on behalf of any other person, partnership, corporation or
entity, call on any customer of the Corporation or any of its subsidiaries for
the purpose of soliciting away, diverting or taking away any customer from the
Corporation or its subsidiaries, or (z) solicit any person then engaged as an
employee, representative, agent, independent contractor or otherwise by the
Corporation or any of its subsidiaries, to terminate his or her relationship
with the Corporation or any of its subsidiaries. For purposes of this Agreement,
the term "directly competitive business" shall mean any business that is then
involved in the research, development, manufacturing or commercialization in any
way of any product, compound, device or method that acts or functions by,
through or on the same active, binding or receptor site, mechanism of action,
signaling pathway or channel as any product, compound, device or method that is
or becomes a part of the Corporation's business or the business of any of its
subsidiaries during Executive's employment by the Corporation or any of its
subsidiaries. Nothing contained in this Agreement shall be deemed to prohibit
Executive from investing his funds in securities of an issuer if the securities
of such issuer are listed for trading on a national securities exchange or are
traded in the over-the-counter market and Executive's holdings therein represent
less than 10% of the total number of shares or principal amount of the
securities of such issuer outstanding.
(b) Executive acknowledges that the provisions of this Paragraph 8
are reasonable and necessary for the protection of the Corporation, and that
each provision, and the period or periods of time, geographic areas and types
and scope of restrictions on the activities specified herein are, and are
intended to be, divisible. In the event that any provision of this Paragraph 8,
including any sentence, clause or part hereof, shall be deemed contrary to law
or invalid or unenforceable in any respect by a court of competent jurisdiction,
the remaining provisions shall not be affected, but shall, subject to the
discretion of such court, remain in full force and effect.
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9. CONFIDENTIAL INFORMATION.
(a) Executive shall hold in a fiduciary capacity for the
benefit of the Corporation and its subsidiaries all confidential information,
knowledge and data relating to or concerned with its operations, sales, business
and affairs, and he shall not, at any time during his employment hereunder and
for two years thereafter, use, disclose or divulge any such information,
knowledge or data to any person, firm or corporation other than to the
Corporation and its subsidiaries or their respective designees or except as may
otherwise be reasonably required or desirable in connection with the business
and affairs of the Corporation and its subsidiaries.
(b) Notwithstanding anything to the contrary contained herein,
Executive's obligations under Paragraph 9(a) hereof shall not apply to any
information which:
(i) becomes rightfully known to Executive subsequent or prior to
his employment by the Corporation;
(ii) is or becomes available to the public other than as a result
of wrongful disclosure by Executive;
(iii) becomes available to Executive subsequent to his employment
by the Corporation on a nonconfidential basis from a source other than the
Corporation or its agents which source has a right to disclose such
information; or
(iv) results from research and development and/or commercial
operations at any time by or on behalf of any person, company or other
entity with which or with whom Executive shall become associated (in a
manner consistent with the terms of this Agreement) subsequent to his
employment by the Corporation or its agents totally independent from any
disclosure from the Corporation or its agents.
(c) Notwithstanding anything to the contrary contained
herein, in the event that Executive becomes legally compelled to disclose any
confidential information, Executive will provide the Corporation with prompt
notice so that the Corporation may seek a protective order or other appropriate
remedy. In the event that such protective order or other remedy is not obtained,
Executive shall furnish only such confidential information which is legally
required to be disclosed.
10. INTELLECTUAL PROPERTY. Any idea, invention, design, written
material, manual, system, procedure, improvement, development or discovery
conceived, developed, created or made by Executive alone or with others, during
the period of his employment hereunder and applicable to the business of the
Corporation or any of its subsidiaries, whether or not patentable or
registrable, shall become the sole and exclusive property of the Corporation or
such subsidiary. Executive shall disclose the same promptly and completely to
the Corporation and shall, during the period of his
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employment hereunder and at any time and from time to time hereafter at no cost
to Executive (i) execute all documents reasonably requested by the Corporation
for vesting in the Corporation or any of its subsidiaries the entire right,
title and interest in and to the same, (ii) execute all documents reasonably
requested by the Corporation for filing and prosecuting such applications for
patents, trademarks, service marks and/or copyrights as the Corporation, in its
sole discretion, may desire to prosecute, and (iii) give the Corporation all
assistance it reasonably requires, including the giving of testimony in any
suit, action or proceeding, in order to obtain, maintain and protect the
Corporation's right therein and thereto.
11. EQUITABLE RELIEF. The parties hereto acknowledge that
Executive's services are unique and that, in the event of a breach or a
threatened breach by Executive of any of his obligations under Paragraphs 8, 9
or 10 this Agreement, the Corporation shall not have an adequate remedy at law.
Accordingly, in the event of any such breach or threatened breach by Executive,
the Corporation shall be entitled to such equitable and injunctive relief as may
be available to restrain Executive and any business, firm, partnership,
individual, corporation or entity participating in such breach or threatened
breach from the violation of the provisions of Paragraph 8, 9 or 10 hereof.
Nothing herein shall be construed as prohibiting the Corporation from pursuing
any other remedies available at law or in equity for such breach or threatened
breach, including the recovery of damages and the immediate termination of the
employment of Executive hereunder, if and to the extent permitted hereunder.
12. TERMINATION OF AGREEMENT; TERMINATION OF EMPLOYMENT;
SEVERANCE; SURVIVAL. (a) This Agreement and Executive's employment hereunder
shall terminate upon the first to occur of the following: (i) Executive becoming
Disabled (as that term is defined in Paragraph 13 hereof); (ii) Executive's
death; (iii) termination of Executive's employment by the Corporation for Cause
or pursuant to subparagraph (b) of this Paragraph 12; (iv) termination of
Executive's employment for Employer Breach and (v) the termination of this
Agreement at the end of the term of this Agreement on the Termination Date
pursuant to Paragraph 3.
(b) Notwithstanding anything to the contrary contained in
this Agreement, in the event of the termination of the Executive's employment by
the Corporation for any reason (other than for Cause), Executive shall be paid a
severance payment equal to 75% of Executive's then current annual base salary
payable in nine equal monthly installments, with the first installment being
payable on the date falling two weeks after the date of such termination and
each additional installment being paid every month after such date until such
severance is paid in full. In the event of such termination of the Executive's
employment by the Corporation (other than for Cause), the Corporation shall have
no further obligation to the Executive under this Agreement other than the
Corporation's obligation (i) to make such severance payment to the Executive
(ii) to pay Executive's COBRA premium payments for
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hospitalization and medical insurance coverage provided by the Corporation and
to pay Executive's premiums on any death and/or disability insurance being
maintained by the Corporation for Executive at the time of such termination, in
each case until the payment in full of such severance payments
(c) Paragraph 5(c) of this Agreement shall survive the
termination of Executive's employment hereunder until the earlier to occur of
Executive's exercise of all of the stock options granted pursuant to paragraph 5
and the expiration of all such stock options pursuant to the Stock Option
Letters. Paragraphs 7, 8, 9, 10, 11 and 26 of this Agreement shall survive the
termination of Executive's employment hereunder, except in the case of
termination pursuant to Paragraph 15.
13. DISABILITY. In the event that during the term of his
employment by the Corporation Executive shall become Disabled (as that term is
hereinafter defined) he shall continue to receive the full amount of the base
salary to which he was theretofore entitled for a period of six months after he
shall be deemed to have become Disabled (the "First Disability Payment Period").
If the First Disability Payment Period shall end prior to the Termination Date,
Executive thereafter shall be entitled to receive salary at an annual rate equal
to 80% of his then current base salary for a further period ending on the
earlier of (i) six months thereafter or (ii) the Termination Date (the "Second
Disability Payment Period"). Upon the expiration of the Second Disability
Payment Period, Executive shall not be entitled to receive any further payments
on account of his base salary until he shall cease to be Disabled and shall have
resumed his duties hereunder and provided that the Corporation shall not have
theretofore terminated this Agreement as hereinafter provided. The Corporation
may terminate Executive's employment hereunder at any time after Executive is
Disabled, upon at least 10 days' prior written notice; PROVIDED, HOWEVER, that
such termination shall not relieve the Corporation from its obligation to make
the payments to Executive described above in this Paragraph 13. For the purposes
of this Agreement, Executive shall be deemed to have become Disabled when (x) by
reason of physical or mental incapacity, Executive is not able to perform his
duties hereunder for a period of 90 consecutive days or for 120 days in any
consecutive 180-day period or (y) when Executive's physician or a physician
designated by the Corporation shall have determined that Executive shall not be
able, by reason of physical or mental incapacity, to perform a substantial
portion of his duties hereunder. In the event that Executive shall dispute any
determination of his disability pursuant to clauses (x) or (y) above, the matter
shall be resolved by the determination of three physicians qualified to practice
medicine in the United States of America, one to be selected by each of the
Corporation and Executive and the third to be selected by the designated
physicians. If Executive shall receive benefits under any disability policy
maintained by the Corporation, the Corporation shall be entitled to deduct the
amount equal to the benefits so received from base salary that it otherwise
would have been required to pay to Executive as provided above.
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14. TERMINATION FOR CAUSE. The Corporation may at any time upon
written notice to Executive terminate Executive's employment for Cause. For
purposes of this Agreement, the following shall constitute Cause: (i) the
willful and repeated failure of Executive to perform any material duties
hereunder or gross negligence of Executive in the performance of such duties,
and if such failure or gross negligence is susceptible to cure by Executive, the
failure to effect such cure within twenty (20) days after written notice of such
failure or gross negligence is given to Executive; (ii) except as permitted
hereunder, unexplained, willful and regular absences of Executive from the
Corporation; (iii) excessive use of alcohol or illegal drugs, interfering with
the performance of Executives duties hereunder; (iv) indictment for a crime of
theft, embezzlement, fraud, misappropriation of funds, other acts of dishonesty
or the violation of any law or ethical rule relating to Executive's employment;
(v) indicted for any other felony or other crime involving moral turpitude by
Executive; or (vi) the breach by Executive of any of the provisions of
paragraphs 8, 9 or 10 and if such breach is susceptible of cure by Executive,
the failure to effect such cure within twenty (20) days after written notice of
such breach is given to Executive. For purposes of this Agreement, an action
shall be considered "willful" if it is done intentionally, purposely or
knowingly, distinguished from an act done carelessly, thoughtlessly or
inadvertently. In any such event, Executive shall be entitled to receive his
base salary to and including the date of termination.
15. TERMINATION FOR EMPLOYER BREACH. Executive may upon written
notice to the Corporation terminate this Agreement (including paragraphs 8, 9,
10 and 11) in the event of the breach by the Corporation of any material
provision of this Agreement, and if such breach is susceptible of cure, the
failure to effect such cure within 20 days after written notice of such breach
is given to the Corporation (an "Employer Breach"). Executive's right to
terminate this Agreement under this Paragraph 15 shall be in addition to any
other remedies Executive may have under law or equity. Paragraphs 2(d), 7 and
12(b) of this Agreement shall survive the termination of this Agreement by
Executive pursuant to this Paragraph 15.
16. INSURANCE POLICIES. The Corporation shall have the right from
time to time to purchase, increase, modify or terminate insurance policies on
the life of Executive for the benefit of the Corporation, in such amounts as the
Corporation shall determine in its sole discretion. In connection therewith,
Executive shall, at such time or times and at such place or places as the
Corporation may reasonably direct, submit himself to such physical examinations
and execute and deliver such documents as the Corporation may reasonably deem
necessary or desirable.
17. ENTIRE AGREEMENT; AMENDMENT. This Agreement constitutes the
entire agreement of the parties hereto, and any prior agreement between the
Corporation and Executive is hereby superseded and terminated effective
immediately and shall be without further force or effect. No amendment or
modification
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himself shall be valid or binding unless made in writing and signed by the party
against whom enforcement thereof is sought.
18. NOTICES. Any notice required, permitted or desired to be given
pursuant to any of the provisions of this Agreement shall be delivered in person
or sent by responsible overnight delivery service or sent by certified mail,
return receipt requested, postage and fees prepaid, if to the Corporation, at
its address set forth above to the attention of the Corporation's Chief
Financial Officer and, if to Executive, at his address set forth above. Either
of the parties hereto may at any time and from time to time change the address
to which notice shall be sent hereunder by notice to the other party given under
this Paragraph 18. Notices shall be deemed effective upon receipt.
19. NO ASSIGNMENT; BINDING EFFECT. Neither this Agreement, nor the
right to receive any payments hereunder, may be assigned by either party without
the other party's prior written consent. This Agreement shall be binding upon
Executive, his heirs, executors and administrators and upon the Corporation, its
successors and assigns.
20. WAIVERS. No course of dealing nor any delay on the part of
either party in exercising any rights hereunder shall operate as a waiver of any
such rights. No waiver of any default or breach of this Agreement shall be
deemed a continuing waiver or a waiver of any other breach or default.
21. GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York, except that body
of law relating to choice of laws.
22. INVALIDITY. If any clause, paragraph, section or part of this
Agreement shall be held or declared to be void, invalid or illegal, for any
reason, by any court of competent jurisdiction, such provision shall be
ineffective but shall not in any way invalidate or affect any other clause,
paragraph, section or part of this Agreement.
23. FURTHER ASSURANCES. Each of the parties shall execute such
documents and take such other actions as may be reasonably requested by the
other party to carry out the provisions and purposes of this Agreement in
accordance with its terms.
24. HEADINGS. The headings contained in this Agreement have been
inserted for convenience only and shall not affect in any way the meaning or
interpretation of this Agreement.
25. PUBLICITY. The Corporation and Executive agree that they will
not make any press releases or other announcements prior to or at the time of
execution of this Agreement with respect to the terms contemplated hereby,
except as required by applicable law, without the prior approval of the other
party, which approval will not be unreasonably withheld.
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<PAGE>
26. ARBITRATION. Any disputes arising under this Agreement shall
be submitted to and determined by arbitration in New York City, New York;
PROVIDED, HOWEVER, that such arbitration shall be held in St. Louis, Missouri in
the event that the Company's principal executive offices is located at the time
of such dispute in St. Louis, Missouri. Such arbitration shall be conducted in
accordance with the rules of the American Arbitration Association. Any award or
decision of the arbitration shall be conclusive in the absence of fraud and
judgment thereon may be entered in any court having jurisdiction thereof. The
costs of such arbitration shall be paid by the non-prevailing party to the
extent directed by the arbitrator(s).
THIS AGREEMENT CONTAINS BINDING ARBITRATION PROVISIONS WHICH MAY BE ENFORCED BY
THE PARTIES.
11
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be duly executed as of the day and year first above written.
SHEFFIELD MEDICAL TECHNOLOGIES INC.
By: /s/ George Lombardi
-------------------------------
George Lombardi
Vice President and Chief
Financial Officer
/s/ Loren G. Peterson
-------------------------------
Loren G. Peterson
EMPLOYMENT AGREEMENT
AGREEMENT made as of the 25th day of April, 1997, by and between
Sheffield Medical Technologies Inc., a Delaware corporation with its principal
offices at 30 Rockefeller Plaza, Suite 4515, New York, New York 10112 (the
"Corporation"), and Carl F. Siekmann residing at 15915 Wetherburn Road,
Chesterfield, Missiouri 63017 ("Executive").
W I T N E S S E T H :
- - - - - - - - - -
WHEREAS, the Corporation desires to employ and retain Executive as
its Executive Vice President - Corporate Development, upon the terms and subject
to the conditions of this Agreement; and
NOW, THEREFORE, in consideration of the premises and the mutual
covenants hereinafter set forth, the parties hereto agree as follows:
1. EMPLOYMENT OF EXECUTIVE. The Corporation hereby employs
Executive as its Executive Vice President - Corporate Development, to perform
the duties and responsibilities traditionally incident to such office, subject
at all times to the control and direction of the Board of Directors of the
Corporation.
2. ACCEPTANCE OF EMPLOYMENT; OFFICES; TIME AND ATTENTION, ETC. (a)
Executive hereby accepts such employment and agrees that throughout the period
of his employment hereunder, except as hereinafter provided, he will devote his
full business and professional time in utilizing his business and professional
expertise, with proper attention, knowledge and skills faithfully, diligently
and to the best of his ability in furtherance of the business of the Corporation
and its subsidiaries and will perform the duties assigned to him pursuant to
Paragraph 1 hereof. As Executive Vice President - Corporate Development,
Executive shall also perform such specific duties and shall exercise such
specific authority related to the management of the day-to-day operations of the
Corporation and its subsidiaries as may be reasonably assigned to Executive from
time to time by the Board of Directors of the Corporation.
(b) Executive shall at all times be subject to, observe and
carry out such rules, regulations, policies, directions and restrictions as the
Board of Directors of the Corporation shall from time to time establish. During
the period of his employment hereunder, Executive shall not, directly or
indirectly, accept employment or compensation from, or perform services of any
nature for, any business enterprise other than the Corporation and its
subsidiaries. Notwithstanding the foregoing in this Paragraph 2, Executive shall
not be precluded from engaging in recreational, eleemosynary, educational and
other activities which do not materially interfere with his duties hereunder
during vacations, holidays and other periods outside of business hours.
<PAGE>
(c) It is anticipated that the Corporation's principal executive
office (now located in New York City) shall be relocated to St. Louis, Missouri
but that Executive may be required to spend substantial amounts of time at
locations in and outside of St. Louis, Missouri relating to the business of the
Corporation and its subsidiaries. It is understood that Executive shall continue
to reside in the vicinity of St. Louis, Missouri and that the Corporation shall
maintain an office in St. Louis, Missouri, which is where Executive shall
maintain his principal office until the Corporation relocates from New York City
to St. Louis, Missouri. The Corporation agrees to reimburse Executive for his
reasonable expenses, including hotel and travel costs, associated with the
Corporation's business. In addition, until completion of such relocation, it is
understood that Executive shall visit the Corporation's executive office in New
York City on a regular basis for meetings and to conduct Corporation business
that is more appropriately conducted from such executive office.
3. TERM. Except as otherwise provided herein, the term of
Executive's employment hereunder shall commence on the date of the consummation
of the merger of Camelot Pharmacal, L.L.C., a Missouri limited liability
company, with and into a subsidiary of the Company (the "Merger") and shall
continue to and including April 25, 2002. Notwithstanding anything to the
contrary contained in the Agreement, this Agreement shall terminate and have no
force and effect in the event that the Merger is not consummated on or before
June 6, 1997. Unless terminated earlier in accordance with the terms hereof,
this Agreement shall automatically be extended for one or more additional
consecutive one year terms unless either party notifies the other party in
writing at least six months before the end of the then current term (including
the initial term) of its or his desire to terminate this Agreement. The last day
of the term of this Agreement pursuant to this Paragraph 3 (including any early
termination pursuant to the terms hereof) is referred to herein as the
"Termination Date."
4. COMPENSATION. (a) As compensation for his services hereunder,
the Corporation shall pay to Executive (i) a base annual salary at the rate of
$160,000, payable in equal installments in accordance with the normal payroll
practices of the Corporation but in no event less frequently than semi-monthly,
and (ii) such incentive compensation and bonuses, if any, as the Board of
Directors of the Corporation in its absolute discretion may determine to award
Executive (it being understood that this Agreement shall in no event be
construed to require the payment to Executive of any incentive compensation or
bonuses), it being understood that Executive shall be entitled to receive such
incentive compensation and bonuses determined on a basis comparable to the
incentive compensation and/or bonuses awarded to other executive officers of the
Corporation. All compensation paid to Executive shall be subject to withholding
and other employment taxes imposed by applicable law.
(b) During the period of Executive's employment hereunder,
Executive shall not be entitled to any additional
2
<PAGE>
compensation for rendering employment services to subsidiaries of the
Corporation or for serving in any office of the Corporation or any of its
subsidiaries to which he is elected or appointed.
(c) In the event that Executive is elected to the Corporation's
Board of Directors, Executive will receive compensation and benefits as a
director of the Corporation consistent with the compensation and benefits
received by the Corporation's other directors who are also employees of the
Corporation.
5. STOCK OPTIONS. (a) As additional compensation for his services
hereunder, the Corporation shall grant to Executive an option under the
Corporation's 1993 Stock Option Plan (the "Plan") to acquire a total of 400,000
shares of the Corporation's common stock at an exercise price per share equal to
the closing sale price of the Corporation's common stock as reported by the
American Stock Exchange on the date hereof, with the terms of such option to be
evidenced by (i) one option letter agreement in the form annexed as Exhibit "A"
hereto ("Option Letter A-1") being exercisable for 100,000 shares of Common
Stock, (ii) one option letter agreement in the form annexed as Exhibit "A-2"
hereto ("Option Letter A-2") being exercisable for 150,000 shares of Common
Stock and (iii) one option letter agreement in the form annexed as Exhibit "B"
hereto ("Option Letter B") being exercisable for 150,000 shares of Common Stock
(such option letters being referred to collectively herein as the "Plan Option
Letters").
(b) The Company represents and warrants that there are sufficient
shares of Common Stock currently available under the Company's 1993 Stock Option
Plan (the "1993 Plan") to cover the shares of Common Stock issuable to Executive
upon exercise of Option Letter A-1.
(c) In the event that the Company's stockholders fail at the next
annual meeting of stockholders of the Corporation to approve both (i) an
amendment increasing the number of shares available for the issuance of options
under the Plan to an amount at least sufficient to cover all the shares of
Common Stock issuable upon exercise of Option Letter A-2 and Option Letter B and
(ii) appropriate amendments to the Plan specifically confirming the right of the
Corporation's Board of Directors, in the issuance of stock options under the
Plan, to determine provisions regarding terms of the exercise of such stock
options (including without limitation, the period of exercisability of stock
options under the Plan upon termination of employment for cause or without
cause) and provisions regarding forfeiture of stock options under the Plan upon
termination of employment, the Company agrees, upon receipt of a written demand
from Executive, to promptly amend the Plan Option Letters to provide for three
non-qualified options outside the Plan having substantially the same terms and
provisions of the Plan Stock Options.
(d) In the event that (i) the Corporation is required to amend the
Plan Option Letters pursuant to Paragraph 5(c) or (ii)
3
<PAGE>
Executive's employment by the Corporation is terminated (x) by the Corporation
for any reason other than for Cause, (y) by Executive as a result of an Employer
Breach or (z) by the Corporation by reason of the Executive's disability or
death prior to the expiration of the options evidenced by the Plan Option
Letters and Executive is required after such event to pay any U.S. federal or
state income and withholding tax (collectively, "Income Taxes") on any income
recognized by Executive arising upon any exercise of options evidenced by the
Plan Option Letters, the Corporation agrees to reimburse Executive the
difference between (A) the amount of Income Taxes Executive would have been
required to pay had the income recognized on such exercise been treated as a
long term capital gain and (B) the amount of Income Taxes payable by Executive
in respect of such exercise (the amount of such difference being referred to as
the "Tax Difference" in respect of such exercise). In computing the Tax
Difference, the amount of taxes payable by Executive shall be determined by
assuming that the income recognized as a result of such exercise is taxed at the
highest marginal federal and state income tax rates applicable to ordinary
income. In addition, the Corporation shall pay Executive an amount equal to the
Tax Difference arising in respect of such exercise multiplied by a fraction, the
numerator of which is 1 and the denominator of which is equal to 1 minus (i) the
highest marginal federal income tax rate (currently 39.6%) and (ii) the highest
marginal state income tax rate applicable to Executive, in each case in respect
of ordinary income, in effect at the time of such exercise. Such amount shall be
paid by the Corporation within ninety (90) days after any such exercise.
Notwithstanding anything to the contrary in this Agreement or the Plan Option
Letters, the Corporation shall have no obligation to pay Executive any amount in
excess of $250,000 in the aggregate in respect of its obligations under this
subparagraph.
6. ADDITIONAL BENEFITS; VACATION. (a) In addition to such base
salary, Executive shall receive and be entitled to participate, to the extent he
is eligible under the terms and conditions thereof, in any profit sharing,
pension, retirement, hospitalization, disability, medical service, insurance or
other employee benefit plan generally available to the executive officers of the
Corporation that may be in effect from time to time during the period of
Executive's employment hereunder. The Corporation agrees to cover Executive
under any directors' and officers' liability policy maintained by the
Corporation.
(b) Executive shall be entitled to four (4) weeks' paid vacation
in respect of each 12-month period during the term of his employment hereunder,
such vacation to be taken at times mutually agreeable to Executive and the Board
of Directors of the Corporation.
(c) Executive shall be entitled to recognize as holidays all days
recognized as such by the Corporation.
7. REIMBURSEMENT OF EXPENSES. The Corporation shall reimburse
Executive in accordance with applicable policies of the
4
<PAGE>
Corporation for all expenses reasonably incurred by him in connection with the
performance of his duties hereunder and the business of the Corporation, upon
the submission to the Corporation of appropriate receipts or vouchers.
8. RESTRICTIVE COVENANT. (a) In consideration of the Corporation's
entering into this Agreement, Executive agrees that during the period of his
employment hereunder and, in the event of termination of this Agreement (i) by
the Corporation upon Executive becoming Disabled (as that term is defined in
Paragraph 13 hereof), (ii) by the Corporation for Cause (as that term is defined
in Paragraph 14 hereof) or (iii) by Executive otherwise than for Employer Breach
(as that term is defined in Paragraph 15 hereof), for a further period of six
months thereafter, he will not (x) directly or indirectly own, manage, operate,
join, control, participate in, invest in, whether as an officer, director,
employee, partner, investor or otherwise, any business entity that is engaged in
a directly competitive business (as hereinafter defined) to that of the
Corporation or any of its subsidiaries within the United States of America, (y)
for himself or on behalf of any other person, partnership, corporation or
entity, call on any customer of the Corporation or any of its subsidiaries for
the purpose of soliciting away, diverting or taking away any customer from the
Corporation or its subsidiaries, or (z) solicit any person then engaged as an
employee, representative, agent, independent contractor or otherwise by the
Corporation or any of its subsidiaries, to terminate his or her relationship
with the Corporation or any of its subsidiaries. For purposes of this Agreement,
the term "directly competitive business" shall mean any business that is then
involved in the research, development, manufacturing or commercialization in any
way of any product, compound, device or method that acts or functions by,
through or on the same active, binding or receptor site, mechanism of action,
signaling pathway or channel as any product, compound, device or method that is
or becomes a part of the Corporation's business or the business of any of its
subsidiaries during Executive's employment by the Corporation or any of its
subsidiaries. Nothing contained in this Agreement shall be deemed to prohibit
Executive from investing his funds in securities of an issuer if the securities
of such issuer are listed for trading on a national securities exchange or are
traded in the over-the-counter market and Executive's holdings therein represent
less than 10% of the total number of shares or principal amount of the
securities of such issuer outstanding.
(b) Executive acknowledges that the provisions of this Paragraph 8
are reasonable and necessary for the protection of the Corporation, and that
each provision, and the period or periods of time, geographic areas and types
and scope of restrictions on the activities specified herein are, and are
intended to be, divisible. In the event that any provision of this Paragraph 8,
including any sentence, clause or part hereof, shall be deemed contrary to law
or invalid or unenforceable in any respect by a court of competent jurisdiction,
the remaining provisions shall not be affected, but
5
<PAGE>
shall, subject to the discretion of such court, remain in full force and effect.
9. CONFIDENTIAL INFORMATION.
(a) Executive shall hold in a fiduciary capacity for the
benefit of the Corporation and its subsidiaries all confidential information,
knowledge and data relating to or concerned with its operations, sales, business
and affairs, and he shall not, at any time during his employment hereunder and
for two years thereafter, use, disclose or divulge any such information,
knowledge or data to any person, firm or corporation other than to the
Corporation and its subsidiaries or their respective designees or except as may
otherwise be reasonably required or desirable in connection with the business
and affairs of the Corporation and its subsidiaries.
(b) Notwithstanding anything to the contrary contained
herein, Executive's obligations under Paragraph 9(a) hereof shall not apply to
any information which:
(i) becomes rightfully known to Executive subsequent or prior to
his employment by the Corporation;
(ii) is or becomes available to the public other than as a result
of wrongful disclosure by Executive;
(iii) becomes available to Executive subsequent to his employment
by the Corporation on a nonconfidential basis from a source other than
the Corporation or its agents which source has a right to disclose such
information; or
(iv) results from research and development and/or commercial
operations at any time by or on behalf of any person, company or other
entity with which or with whom Executive shall become associated (in a
manner consistent with the terms of this Agreement) subsequent to his
employment by the Corporation or its agents totally independent from
any disclosure from the Corporation or its agents.
(c) Notwithstanding anything to the contrary contained
herein, in the event that Executive becomes legally compelled to disclose any
confidential information, Executive will provide the Corporation with prompt
notice so that the Corporation may seek a protective order or other appropriate
remedy. In the event that such protective order or other remedy is not obtained,
Executive shall furnish only such confidential information which is legally
required to be disclosed.
10. INTELLECTUAL PROPERTY. Any idea, invention, design, written
material, manual, system, procedure, improvement, development or discovery
conceived, developed, created or made by Executive alone or with others, during
the period of his employment hereunder and applicable to the business of the
Corporation or any of its subsidiaries, whether or not patentable or
registrable,
6
<PAGE>
shall become the sole and exclusive property of the Corporation or such
subsidiary. Executive shall disclose the same promptly and completely to the
Corporation and shall, during the period of his employment hereunder and at any
time and from time to time hereafter at no cost to Executive (i) execute all
documents reasonably requested by the Corporation for vesting in the Corporation
or any of its subsidiaries the entire right, title and interest in and to the
same, (ii) execute all documents reasonably requested by the Corporation for
filing and prosecuting such applications for patents, trademarks, service marks
and/or copyrights as the Corporation, in its sole discretion, may desire to
prosecute, and (iii) give the Corporation all assistance it reasonably requires,
including the giving of testimony in any suit, action or proceeding, in order to
obtain, maintain and protect the Corporation's right therein and thereto.
11. EQUITABLE RELIEF. The parties hereto acknowledge that
Executive's services are unique and that, in the event of a breach or a
threatened breach by Executive of any of his obligations under Paragraphs 8, 9
or 10 this Agreement, the Corporation shall not have an adequate remedy at law.
Accordingly, in the event of any such breach or threatened breach by Executive,
the Corporation shall be entitled to such equitable and injunctive relief as may
be available to restrain Executive and any business, firm, partnership,
individual, corporation or entity participating in such breach or threatened
breach from the violation of the provisions of Paragraph 8, 9 or 10 hereof.
Nothing herein shall be construed as prohibiting the Corporation from pursuing
any other remedies available at law or in equity for such breach or threatened
breach, including the recovery of damages and the immediate termination of the
employment of Executive hereunder, if and to the extent permitted hereunder.
12. TERMINATION OF AGREEMENT; TERMINATION OF EMPLOYMENT;
SEVERANCE; SURVIVAL. (a) This Agreement and Executive's employment hereunder
shall terminate upon the first to occur of the following: (i) Executive becoming
Disabled (as that term is defined in Paragraph 13 hereof); (ii) Executive's
death; (iii) termination of Executive's employment by the Corporation for Cause
or pursuant to subparagraph (b) of this Paragraph 12; (iv) termination of
Executive's employment for Employer Breach and (v) the termination of this
Agreement at the end of the term of this Agreement on the Termination Date
pursuant to Paragraph 3.
(b) Notwithstanding anything to the contrary contained in
this Agreement, in the event of the termination of the Executive's employment by
the Corporation for any reason (other than for Cause), Executive shall be paid a
severance payment equal to 75% of Executive's then current annual base salary
payable in nine equal monthly installments, with the first installment being
payable on the date falling two weeks after the date of such termination and
each additional installment being paid every month after such date until such
severance is paid in full. In the event of such termination of the Executive's
employment by the Corporation (other than for Cause), the Corporation shall have
no
7
<PAGE>
further obligation to the Executive under this Agreement other than the
Corporation's obligation (i) to make such severance payment to the Executive
(ii) to pay Executive's COBRA premium payments for hospitalization and medical
insurance coverage provided by the Corporation and to pay Executive's premiums
on any death and/or disability insurance being maintained by the Corporation for
Executive at the time of such termination, in each case until the payment in
full of such severance payments
(c) Paragraph 5(c) of this Agreement shall survive the
termination of Executive's employment hereunder until the earlier to occur of
Executive's exercise of all of the stock options granted pursuant to paragraph 5
and the expiration of all such stock options pursuant to the Stock Option
Letters. Paragraphs 7, 8, 9, 10, 11 and 26 of this Agreement shall survive the
termination of Executive's employment hereunder, except in the case of
termination pursuant to Paragraph 15.
13. DISABILITY. In the event that during the term of his
employment by the Corporation Executive shall become Disabled (as that term is
hereinafter defined) he shall continue to receive the full amount of the base
salary to which he was theretofore entitled for a period of six months after he
shall be deemed to have become Disabled (the "First Disability Payment Period").
If the First Disability Payment Period shall end prior to the Termination Date,
Executive thereafter shall be entitled to receive salary at an annual rate equal
to 80% of his then current base salary for a further period ending on the
earlier of (i) six months thereafter or (ii) the Termination Date (the "Second
Disability Payment Period"). Upon the expiration of the Second Disability
Payment Period, Executive shall not be entitled to receive any further payments
on account of his base salary until he shall cease to be Disabled and shall have
resumed his duties hereunder and provided that the Corporation shall not have
theretofore terminated this Agreement as hereinafter provided. The Corporation
may terminate Executive's employment hereunder at any time after Executive is
Disabled, upon at least 10 days' prior written notice; PROVIDED, HOWEVER, that
such termination shall not relieve the Corporation from its obligation to make
the payments to Executive described above in this Paragraph 13. For the purposes
of this Agreement, Executive shall be deemed to have become Disabled when (x) by
reason of physical or mental incapacity, Executive is not able to perform his
duties hereunder for a period of 90 consecutive days or for 120 days in any
consecutive 180-day period or (y) when Executive's physician or a physician
designated by the Corporation shall have determined that Executive shall not be
able, by reason of physical or mental incapacity, to perform a substantial
portion of his duties hereunder. In the event that Executive shall dispute any
determination of his disability pursuant to clauses (x) or (y) above, the matter
shall be resolved by the determination of three physicians qualified to practice
medicine in the United States of America, one to be selected by each of the
Corporation and Executive and the third to be selected by the designated
physicians. If Executive shall receive benefits under any disability policy
maintained by the Corporation, the Corporation
8
<PAGE>
shall be entitled to deduct the amount equal to the benefits so received from
base salary that it otherwise would have been required to pay to Executive as
provided above.
14. TERMINATION FOR CAUSE. The Corporation may at any time upon
written notice to Executive terminate Executive's employment for Cause. For
purposes of this Agreement, the following shall constitute Cause: (i) the
willful and repeated failure of Executive to perform any material duties
hereunder or gross negligence of Executive in the performance of such duties,
and if such failure or gross negligence is susceptible to cure by Executive, the
failure to effect such cure within twenty (20) days after written notice of such
failure or gross negligence is given to Executive; (ii) except as permitted
hereunder, unexplained, willful and regular absences of Executive from the
Corporation; (iii) excessive use of alcohol or illegal drugs, interfering with
the performance of Executives duties hereunder; (iv) indictment for a crime of
theft, embezzlement, fraud, misappropriation of funds, other acts of dishonesty
or the violation of any law or ethical rule relating to Executive's employment;
(v) indicted for any other felony or other crime involving moral turpitude by
Executive; or (vi) the breach by Executive of any of the provisions of
paragraphs 8, 9 or 10 and if such breach is susceptible of cure by Executive,
the failure to effect such cure within twenty (20) days after written notice of
such breach is given to Executive. For purposes of this Agreement, an action
shall be considered "willful" if it is done intentionally, purposely or
knowingly, distinguished from an act done carelessly, thoughtlessly or
inadvertently. In any such event, Executive shall be entitled to receive his
base salary to and including the date of termination.
15. TERMINATION FOR EMPLOYER BREACH. Executive may upon written
notice to the Corporation terminate this Agreement (including paragraphs 8, 9,
10 and 11) in the event of the breach by the Corporation of any material
provision of this Agreement, and if such breach is susceptible of cure, the
failure to effect such cure within 20 days after written notice of such breach
is given to the Corporation (an "Employer Breach"). Executive's right to
terminate this Agreement under this Paragraph 15 shall be in addition to any
other remedies Executive may have under law or equity. Paragraphs 2(d), 7 and
12(b) of this Agreement shall survive the termination of this Agreement by
Executive pursuant to this Paragraph 15.
16. INSURANCE POLICIES. The Corporation shall have the right from
time to time to purchase, increase, modify or terminate insurance policies on
the life of Executive for the benefit of the Corporation, in such amounts as the
Corporation shall determine in its sole discretion. In connection therewith,
Executive shall, at such time or times and at such place or places as the
Corporation may reasonably direct, submit himself to such physical examinations
and execute and deliver such documents as the Corporation may reasonably deem
necessary or desirable.
9
<PAGE>
17. ENTIRE AGREEMENT; AMENDMENT. This Agreement constitutes the
entire agreement of the parties hereto, and any prior agreement between the
Corporation and Executive is hereby superseded and terminated effective
immediately and shall be without further force or effect. No amendment or
modification himself shall be valid or binding unless made in writing and signed
by the party against whom enforcement thereof is sought.
18. NOTICES. Any notice required, permitted or desired to be given
pursuant to any of the provisions of this Agreement shall be delivered in person
or sent by responsible overnight delivery service or sent by certified mail,
return receipt requested, postage and fees prepaid, if to the Corporation, at
its address set forth above to the attention of the Corporation's Chief
Financial Officer and, if to Executive, at his address set forth above. Either
of the parties hereto may at any time and from time to time change the address
to which notice shall be sent hereunder by notice to the other party given under
this Paragraph 18. Notices shall be deemed effective upon receipt.
19. NO ASSIGNMENT; BINDING EFFECT. Neither this Agreement, nor the
right to receive any payments hereunder, may be assigned by either party without
the other party's prior written consent. This Agreement shall be binding upon
Executive, his heirs, executors and administrators and upon the Corporation, its
successors and assigns.
20. WAIVERS. No course of dealing nor any delay on the part of
either party in exercising any rights hereunder shall operate as a waiver of any
such rights. No waiver of any default or breach of this Agreement shall be
deemed a continuing waiver or a waiver of any other breach or default.
21. GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York, except that body
of law relating to choice of laws.
22. INVALIDITY. If any clause, paragraph, section or part of this
Agreement shall be held or declared to be void, invalid or illegal, for any
reason, by any court of competent jurisdiction, such provision shall be
ineffective but shall not in any way invalidate or affect any other clause,
paragraph, section or part of this Agreement.
23. FURTHER ASSURANCES. Each of the parties shall execute such
documents and take such other actions as may be reasonably requested by the
other party to carry out the provisions and purposes of this Agreement in
accordance with its terms.
24. HEADINGS. The headings contained in this Agreement have been
inserted for convenience only and shall not affect in any way the meaning or
interpretation of this Agreement.
25. PUBLICITY. The Corporation and Executive agree that they will
not make any press releases or other announcements prior
10
<PAGE>
to or at the time of execution of this Agreement with respect to the terms
contemplated hereby, except as required by applicable law, without the prior
approval of the other party, which approval will not be unreasonably withheld.
26. ARBITRATION. Any disputes arising under this Agreement shall
be submitted to and determined by arbitration in New York City, New York;
PROVIDED, HOWEVER, that such arbitration shall be held in St. Louis, Missouri in
the event that the Company's principal executive offices is located at the time
of such dispute in St. Louis, Missouri. Such arbitration shall be conducted in
accordance with the rules of the American Arbitration Association. Any award or
decision of the arbitration shall be conclusive in the absence of fraud and
judgment thereon may be entered in any court having jurisdiction thereof. The
costs of such arbitration shall be paid by the non-prevailing party to the
extent directed by the arbitrator(s).
THIS AGREEMENT CONTAINS BINDING ARBITRATION PROVISIONS WHICH MAY
BE ENFORCED BY THE PARTIES.
11
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be duly executed as of the day and year first above written.
SHEFFIELD MEDICAL TECHNOLOGIES INC.
By: /s/ George Lombardi
-------------------------------
George Lombardi
Vice President and Chief
Financial Officer
/s/ Carl F. Siekmann
-------------------------------
Carl F. Siekmann
12
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED FINANCIAL STATEMENTS FOR THE YEAR ENDED MARCH 31, 1997 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 3,027,503
<SECURITIES> 219,585
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
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3,212,136
0
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