SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
September 4, 1998
----------------
Date of Report
(Date of earliest event reported)
Electropharmacology, Inc.
----------------------------
(Exact Name of Registrant as Specified in Charter)
<TABLE>
<CAPTION>
<S> <C> <C>
Delaware 0-25828 95-4315412
---------------------------- ------------------------ -----------------
(State or other Jurisdiction of (Commission File Number) (I.R.S. Employer
Incorporation) Identification No.)
</TABLE>
2301 N.W. 33rd Court, Suite 102
Pompano Beach, Florida 33069
-------------------------------------- ---------
(Address of Principal Executive Offices) (Zip Code)
(954) 975-9818
-------------------------------
(Registrant's telephone number, including area code)
<PAGE>
Item 5. Other Events
This Current Report on Form 8-K contains forward-looking statements
about the plans and business of Electropharmacology, Inc. ("EPi"). EPi's ability
to achieve its projections and business objectives is dependent on a variety of
factors, many of which are outside of management's control. Some of the most
significant factors, alone or in combination, would be the failure to integrate
the businesses acquired by EPi successfully, unanticipated disagreements with
prospective corporate partners, if any, an unanticipated slowdown in the health
care industry (as a result of cost containment measures, changes in governmental
regulation or other factors), or an unanticipated failure in the
commercialization of EPi's technologies and potential products developed
therefrom. Accordingly, there can be no assurances that EPi will achieve its
business objectives.
On August 27, 1998, EPi entered into a binding letter of intent
("Letter Agreement") with subsidiaries of Elan Corporation, plc ("Elan") (NYSE:
ELN), according to which EPi will acquire a license from Elan for certain
applications of Elan's flexible iontophoretic patch technology.
Under the terms of the Letter Agreement, EPi will receive from a
subsidiary of Elan a world-wide license to Elan's non-systemic, flexible
iontophoretic patch technology for non-cosmetic dermatology and wound care
applications. The technology is based on the principle of iontophoresis which
uses a programmed electrical field to non-invasively increase the transport of
drugs across the skin surface. Elan's technology incorporates iontophoresis in a
flexible fabric patch material with electrical conducting capability that can be
controlled and pre-programmed by an electronic control unit. Once used, the
patch can be discarded and the control unit reused. The agreement also envisions
the development of a flexible patch version of EPi's pulsed electromagnetic
signal ("PEMS") technology as well as a combination patch incorporating
iontophoresis and PEMS. EPi will have the world-wide rights to therapeutic
applications of the improved PEMS product as well as combinations of PEMS and
iontophoresis in non-cosmetic dermatology and wound care applications. EPi will
make an up-front payment to Elan and pay prescribed royalties and license fees
to Elan based on EPi's future revenues from the commercialization of the
technology.
Separately, under the Letter Agreement, another subsidiary of Elan has
agreed to invest $7.5 million to acquire shares of EPi 10% Convertible Preferred
Stock and warrants to purchase up to one million shares of EPi Common Stock at
$2.50 per share. The EPi 10% Convertible Preferred Stock will have a conversion
price of $1.20 per share, 10% per year dividends paid semi-annually in cash or
in kind, at EPi's option, and a mandatory redemption after a seven year period.
The Elan subsidiary also agreed to invest, upon request by EPi during a 60-day
period after closing of the $7.5 million investment, $2 million to acquire
shares of EPi Common Stock at a price equal to the per share price at which EPi
sells up to an additional $2 million of EPi Common Stock to other investors or
if no sale is consummated, at the average closing price of the EPi Common Stock
for the 20 consecutive trading days prior to the acquisition, and, in any event,
at a maximum price of $1.375 per share. EPi will agree to provide Elan with
certain registration rights for EPi Common Stock received by Elan. Elan is also
entitled to nominate one director to serve on EPi's Board of Directors.
The closing of the transactions is subject to various conditions,
including the execution of definitive agreements.
A copy of the letter of intent is attached hereto as Exhibit 1 and is
incorporated herein by reference. The description of the terms of the Letter of
Intent set forth herein is qualified in its entirety by the terms of the Letter
of Intent.
<PAGE>
Item 7. Financial Statements and Exhibits.
(c) Exhibits:
Exhibit
Number Exhibit
1. Letter Agreement dated August 27, 1998 between Elan
International Services, Ltd., Elan Pharma
International Limited and Electropharmacology, Inc.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the Registrant has duly caused this report to be signed on its behalf
by the undersigned hereunto duly authorized.
Electropharmacology, Inc.
By:
------------------------------------
Arup Sen
President and Chief Executive Officer
September 4, 1998
EXHIBIT 1
For Execution
Elan International Services, Ltd.
102 St. James Court
Flatts, Smiths Parish
Bermuda FL 04
Elan Pharma International Limited
WIL House
Shannon Business Park
Shannon
Co Clare, Ireland/*/
August 27, 1998
Electropharmacology, Inc.
2301 NW 33rd Court, Suite 102
Pompano Beach, Florida 33069
Attention: Arup Sen
Chairman, President and Chief Executive Officer
Re: License and Financing Transaction
Gentlemen:
This letter agreement sets forth the terms and conditions upon
which (a) Elan International Services, Ltd., a Bermuda corporation ("EIS"), will
make certain equity investments in Electropharmacology, Inc., a Delaware
corporation ("EPHI") and (b) Elan Pharma International Limited, an Irish private
company ("EPIL"), will license certain technology and intellectual property to
EPHI, each as provided herein. The parties intend that this letter agreement
constitute a definitive agreement between them relating to the subject matter
hereof; nonetheless, it is their intention to execute and deliver certain
definitive and/or supplemental documents, as provided below, in respect of the
transactions contemplated hereby (the "Definitive Documents"). If executed and
delivered, the Definitive Documents shall supersede this letter agreement.
The parties agree as follows:
1. Financing. EPHI and EIS shall enter into equity purchase and
related arrangements upon execution and delivery of the other Definitive
Documents, which arrangements shall be subject to the terms and conditions as
described in the term sheet attached hereto as Exhibit A (the "Financing Term
Sheet") and other customary terms and conditions.
2. License. EPIL and EPHI shall enter into the license (the
"License") described in
- ----------
/*/ Confidential portions of this Exhibit have been omitted and filed
separately with the Securities and Exchange Commission pursuant to Rule
24b-2 under the Securities Exchange Act of 1934, as amended.
<PAGE>
and subject to the terms and conditions set forth in the term sheet attached
hereto as Exhibit B (the "License Term Sheet"), and be subject to other
customary terms and conditions.
3. Certain Conditions. (a) The following shall be conditions to
EIS's and EPIL's obligation to execute and deliver the Definitive Documents and
to thereafter consummate the transactions contemplated hereby and thereby (such
transactions, the "Closing"; the date of such Closing, the "Closing Date"): (1)
EIS shall have completed a due diligence review in accordance with Section 4(d)
below, the results of which shall be satisfactory to EIS, in its sole
discretion; (2) (a) EPHI shall have executed and delivered and issued to EIS, as
applicable, a Securities Purchase Agreement and certificates in respect of the
preferred stock, common stock and warrant to be issued thereunder, a
Registration Rights Agreement and such other reasonable and customary documents
and instruments as provided therein or as EIS may otherwise reasonably request
in respect of the transactions contemplated by the Financing Term Sheet, and (b)
EPHI shall have executed and delivered the Licenses and such other reasonable
and customary documents and instruments as provided therein or as EPIL may
otherwise reasonably request in respect of the transactions contemplated by the
License Term Sheet, which, in each case, when duly executed and delivered by
EPHI shall be valid and enforceable and in full force and effect and there shall
be no breach or default by EPHI thereunder; (3) there shall not have occurred
from the date hereof through and including the Closing Date any material adverse
change in EPHI's business, condition (financial or otherwise) or prospects; (4)
EPHI shall not have breached or defaulted in any of its material obligations
hereunder and its representations herein shall be true and correct in all
material respects, as if made on the Closing Date; (5) no consent, approval or
filing (with any governmental authority or otherwise) on the part of EPHI shall
be required for the execution of the Definitive Documents, or if required, such
approval shall have been obtained and any applicable waiting periods in respect
thereof shall have elapsed, and provisions for the securing of all such
third-party consents necessary for the consummation of the transactions
contemplated by the Definitive Documents shall have been made; and (6) the
execution and delivery of the Definitive Documents and the Closing shall have
occurred on or prior to September 30, 1998.
(b) The following shall be conditions to EPHI's obligation to execute
and deliver the Definitive Documents and to thereafter consummate the
transactions contemplated hereby and thereby: (1)(a) EIS shall have executed and
delivered and issued to EPHI a Securities Purchase Agreement, a Registration
Rights Agreement and such other reasonable and customary documents and
instruments as provided therein or as EPHI may otherwise reasonably request in
respect of the transactions contemplated by the Financing Term Sheet and (b)
EPIL shall have executed and delivered the Licenses and such other reasonable
and customary documents and instruments as provided therein or as EPHI may
otherwise reasonably request in respect of the transactions contemplated by the
License Term Sheet, which, in each case, when duly executed and delivered by
EPIL shall be valid and enforceable and in full force and effect and there shall
be no breach or default by EPIL thereunder; (2) EIS and EPIL shall not have
breached or defaulted in any of their material obligations hereunder and their
representations herein shall be true and correct in all material respects, as if
made on the Closing Date; (3) no consent, approval or filing (with any
governmental authority or otherwise) on the part of EPIL and EIS shall be
required for the execution of the Definitive Documents, or if required, such
approval shall have been obtained and any applicable waiting periods in respect
thereof shall have elapsed, and provisions for the securing of all such
third-party consents necessary for the consummation of the
<PAGE>
transactions contemplated by the Definitive Documents shall have been made; and
(4) the execution and delivery of the Definitive Documents and the Closing shall
have occurred on or prior to September 30, 1998.
(c) In the event that the Closing shall not have been consummated
on or prior to September 30, 1998 (other than as a result of the material breach
or default hereunder by either party), the non-defaulting party or parties shall
have the right to terminate this letter agreement by written notice to the
other, whereupon the transactions contemplated hereby shall be canceled and of
no further force and effect; provided, that each party shall remain liable to
the other for or in respect of any breach or default which shall have occurred
prior to such date.
4. Representations and Certain Covenants. (a) EPHI represents to
EIS and EPIL the following: (i) EPHI is duly and validly existing in good
standing in the jurisdiction of its incorporation and each other jurisdiction in
which the conduct of its business requires such qualification; (ii) EPHI has
full corporate authority to execute and deliver this letter agreement and the
Definitive Documents and to consummate the transactions contemplated hereby and
thereby; and this letter agreement has been duly executed and delivered and
constitutes the legal and valid obligation of EPHI and is enforceable against
EPHI in accordance with its terms; (iii) the securities contemplated to be
issued by the Financing Term Sheet and the securities issuable upon conversion
thereof, have been or will be duly and validly authorized and when issued will
be fully paid and non-assessable and free from any and all options, warrants and
preemptive and other rights; (iv) EPHI is not in default in any material respect
of its charter or by-laws, any applicable laws or regulations or any contract or
agreement binding upon or affecting it or its properties or assets and the
execution, delivery and performance of this letter agreement and the
transactions contemplated hereby will not result in any such violation; and (v)
all of EPHI's reports and other filings filed with the U.S. Securities and
Exchange Commission through the date hereof and for the preceding three fiscal
years are true and correct in all material respects and EPHI has not incurred
any liability or obligation other than as set forth therein.
(b) EPIL and EIS, jointly and severally, represent to EPHI the
following: (i) each of EPIL and EIS is duly and validly existing in good
standing in the jurisdiction of its incorporation and each other jurisdiction in
which the conduct of its business requires such qualification; (ii) each of EPIL
and EIS has full corporate authority to execute and deliver this letter
agreement and the Definitive Documents and to consummate the transactions
contemplated hereby and thereby; this letter agreement has been duly executed
and delivered and constitutes the legal and valid obligations of each of EPIL
and EIS and is enforceable against them in accordance with its terms; and (iii)
neither EPIL nor EIS is in default in any material respect of its charter or
by-laws, any applicable laws or regulations or any contract or agreement binding
upon or affecting it or its properties or assets and the execution, delivery and
performance of this letter agreement and the transactions contemplated hereby
will not result in any such violation.
(c) EPHI shall not prior to the earlier of (x) the Closing Date
and (y) the abandonment or termination of the transactions contemplated hereby,
as provided in Section 3 above, without the prior written consent of EPIL, (i)
make, pay or declare any dividend or distribution to any equity holder (in such
capacity) or redeem any of its capital stock, consummate any financing (other
than a sale by EPHI of up to $2 million in common stock to selected third
parties, as
<PAGE>
currently proposed), joint venture, license or similar transaction, or (iii)
vary its business plan or practices, in any material respect, from those set
forth in the draft Registration Statement on Form S-1 delivered by EPHI to EIS
and EPIL on August 26, 1998, and intended to be filed in substantially similar
form with the United States Securities and Exchange Commission within 60 days of
the date hereof.
(d) EPHI shall, prior to the earlier of (x) the Closing Date and
(y) the abandonment or termination of the transactions contemplated hereby, as
provided in Section 3 above, afford to the employees, agents and authorized
representatives of EIS and EPIL reasonable access at reasonable times to EPHI's
properties, offices, files, agreements, books and records as may be necessary in
order that EIS and EPIL may have a full opportunity to conduct such
investigations and due diligence reviews as it shall deem necessary in
connection with the transactions contemplated herein and by the Definitive
Documents.
(e) Each of EPHI, EPIL and EIS shall use their best efforts to
complete the Definitive Documents and close the transactions contemplated hereby
and thereby as soon as practicable, and in any event not later than September
30, 1998.
5. Confidentiality, Non-disclosure, Etc. From and after the date
of this letter agreement and until the earlier of (x) the Closing Date and (y)
the abandonment or termination of the transactions contemplated hereby, as
provided in Section 3 above, neither EIS, EPIL nor EPHI shall (a) disclose to
any person or entity, publicly or privately, this letter agreement or the
substance of the transactions contemplated hereby or the involvement of EIS and
EPIL in the business of EPHI, without the prior written consent of EIS;
provided, that the foregoing covenant shall not be applicable to the extent
required by applicable law or judicial or administrative process or to a press
release issued by EPHI, so long as the text thereof shall have been provided to
EIS and EIS shall have approved the text thereof, which approval shall not be
unreasonably withheld or delayed, or (b) in the case of EPHI, conduct or
continue (other than in response only to an unsolicited offer from a third
party, to the extent of EPHI's board of director's fiduciary duty, as advised in
writing by its outside counsel (the "Fiduciary Duty")) any discussions with any
person or entity or enter in to any transaction, letter of intent or
understanding with any person or entity relating to a sale by EPHI of all or
substantially all of its assets or a merger involving EPHI, a financing
arrangement involving EPHI (other than a sale by EPHI of up to $2 million in
common stock to selected third parties, as currently proposed) or a license
agreement involving any material intellectual property of EPHI (each an
"Alternative Transaction") except as otherwise consented to in writing by EIS or
as shall be required by the Fiduciary Duty.
6. Miscellaneous. This letter agreement (a) shall be governed by
and construed in accordance with the internal laws of the State of New York,
without regard to principles of conflicts of laws and, in connection therewith,
each party consents to the non-exclusive jurisdiction of any Federal or state
court sitting in the County, City and State of New York over any dispute arising
from this letter agreement; (b) shall not be assigned or delegated by either
party without the consent of the other; except, that EIS and EPIL shall have the
right to assign or delegate such rights and/or obligations to its affiliates,
and, shall be binding upon the parties' respective successors and assigns; (c)
may be executed in counterparts and delivered by facsimile transmission; and (d)
together with the Definitive Documents, constitutes the entire agreement among
the parties and supersedes all prior agreements or understandings among the
parties.
<PAGE>
Please indicate your approval to the foregoing by signing a copy
of this letter agreement where indicated below.
Very truly yours,
Elan Pharma International Limited
By:__________________________
Name:
Title:
Elan International Services, Ltd.
By:__________________________
Name:
Title:
Agreed to:
Electropharmacology, Inc.
By:____________________________
Name: Arup Sen
Title: Chairman, President and Chief
Executive Officer
<PAGE>
For Execution
Exhibit A
Elan-EPHI Financing Term Sheet
Capitalized terms not defined herein have the meanings ascribed to them in the
Letter Agreement to which this Term Sheet is attached. References to Elan shall
refer to Elan International Services, Ltd., Elan Pharma International Limited,
or an affiliate or subsidiary of either, to be named in the Definitive
Documents.
Initial Funding As a first funding tranche (the "Initial Funding"),
EPHI shall issue to Elan and Elan shall purchase from
EPHI, for an aggregate purchase price of $7.5 million
(the "Original Issue Price"), convertible preferred
shares (the "Convertible Preferred Shares") and a
warrant to purchase shares of the common stock of
EPHI, par value $.01 per share (respectively, the
"Warrant" and the "Common Stock"; together with the
Convertible Preferred Shares, the "Securities") as
described below.
A. The Convertible Preferred Shares will (1) have a
mandatory redemption seven years from the Closing
Date; (2) liquidation preference equal to the sum of
the Original Issue Price plus all accrued dividends
thereon; (3) bear a mandatory dividend, payable
semi-annually in cash or in kind (i.e, by the issuance
of additional Convertible Preferred Shares on the same
terms and subject to the same conditions as the
Convertible Preferred Shares issued on the Closing
Date) at the Company's discretion, of 10 % per year
based on the Original Issue Price plus all
paid-in-kind dividends (the "Outstanding Amount"); (4)
be unsecured; (5) rank senior to any subsequently
issued series of EPHI preferred stock in terms of
voting, dividend payments and upon liquidation; (6) be
convertible, in whole or in part, into a number of
shares of Common Stock obtained by dividing (X) the
Outstanding Amount, by (Y) $1.20, subject to
adjustment for below market issuances and above market
repurchases of Common Stock or securities convertible,
exercisable or exchangeable thereinto (the
"Anti-Dilution Adjustments"); (7) participate fully
with Common Stock in any dividends declared thereon;
(8) vote
1
<PAGE>
as a separate class on customary matters for such
Convertible Preferred Shares; (9) contain customary
financial and other covenants reasonably satisfactory
to each of EPHI and Elan, including, that EPHI shall
not, without the prior written consent of EIS, (a)
make, pay or declare any dividend or distribution to
any equity holder (in such capacity), other than the
mandatory dividend payable in connection with the
Convertible Preferred Shares, or redeem any of its
capital stock, other than in accordance with the terms
of the Convertible Preferred Shares, (b) enter into
any financing agreements prior to the issuance of the
Subsequent Common Stock, except pursuant to the Third
Party Placement, (c) enter into any merger or
acquisition agreements; except, in connection with
EPHI's proposed business transactions with HealthTech
Development, Inc., Gemini Biotech, LP, Gemini Health
Technologies LP and ADM Tronics Unlimited, Inc., (d)
enter into a sale, joint venture, license or similar
transaction involving all or substantially all of the
assets of EPHI (except as provided in subparagraph (c)
above), or (e) vary its business plan or conduct, in
any material respect, from those set forth in the
draft Registration Statement on Form S-1 delivered by
EPHI to EIS and EPIL on August 26, 1998, and intended
to be filed in substantially similar form with the
United States Securities and Exchange Commission
within 60 days of the date hereof (the "S-1"); and
(10) contain customary events of default, including
defaults for non-payment of dividends or redemption
price when due, material misrepresentations, default
in the performance of any covenant unless cured or
waived within any applicable grace period, bankruptcy
or insolvency, and cross-default with debt agreements.
B. The Warrant will be (1) for the purchase of up to
1,000,000 shares of EPHI Common Stock (subject to
adjustment), (2) exercisable for a term of seven years
from the Closing Date; provided that Elan will not
exercise the Warrant within 210 days of the Closing
Date, (3) exercisable at a price of $2.50 per share,
subject to adjustment. The Warrant shall contain
typical anti-dilution adjustments, including
mechanical adjustments for stock splits,
recapitalization and similar transactions and
2
<PAGE>
issuances of EPHI Common Stock (or equivalent) below
market price or repurchases of EPHI Common Stock (or
equivalent) above market price.
Subsequent Funding For a period of 60 days from and after the Closing
(the "Placement Period"), at EPHI's option, EPHI shall
issue and sell to Elan, and Elan shall purchase from
EPHI, $2 million of Common Stock (the "Subsequent
Common Stock"). EPHI shall give written notice of its
election to require Elan to purchase the Subsequent
Common Stock prior to the expiration of the Placement
Period. During the Placement Period, EPHI shall
undertake a private placement of up to an additional
$2 million of Common Stock to other investors (the
"Third Party Placement") and, in the event that the
Third Party Placement is consummated, Elan shall
purchase the Subsequent Common Stock on the same terms
and subject to the same conditions as other investors
in the Third Party Placement. In the event that the
Third Party Placement is not consummated, Elan shall,
upon EPHI's election, purchase the Subsequent Common
Stock at market value, which shall be the average
closing price of the Common Stock, as reported on its
principal trading exchange, for the 20 consecutive
trading days prior to the closing of the purchase of
the Subsequent Common Stock. Notwithstanding anything
herein to the contrary, whether or not a Third Party
Placement has occurred, in no event shall the purchase
price of the Subsequent Common Stock by Elan exceed
$1.375 per share. The closing of the purchase of the
Subsequent Common Stock (the "Subsequent Funding")
shall occur on the 90th day following the Closing, or
such other date as the parties may agree.
Use of Proceeds EPHI shall use the proceeds of the Initial Funding for
general working capital purposes.
EPHI shall use at least [omission] from the sale of
Subsequent Common Stock to Elan solely for the funding
of research and development activities in connection
with the technology described in Exhibit B, including
the development of the Device, using a combined
electromagnetic/iontophoretic patch.
3
<PAGE>
Registration Provisions EPHI shall include the shares of Common Stock issuable
upon exercise of the Warrant and conversion of the
Convertible Preferred Shares and the Subsequent Common
Stock in the S-1.
In the event that, as of the Closing Date, the S-1
shall not be declared effective, or its effectiveness
shall lapse, EPHI shall provide to Elan at the
Closing, a Registration Rights Agreement granting
customary demand and piggy-back registration rights
relating to any shares of Common Stock acquired by
Elan through a purchase thereof (as described herein
or otherwise) or through the conversion, exercise or
exchange of any of the Securities.
To the extent that shares of EPHI Common Stock have
not been sold pursuant to a registration statement
effected in accordance with the demand and piggy-back
rights described above, EPHI shall cause to be
registered the (a) Common Stock (i) issuable upon
conversion of the Convertible Preferred Stock, and
(ii) issuable upon exercise of the Warrant, and (b)
the Subsequent Common Stock, on Form S-3 or other such
form as may be appropriate, so that such stock will be
freely tradable, and shall use its best efforts to do
so within (X) 60 days of the conversion of Convertible
Preferred Shares, (Y) 60 days of the initial exercise
of the Warrant and (Z) 15 months of the consummation
of the Subsequent Funding, as applicable; except that
the Subsequent Common Stock shall be registrable at
the same time as Common Stock issuable in connection
with the Third Party Placement is registrable, if such
Common Stock shall be registrable prior to the
termination of the Lock-Up Period (as defined below).
Notwithstanding the foregoing, Elan agrees that it
will not, without the prior approval of EPHI, dispose
of any shares of Convertible Preferred Shares or
Common Stock prior to the 18 month anniversary of the
Closing Date (the "LockUp Period"); provided, that
such restriction on resale of the Preferred Shares and
Common Stock shall be of no force or effect in the
event that the License Agreement shall be terminated.
Limitations on Conversion In the event that Elan shall determine, upon advice
from its accounting and tax consultants, written
confirmation of which shall be provided to the
Company, at any time that it
4
<PAGE>
holds in excess of 19.9% (assuming the issuance of
Common Stock through the exercise, conversion or
exchange of securities owned by EIS or an affiliate
thereof, but not any shares of Common Stock underlying
such securities held by third parties) of the voting
securities of EPHI, or otherwise shall be required to
equity account for or consolidate its investment in
EPHI, then in that event, at the option of Elan, Elan
shall be entitled to convert some amount of such
holdings into other non-voting securities of EPHI
(such securities being reasonably satisfactory to both
Elan and EPHI) such that Elan shall not be required to
equity account for or consolidate its investment in
EPHI; provided, that Elan shall be entitled to convert
such non-voting equity to voting securities at its
option.
Conditions Consummation of each of the Initial Funding and the
Subsequent Funding will be subject to the execution
and delivery of Definitive Documents in respect of the
transactions contemplated hereby, which documents
shall contain customary closing terms and conditions,
including compliance with applicable laws and
regulations, a lack of breaches and defaults hereunder
by each of EPHI and Elan, customary representations,
warranties, covenants and indemnities, and customary
provisions relating to deliveries of transaction
documents, including legal opinions, in connection
with the transactions contemplated above. The Closing
will also be subject to the completion of any
regulatory requirements and customary due diligence by
Elan.
Board Seat Upon the Closing Date, EPHI shall take any actions
necessary, including amending its by-laws and/or
certificate of incorporation, to increase the size of
its board of directors by one, and the vacancy created
thereby shall be filled by a designee of Elan, who
will be reasonably satisfactory to EPHI. Thereafter,
for as long as Elan shall own [omission] or more of
the outstanding Common Stock (or securities
exercisable, convertible or exchangeable thereinto) on
a fully diluted basis, EPHI shall include Elan's
designee in the management-recommended slate of
directors to EPHI's shareholders at all meetings at
which directors shall be elected.
5
<PAGE>
EXHIBIT B
LICENSE TERM SHEET
Capitalised terms not defined herein have the meanings ascribed to them in the
Letter Agreement to which this Term Sheet is attached or the Financing Term
Sheet, as applicable.
Definitions "Cosmetic Use" shall mean an application of the Device
which does not require regulatory approval to market
either (a) the Device, (b) a Product, or (c) EPHI
Technology, for such application in the Territory.
"Dermatology" shall mean the treatment of skin
disorders including but not limited to acne, alopecia,
dermatitis, eczema, hyperhydrosis, keratinisation
disorders, pigmentation disorders, pruritus, psorasis,
rosacea and warts.
"Device" shall mean any device, system, method or use
which, in the course of manufacture, use or sale of
any such device, or practice of any such method, in
the absence of this License Term Sheet, infringe the
patent rights, or constitute an unauthorised use of
the know-how contained in the EPIL Technology.
"EPHI" shall mean Electropharmacology, Inc. and its
affiliates.
"EPHI Improvement" shall mean any improvement which
can be usefully applied exclusively to the EPHI
Technology including its formulation, design,
structure, manufacture or use.
"EPHI Technology" shall mean any drug or marker, or
any mechanism, instrumentality or feature relating
exclusively to electromagnetic technology, owned by or
licensed to EPHI from a third party, or which EPHI has
been granted the right to use by a third party.
"Electromagnetic Therapy" shall mean the treatment of
the body via non-invasive delivery of electromagnetic
pulses.
"EPIL" shall mean Elan Pharma International Limited
and its affiliates.
1
<PAGE>
"EPIL Excluded Technology" shall mean all intellectual
property including, without limitation, any
inventions, discoveries, material and data whether or
not protectable by patents, trade secrets, trademarks
or copyrights in relation to (i) the iontophoretic
technology as set out in Schedule II which has been
licensed by EPIL to Iomed, Inc. ("Iomed") pursuant to
agreements dated 14th April 1997 and/or developed
pursuant to such agreements, (ii) EPIL's Medipad(TM)
Drug Delivery System ambulatory pump infusion
technology as described in Schedule II and any
improvements thereto, and (iii) the know-how as set
out in Schedule II which has been licensed by Asulab
S.A. and/or SMH Swiss Corporation for Microelectronics
and Watchmaking Industries Ltd. to EPIL pursuant to an
agreement dated 7th March 1990.
"EPIL Improvement" shall mean any improvement to the
EPIL Technology or Device including its design,
structure, manufacture and use whether developed
pursuant to this Agreement or any other development
work on uses of the EPIL Technology outside of the
Field.
"EPIL Technology" shall mean EPIL's patent rights, and
know-how related thereto or derived therefrom,
relating to the Device as set out in Schedule I for
(i) the iontophoretic delivery of a substance to or
through the skin in a controlled manner, (ii)
Electromagnetic Therapy, and (iii) a combination of
iontophoretic delivery and Electromagnetic Therapy,
but shall not include the EPIL Excluded Technology.
"Field" shall mean (i) Dermatology, (ii) Wound Care
and (iii) Electromagnetic Therapy.
"Financial Investor" shall mean any company,
individual or other entity whose main activity is
making investments in the common or preferred stock of
companies for long-term capital appreciation.
"Fully Allocated Cost" shall include direct labour,
direct materials and supplies, variable labour,
overhead and attributable administration, quality
control, quality assurance and other costs, whether
incurred by a Party, or any sub-contractor of a Party;
such costs to be calculated in accordance with the
generally accepted accounting principles of such
Party.
2
<PAGE>
"In Market" shall mean the sale of Products by EPHI or
its affiliates to an unaffiliated third party such as
a wholesaler, distributor, managed care organisation,
hospital or pharmacy and shall exclude the transfer
pricing of the Products by EPHI to an affiliate.
"Joint Improvement" shall mean any improvement in the
area of electromagnetic technology to the EPHI
Technology and the EPIL Technology and which was
developed, created, conceived or otherwise invented
jointly by at least one EPIL employee or agent and at
least one EPHI employee or agent pursuant to this
Agreement during the term of the License.
"Major Markets" shall mean the United States of
America, the European Union and Japan.
"Net Income" shall mean the monetary amount or non
cash consideration payable by an unaffiliated third
party to EPHI:- (i) for the granting of rights,
whether by licence, sublicence or otherwise, by EPHI
to any unaffiliated third party relating to the
development or commercialisation of one or more of the
Products and/or to exploit the EPIL Technology within
the Field, including licence fees, royalties on sales
and other ongoing fees, and (ii) where EPHI is not
selling a Product In Market, the gross amount billed
for the supply of such Product to an unaffiliated
third party for In Market sale, and (iii) where EPHI
is selling a Product In Market, the Net Sales Price of
such Product;
but excluding in the case of each of the above:
(i) any bona fide research or development fees and
payments charged at cost by EPHI for the EPIL
Technology and/or a Product to an unaffiliated third
party which is a sublicensee of the EPIL Technology;
and (ii) the Fully Allocated Cost of manufacturing,
packaging and supplying the Product.
"Net Sales Price" shall mean in the case of Products
sold by EPHI or an affiliate, that sum determined by
deducting from the aggregate gross In Market sales
proceeds billed (but only to the extent such deducted
costs are actually incurred) for the Products by EPHI
or its affiliate as the case may be, in accordance
with generally accepted
3
<PAGE>
accounting principles, the following deductions:- (a)
customs duties or other taxes (excluding income or
corporation tax) directly related to the sale of the
Products which are paid by EPHI or its affiliate, as
the case may be; (b) a discount from the gross sales
proceeds to cover such normal costs as are incurred by
EPHI or its affiliates, as the case may be, in respect
of transport, shipping insurance, returns, or
discounts directly related to the sale of the
Products, subject to a cap of [omission] of the sum of
the aggregate gross In Market sales proceeds less the
deductible items at (a) above.
"Party" shall mean EPHI or EPIL as the case may be.
"Parties" shall mean EPIL and EPHI.
"Pharmaceutical Use" shall mean an application of the
Device which requires regulatory approval to market
either (a) the Device, (b) a Product, or (c) EPHI
Technology, for such application in the Territory. For
the avoidance of doubt, Pharmaceutical Use shall not
include, and EPHI shall have no rights to, any
application of the Device and/or Product for Cosmetic
Use.
"Product(s)" shall mean the Device either on its own,
or in combination with EPHI Technology
"Technological Competitor" shall mean a company or
corporation having a substantial part of its business
in the research, development and manufacturing of drug
delivery technologies and/or products including but
not limited to the companies listed in Schedule III.
"Territory" shall mean all of the countries of the
world.
"Wound Care" shall mean the treatment of diseases
and/or bodily injuries caused by the disruption of the
normal continuity of structures of the skin.
EPIL License To EPHI EPIL shall grant a non-exclusive world-wide license
("License") to EPHI to make, use, sell and offer for
sale the EPIL Technology for Pharmaceutical Use in the
Field in the Territory.
EPHI may grant one or more sub-licences to use the
EPIL Technology for In Market sales of Products in the
Field, provided that EPHI shall not grant a
sub-licence to any
4
<PAGE>
third party without the prior written consent of EPIL,
which consent shall not be unreasonably withheld or
delayed, provided, that such reasonableness standard
shall not apply in the case of a proposed sublicense
to any Technological Competitor of EPIL. Any such
sub-license shall be in the same terms mutatis
mutandis as the terms of this License Term Sheet
insofar as they are applicable, but excluding the
right to grant a sub-license. EPHI shall remain
responsible for all acts and omissions of such
sub-licensees as though such acts and omissions were
by EPHI. For the avoidance of doubt, any distribution
or marketing agreement under which EPHI sells Product
In Market to an unaffiliated third party for purposes
of physical distribution and/or shipment and/or
warehousing of inventory shall not be considered a
sub-license of the EPIL Technology.
EPIL agrees that it will from time to time discuss
with EPHI other technology licensing opportunities in
the Field and otherwise, but only if and to the extent
that EPIL decides, in its sole discretion, that it is
desirable and appropriate to do so.
For the avoidance of doubt, EPHI shall have no rights
to the EPIL Technology for (i) the systemic delivery
of a pharmaceutical compound having a therapeutic use,
or (ii) the development of any water-soluble
corticosteroid product for treating local acute
inflammatory conditions or any local anaethesia
product incorporating lidocaine or lidocaine analogues
with or without epinephrine.
Non-Compete EPIL agrees that during the term of this Agreement,
EPIL shall not directly or indirectly, utilise itself,
or license to any third party, the EPIL Technology for
Pharmaceutical Use in the Field in the Territory
without the prior written consent of EPHI.
License Fees Payable by A. Up-front license fee payment by EPHI to EPIL upon
EPHI to EPIL signing of [omission]; and
B. an additional license fee payment by EPHI to EPIL
of [omission]% of Net Income until the aggregate of
such payments equals $[omission].
Royalty Payable by EPHI shall make the following royalty payments to EPHI
to EPHI:
(i) a royalty of [omission]% of the In Market Net
Sales Price of Products which are sold In Market
by EPHI or its affiliates, and
(ii) a royalty of [omission]% of Net Income on
Products which are sold In Market by third
parties other than EPHI or its affiliates.
The Parties agree that the additional license fee of
[omission]% of Net Income set out in the section
entitled "License Fees Payable by EPHI to EPIL" shall
be payable in addition to the royalty payments by EPHI
to EPIL as set out in this section.
Commercialisation EPHI will diligently pursue the research, development,
manufacture and commercialization of the EPIL
Technology and Products in the Territory.
The Parties shall agree upon milestones for the
development and commercialization of the EPIL
Technology which shall be specified in the Definitive
Documents.
EPHI shall use all commercially reasonable efforts in
launching and selling the Products in the Territory as
would be deemed commensurate with the achievement of
its own business aims for a similar product of its
own.
EPHI shall make a full scale commercial launch of a
Product in each country of the Territory within 90
days of regulatory approval being granted in such
country. EPIL shall not unreasonably withhold its
agreement to a request by EPHI for an extension of the
said 90 day period if there are legitimate commercial
reasons for such an extension.
Product Development EPHI shall be responsible for all activities and costs
associated with the research, development, manufacture
and commercialisation of Products.
Device Development Any development or registration work on the Device, or
any technical support, which is carried out by EPIL at
the specific written request of EPHI shall be charged
to EPHI at Fully Allocated Cost plus [omission]%.
Notwithstanding the foregoing, EPIL agrees to provide
at
5
<PAGE>
no cost to EPHI up to [omission] of technical support
and assistance in connection with implementing the
transfer of the EPIL Technology to EPHI and commencing
the development of a Device.
Either Party may from time to time may use
subcontractors in connection with the development
(including regulatory activities) of the EPIL
Technology, Device and/or Product but shall remain
liable to the other Party for the performance of such
obligations by such subcontractors.
Regulatory EPIL shall be responsible, at EPHI's expense at Fully
Allocated Cost plus [omission]%, for the following
regulatory activities:
(i) compilation and filing of the relevant regulatory
approvals for the Device with the regulatory
authorities in the Major Markets; and
(ii) providing regulatory support to ensure timely
review of the Device dossier and resolution of
questions by the regulatory authorities in the Major
Markets.
EPIL shall perform the above regulatory activities for
EPHI in a manner as would be deemed commensurate with
the achievement of its own business aims for a similar
mechanism or product of its own.
In the event that EPHI or any reputable third party
(which is acceptable to EPIL and which agrees to be
bound by an obligation of confidentiality), can
perform the above regulatory activities to the same
quality standard as EPIL but at a cost which is at
least [omission]% less than EPIL's charges and which
is supported by documentary evidence from EPHI or such
third party, and provided that EPIL is not agreeable
to matching such reduced cost, EPHI shall be entitled
to perform itself, or have said third party perform,
the above regulatory activities at the reduced cost.
EPHI shall be responsible, at EPHI's expense, for the
following regulatory activities:
(i) compilation and filing of the regulatory approvals
in the Territory for the EPHI Technology;
(ii) compilation and filing of the relevant regulatory
approvals for the Products with the regulatory
authorities in the Territory; and
(iii) compilation and filing of the relevant
regulatory approvals for the Device with the
regulatory
6
<PAGE>
authorities in all of the countries of the Territory
outside of the Major Markets; and
(iv) providing regulatory support to ensure timely
review of the Device dossier and resolution of
questions by all regulatory authorities pursuant to
this Agreement.
EPIL will be the holder of the regulatory
authorisation for the Device in the Major Markets.
EPHI will be the holder of the regulatory
authorisation (a) for the Device in all of the
countries of the Territory outside of the Major
Markets, and (b) for Products in the Territory. EPHI
will permit EPIL, or EPIL's licensees, without charge
to cross reference all applications or authorisations
for the Device and/or Products for the purpose of
obtaining regulatory authorisations for the Device for
use outside of the Field.
Payment of Royalty EPHI shall pay the additional license fee on Net
Income and the royalty on Net Sales Price and Net
Income 30 days after the close of each calendar
quarter. The payment will be accompanied by an
appropriate statement setting out the calculation of
the Net Income and Net Sales Price.
Intellectual Property Any EPIL Improvement shall be the sole property of
EPIL.
If EPHI shall develop, or have developed, any EPIL
Improvement during the term of the License, EPIL shall
grant EPHI the right to use any such EPIL Improvement
for Pharmaceutical Use in the Field for the term of
the License.
If EPIL shall develop, or have developed, any EPIL
Improvement during the term of the License, EPIL
shall, subject to any contractual restrictions, grant
EPHI the right to use any such EPIL Improvement for
Pharmaceutical Use in the Field for the term of the
License. In the event that EPIL is obliged to pay a
royalty or any other consideration to a third party in
connection with any such EPIL Improvement, any such
cost to EPIL shall be discharged by EPHI as a
condition of use thereof.
EPIL shall be entitled to exploit the EPIL Technology,
and any EPIL Improvement, outside the Field or for
Cosmetic Use within the Field.
7
<PAGE>
Any Joint Improvement shall be jointly owned by EPIL
and EPHI. EPHI shall obtain exclusive rights to
exploit the Joint Improvement for Pharmaceutical Use
in the Field. EPIL reserves the right to exploit the
Joint Improvement outside the Field or for Cosmetic
Use within the Field.
For the avoidance of doubt, it is agreed that EPIL
shall not be obliged to license technology acquired or
licensed by EPIL after the Closing Date to EPHI except
as provided above in relation to the EPIL Technology.
Patents Patent Prosecution
(i) Patent prosecution for any EPIL Improvement shall
be conducted by EPIL.
(ii) Patent prosecution for any patent applications
directed to Products shall be conducted by EPIL, at
EPHI's reasonable expense, with timely notice given to
EPHI for its input on matters relating to the EPHI
Technology.
(iii) EPHI shall be responsible for filing patents for
any EPHI Technology.
(iv) Patent prosecutions relating to any Joint
Improvement shall be carried out by EPIL at EPHI's
reasonable expense and with timely notice given to
EPHI for its input on matters relating to EPHI
Technology.
(v) All patent prosecution to be performed by EPIL
shall be carried out in accordance with EPIL's
standard practice. EPIL shall keep EPHI apprised of
the patent prosecutions for the Device and Products.
Patent Enforcement
(vi) EPIL will have first right to enforce patents for
(a) the EPIL Technology, (b) the Device, and (c) any
Products. EPHI shall share equally in the costs of
enforcement provided that EPIL reasonably believes
that the chances of succeeding in the cause of action
are greater than fifty (50%) percent. Any recovery
remaining after the deduction of reasonable expenses
(including attorney's fees and expenses) incurred in
relation to such infringement proceedings shall be
shared equally between EPIL and EPHI.
(vii)EPHI shall have first right to enforce patents
for the EPHI Technology.
(viii) If the patent owner does not want to enforce
its patent rights, then the other Party can enforce
such rights at its expense. The patent owner shall
cooperate with the
8
<PAGE>
enforcing Party and provide all reasonable assistance.
Any reasonable fees and costs borne by the patent
owner shall be reimbursed by the enforcing party.
Enforcing Party must seek written approval from patent
owner, which may not be unreasonably withheld, prior
to taking action and must keep patent owner informed
of the action and may not enter into any settlement
agreement without the patent owner's consent, which
may not be unreasonably withheld. If EPHI is the
enforcing Party under this paragraph, any recovery
remaining after the deduction of reasonable expenses
(including attorney's fees and expenses) incurred in
relation to such infringement proceedings shall
constitute Net Income for the purpose of this License
Term Sheet.
(ix) EPHI undertakes that it shall not cite or
otherwise rely upon the patents contained in the EPIL
Technology, EPIL Improvement or Joint Improvement
against the iontophoretic technology specified in
Schedule II which has been licensed to Iomed.
Defence of Patents
(i) In the event of any action for patent infringement
concerning the EPIL Technology or Device, then EPIL
shall have responsibility for defending the claim
provided that EPIL should have reasonably been aware
of such infringement on the date of signing of the
letter agreement. EPIL's maximum liability for any
such infringement of a third party's patents shall be
a reduction by up to [omission] of the royalty payable
by EPHI to EPIL pursuant to this License Term Sheet.
(ii) In the event of any action for patent
infringement concerning the EPHI Technology, any
Products (excluding the Device where same is marketed
on its own without any EPHI Technology) or any Joint
Improvement, then EPHI shall have responsibility for
defending the claim and shall indemnify EPIL.
Trademarks EPHI shall market the Products under its own
trademarks. Any Party using the mark of the other
Party must seek prior written approval for all such
uses, including but not limited to advertising,
marketing and promotional material.
Right to Audit EPIL shall have the right to audit EPHI's sales
records at any time and from time to time. EPHI shall
have the right to audit EPIL's books at any time
solely to ensure
9
<PAGE>
the accuracy of the costs and the expenses paid or
reimbursed by EPHI in accordance with this License
Term Sheet, provided however, that EPHI shall only be
entitled to audit each cost or expense on only one
occasion. If the audit reveals an error in the funds
due in excess of 5%, then the Party in default will
pay for the cost of the audit.
Term The term of the License and sublicenses with respect
to a Product utilizing or based on the EPIL Technology
licensed or sublicensed herein in a country in the
Territory shall be the greater of (i) the life of the
patent rights upon which such Product is based on or
utilizes, or (ii) [omission] years from commercial
launch of such Product.
Termination Either EPIL or EPHI
(i) Expiration of the term, unless renewed.
(ii) Material breach, not cured within 60 days of
receipt of written notice.
(iii) Bankruptcy or insolvency of either Party.
By EPIL
(i) Non-payment by EPHI of monies due.
(ii) If a Technological Competitor acquires more than
[omission] of EPHI's voting stock.
(iii) If a Financial Investor acquires ownership or
control of more than [omission] of the voting rights
in EPHI in any one transaction or a series of related
transactions and which results immediately or at any
subsequent stage in a change of one-third or more of
the board of directors of EPHI.
(iv) If any company other than a Technological
Competitor or Financial Investor acquires ownership or
control of more than [omission] of the voting rights
in EPHI in any one transaction or a series of related
transactions.
Consequences of Termination
(i) The confidentiality provisions shall remain in
full force and effect for a period of five (5) years.
(ii) EPHI shall have an ongoing right for six months
after termination to sell or otherwise dispose of the
stock of any Products on hand as of the date of
termination. Thereafter, any remaining stock of
Products shall be disposed of by EPHI, at EPHI's cost,
in accordance with regulatory requirements.
(iii) The License granted by EPIL to EPHI shall
terminate.
Assignment EPHI shall not be entitled to assign any of its rights
under this License Term Sheet without the prior
written consent
10
<PAGE>
of EPIL. Either Party shall be entitled to assign to
their respective affiliates provided that there is not
an adverse tax consequence for the other Party.
Customary Terms The Definitive Documents with respect to the License
contemplated hereunder shall contain the terms and
conditions set forth herein and other customary terms
and conditions of the pharmaceutical industry,
including terms and conditions relating to reporting
requirements, auditing, review rights, and
confidentiality.
11
<PAGE>
Schedule I
EPIL Technology
Patents
[omission]
12
<PAGE>
Schedule II
Excluded Technology
Medipad(TM) Drug Delivery System
Medipad(TM) is a disposable single use, drug delivery device that contains a
microinfuser and integral probe to deliver drug subcutaneously. Medipad(TM)
utilises controlled gas generation as the activation mechanism for drug
delivery. Activation of the Medipad(TM) device results in the generation of gas
which compresses a membrane and forces drug through the probe into the
subcutaneous tissue.
[omission]
13
<PAGE>
Schedule III
Technological Competitors
[omission]
14
